Dr. J. Antonio VillamilDean, School of Business and Research Professor of Economics

St. Thomas University

The Cuban American CPAs Association, IncFall Seminar

November 9, 2011

South Florida and Houston Economic Perspectives:Implications for Banking Opportunities

Growing your South Florida Business in the“New Normal” Economy

The 2011-2012 Business Environment: Managing your Firm in the “New Normal” Economy

A prolonged period of below potential economic growth in US and industrial countries

Growing business opportunities in selected emerging markets of Asia and Latin America – positive for South Florida businesses

Low “pricing power” for most products and services (e.g., low and stable inflation), which suggests a prolonged period of relatively low-real interest rates

Consumers and businesses “reliquifying” balance sheets

Emphasis on productivity, smart expense management and credit quality of receivables to improve profitability of your business

South Florida’s Economy Starting to Recover Slowly from a Deep Recession

Economic Drivers Outlook 2011-2012

US Economy Moderate growth in 2011 and into 2012 (below potential)

Global Economy

Top trade and investment partners of South Florida expanding, fueling demand for South Florida’s goods and services (trade finance, exports, tourism, investments in real estate)

Financial Markets

Credit availability is improving, but still tight for small businesses and real estate (two key sectors of South Florida) – “Take your banker to lunch”

South Florida Financial and Economic Drivers Becoming More Positive Since 2009, but Downside Risks Remain in 2011-2012

THE US, GLOBAL & SOUTH FLORIDA ECONOMIES UNDER

THE “NEW NORMAL”:

WHAT ARE THE ECONOMIC INDICATORS TELLING US

US Economic Growth Driver of South Florida: Below Potential Economic Growth Through 2012

Indicator 2009 2010 2011E 2012F

Economic Growth (% Real GDP) -3.5 3.0 2.0 2.5

Inflation (% Core CPI/U) 1.7 1.0 1.5 2.0

Personal Income Growth (%) -4.3 3.7 3.0 3.5

Fed Funds Rate (Average) 0.16 0.18 0.25 0.25

Unemployment Rate (%) 9.3 9.6 9.0 8.0

Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve and UCF. Estimates (E) and Forecasts (F) by The Washington Economics Group (WEG).

Region/Country∆ % from Previous Period

2009 2010E 2011E 2012F

World Output (GDP), of which Japan United Kingdom Canada

-0.7-6.3-4.9-2.8

5.14.01.43.2

3.51.01.12.1

3.82.31.62.0

Euro Area, of which Germany France Spain Italy

-4.3-5.1-2.6-3.7-5.2

1.83.61.4-0.11.3

Flat2.0Flat-1.0-1.0

1.51.51.0FlatFlat

Developing Asia, of which China India

7.29.26.8

9.510.310.1

8.29.57.8

8.09.07.0

Source: International Monetary Fund, World Economic Outlook, Update September 2011 and The Washington Economics Group (WEG) for Estimates (E) and Forecasts (F).

FDI Flows to Florida

Global Economic Driver of South Florida: Stronger Economic Growth in Selected Emerging Markets, but Sluggish in Many Industrial Countries

Region/Country 2009E 2010 2011E 2012F

Latin America & the Caribbean, of which -2.1 5.9 4.7 4.1

Brazil -0.6 7.5 4.0 4.0

Mexico -6.1 5.4 4.0 3.5

Colombia 1.5 4.3 5.3 5.0

Dominican Republic 3.5 7.8 5.0 4.5

Chile -1.7 5.2 6.3 4.5

Peru 0.9 8.8 7.1 4.0

Argentina 0.9 9.2 8.3 4.0

Source: Economic Commission for Latin America and the Caribbean (ECLAC), Economic Survey of Latin America and the Caribbean 2010 -2011 and The Washington Economics Group (WEG) for Estimates (E) and Forecasts (F).

Global Economic Activity: Latin America Region Expanding at Moderate Pace – Positive for South Florida Exports, Tourism, Investment

External Drivers Impacts on South Florida: Moderate Recovery with Real Estate Markets Improving, Growing Global Business, Visitors

Indicators 2009 2010 2011E 2012F

Real Gross Domestic Product (Δ%) -3.1 2.0 2.5 3.0

Personal Income (Δ%) -3.3 2.0 3.5 4.0

Population (Δ%) 2.0 2.1 1.5 1.0

Total Non-Ag Employment (Δ%) -6.2 -1.0 1.5 2.0

Exports Growth (Δ%) -9.1 18.0 19.0 15.0

Single-Family Home Median Price (Δ%) -24.0 -4.1 Stable Up Slightly

Sources: Bureau of Economic Analysis, Florida Agency for Workforce Innovation, Enterprise Florida, Inc. Florida Association of Realtors, UCF and The Washington Economics Group (WEG) for Estimates (E) and Forecasts (F).

