ALEXANDRIA, Va. -- Credit union assets and net worth continuedto increase through 2007 as earnings followed their recent downwardtrend, according to a recent NCUA Letter to Credit Unions(08-CU-04).

The report highlights that assets at federally insured creditunions grew by $43.46 billion or 6.12% to $753.46 billion. At thesame time, net worth was up 5.28%; however, the ratio of net worthto assets fell from11.53% to 11.44% over 2007.

Credit unions' collective return on average assets fell from0.82% to 0.65%.

Loan volume increase continued to outperform share growth,pushing the loan-to-share ratio up from 82.44% to 83.32% atyear-end.

NCUA Chairman JoAnn Johnson noted in the letter, "Overall,federally insured credit unions continued their solid performancein 2007. Loans, shares, and net worth grew; however, the delinquentloan ratio increased 25 basis points and the loan loss ratioincreased five basis points indicating increasing potentialconcerns in credit quality of loan portfolios. While net interestmargins continued to decline, credit unions achieved favorableoperating results."

Meanwhile, delinquencies crept upward toward the 1.00% mark,landing at 0.93% by year-end. The trend had been steadily downwardfrom 0.79% in 2002 to 0.68% in 2006. Foreclosed real estate morethan doubled from $0.16 billion to $0.33 billion. Additionally,delinquent real estate loans increased as a percentage of totalreal estate loans from 0.34% to 0.67%.

Net loan charge-offs increased by 18.38%, for $397.86million.

While noting credit unions' high net worth levels, Johnsonstated, "Delinquency, especially in the real estate portfolio,increased significantly during 2007. It is important to note theincreases in delinquency, though substantive, do not threaten theoverall safety and soundness and stability of the credit unionindustry.

"Credit unions with a large or increasing real estate loanportfolio need to maintain vigilance in their asset-liabilitymanagement and liquidity management planning processes, as well asaddress the credit risk implications in light of ongoingdevelopments in the real estate sector of the market. All creditunions need to ensure the loans they make reflect not only theneeds of the members but also the risk profile of the credit unionin order to control future losses."

On the other side of the balance sheet, shares were up $31.21billion or 5.19%, the majority of which has come from sharecertificates and money market accounts.

Membership expanded by 1.1 million or 1.27%.