Renee D. Laychur, CFASenior Vice President & Senior Portfolio Mgr

First National Bank

Revisiting the Past Year

Those who cannot remember the past are condemned to

repeat it.

George Santayana

Roots of the Financial Crisis – 2003 to 2007

•Credit Growth Exceeded

Economic Growth•Historical Low Interest Rates•Sub-Prime Loans •“Creative” Mortgage Products

– Packaged & Sold•Housing Prices Rose Creating

“Bubble”

Financial Crisis Timeline

• 3/16/08 – Bear Stearns Acquired• 9/7/08 – Federal Takeover of Fannie Mae and

Freddie Mac• 9/10/08 – DJIA clings to 11,000 level• 9/14/08– Merrill Lynch Sold to Bank of America• 9/15/08 – Lehman Brothers Declares Bankruptcy• 9/16/08 – Fed lends AIG $85 billion to Prevent

Bankruptcy: Reserve Money Fund “Breaks Buck”• 9/29/08 – House Rejects Financial Rescue

Package

Financial Crisis Timeline

• 10/3/09 – House Passes Financial Rescue Plan• 10/6/08 – DJIA Closes under 10,000 for first time 4

Years and Losses over 22% for the Week - Worst in 75 Years

• 10/11/08 – Most Volatile Day in DJIA’s 112 year History, up over 900 Points

• 12/11/08 – Bernie Madoff Arrested• 12/19/08 – Treasury Grants Loans to GM &

Chrysler• 3/9/09 – DJIA Declines to 6,440

Dow Jones Industrial Average – Past Year

Dow Jones Industrial Average – Past 5 Years

Market Highs to Lows

• Dow Jones Industrial Average

- Peaked at 14,164.53 on 10/9/07

- Bottomed at 6,547.05 on 3/7/09

- 54% Decline• Since 3/9/09 DJIA has appreciated 3,080 points or 47%• Year to Date DJIA is up over 9%• Interesting Fact

- On 9/10/01 DJIA closed at 9,605.51

- On 9/11/09 DJIA closed at 9,605.41

Economic Activity

The Great Recession

• Longest and Deepest Post WWII Recession• Currently in 22nd Month of Recession which

began in December 2007• First Quarter GDP Decline of -6.4% is the Largest

Drop in 27 Years• Four Consecutive Quarters of Negative GDP –

Longest Streak on Record

Gross Domestic Product

Copyright © 2009 CRANDALL, PIERCE & COMPANY • All rights reserved. • 14047 West Petronella Drive • Libertyville, Illinois 60048 • 1-847-549-6015 • Internet: www.crandallpierce.com

This copyright protected illustration is for internal use only. Under no circumstances may this illustration be copied, reproduced or redistributed in whole or in part including the data contained herein, without prior written permission from Crandall, Pierce & Company.The information presented herein was compiled from sources believed to be reliable. It is intended for illustrative purposes only, and is furnished without responsibility for completeness or accuracy. Past performance does not guarantee future results.

Real Gross Domestic Product

Sources: Bureau of Economic Analysis; National Bureau of Economic Research; Copyright © 2009 Crandall, Pierce & Company • All rights reserved.

*Data Released August 27, 2009 Shaded areas represent recessionary periods.

-8

-6

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In percent change from previous quarter,seasonally adjusted annual rates.

-CCLXXXII-6E

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122nd Quarter 2009 (Preliminary)* - Real GDP decreased at anAnnual Rate of -1.0%, or -32.9 Billion Dollars. In the 1st Quarter2009, Real GDP decreased -6.4%, or -216.5 Billion Dollars.

