Current through Register Vol. 48, No. 12, March 22, 2024
a)
Purpose and Scope
1) This Section is intended
to accomplish two broad objectives. First, it sets out policy and program
responsibilities that an Illinois chartered credit union must adopt and
implement as part of a safe and sound commercial lending program. Second, it
incorporates the statutory limit on the aggregate amount of member business
loans that a federally insured credit union may make pursuant to Section 107A
of the Federal Credit Union Act (
12 USC
1757a ). This Section distinguishes between
these two distinct objectives.
2)
Credit Unions and Loans Covered by this Section
A) This Section applies to Illinois chartered
natural person credit unions. However, an Illinois chartered natural person
credit union is not subject to subsections (c) and (d) if it meets all of the
following conditions:
i) The credit union's
total assets are less than $250 million.
ii) The credit union's aggregate amount of
outstanding commercial loan balances and unfunded commitments, plus any
outstanding commercial loan balances and unfunded commitments of participations
sold, plus any outstanding commercial loan balances and unfunded commitments
sold and serviced by the credit union total less than 15% of the credit union's
net worth.
iii) In a given calendar
year the amount of originated and sold commercial loans the credit union does
not continue to service total less than 15% of the credit union's net
worth.
B) This Section
does not apply to loans:
i) Made by a
corporate credit union, as defined in Section
1.1 of the Act;
ii) Made by a federally insured credit union
to another federally insured credit union;
iii) Made by a credit union to a credit union
service organization, as defined in Section
190.5;
or
iv) Fully secured by a lien on a
1 to 4 family residential property that is a member's primary
residence.
3)
Other Regulations that Apply
A) As required
by section 741.203 of the NCUA regulations (
12 CFR
741.203 ), a federally insured, State
chartered credit union must comply with sections 701.21(c)(8) (prohibited fees)
and (d)(5) (non-preferential loans) (
12 CFR
701.21(c)(8) and (d)(5)
).
B) When a credit union makes a
commercial loan as part of a loan program in which a federal or state agency
(or its political subdivision) insures repayment, guarantees repayment, or
provides an advance commitment to purchase the loan in full and that program
has requirements that are less restrictive than those required by this Section,
the credit union may follow the loan requirements of the relevant guaranteed
loan program.
C) The requirements
of section 701.22 of the NCUA regulations (
12 CFR 701.22
) apply to a federally insured credit union's purchase of a participation
interest in a commercial loan.
b) Definitions - For purposes of this
Section, the following definitions apply:
1)
"Associated borrower" means any other person or entity with a shared ownership,
investment or other pecuniary interest in a business or commercial endeavor
with the borrower. This means any person or entity named as a borrower or
debtor in a loan or extension of credit, or any other person or entity, such as
a drawer, endorser or guarantor, engaged in a common enterprise with the
borrower, or deriving a direct benefit from the loan to the borrower.
Exceptions to this definition for partnerships, joint ventures and associations
are as follows:
A) If the borrower is a
partnership, joint venture or association, and the other person with a shared
ownership, investment or other pecuniary interest in a business or commercial
endeavor with the borrower is a member or partner of the borrower, and neither
a direct benefit nor a common enterprise exists, this other person is not an
associated borrower.
B) If the
borrower is a member or partner of a partnership, joint venture or association,
the other entity is not an associated borrower if:
i) the other entity with a shared ownership,
investment or other pecuniary interest in a business or commercial endeavor
with the borrower is the partnership, joint venture or association;
ii) the borrower is a limited partner of that
other entity; and
iii) by the terms
of a partnership or membership agreement valid under applicable law, the
borrower is not held generally liable for the debts or actions of that other
entity.
C) If the
borrower is a member or partner of a partnership, joint venture or association,
the other person is not an associated borrower if:
i) the other person with a shared ownership,
investment or other pecuniary interest in a business or commercial endeavor
with the borrower is another member or partner of the partnership, joint
venture or association; and
ii)
neither a direct benefit nor a common enterprise exists.
2) "Commercial loan" means any
loan, line of credit or letter of credit (including any unfunded commitments),
and any interest a credit union obtains in loans made by another lender, to
individuals, sole proprietorships, partnerships, corporations or other business
enterprises for commercial, industrial, agricultural or professional purposes,
but not for personal expenditure purposes. Excluded from this definition are
loans:
A) made by a corporate credit
union;
B) made by a federally
insured credit union to another federally insured credit union;
C) made by a credit union to a credit union
service organization;
D) made by a
credit union not subject to section 107A of the Federal Credit Union Act (
12 USC
1757a ) to another credit union;
E) secured by a 1 to 4 family residential
property (whether or not it is the borrower's primary residence);
F) fully secured by shares in the credit
union making the extension of credit or deposits in other financial
institutions;
G) secured by a
vehicle manufactured for household use; and
H) that would otherwise meet the definition
of commercial loan, when the aggregate outstanding balances plus unfunded
commitments less any portion secured by shares in the credit union to a
borrower or an associated borrower are less than $50,000.
