Office of the Chief Economist National Credit Union Administration California State Examiner School May 30, 2017
Credit Union Performance Trends Recent Data About Credit Union Performance in California, NCUA Region 5, and the Nation NCUA Region 5 is responsible for all federally insured credit unions in Alaska, Arizona, California, Guam, Hawaii, Idaho, Nevada, Oregon, Utah, and Washington, except for credit unions with assets in excess of $10 billion. 2
Credit Union Performance: Q4 Version 6 Membership Growth Quarter over Same Quarter a Year Earlier, Percent 5 4 3 2 1 0-1 2012.4 2013.4 2014.4 2015.4 2016.4 California Region 5 US 3
Credit Union Performance: Q4 Version 10 Deposit Growth Quarter over Same Quarter a Year Earlier, Percent 8 6 4 2 0 2012.4 2013.4 2014.4 2015.4 2016.4 California Region 5 US 4
Credit Union Performance: Q4 Version 16 14 12 10 8 6 4 2 0 Loan Growth Quarter over Same Quarter a Year Earlier, Percent 2012.4 2013.4 2014.4 2015.4 2016.4 California Region 5 US 5
Credit Union Performance: Q4 Version 1.4 1.2 1.0 0.8 0.6 0.4 0.2 Delinquency Rate In Quarter Shown, Percent 0.0 2012.4 2013.4 2014.4 2015.4 2016.4 California Region 5 US 6
Credit Union Performance: Q4 Version 1.2 ROA, Year to Date In Quarter Shown, Percent 1.0 0.8 0.6 0.4 0.2 0.0 2012.4 2013.4 2014.4 2015.4 2016.4 California Region 5 US 7
Key General Economy Trends Review the Recent Data About Jobs and Consumers 8
Job Growth Still Strong; Unemployment Rate At 10-Year Low Quarterly Average of Monthly Payroll Job Gains and Unemployment Rate thousands of jobs 500 400 300 200 100 0-100 -200-300 -400-500 -600-700 Change in nonfarm payrolls: Blue Bars (left axis) Unemployment Rate: Red Line (right axis) unemployment rate, percent 13 April 2017: 211K 12 April 2017: 4.4% Source: Bureau of Labor Statistics -800 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 11 10 9 8 7 6 5 4 3 2 1 0 9
Standard & Broad Rates Both Trending Down 20 18 16 14 12 10 8 6 4 2 Unemployment Rates: Standard and Broad percent Broad -- Unemployed, Underemployed & Discouraged Workers (U6) Source: Bureau of Labor Statistics Standard -- Unemployed Apr-17: 4.4% Apr-17: 8.6% 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 10
Broadest Measure of Labor Market Slack Coming Down but Still Slightly Elevated 8 7 6 5 Unemployment Rates: Broad less Standard percentage points 4 3 April: 4.2 percentage points 2 Broad--Unemployed, Underemployed & Discouraged Workers (U6) less Standard (U3) 1 Source: Bureau of Labor Statistics 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 11
California and U.S. Unemployment Rates 14 12 10 8 6 4 2 U.S. and State Unemployment Rate in Q4 percent California unemployment rate, % US Unemployment rate 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 12
Unemployment Rate and Credit Union Loan Growth 18 16 14 12 10 8 6 4 2 0-2 -4 Aggregate Credit Union Loan Growth & U.S. Unemployment Rate percent CU Loan Growth (Q4/Q4) -- Blue Bars Unemployment Rate in Q4 -- Red Line 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 13
Unemployment Rate and Credit Union Loan Growth 14 12 10 8 6 4 2 0 State Unemployment Rate in Q4 and CU Loan Growth (Q4/Q4) percent California CU loan growth, % (right axis) California unemployment rate, % (left axis) 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 20 15 10 5 0-5 -10-15 14
