Regional Loan Growth Gaps Illustrate Strengths, Challenges

Regional real estate dynamics and the prevalence of indirect lending were two drivers of loan growth differentials across regions.


Total credit union loans grew just over 9% for the year ending September 30, 2006, the most recent period for which data is available.  Supercharged results on the coasts offset slower total loan growth in the middle part of the country.

The importance of real estate lending to overall loan growth was a consistent theme across the five NCUA regions.  New real estate loans contributed 70% of total loan growth nationwide but were particularly critical to overall loan growth in the Central region, where they accounted for 85% of total loan growth.  The Western region, on the other hand, was least dependent on real estate loan growth for total growth, thanks to strength in both auto and business lending.

Real Estate Leaders
As the chart below shows, the Mid-Atlantic region led the country in real estate loan growth.  The contribution of first mortgage growth to total loan growth exceeded three percentage points in every region.  Worth noting is that the Mid-Atlantic region showed exceptional strength in second mortgage and HELOC growth as well, with those types contributing more than five percentage points to overall loan growth—nearly double the national average.

Mixed Auto Loan Results
Growth in auto loans was strongest in the Western region, where indirect lending is prevalent.  Credit unions in those states collectively generated twice the auto loan contribution to growth as the country as a whole.  Weakness in lending for used autos resulted in negative overall auto loan growth in the Central region.

Giveth and Taketh Away
Mid-Atlantic credit unions were the clear leaders in credit card loan growth, but that strength was offset by the smallest contribution of member business loans to total loan growth.  Credit unions in the West generated credit card contribution in line with the national average, but the West was the standout region for the contribution of member business loans. 

The Year Ahead
A key question raised by this data is the extent to which the real estate slump will affect overall credit union loan growth in the fourth quarter of 2006 and into 2007.  With fewer home sales compared to the previous 12 months, it is reasonable to project that macro industry loan growth will decelerate.  Increased competition spurred by a reduced number of lending opportunities is a threat, but also a chance for credit unions to appeal to choosier buyers/members with superior loan value compared to for-profit lenders.




Jan. 8, 2007


  • Loan portfolios have benefited from rising real estate values which have allowed additional collateral to lend against, low loan losses in a recovering economy and low prepayment rates due to rising rates. All three of these factors may move in the opposite direction in 2007-08 resulting in a further compression of ROA.
    John Nilles from RECU
  • With the slumping RE market, how will we respond in Q4 since other loan categories have been slow as well...maybe an increased focus on MBLs? CUs may have to start looking for other ways to grow their asset base while we wait economy to pick up momentum again.
  • Five years ago when the auto market slumped CUs were looking to the Real Estate market for loan growth. The same thing is happening now only it doesn't appear that RE is here to save us. The new savior appears to be MBL. Why not move back to DIRECT auto lending and a focused effort to remain in the Real Estate market?
    R Burden from NDFCU