The number of credit unions in the United States declined 27% between 2003 and 2012, from 9,369 to 6,812. Credit unions completed an additional 243 mergers in 2013. Attrition has disproportionately affected smaller institutions, particularly those with less than $50 million in assets. These credit unions have been, and likely will continue to be, especially vulnerable to trends affecting financial institutions in general, such as competitive pressures, ever-increasing regulatory compliance costs, and the persistently low interest rate environment.

A merger is a corporate transaction governed by state or federal law, depending on the institutions involved, generally in which a continuing credit union assumes all of the assets and liabilities of a merging credit union. The merging credit union ceases to exist after it is merged with and into the continuing credit union. Merger structures vary depending on the unique circumstances of each deal, and consideration must be paid to applicable law and the regulations, policy statements and other pronouncements of the applicable chartering authority. Such mergers typically involve two (or more) credit unions, but not always. There has been a modest uptick in merger transactions between credit unions and banks, with five such transactions agreed to in the past two years.

Relatively healthy credit unions are in a better position to merge than weaker ones that may be experiencing declining financial performance or membership or subject to adverse regulatory action. Yet, the statistics indicate that merging credit unions often wait to merge until their position has seriously deteriorated. According to the NCUA, more than 50% of merging credit unions had negative return on average assets and declining net worth ratios for three consecutive years prior to the merger.

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