Unemployment Rate and Credit Union Loan Delinquency Rate 12 10 Aggregate Credit Union Delinquencies, Percent of Loans & U.S. Unemployment Rate in Q4, Percent CU Delinquency Rate -- Blue Bars (Right Axis) Unemployment Rate -- Red Line (Left Axis) 2.4 2.0 8 1.6 6 1.2 4 0.8 2 0.4 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 0.0 15
Unemployment Rate and Credit Union Loan Delinquency Rate 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 State Unemployment Rate in Q4 and CU Loan Delinquency Rate (Q4) percent California CU delinquency rate, % (right axis) California unemployment rate, % (left axis) 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 3.0 2.5 2.0 1.5 1.0 0.5 0.0 16
Where Are Unemployment Rates High? CA: 4.8% 17
Where is Labor Market Risk Rising? CA: -70 Basis Points 18
Consumer Sector Indicators OK 19 18 17 16 15 14 Consumer Financial Obligations Ratio percent of after-tax income Financial obligations as a share of disposable income have dropped sharply; remain relatively low Includes debt and rent/lease payments Low interest rates help 13 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Consumer confidence was roughly flat during 2015-16; jumped after election. Highest levels in a decade, well above recession lows. Still not back to pre-recession levels. 80 70 60 50 40 30 20 Summary Consumer Confidence Index Confidence Index, Jan 2000 = 100 Sources: Conference Board Reuters/University of Michigan Apr 2017 05 06 07 08 09 10 11 12 13 14 15 16 17 19
Credit Union Loan Portfolio: Autos and Homes 1000 900 800 700 600 500 400 300 200 100 0 Credit Union Lending by Loan Type Billions of $, Q4 2016Q4 Total Loans: $869 Billion 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Other (10%) Autos (34%) Credit Cards (6%) Real Estate (50%) 20
National New Motor Vehicle Sales Are Slowing 20 18 New Motor Vehicle Sales quarterly average of seasonally adjusted annual rates Average 2000-2007: 16.8M Apr. 2017: 16.9M 16 14 12 10 8 6 Source: AutoData 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 21
Credit Union Performance: Q4 Version 30 Auto Loan Growth Quarter over Same Quarter a Year Earlier, Percent 25 20 15 10 5 0 2012.4 2013.4 2014.4 2015.4 2016.4 California Region 5 US 22
Credit Union Performance: Q4 Version 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Data not available before 2013 Auto Loan Delinquency Rate In Quarter Shown, Percent 2013.4 2014.4 2015.4 2016.4 California Region 5 US 23
Home Sales Heading Higher 9,000 8,000 Home Sales by Quarter thousands, seasonally adjusted annual rate Tax Credits Expire Q1 2017: 6.2M 7,000 6,000 5,000 4,000 3,000 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Sources: National Association of Realtors, Census Bureau 24
Home Sales Heading Higher? Four Quarter Growth in Home Sales: 2017Q1 percent US 5.7 West 8.2 South 6.2 Share of U.S. Total Most Recent Four Quarters Northeast Midwest 2.8 4.6 West 23% South 42% Northeast 12% Midwest 23% Source: Census Bureau, NAR 0 2 4 6 8 10 25
Home Prices Continue to Rise Seattle, WA Portland, OR Dallas, TX Denver, CO Boston, MA Tampa, FL Miami, FL San Diego, CA San Francisco, CA Las Vegas, NV Chicago, IL Detroit, MI Charlotte, NC Minneapolis, MN United States Atlanta, GA Phoenix, AZ Los Angeles, CA Cleveland, OH Washington, DC New York, NY Percent Change in Case-Shiller Home Price Indexes 12 months ending February 2017 3.2 6.9 6.7 6.5 6.4 6.3 6.2 6.2 6.1 5.9 5.9 5.6 5.3 5.1 4.5 4.1 7.6 8.8 8.5 0 2 4 6 8 10 12 14 9.7 12.2 26
Home Prices Continue to Rise 300 250 California House price index US House price index U.S. and State House Price Indexes in Q4 Index 200 150 100 50 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Source: FHFA. Purchase only Price Index (1991Q1 = 100) 27
