Who benefits from the merger of First Tech and Digital?

After the announcement of a mega-merger that rocked the credit union world, industry insiders are considering what it could mean not only for the companies involved, but for the industry as a whole.

On September 30, the $12 billion-asset Digital Federal Credit Union and the $16.7 billion-asset First Tech Federal Credit Union announced plans for a merger, believed to be the largest credit union merger ever announced.

The new company — to be called First Tech — will become a $28.7 billion credit union with nearly two million members and more than 50 branches in eight states.

It would be the sixth largest credit union in the United States

So what does this mean for organizations? Is it good or bad for the credit union industry?

Depends on who you ask.

Geoff Bacino, a credit union consultant and former board member of the National Credit Union Administration, told Tyfone his initial insight is that mergers appear to be picking up again after a slowdown during the COVID-19 pandemic.

He’s right.

The NCUA approved 46 mergers in the second quarter of 2024, up from 26 in the first quarter and 36 in the second quarter of 2023.

The second takeaway, Bacino said, is that mergers continue to be a way for credit unions to grow and serve additional geographic areas.

“While our friends in the banking industry continue to whine, remember that you cannot ask credit unions to remain in 1934 while bankers exist in 2024,” Bacino said.

First Tech was also part of the first planned mega-merger in 1995.

At the time, Patelco Credit Union, First Tech and Seattle Telco planned to merge to form the 10th largest credit union in the country. The merger was the focus of a special meeting of the NCUA board, and when it became apparent that it would not be approved, Patelco CEO Ed Callahan pulled the plug.

“This is in stark contrast to the stance the agency now takes on mergers,” Bacino said. “It might be helpful if those not affected by the merger would let the process take its course and be truly guided by members’ wishes.”

Michael Bell, an attorney at Honigman, told Tyfone he was not involved in the merger of First Tech and Digital, but said he thought it was an exciting and bold move.

“It takes courage to do difficult things,” Bell said. “I think this is emblematic of a change that is taking place in the industry. I’m seeing far more openness to larger combinations than ever before. We’re in the middle of more of this than ever before.”

But is this good for smaller credit unions?

Daniel Clarke, president and CEO of the $250 million-asset Maine Family Federal Credit Union in Lewiston, says not necessarily.

“I’ll be blunt and leave it here: As a DCU member, I think it sucks,” he wrote in a LinkedIn post. “Basically, we’re saying that a credit union can’t get away with tens of billions of dollars. So if you have less than a billion dollars, why bother? Yes, I have a vested interest in it, but just wow.”

Clarke said as the CEO of a credit union, the deal felt like a coup.

He questioned how the CEO of the smaller credit union manages to lead the larger credit union (DCU CEO Shruti Miyashiro becomes president and CEO of the newly merged credit union) and how the larger credit union is able to align members because it is technically merging with it the smaller credit union.

“I can only imagine that in all my time dealing with mergers and spinoffs of credit union branches, I have never seen anything like this,” Clarke wrote. “Does that make it wrong? No. But it stinks. This is not good for our industry.”

What about the two organizations? Is it good for them?

Tim Scholten, president and founder of Visible Progress LLC, a credit union consulting firm, told Tyfone that two technology-focused companies like First Tech and Digital should be able to capitalize on their strengths and capitalize on the fact that they have slightly different have niches.

DCU’s broader reach with more members and First Tech’s deeper penetration of its member base alone provide a great platform for strong growth. These factors, as well as targeted investments in new digital capabilities, should make the new organization a very interesting CU to keep an eye on.

“If they get their integration and investment goals right, they could easily be one of the leading innovators in technology and growth over the next decade,” Scholten said.

Still, Sam Brownell, founder and CEO of CUCollaborate, said in a LinkedIn post that the deal left him wondering, “What to do when what’s best for members doesn’t align with what’s best for the credit union movement?”

On the one hand, Brownell said, he believes the two credit unions have nearly identical business models and memberships, which likely means the economies of scale resulting from the merger would benefit members of both credit unions.

“On the other hand, both credit unions are clearly healthy, high-performing credit unions. I believe that competition and choice are important for the credit union movement to maintain its vitality,” Brownell wrote.