How Credit Union Mergers Create Member Benefits—and When They Don’t

Mergers have long been a tool for credit unions to adapt, grow, and serve their members. However, a deep dive into the research and real-world experiences reveals that the benefits of credit union mergers vary widely depending on the motivation and execution. In this episode of our podcast, we unpack groundbreaking research by Steven Kozlowski, associate professor of finance at Fairfield University, and insights from Sam Brownell, founder of CU Collaborate. Together, they explore the dynamics of credit union mergers, the impact on members, and how these partnerships can either amplify or dilute the credit union mission.

The Two Faces of Credit Union Mergers: Distress-Driven vs. Voluntary

Steven’s research focused on understanding how different merger motivations affect credit unions and their members. By analyzing data from over 15 years of federally insured credit union mergers, the study classified mergers into two broad categories:

Distress-Driven Mergers
These occur when a credit union is facing financial challenges—such as poor financial health, lack of sponsor support, or stagnant growth—and needs a healthier institution to step in. The research found that these mergers generally result in improved earnings and capital ratios for the acquiring institution, and often better outcomes for members of the distressed credit union.
Voluntary Mergers for Expanded Services
These mergers aim to enhance service offerings, such as digital tools or broader financial products. The results of these mergers are more mixed—some deliver meaningful member benefits, while others show little to no impact.

The Role of Scale: Bigger Isn’t Always Better

A critical factor in determining the success of a merger is the size difference between the merging credit unions. Steven’s research revealed that:

Smaller credit unions merging into larger ones typically generate more positive outcomes for the members of the smaller institution, as they gain access to better resources and economies of scale.
Mergers of equals or similarly sized credit unions often fail to deliver the same level of benefit.

Takeaway for Boards: When considering a merger, smaller credit unions should evaluate whether the larger institution’s business model aligns with their members’ needs, ensuring their members will continue to receive tailored services post-merger.

The Challenges of Serving Underserved Members

One surprising finding is that smaller credit unions with a mission of serving underserved populations, such as subprime borrowers, face unique challenges when merging. Larger institutions often focus on less risky lending practices, which may leave certain member demographics underserved after the merger.

Credit unions with a strong focus on financial inclusion should carefully evaluate potential acquirers to ensure continuity in serving underserved populations.

How Credit Union Leaders Can Make Better Merger Decisions

Sam emphasized the importance of using data to inform merger decisions, particularly for voluntary mergers. CU Collaborate has developed tools to quantify member benefits and ensure alignment between merging institutions. Some key questions for credit union boards to ask include:

Will the acquiring institution serve our members effectively based on its existing business model?
How does this merger align with our mission of delivering financial inclusion and value to members?
What are the tangible benefits—such as pricing advantages or service enhancements—our members will receive?

Final Thoughts

As the credit union landscape continues to consolidate, leaders must weigh the financial and member-impact implications of each merger. By focusing on member benefits, alignment of business models, and transparent analysis, credit unions can ensure that mergers truly serve their cooperative mission.

Ready to explore the full discussion? Stream the episode now and join us in shaping the future of the credit union movement.

Steven Kozlowski and Sam Brownell are not affiliated with or endorsed by ACT Advisors, LLC.

Audio Transcription

Doug English 00:00

Welcome back, Sam Brownell to the show, and Steven, for the first time, we’re glad to have you on CU on The Show. So let’s start a little bit telling our listeners about what sort of work are you doing with the credit union movement. Tell us, why don’t you go first, Stephen, since this is your first time, tell us a little bit about what kind of work you’re doing there up in Fairfield, Connecticut,

Steven Kozlowski 00:22

Hi, Doug, thanks for having me. My name is Steven Kozlowski. I’m an associate professor of finance at Fairfield University, and recently got tenure in 2023 so now I can shift my focus to some extent, to, you know, really exploring the projects that I want to explore, and that largely has entailed a lot of credit union research recently. My co-authors and I just published this paper on the impacts of merger motivation and merger reason and the effects on the institutions. And I also have another working paper exploring loan loss provisioning practices in the switch to Cecil. So that’s a lot of like what I’m working on currently, and most of it just stems from my prior experience. Prior to doing my PhD, I worked for the NCUA for a couple of years, and I currently sit on the board of directors of a large credit union in Rhode Island. So this is one of my primary interests. There’s a lot of changes going on in the industry, so thanks for having me on the show.