3) "Common enterprise" means:
A) The expected source of repayment for each
loan or extension of credit is the same for each borrower and no individual
borrower has another source of income from which the loan (together with the
borrower's other obligations) may be fully repaid. An employer will not be
treated as a source of repayment because of wages and salaries paid to an
employee, unless the standards described in subsection (b)(3)(B) are
met;
B) Loans or extensions of
credit are made:
i) To borrowers who are
related directly or indirectly through common control, including when one
borrower is directly or indirectly controlled by another borrower;
and
ii) Substantial financial
interdependence exists between or among the borrowers. Substantial financial
interdependence means 50% or more of one borrower's gross receipts or gross
expenditures (on an annual basis) are derived from transactions with another
borrower. Gross receipts and expenditures include gross revenues or expenses,
intercompany loans, dividends, capital contributions and similar receipts or
payments; or
C) Separate
borrowers obtain loans or extensions of credit to acquire a business enterprise
of which those borrowers will own more than 50% of the voting securities or
voting interests.
4)
"Control" means a person or entity directly or indirectly, or acting through or
together with one or more persons or entities:
A) Owns, controls or has the power to vote
25% or more of any class of voting securities of another person or
entity;
B) Controls, in any manner,
the election of a majority of the directors, trustees or other persons
exercising similar functions of another person or entity; or
C) Has the power to exercise a controlling
influence over the management or policies of another person or
entity.
5) "Credit risk
rating system" means a formal process that identifies and assigns a relative
credit risk score to each commercial loan in a credit union's portfolio, using
ordinal ratings to represent the degree of risk. The credit risk score is
determined through an evaluation of quantitative factors based on financial
performance and qualitative factors based on management, operational, market
and business environmental factors.
6) "Direct benefit" means the proceeds of a
loan or extension of credit to a borrower, or assets purchased with those
proceeds, that are transferred to another person or entity, other than in a
bona fide arm's-length transaction, when the proceeds are used to acquire
property, goods or services.
7)
"Financial statement quality" is determined by:
A) The level of assurance provided by the
preparer and the required professional standards supporting the preparer's
opinion. In many cases, tax returns and/or financial statements professionally
prepared in accordance with generally accepted accounting principles (GAAP)
will be sufficient for less complex borrowing relationships, such as those that
are limited to a single operation of the borrower and principal with relatively
low debt. For more complex and larger borrowing relationships, such as those
involving borrowers or principals with significant loans outstanding or
multiple or interrelated operations, the credit union should require borrowers
and principals to provide either:
i) An
auditor's review of the financial statements prepared consistent with GAAP to
obtain limited assurance (i.e., a "review quality" financial
statement); or
ii) an independent
financial statement audit under generally accepted auditing standards (GAAS)
for the expression of an opinion on the financial statements prepared in
accordance with GAAP (i.e., an "audit quality" financial
statement).
B) Credit
unions should address the criteria and thresholds for the required financial
reporting in their policies. Credit unions should allow exceptions in their
credit policies if they determine the relationship does not require the same
level of assurance and they are satisfied that the lesser quality still
provides them with accurate reporting of the borrower's financial performance.
Credit unions will be expected to address the issue of exceptions in their loan
policies. Any exception should be documented by credit union staff and approved
by the appropriate designated internal authority.
8) "Immediate family member" means a spouse
or other family member living in the same household.
9) "Loan secured by a 1 to 4 family
residential property" means a loan that, at origination, is secured wholly or
substantially by a lien on a 1 to 4 family residential property for which the
lien is central to the extension of the credit; that is, the borrower would not
have been extended credit in the same amount or on terms as favorable without
the lien. A loan is wholly or substantially secured by a lien on a 1 to 4
family residential property if the estimated value of the real estate
collateral at origination (after deducting any senior liens held by others) is
greater than 50% of the principal amount of the loan.
