US Credit unions Working Off Excess Liquidity

Source: S&P Global Market Intelligence

Liquid assets, which are cash and cash equivalents plus investments maturing in one year or less, peaked in the first quarter of 2021. Liquidity totaled $402.56 billion at March 31, 2021, almost double from year-end 2019 as credit unions maneuvered their balance sheets for greater safety and flexibility. The liquidity ratio, which shows liquid assets as a proportion of total assets, rose to 20.4% from 12.9%.

During the last three quarters, the credit union industry has steadily drawn down that liquidity. At year-end 2021, liquid assets were $356.72 billion, or 17.2% of total assets.

Some of the liquidity has been flowing into total loans and leases. In the fourth quarter of 2021, loans were up 2.6% quarter over quarter, the largest linked-quarter increase since the second quarter of 2018 and besting the 2.2% quarter-over-quarter increase in shares and deposits. That continued a trend: In the second and third quarters, loan growth was higher than deposit growth by 115 basis points and 52 basis points, respectively.

The majority of the loan growth is coming from fixed-rate first mortgages, approximately two-thirds of which had maturities greater than 15 years at the end of 2021. Used vehicle loans represent another growth category, rising to $265.01 billion from $243.17 billion at March 31, 2021.

Credit unions also have been adding investments that mature after one year, with a focus on the three- to five-year maturity products. On the other hand, the industry continues to shy away from investments with greater than a 10-year maturity, which comprise just 4% of total investments.

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