Doug English 01:20

Steven, on behalf of the credit union movement, thank you for being a board volunteer and for the research you’re doing to help make the movement perhaps more effective and more in the area of mergers and acquisitions. Sam, over to you.

Sam Brownell 01:33

Yeah. My name is Sam Brownell. Been on the show before, but for anyone who doesn’t know me, I am the founder and CEO of CU collaborate, we are a data analytics and tech enabled professional services CUSO, we have established ourselves as the industry leader when it comes to Field of Membership and charter work, helping credit unions obtain and retain low income designations and CDFI certification, and just about three months ago, we launched a merger network to help credit unions find ideal merger partners for obviously, like the board and staff, but really our sort of special focuses on that we ensure are in the best interest of the the members. So I was very interested when I came across Stephen’s research, and sort of looking at the the analysis and looking at member benefit coming from mergers.

Doug English 02:35

Well thank you, Sam, for for identifying Stephen’s research. So let’s start out with the abstract from Steven’s paper, and we’ll include a link to that in the notes. So what the abstract says is, using a unique data set that includes each merger’s stated motivation, they explore the impact of credit union mergers of varying motivation and institutional size difference, we show that mergers motivated by financial distress lead to significantly more positive changes in earnings and capital ratios compared to mergers aimed at providing expanded services. So I want to stop there for a second. Were you surprised by that outcome, Sam? What did you think of that result?

Sam Brownell 03:24

The short answer is, No, I was not surprised by that outcome. I think if you’re looking at distressed credit unions getting merged into, I’ll just say healthier, perhaps better run credit unions, I think it makes sense that that would create benefit for the members and result in a more efficient use of capital, essentially in members capital. The thing that I’m really interested in, and I don’t want to detract from that part Steven, let’s definitely dig into that as well. But the part that really caught my attention was the analysis around the sort of voluntary mergers and the reason for merging, and how often voluntary mergers create benefit, both either just from pure sort of like capital function, but also, particularly, I’m really interested in, like the member benefit piece.

Doug English 04:16

So, can you kind of set that up for us Steven? That portion of the research let’s go into that.

Steven Kozlowski 04:22

Yeah, so one of the unique parts of this paper that we really delve into is like, this is the first study that I’m aware of and that my co-authors are aware of, that has the stated motivation for merging. So that was really the unique piece. And I don’t think the results were super surprising to us, either. You could see it potentially going either way, but we did expect to find probably a stronger effect or stronger improvements among the distress driven mergers in general. These are institutions – there’s a few categories that we classify as distress driven. The most common one was poor fiinancial condition. But we also included things like lack of sponsor support, lack of growth. And so these are typically institutions that are underperforming in some way. They’re struggling to quite an extent. And so there are, on average, a lot more opportunities for a larger institution to come in, a healthier institution to come in and kind of turn things around and use things more efficiently. But the other types of mergers, the expanded services ones, which we, my co authors, and I turned the like synergy driven mergers, those obviously have potential for benefits too, and in many cases they do result in some benefit, but we just find the results are a lot more mixed. Some of them result in a strong benefit to the member, but then there’s also some that clearly do not or essentially have no effect.

Sam Brownell 05:51

What was the level of granularity on the expanded services like the voluntary merger reasons?

Steven Kozlowski 05:58

So just based on the NCUA data from the essentially the insurance and activity report. There’s actually no classification beyond just expanded services. So it’s just, voluntary mergers are kind of just one big bucket, yeah. Now we obviously decompose it by things like size differences and things like that within our study, but the actual data itself, as it gets reported, doesn’t really break that down in terms of specific goals.

