CU Trade Group Cuts Earnings Forecast for 2024

A forecast released this month by America’s Credit Unions shows earnings this year falling to their lowest rate since 2010, the year after the end of the Great Recession.

ROA was 0.89% in 2022 — close to the long-term average, but Callahan & Associates estimated last week it fell to 0.68% in 2023.

In its August forecast, CUNA predicted credit union net income in 2024 would be 0.65% of average assets. But economists from the former CUNA and the former NAFCU, which merged to become America’s Credit Unions Jan. 1, now predict ROA will fall to 0.50% this year.

A report dated Feb. 9 containing the forecast said factors contributing to the falling earnings include narrower net interest margins, low fee income, rising expense-to-asset ratios “and possibly a mild rise in loan loss expenses.”

In a video filmed on or shortly after Jan. 31 to present the group’s January forecast, economist Michael Schenk said the forecast “represents a significant decline overall in bottom-line results, and is a direct reflection of some of the many challenges credit unions will be wrestling with, including liquidity challenges.”

The report was presented in the video by the top two economists at America’s Credit Unions: Schenk, who described himself as the “legacy CUNA’s chief economist,” and Curt Long, who Schenk described as the “legacy NAFCU chief economist.”

Schenk said economists from the combined organization believe the Fed will be able to achieve a “soft landing” — taming inflation without forcing the economy into recession.

“That’s great news, but we do also think economic activity is going to slow down in the current year, and that could be a bit of a challenge for many,” Schenk said.

Long said the fourth quarter’s 3.3% increase in gross domestic product was surprisingly strong after a third-quarter gain of nearly 5%. Consumer spending, which accounts for most of the growth, is being supported by a strong job market with low unemployment.

But the economists think the growth will slow this year as unemployment rises to 4.2% by the end of the year.

“Credit unions will be challenged, their members will be challenged if this baseline forecast actually plays out the way we expect it to,” Schenk said.

Long said the unemployment rate will be a critical indicator for credit unions to watch as they calculate how much they need to reserve for potential loan losses.

The economists expect the Fed to cut rates three or four times this year with the first cuts not likely before May. But Long said the benefits will lag behind the cuts. “It’s still going to be a tough year for share growth.”

Their forecast calls for share growth to rise from 1% in 2023 to 3% in 2024 — both well below the 10-year average of 7.7%. Loan portfolio growth is expected to fall from 7% in 2023 to 4% this year.

“This will be a challenging year,” Schenk said. “That’s kind of a scary prospect for many of us. But it’s important to remember these are the times when credit unions shine.

“We were built in the midst of the Great Depression to help people get through tough times. My bet is we will continue behaving in that manner no matter what comes in 2024.”