1. Bank of Agriculture and Commerce Stockton, California February 6, 2013 John W. Mitchell 24 th

2. Bank of Agriculture and Commerce Modesto, California February 7, 2013 John W. Mitchell

3.  Disasters Avoided-Cliff One, Euro Survived  March1st and March 27 th Deadlines  Year Four of Upturn-Modest or Moderate  1/2013 Employment 3.23 Million below 1/2008 but 5.51 million above 2/2010 Trough  House Prices Rising Case Shiller up 5.5% to November  California with Clean Budget?  Fourth Quarter Output Decline  Global Economy Weak But Stabilizing?  S &P 500 up 6.1% to 2/1/13  Personal Income up 2.6% in December and 1% in November (SAAR)  Largest Increase in Domestic Oil Production in History of Industry in 2012  Inflation Moderated  Lone Ranger Back and Twinkies GONE!

4. Q1Q2Q3Q4 GDP 21.33.1-.1 Consumption 2.41.51.62.2 Equip & Software 5.44.8-2.612.4 Non-Res Structures 12.9.60-1.1 Residential 20.58.513.515.3 Federal -4.2-.29.5-15 State and Local -2.2.3-.7 Exports 4.45.31.9-5.7 Imports 3.12.8-.8-3.2

9.  Beige Book January 16, 2013 Stable Price Pressures  Energy Commodities 8.6% in Aug, 6.7% in Sept. -.5% in October and -6.9% in November and -2.2 in December  Compensation 12 Months to December 1.9%, Wages1.7%, Benefits 2.5%

11.  Seven Years of Zero Short Term Rates ?  30 Year Mortgage 3.42% Week Ending 1/25/13  10 Year 1.9% on Week Ending 1/25/13  Fed will tolerate 2.5% Inflation  All Treasuries Under 5 Years Yield Less than 1%  Personal Interest Income Q4 2007 $1.32 Trillion in December 2012 $1.012 Trillion  Pension Obligations?

12.  GDP Growth Fed Central Tendency for 2013 2.3-3% and 3-3.5% in 2014 ( 2012 2.2% First Est.)  Consensus Moving from 2% in 2013 to 2.6% in 2014  Inflation Staying Near 2% Through 2014  Fed on Hold Until at Least Mid 2015

13.  What happens Overseas ?  Dealing with the debt ceiling and sequesters in the next few months?  How will the actors behave ?

17. Modesto Permits-2004- 2012 Building Forces  Affordability  Price Declines  Mortgage Rates  Employment  Household Formation  Different Credit World  More Renters  Stanislaus County Median Sales Price in December up 19.2% to $161,610 (CAR)

19.  After Proposition 30  Governor Proposed Budget with a Spending Increase of 5%  Expecting Gains in Personal Income Tax of 1.8% ($1.1B), Sales Tax Receipts 12.3% ($2.55B), Corporate Taxes 20.4% ($1.55B)  What will Actually Appear-Getting Beyond the Cliff Impact

20.  The First Cliff  Payroll Tax Holiday Ends  Bush Tax Cuts Expire for Over $450,000  Sequester Process Delayed 2 Months  New Medicare Taxes Start  Phase Outs and Deduction Limitations Back  Estate Tax Rate Bumped  AMT Fix, Doc Fix  Long Term Spending Issues-Not Addressed  Debt Ceiling Unresolved  Short Term Problem-Long Term Problem  Geithner-”And you can’t count indefinitely on the world having more confidence in our political system than is justified”

21.  Twist Ended in December-Now Buying $45 Billion Per Month of Treasuries with maturities from 4 Years to 30 Years  Continuing to Buy $40 Billion Mortgage-Backed Securities Per Month  Total $85 Billion Per Month in New Acquisitions as well as Reinvesting Principal Payments  Exceptionally low rates as long as unemployment remains above 6.5% and inflation is no more than.5 point above 2% longer run goal (12/12/12) and (1/30/2013)  When does the buying program end? When the labor market improves!  How does the unwinding take place? “Balanced approach” 1/30/13

22.  North Dakota 1  Utah 2  Arizona 3  Texas 4  Colorado 5  Oklahoma 6  Idaho 7  Montana 8  Indiana 9  Hawaii 10  Washington 11  Minnesota 12  Ohio 13  Georgia 14  South Carolina 15  North Carolina 16  California 17  Massachusetts 18  Nevada 19 Job Growth Update December 2012 Data-Year over Year Change-45 States Up, 1 Unchanged  Kentucky 20  Missouri 21  New York 22  Tennessee 23  Oregon 24  New Jersey 25  Florida 28  Virginia 32  Pennsylvania 34  Alabama 38  Alaska 39  Connecticut 44  Mississippi 45  Wyoming 46  Connecticut 47  Maine 48  New Mexico 49  West Virginia 50

24. 200920102011 California$8,462,343$10,949,761$16,304,937 Oregon $494,534 $510,793 $1,029,169 Washington$1,065,891 $1,903,302 $2,985,398 Source: USDA

25. California Job Change Year to December, 2012 (1.7%) Source: EDD

26. Job ChangePercentage Chico 400.6 Fresno 4,6001.6 Los Angeles 69,5001.8 Modesto 1,000.7 Napa -200-.3 Oakland 21,5002.2 Redding 1,8003.1 Sacramento 10,8001.3 San Diego 20,3001.6 San Francisco 33,2003.4 San Jose 27,6003.1 Stockton 5,5002.9

27. Modesto Job Change Year to December, 2012 (.7%) Source: EDD

29.  Youth Un and Underemployment –Scarring  January U-6 14.4%, Mean Duration 35.3 Weeks  Labor Force Participation Rate January 63.6%- The last Time it was there was December 1981. Recession Start 66%  Real Family Median Net Worth Down 38.8% 2007-2010 Survey of Consumer Finances  California Jobs Gap 1,791,000 In October Brookings  CoreLogic Underwater in CA 28.3% in Q3

30.  How Does the Fiscal Situation End?  Simpson-Bowles, Confidence Collapse as in John Mauldin’s–Endgame, Rogoff and Reinhart’s This Time is Different- Slow Growth  Do we still have the recipe for growth? (Lots of Gloom, but Remember the Late 1970s!)

31. StellaFairies  The Tooth Fairy  Free Medical Services Fairy  The No New Taxes Fairy  The Rich Will Pay Fairy  The Entitlement Fairy

32.  Uncertainty Reduced, But Remains  Most likely Growth 2-2.5%  California Job Growth 1.5-2%  Falling Debt Burdens, Housing, Rising Income and Employment, Balance Sheets, Financial Institutions Strength, ISM both Manufacturing and Non-Manufacturing, Energy Developments, Initial Claims, Global Glimmers

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