Sam Brownell 06:26

Yeah, the argument for mergers, for expanded services, I’ve always found, like on its face, not compelling at all, honestly, because that argument basically assumes that consumers lack agency, you know, like, if people want expanded services, there’s a free market out there. There are people who are offering those services out there. I think rarely do I feel like that is a compelling case, at least from the member benefit perspective, from a credit union viability performance perspective, it seems very compelling, right? Like, if you want to grow and especially with younger demographics, probably having competitive digital services is essential. But do your members at the point of a merger care that much about it? I mean, probably not, if they’re with a credit union that either doesn’t have those services at all, or has sort of crappy services in those areas, which is why we’ve really been focusing a lot on the sort of the other part of the analysis was the change in pricing, and we have a unfair competitive advantage against you, Steven, when we’re we have, Like, the back book member account level data to identify ideal merger partners, which then we can see the sort of like credit score distribution by product size, and essentially back into each credit union’s risk based pricing over time and apply it to the members of another credit union so we could actually figure out how much benefit a credit union would get their members would get how that would be distributed across what products, across which credit scores, race, ethnicity, income level, a lot of different ways. But it was very interesting to see that the sort of like voluntary merger impact seems sort of chance, you know, like, not super compelling in the way it’s being done right now, which it intuitively made sense to me. But I feel like it is not the conventional wisdom out there with credit unions.

Steven Kozlowski 08:32

Right, and to some extent that may be a lot of the institutions maybe could have, in hindsight, benefited from some deeper analysis about who they’re merging with and what the expected effects are. Again, our sample covers all federally insured credit unions over the last 15 years. So, of those mergers that get retained in our sample, which is about 17, 1800 the lion’s share of them probably 60, 70% the acquired credit union is under ten million in assets. So these are not the largest, most sophisticated institutions, and to some extent, you know, back 10-15, years ago, data analytics weren’t what they are currently.

Sam Brownell 09:11

I was gonna say you also, I’m very familiar with call report data. It’s not publicly available, which is the problem figuring out the sort of understanding. You can see the interest rates they charge, but you don’t know the distribution of the credit scores of the borrower, so you don’t know. It’s very interesting. Actually, we have a credit union who is…I want to go and, like, spend a month there and figure out what they’re doing, but it’s a credit union called People’s Advantage in Virginia, and they’re about $100 million in assets, and they create a huge amount of benefit for their members, but if you looked at their call report data, they might be held out as a terrible credit union because they have very high interest rates. They have very high charge offs compared to peers, very high ROA. So it looks like they’re almost a predatory lender, but actually they’re competing against payday lenders, and like their median credit score is, I think, below 600 like they just are lending to the riskiest borrowers. So even though their interest rates are really high, they’re lending to such a pool of borrowers that basically would not be served by any of the people who would serve those people would be charging them way over the interest rate caps for what credit unions are allowed to charge.

Doug English 10:32

One of the takeaways I found in the data was that the size difference really mattered. If it was a merger of equals. What I thought I understood was it was not nearly as likely to have a large impact to the members that right?

Steven Kozlowski 10:52

Yeah, especially, even more so on the acquire side, we find in the paper that target institutions do tend to benefit in both merger types, whether it’s driven by willing, voluntary, expanded services merger or distress driven merger. But in terms of the overall impact, including the acquirer, there wasn’t a clear benefit to acquirers taking over smaller institutions, in many cases, except for some of the distressed ones. But broadly speaking, there wasn’t as much benefit. So the impact is driven by size as well,

Doug English 11:27

Right. So, so are there takeaways for credit unions that are in discussions that means that if you are the credit union to be acquired, then you want to, generally speaking, look for credit union much larger than yours. I assume there’s a lot more complexity to it, right Sam, I know you can unpack that, but at the very least, the effect of the size difference is likely to bring a bigger benefit to your members if the acquirer is a lot larger. Is that a correct inference?

