The State Of Credit Union Investments In 2020 (Part 2)

Cooperatives keep their sights on short-term investments as cash balances grow and participation in derivative programs declines.

 
 

Maturities of investment portfolios at U.S. credit unions shifted in the first quarter of 2020, with balances in both short and long investments growing versus the fourth quarter and one year ago. The former accounts for the majority of balance growth. 

Credit unions reported the largest increase in cash and equivalents. That component of the portfolio expanded 33.0% on a quarterly basis, growing from $122.7 billion as of Dec. 31, 2019, to $163.2 billion as of March 31. As a result, the segment’s share of the portfolio also rose, 5.4 percentage points, entirely because of the increases in Fed and corporate cash balances. Investments in products maturing in three to five years, on the other hand, contracted 0.1% from year-end 2019. Given the substantial growth in cash and equivalents, the percentage of the portfolio allocated to investments maturing in fewer than three years rose 2.0 percentage points to 78.2%, its highest level since September 2010. 

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Despite a relatively flat yield curve across the quarter, investments maturing in five to 10 years and in more than 10 years posted quarterly gains as well, increasing 2.3% and 50.8%, respectively. 

INVESTMENT MATURITY

FOR U.S. CREDIT UNIONS | DATA AS OF 03.31.20
© Callahan & Associates | CreditUnions.com

Cooperatives keep sights on short-term investments.

Average Life Profile: Weighted Average Life Shortens As Cash Balances Grow

As of March 31, the weighted average life of all credit union investments was 1.79 years. That’s down from 1.91 years as of Dec. 31, 2019, thanks to an influx of cash and shorter maturity investments. 

This is the second of a two-part series on credit union investment trends in 2020. To view part one, click here.

Specifically, the 33.3% increase in cash and equivalents offset the growth of longer maturity segments — five-10 years and more than 10 years were up 2.3% and 50.8%, respectively — to bring down the weighted average life of the industry investment portfolio. 

View this chart in Callahan’s Peer-to-Peer Analytics. It’s part of an ALM packet available under the Hot Topics section within the ALM-Interest Rate Risk Packet.

WEIGHTED AVERAGE LIFE OF INVESTMENT PORTFOLIO

FOR U.S. CREDIT UNIONS | DATA AS OF 03.31.20
© Callahan & Associates | CreditUnions.com

The weighted average life of all credit union investments was 1.79 years as of the first quarter, down from 1.91 years as of Dec. 31, 2019.

Derivatives: Program Participation Declines, Balances Increase From Year-End

Notional balances increased $11.8 billion from Dec. 31, 2019, to reach $18.9 billion as of March 31, 2020. Balances here finished the quarter up 168.3% annually following steady growth in the back half of 2019. Both the gain of 55.1% and total balances hitting $18.9 billion mark an all-time high for the industry. 

Corresponding with the increase in derivative balances, the number of credit unions that reported derivative usage fell by 13 institutions, from 75 in the fourth quarter of 2019 to 62 in the first quarter of 2020. 

TOTAL NOTIONAL DERIVATIVES

FOR U.S. CREDIT UNIONS | DATA AS OF 03.31.20
© Callahan & Associates | CreditUnions.com

Notional derivative balances increased $11.8 billion from Dec. 31, 2019, to reach $18.9 billion as of March 31, 2020.

Sam Taft is the AVP of Analytics at Callahan & Associates. He also leads the business development efforts for the Trust for Credit Unions family of mutual funds, of which Callahan Financial Services (a broker dealer subsidiary of Callahan & Associates) is the distributor.

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June 8, 2020


Comments

 
 
 
  • would think shorter assets and more cash build up is not helping CU margins and NII. Begs question why CUs so short with asset duration when liability duration significantly longer term and thus creating elevated exposure to current rate environment! Asset sensitive profile is not necessarily "conservative" and less risky, as rates fall and margins get squeezed, credit related issues generally increase in low rate environment
    Frank Farone