1. The Economy and External Environment 10th Annual Georgia Idea Institute August 19, 2015 Bill Hampel, Chief Policy Officer Credit Union National Association bhampel@cuna.coop

2. Starting questions: Equity markets Exempt employee changes Rates Oil industry impact NIM China devaluation Bubbles? Euro Puetro Rico

3. Economic Summary Beginning the seventh year of recovery. First quarter slowdowns “normal”? Job market improving, but still significant slack. Inflation outlook moderate. Economy now in a sustained recovery: escape velocity. External risks not life threatening.

4. Gross Domestic Product Quarterly Changes at Annual Rates, Real 2001 Recession

5. Gross Domestic Product Quarterly Changes at Annual Rates, Real REVISED JULY 30 2001 Recession 2.2% since 2009 III

6. Household Finances Recovered: –Debt payments low –Stock market recovered –Home prices rising But still room for further improvement: –Debt outstanding still relatively high –Home prices still off peak Improved ability to spend, willingness finally catching up? Demand backlogs

7. Household Debt Outstanding To Annual Disposable Income Consumer 96% Latest: 2015 QI

8. Household Debt Service Ratio Monthly Payments to Disposable Income Consumer Percent Latest: 2015 QI

9. US Home Prices Case-Schiller National Index, Jan 2000 = 100

10. US Home vs.Stock Prices Case-Schiller National Index, S&P 500

11. Household Net Worth

12. Annual Light Vehicle Sales Millions

17. Non-Farm Payrolls Monthly Changes SA, to June 2015

18. Job Loss and Recovery: Four Recessions Since 1980 Scaled to 2008 Employment of 138 million Great Recession Job Losses in Recession 8.7 million Job Gains First Five Years 12.1 million Net Change Five Yrs into Recovery PLUS 3.4 million

19. Job Loss and Recovery: Four Recessions Since 1980 Scaled to 2008 Employment of 138 million Great Recession Average of Three Previous Recessions Job Losses in Recession 8.7 million3.0 million Job Gains First Five Years 12.1 million14.0 million Net Change Five Yrs into Recovery PLUS 3.4 million PLUS 11 million

20. Job Loss and Recovery: Four Recessions Since 1980 Scaled to 2008 Employment of 138 million Great Recession Average of Three Previous RecessionsDifference Job Losses in Recession 8.7 million3.0 million5.7 million Job Gains First Five Years 12.1 million14.0 million-1.9 million Net Change Five Yrs into Recovery PLUS 3.4 million PLUS 11 million BEHIND 7.6 million

22. Unemployment Rates and Recessions Percent of the Labor Force Broadest Measure 10.4% Down from 17.4%, Oct 2009 Narrow Measure 5.3% Down from 10.1%

23. Consumer Confidence? Conference Board

24. Consumer Price Inflation 1970 to Present, Annual Rates 12 Months to June Top Line = 0.2% Core = 1.8%

25. Interest Rate Outlook

26. Interest Rates 1988 to Present

27. Waiting on the Fed The Fed has lost its patience. But we exist in international financial markets. Fed Funds Rate Move: –September, October? –Speed and frequency Longer-term rates. Liquidity vs. NEV or Net Interest Income

28. Interest Rates 1988 to Present

29. Treasury Yield Curves

31. Credit Union Outlook Through 2015 Weak savings and asset growth –Low interest rates –Consumer spending growth Strengthening loan growth –Household de-leveraging slowing –Improving confidence, building backlogs Loan delinquencies and losses about back to normal Mixed outlook for net income –See below Rising net worth ratios

32. Credit Union Loan Growth Annual Percent Change

33. Credit Union Delinquency Dollars Delinquent as Percent of Total Portfolio

34. Net Loan Charge-0ffs Total Portfolio

35. Credit Union Savings Growth Annualized Percent Change

36. Credit Union Net Income To Average Assets

37. Net Capital to Assets

38. What’s Driving Earnings? POSITIVES: Lower provision expenses Finished stabilization assessments NEGATIVE, for a while longer: Net Interest Income EVAPORATING Mortgage refinance revenue AT LONG-TERM RISK Debit interchange revenue Overdraft revenue

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40. What’s Driving Earnings? POSITIVES: Lower provision expenses Finished stabilization assessments NEGATIVE, for a while longer: Net Interest Income EVAPORATING Mortgage refinance revenue AT LONG-TERM RISK Debit interchange revenue Overdraft revenue

41. Corporate Stabilization Assessments Basis Points of Insured Shares

42. ?

43. What’s Driving Earnings? POSITIVES: Lower provision expenses Finished stabilization assessments NEGATIVE, for a while longer: Net Interest Income EVAPORATING Mortgage refinance revenue AT LONG-TERM RISK Debit interchange revenue Overdraft revenue

45. Credit Union Net Interest Income

46. What’s Driving Earnings? POSITIVES: Lower provision expenses Finished stabilization assessments NEGATIVE, for a while longer: Net Interest Income EVAPORATING Mortgage refinance revenue AT LONG-TERM RISK Debit interchange revenue Overdraft revenue

47. Mortgage Refinancing

48. What’s Driving Earnings? POSITIVES: Lower provision expenses Finished stabilization assessments NEGATIVE, for a while longer: Net Interest Income EVAPORATING Mortgage refinance revenue AT LONG-TERM RISK Debit interchange revenue Overdraft revenue

49. Performance Varies by Size 49