Steven Kozlowski 11:58

I think that’s true to an extent. Again, looking at our sample, there’s just so many institutions out there that fall into NCUA peer group, one, two and the smaller peer groups. And on average, if you look across all federally insured institutions, I would say there is a benefit to to joining a larger institution with the extent of new regulations, increasing complexity. Members throughout society wanting more and more products and services, you just have to realize some extent of economies of scale, like there were institutions I recall going into when I was on the regulatory side, where there may be only one to $5 million with a limited product offering. You know, relatively simple operations, not super sophisticated in terms of their strategies and product promotions and marketing and stuff like that. So, I think in those cases, like, yeah, it makes a lot of sense to join someone with more sophistication, and that probably is where a lot of the benefit comes from. That being said, once you start getting into the larger peer groups, I think I would have more of a caveat, and just we don’t have as much evidence on whether there would be an additional effect.

Sam Brownell 13:06

There’s also the data analysis is really about allocation of, like, efficient use of capital versus like, actual member benefit and smaller credit unions have, uh, spent a much higher sort of percentage on non-interest expenses. There are economies of scale. So, as you get larger, you should be able to get more efficient and ideally pass those benefits on to your membership. I think one of the things though, that we’ve at least notice from our data is that large organization is very hard to scale effective or efficient lending, particularly to subprime borrowers. You know, most of the credit unions who do a really good job of lending to subprime underserved borrowers are generally smaller credit unions doing relationship based lending, and generally the larger credit unions, the sort of like easier business model to turn into a fly wheel and really scale is lending to less riskier borrowers is just easier to do at scale. So, I think that if you are a smaller credit union, you shouldn’t just be looking for a larger credit union, because they will more efficiently use that capital. Because, depending on what your business model is, as a small credit union, you know the larger credit union might have a business model that would not serve your existing members, right, like your existing members should be trying to identify whether they would get a loan. Would they qualify for a loan from the acquirer? Would they continue to be served by the acquirer?

Steven Kozlowski 14:52

That’s the one thing that kind of gets excluded from our data, just because we do rely on call report data exclusively, stuff that’s publicly available. I mean, I recall some institutions from when I was on the regulatory side going into them, and the average credit score of approved borrowers being, you know, sub 600 like you said in your one example, those kind of institutions probably they’re best serving their members as is, and to some extent, they may still experience some viability concerns at some point in which they’re forced to merge or to make tough choices, but really their members, if they were to get acquired, they would not be getting the benefit that they are now, because they just simply won’t qualify under some other institutions loan policy. So you could argue that still is a benefit. It doesn’t look like one in the data, because maybe they’re taking out an auto loan at 10% or something like that. But for them, that actually is their best option. That’s the best case scenario for them relative to any other alternative that exists in society. That’s like one of the few caveats in the paper is a lot of the institutions we’re looking at, yeah, probably when they get acquired, we can say 90- 95% maybe even more of the members, are better off once being acquired. But there are some people that could potentially get lost at the margins, and for some of these small institutions that really serve the true credit union purpose of serving the underserved and bringing banking services to everyone throughout society, more broadly, you do worry about such cases, and in some of those cases, they should just try to continue to operate as best they can for as long as they can.

Sam Brownell 16:28

The hardest thing is that the small credit unions that are doing, fulfilling the mission that I’m most passionate about is like, that’s incredibly hard work, and that is a thing that took me, like, a really long time to come to terms with. Sometimes people just get -and people really, I’m talking about, they’re like CEOs and boards- but get exhausted from running credit unions, and there are, for a long time, I was anti merger in every way, except for like distressed forced emergency mergers. And then I was brought in to try and help a historically black college credit union avoid merger. And to be clear, I want every- I cherish, every credit union charter, and want every credit union to be successful in its own right. But I went into that credit union gave them a whole path to them being successful, tapping into, you know, grant money, getting resources to put into the credit union. And it was just like- and we also offered to do it all for free. And it was just like, met with blank stares, and they had just clearly, everyone had sort of already mentally thrown in the towel and were not interested in, you know, being told how to breathe new life into the credit union. I will say in that, in my mind, in that situation, I sort of got to them too late. I wish I’d got to them earlier and had been able to save them, but at that point, it was too late. And I think there will be mergers. I think credit unions have been merging away at about like 3% a year since the 1980s and I think if there are going to be mergers, I just want to make sure that they’re done- paired up well, because I think that we can see from public data, actually, even that there are credit unions, so you can tell are sort of serving, I’m going to say, sort of like CDFI, like lower credit score, lower income people, and then they’re merging into super prime national lenders. And to me, that’s really terrible, because, like, then they have. I mean, in all honesty, I sort of feel like the boards in those situations have not met their fiduciary responsibility, right? Like they have made a decision to merge with someone who’s not going to serve their members going forward, which seems very problematic to me, but I do think you can’t argue against the economies of scale then, like, credit unions do need to get bigger, as much as I love that credit union in in Virginia, and I hope they never merge away. Wouldn’t it be great if they could do that at scale? Then they could provide even more benefit.

