Quarterly Economic Environment

AnyBank, USA

Quarterly Economic Environment

4thQuarter 2011

Economic Statistics

* Year-Over-Year % Change

Fed Watch

Recent & Upcoming FOMC Meetings

Current Interest Rates:

Treasury yields plummeted to record lows over the third quarter with lackluster growth at home and deteriorating market conditions abroad, prompting more accommodative measures from the Fed. During their August FOMC meeting, U.S. central bankers anchored Fed Funds rates at “exceptionally low” until “at least through mid-2013”. At their following meeting, the Fed announced its so-called Operation Twist, whereby maintain its balance sheet size, but reallocating duration by selling shorter Treasuries for longer ones, while also reinvesting agency debt and pass-through cash flow into MBS securities to help mortgage markets. Coupled with the Fed continued accommodative policy, international investors flocked to the safety of U.S. debt as Greece teeters on the verge of default. The yield on the benchmark 10Yr Treasury Note touched an intraday record low on September 23 of 1.671%. Since the end of Q2, the 10Yr Note fell 125bps to close Q3 at 1.92%, with the 30Yr Bond down 146bps to 2.91% over the same period.Quarterly Treasury Note & Bond Comparison

Note: Total Return is calculated using the current On-The-Run Treasury as of the beginning of the quarter and a reinvestment rate equal to the yield of the 3-Month T-Bill at the beginning of the quarter

Federal Reserve District Profile Summary – September 2011:

For additional District profiles, please visit the Fed’s web site:

Reports from the twelve Federal Reserve Districts indicated that economic activity continued to expand at a modest pace, though some Districts noted mixed or weakening activity. The St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco Districts all reported either modest or slight expansion. Atlanta said activity continued to expand at a very subdued pace, while Cleveland reported slow growth and New York indicated growth remained sluggish. Economic activity expanded more slowly in the Chicago District and slowed in the Richmond District. Business activity in the Boston and Philadelphia Districts was characterized as mixed, with Philadelphia adding that activity was somewhat weaker overall. Several Districts also indicated that recent stock market volatility and increased economic uncertainty had led many contacts to downgrade or become more cautious about their near-term outlooks.

Banking and Finance

Most districts cited overall loan demand as stable to slightly weaker, with the exception of St. Louis, which reported a modest increase. Demand for business loans remained unchanged or weakened in the New York, Chicago, Kansas City, and San Francisco Districts, but was moderately stronger in the Philadelphia, Cleveland, and St. Louis Districts. Demand for consumer loans increased somewhat in the St. Louis District, but was unchanged to slightly weaker in the New York, Kansas City, and San Francisco Districts. While Kansas City reported a decline in commercial real estate loans, St. Louis cited a modest increase. New York and Cleveland noted increased demand for residential mortgages.

Most Districts said that loan quality was generally improving and that credit standards were largely unchanged. Cleveland reported a decline in delinquencies across all loan categories, and Richmond and Kansas City also indicated a continued strengthening in loan quality. However, New York indicated that delinquency rates increased on most categories of loans and that banks tightened standards for commercial mortgages and commercial and industrial loans. Banking contacts in several Districts also referenced concerns about the economy. The Chicago District cited recent volatility in financial markets and reduced expectations for economic growth, while Kansas City District contacts listed a weak economic recovery and uncertainty about financial regulations.
Economic Outlook (Bloomberg Economic Survey):

The table above is taken from a survey of economists conducted monthly by Bloomberg Financial Markets. The forecasts shown are from a third party and do not reflect the ideas of The Baker Group.

Asset/Liability Position, Balance Sheet Structure, and Liquidity:

The Loan/Deposit ratio is:

The current Fed Funds position is:

Liability accounts in greatest demand are:

The Overall Bank liquidity position is:

The Bank's Effective GAP ratio (RSA/RSL) in the 1-year time frame is approximately _____%, (compared to our policy limits of 70% to 120%.)

The projected change in net interest income over the next 12 months is:

Rate Environment:Net Interest Change:

+200 BP

Unchanged

-200 BP

1