Excess Cash and Reinvestment Weigh Heavy on Industry Yield

The average yield on investments declined 52 basis points in the first quarter of 2021, falling to 0.83% by the end of March, marking the lowest yield on record by a sizable margin (the prior low was 1.07% in March 2013). Despite modest portfolio extension, record low reinvestment rates and the 42.9% industry cash allocation offset the nominal gains resulting from the incremental duration addition. From a portfolio earnings perspective, investment income in the first quarter totaled nearly $1.3 billion, down 14.7% from the fourth quarter and down 15.4% year-over-year.

Average Life Profile Continues to Lengthen

As of March 31, the weighted average life of all credit union investments was 2.07 years, up from December (1.86) due to a shift in portfolio composition. Specifically, an increase in securities with longer maturities (five to 10 years and more than 10 years, up 60.1% and 36.1% quarterly, respectively) outweighed the 23.4% increase in cash and equivalents to extend the weighted average life of the industry investment portfolio.

Investment Composition Shows Surge in Agencies, Robust Mutual Fund Growth

Cash and investment balances rose $98.9 billion to surpass $700 billion at the end of the first quarter, the largest quarterly gain on record, surpassing the $86.9 billion increase in the second quarter of 2020. Keeping with recent trends, overnight cash balances accounted for 61.7% of quarterly growth, though down from the 65.4% contribution in the fourth quarter. The remainder of new investment dollars were primarily deployed to Federal agency securities MBS (23.1%) and non-MBS (9.5%). In aggregate, credit unions reported $273.1 billion in overnight cash balances, including $205.9 billion at the Fed and $52.3 billion at corporate credit unions, expanding 33.3% and 17.6% over the quarter, respectively.

Instant Insights /

Q1 Credit Union Investment Trends: Loan Portfolios Challenged to Keep Pace, Investments Exceed $700B

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