economic indicators report third quarter 2014: stevens ... indicator... · special report: banking...

Special Report: Banking on the Future: A Community Banking InitiativeBy: Sarah J. Bauer-Gordon ’10, financial institution examiner at the FDIC

Economic Indicators ReportThird Quarter 2014: Stevens Point AreaRandy Cray, Ph.D., Chief EconomistScott Wallace, Ph.D., Research Associate

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The Stevens Point Economic Indicator Report is made possible by a genorous grant from BMO Harris Bank.

CWERB Economic Indicators Report - Stevens Point 1

TABLE OF CONTENTS

Outlook ...............................................................................................................................................................................2-3 Table 1: National Economic Statistics ..........................................................................................................................3

Central Wisconsin .............................................................................................................................................................3-5 Table 2: Unemployment Rate in Central Wisconsin ..................................................................................................3 Table 3: Employment in Central Wisconsin ................................................................................................................3 Table 4: Wisconsin Employment Change by Sector ...................................................................................................3 Table 5: County Sales Tax Distribution ........................................................................................................................4 Table6:BusinessConfidenceinCentralWisconsin ..................................................................................................4 Figures 1-7.....................................................................................................................................................................4-5

Stevens Point-Plover Area ...............................................................................................................................................5-7 Table8:RetailerConfidenceinStevensPoint-PloverArea ....................................................................................5 Table9:HelpWantedAdvertisinginPortageCounty ..............................................................................................5 Table 10: Occupations with the Most Openings in Wisconsin .................................................................................6 Table 11: High Growth Occupations in Wisconsin ....................................................................................................6 Table 12: Unemployment Claims in Portage County ................................................................................................6 Table13ResidentialConstructioninStevensPoint-PloverArea ..........................................................................7 Table14:NonresidentialConstructioninStevensPoint-PloverArea ..................................................................7 Figures 8-11 ......................................................................................................................................................................7

Housing Market Information ........................................................................................................................................7-8 Table 15: National Median Home Prices .....................................................................................................................8 Table 16: National Existing Home Sales ......................................................................................................................8 Table 17: National Inventory .........................................................................................................................................8 Table18:NationalAffordabilityIndex ........................................................................................................................8 Table19:LocalAreaMedianPrice ...............................................................................................................................9 Table 20: Local Units Sold ..............................................................................................................................................9 Table 21: Local Median Price .........................................................................................................................................9 Table 22: Local Number of Home Sales .......................................................................................................................9

Measuring Entrepreneurial Activity as Potential Measure of Job Growth ...................................................... 10-11

Special Report ...............................................................................................................................................................12-20Sarah J. Bauer-Gordon ‘10, Financial Intuition Examiner

Federal Deposit Insurance Corporation-Appleton Wisconsin Field Office

Special Recognition: JeffreyDallman,ResearchAssistant,CWERBTravisMeier,ResearchAssistant,CWERB

CWERB - School of Business & EconomicsUniversity of Wisconsin-Stevens Point

StevensPoint,WI54481715-346-3774 or 715-346-2537

www.uwsp.edu/business/cwerb Follow us on Twitter @uwspcwerb

Association for University

Business and Economic Research

2 CWERB Economic Indicators Report - Stevens Point

OutlookThenation’sfinancialmarketshaveexhibitedagooddealofvolatilitylately.Riskstotheeconomyaremany and come in a variety of forms. Space does not permit a complete discussion of all the concerns about theeconomy,butherearesomeofthemajorissues.The most important threat facing our economy is the absence of a robust recovery in Europe. In fact,EuropehasnotfullyrecoveredfromtheGreatRecession. The austerity programs that European nationsundertooktocombattherecessionwerenoteffectiveinreducingunemploymentorinstimulatingGDPgrowth.TheEuropeanCentralBank(ECB)recently expressed great concern about the possibility ofdeflationandrecessiontakingholdintheregion.Deflationisthoughtbymosteconomiststobeworsethaninflation.Theproblemwithdeflationarisesfromthe behavior of businesses and consumers.

Underadeflationaryscenarioitbecomesrationaltopostpone economic actions. The belief by business firmsthatlowerpricesandwagescanbewonfromsuppliersandworkersbywaiting,andconsumersbelieving that lower prices can be extracted from retail stores by waiting can crush economic activity. This attitude about the direction of prices and wages can result in huge drop in demand for goods and services,whichwillcauseinventoriestobuildandunemploymenttorise.This,inturn,willreinforcethepsychologythatwaitingisadvantageous,becausepricesandwageswillfallevenfurther.Thus,aself-reinforcing downward economic spiral can be created fromdeflationaryexpectations.

Historically,deflationismostoftenassociatedwitheconomic depressions and should be counteracted withlargeamountsoffiscalstimulusandmonetaryexpansion. It remains to be seen if Europe has the politicalwilltoundertakesuchaprogram.WhileitistruethattheECBisinchargeofmonetarypolicy,the individual countries in Europe still control their ownspendingandtaxationpoliceswhichmakeanyattemptsatcoordinatingpolicyverydifficult.EveninaunifiedcountryliketheU.S.,thepoliticaldividebetween republicans and democrats has meant that fiscalpolicychanges(spendingandtaxation)havebeen almost impossible to achieve.