10) "Loan secured by a vehicle manufactured
for household use" means a loan that, at origination, is secured wholly or
substantially by a lien on a new or used passenger car or other vehicle such as
a minivan, sport-utility vehicle, pickup truck or similar light truck or
heavy-duty truck generally manufactured for personal, family or household use
and not used as a fleet vehicle or to carry fare-paying passengers, for which
the lien is central to the extension of credit. A lien is central to the
extension of credit if the borrower would not have been extended credit in the
same amount or on terms as favorable without the lien. A loan is wholly or
substantially secured by a lien on a vehicle manufactured for household use if
the estimated value of the collateral at origination (after deducting any
senior liens held by others) is greater than 50% of the principal amount of the
loan.
11) "Loan-to-value ratio"
means, with respect to any item of collateral, the aggregate amount of all sums
borrowed and secured by that collateral, including outstanding balances plus
any unfunded commitment or line of credit from another lender that is senior to
the credit union's lien position, divided by the current collateral value. The
current collateral value must be established by prudent and accepted commercial
lending practices and comply with all regulatory requirements. For a
construction and development loan, the collateral value is the lesser of cost
to complete or prospective market value, as determined in accordance with
subsection (f).
12) "Net worth"
means a credit union's net worth, as defined in Section
190.2.
13) "Readily marketable collateral" means a
financial instrument or bullion that is salable under ordinary market
conditions with reasonable promptness at a fair market value determined by
quotations based upon actual transactions on an auction or similarly available
daily bid and ask price market.
14)
"Residential property" means a house, condominium unit, cooperative unit,
manufactured home (whether completed or under construction) or unimproved land
zoned for 1 to 4 family residential use. A boat or motor home, even if used as
a primary residence, or timeshare property is not residential
property.
c) Board of
Directors and Management Responsibilities
Prior to engaging in commercial lending, a credit union must
address the following board responsibilities and operational
requirements:
1) Board of Directors. A
credit union's board of directors, at a minimum, must:
A) Approve a commercial loan policy that
complies with subsection (d). The board must review its policy on an annual
basis, prior to any material change in the credit union's commercial lending
program or related organizational structure, and in response to any material
change in portfolio performance or economic conditions, and update it when
warranted.
B) Ensure the credit
union appropriately staffs its commercial lending program in compliance with
subsection (c)(2).
C) Understand
and remain informed, through periodic briefings from responsible staff and
other methods, about the nature and level of risk in the credit union's
commercial loan portfolio, including its potential impact on the credit union's
earnings and net worth.
2) Required Expertise and Experience. A
credit union making, purchasing or holding any commercial loan must internally
possess the following experience and competencies:
A) Senior Executive Officers. A credit
union's senior executive officers overseeing the commercial lending function
must understand the credit union's commercial lending activities. At a minimum,
senior executive officers must have a comprehensive understanding of the role
of commercial lending in the credit union's overall business model and
establish risk management processes and controls necessary to safely conduct
commercial lending.
B) Qualified
Lending Personnel. A credit union must employ qualified staff with experience
in the following areas:
i) Underwriting and
processing for the type of commercial lending in which the credit union is
engaged;
ii) Overseeing and
evaluating the performance of a commercial loan portfolio, including rating and
quantifying risk through a credit risk rating system; and
iii) Conducting collection and loss
mitigation activities for the type of commercial lending in which the credit
union is engaged.
C)
Options to Meet the Required Experience. A credit union may meet the experience
requirements in subsections (c)(2)(A) and (c)(2)(B) by conducting internal
training and development, hiring qualified individuals or using a third-party,
such as an independent contractor or a credit union service organization.
However, with respect to the qualified lending personnel requirements in
subsection (c)(2)(B), use of a third-party is permissible only if the following
conditions are met:
i) The third-party has no
affiliation or contractual relationship with the borrower or any associated
borrowers;
ii) The actual decision
to grant a loan must reside with the credit union;
iii) Qualified credit union staff exercises
ongoing oversight over the third party by regularly evaluating the quality of
any work the third party performs for the credit union; and
iv) The third-party arrangement must
otherwise comply with subsection (g).
d) Commercial Loan Policy
Prior to engaging in commercial lending, a credit union must
adopt and implement a comprehensive written commercial loan policy and
establish procedures for commercial lending. The board-approved policy must
ensure the credit union's commercial lending activities are performed in a safe
and sound manner by providing for ongoing control, measurement and management
of the credit union's commercial lending activities. At a minimum, a credit
union's commercial loan policy must address each of the following:
1) Type of commercial loans
permitted.
2) Trade area.
