Credit Union Association of the Dakotas2012 Annual SummitJune 28, 2012

The Economy and Credit Union Operations

Mike SchenkVice President, Economics & Statistics

Credit Union National AssociationTelephone: 608-231-4228 Facsimile: 608-231-4924

E-Mail: mschenk@cuna.com

Macro Economics

Three big goals:1. 2. 3.

Gross Domestic ProductPercent Changes - $2005. Source: BEA

2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1

2.3

0.4

1.3

1.8

3.0

1.9Cons. +2.7%Govt. -3.9%Invest.+6.3%Exports +7.2%Imports +6.1%Prices +2.4%

Changes in Non-Farm Employment

(Thousands)

110

220 2

46

251

54

84 9

6

85

202

112

157

223

275

259

143

77

69

Jan Mar May Jul Sep Nov Jan Mar May

Source: BLS. In thousands

Consumer Confidence

64

.8

72

.0

63

.8

66

.0

61

.7

57

.6

59

.5

45

.2

46

.4

40

.9

55

.2

64

.8

61

.5

71

.6

69

.5

68

.7

64

.9

25

50

75

Jan Mar May Jul Sep Nov Jan Mar May

Source: Conference Board.

Jan-11

Feb-11

Mar-

11

Apr-11

May

-11

Jun-11

Jul-1

1

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-

12

Apr-12

1.64

% 2.12

%

2.65

% 3.06

% 3.43

%

3.51

%

3.61

%

3.76

%

3.90

%

3.55

%

3.45

%

3.00

%

2.93

%

2.89

%

2.65

%

2.30

%

Inflation: YOY Change in CPISource: BLS

Headline

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

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

(Perc

ent)

Recession Fed Funds 10-Yr. Tsy.Source: Federal Reserve & CUNA E&S.

Market Interest Rates1960 to 2012

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

0%

20%

40%

60%

80%

100%

120%

140%

79Q1 85Q1 91Q1 97Q1 03Q1 09Q1

Recessions

Mortgage Debt

Non-mortgage Debt

Source: FRB Flow of Funds -Consumer & Mortgage Debt.

Household Debt(As a Percent of Disposable Household Income)

• 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.

2008 2009 2010 2011 2012

0.0%

-0.5

%

-2.9

%

-5.7

%

-6.4

%

-5.5

%

-7.7

%

-10.

1%

-10.

6%

-11.

7%

-12.

3% -11.

4%

-12.

0%

-14.

4%

-15.

8%

-14.

9%

-14.

5%

-15.

6%

US Home Prices vs. December 2007Source: FHFA All Transactions Index

Total Vacant Housing Units For Sale(Thousands)

1,161

1,063

1,1801,1881,141

1,410

1,353

1,1971,2241,214

1,2441,2431,249

1,411

1,3111,2731,261

1,321

1,3751,3881,370

1,481

1,5661,580

1,729

1,935

2,100

2,179

2,0372,074

2,179

2,277

2,169

2,2272,230

2,114

1,916

1,985

2,080

1,9961,968

1,934

2,052

1,863

1,653

1,990

1,300

1,945

1,782

00 01 02 03 04 05 06 07 08 09 10 11 12

• Vacant homes• Foreclosures• Shadow inventory

Dec-0

7

Mar

-08

Jun-

08

Sep-0

8

Dec-0

8

Mar

-09

Jun-

09

Sep-0

9

Dec-0

9

Mar

-10

Jun-

10

Sep-1

0

Dec-1

0

Mar

-11

Jun-

11

Sep-1

1

Dec-1

1

Mar

-12

124

126

128

130

132

134

136

138

140

US Non-Farm Employment TrendsMillions – Source: BLS

138

129

133

Consumer Confidence

0

25

50

75

100

125

150

80 83 86 89 92 95 98 01 04 07 10

0

2

4

6

8

10

12

14

16

18

20

Source: Conference Board.

Percentage of Workers who Expect to Retire After Age 65

(Source: Employee Benefit Research Institute and Mathew Greenwald & Associates Retirement Confidence Surveys)

