Merger and Acquisition Frequently Asked Questions

The forms for a merger of a federally insured credit union into another federally insured credit union are included in 12 C.F.R § 708b.304. The NCUA has created fillable forms posted on our website. Additional information on what is required in a merger package can be found in 12 C.F.R. §§ 708b.103 and 708b.104.

No, the Federal Credit Union Act’s field-of-membership provisions continue to apply unless the merger is an emergency. The fields of membership must be compatible as described in the Chartering and Field of Membership Manual unless the NCUA authorizes an emergency merger when applicable statutory criteria are met.

Credit unions may contact the Office of Credit Union Resources and Expansion’s Division of Consumer Access at 703.518.1150 or DCAMail@NCUA.GOV.

The NCUA only has authority over federal credit unions on how to distribute a special or merger dividend. For federal credit unions, a special dividend cannot be based per capita or on length of membership. In addition, any dividend payment for any federally insured credit union that meets the definition of a “merger-related financial arrangement” under 12 C.F.R. § 708b.2 must be disclosed on the member notice. Federally insured, state-chartered credit unions should contact their state supervisory authority.

There is no prohibition for gifts to the board. Any gift that meets the definition of a “merger-related financial arrangement” under 12 C.F.R. § 708b.2 must be disclosed in the member notice.

Under 12 U.S.C. § 1785(h), the NCUA may authorize an emergency merger between federally insured credit unions, without regard to field of membership or other usual legal restraints, if the credit union to be merged is either insolvent or in danger of insolvency and the NCUA determines that:

• An emergency requiring expeditious action exists with respect to the insured credit union;
• Other alternatives are not reasonably available; and
• The public interest would best be served by approval of such merger, consolidation, purchase, or assumption.

Under 12 C.F.R. § 700.2, a credit union will be determined to be insolvent when the total amount of its shares exceeds the present cash value of its assets after providing for liabilities unless:

• It is determined by the NCUA that the facts that caused the deficient share-asset ratio no longer exist;
• The likelihood of further depreciation of the share-asset ratio is not probable;
• The return of the share-asset ratio to its normal limits within a reasonable time for the credit union concerned is probable; and
• The probability of a further potential loss to the insurance fund is negligible.

In making the determination that a particular credit union is in danger of insolvency, the NCUA will establish that the credit union falls into one or more of the following categories:

• The credit union's net worth is declining at a rate that will render it insolvent within 30 months. In projecting future net worth, the NCUA may rely on data in addition to Call Report data. The trend must be supported by at least 12 months of historic data.
• The credit union's net worth is declining at a rate that will take it under 2 percent net worth within 18 months. In projecting future net worth, the NCUA may rely on data in addition to Call Report data. The trend must be supported by at least 12 months of historic data.
• The credit union's net worth, as self-reported on its Call Report, is significantly undercapitalized, and the NCUA determines that there is no reasonable prospect of the credit union becoming adequately capitalized in the succeeding 36 months. In making its determination on the prospect of achieving adequate capitalization, the NCUA will assume that, if adverse economic conditions are affecting the value of the credit union's assets and liabilities, including property values and loan delinquencies related to unemployment, these adverse conditions will not further deteriorate.

The credit union has been granted or received assistance under Section 208 of the Federal Credit Union Act, 12 U.S.C. § 1788, in the 15 months prior to the regional office’s determination that the credit union is in danger of insolvency.

A credit union's purchase of a bank or other assets and liabilities from a non-credit union entity is a business decision between the credit union and the entity. These are arms-length, market-driven transactions driven by the management of the two entities.

In a purchase and assumption, the credit union purchases and assumes all or part of a non-federally insured credit union or other financial institution, usually a bank. In a merger, two credit unions join to form a single credit union.

The primary functional difference between a merger and a purchase and assumption is the credit union does not assume the equity or capital of the bank in a purchase and assumption. This equity is paid out to the bank shareholders as part of the purchase price.

Some states refer to these bank transactions as “mergers” under state law.

The Federal Credit Union Act explicitly permits a credit union to consolidate with a non-federally insured credit union or bank¹. In other words, a federally insured credit union may purchase assets and assume liabilities (including deposits) of a selling entity. However, federally insured credit unions can’t acquire a bank charter. In instances where a substantial portion of the assets are purchased and liabilities assumed, the bank’s charter may be terminated.

Purchase and assumption transactions must comply with legal, regulatory, and safety and soundness requirements, among other considerations, to be approved by the applicable state and federal regulators and insurers.

NCUA does not require credit unions to use an attorney or third parties for a purchase and assumption transaction.

The timeframe for processing a credit union’s purchase and assumption of a bank will vary depending on the size and complexity of the transaction. The process generally involves the phases outlined in the checklist described above and can vary based on the specifics of the transaction and the regulatory entities involved.

Depending on the circumstances, it can take months and, in some cases, require more time to conduct the review.

No.

A prudent credit union engaged in a purchase and assumption will identify the institution’s impermissible assets under the Federal Credit Union Act or state law and plan to dispose of the assets.

Field of membership compatibility is critical to ensure the bank or non-federally insured credit union’s customers are insured on Legal Day One.

For Federal Credit Unions:

For the entity’s customers to be insured by the National Credit Union Share Insurance Fund on Legal Day One, these customers must first qualify for the acquiring credit union’s field of membership and then “subscribe” to membership as required by Section 1759(a) of the Federal Credit Union Act. NCUA's long-standing interpretation is that the term “subscribe” means the act of signing one's name, which is an affirmative action.

A low-income-designated credit union has the additional option of adding the qualifying customers as non-member depositors, and then complete membership requirements after closing and before providing services to the “nonmembers.”

Even if the credit union has a low-income designation, any acquired customers with loans will need to become credit union members before the transaction closes, as loans to non-members are impermissible for federally chartered credit unions, no matter their designation.

One other option for insurance is NCUA’s Credit Union Service Organization (CUSO) rule, which permits a federal credit union’s CUSOs to purchase and hold bank customer loans if the loans are business loans, mortgages, student loans, or credit card loans. For additional information, refer to 12 CFR 712, Credit Union Service Organizations (CUSOs).

For State Chartered Credit Unions:

The state supervisory authority must confirm in writing that it considers the acquired customers as credit union members on Legal Day One.