Additionally,thereisconcernaboutFederalReservemonetary policy. How will the Federal Reserve proceed in its attempt to normalize monetary policy in the U.S.? The normalization of monetary policymeansthatinterestrateswillnotbekeptatartificiallylowlevelsandthemoneycreationprocesswillslowinhistoricnorms.Itiswellknownthat

the FED has been pursuing an unprecedented easy monetary policy over the past six years. This was doneinresponsetothefinancialmeltdownthatinlarge part caused the Great Recession. In response the FED pushed interest rates down to historic lows andfloodedtheeconomywithmoneyinanattemptto stimulate economic activity. More to the point the FED’sholdingsofgovernmentandmortgagebackedsecuritieshasexpandedeightfold,from$500billionin2008to$4,000billionin2014,meaningthatthemoney supply has been greatly increased. The Federal FundsRate(FFR)isnowabout0.09percent.Wheninflationisfactoredin,therealFFRisnegative.

Theworld’sfinancialmarketsareconcernedastohoweconomicactivitywillbeaffectedbyanormalization policy. Will higher interest rates and tighter credit conditions cause economic activity to falter?Ironically,theproblemsmentionedearliermayweakentheeconomyjustenoughtoallowtheFEDsomecover.TheFEDmayusethisasajustificationtoproceed slowly with the normalization process. Not wantingtocauseanotherrecessionintheU.S.,theFED may delay or slow the raising of interest rates and the tightening of credit conditions.

Political turmoil seems to dominate the Middle East. ISIS is threatening to become permanently entrenched in Iraq and becoming a threat to international stability. RussiahastakenveryaggressiveactionswithitsneighbortheUkraine.SanctionsimposedonRussiabytheU.S.anditsallies,andtheretaliatorymeasurestakenbyRussia,willhurtinternationaltradeandtheeconomies of a large number of nations.

Other items that are weighing on the economy and financialmarketsare:thepotentialoftheEbolavirusto spread; the slow recovery of the U.S. housing market;fiercecompetitionfromoverseasproducers;fear that the Chinese economy may slow in the coming year; and the growth of electronics and automation in the production of goods and services andtheirimpactonemployment.Alloftheseissuescaninfluencethelevelofeconomicactivityandjobcreation in the U.S.

Thegoodnewsisthatinspiteofthesechallenges,the Federal Reserve is forecasting that: real GDP in the U.S. will grow 2.2-3.6 percent in 2015; the unemployment rate will range between 5.4-5.9 percent;andinflationwillbebetween1.4-2.4percentin the coming year. Only time will tell if their optimism is warranted. Table 1 presents additional data on the national economy.


Central WisconsinThe unemployment rate in each reporting areas is displayedinTable2.InSeptember2014Marathon,Portage and Wood counties all experienced declines in their unemployment rates’ from a year ago. The respectiveSeptemberratesforPortage,MarathonandWoodwere4.1,4.4and4.8percent.ThelaborforceweightedunemploymentrateforCentralWisconsin,was much lower as well falling from 5.8 percent to 4.4 percent. Meanwhile Wisconsin’s unemployment rate dropped from 6.0 to 4.7 percent and the United States unemployment rate fell from 7.0 percent to 5.7 percent.Thus,theunemploymentratesweremuchimproved throughout all reporting areas.

EmploymentfiguresinTable3arebasedonthegovernment’s survey of households. Portage County’s totalemploymentfigureroseby2.4percentpointsand total employment in Wood County went down by 1.4 percent over the past year. Marathon County saw its payrolls expand by 0.8 percent over the past 12 months. Central Wisconsin as a whole experienced an employment increase of about 900 positions. Jobs in the region rose from 145.1 to 146.0 thousand or by 0.6 percent. The survey of households also shows that Wisconsin’spayrollsincreasedby2.0percent,orbyabout58,000positionsovertheperiod.Thenationgained1.6percentorabout2.3millionjobsoverthesame period.

Table 4 gives the most recent employer based payrolls numbers for Wisconsin. Economists believe the nonfarm employment numbers based on employer provideddata,giveamoreaccurateassessmentofthelabormarketconditionsthandoeshouseholdsurvey data. From September 2013 to September 2014 Wisconsin’s total nonfarm employment expanded from 2.84 million to 2.89 million or by a 1.5 percent. Thisrepresentsagainofapproximately50,000thousandjobsduringthepastyear.Thesectorsoftheeconomytoexperiencejobgrowthwereconstruction,manufacturing,tradetransportationandutilities,professional&businessservices,leisure&hospitality,educational & health services and government. Inaddition,theemploymentresultsfornaturalresourcesandmining,information,werealsopositive.Theonlysectortoloseemploymentwasthefinancialservicessector.Ingeneraltherateofjobgenerationcontinues to be very modest in the state as measured by this data set.