3) Maximum amount of assets, in relation to
net worth, allowed:
A) in secured, unsecured
and unguaranteed commercial loans;
B) in any given category or type of
commercial loan; and
C) to any one
borrower or group of associated borrowers, provided:
i) the policy must specify that the aggregate
dollar amount of commercial loans to any one borrower or group of associated
borrowers may not exceed the greater of 15% of the credit union's net worth or
$100,000, plus an additional 10% of the credit union's net worth if the amount
that exceeds the credit union's 15% general limit is fully secured at all times
with a perfected security interest by readily marketable collateral, as defined
in subsection (b);
ii) any insured
or guaranteed portion of a commercial loan made through a program in which a
federal or state agency (or its political subdivision) insures repayment,
guarantees repayment or provides an advance commitment to purchase the loan in
full, is excluded from this limit; and
iii) the maximum limit on commercial loans is
in addition to the secured and unsecured limits established in Sections
190.140 and
190.160;
provided, however, in no event shall all loans to any borrower or group of
associated borrowers exceed in the aggregate 10% of the credit union's
unimpaired capital and surplus.
4) Qualifications and experience requirements
for personnel involved in underwriting, processing, approving, administering
and collecting commercial loans.
5)
Loan approval processes, including establishing levels of loan approval
authority commensurate with the individual's or committee's proficiency in
evaluating and understanding commercial loan risk, when considered in terms of
the level of risk the borrowing relationship poses to the credit
union.
6) Underwriting standards
commensurate with the size, scope and complexity of the commercial lending
activities and borrowing relationships contemplated. The standards must, at a
minimum, address the following:
A) The level
and depth of financial analysis necessary to evaluate the financial trends and
condition of the borrower and the ability of the borrower to meet debt service
requirements;
B) Thorough due
diligence of the principals to determine whether any related interests of the
principals might have a negative impact or place an undue burden on the
borrower and related interests with regard to meeting the debt obligations with
the credit union;
C) Requirements
of a borrower-prepared projection when historic performance does not support
projected debt payments. The projection must be supported by reasonable
rationale and, at a minimum, must include a projected balance sheet and income
and expense statement;
D) The
financial statement quality and the degree of verification sufficient to
support an accurate financial analysis and risk assessment;
E) The methods to be used in collateral
evaluation, for all types of collateral authorized, including loan-to-value
ratio limits. These methods must be appropriate for the particular type of
collateral. The means to secure various types of collateral, and the measures
taken for environmental due diligence, must also be appropriate for all
authorized collateral; and
F) Other
appropriate risk assessment, including analysis of the impact of current market
conditions on the borrower and associated borrowers.
7) Risk management processes commensurate
with the size, scope and complexity of the credit union's commercial lending
activities and borrowing relationships. These processes must, at a minimum,
address the following:
A) Use of loan
covenants, if appropriate, including frequency of borrower and guarantor
financial reporting;
B) Periodic
loan review, consistent with loan covenants, sufficient to conduct portfolio
risk management. This review must include a periodic reevaluation of the value
and marketability of any collateral;
C) A credit risk rating system. Credit risk
ratings must be assigned to commercial loans at inception and reviewed as
frequently as necessary to satisfy the credit union's risk monitoring and
reporting policies and to ensure adequate reserves as required by GAAP;
and
D) A process to identify,
report and monitor loans approved as exceptions to the credit union's loan
policy.
e)
Collateral and Security
1) A credit union
must require collateral commensurate with the level of risk associated with the
size and type of any commercial loan. Collateral must be sufficient to ensure
adequate loan balance protection, along with appropriate risk sharing with the
borrower and principals. A credit union making an unsecured loan must determine
and document in the loan file that mitigating factors sufficiently offset the
relevant risk.
2) A credit union
that does not require the full and unconditional personal guarantee from the
principals of the borrower who has a controlling interest in the borrower must
determine and document in the loan file that mitigating factors sufficiently
offset the relevant risk.
f) Construction and Development Loans
In addition to the requirements of subsections (a) through
(e), the following requirements apply to a construction and development loan
made by any credit union.
1) For the
purposes of this subsection (f), a construction or development loan means any
financing arrangement enabling the borrower to acquire property or rights to
property, including land or structures, with the intent to construct or
renovate an income producing property, such as residential housing for rental
or sale, or a commercial building, such as may be used for commercial,
agricultural, industrial or other similar purposes. It also means a financing
arrangement for the construction, major expansion or renovation of the property
types referenced in this subsection (f). The collateral valuation for securing
a construction or development loan depends on the satisfactory completion of
the proposed construction or renovation when the loan proceeds are disbursed in
increments as the work is completed. A loan to finance maintenance, repairs or
improvements to an existing income producing property that does not change its
use or materially impact the property is not a construction or development
loan.