Where are the Business Opportunities in South Florida under the “New Normal”? (2011-2012)

Mergers and acquisitions (M&A activity)

Exports to selected emerging markets

Trade-related finance

“Knowledge” services (accounting, legal, health)

Foreign companies investing in South Florida

Selective income producing properties (rentals, warehouses)

Wealth management (“boomers” and “high net worth” foreign individuals

Mortgage refinancing products

Sectors/Industries with Growing Employment Levels in South Florida

Professional and business services (accounting, legal, IT, management, engineering and others)

Health-related manufacturing and services

Private education providers

International trade-related companies

Tourism and hospitality-related industries and companies

Wholesale Trade

Concluding Perspectives

A much-changed economic environment for business through 2012

A “New Normal”: Slower economic growth than in prior cycles with ample financial liquidity

Consumers, corporations and businesses repairing balance sheets

Risk shifting from private to public sector (public finance a key issue)

Low and stable real short-term interest rates through 2012

continued

Concluding Perspectives (continuation)

Where in Florida?

Stronger Economic Outlook Weaker Economic Outlook

• Miami-Dade, Broward, Palm Beach

• I-4 Technology Corridor (Orlando Region to Tampa Bay)

• Jacksonville (Duval County)

• Alachua County (Gainesville)

• Southwest Florida (Collier to Sarasota Counties)

• Brevard County (Space Coast)

• Leon County (State Gov.)

• Rural, agricultural-dependent counties

2010 was a transition year to a moderate acceleration in the economic recovery of South Florida in 2011-2012

There is significant statistical dispersion around average levels of industry performance in Florida

Large and diversified Florida counties and regions will outperform real estate and population-driven ones

US HOUSEHOLD NET WORTH1

FLOW OF FUNDS2

MONETARY BASE3

INTEREST RATES4

To Finalize: Four Macroeconomic Indicators to Track in the “New Normal” Economy

US Household Net Worth: Consumers Paying Down Debt, Spending Cautiously and in a “Bad Mood”

Source: Federal Reserve Bank of St. Louis, Economic Research - Flow of Funds, 2Q-2011, September 16, 2011

$64

$52 $54 $55 $54 $55

$57 $58 $59

$0

$10

$20

$30

$40

$50

$60

$70

2007 2008 2009 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2

$ Tr

illio

n

Household Net Worth

US Non-Financial Debt: Consumers and Businesses “Deleveraging,” Federal Debt Growing Rapidly, End of “Stimulus” for State & Local Governments

(∆%; Quarterly Data are Seasonally Adjusted at Annual Rates)

Years Households BusinessState & Local Governments

Federal

Financing and Housing “Bubbles”

200520062007

11.1%10.0%6.7%

8.6%10.6%13.1%

10.2%8.3%9.5%

7.0%3.9%4.9%

The “Great Recession” and the Aftermath

200820092010

2010-Q12010-Q22010-Q32010-Q42011-Q12011-Q2

0.2%-1.7%-2.0%-3.1%-2.2%-2.0%-0.6%-2.0%-0.6%

5.8%-2.7 %0.4%0.5 %-1.3%1.1%1.9%2.8%4.0%

2.3%4.8%4.5%4.5%-1.4%5.4%7.9% -4.2%-3.2%

24.2%22.7%20.2%20.6 %24.4%16.0%14.6%7.9%8.6%

Flow of Funds

Source: Federal Reserve, Flow of Funds, Q2-2011, September 16, 2011.

“Helicopter Ben!”: Monetary Base at Record Levels

16

Source: Federal Reserve Bank of St. Louis Economic Research. January 2000-October 2011. Shaded areas indicate U.S. Recessions.

$400

$800

$1,200

$1,600

$2,000

$2,400

$2,800

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US$

Bill

ions

Monetary Base(Excess Reserves of Banking System)

$2.7 Trillion

How Low Can Short-Term Rates Go : Likely to Remain Close to Zero Through 2012

Source: Federal Reserve Bank of St. Louis, Economic Research. Latest observations based from January 2000—October 2011. Shaded areas indicate US recessions.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Federal Funds Rate