InTable5,PortageCountysalestaxdistributionsrosefrom$1.41millionto$1.48million,anincreaseof4.6percent. Marathon also experienced an increase in salestaxdistributionsfromthestate,risingfrom$2.79millionto$2.96millionorby6.2percent.SimilarlyWoodCountycollectionsexpandedfrom$1.38millionto$1.99millionorbyabout44.3percentoverthe course of the past year. The data suggests there wasagoodamountofimprovementtakingplaceinretail activity for Central Wisconsin.

The CWERB’s survey of area business executives is reported in Table 6. This group believes that recent events at the national level have led to an improvement in the country’s economic condition. In addition they believe the local business climate has improved over the past 12 months. When they wereaskedtoforecasteconomicconditionsatthenational level they were a lot more optimistic about the future direction of the economy than in the recent past. They expressed similar optimism for the local economyfortheirparticularindustry.Overall,Table6 also shows that the level of optimism expressed for the economy was generally higher in September 2014 than in September 2013. This is good news for the local economy.

Figures 1 thru 7 give a historic overview of how the economy in Wisconsin has performed during the 2009-2014 time period. For example Figure 3 shows the dramatic rise in Wisconsin’s unemployment rate andthegradualreductiontakingplacesince2010.In2010 the unemployment rate was about 10 percent and at the end of 2014 the rate dropped to about 4.5 percent. Figure 7 shows the steep decline and rebound in the number of people employed in leisure &hospitality,fromabout255,000in2009to270,000inthe mid part of 2014.

Figure 1: Employment Level: WI

Figure 2: Unemployment Level: WI

Figure 3: Unemployment Rate: WI


Figure 4: Labor Force: WI

Figure 5: Manufacturing: WI

Figure 6: Education and Health Services: WI

Figure 7: Leisure and Hospitality: WI, In Thousands

Stevens Point – Plover AreaWe usually include Table 7 which gives employer based estimates of industrial sector employment in PortageCounty.However,pleasenoteatthetimethereport was written these data for September were not available from the Wisconsin Department of WorkforceDevelopment.Hopefullythesedatawillbe available on a timely basis in the future and will be included in the report.

InTable8theCWERB’sretailerconfidencesurveyfindsthatmerchantsfeelthatstoresalesarehigherthan they were one year ago. This is welcome news forthelocaleconomy.Inaddition,theirexpectationsaboutstoretrafficandsaleshavebecomestrongerthan they were in September 2013. When it comes to expectations about the future it appears that the September 2014 assessment of retail activity was marginallyhigherthaninSeptember2013.Alsothis group feels that retail activity in the latter part of 2014 will be at higher than in the latter part of 2013.Theoverallsignificanceofthesurveyisthatlocal merchants are saying that there are some signs improvementstakingplaceinthelocalretailsector.Once again this is good news for the local economy.

Table9HelpWantedAdvertisingisabarometeroflocallabormarketconditionsandtheindicesforStevensPoint,Wausau,MarshfieldandWisconsinRapidsarenowbasedonjobadvertisingontheinternet. The index for Stevens Point and Wisconsin Rapids rose by 20.6 percent and by 14.2 percent respectivelywhencomparedtoayearago.Further,Wausau experienced an expansion in the amount


advertisingtakingplace,byabout19.8percent.Marshfield’shelpwantedindexalsorosebyapproximately 15 percent. These data suggests that advertising growth has been very even across the area’slabormarkets.

We have a new Table 10 for this report: Occupations with the most openings in Wisconsin. The table containsdataontheaveragenumberofjobopeningfor the top occupations. The top 25 occupations are listedfromhightolow.Forexample,cashiershavethehighestnumberannualopeningsat3,400per

year. Table 11 is also new to the report: High growth occupations in Wisconsin from 2010 to 2020 in terms of percentage change. These tables give the reader important insight into the occupational structure Wisconsinlabormarket.

Anothermeasureofthelocaleconomyispresentedin Table 12. It shows that new unemployment claims contracted from 132 to 96 or by 27.6 percent over the year. Moreover total unemployment claims dropped from 869 to 638 or by 26.6 percent in our year over comparison. This signals that the local economy continues to improve.

Table 13 presents the residential construction numbers for the Stevens Point-Plover area. In our yearly comparison the number of permits issued in Third Quarter was 32 and they had an estimated value of $8.5millionandthenumberofhousingunitstotaled37. When comparing Third Quarter 2013 to that of 2014 residential alteration activity contracted from 237to190permits.Further,theestimatedvalueof


thistypeofactivitywentdownfrom$1.71millionto$1.60million.Overall,the2014constructiondatapaintsasomewhatdarkerpictureoftheresidentialconstruction scene than last year.

ThenonresidentialconstructionfiguresinTable14 were as follows for Third Quarter 2014. The number of permits issued was 4 and the estimated valuewas$1.8million.Theestimatedvalueofnewstructuresfigurebodeswellfortheareaeconomy.The number of business alteration permits was 81 in 2014 compared to 82 in 2013. The estimated value of alterationactivitywas$2.9millionin2014comparedtothe2013figureof$3.1million.Insum,thepacenonresidential construction activity is slowed a bit in thearea.Thegoodnewsthough,isthereareanumberoflargeconstructionsprojectsthathavebeenrecentlycompleted or are under construction in the greater StevensPointArea.

