Gladwyne
Banking Trends & Supervisory Update William Spaniel Senior Vice President and Lending Officer
Overview Banking Trends Regulatory Updates Regulatory Relief Resources
Banking Trends Third District conditions remain stable and continue to improve Capital ratios are increasing Asset quality metrics improving Banks are adjusting balance sheets in preparation of rising rate environment Third District challenges to financial performance Banks are augmenting earnings with nonrecurring income sources
Banking Trends Third District challenges to financial performance Increased competition for loans and deposits Greater reliance on noncore funding sources to grow balance sheets Commercial real estate concentrations are closely monitored by regulators At national level, seeing declines in the subprime areas for auto lending and credit card portfolios
Regulatory Relief Interagency efforts (final) Adopted rule to expand examination cycle for qualifying institutions (SR letter 17-2) Issued an advisory to address appraisal shortage Permits for temporary practice and reciprocity by state appraiser regulatory agencies Temporary waivers from certification or licensing requirements to perform appraisals (SR letter 17-4)
Regulatory Relief Interagency notices (proposed rules) Increase appraisal threshold for CRE transactions to $400 thousand Revisions to Call Report Federal Reserve proposals Provide better direction to management and board of directors Treasury Report issued June 12, 2017
Regulatory Updates Consumer compliance New interagency consumer compliance rating system, effective March 31, 2017 (CA letter 16-8) Increased reporting of cases relating to fair lending and Unfair, Deceptive or Abusive Acts and Practices Amendments to Home Mortgage Disclosure Act will increase reporting requirements
Regulatory Updates Cybersecurity Financial institutions remain targets for cybersecurity attacks and must have fundamentals in place for protection Regulators encourage the use of the cybersecurity assessment tool Marijuana banking
Regulatory Updates CECL Regulatory agencies issued frequently asked questions (SR letter 17-8) and plan to update guidance as needed Examiners may ask about preparation and planning for compliance during supervisory events Financial institutions need to be thoughtful in approach and preparation
Resources Supervision, Regulation and Credit will host outreach events throughout Third District in 2017 and 2018 Outreach Coordinator Ivy Washington (Ivy.Washington@phil.frb.org) Publications and other Federal Reserve opportunities Ask the Fed Community Banking Connections Consumer Compliance Outlook
Banking Trends & Supervisory Update William Spaniel Senior Vice President and Lending Officer
Report on Economic Developments Ryo Tashiro* Economic and Public Outreach Associate *The views expressed today are my own and not necessarily those of the Federal Reserve Bank of Philadelphia or the Federal Reserve System
PRESENTATION OUTLINE GDP and near-term outlook (3 slides) Employment conditions (6 slides) Skills mismatch in the labor market (3 slides) Housing conditions update (2 slides) Inflation and monetary policy update (2 slides)
GDP and near-term outlook
GROWTH AND FORECAST FOR U.S. REAL GDP Quarterly (SAAR): 2008:Q1-2018:Q3 Annualized quarterly growth rate (SAAR) 6% 4% 2% 0% 2017: Q2=3.0% -2% -4% -6% -8% Date 2017:Q3 2017:Q4 2018:Q1 2018:Q2 2018:Q3 Forecast 2.6% 2.3% 2.2% 2.4% 2.4% Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 2016 Jan 2018 GDP SPF Forecast Source: BEA via Haver Analytics Quarters plotted (actual): 2008:Q1-2017:Q2 (second estimate) Quarters plotted (forecast): 2017:Q3-2018:Q3