Steven Kozlowski 19:14

One of the interesting things we saw in the data is just looking at just some of the simple breakdown of like summary statistics is if you break out the merging credit unions, the targets, the credits that are listed as the ones being acquired, on average, they had just really, really high liquidity ratios. They had an excess of 20% cash and short term investments, really low loan to shares rates, and on average, they had, I believe, negative earnings and negative asset growths. So in many of those cases, kind of like the writings on the wall. If it’s not going to happen now, it’s probably, you might be in a situation where it has to happen, where you have to get acquired a few years down the road. And I definitely. I recall being in some institutions like that, where you’re just like, I don’t really see a path forward, long term for this institution, like net worth may be still high, but it’s slipping sometimes the board and the management isn’t super invested anymore, particularly in some of the smaller institutions that are maybe experiencing some struggles.

Sam Brownell 20:20

I’m an eternal optimist, so I actually think there are ways to solve those shared services. I think active succession planning, actually, I know everyone will hate me or all the credit union who knows, maybe people like this more than I think. But the NCUA requiring succession planning, I think, is good. There are groups who are looking to try and figure out how to help smaller credit unions succeed, but I do think that they got to figure out how to get their non interested expense down relative to their size, because it is hard to scale at that small size and shared- like Back Office services, I think is a great model for CUSOs. You’ve seen a few CUSOs set those up, which I think are helpful. And then I would also say tapping into grant programs, particularly with the year LF and CDFI are very good. But the part that I had to come to terms with is definitely the part that you were saying too, which is, sometimes it is too late, sometimes people are just not interested. And I think that’s also why we need to be chartering new credit unions, or also maybe even helping find groups that want to charter a new credit union to take over smaller credit unions.

Doug English 21:32

Well it’s funny, because that was the question- I’m familiar with your historical stance on credit union mergers. They’re going to tee up the question that you auto asked yourself, so it was wonderful. Now there’s a ton of headlines about credit unions buying banks lately, and I would assume that the data set may not apply as much, because probably bank customers are at a higher average credit score, and the impacts may not be as great. What comments would you both have around the takeaways there?

Steven Kozlowski 22:09

That’s a good question. I mean, I think it depends somewhat on the area, like I’m just thinking about where I am in in New England. For instance, in Rhode Island, I’m on the board at people’s credit union. The state also has a few other large credit unions that I feel like drive a lot of the banking in the state. So there’s some large and mid sized banks that serve a lot of the members. And I don’t know if there is, like, a huge difference in the credit profile it those type of institutions, because I know that just from my own experience sitting on a board like we have a lot of really strong credit profile members… Yeah, I don’t know in terms of the mergers, piece of it, like we’ve also seen some consolidation even within the major credit unions in the Northeast recently, Digital comes to mind as one of the largest ones, like probably the largest credit union in New England, which is now merging with uh, First Tech on the West Coast. To some extent, I feel like that gets a little bit away from the credit union true mission of people really know their members intimately and provide rather unique services. I see so many cases where just like the credit union that I’m on the board with, like the senior management, the senior leadership of our credit union, still knows a lot of people’s individual cases like really well, and they can still have those, like, personal connections. But at some point, when you start having an institution that’s based on nationwide, like it’s serving East Coast, West Coast, all across the country, some extent, I wonder if you maybe you lose some of that. I know this is kind of taking on a little bit of a tangent, but yeah, in terms of banks merging with credit unions, I haven’t personally explored the data on that. So maybe Sam, you have more strong opinions on..

