Subject to FSA and member approval the merger is expected to be effective from 1 July 2013.

Shepshed customers will be able to use Nottingham’s 31 branches after the merger and Shepshed’s three branches will remain open for a minimum of three years.

There will be no compulsory redundancies as a direct result of the merger and staff who currently work in The Shepshed’s branches will continue in their roles.

Nottingham is the 9th largest mutual in the UK, where Shepshed is the 44th in terms of asset size.

Smaller societies continue to struggle with the cost of further regulation and compliance suggesting this won’t be the last mutual merger.

David Marlow, chief executive of The Nottingham, said: “The Shepshed shares many of the same values we do. As member owned organisations we have a clear and simple purpose. We exist to serve the needs of current and future members, and to support the communities in which we operate. The Nottingham has been doing this successfully since 1849 and continues to build on our recent strong results.”

Gini Bolton, chairman of The Shepshed, said: “The directors of Shepshed Building Society strongly encourage the Society’s members to vote in favour of the merger.”

Adrian Coles, director-general of the BSA said: “Mergers are a normal part of everyday commercial life and happen from time to time when the boards of societies deem the change to be the interests of their members. Today’s announcement is positive with the assets of the Shepshed retained in an enlarged Nottingham Building Society and its member’s part of a strong, thriving regional building society.”

Edinburgh-based Century, the smallest society in the UK is already in the midst of a merger with The Scottish Building Society, which should complete on 1 February.

The Building Society Association’s 49 members, which also include Kent Reliance and the Co-operative, will fall to 45 on 1 July if the Shepshed merger completes.