THIRD DISTRICT CURRENT BUSINESS OUTLOOK Most recent values are labeled Diffusion index (% reporting increase less % reporting decrease) 60 50 40 30 20 30.7 23.8 10 0-10 -20-30 -40 Manufacturing Non-Manufacturing Source: FRB Philadelphia via Haver Analytics Months plotted: Jan 2007 - Sep 2017 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 2016 Jan 2018
THIRD DISTRICT FUTURE BUSINESS OUTLOOK Most recent values are labeled Diffusion index (% reporting increase less % reporting decrease) 70 60 50 40 55.2 44.9 30 20 10 0-10 Manufacturing Non-Manufacturing Source: FRB Philadelphia via Haver Analytics Months plotted: Jan 2007 - Sep 2017 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 2016 Jan 2018
Employment conditions
CHANGE IN MONTHLY U.S. PAYROLL EMPLOYMENT Black lines indicate annual averages (in thousands) Change in payroll employment (thousands, SA) Aug 2017: 156 Avg last 12 months 174.8 350 300 250 249.8 226.1 200 150 174.2 178.5 191.8 186.7 175.6 100 50 0 Source: BLS via Haver Analytics Months plotted: Jan 2011 - Aug 2017 Black lines indicate annual averages. Jan 2012 Jan 2014 Jan 2016
STATE COINCIDENT INDEXES Percentage change over the last 3 months Source: FRB Philadelphia
TRI-STATE METRO AREA EMPLOYMENT GROWTH Year-over-year percentage change (3-month moving average) A = Allentown-Bethlehem-Easton MSA B = Altoona MSA C = Atlantic City-Hammonton MSA D = Bloomsburg-Berwick MSA E = Camden Metro Division F = Chambersburg-Waynesboro MSA G = Dover MSA H = East Stroudsburg MSA I = Erie MSA J = Gettysburg MSA K = Harrisburg-Carlisle MSA L = Johnstown MSA M = Lancaster MSA N = Lebanon MSA O = Montgomery-Bucks-Chester County MD P = Newark Metro Division Q* = New York-New Jersey-White Plains MD R = Ocean City MSA S = Philadelphia-Delaware County MD T = Pittsburgh MSA Source: Calculations from BLS data via Haver Analytics. U = Reading MSA V* = Salisbury MSA W = Scranton-Wilkes-Barre-Hazelton MSA X = State College MSA Y = Trenton MSA Z = Vineland-Bridgeton MSA AA = Williamsport MSA AB* = Wilmington Metro Division AC = York-Hanover MSA AD* = Youngstown-Warren MSA * Also includes counties not shown on map.
ANNUAL EMPLOYMENT GROWTH BY SECTOR U.S., PA, and Montgomery-Bucks-Chester County MD Total Total Private Mining, Logging & Construction Manufacturing Trade, Trans & Utilities Information Financial Prof & Bus Services Education & Health Services Leisure & Hospitality Government -2% 0% 2% 4% 6% US PA Montgomery-Bucks-Chester County MD Source: Calculations from BLS via Haver Analytics. Last month included: Aug 2017
U.S., PA, AND LOCAL UNEMPLOYMENT RATES Monthly, seasonally adjusted (most recent value labeled) Percent (seasonally adjusted) 9% 6% 3% 4.9 % 4.4 % 3.9 % 0% US PA Montgomery-Bucks-Chester Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 2016 Jan 2018 Source: BLS via Haver Analytics Last month plotted: US and PA (Aug 2017): MSA (July 2017)
JOB OPENINGS AND LABOR TURNOVER SURVEY United States, Seasonally Adjusted Job Openings, Hires, and Separations (Seasonally Adjusted) 5% 4% 4.0 % 3.8 % 3% 2% 2.2 % 1% 1.2 % 0% Openings Hires Quits Layoffs Jan 2005 Jan 2010 Jan 2015 Source: BLS via Haver Analytics Months plotted: Jan 2001 - Jul 2017
Skills mismatch in the labor market
MANUFACTURING BUSINESS OUTLOOK SURVEY March 2017, Special Questions Section Has your firm experienced any significant labor shortages or mismatch between labor skill requirements and the labor supply? May 2014 (%) March 2017 (%) Labor shortages 32.9 Skills mismatch 45.7 60.3 67.6 Job vacancies remaining more than 3 months 32.8 47.1 Source: Federal Reserve Bank of Philadelphia