Sam Brownell 23:49

have strong philosophical opinions. I will tell you that we are trying to get data from one of our clients who has purchased multiple banks to identify what happens with the bank customers. And I will say either confirm or deny, basically what I’m about to say, which is very sort of like theoretical and philosophical at this point, but I think my sort of like true north is ultimately helping consumers basically get the best possible pricing on their financial services, which is, I would say, more than 9 times out of 10 comes from credit unions. I also love that credit unions, for my own personal reasons, are fundamentally like democratic institutions, and that the customers have control over the credit union and I’m- I would happily go on a diatribe about how much I have issues with this sort of like lack of democratic participation amongst credit union members and credit unions not necessarily encouraging that, as much as I wish they would. But putting that aside for a moment, I would be like, I love credit unions buying banks, because, ultimately, for those reasons, right? Like, I want credit unions to capture market share, credit unions, I think, have honestly, like getting weird here, but like a moral imperative to try and provide their superior services to as many people as possible. And I see a bank acquisition not being too dissimilar from, quite frankly, just like marketing expense, like I’d see a lot of critiques about it as being sort of like a misuse of member capital. But if you really distill that argument down to its core, you’re also arguing against marketing. The way I always explain this people is like if the three of us were in a credit union and the credit union had net income of $150 and they gave us the choice of each getting $50 or them spending that money hoping to add a fourth person to the credit union. I would ask for the $50, I don’t care if there’s a fourth person in our credit union, right, but I think credit unions have a imperative to serve as many people as possible because of their- what they do for people. And I think that I’m also impatient and want to see as much market penetration and growth as possible. So I do see bank purchases as a accelerator, essentially, instead of as marketing, you get a bunch of new members, and over time, you should be making your superior servicing and ultimately pricing available to those members. And I think that is a net good. It also, I’m also, I’m, like, getting really philosophical now, but I am a free market socialist, which makes no sense to people. But ultimately I also think, like, free market is really important, and so like, bank shareholders should be thrilled, because often they’re getting the highest price right. That’s why their credit union buys it is because they’re willing to pay more for it, whether, how much they should pay? You know, I’m not involved in a deal, so I can’t really speak to that. But if they’re fundamentally buying a bank, I think is great. The one other thing I’m just going to mention briefly, Steven, I’m going to speak to your sort of like, First Tech, Digital thing. I have no idea how I feel about that. I have a lot of theories about how that came together. They have very similar business models and membership so, like, in some ways, I’m like, Oh, this is really almost mirror image credit unions coming together and gaining greater economies of scale. Seems pretty good for the members. Like, I actually think it’s probably going to be great for the members. Two very healthy credit unions doing great loss of a charter of a great well run Credit Union. The more well run credit unions there are, probably the better for the movement. And I think that’s what’s so challenging about mergers, is for a lot of credit union idealists, which I would group myself in there is it’s like, what ultimately rules the day for us, what’s good for the movement, or is it what’s good for the credit union’s members in an individual situation? And I can’t believe, like, knowing what I know about Digital and First Tech, it seems like it would have to be good for the members, like, if they had different business models, I would not think that, but they basically are both vaguely National Digital credit unions with similar, very similar their memberships. I don’t have either of their data, but I bet if I had their data, they would almost look like mirror images of each other. And if you stick two credit unions together that are almost mirror images of each other, you do get economies of scale. They should be able to provide their members even better pricing with greater scale. Anyway, I know I’m an outlier, probably within sort of, like the credit union idealist camp, and thinking that could potentially be a good thing, but I just don’t see how you get away from what’s ultimately best for the members of each credit union and exploring a merger.

