Who benefits from the First Tech-Digital merger?

In the aftermath of a mega-merger announcement that rocked the credit union world, industry insiders are weighing in on what it could mean not only for the involved companies but for the industry at large.

On Sept. 30, the $12 billion-asset Digital Federal Credit Union and the $16.7 billion-asset First Tech Federal Credit Union revealed plans to combine in a deal that is believed to be the largest credit union merger ever announced.

The new entity – set to use the First Tech name – will emerge as a $28.7 billion credit union serving nearly two million members with more than 50 branches in eight states.

It would be the sixth largest credit union in the U.S.

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

Depends who you ask.

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

He’s right.

The NCUA approved 46 mergers during the second quarter of 2024, up from the 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 wail, it should be noted that credit unions can’t be asked to stay in 1934 while bankers get to exist in 2024,” Bacino said.

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

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

“This stands in stark contrast to the attitude that the agency now takes when it comes to mergers,” Bacino said. “It might be helpful if those that the merger did not impact would let the process run its course and be truly dictated by membership wishes.”

Michael Bell, an attorney with Honigman, told Tyfone he was not involved with the First Tech/Digital merger but said he finds it to be an exciting and bold move.

“It takes guts to do hard things,” Bell said. “I think this is emblematic of a shift taking place in the industry. I’m seeing far more open minds to larger combinations than I’ve ever seen before.  We are in the middle of more of these than we ever have been before.”

But is that good for smaller credit unions?

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

“I will be blunt and leave it here: as a DCU member I think it sucks,” he wrote in a LinkedIn post. “Basically we are saying a double-digit billion dollar credit union can’t make it, so if you are under a billion why bother? Yes I have a vested interest in this, but just wow.”

Clarke said that as a credit union CEO, the deal feels like it was a coup.

He questioned how the smaller credit union’s CEO gets to lead the bigger credit union (DCU’s chief exec Shruti Miyashiro will become president and CEO of the newly combined credit union) and the bigger credit union gets to have the member vote because it is technically merging into the smaller credit union.

“All I can think of is, over all my time handling mergers and credit union branch spinoffs I’ve never seen anything like this,” Clarke wrote. “Does it make it wrong? No. But it smells. 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 consultancy, told Tyfone that two tech-forward companies like First Tech and Digital should be able to leverage their strengths and take advantage of the fact they have slightly different niches.

DCU’s broader reach with more members and First Tech’s deeper penetration into its member base alone provides a great platform for strong growth. Those factors along with targeted investment in new digital capabilities should make the new organization a very interesting CU to watch.

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

Still, Sam Brownell, Founder and CEO of CUCollaborate, said in a LinkedIn post the deal has him asking himself “what do you do when what is best for members doesn’t align with what is best for the credit union movement?”

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

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