BEVERIDGE CURVE Based on BLS' JOLTS, United States (seasonally adjusted) Job Openings Rate 4.0% Dec 2001 - Dec 2007 (Pre-Recession) Jan 2008 - Jun 2009 (Recession) Jul 2009 - Present (Post-Recession) 3.5% 3.0% 2.5% 2.0% 4% 6% 8% 10% Unemployment Rate Source: BLS via Haver Analytics Months plotted: Dec 2001 - Jul 2017
TOP CONTRIBUTORS BY SECTOR Sector contribution of decline in job filling rate, 2010-2012 vs 2015-2017 Sector (United States) Contribution Professional and Business Services 22.37% Retail Trade 15.55% Accommodation and Food Services 14.65% Health Care and Social Assistance 12.50% Construction 11.48% Source: Calculations using data from the BLS. Monthly data for 2017 include up to July
Housing conditions update
YEAR-OVER-YEAR STATE HOME PRICE GROWTH Core Logic Index, 3-month moving average (nominal) Source: Calculations from Core Logic Last month included: Jul 2017
REO ACTIVITY As a share of all active loans (most recent and last year s values labeled) Percentage of active loans (Seasonally Adjusted): most recent and last year's observation labeled 1.5% US PA Montgomery-Bucks-Chester 1.0% 0.9 % 0.5% 0.6 % 0.5 % 0.8 % 0.5 % 0.4 % 0.0% Source: McDash-HMDA via RADAR Months plotted: Jan 1997 - Jul 2017 Jan 2000 Jan 2005 Jan 2010 Jan 2015
Inflation and monetary policy update
U.S. PCE INFLATION Year-over-year (seasonally adjusted) Year-over-year percent change (seasonally adjusted) 4% 3% 2% 1% 1.4 % 2.0 % 1.4 % 0% -1% -2% PCE PCE Core FOMC Target Jan 2000 Jan 2005 Jan 2010 Jan 2015 Source: BEA via Haver Analytics Months plotted: Jan 2000 - Jul 2017
MARKET-IMPLIED PROBABILITY OF A RATE HIKE Based on CME Fed Funds Futures Contracts (as of Sep. 21, 2017) Probability 70% Nov Dec 60% 63.8 % 50% 40% 30% 20% 10% 0% 2.8 % Source: Bloomberg Days plotted: Jun. 14, 2017 - Sep. 21, 2017 Shading represents FOMC meeting dates. Jul 2017 Aug 2017 Sep 2017
SUMMARY Forecast for GDP growth remains optimistic due to strong growth in consumption, around 2% throughout the year Employment growth continues to be slow but steady in the nation and in PA, with service-providing sectors being the key drivers Recent slowness in the labor market could be due to skills mismatch, which is causing the labor market to be inefficient Home price growth will likely be slower than the national average in the near-term in PA with larger REO volumes to clear The pace of inflation will be the key for upcoming monetary policy decisions
Questions? Ryo Tashiro Economic and Public Outreach Associate Ryo.Tashiro@phil.frb.org Request a Fed Speaker: http://philadelphiafed.org/sbform
ADDITIONAL SLIDES
GDP GROWTH BY SECTOR OVER LAST 8 QUARTERS Black lines indicate historical averages from 1980:Q1 to 2017:Q2 Annualized quarterly growth (SAAR) 10% 5% 4.1% 5.3% 5.8% 2.6% 2.9% 1.7% 0% -5% Real GDP Consumption Investment Exports Imports Government Source: BEA via Haver Analytics Last quarter included: 2017:Q2 (second estimate) Black lines indicate sector averages from 1980:Q1 to 2017:Q2
CONSUMPTION GROWTH OVER LAST 4 QUARTERS Black lines indicate historical averages from 1980:Q1 to 2017:Q2 Annualized quarterly growth (SAAR) 10% 8% 6% 5.9% 4% 2% 2.9% 3.4% 2.3% 2.8% 0% Consumption Goods Durable Goods Source: BEA via Haver Analytics Last quarter included: 2017:Q2 (second estimate) Black lines indicate sector averages from 1980:Q1 to 2017:Q2 Non- Durable Goods Services
CONSUMER CONFIDENCE INDEXES University of Michigan and Conference Board Index (U Mich: 66Q1 = 100, Conference Board: 1985=100) 120 122.9 100 102.6 95.3 80 60 40 20 Univ of Michigan Conference Board CB Mid-Atlantic Jan 2000 Jan 2005 Jan 2010 Jan 2015 Source: University of Michigan and Conference Board via Haver Analytics Months plotted: Jan 2000 to Sep 2017