Figures 8 thru 11 on the following page give an economic history lesson as to how the employment level,theunemploymentlevel,theunemploymentrate,andthelaborforcehavetrendedoverthepastfiveyearsinPortageCounty.Pleasenotethedatafor the charts runs from January 2009 to mid-2014.

Thefiguresclearlyshowtheinfluenceofthegreatrecessiononthearealocaleconomyandthefiguressupplement the report’s year over year comparisons. Thisallowstheshort-termfluctuationsintheeconomytobejudgedmoreproperly.

Figure 8: Employment Level: Portage

Figure 9: Unemployment Level: Portage

Figure 10: Unemployment Rate: Portage

Figure 11: Civilian Labor Force: Portage


Housing Market InformationThe following seven tables contain information on thenational,regional,andlocalhousingmarket.Housing activity is an incredibly important aspect of the economy. We believe the reader will gain valuable insightintohousingmarketsconditionsandgreaterinsight into the local economy in this section of the report.

Table 15 gives national median home price for the U.S.andmajorregionsintheU.S.Housingpricesin the Midwest remain the lowest in the nation. The median home price in our part of the country has rosefrom$154,600in2013toanestimated$165,100in September 2014. In general housing prices are rising in the U.S. and are rising in all of its geographic regions. The West has the highest medium housing pricesat$294,200.

Table 16 National and the Midwest existing home sales data show not much has changed in sales activityoverthepastyear.IntheMidwest1,170,000homes are forecasted to be sold in 2014. For the Midwest,thepreliminaryestimatefor2014isthat30,000fewerhomeswillbesoldthanin2013.In2011the number of homes sold in the Midwest bottomed outat910,000units.

The national inventory of homes is given inTable17.AsofSeptember 2014 the inventorybacklogisestimated to be 5.3 months. In 2010 the national supply of homes was 9.4 months. Thus,agreatdealofimprovementhastakenplace in the housing market.Thestatisticsindicatethatthebacklogofunsold houses has been cut about in half.

Table18presentsthenationalaffordabilityindex.Over the years very low interest rates and falling homepriceshavegreatlyimprovedtheaffordabilityof homes. In 2014 housing prices and interest rates whiletrendinghigher,arestillathistoriclowlevels.Thepreliminaryestimatefortheaffordabilityindexin2014is157.6,downfrom176.9in2013.Thelowertheindex,thelessaffordablehousingisbecomingfor the typical family. This means that while housing isbecomingrelativelymoreexpensive,itisstillveryaffordable.In2014,ahouseholdearningthemedianincome has 157 percent of the income necessary to qualify for a conventional loan covering 80 percent of a medium-priced existing single-family home.

Table 19 displays data on state and local area median prices. For the most part Wisconsin and local area home prices have been more stable than the U.S. as a whole. In Central Wisconsin the lowest median homepriceisinWoodCountyat$95,700.PortageCountyhasthehighestmediumpriceof$139,000and Marathon falls somewhere between other the twocounties,withamedianhousepriceof$125,900.The median price of a house in Wisconsin is about $148,500.Inaddition,afteranumberofyearsofdecline,themedianpricesforhousesinourlocalareaand state are trending upward.


Table20givesthenumberoflocalhousingunitssold,from 2011 to 2013. The counties of the region have all experienced increases in the number of units sold. Please note the number of homes sold listed in the tablefor2014coverjustninemonthsofactivity.

Tables21and22presentthechangesthathavetakenplace in the local median prices and the number ofunitssold,andcomparesThirdQuarter2013toThird Quarter 2014. Here we see the changes in local median home prices in the three counties over thepastyear.Further,thenumberofunitssoldinMarathon,PortageandWoodcountiesdeclinedoverthe course of the year.


Measuring Entrepreneurial Activity as Potential Measure of Job GrowthUWSP Small Business Development Center

VickiLobermeier,SBDCDirectorofEntrepreneurshipActivitiesMaryWescott,SBDCCounselingManager

UWSP Hosts Successful Pathways to Entrepreneurship

InAugust,UW-StevensPointhostedPathwaystoanEntrepreneurial University. The two-day conference highlighted the UW System and campus’s many roles in community and economic development.

PresentersincludedRayCross,UWSystemPresident;WendyTorrance,KauffmanFoundationDirectorofEntrepreneurship;ReggieNewson,WIDepartmentofWorkforceDevelopmentSecretaryandDennisWinters,WIOfficeofEconomicAdvisorsChiefEconomist.

Communityemployers,industryleadersanduniversity system leaders also contributed their perspectives during the two-day conference designed to increase entrepreneurial activity and build thriving communities.

PresidentCrossspokeofthemissionoftheUWSystem to foster an entrepreneurial culture and develop talent and ideas that raise Wisconsin prosperity and serve the world. He renewed the system’s commitment to encourage innovation.

Representatives from UW Colleges and UW Extension highlighted successes from UW programs that foster entrepreneurship and serve WI innovators and entrepreneurs. UW initiatives highlighted included UWSP’s Wisconsin Institute for Sustainable Technology; UW Whitewater’s Wisconsin Innovation ServiceCenter;UWOshkosh’stheBusinessSuccessCenterandUW-Extension’sIdeaAdvanceandtheWisconsin Big Idea Tournament.

