Credit Union Mergers

The NCUA’s Chartering and Field of Membership (FOM) Manual defines a “merger” as: “Absorption by one credit union of all of the assets, liabilities and equity of another credit union.”

As such, the joining of two or more credit unions will naturally often lead to an amendment of the resulting institution’s field of membership. Additionally, due to the differing restrictions surrounding each credit union charter type, the regulations regarding mergers vary on a case-by-case basis.

That said, the Agency does lay out the following general stipulations:

–A federally insured credit union must have the prior written approval of the NCUA before merging with any other credit union.
–Where the continuing credit union is a federal credit union, it must be in compliance with the chartering policies of the NCUA.
–Where the continuing or merging credit union is a state credit union, the merger must be permitted by state law or authorized by the state authority.

It is further noted that any fields of membership to be joined by a merger must be “compatible,” that is, in line with NCUA chartering and FOM regulations unless it is an emergency merger.

Any Single Associational, Single Occupational or Multiple Common Bond federal credit unions seeking to merge must share a common bond.

According to the NCUA manual, both Single Associational and Occupational Common Bond institutions may expand their FOM “[b]y taking in the field of membership of another credit union through a common bond…merger.”

Multiple Common Bond credit unions may also take “in the field of membership of another credit union through a merger,” however there are certain specific stipulations surrounding such moves:

–Each select group in the merging credit union’s FOM must have less than 3,000 primary potential members (this limit does not apply, however, to groups already served by both merging credit unions).
–A financially healthy single (associational or occupational) common bond credit union with a primary potential membership of 3,000 or more cannot merge into a multiple common bond credit union, absent supervisory reasons, unless the continuing credit union already serves the same group.

If the merger is approved, all groups deemed eligible under the new field of membership will be transferred in full to the continuing organization.

A community-chartered credit union may likewise expand by “taking in the field of membership of another credit union through a merger,” subject to their own distinct criteria:

–Where both credit unions are community charters, the continuing credit union must meet the criteria for expanding the community boundaries.
–A community credit union cannot merge into a single occupational/associational, or multiple common bond credit union.
–A single occupational or associational, or multiple common bond credit union can merge into a community charter as long as the merging credit union has a service facility within the community boundaries or a majority of the merging credit union’s field of membership would qualify for membership in the community charter.
–Groups within the merging credit union’s field of membership located outside of the community boundaries may not continue to be served.

Regarding state-chartered credit unions merging into community charters, the resulting FOM and any further expansion must still align with NCUA regulations. Any mergers must be approved by the Agency, as well as state regulators if necessary.

An emergency merger occurs when a credit union is either insolvent or in danger of insolvency, and only after the NCUA has established the following:

–An emergency requiring expeditious action exists;
–Other alternatives are not reasonably available; and
–The public interest would best be served by approving the merger.
–If not corrected, conditions that could lead to insolvency include, but are not limited to:
–Abandonment by management;
–Loss of sponsor;
–Serious and persistent record-keeping problems; or
–Serious and persistent operational concerns.

Such a merger can only be carried out with the NCUA’s direct involvement, and may be approved without regard to a credit union’s charter type or field of membership restrictions. A Single Common Bond credit union, for instance, may take on the FOM of a Community credit union, however the continuing institution’s charter will not be changed based on the addition.

The NCUA plays an active role in the process of finding a “suitable merger partner,” and further notes specifically its primary concern is “that the continuing credit union has the financial strength and management expertise to absorb the troubled credit union without adversely affecting its own financial condition and stability.”

The first step in the process is for the boards of directors of all participating credit unions to approve a proposition for the merger itself. Next the institutions must prepare a plan for the merger detailing various financial and insurance-related factors, as well as outlining amendments to be made to the continuing credit union’s charter.

Once this plan has been approved by the respective boards it must be submitted, along with a host of other documents including a “Merger Agreement,” as a part of a larger application to the NCUA for certification.