Utah and National CU Economic Update 2014 ULCU Annual Meeting and Convention March 14 th , 2014 • Salt Lake City, Utah

1. Utah and National CU Economic Update • 2014 ULCU Annual Meeting and Convention • March 14th, 2014 • Salt Lake City, Utah • Mike Schenk • Vice President, Economics & Statistics • Credit Union National Association • Telephone: 608-231-4228 Facsimile: 608-231-4924 • E-Mail: mschenk@cuna.com

2. U.S. EconomyGetting Better? Or Worse?

3. Economic Overview • Inching toward key goals • Persistent & maddening weakness • But some good signs • With key implications for credit unions

4. Subpar Growth: U.S. Real GDP Chained $2009, % Change Q/Q at SAAR. Source: BEA.

5. Economy Gaining Steam? U.S. Real GDP Chained $2009, % Change Q/Q at SAAR. Source: BEA.

6. Declining Jobless Rate

7. Utah Unemployment Rate (By County. Source: BLS. December 2013.) • Statewide = 4.0% (Dec.) • Fourth-lowest rate in US • Year-ago= 4.9% • 22 of 29 Counties below 5% • High: 8.4% (Dec ‘09/Jan ‘10) • Lowest: • Cache 2.8% • Duchesne 2.8% • Summit 2.9% • Uintah 2.9% • Highest: • Grand 10.6% • Garfield 14.1% • Wayne 15.8%

9. Improving Jobs Picture

11. Broad-Based Improvement • YOY unemployment rate decreases in 39 states • YOY unemployment rate decreases in ~80% of the nation’s 372 MSAs • Nearly all key business sectors showing employment gains

13. Now Down 850,000 Jobs • Average monthly increase over past six months = 178,000. • Back to pre- recession levels by June 2014?

14. Tame Inflation

16. Austerity’s Drag on Growth

17. High Debt Loads and Growth

18. Debt Limit& Confidence

19. No Inflation in Sight

20. Obvious Pent-up Demand • The average age of consumer durable goods -- long-lasting items such as furniture, appliances and computers -- is at a 49-year high according to data from the Bureau of Economic Analysis dating to 1925. • Among things Americans are keeping for the longest time: furniture and furnishings (including clocks, lamps, and floor/window coverings) and home and garden tools like lawnmowers and snow-blowers. • Cars and luggage were the only two of 17 categories the BEA tracks that saw a decrease in average age in 2012 – though age of cars remains near all-time high. Replacement Cycle Boom Should Boost Economic Growth!

21. Strong Car Sales(Cars + Light Trucks. Source: BEA)

22. Housing’s Obvious Rebound YOY = +4.8% 4th Qtr. = +0.9%

24. Strong Housing Metrics • Relatively strong sales: • New Sales = 429,830 (strongest since 2008). Full-year 2013 sales = 16% increase over 2012. • Existing sales = 5.1 million (strongest since 2006). Full-year 2013 sales = 9% increase over 2012. • Lowish supplies (January 4.7 months supply vs. LR avg of 6.0) -> higher prices/more building • Solid price gains - consistent increases almost everywhere you look • Housing starts (Census) = 2013 total=931,000 – strongest year since 2007. • Builders Confidence (NAHB) = 47 in January ~ 50 for past nine months (and near 8-year high) • Foreclosure filings (RealtyTrac) = -18% YOY January (40 consecutive months of YOY declines)

25. Big Equity Market Gains

26. Dramatic Decline in Debt

27. Record HH Net WorthSource: Federal Reserve and BLS.

28. Slow & Unsteady Recovery

29. Taxation Threat Is Real • Comprehensive Tax Reform Efforts Underway • Congress starting with a “clean slate” • Public strongly supports deficit reduction efforts • Many CU members unaware of tax status • An example…Family_Pays_More.wav • The more CU members know, the stronger their resistance to taxation. Winning message points: • Member-owned, member-directed • Locally controlled • Benefits returned to members • Lower fees/cheaper loans/higher savings yields/easier to get loans • Nationally $5.8 billion in 2012 - $120 per credit union household • Measure and tell the world about the financial and nonfinancial benefits you deliver • Need grassroots support • Engage your members – taxation is a tax on members – benefits at risk • Tell Congress: Don’t Tax My Credit Union! • www.donttaxmycreditunion.org/

30. Recent CU Results • Fast membership growth • Slow but increasing loan growth • Vastly improved asset quality • High earnings despite low interest margins • Tremendous variation