Universities are part of the pathway to entrepreneurshipformostbusinesspeople,accordingtoWendyTorranceoftheKaufmannFoundation.Almost70%ofentrepreneurshavespentatleastsometimeincollegeaccordingtoKaufmannFoundationsurveys.Kaufmannsurveysreportthat47%ofallentrepreneurs have a college degree. Torrance further reported that entrepreneurship crosses all university departmentsandmajors.Andasfortheageofmostentrepreneursatstartup,Kaufmannreportsoverhalfof all businesses in the country are started by people 45 and over.


TotalSBALoanAmountComparedQ12010,2011,2012,2013,2014

Total Business Starts Compared Q1:2010,2011,2012,2013,2014

TotalNumberofSBALoansComparedQ1

2010,2011,2012,2013,2014


Banking on the Future:A Community Banking Initiative

by Sarah J. Bauer-Gordon’10Financial Institution Examiner

Federal Deposit Insurance Corporation (FDIC)

Introduction OnJune30,2011SheilaBair,ChairmanoftheFederalDepositInsuranceCorporation,addressedtheSenateCommitteeonBanking,HousingandUrbanAffairsstating the “challenges facing our economy are not theresultoffinancialreform.Instead,theyarelargelythe result of the enormous and long-lasting impact thefinancialcrisishashadonU.S.economicactivity”(Bair,2011).

Whether it is funds obtained through the troubled asset relief program or the impact of low interest rates,thefinancialcrisisexperiencedbytheU.S.economyinrecentyearshasleftitsmarkonthebankingindustry.Thispaperaddressesthefollowingquestions:Whatimpactdidthefinancialcrisishaveoncommunitybanks?Whatmightthefuturehold?

Community Bank Profile and CharacteristicsAsdefinedbytheFDIC,communitybankstend to be small in size and tend to focus on providingtraditionalbankingservicesintheirlocal communities. They obtain most of their core depositslocallyandmakemanyoftheirloanstolocalbusinesses(FDICCommunityBankingStudy,2012).Thoughitiseasytodefinecommunitybankingusingasizelimit,theattributesassociatedwithcommunitybankingareonlylooselycorrelatedwithsize.Acloserlookatthebusinessandoffice

structure of the institution is necessary to determine theextenttowhichcommunitybanksarefocusedontraditionallendinganddepositgatheringactivities,as well as its geographic scope of their operations. TheFDICdefinitionofacommunitybankremainslooselybasedonsize,butgoesbeyondsizealoneinseparatingcommunitybanksfromnoncommunitybanks.

Whilemoredetailedthanasimpleasset-sizelimit,theFDICdefinitionofthecommunitybankisentirelybasedonstandarddatareportedbyfinancialinstitutions themselves and by federal government agencies.Applyingthisdefinitionofthecommunitybankshowsthatmostbanksarecommunitybanks.Ofthe6,914U.S.bankingorganizationsreportingin2010,94percentweredesignatedascommunitybanks.


Noncommunity BanksAlthoughnoncommunitybanksrepresentonly6percentofallbankingorganizations,theyaccountfor63percentofU.S.bankingofficesand85percentoftotalindustryassets.Noncommunitybankswereseparatedintothefollowingsizegroups:under$1billion;between$1billionand$10billion;between$10billionand$100billion;over$100billion;andthose institutions that are part of the four largest bankingorganizations(BankofAmericaCorporation,CitigroupInc.,JPMorganChase&Company,andWellsFargo&Company).Thetableabovecomparesthenumberoforganizations,totalassets,andthenumberofofficesforeachofthesenoncommunitybanksizegroupsagainstthecorrespondingtotalsforcommunitybanksandfortheindustryasofyear-end2010.Thefourlargestbankingorganizationsreportthelargestshareofindustryassets,with45percent;however,theyreportonly19percentofthetotalnumberofindustryoffices.Incomparison,communitybanksreport37percentofthetotalnumberofindustryoffices,and15percentofindustryassets.

Structural changeInthepast27years,thenumberofbankshasdeclinedsharply.Between1984and2011,thetotalnumberoffederallyinsuredbankandthriftchartersdeclinedby59percent,from17,901to7,357.Newcharters,bankfailures,bankmergers,andconsolidationofcharterswithin holding companies account for this decline.

Ofthe15,432banks(asopposedtobankingorganizations)thatexitedtheindustry,17percentfailed,49percentmergedwithanunaffiliatedbank,and another 32 percent consolidated with other charterswithintheirexistingbankholdingcompany.

Communitybanksemergedfromthisperiodfewerinnumberandwithadiminishedshareofbankingindustryassets.However,theycontinuetorepresentby far the most common business model among FDIC-insured institutions.

Cuttingagainsttheconsolidationtrendsince1984,a large number of new charters were added to the industryovertheystudyperiod.Some4,888newcharterscameintoexistencebetween1984and2011,ofwhich83percentwerecommunitybankasoftheirfirstyear-endfinancialreport.Thechartbelowshowsthatthesenewchartersaroseinthreedistinctwaves,all of which coincided with economic expansions.