INVESTMENT GROWTH OVER LAST 4 QUARTERS Black lines indicate historical averages from 1980:Q1 to 2017:Q2 Annualized quarterly growth (SAAR) 15% 10% 5% 0% 4.1% 4.0% 1.1% 5.1% 6.2% 2.5% -5% Investment Non- Residential Structures Equipment Intellectual Property Residential Source: BEA via Haver Analytics Last quarter included: 2017:Q2 (second estimate) Black lines indicate sector averages from 1980:Q1 to 2017:Q2
EXPORTS AND IMPORTS GROWTH OVER LAST 4 QUARTERS Black lines indicate historical averages from 1980:Q1 to 2017:Q2 Annualized quarterly growth (SAAR) 10% 5% 5.3% 5.4% 5.6% 5.8% 6.1% 5.2% 0% -5% Exports Goods (X) Services (X) Imports Goods (M) Services (M) Source: BEA via Haver Analytics Last quarter included: 2017:Q2 (second estimate) Black lines indicate sector averages from 1980:Q1 to 2017:Q2
GOVERNMENT GROWTH OVER LAST 4 QUARTERS Black lines indicate historical averages from 1980:Q1 to 2017:Q2 Annualized quarterly growth (SAAR) 6% 4% 2% 1.7% 1.8% 1.7% 2.6% 1.6% 0% -2% -4% Government Federal Defense Non- Defense State and Local Source: BEA via Haver Analytics Last quarter included: 2017:Q2 (second estimate) Black lines indicate sector averages from 1980:Q1 to 2017:Q2
REAL GDP GROWTH IN SELECTED AREAS Annualized quarterly growth Real Q/Q Annualized Growth Rate 20% 10% 0% 6.7 % 3.7 % 3.0 % 2.3 % 2.4 % -10% US (2017:Q2) Euro Area (2017:Q1) Canada (2017:Q1) Mexico (2017:Q2) China (2017:Q2) Jan 2000 Jan 2005 Jan 2010 Jan 2015 Sources: BEA, International Financial Statistics, and China's National Bureau of Statistics via Haver Analytics
TRADE-WEIGHTED U.S. DOLLAR INDEXES (Nominal, not seasonally adjusted) Trade-Weighted Indexes (January 1997 = 100) 140 120 119.3 100 97.9 80 60 Major Broad Jan 2000 Jan 2005 Jan 2010 Jan 2015 Source: Federal Reserve Board via Haver Analytics Months plotted: Jan 2000 - Aug 2017
GROWTH IN AVERAGE HOURLY EARNINGS Year-over-year percentage change, total private Percent change in average hourly earnings (seasonally adjusted) 4% 3% 2.5 % 2% 1% 0% Total Private Source: Calculations from BLS Months plotted: Mar 2007 to Aug 2017 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 2016 Jan 2018
FRB ATLANTA WAGE TRACKER From the Current Population Survey (3-month moving average) Year-over-year percentage change 6% 5% 4% 3% 3.5 % 3.4 % 2% 1% 0% Overall Prime Age (25-54) Jan 2000 Jan 2005 Jan 2010 Jan 2015 Source: FRB Atlanta via Haver Analytics Months plotted: Jan 2000 to Aug 2017
YOY EMPLOYMENT GROWTH BY SECTOR U.S., PA, and Philadelphia-Delaware MD Total Total Private Mining, Logging & Construction Manufacturing Trade, Trans & Utilities Information Financial Prof & Bus Services Education & Health Services Leisure & Hospitality Government -4% -2% 0% 2% 4% 6% 8% US PA Philadelphia-Delaware MD Source: Calculations from BLS via Haver Analytics. Last month included: Aug 2017
TRI-STATE METRO AREA UNEMPLOYMENT RATE Year-over-year percentage change (3-month moving average) A = Allentown-Bethlehem-Easton MSA B = Altoona MSA C = Atlantic City-Hammonton MSA D = Bloomsburg-Berwick MSA E = Camden Metro Division F = Chambersburg-Waynesboro MSA G = Dover MSA H = East Stroudsburg MSA I = Erie MSA J = Gettysburg MSA K = Harrisburg-Carlisle MSA L = Johnstown MSA M = Lancaster MSA N = Lebanon MSA O = Montgomery-Bucks-Chester County MD P = Newark Metro Division Q* = New York-New Jersey-White Plains MD R = Ocean City MSA S = Philadelphia-Delaware County MD T = Pittsburgh MSA Source: Calculations from BLS data via Haver Analytics. U = Reading MSA V* = Salisbury MSA W = Scranton-Wilkes-Barre-Hazelton MSA X = State College MSA Y = Trenton MSA Z = Vineland-Bridgeton MSA AA = Williamsport MSA AB* = Wilmington Metro Division AC = York-Hanover MSA AD* = Youngstown-Warren MSA * Also includes counties not shown on map.