Credit Union Performance: Q4 Version 12 Real Estate Loan Growth Quarter over Same Quarter a Year Earlier, Percent 10 8 6 4 2 0-2 2012.4 2013.4 2014.4 2015.4 2016.4 California Region 5 US 28
Credit Union Performance: Q4 Version 1.4 1.2 1.0 0.8 0.6 0.4 0.2 Fixed Rate Real Estate Loan Delinquency Rate In Quarter Shown, Percent 0.0 2012.4 2013.4 2014.4 2015.4 2016.4 California Region 5 US 29
Credit Union Performance: Q4 Version 12 10 Member Business Loans as a Share of All Loans 1995-2016, percent U.S. MBL share in 2016Q4: 7.2% (bars) CA MBL share in 2016Q4: 9.0% (line) 8 6 4 2 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 30
Valuations Generally Rising with Multifamily Leading Other Sectors Index Value (2000 Dec = 100) 300 275 250 225 200 175 150 125 100 75 50 25 U.S. Primary Property Type Quarterly Indices - Equal Weighted, Data through March of 2017 U.S. Office U.S. Industrial U.S. Retail U.S. Multifamily 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: CoStar CCRSI Release, April 2017 31
Valuations Generally Rising in the West U.S. West Property Type Quarterly Indices - Equal Weighted Data through March of 2017 350 West Office West Industrial West Retail West Multifamily Index Value (2000 Dec = 100) 300 250 200 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: CoStar CCRSI Release, April 2017 32
Credit Union Performance: Q4 Version 5.0 4.5 4.0 Member Business Loan Delinquency Rate 1995-2016, percent U.S. MBL DQ rate in 2016Q4: 158 basis points CA MBL DQ rate in 2016Q4: 32 basis points 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 33
Monetary Policy Indicators Jobs, Inflation, and Interest Rates 34
Inflation Heading Higher? 3.5 Two Views of Core Inflation 12-month inflation rate, percent 3.0 2.5 Fed Inflation Target Core CPI 2.0 1.5 1.0 0.5 Core PCE -- Fed Sources: Bureau of Labor Statistics, Bureau of Economic Analysis Preferred 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 35
Fed Dot Chart: Interest Rates Headed Higher? 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Midpoint of Target Range of Federal Funds Rate at end of year, % Federal Reserve Board Members and Bank Presidents, March 2017 Bars - Median of midpoints of target range Blue Dots - Range of midpoints of target range Small Red Dots - December 2016 median of midpoints 2012 2013 2014 2015 2016 2017 2018 2019 Longer Run Source: Federal Reserve Actual target rate 2012-2016 (Midpoint of range) 36
Credit Union Deposit Rates 8 7 Credit Union Deposit Rates and Three Month Treasury Bill Rate, Q4 percent Share drafts Regular shares Money market funds Share certificates 3 month bill 6 5 4 3 2 1 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 37
Fed Dot Chart: Interest Rates Headed Higher? 4.0 3.69 3.63 Median of Appropriate Fed Funds Target for 2017Q4 Forecasts from September 2014 through March 2017 3.5 3.0 2.5 3.13 2.88 2.63 2.38 2.0 1.5 1.88 1.63 1.10 1.40 1.40 1.0 0.5 0.0 Source: Federal Reserve Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 38
Private Forecaster Outlook: Term Spread 4.0 3.5 3.0 2.5 2.0 1.5 1.0 Interest Rate Forecasts from May WSJ Survey average of forecasts, percent 0.9 Federal Funds Rate 2.3 1.1 2.5 1.4 10-year Treasury Rate 2.8 1.8 3.0 2.2 3.3 2.5 3.5 3.6 2.7 0.5 0.0 Apr (actual) June 2017 Dec 2017 June 2018 Dec 2018 June 2019 Dec 2019 39