31. Fast Membership Growth(Source: NCUA and CUNA)

32. Faster Loan Growth(Source: NCUA and CUNA)

33. Broad-Based Loan Increases(Source: NCUA and CUNA)

34. Asset Quality: Delinquency(Percent of Total Loans. Source: NCUA and CUNA)

35. Asset Quality: Net Chargeoffs(Percent of Average Loans. Source: NCUA and CUNA)

36. Interest Rate Risk(Net Long Term Assets as a % of Total Assets. Source: NCUA and CUNA)

37. Liquidity Risk(Total Loans/Total Savings. Source: NCUA and CUNA)

38. High Earnings(Percent of Average Assets. Source: NCUA and CUNA)

39. Surprises in the Details!

40. What’s Driving CU Earnings?

41. Light Vehicle Sales(Cars + Light Trucks. Source: BEA) 18.3 Million

42. Auto Sales Back • Average age (Polk) = record 11.4 years in 2013 • New outlook (Edmunds): • 16.4 million units in ‘14 • Up from 15.5 million actual in 2013 • Highest total since 2006 • But # and % gains smallest since 2009 • Big technology gains spurring interest • Used outlook (CNW Mkt. Res./RVI Grp.): • Supply beginning to increase late in ’13 • Downward pressure on prices • Buyers market • Sales above 41 million units annually peaking at 43.5 in ’16 • Private party sales climbing – hitting 31% in 2020

43. “Toy” Sales Firming • US motorcycle sales up (non-scooter sales up 3% in 2013 according to Motorcycle Industry Council). Harley worldwide sales up 5.7% 4Q ‘13 & 4.4% full-year. • RV shipments finished 2013 at a four-year high of 321,127 -- 12.4% ahead of 2012 levels. Motorhome shipments rose 36% to 38,322 units. Airstream sales +59% in 2013. RVIA expects a 6.1% increase in sales this year (which would mark the fifth consecutive annual gain). • Off-roaders (ATV-type vehicles) continue to show accelerating growth, with annual sales up 13% in 2013 to about 250,000 units. • Recreational boating industry continues post-recession gains, projecting a 5% to 7% increase in new powerboat sales for 2014, on top of a 5% increase last year. Leading the industry's growth are small fiberglass and aluminum outboard boats 26 feet or less in size.

44. Housing Outlook(Mortgage Bankers Association) • Housing starts +13% in ‘14 and +10% in ‘15 • Strong sales • Existing homes: +4% in ’14/+4% in ‘15 • New homes +9% in ’14/+4% in ’15 • Prices: +4.4% in ’14/+3.5% in ’15 • Overall 1-4 Family Originations: • -36% in ’14/+10% in ‘15 • Refinance share: 63% in ‘13/39% in ’14/35% in ‘15

45. Net Interest Margin(Source: NCUA and CUNA)

46. Non-Interest Income Issues • Decline in refinancing activity • Overdraft protection • CFPB report issued mid-June • Overdraft & NSF accounted for 61% of consumer deposit account charges in 2011 • Overdraft median fee = $34 at large; $30 at small • Amount of annual fees fir accounts with at least one fee was $225 • Growth of average monthly payments per household from 2000 – 2011 was 53% • Inadequacies in disclosures • Egregious practices that maximize fees • Fees imposed prior to offering solutions • Proposal out later this year or early next year (no plan to regulate fees) • Interchange litigation • Merchant/plaintiff sued to invalidate the Feds interchange rules • Fed filed appeal in August - status quo for now • Stay & current rules in place until decision Fed recently filed briefing • Oral arguments – Fed ignored Congressional intent: “..none of us is buying that….” • Decision May? • If upheld in entirety – new rule in 4th quarter • If only partially upheld – early 2015

47. Credit Union Credit Quality Trends(As a % of Loans. Source: NCUA and CUNA)

48. Corporate Stabilization Assessments(Basis Points of Insured Shares. Source: NCUA and CUNA)

49. CU Capital(Source: NCUA and CUNA)

50. Capital Reform • Our view • Highest/most restrictive rules • CUs need more flexibility to serve members • Congress should modify the definition of credit union net worth to include supplemental forms of capital & give NCUA more flexibility. • NCUA • Bank vs. CU capital trends • Basel III changes • Sr. staff/Matzrumblings • CUs with assets over $50 million subject to “improved” risk-based requirements • Result will be higher capital levels for credit unions with high concentrations of risky assets • Comments: May 28th, 2014 (CUNA/NAFCU seeking extension) • CUNA evaluations • PCA (7% “leverage” and generally nonbinding risk components) • Basel III (5% leverage ratio and more strict risk components) • Mix (Basel leverage & PCA risk weights/PCA leverage & Basel risk weights)