Letter to Credit Unions No.: 15-CU-06 Fixed Asset Limit Removed
October 2015

NASCUS Note: NCUA’s Fixed Asset Rule Only Applies to FCUs. FISCUs must follow state law. However, this guidance also explains how NCUA will evaluate fixed assets for safety and soundness regardless of state law limits.

NCUA has revised its fixed asset rule for FCUs to eliminate the 5% limit on fixed assets. The new rule takes effect October 2, 2015. As a result, NCUA examiners “will no longer focus on fixed assets”, unless a credit union has any of the following:

  • The credit union has an unresolved fixed asset DOR, enforcement action, or outstanding waiver;
  • The credit union has weak earnings or structural earnings weaknesses (high operating expenses);
  • Fixed assets exceed 5% of assets; or
  • The credit union has made a major acquisition of premises since the last exam or approved a plan to make a major acquisition of premise.

In the above situations, NCUA examiners will focus on whether the credit union can afford the level of fixed assets in which it has invested.

Existing and Pending Waivers
Any FCU’s existing or pending waiver of the old 5% fixed asset limit is now rendered moot. However, any enforcement action based limitations on a FCU’s ownership of fixed assets remains in effect.

Rules applicable ONLY to FCUs
NCUA’s guidance reviews provisions of the new rule that apply only to FCUs:

  • FCU prohibited from acquiring or leasing premises from a member of the credit union’s board of directors, credit committee, supervisory committee, or senior management, or an immediate family member of the above.
  • If a FCU acquires premises for future expansion and does not fully occupy them within one year, it must have a board resolution in place by the end of that year with definitive plans for full occupation.  FCUs must partially occupy the premises within 6 years. A waiver remains available for the partial occupancy requirement.
  • FCUs must dispose of any premises and any other real property it does not intend to use in transacting business. The FCU must seek fair market value for the property, and after 4 years must publically advertise the property for sale if it has not sold prior.

Risks Associated with Fixed Assets
The guidance notes that unsustainable levels of fixed assets can create risk to both credit unions and the Share Insurance Fund. Stating that some credit unions have historically over-concentrated their balance sheet with non-earning fixed assets, NCUA warns against the following practices and conditions:

  • Increased risk-taking in lending or investing to compensate for lower operating efficiency levels.
  • Reduced ability to adjust to future pressures on earnings (such as IRR).
  • Reduced flexibility in adapting to economic, technology, and population shifts that warrant changes in a credit union’s facility needs.

Examination Procedures
NCUA will evaluate the risk associated with fixed assets, considering both quantitative and qualitative factors, with the primary objectives of determining:

  • the risk to earnings and capital, and
  • the quality of  planning and analysis with respect to major fixed assets acquisitions

NCUA will reflect perceived weakness in a credit union’s oversight or management of its fixed assets in the Earnings and Management CAMEL component ratings and the composite CAMEL rating. Other operational weaknesses may be reflected in other relevant CAMEL ratings. As noted above, NCUA will only review fixed asset holdings if the stipulated conditions are present. If a fixed asset review is triggered, NCUA will proceed as follows:

  • Examiners will review earnings consistent with NCUA Supervisory Letter 06-01, Evaluating Earningsand NCUA Supervisory Letter 09-03, Reviewing Adequacy of Earnings.
  • Examiners will review the credit union’s management of fixed assets and analyze how the concentration of fixed assets (and other non-earning assets) affects the credit union’s current and future financial performance.
  • Examiners will review the fixed asset policies. Those policies should:
    • Demonstrate adequate consideration for preserving earnings and net worth
    • Establish reasonable thresholds and limits for aggregate amounts of fixed assets
    • Identify how exceptions to the general policy limits are approved
    • Be consistent with the credit union’s overall strategic plan
  • Review the credit union’s planning and pre-purchase analysis for newly acquired fixed assets.
  • Deficiencies identified by examiners will be discussed with credit union management, with specific corrective action generally left to credit union management’s discretion
  • NCUA examiners must consult with supervisors before issuing DORs freezing, or requiring dispossession of, fixed assets.

With respect to the credit union’s occupancy requirement, examiners will ensure credit unions have a plan to fully occupy the premises within 6 years.  If the property has been abandoned for less than 4 years, examiners will assess whether the credit union has made diligent efforts to dispose of the property.

Additional guidance related to managing fixed assets is available in the NCUA National Supervisions Policy Manual, the NCUA Examiners Guide.


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