This document provides an economic update and outlook for December 2010. It includes data on key economic indicators such as GDP, employment, home prices, consumer confidence, and inflation. The global economic recovery is continuing but remains weak, with only modest growth in the US. Interest rates will remain low through 2011 as the Fed maintains its policies. Businesses should take steps to manage interest rate and currency risks given the current volatility and economic uncertainties.

1. Economic Update and Outlook December 2010 Michael J. Stead Director of Capital Markets

2. Gross Domestic Product GDP = Personal consumption + Investments + (Exports – Imports) + Government spending Source: Bloomberg

3. GDP by Component

4. Employment - continuing claims Source: Bloomberg

5. Employment – Total Source: Bloomberg

6. Home Prices Source: Bloomberg

7. Delinquencies as % of all Residential Loans (excl. REOs) Source: Bloomberg

8. Consumer Confidence Source: Bloomberg

9. Retail Sales (excl. Walmart) Source: Bloomberg

10. Inflation – Still Tame Source: Bloomberg

11. ISM Indices Source: Bloomberg

12. Deleveraging Households Source: Federal Reserve

13. U.S. Gross National Debt Gross

14. Persistent Current Account Deficit The current account is the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). Harbinger of weaker US dollar, mitigated by country “Safety & Soundness”

15. Foreign Exchange USD/Euro Source: Bloomberg

16. This is a list of countries by external debt, the total public and private debt owed to nonresidents repayable in foreign currency, goods, or services, where the public debt is the money or credit owed by any level of government, from central to local, and the private debt the money or credit owed by private households or private corporations based in the country under consideration.

17. Interest Rates - Short Source: Bloomberg

18. Source: Bloomberg Interest Rates - Long

19. Commodities Commodity and Crude prices reflect strengthening global economy Source: Bloomberg

20. Global View (Source IMF) 2009 GDP (millions of USD) The significance of Europe and the USA Note: China’s GDP understated; does not include $215 billion from Hong Kong AND is calculated at the official exchange rate! Source: Wikipedia®

21. Business Impact No meaningful turnaround in economic growth with job creation yet, however the recent releases support the expectation for avoiding a double dip, while also confirming that we are on a weak track to recovery. A return to modest economic expansion evidenced by the ISM Manufacturing and Service Indices has not negatively impacted inflation (as measured by the Fed), leaving the Fed plenty of room to maneuver. Rates will stay low for the remainder of the year, through end of 2011. The Fed has purchased over a trillion dollars of mortgages and long-term bonds, the value of which will fall when the economy recovers – specifically why no one in the private sector would consider a purchase. Thankfully, unlike for banks, there is no mark-to-market accounting. Domestic economic expansion, albeit moderate, will continue to create increased need for financing . Current low interest rates is setting the stage for interest rate risk management. Use of interest rate derivatives will expand (again). Borrowers should lock in financing at fixed rates (swap, swaption, caps etc.) as soon as possible. The current volatility in the FX markets courtesy of the PIIGS provides us with evidence for the need to manage FX risks. Beware of countries with large changes or continued trade imbalances. US dollar is also a haven in uncertain times, and this overrides current account concerns. Absorption of liquidity combined with expectations for loan growth makes access to credit paramount. The USA is a consumer-based economy, with Personal Consumption Expenditures that dwarf all other components of GDP. The absence of borrowing ability at the consumer level due to declines in home values has and continues to harm spending. America would benefit from promoting structural changes to reduce reliance on consumption and promote exports and a current account surplus. The continued Fed action of QE will keep interest rates low, and increases business confidence which should lead to an improving stock market, improved job creation and ultimately should boost spending.