Asset Quality
Construction & Land Development Loans
Also known as C&D Loans
Construction and land development (C&D) loans finance the building and preparation of real estate before it generates income. They are the highest-risk slice of commercial real estate and carry their own supervisory concentration guidance.
Formula
Schedule RC-C reports construction and land development as a distinct real estate subcategory. Supervisors flag banks whose C&D loans exceed 100% of total capital as having a concentration that warrants enhanced risk management — a tighter threshold than for CRE overall.
Why it matters
C&D lending repays only if a project is completed and sold or leased, so it is acutely exposed to construction delays, cost overruns, and demand shocks. It was at the center of the 2008-2010 community-bank failure wave and remains the riskiest real estate category.
How to interpret
Measure C&D against capital, not just against the loan book — the supervisory trigger is 100% of total capital. A high C&D concentration, especially combined with a high overall CRE ratio, is one of the strongest historical predictors of community-bank distress.
Thresholds
| Range | Label | Interpretation |
|---|---|---|
| < 50% of capital | Strong | Modest construction exposure. |
| 50-100% of capital | Adequate | Within supervisory guidance for C&D. |
| 100-150% of capital | Watch | Above the 100%-of-capital supervisory flag. |
| > 150% of capital | Concern | Heavy exposure to the riskiest real estate category. |
Worked example
Frequently asked
Why are construction loans riskier than other CRE?
A construction loan is repaid only once the project is finished and sold or leased. Delays, cost overruns, or a demand downturn can leave the loan with no income source — so C&D loss rates spike hardest in downturns.
What is the 100% of capital guideline?
Interagency guidance flags a bank for heightened CRE risk management if construction and land development loans exceed 100% of total capital, or if total CRE exceeds 300% — thresholds examiners use to focus attention.
Sources
- FFIEC Call Report Schedule RC-C (Loans and Lease Financing Receivables)
- Interagency Guidance on CRE Concentration Risk Management (2006)
See C&D Loans across 4,335 US banks
BankRegReports ranks every FDIC-insured institution by C&D Loans, refreshed quarterly within 48 hours of FFIEC release.