77 79 81 83 85 87 89 91 93 95 97 0199 03 05 07 09

GDP – Quarterly Long Term Perspective

Business Inventories

Employment

U.S. Unemployment Rate

Unemployment by State

Unemployment – Lagging Indicator

Unemployment – Initial Claims

Unemployment

• Since Beginning of Recession 6.9 Million Non-farm Jobs Lost

• Year to Date in 2009 – 3.85 Million Non-farm Jobs Lost

• 9.7% Unemployment Rate – Highest in 26 Years• Average Duration of Unemployment – 24.9 Weeks• Teenage Unemployment Rate 25.5% - Highest

Ever

Housing

Home Prices

Home Prices

• Case-Shiller U.S. Home Price Index Rose in May & June 2009

• First Increases in Almost 3 Years• 2Q 2009 Prices Down 14.9% versus 2Q 2008• Las Vegas and Detroit Worst Markets

– Las Vegas Prices Down 54.3% from Peak– Detroit Prices Down 45.3% from Peak

Home Price Recovery

New Home Sales

Housing Starts

Consumer

Consumer Spending

• Consumer Spending Represents 70% of Economic Activity

• 2009 Back to School Season Appears to have been Weak

• Christmas Season Important, but Current Surveys not Looking Promising

• 2008 Christmas Spending was Worst in 40 Years• July Consumer Credit Down $21 Billion – Largest

Decline in 43 Years

Retail Sales

Consumer Credit

Household Debt

Personal Savings Rate

Vehicle Sales - Cash for Clunkers

University of Michigan: Consumer Sentiment

Economic Themes

• Slow Growth – V or W• Jobless Recovery• Weak Consumer Spending• Restrictive Credit Conditions• Future Inflation Concerns• Dollar Weakness

Copyright © 2009 CRANDALL, PIERCE & COMPANY • All rights reserved • 14047 West Petronella Drive • Libertyville, Illinois 60048 • 1-847-549-6015 • Internet: www.crandallpierce.com

Sources: Bureau of Labor Statistics • Copyright © 2009 Crandall, Pierce & Company • All rights reserved.Shaded Areas - U.S. Recessions, Dashed Line - Beginning of Latest Recession

Consumer Prices and Producer Prices

191C CCLXXXI

Year to Year Percentage ChangeLast Observation July 2009

This copyright protected illustration is for internal use only. Under no circumstances may this illustration be copied, reproduced or redistributed in whole or in part including the data contained herein, without prior written permission from Crandall, Pierce & Company.The information presented herein was compiled from sources believed to be reliable. It is intended for illustrative purposes only, and is furnished without responsibility for completeness or accuracy. Past performance does not guarantee future results.

Consumer Price Index: All ItemsYear to Year Percentage Change

Last Observation July 2009

Producer Prices: Finished Goods

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73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 05 0703 0969 7167656361

Inflation

Oil Prices

Natural Gas Prices

Federal Government Debt – Total Public Debt

Interest Rates – 10 Year Treasury Yields

Interest Rates – 3 Month Treasury Yields

Pennsylvania Economy

Pennsylvania – Unemployment Rate

PA Unemployment by County – December 2007

PA Unemployment by County – June 2009

PA Unemployment – Rural versus Urban

Pennsylvania Housing Market

• PA fared Better than U.S. in Price Depreciation• Foreclosures

– Nation - 1 in every 357 Homes– PA - 1 in every 950 Homes– Nevada - 1 in every 62 Homes

2nd Quarter 2009 -Metropolitan Area House Price Year to Year Change

Metropolitan Area Chg Metropolitan Area Chg

Allentown-Bethlehem-

Easton-5.4% Philadelphia -3.1%

Altoona 2.6% Pittsburgh 1.2%

Erie 0.7% Reading -3.7%

Harrisburg-Carlisle -1.0% Scranton-Wilkes Barre 0.3%

Johnstown 2.2% State College 1.5%

Lancaster -0.9% Williamsport 2.3%

Lebanon 0.7% York-Hanover -3.5%

Regional Leading Indicators

Economic Outlook

It’s hard to make predictions,

especially about the future.

Yogi Berra

Federal Reserve Bank of Philadelphia

Aruoba-Diebold-Scotti Business Conditions Index

Aruoba-Diebold-Scotti Business Conditions Index

The Aruoba-Diebold-Scotti business conditions index is designed to track real business conditions at high frequency. Its underlying economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP)

2010 - Real GPD Projections

2010 – Unemployment Projections

2011 – Unemployment Projections

FRB Philadelphia – Survey of Professional Forecasters

Average Annual Data

Real GDPUnemployment

Rate

2009 -2.6% 9.2%

2010 2.3% 9.6%

2011 2.9% 8.9%

2012 3.2% 8.0%

Finally

First National Bank Presence

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