2) A credit union that elects
to make a construction or development loan must ensure that its commercial loan
policy includes adequate provisions by which the collateral value associated
with the project is properly determined and established. For a construction or
development loan, collateral value is the lesser of the project's cost to
complete or its prospective market value.
A)
For the purposes of this subsection (f), "cost to complete" means the sum of
all qualifying costs necessary to complete a construction project and
documented in an approved construction budget. Qualifying costs generally
include on-site or off-site improvements, building construction, other
reasonable and customary costs paid to construct or improve a project,
including general contractor's fees, and other expenses normally included in a
construction contract, such as bonding and contractor insurance. Qualifying
costs include the value of the land, determined as the lesser of appraised
market value or purchase price plus the cost of any improvements. Qualifying
costs also include interest, a contingency account to fund unanticipated
overruns, and other development costs such as fees and related pre-development
expenses. Interest expense is a qualifying cost only to the extent it is
included in the construction budget and is calculated based on the projected
changes in the loan balance up to the expected "as-complete" date for
owner-occupied non-income producing commercial real estate or the
"as-stabilized" date for income producing real estate. Project costs for
related parties, such as developer fees, leasing expenses, brokerage
commissions and management fees, are included in qualifying costs only if
reasonable in comparison to the cost of similar services from a third party.
Qualifying costs exclude interest or preferred returns payable to equity
partners or subordinated debt holders, the developer's general corporate
overhead, and selling costs to be funded out of sales proceeds, such as
brokerage commissions and other closing costs.
B) For the purposes of this subsection (f),
"prospective market value" means the market value opinion determined by an
independent appraiser in compliance with the relevant standards set forth in
the USPAP. Prospective value opinions are intended to reflect the current
expectations and perceptions of market participants, based on available data.
Two prospective value opinions may be required to reflect the time frame during
which development, construction and occupancy occur. The prospective market
value "as-completed" reflects the property's market value as of the time that
development is to be completed. The prospective market value "as-stabilized"
reflects the property's market value as of the time the property is projected
to achieve stabilized occupancy. For an income producing property, stabilized
occupancy is the occupancy level that a property is expected to achieve after
the property is exposed to the market for lease over a reasonable period of
time and at comparable terms and conditions to other similar
properties.
3) A credit
union that elects to make a construction and development loan must also assure
its commercial loan policy meets the following conditions:
A) Qualified personnel representing the
interests of the credit union must conduct a review and approval of any line
item construction budget prior to closing the loan;
B) A credit union approved requisition and
loan disbursement process is established;
C) Release or disbursement of loan funds
occurs only after on-site inspections, documented in a written report by
qualified personnel representing the interests of the credit union, certifying
that the work requisitioned for payment has been satisfactorily completed, and
the remaining funds available to be disbursed from the construction and
development loan are sufficient to complete the project; and
D) Each loan disbursement is subject to
confirmation that no intervening liens have been filed.
g) Prohibited Activities
1) Ineligible Borrowers. A credit union shall
not grant a commercial loan to the following:
A) Any senior management employee directly or
indirectly involved in the credit union's commercial loan underwriting,
servicing and collection process, and any of their immediate family
members;
B) Any person meeting the
definition of an associated borrower with respect to persons identified in
subsection (g)(1)(A); or
C) Any
compensated director, unless the credit union's board of directors approves
granting the loan and the compensated director was recused from the board's
decision making process.
2) Equity Agreements/Joint Ventures. A credit
union shall not grant a commercial loan if any additional income received by
the credit union or its senior management employees is tied to the profit or
sale of any business or commercial endeavor that benefits from the proceeds of
the loan.
3) Conflicts of Interest.
Any third party used by a credit union to meet the requirements of this Section
must be independent from the commercial loan transaction and shall not have a
participation interest in a loan or an interest in any collateral securing a
loan that the third party is responsible for reviewing, or an expectation of
receiving compensation of any sort that is contingent on the closing of the
loan, with the following exceptions:
A) A
third party may provide a service to the credit union that is related to the
transaction, such as loan servicing.
B) The third party may provide the requisite
experience to a credit union and purchase a loan or a participation interest in
a loan originated by the credit union that the third party reviewed.