Fortheperiodof1984to2011,thechartbelowshowsthat institutions starting out the period with assets between$100millionand$10billionhadlowersurvival rates and higher failure rates than both the smallestandthelargestinstitutions.Inaddition,onlythelargestinstitutions,withassetsgreaterthan$10billion,mergedmoreoftenthanthesebanks.

Incontrast,institutionsstartingouttheperiodwithassetslessthan$100million–thegroupthatwould experience a net decline of 82 percent in their numbersby2011–wereinfactmorelikelythananyother group size to survive the entire 27-year period. Institutionsinthissmallestgroupsizewerelesslikely


tofailormergethananyothersizecategory,whilethey consolidated at a rate similar to other groups. Of all the institutions that started out in 1984 with totalassetslessthan$100million,2,774ofthem,or20percentofthetotal,notonlysurviveduntil2011butgrewintooneofthelargersizegroups.Infact,11ofthemendedupascharterswithover$10billionin assets. While most of the new charters during this periodstartedoutsmall,with88percentreportinglessthan$100millioninassets,mostofthemtendedto grow and move into larger size groups; only 24 percent of the new charters that survived to 2011 continuedtoreportassetslessthan$100millionatthat time.

Despitedecliningnumbers,communitybankshave proved resilient. Notwithstanding the sharp declineinthenumberofbankswithassetslessthan$100millionandtheaccumulationofindustryassetsatnoncommunitybanks,thecommunitybankingsectorrepresentedthevastmajorityofbankingorganizations(95percent)andcharters(92percent)asof2011.Moreover,communitybanksinsome ways experienced less structural change than noncommunitybanks.

Large-scalestructuralchangeinthebankingindustry since 1984 has reduced the number of federallyinsuredbankingandthriftchartersbyover50percent,resultinginthelargestinstitutionsholdingwelloverone-halfofindustryassets.Amidthewavesofnewcharters,failures,mergers,andintercompanyconsolidations,communitybanksdeclinedinnumberandintheirshareofbankingindustryassets.Nonetheless,theyalsoshowedsignsofresilience,remainingbyfarthemostprevalentformofFDIC-insuredinstitution.Communitybanksreportingin1984werefivetimesmorelikelythannoncommunitybankstoreportcontinuouslythrough2011.Bycontrast,noncommunitybanksweremuchmorelikelytoconsolidate,beacquired,orundertakeacquisitions themselves than were the more stable communitybanks,leadingthesebankstoaccumulate


an86percentshareofbankingindustryassetsbyyear-end 2011.

GeographyCommunitybankingintheUnitedStatesislinkedwithgeography.Communitybanksaredefined,inpart,bythefactthattheyoperatewithinlimitedgeographic areas. The map shows that community bankheadquarterslocationsfaroutnumberthoseofnoncommunitybanks,andareparticularlyconcentrated in the upper Midwest and the Northeast corridor between coastal New England and the Mid-AtlanticStates.

Communitybankshavefewerbankingofficesonaverage and occupy a smaller geographic area than noncommunitybanks,thoughtheirgeographicreachhas expanded somewhat over time. While most bankingofficesarelocatedinmetroareas,communitybanksaremorelikelythannoncommunitybankstooperateofficesinnon-metroareas,wheretheycontinue to hold a dominant share of total deposits. Communitybanksareespeciallyimportanttoruraland other non-metro counties and conduct business inmorethan1,200counties–morethanathirdofallU.S.counties–wherefew,ifany,noncommunitybankschoosetooperate.

Community Banks and Economic Development Economistsoftencitesoundfinancialreformsandreliable infrastructure as being crucial to a healthy bankingsystemthatpromoteseconomicgrowth.Financialsystemsserveseveralkeyrolesinaneconomy,includinginformationproductionrequiredfor asset allocation and investments; overseeing effectivecorporategovernance;encouragementofdiversification,tradingandriskmanagement;providing a vehicle for savings; and facilitating the exchange of goods and services. Financial institutions

makethispossiblebymaintainingpublicconfidenceintheintegrityofthebankingsystem.Thisconfidenceand integrity is essential because customer deposits areaprimaryfundingsource,withoutwhichbankswouldbeunabletoprovidethesefinancialservices.Further,byofferingdepositservicesandlendingproductsfinancialinstitutionscontributetoeconomicactivity in a community.

Assuch,communitybanksplayanimportantroleinthefinancialsystemoftheU.S.economy.Theycomplementtheroleoflargebanksbyspecializinginrelationshipbankingandprovidingcredittosmallbusinesses—a sector that is arguably underserved bylargebanks.Inaddition,communitybanksservecustomers in rural areas and small metropolitan areas thatarenotservedbylargebanks.Communitybanksareimportantlendersinthefarmeconomy,andtheyserve the retail deposit needs of many depositors. Althoughthenumberofcommunitybankswilllikelycontinuetodeclinebecauseofmergeractivity,they will continue to play an important role for the foreseeable future.

