1. Credit Union Association of the Dakotas 2012 Annual Summit June 28, 2012 The Economy and Credit Union Operations Mike Schenk Vice President, Economics & Statistics Credit Union National Association Telephone: 608-231-4228 Facsimile: 608-231-4924 E-Mail: mschenk@cuna.com

2. Macro Economics Three big goals: 1. 2. 3.

3. Gross Domestic Product Percent Changes - $2005. Source: BEA

7. Economic Trends Growing but pace is slowing and rate is low Labor markets improving but trend is problematic Consumer confidence low and shaky Inflation largely in check Big risks remain – Europe Exports Banks – US Budget Big budget cuts looming Bush tax cuts, payroll tax cut, extended unemployment benefits end

8. Market Interest Rates 1960 to 2012

9. Household Finances Recovering: – Debt burden falling – Stock market “up” – Improving ability to spend – Some obvious demand backlogs But still room for further improvement: – Debt burden still high – Home prices in a long, slow bottom – Labor markets have a long way to go

10. Household debt has declined markedly, in part due to deleveraging (pay-downs) and in part due to defaults. However, debt-to-income ratios remain elevated by historical standards. Near-record low interest rates and massive refinancings have translated to lower debt payment burdens. This means that even though debt-to-income ratios are elevated, debt payment burdens are now very close to all-time lows.

12. Vacant homes Foreclosures Shadow inventory

13. 138 129 133

15. Percentage of Workers who Expect to Retire After Age 65 (Source: Employee Benefit Research Institute and Mathew Greenwald & Associates Retirement Confidence Surveys)

16. Economic Outlook Slow growth continuing 2012=2.60%2013=3.00% Inflation worries take a back seat 2012=2.00%2013=2.00% Unemployment declines – but very slowly 2012=8.00%2013=7.50% Fed funds flat 2012=0.10%2013=0.25% Very little change in long rates 2012=2.15%2013=2.75%

19. Liquidity Trends

20. Interest Rate Risk Trends Long-Term Assets = RE > 5yrs + Investments > 3yrs + NCUSIF deposit + fixed assets

21. Asset Quality Trends

22. Long-Term Assets = RE > 5yrs + Investments > 3yrs + NCUSIF deposit + fixed assets Asset Quality Trends

23. Earnings Trends

25. Solvency Trends

27. Credit Union Outlook More deleveraging: Loans 2012 = 4%2013 = 6% More saving (and some transfers) 2012 = 5%2013 = 5% Modestly lower delinquency: 2012 = 1.35%2013 = 1.00% Net chargeoffs drifting down: 2012 = 0.81%2013 = 0.65% Bottom-line (ROA) improvements: 2012 = 0.90%2013 = 0.90%