
INSIGHTS FOR FINANCIAL INSTITUTIONS	April 7, 2015

CONNECT

Director of Financial Institutions
Gary Smith

888.777.2015

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QUESTIONS?

If you have questions, Please contact your Eide Bailly professional or

Eide Bailly Financial Institutions at 888.777.2015 or fi@eidebailly.com.

Basel III Definitions - ADC Loans and HVCRE

An institution's ability to properly identify ADC loans and HVCRE will be one of the more challenging and time consuming reporting requirements established under Basel III.

Acquisition, Development and Construction (ADC) Loans

ADC loans include the acquisition of land, the development of land and the construction phase on the land, prior to conversion to permanent financing. ADC loans do not include the acquisition of a completed commercial building that is amortizing and written to the institution's normal underwriting standards.

High Volatility Commercial Real Estate (HVCRE) Exceptions

HVCRE will generally include ADC loans reported in Schedule RC-C, Part 1, Line 1.a (2), but certain exceptions do exist, which are defined in the instructions for Schedule RC-R, Part II, Item No. 4.b (and also apply to Item No. 5.b). Loans secured by land for developing or constructing 1-4 family residential properties (including bare lots zoned for 1-4 family residential properties), real property classified as an investment in community development under applicable regulatory guidelines, and land to be used for agricultural purposes are not considered HVCRE. In addition, certain commercial ADC loans may also be excluded from HVCRE classification if they meet certain requirements, such as minimum supervisory loan-to-value (LTV) ratios and adequate capital contributions from the borrower.

The LTV ratio is determined at the origination of the loan based on the LTV guidelines established in Appendix A to Subpart A of Part 365 - Interagency Guidelines for Real Estate Lending Policies. Therefore, if the value of the collateral subsequently declines and the LTV changes, the loan does not need to subsequently be reclassified as HVCRE.

Further materials regarding Basel III and topics important to your institution can be found in our February 2015 and April 2015 issues of Possibilities for Financial Institutions, available for download here.

For further information, please contact your local Eide Bailly professional or Eide Bailly Financial Institutions Services Group at fi@eidebailly.com or 888.777.2015.

This publication is produced and published by Eide Bailly and distributed with the understanding that the information contained does not constitute legal, accounting or other professional advice. It is not intended to be responsive to any individual situation or concerns as the contents of the publication are intended for general informational purposes only. Readers are urged not to act upon the information contained in this publication without first consulting competent legal, accounting or other professional advice regarding implications of a particular factual situation. Questions and information for publication can be submitted to your Eide Bailly representative. To request reprints of this publication, send a written request to RequestReprints@eidebailly.com. Copyright Eide Bailly 2015.