Thechangingcompositionofcommunitybankassetportfolios reveals a very dynamic industry over thelastthirtyyears.Overtimecommunitybankshave shifted the primary emphasis of their real estate lending from residential loans to commercial loans. The table below depicts the overall change in the portfolio composition of community and noncommunitybanksovertheperiodofthestudy(1984-2010).Itshowstheshiftincommunitybanksassetsfromsecuritiestoloans,ledbyincreasesinconstructionsloans,othercommercialrealestateloans,aswellasagriculturalloans.Communitybankholdings of consumer loans and residential mortgages declinedasapercentofassets,whilecommercialandindustrialloansremainedsteadyatjustover8percentoftotalassets.Communitybankscontinuedtorepresentsasignificantsourceofcredittolocalfarmsandbusinesses.Asof2011,communitybanksheld14percentofbankingindustryassets,but46percentofthe industry’s small loans to farms and businesses.

Noncommunitybankshadsizablepercentageincreasesintheirholdingofsecurities,residentialmortgages,andconsumerloans.Theseincreaseswereoffsetbydeclinesinpercentageholdingsofcommercialandindustrialloans,constructionsloansandothercommercialrealestateloans,otherloans,andleases.Agriculturalloanscontinuetomakeupless than 1 percent of total assets at noncommunity banks.


Beyond the shift in lending focus at community banks,itisusefultoexaminethosecommunitybanksthat have chosen to specialize in particular types of lending.Themajorityofcommunitybanksfallintooneoffivemajorloancategories:mortgageloans,consumerloans,CREloans,agriculturalloans,andcommercial & industrial loans. The table below depicts the number and percent of community banksthatmetthecriteriaforeachlendingspecialtygroupbetween1984and2011.About57percentofcommunitybankshadasinglelendingspecialtyin2011,withtherestbeingeithermulti-specialistsorhaving no specialty.


The next table compares the weighted average pretax returnonassetsforcommunitybanksineachlendingspecialtygroupoverfive-yearintervalsandfortheentirestudyperiod.Agriculturalspecialists(withaweightedaveragepretaxROAof1.4percent)werethestrongestperformersovertheentirestudyperiod,followed by the no specialty group and consumer specialists.

Overall,communitybanksshiftedthecompositionoftheir loan portfolios from retail to commercial loans duringthestudyperiod,mainlyduetoanincreaseinthe share of loans secured by commercial & real estate (CRE).Agriculturalspecialists,consumerspecialists,andbankswithnolendingspecialtyperformedbest,while CRE specialists were the worst performers over theentirestudyperiod.Thus,lendingstrategyisanimportantfactorincommunitybanksuccess,andit proved to be especially so during the tumultuous secondhalfofthe2000s.Moreover,communitybanksplayaprimaryroleinpromotingfinancialstabilityandpublicconfidencewhicharenecessarytospur

economicactivity.Therefore,abank’sperformanceis highly correlated with the strategies pursued and employed.FormanyofthetownsacrosstheU.S.,thedepositandlendingservicesofferedbycommunitybanksprovidetheprimarysourcesofeconomicexpansion.

Exceptforverysmallinstitutions,communitybankshave continued to hold their own against larger banks,earningcomparableprofits,enjoyingfastergrowth,andattractingsubstantialnumbersofnewentrants.Thesmallestcommunitybanksarelikelytofacecontinueddifficulties,eitherbecausetheyarebelowtheminimumefficientscaleorbecausetheyare located in economically declining communities. Whileitisdifficulttopredicthowmanywillremainin10or20years,communitybanksshouldcontinuetoplayanimportantroleinthebankingsystembyservingsmallermarketswhichlargebankshave shown little interest and by specializing in relationship-based services.

Challenges facing Community BanksRegulatory RequirementsAccordingtoasummaryofinterviewswithcommunitybankersregardingregulatorycompliancecosts,thefollowingpointswerenoted.• Most interview participants stated that no one regulationorpracticehadasignificanteffectontheirinstitution.Instead,moststatethatthestrainon their organization came from the cumulative effectsofalltheregulatoryrequirementsthathavebuilt up over time.

• Themajorityofinterviewparticipantsindicatedadesire for additional outreach by the FDIC to help them gain a better understanding of the proper ways to implement new or changing regulations and maintain compliance.

• Most of the interview participants indicated that they consider regulatory compliance as part of the normal cost of conducting business.

• The interview participants indicated that as the regulatoryenvironmentcontinuestochange,theyhave become more reliance upon consultants to assist with interpreting and implementing new or changing rules and regulations.

• Several of the interview participants indicated that greater outreach or technical assistance from the regulatory agencies could alleviate some of their increased reliance on consultants.

• The interview participants expressed a strong desire to comply with outstanding rules and regulations; however,theyfeeldependentonserviceprovidersto provide the means for compliance.


CompetitionManycommunitybanks,especiallythesmallerinstitutions,arefeelingoverwhelmedbycompetitiveforces. Smaller institutions face challenges in providing similar products and services as the larger institutions. Other institutions struggle to stay competitive in the current interest rate environment. Stillothersfindthelocalareaover-banked,facecompetitivechallengesposedbycreditunions,orfinditdifficulttomaintainacommunitybankingfocuswhilemeetingregulatoryrequirements.Also,advances in information technology and the spread ofonlinebankingmayleadtosomereductioninthedemandforrelationship-basedbankingservices,makingitharderforcommunitybankstokeepupwithlargerbanks.Overall,competitiveforcescontinuetoforcecommunitybankstogrowandevolve.

