Federally insured credit unions saw membership, loans and net worth grow in the fourth quarter of 2013, while net interest margins declined, according to call report data released by the NCUA on March 3.
Compared to the fourth quarter of 2012, compressed net interest margins contributed to a reduction in return on average assets. However, the agency said the majority of federally insured credit unions remain well capitalized.
NCUA Chairman Debbie Matz warned credit unions about excessive interest rate risk.
"The current rate environment is a challenge for profitability, but federally insured credit unions should avoid falling into the trap of over-concentration in long-term investments. It's easy to get trapped chasing near-term profits by increasingly concentrating investments in long terms," Matz said in a statement.
"That can imperil a credit union because it increases interest rate risk. The growth in five-to 10-year investments of nearly 60% is cause for concern. For many credit unions it may be prudent, at this time, to accept lower return on assets to avoid exacerbating interest rate risks," she added.
Loan growth has continued for the 11th consecutive quarter, rising 2.2% to $645.2 billion in the fourth quarter of 2013. Loans grew nearly 8.0% compared to the last quarter of 2012. Auto loans, first mortgage loans, net member business loan balance and non-federally guaranteed student loans all saw growth in the fourth quarter.
"The growth in loans contributed to a rise in the overall loans-to-shares ratio, which reached 70.9%, the highest level since the end of 2010. Loan growth among federally insured credit unions outpaced growth in deposits for the first time since the fourth quarter of 2007," said an NCUA press release.
The aggregate net worth ratio was 10.78% at the end of the fourth quarter, an increase of 13 basis points compared to the end of the third quarter. This represents the highest level since the first quarter of 2009.
"The vast majority of federally insured credit unions remain well-capitalized, with 97% reporting a net worth at or above the statutorily required 7.0%. The percentage of well-capitalized credit unions is slightly higher than the previous quarter," said the release.
Large credit unions reported far better numbers on their fourth quarter call reports.
Read more: With numbers that good, who needs risk-based capital?
NAFCU questioned the need for the NCUA's proposed risk-based capital given the latest call report data.
"While NAFCU supports a risk-based capital system for credit unions, with the vast majority of credit unions remaining well-capitalized and maintaining net worth ratios well above the prompt corrective action statutory requirements, NAFCU continues to believe that a legislative solution is necessary to achieve a fair system for risk based capital," said NAFCU Director of Regulatory Affairs Michael Coleman.
Credit unions also added more than 343,000 members in the fourth quarter, bringing the total for the year to 2.4 million new members. The NCUA said total membership is now 96.3 million. While membership grew, the number of federally insured credit unions fell to 6,554 at the end of the fourth quarter – 66 fewer than at the end of the third quarter of 2013.
The NCUA noted that the decline is consistent with trends from the last four decades.
Total assets grew by $5.3 billion in the fourth quarter of the year and by $40 billion during the entire year. Credit unions' return on average assets decreased by 85 basis points compared to the end of the 2012. Annualized net income at federally insured credit unions also declined 1.9%.
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