C) A credit union may use the services of a
credit union service organization that otherwise meets the requirements of
subsection (c)(2)(C) even if the credit union service organization is not
independent from the transaction, provided the credit union has a controlling
financial interest in the credit union service organization as determined under
GAAP.
h)
Aggregate Member Business Loan Limit; Exclusions and Exceptions
This subsection (h) incorporates the statutory limits on the
aggregate amount of member business loans that may be held by a federally
insured credit union and establishes the method for calculating a federally
insured credit union's net member business loan balance for purposes of the
statutory limits and NCUA form 5300 reporting.
1) Statutory Limits. The aggregate limit on a
federally insured credit union's net member business loan balances is the
lesser of
1.75
times the actual net worth of the credit union, or
1.75
times the minimum net worth required under section 1790d(c)(l)(A) of the
Federal Credit Union Act (
12 USC
1790d(c)(1)(A) ).
2) Definition. For the purposes of this
subsection (h), "member business loan" means any commercial loan as defined in
subsection (b), except that the following commercial loans are not member
business loans and are not counted toward the aggregate limit on a federally
insured credit union's member business loans:
A) Any loan in which a federal or state
agency (or its political subdivision) fully insures repayment, fully guarantees
repayment, or provides an advance commitment to purchase the loan in
full;
B) Any non-member commercial
loan or non-member participation interest in a commercial loan made by another
lender, provided the federally insured credit union acquired the non-member
loans and participation interests in compliance with all relevant laws and
regulations and is not, in conjunction with one or more other credit unions,
trading member business loans to circumvent the aggregate limit; and
C) Any loan that is fully secured by a lien
on a 1 to 4 family dwelling.
3) Exceptions. Any loan secured by a vehicle
manufactured for household use that will be used for a commercial, corporate or
other business investment property or venture, or agricultural purpose, is not
a commercial loan but is a member business loan (if the outstanding aggregate
net member business loan balance is equal to or greater than $50,000) and must
be counted toward the aggregate limit on a federally insured credit union's
member business loans.
4) Statutory
Exemptions. A federally insured credit union that has a low-income designation,
or participates in the U.S. Department of the Treasury's Community Development
Financial Institutions Program, or was chartered for the purpose of making
member business loans, or that as of the date of enactment of the Credit Union
Membership Access Act of 1998 (
P.L.
105-219 ), had a history of primarily making
commercial loans, is exempt from compliance with the aggregate member business
loan limits in this subsection (h).
5) Method of Calculation for Net Member
Business Loan Balance. For the purposes of NCUA form 5300 reporting, a
federally insured credit union's net member business loan balance is determined
by calculating the outstanding loan balance plus any unfunded commitments,
reduced by any portion of the loan that is:
A)
secured by shares in the credit union;
B) secured by shares or deposits in other
financial institutions;
C) secured
by a lien on a member's primary residence;
D) insured or guaranteed by any agency of the
federal government, a state or any political subdivision of that
state;
E) subject to an advance
commitment to purchase by any agency of the federal government, a state or any
political subdivision of that state; or
F) sold as a participation interest without
recourse and qualifying for true sales accounting under GAAP.
i) Transitional
Provisions
This subsection (i) governs circumstances in which, as of
January 1, 2017, a credit union is operating in accordance with an approved
waiver from the Division or NCUA or is subject to any enforcement constraint
relative to its commercial lending activities.
1) Waivers. As of January 1, 2017, any waiver
approved by the Division or NCUA concerning a credit union's commercial lending
activity is rendered moot, except that waivers granted prior to January 1,
2017, for borrowing relationships (loans made to one borrower or group of
associated borrowers), will be grandfathered. However, the debt associated with
those relationships may not be increased.
2) Enforcement Constraints. Limitations or
other conditions imposed on a credit union in any written directive from the
Division or NCUA, including, but not limited to, items specified in any
Document of Resolution, any published or unpublished Letter of Understanding
and Agreement, Regional Director Letter, Preliminary Warning Letter, or formal
enforcement action, are unaffected by the adoption of this Section. Included
within this subsection (i)(2) are any constraints or conditions embedded within
any waiver issued by the Division or NCUA. As of January 1, 2017, all these
limitations or other conditions remain in place until they are modified by the
Division or NCUA.
j)
Allowance for Loan Losses for Business Loans
Allowance for loan losses for business loans will be
determined in accordance with GAAP. The external auditor conducting the credit
union's financial statement audit shall analyze the methodology employed by the
credit union and conclude that the financial statements, including the
allowance for loan losses, are fairly stated in all material respects in
accordance with GAAP.