Private Forecaster Outlook: Term Spread Implied Term Spread Forecast: May WSJ Survey percentage points 1.4 1.4 1.4 1.3 1.1 10-year Treasury note less federal funds rate 0.9 0.8 Apr (actual) June 2017 Dec 2017 June 2018 Dec 2018 June 2019 Dec 2019 40
Yield Curve is Flattening; Longer End of Short Maturity is Heading Higher 6 5 4 3 Treasury Yield Curves percent Dec 2013 average (Most recent long term rate highs) June 2014 avg Dec 2015 avg 2002-07 average 2 1 0 April 2016 average 3m 1 2 3 5 7 10 20 30 Years 41
Consensus Forecast Consensus forecast for the next year or so is not very exciting. Economy grows 2-2.5% at annual rate (long-term history is more than 3%, but some slowdown from demographics was likely anyway). Unemployment steadies at just over 4.5% -- full employment. Consumer price inflation averages around 2% (oil prices remain a wildcard). Interest rates move slowly higher Federal Reserve/private forecaster path. Sectoral/regional developments may influence credit unions more than national trends. 42
Risk Scenarios Two Scenarios with Significant Probabilities. A. U.S. Downturn: Foreign Growth Slowdown No Replay of Great Recession, tight fiscal policy, trade war National unemployment rate rises to 7% or so (not 10%) Inflation stays down House prices edge down or are flat. Interest rates stay low. Fed may reduce funds rate. B. U.S. Economy Picks Up More than Expected: Tax cuts, infrastructure spending, foreign growth recovery Unemployment declines more sharply than in the consensus. Inflation moves higher along with oil prices. House prices continue to rise. Fed raises funds rate 3 or 4 times. Long rates rise, but not by as much as short. 43
Exposure to Export Outlook: Export-Supported Jobs by State Merchandise Exports, 2016 Total Exports to China $billions $billions % of total exports Alaska 5.1 1.5 28.7 Arizona 21.2 1.0 4.8 California 173.9 16.1 9.2 Hawaii 1.4 0.2 15.3 Idaho 5.1 0.5 9.4 Nevada 7.7 0.6 7.6 Oregon 20.9 4.3 20.4 Utah 12.2 0.9 7.3 Washington 90.6 20.7 22.9 Region V 338.2 45.7 13.5 United States 1,458.9 115.8 7.9 44
Contact Us RMonaco@ncua.gov OCEMail@ncua.gov 45
Background Recent National Credit Union Indicators 46
Credit Union Performance Indicators 100 80 60 40 20 67 Credit Union ROAA in Q4, 2011-2016 in Basis points 85 78 80 75 77 0 2011 2012 2013 2014 2015 2016 Source: NCUA Call Reports 47
Credit Union Performance Indicators 80 76 Loan to Share Ratio in Q4, 2011-2016, Percent 74.9 77.5 79.5 72 68 69.1 68.1 70.9 64 60 2011 2012 2013 2014 2015 2016 Source: NCUA Call Reports 48
Credit Union Performance Indicators 12 10 8 6 4 2 0 Four-quarter CU Loan Growth Ending in Q4, 2011-2016 Percent 1.2 4.6 8.0 10.4 10.5 10.4 2011 2012 2013 2014 2015 2016 Source: NCUA Call Reports 49
Credit Union Performance Indicators 1.75 1.60 1.50 Credit Union Loan Delinquency Rate in Q4 percent 1.25 1.00 1.16 1.01 0.85 0.81 0.83 0.75 0.50 0.25 0.00 2011 2012 2013 2014 2015 2016 Source: NCUA Call Reports 50
Credit Union Performance Indicators 3.20 Credit Union Net Interest Margin in Q4, 2011-2016 YTD, percent of average assets 3.12 3.00 2.80 2.92 2.80 2.84 2.85 2.88 2.60 2.40 2.20 2.00 2011 2012 2013 2014 2015 2016 Source: NCUA Call Reports 51
Credit Union Performance Indicators 12.0 Credit Union Net Worth Ratio in Q4, 2011-2016 percent 11.0 10.0 10.21 10.43 10.77 10.96 10.92 10.89 9.0 8.0 7.0 2011 2012 2013 2014 2015 2016 Source: NCUA Call Reports 52
Credit Union Performance Indicators Credit Union Net Long-Term Asset Share in Q4, 2010-2015 percent 38 36 34 32 30 28 26 24 22 20 32.4 32.9 Source: NCUA Call Reports 35.9 33.6 32.8 33.0 2011 2012 2013 2014 2015 2016 53