Economic Conditions and Outlook Eric Robbins, Regional Manager FDIC Division of Insurance and Research Chicago Region 1 The views expressed are those of the presenter and do not necessarily reflect official positions of the Federal Deposit Insurance Corporation. Some of the information used in the preparation of this presentation was obtained from publicly available sources that are considered reliable. However, the use of this information does not constitute an endorsement of its accuracy by the Federal Deposit Insurance Corporation.

Outline National Economic Outlook Regional Economic Outlook – Labor Markets – Manufacturing – Real Estate Markets Residential and Commercial 2

Source: Bureau of Economic Analysis, Blue Chip Consensus Forecast October GDP growth continues along its moderate path: Real GDP increased 2.8 percent in 2012 and is projected to be 1.6 percent in 2013.

Consumer spending and a rebound in inventory accumulation led third quarter growth. 4 Source: Bureau of Economic Analysis, advance estimate.

5 Residential investment has been a positive contributor to growth since mid

Source: Census Bureau/Haver Analytics. Chicago Region totals. …but has yet to contribute to job growth. 6

7 REGIONAL ECONOMIC OUTLOOK WISCONSIN LABOR MARKETS

8 Wisconsin state employment levels remain below national employment levels. Source: Bureau of Labor Statistics.

But Wisconsin is third among Midwestern states in regained jobs. 9

Unemployment rates remain elevated and much higher than the seven-year low. 10

The size of the labor force has declined in most metros, contributing to improving unemployment rates. Source: Bureau of Labor Statistics. 11 Note: The labor force in Eau Claire, Green Bay, and LaCrosse has exceeded the prior peak at 1.2%, 0.57% and 0.13%, respectively.

Unemployment rates have fallen considerably but remain high. Source: Bureau of Labor Statistics. 12

Year-over-year job growth varies by metro… Source: Bureau of Labor Statistics, August Year-over-year percent change

Source: Bureau of Labor Statistics, August Sector jobs as a share of total metro jobs is listed after each sector (Milwaukee, Madison) …And by industry sector, with strong gains in the professional/business services and leisure/hospitality sectors. 14 Year-over-year percent change in jobs, by sector

MANUFACTURING 15

Source: ISM Manufacturing Index, Index values above 50 indicate expansion. Manufacturing growth has slowed, after being a driver of job growth early in the recovery. 16

Source: ISM Manufacturing Index, Index values above 50 indicate expansion Despite a slowdown, manufacturing production and employment is still in expansionary territory. 17

Automotive sales are approaching pre-recession levels. Source: Bureau of Economic Analysis and Bureau of Labor Statistics. Notes: Data through September Data are seasonally adjusted. 18

RESIDENTIAL REAL ESTATE MARKETS 19

Nationally, foreclosure inventory peaked in early

Source: Moody’s Analytics Case-Shiller Home Price Index SA; 2000Q1=100. Home price index value Housing markets are likely stabilizing, with home values finally rising in most markets. 21

On a statewide basis, prices are increasing, according to multiple indexes. 22 Sources: Federal Housing Finance Agency, Moody's Analytics 2nd quarter 2013.

Many Wisconsin metros remain well below peak levels. Source: Federal Housing Finance Agency all transactions index Q through Q2 2013, Q1 2000= year high-low house price index value 23

COMMERCIAL REAL ESTATE MARKETS 24

CMBS delinquency rates indicate CRE stress in many states. 25

26

Madison and Milwaukee CRE sales have rebounded. Commercial Property Sales ($ millions) Note: Sales totals are 4 quarter moving sums from Costar/PPR. 27

Rents improve for a number of Midwest markets. Market Percent Change in Rents from 3Q-12 to 3Q-13 ApartmentIndustrialOfficeRetail Chicago Cincinnati Cleveland Columbus OH Detroit Indianapolis Louisville Madison Milwaukee Nation Source: Costar/PPR. 28

National Banking Conditions 29

30 The three-year trend in year-over-year earnings improvement continues.

31 Failures have fallen to the lowest level since 2008.

32 The number of institutions on the FDIC’s “Problem List” fell for the ninth consecutive quarter in 2Q 2013.

33 The Deposit Insurance Fund increased by $2.1 billion during the second quarter to $37.9 billion

Earnings are nearing pre-recession levels for some Midwest banks. Pre-Tax Return on Assets (%) Source: FDIC Call Report Data. Note: Median annual ratios among insured institutions by state. H-1 figures are 6-month annualized values. 34

Past-due ratios have declined among Midwest banks. Loan Past-Due Ratio (%) Source: FDIC Call Report Data. Note: Aggregate quarterly data among insured institutions with under $10 Billion in assets by state. 35

Distressed assets remain elevated among Midwest banks… Noncurrent Loans and ORE to Assets (%) Source: FDIC Call Report Data. Note: Aggregate quarterly data among insured institutions with under $10 Billion in assets by state. 36

Summary: Economic Outlook 37 Factors to consider… Positive contributors?Uncertain -Employment growth continues, albeit slowly -Housing markets are stabilizing -Manufacturing led recovery, now slowing growth -Energy prices moderating / U.S. energy independence? -Income growth is weakly positive -Federal fiscal debate continues -Sequestration continues -Unfunded pension / healthcare liabilities -Eurozone slowdown / recovery -Future of Fannie / Freddie uncertain -Long-term unemployed find their footing? -China growth stabilizing -Demographic challenges are persistent

Consensus forecasts call for continued growth below trend in Source: Blue Chip Economic Indicators, October 2013.

Contacts Eric Robbins, Regional Manager, DIR Chicago Stefan Spong, Economic Analyst Miguel Hasty, Senior Financial Analyst (IL,KY,WI) Rob Vilim, Senior Financial Analyst (IN,MI,OH)