Steven Kozlowski 29:34

Yeah, it does line up well as the- from, like a synergy perspective, since they do have very similar strengths and core competencies and, like, just overall mission. The one piece you mentioned that was interesting to me was just the going back to, like, the credit unions acquiring banks. That does get at, like, the fundamental difference in the way they operate, just because that’s one thing that was one of the challenges for us in our study, is because, for myself and my co authors, most of the work we do, and most of the finance literature that you read, at least in the academic literature, does focus on banks, just because they do have a larger overall market share. But with banks, when you’re doing these studies of what’s the merger impact, it’s not about what’s best for the customer in the case of banks, or what’s best for the member for credit unions. It’s when you’re looking at a bank, it’s what happens to the stock price or what happens to certain operational efficiency ratios. And most of the focus, I would say, is on this, like shareholder value and, you know, market to book ratios, or price to earnings ratios, or just like stock returns over time. And that’s really not the focus of a credit union, right? You know, it’s member owned, it’s a cooperative institution, so it is more focused on what is best for the actual members of the institution, and how is it delivering value to those people? So it does kind of get at the core difference. So that was one of the things that was unique for us, just because I’ve done work on mergers and acquisitions before, like, academically speaking, but not, that was my first time doing a credit union paper on this topic. So we did have to look at, like, the empirical methods that we’re used to don’t really apply, in this case, like we don’t have, we can’t look at the effect just based on some like, daily announcement, stock return or something like that, to see what the market thinks.

Sam Brownell 31:24

And Doug, we should send Steven, I forget if it was the last podcast I was on or the maybe it might have been two ago, but that is like a big focus of my company is quantifying member benefit and sort of helping. Quite frankly, I think most credit unions have used, sort of like bank KPIs, also for their performance, like, what is success? You know, it’s like asset growth, ROA, ultimately profitability. And there are certainly some credit unions who have come up with their own frameworks for sort of defining what their member benefit is but a big focus of ours was creating a standardized framework and allowing grading to benchmark it and figure out what areas they could focus on and improve. And that’s all really comes down to say, pricing. A lot of people have tried to get us be like, Well, what about our ATM networks, or, like, these paper shredding days or whatever else. And I’m like, you know, that’s great. I’m sure you’re very proud of those things, but I think the brass tacks really let’s get down to how much more money does each member have? Because they have their banking relationship with you, and that’s not possible from public data. Like even the data that the NCUA gathers is really about like financial health. there are more like banking type data, and they don’t focus on mission related data enough, which makes it very hard to know whether you’re being successful as a Credit Union, you can figure out if you’re being successful as a financial institution, but how successful are you at creating benefit for your members? And I think that’s that really has shown up a lot in mergers, is I don’t think there has been a way in the past for credit union boards to determine whether a merger would be in the best interest of their members. And I think because a lot of-I’m going to just again define as, like, credit union idealists have stayed away for mergers. Mergers is sort of like a toxic area for people who generally profess to care a lot about credit unions. It has left a void in that area. And as a result, when mergers are necessary, there isn’t a place for credit unions to go to to figure out, Is this actually good for our members or not? They know that with with scale, there’s efficiencies. They get bigger, and theoretically they could create more benefit. But my question for that would be like for who? Is it for your members, or have you just given them your members capital for them to achieve greater efficiency, to create benefit for their members? And they aren’t really going to serve your members after the merger, and credit union CEOs are gonna be like, Oh yes, of course we will. But they don’t also even know who your members are, so figuring out if the business models align and the credit fit, and doing those things, I think, is really important, which is, I’m really fascinated with the Digital and First Deck, because for me, it creates a sort of like moral question, where it’s like, okay to unquestionably like healthy, successful, well run almost like poster children for really successful credit unions merging together. Part of me is definitely sad about the loss of one of those entities existing, but it’s kind of hard to argue with this sort of like underlying math.

Doug English 34:55

Let me pose a question as we kind of try to wrap things up about this research, which I think is really the first of its kind, clearly, including the merger reason i the analysis. Sam, you see lots of research around the industry, and Steven being sort of in the industry, but in academia, he has some data that is limited, right, because of what’s publicly accessible, but he also has some objectivity, because he doesn’t have anything conflicting. So what do you- when you think about the things that the movement could really need to learn from the data? Any ideas, as you know, just dreaming big, as if you could do research on anything. What would that be? Anything come to mind? And then, Steven, my question to you is going to be, so, what are you actually doing?