1996 2001 2006 2011

11.0%

16.0%

25.0%

36.0%

Economic Outlook

Slow growth continuing2012=2.60% 2013=3.00%

Inflation worries take a back seat2012=2.00% 2013=2.00%

Unemployment declines – but very slowly2012=8.00% 2013=7.50%

Fed funds flat2012=0.10% 2013=0.25%

Very little change in long rates 2012=2.15% 2013=2.75%

2007 2008 2009 2010 2011 2012

6.5 6.7 1.2

-1.2

1.2 2.4

3.9

8.9 9.2

3.7

4.6

7.3

12-Month Loan Growth

US Dakotas

<$5 Mil $5-$20 $20-$100 > $100

-1.4 -0.7

0.7 3.3

-3.3

5.2

8.39.3

12-Month Loan GrowthAs of 1st Qtr. 2012

By CU Size

US Dakotas

2007 2008 2009 2010 2011 2012

5.1 6.9 10.3 4.4 5.2 6.7

9.59.0

12.2

8.0

11.9 12.1

12-Month Savings Growth

US Dakotas

<$5 Mil $5-$20 $20-$100 > $100

1.7 4.0 6.0 7.5

3.0

8.2

12.912.3

12-Month Savings GrowthAs of 1st Qtr. 2012

By CU Size

US Dakotas

2007 2008 2009 2010 2011 2012

83.4 83.2 76.3 72.2 69.4 66.4

79.5 79.7 77.574.5

70.867.9

Loan-to-Savings Ratios

US Dakotas

<$5 Mil $5-$20 $20-$100 > $100

54.6 52.6 57.3 67.8

63.1 61.2

69.7 68.1

Loan-to-Share RatiosAs of 1st Qtr. 2012

By CU Size

US Dakotas

Liquidity Trends

2007 2008 2009 2010 2011 2012

26.3 32.0 31.6 33.1 32.5 33.0

16.5

35.6

29.931.6

33.531.9

Long-term Assets as a % of Total Assets

US Dakotas

<$5 Mil $5-$20 $20-$100 > $100

5.7 14.9 25.1 34.5

11.113.3

22.4

38.2

Long-term Assets as a % of Total Assets

As of 1st Qtr. 2012By CU Size

US Dakotas

Interest Rate Risk Trends

Long-Term Assets = RE > 5yrs + Investments > 3yrs + NCUSIF deposit + fixed assets

2007 2008 2009 2010 2011 2012

0.93

1.37

1.821.75

1.60

1.44

0.96 0.991.08

0.93

0.710.65

60+ Day Dollar Delinquencies as a % of Total Loans

US Dakotas

<$5 Mil $5-$20 $20-$100 > $100

2.80

1.65

1.311.45

1.60

1.030.84

0.52

60+ Day Dollar Delin-quencies as a % of Total

LoansAs of 1st Qtr. 2012

By CU Size

US Dakotas

Long-Term Assets = RE > 5yrs + Investments > 3yrs + NCUSIF deposit + fixed assets

Asset Quality Trends

2007 2008 2009 2010 2011 2012

0.51

0.84

1.211.14

0.91

0.79

0.27 0.260.32 0.31

0.230.15

Net Chargeoffs as a % of Av-erage Loans

US Dakotas

<$5 Mil $5-$20 $20-$100 > $100

2.80

1.65

1.311.45

1.60

1.030.84

0.52

Net Chargeoffs as a % of Average Loans

As of 1st Qtr. 2012Annualized - By CU Size

US Dakotas

Long-Term Assets = RE > 5yrs + Investments > 3yrs + NCUSIF deposit + fixed assets

Asset Quality Trends

2007 2008 2009 2010 2011 2012

0.64

0.310.18

0.50

0.68

0.83

0.850.80

0.530.48

0.75

0.91

Net Income as a % of Average Assets

US Dakotas

<$5 Mil $5-$20 $20-$100 > $100

-0.19

0.170.41

0.900.46

0.610.70

1.03

Net Income as a % of Av-erage Assets

As of 1st Qtr. 2012By CU Size

US Dakotas

Earnings Trends

2007 2008 2009 2010 2011 2012

87.376.4

61.6 64.176.3 76.1

96.6 94.3

72.777.3

96.690.9

Percent of CUs with Positive Earnings

US Dakotas

<$5 Mil $5-$20 $20-$100 > $100

56.770.1

83.394.9

92.9

82.8

93.8100.0

Percent of CUs with Posi-tive Earnings

As of 1st Qtr. 2012By CU Size

US Dakotas

Earnings Trends

2007 2008 2009 2010 2011 2012

11.410.9

9.9 10.1 10.2 10.0

11.311.1

10.1 10.09.8 9.7

Net Worth as a % of Assets

US Dakotas

<$5 Mil $5-$20 $20-$100 > $100

15.613.1

11.09.8

16.3

10.29.5 9.6

Net Worth as a % of AssetsAs of 1st Qtr. 2012

By CU Size

US Dakotas

Solvency Trends

2007 2008 2009 2010 2011 2012

98.6 98.0 94.7 95.0 95.2 94.3

97.7

98.9

93.2

90.9

92.0

90.9

Percent of CUs with Net Worth as a % of Assets > 7%

US Dakotas

<$5 Mil $5-$20 $20-$100 > $100

95.1

93.393.9

95.4

85.7

89.7

93.8

92.3

Percent of CUs with Net Worth as a % of Assets >

7%As of 1st Qtr. 2012

By CU Size

US Dakotas

Solvency Trends

Credit Union OutlookMore deleveraging: Loans2012 = 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%