U.S., PA, AND PHILADELPHIA MD UNEMPLOYMENT RATES Monthly, seasonally adjusted (most recent value labeled) Percent (seasonally adjusted) 9% 6% 5.5 % 4.9 % 4.4 % 3% 0% US PA Philadelphia Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 2016 Jan 2018 Source: BLS via Haver Analytics Last month plotted: US and PA (Aug 2017): MSA (July 2017)
U.S. UNEMPLOYMENT RATE Monthly, seasonally adjusted (most recent and last year's values labeled) Percent (seasonally adjusted) 16% 12% 9.7 % 8% 8.6 % 4% 4.9 % 4.4 % 0% U3 U6 Jan 2000 Jan 2005 Jan 2010 Jan 2015 Source: BLS via Haver Analytics Months plotted: Jan 2000 to Aug 2017 Dotted lines indicate average from 2002-2007.
INITIAL CLAIMS FOR UNEMPLOYMENT INSURANCE Weekly Average, seasonally adjusted (most recent and max values labeled) Thousands (seasonally adjusted) 700 600 659 500 400 300 200 247 100 0 Initial Claims for Unemployment Insurance Jan 2000 Jan 2005 Jan 2010 Jan 2015 Source: Department of Labor via Haver Analytics Months plotted: Jan 2000 to Aug 2017
PART-TIME EMPLOYMENT DUE TO THE ECONOMY Monthly, seasonally adjusted (most recent and max values labeled) Thousands of people (seasonally adjusted) 10000 9,126 8000 6000 5,179 4000 2000 0 Employed part-time due to the economy Jan 2000 Jan 2005 Jan 2010 Jan 2015 Source: BLS via Haver Analytics Months plotted: Jan 2000 to Aug 2017
U.S. AND PA LABOR FORCE PARTICIPATION RATES Monthly, seasonally adjusted (most recent and max values labeled) Percent (seasonally adjusted) 68% 67.3 % 66% 65.3 % 64% 62% 62.9 % 62.7 % 60% 58% US PA Source: BLS via Haver Analytics Last month plotted: Aug 2017 Jan 1980 Jan 1990 Jan 2000 Jan 2010
JOB FILLING RATE All Sectors, Seasonally Adjusted (from JOLTS data) Hires/Openings Ratio (Seasonally Adjusted) 1.5 1.0 1 0.5 0.0 All Sectors Jan 2005 Jan 2010 Jan 2015 Source: BLS via Haver Analytics Months plotted: Jan 2001 - Aug 2017
JOB OPENINGS AND LABOR TURNOVER SURVEY Educational and Health Services Sector, Seasonally Adjusted Job Openings and Hires (Seasonally Adjusted) 8% 6% 4.8 % 4% 2.9 % 2% 0% Openings Hires Jan 2005 Jan 2010 Jan 2015 Source: BLS via Haver Analytics Months plotted: Jan 2001 - Jul 2017
JOB OPENINGS AND LABOR TURNOVER SURVEY Durable Manufacturing Sector, Seasonally Adjusted Job Openings and Hires (Seasonally Adjusted) 8% 6% 4% 2.6 % 2% 2.5 % 0% Openings Hires Jan 2005 Jan 2010 Jan 2015 Source: BLS via Haver Analytics Months plotted: Jan 2001 - Jul 2017
YEAR-OVER-YEAR MONTHLY U.S. HOME PRICE GROWTH Case-Shiller and Core Logic Indexes, seasonally adjusted Percent (seasonally adjusted) 16% 12% 8% 4% 6.5 % 5.7 % 0% -4% -8% -12% -16% -20% Case-Shiller Core Logic Jan 2000 Jan 2005 Jan 2010 Jan 2015 Source: Standard & Poors and Core Logic via Haver Analytics Months plotted: Jan 2000 to Jul 2017 Dotted lines indicate average from 2002-2007.
