Large CUs' Real Estate Secured Business Loan Exposures

On December 18, the federal banking agencies -- the Federal Deposit Insurance Corporation, the Federal Reserve, and the Office of the Comptroller of the Currency -- issued a statement warning about eased commercial real estate (CRE) loan underwriting and CRE risk management practices that cause “concern.” The federal banking regulators added that supervisors will “continue to pay special attention” to CRE lending in exams in 2016 and reiterated existing interagency guidance on CRE concentration risk.

The National Credit Union Administration did not sign on to this statement; but NCUA may want to sign on to the interagency guidance on CRE concentration risk as real estate secured business loans continue to expand.

There are 105 credit unions with assets of at least $100 million that have an aggregate exposure to real estate secured business loans that exceeds their net worth at the end of the third quarter.

[Editorial note: I know the 105 credit unions include credit unions that have exposure to farmland loans; but the recent weakness in farm commodity prices will likely have a negative impact on farmland values. So, those credit unions making farmland loans also warrant careful monitoring.]

Thirteen credit unions have a real estate secured business loan to net worth ratio above 200 percent and 5 credit unions -- all state charters -- have a real estate secured business loan to net worth ratio in excess of 300 percent.

The two credit unions with the greatest net worth exposure to real estate secured business loans are involved in church financing. Evangelical Christian Credit Union (Brea, CA) has the greatest percentage of its net worth exposed to real estate secured business loans at 907.24 percent. America's Christian Credit Union (Glendora, CA) has the next largest exposure at 532.4 percent.

The following tables provides info on credit unions with real estate secured business loan exposures of at least 100 percent of net worth.

Read the statement.