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Catalyst Strategic Solutions Financial Management Seminar Creating Tomorrow STRATEGIC OUTLOOK ON THE ECONOMY, MEMBER BEHAVIOR AND CREDIT UNION FINANCIAL PERFORMANCE Mike McGinnis Vice President, Investment Sales Slide 2 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Looking Back 2013 Key Economic Events Oct. 23, 2013 Oct. 1-16, 2013 Dec 10, 2013 March 1, 2013. Dec. 1, 2013 2013 Dec. 12, 2013 Nov. 19, 2013 Sep. 18, 2013 Slide 3 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Looking Back 2014 Key Economic Events Jan. 6, 2014 Feb. 21, 2014June 29, 2014 June 5, 2014 July 30th, 2014 Sep 10, 2014 July 30th, 2014 Oct. 2014 Slide 4 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Consumer Spending Government Spending Business Investment +4.6% (Q2 2014) (Q2 2014)+4.6% Economic Growth Slide 5 October 6, 2014 Yellens Labor Market Dashboard Catalyst Strategic Solutions 2014 Financial Management Seminar Source: Bureau of Labor Statistics, Bloomberg Slide 6 October 6, 2014 Yellens Labor Market Dashboard Source: Bureau of Labor Statistics, Bloomberg Catalyst Strategic Solutions 2014 Financial Management Seminar Slide 7 October 6, 2014 HOUSEHOLD NET WEALTH FULLY RECOVERED WEALTH LOST DURING RECESSION Slide 8 CONSUMER SPENDING CONSUMER SPENDING & GDP & GDP GDP C ONSUMER S PENDING 3Yr Avg Spending Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Slide 9 GDP C ONSUMER S PENDING 3Yr Avg Spending ? CONSUMER SPENDING CONSUMER SPENDING & GDP & GDP Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 ? Slide 10 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Mortgage Origination Volume Source: Bloomberg & Mortgage Bankers Association Slide 11 Catalyst Strategic Solutions 2014 Financial Management Seminar Source: BEA Consumer Spending Auto Sales Auto Sales Slide 12 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Inflation Slide 13 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Looking Forward Fed Tightening Monetary Policy US Consumer- wages, jobs, and spending Inflation Slide 14 Global Issues European economic stagnation and ECB QE Russia/ Ukraine global impact China Middle East Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Looking Forward Probability in 2014- 2015 Slide 15 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Economic Forecast Source: Bloomberg Consensus 9/23/14 Slide 16 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Economic and Rate Forecast Exercise Count the Black Dots Source: Ludimar Hermann, 1870 Slide 17 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Economic Forecast Source: Bloomberg Consensus 9/23/14 Slide 18 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Loans Outstanding Source: Callahan Peer to Peer Slide 19 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 2014 Lending Growth By State Source: NCUA 5300 Data 6/30/14 Slide 20 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 2014 Lending By Asset Size Source: NCUA 5300 Data 6/30/14 Slide 21 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Funding Shares Outstanding Source: Callahan Peer to Peer Slide 22 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Funding Cost of Funds Source: Callahan Peer to Peer Slide 23 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Funding Cost of Funds Source: Callahan Peer to Peer Slide 24 Catalyst Strategic Solutions 2014 Financial Management SeminarOctober 6, 2014 Cost of Funds Drivers Loan to Share Ratio Source: Callahan Peer to Peer Slide 25 INTEREST RATES INTEREST RATES FUNDING BENCHMARKS FUNDING BENCHMARKS Fed Funds Reg Svgs EXAMPLE OF +300bp SHOCK Wider Net Margins? October 6, 2014Catalyst Strategic Solutions 2014 Financial Management Seminar Slide 26 October 6, 2014 2014 Industry Growth and Profitability By Asset Size Source: NCUA 5300 Data 6/30/14 Slide 27 Catalyst Strategic Solutions 2014 Financial Management Seminar GDP should be driven by increased consumer spending and improved labor utilization to 3%. Inflation is anticipated to increase to levels slightly above the Fed target of 2%. Automobile sales to continue moderate expansion of 3-5% in 2014- 2015. Mortgage origination anticipated to continue at tempered pace with increase in rates continuing to limit refinancing activity. Attractive borrowing rates, interest rates and moderate economic improvement will present additional small business lending opportunity. Summary And Outlook Lending Economy October 6, 2014 Slide 28 Catalyst Strategic Solutions 2014 Financial Management Seminar October termination of Fed bond purchases should have positive but lagging impact on supply and yields. The slowdown in Europe and China, as well as any conflicts escalation in Middle East or Ukraine could keep yields lower. Rising rates and solid lending in 2015 will have an impact on cost of funds, liquidity, spread Industry Summary And Outlook Investments Funding & Liquidity October 6, 2014 Slide 29 Catalyst Strategic Solutions Financial Management Seminar Creating Tomorrow Strategic Outlook on the Economy, Member Behavior and Credit Union Financial Performance QUESTIONS? Mike McGinnis, VP Investment Sales Catalyst Corporate & Catalyst Strategic Solutions 214-703-7856 mmcginnis@catalystcorp.org mmcginnis@catalystcorp.org