TRI-STATE AREA HOME PRICE GROWTH Year-over-year, Core Logic index (3-month moving average) Source: Calculations from Core Logic data. Last month included: Jul 2017
FORECLOSURE ACTIVITY As a share of all active loans (most recent and last year s values labeled) Percentage of active loans (Seasonally Adjusted): most recent and last year's observation labeled 4% US PA Montgomery-Bucks-Chester 3% 2% 1.3 % 1.2 % 1% 1.0 % 0.9 % 0.9 % 0.8 % 0% Jan 2000 Jan 2005 Jan 2010 Jan 2015 Source: McDash-HMDA via RADAR Months plotted: Jan 1997 - Jul 2017
FORECLOSURE ACTIVITY As a share of all active loans (most recent and last year s values labeled) 5% Percentage of active loans (Seasonally Adjusted): most recent and last year's observation labeled 4% 3% 2% 1.8 % 1.6 % 1% 1.3 % 1.2 % 1.0 % 0.9 % 0% US PA Philadelphia-Delaware Source: McDash-HMDA via RADAR Months plotted: Jan 1997 - Jul 2017 Jan 2000 Jan 2005 Jan 2010 Jan 2015
REO ACTIVITY As a share of all active loans (most recent and last year s values labeled) Percentage of active loans (Seasonally Adjusted): most recent and last year's observation labeled 1.5% 1.0% 1.1 % 0.9 % 0.6 % 1.0 % 0.8 % 0.5% 0.5 % 0.0% US PA Philadelphia-Delaware Source: McDash-HMDA via RADAR Months plotted: Jan 1997 - Jul 2017 Jan 2000 Jan 2005 Jan 2010 Jan 2015
FEDERAL FUNDS RATE DOT PLOT COMPARISON June 2017 vs September 2017 Percent 5 4 3 2 1 0 2017 2018 Jun 2017 Projections Sep 2017 Projections Source: FOMC Projections, June 2017 and September 2017
ASSET SIDE OF THE FED'S BALANCE SHEET Weekly dates plotted: Jan. 3, 2007 to Sep. 13, 2017 Trillions of dollars $5 $4 $3 $2 $1 $0 Treasury Securities Agency Securities Loans Other Assets Jan 2008 Jan 2010 Jan 2012 Jan 2014 Jan 2016 Jan 2018 Source: Board of Governors via Haver Analytics Weeks plotted: Jan. 3, 2007 - Sep. 13, 2017
SELECTED INTEREST RATES Most recent values are labeled Percent 8% 6% 4% 3.4 % 2% 2.2 % 1.2 % 1.0 % 0% 3Mo T-bill Fed Funds Rate 10Yr Treasury AAA Corporate Bond Jan 2000 Jan 2005 Jan 2010 Jan 2015 Source: FRB BOG and Moody's via Haver Analytics Months plotted: Jan 2000 - Aug 2017
AVERAGE WEEKLY OIL PRICES (PER BARREL) West Texas Intermediate (WTI) and Brent spot prices (seasonally adjusted) Dollars per barrel (weekly average, seasonally adjusted) $140 $120 $100 $80 $60 $40 $53.61 $46.86 $20 WTI Brent Jan 2005 Jan 2010 Jan 2015 Source: Energy Information Administration via Haver Analytics Weeks plotted: Jan. 7, 2005 - Sep. 15, 2017