Archive Links

Consumer Archive
CU System Archive
Market Archive
Products Archive
Washington Archive

News Now

Merger guidance offered in new NCUA brochure
WASHINGTON (5/27/14)--The National Credit Union Administration's Office of Small Credit Union Initiatives (OSCUI) released a new brochure to be used as a resource for credit unions considering a merger. Titled "Truth in Mergers: A Guide for Merging Credit Unions," it provides a framework for credit union managers to begin discussions about the future of their institution. 
"Every strategic plan should include contingencies, including when a merger is worth considering," said OSCUI Director William Myers. "The critical first step is recognizing the early signs that a credit union's long-term viability may be at risk. A credit union still in sound financial condition has more options when it comes to merger partners and is in a better position to negotiate a contract than a credit union in a deteriorated financial condition."
Between 2003 and 2012 there were 2,462 mergers--an average of one every 1.5 days--according to the NCUA. NCUA also found that many credit unions wait until they are in a precarious financial position before exploring a merger as an option.
Many of these credit unions exhibit the following negative characteristics:
  • Declining membership: 47% of merging credit unions had negative member growth for three consecutive years prior to failure.
  • Prompt Corrective Action (PCA): 26% of merging credit unions were in PCA sometime during the three to four years prior to failure. Existing OSCUI research shows that only 33 % of small credit unions recover from PCA within four years.
  • Negative earnings: 54% of merging credit unions had negative return on average assets for three consecutive years prior to failure.
  • Declining net worth: 53% of merging credit unions had declining net worth ratios for three consecutive years prior to failure.
  • Weak CAMEL ratings: 47%of merging credit unions had a composite CAMEL rating of 4, or three consecutive years with a composite rating of 3, prior to failure. None were rated a CAMEL 5.
The brochure draws lessons from a review of more than 430 mergers that took place over an 18-month period. It is designed to help credit unions that might be considering a merger recognize when it might be in its best interest.
Once a credit union is in financial trouble, a merger becomes more difficult because there will be fewer potential partners, giving the troubled credit union less leverage in any negotiations. If a merger deadline is imposed by the NCUA, options can become increasingly limited.
The brochure identifies scenarios that can be harbingers that a credit union's viability is at risk. If a credit union recognizes any of these scenarios, it may want to explore merger options, the NCUA advises. Characteristics include:
  • The credit union's membership is shrinking because it cannot provide desired services, or services on competitive terms, and the credit union's financial condition will not permit improvement.
  • The credit union is not serving a unique niche via services, convenience or price, among others.
  • The credit union's financial condition is deteriorating, as evidenced by: a CAMEL 4 or lower, or long-term CAMEL 3, consistently negative earnings, consistently declining net worth, PCA, administrative action or repeat Document of Resolution items.
  • The credit union does not have a realistic plan to address any of the problems listed above.
  • Key credit union officials or employees are nearing the end of their careers and no viable options for replacement exist.
It also contains information on how to find a partner, negotiate a merger contract that serves members as well as employees and finalize the transaction.
Use the resource link for more information.


News Now LiveWire
Through the snow, be on the lookout for a @CU4Kids @CMNHospitals @COOPFS billboard in @TimesSquareNYC this week
21 minutes ago
.@CUNA , trades unite to urge Congress on #datasecurity action
3 hours ago
State of Wash. @dficonsumers has expanded its CAMEL ratings to include an "S" for interest-rate sensitivity.
3 hours ago
.@HUDgov tweets: Be sure to tune in tonight to watch @SecretaryCastro on @TheDailyShow with Jon Stewart
3 hours ago
.@NJCUL Southern Chapter meeting canceled due to the impending snowstorm
4 hours ago