Record Setting Investment Balances Continue to Rise

Following a record setting second quarter, investment balances at credit unions rose 3.4% from June (up by $18.1 billion), totaling $551.9 billion at the end of September 2020. Within the portfolio, credit unions worked to deploy excess cash into traditional investments to mitigate rising earnings pressures following Fed rate cuts in March. Cash balances fell 2.5% from June, while investments in securities and certificates expanded 7.4%.

Despite segments of the economy in varying stages of re-opening this summer, deposit growth continued to outpace historical rates as consumers remained hesitant to resume spending at pre-COVID levels. In total, share balances rose 2.4% from June, and 18.1% over the last 12 months. Keeping with recent trends, core deposits (checking, savings and money market accounts) accounted for 113.4% of inflows, surpassing the 100% mark due to a contraction in certificate accounts. This marks the second consecutive quarter of certificate run-off after peaking in March 2020, as credit unions today face starkly different liquidity challenges than just nine months ago.

Similar to prior quarters, first mortgage gains accounted for the majority of balance sheet growth (73.9%), with balances rising 2.6% from June but below the pace reported from the first to second quarter of this year (3.5%). An uptick in used vehicle lending, rising 1.7% over the quarter for its fourth consecutive quarterly increase, helped push total credit union loan balances 1.6% higher on the quarter and 6.2% higher since September 2019. Aggregate loan portfolio growth was understated as credit unions sought to reduce interest rate risk and take advantage of historically wide margins on mortgage sales; first mortgages sold to the secondary market accounted for 41.2% of year-to-date originations as of the end of the third quarter, its highest level since September 2016.