Sam Brownell 35:50

So I’m really interested in the voluntary merger stuff. I feel like the emergency merger stuff, it is. I mean, on one hand, it seems sort of self evident, but also there’s, like, nothing that we can really do about it, and I would love for the NCUA to match people up based on some of the sort of analysis we’re talking about, voluntary mergers, to me, and I think Steven it was about like 50% of the mergers seem to create benefits. Like, that’s such a low percentage. And is this really a benefit for your members? I think there are times when mergers are necessary, outside of emergency mergers and financial distress, but I think in those cases, I’m really hoping that people will look more under the hood than just that expanded services, and now we’ll have these additional digital services or financial products. And look more at does this credit union really, Are they going to be a good steward for our members, right? Do they have a business model where they will continue to serve our members and not based on what they promise is in their strategic plan or promises to you, but does their existing business model, quite frankly, the way we look at it is sort of like, would our members have been better served? Would they have more money in their pockets today if they had just joined that other credit union instead of our credit union, which is a hard thing to think about for most, most credit union executives and board members should take pride in believing that they’re the best possible credit union for their members, but the math doesn’t lie. So I think that is really important. And I think that for Steven for his research, one thing I would love further digging into this you can FOIA beyond the data set within the insurance report, but like the actual merger package that credit unions put in, and they do put in more detail on expanded services. So I think analyzing that in greater granularity, I would be very interested in. Is there are some mergers that come together for certain subcategories of expanded services produce greater results than others.

Steven Kozlowski 38:07

Yeah, I agree. If we do end up doing kind of like a next level study on this same topic, I think that would be really interesting to dive deeper into the expanded services, like the voluntary mergers piece, and especially looking at, does it create a member benefit? Like coming up with some way of not just saying in aggregate, are these beneficial or not beneficial, but really trying to measure relative to people’s- to define what’s your next best alternative, which does kind of get it? Obviously, you need access to some additional data to be able to do that with what your group does.

Sam Brownell 38:42

So the..I should connect you with our chief economist, but he has some scoring around like credit inclusivity based off of call report data. And I have a theory which you could bear out, but I would guess that when less credit inclusive credit unions acquire more credit inclusive credit unions, that those would actually be worse for everyone involved. You would think that a lot of those members would a trip at a higher rate, because when they go to try and get another financial product, they’re basically told no. The overall growth trajectory, I think, would be lower than when the credit things align more. The other thing that I can’t believe that I didn’t think of too, is what happens when credit unions buy banks? That would be very interesting to see how that works.

Steven Kozlowski 39:32

Yeah, I think the other piece that’ll change going forward too is, I mean, we started the late 90s with, I don’t know, 10, 11,000 federally insured credit unions now we’re down to, I don’t know, maybe, like low 4000s. Going forward, there’s not going to be as many small credit union mergers, just because there’s not as many small credit unions around you’re starting to see more- these situations where you have two already pretty well established institutions like the First Tech and Digital example merging. And I don’t know if our paper necessarily would have a great prediction for that just based solely on the historical data, simply because there aren’t many historical cases that are like that. In that case, we’re talking to institutions with over ten billion in assets merging with each other. So if you’re just trying to build an empirical model using historical data. You’re not going to have one, because there just aren’t historical cases like that. So I think going forward, we’ll probably see more and more consolidation, just like you’ve seen on the banking side, and the results could end up slowly but surely changing a little bit over time just based on the properties of the institutions. So there’s always a need for additional updating of studies and additional research.

Doug English 40:47

So maybe your next study, Steven, it could be the effect on the acquiring institution when a credit union buys a bank, right? That’s the net idea is that would be an interesting suggestion for you to consider. And I think it’s fascinating what the work that both of you do. I love the credit union spirit that is through all of it, so I thank you on behalf of the movement, for the work that you’ve done, for the effort that it takes. I love our discussions, you’re intellectual folks, and I hope we captured this so some of our listeners can get some ideas that may be able to help their credit union continue to serve the credit union movement. Thank you both so very much.