Capital• Basedoneithertheleverageratioortotalrisk-basedcapital,communitybanksconsistentlymaintainedhighercapitallevelsthannoncommunitybanksoverthe study period.

• Communitybanksweremuchmoredependenton retained earnings for capital formation than noncommunitybanksduringthestudyperiod.

• Communitybanksobtainedalmost48percentoftheirtotalcapitalthroughrelatedearnings,comparedwith29percentfornoncommunitybanks.

• Communitybankscontinuedtobealmosttwiceasreliantasnoncommunitybanksonretainedearningsas a source of increase in equity capital.

• Inthelasttenyears,retainedearningsmadeup41percent of additions to equity capital at community banks,comparedwith23percentanoncommunitybanks.

• Astheeffectsofthefinancialcrisisrecede,bothcommunityandnoncommunitybanksarebeginning to re-establish a more normal pattern of adding to their equity capital through both internal and external sources.

• Uncertainty regarding Basel III capital requirements.

Succession planningAnotherprimaryconcernforcommunitybanksistheabilitytoattractandretainqualifiedseniormanagementanddirectors.Ascommunitybanksstrive to compete with large institutions they face the challenge of retaining the management expertise to operatethebank.Thismanagementexpertisecomesatacostthatmostcommunitybanksmaystruggletoafford.Finally,communitybanksfacethechallengeofagedisparityandchangingregulation.Asthe

bankingindustryevolvesandgrowsmorecomplex,senior management must evolve. This means one generationmustbewillingtomoveon,whileanotherembraces the challenges ahead.

Wisconsin State ProfileOver the time period of 2012 through second quarter 2014theWisconsinStateProfiledetailskeyeconomicindicators and ratios based on median percentages. Thedecreaseinthepastdueandnonaccrualloans,loanlosses,andincreasingleveragecapitalratiossuggestsastrengtheningofthebankingindustryinWisconsin. • Pastdueandnonaccrualloans/TotalLoans(median%)decreasedfrom2.78in2012to2.07insecondquarter 2014.

• NetLoanLosses/TotalLoans(median%)declinedfrom0.36to0.04from2012toJune30,2014.

• Tier1LeverageCapital(median%)increasedfrom10.27in2012to10.76atJune30,2014.

• Wisconsinbankfailuresrepresent9ofthe531closuressinceOctober1,2010.

Subscribetostatebankingprofilesatwww.fdic.gov.Additionalstatisticaldataandcustomizedreportscanbe found as well.• Institution Directory• Central Data Repository• Summary of Deposits• Statistics on Depository institutions


FDIC Outreach and InitiativesDirectors CollegesTheDirectors’CollegeProgramprovidescourseofferingsfordirectorsandofficersthataredeliveredlocallybytheFDIC’sregionaloffices.Thesecoursesoffertimelyandrelevantinformationandareoftendeliveredincooperationwithstatebankingdepartmentsandindustrytradegroups.

Linkstoprogrammaterialandeventscheduleatwww.fdic.gov

Technical Assistance VideosTheTechnicalAssistanceVideoProgramisaseriesofeducationalvideosdesignedtoprovideusefulinformationtobankdirectors,officers,andemployeesonareasofsupervisoryfocusandregulatorychanges.

New Director Education Videos:ThesevideosprovideinformationtonewbankdirectorsabouttheirfiduciaryroleandresponsibilitiesaswellasanoverviewoftheFDIC’sriskmanagementandcomplianceexaminationprocesses.

Virtual Directors’ College Program: These videos are a virtual version of the FDIC’s Directors’ College Programthatregionalofficesdeliverthroughouttheyear.TheprogramconsistsofvideosontheBankSecrecyAct,theCommunityReinvestmentAct,corporategovernance,informationtechnology,interestraterisk,andthird-partyrisk.

VirtualTechnicalAssistanceProgram:Thesevideosprovidetechnicaltrainingtobankersonarangeofregulatoryissues.Topicsincludetheallowanceforloanandleaselosses(ALLL),appraisalsandevaluations,acommunitybankcyberexercise,evaluationofmunicipalsecurities,floodinsurance,interestraterisk,managingfairlendingrisk,andtroubleddebtrestructuring(TDR).

RulemakingVideos:Thesevideosprovideanoverviewofandinstructionsrelatingtocomplexrulemakings.Topicsincludetheregulatorycapitalrulemaking.

Outreach• Local contacts• Case managers• www.fdic.gov

Sources

FederalDepositInsuranceCorporation.“FDICCommunityBankingStudy.”www.fdic.gov.Dec.2012.

FederalDepositInsuranceCorporation.RiskManagementManualofExaminationPolicies:WashingtonDC,2012.Print.

Bair,Sheila.“StateoftheFDIC:DepositInsurance,ConsumerProtection,andFinancialStability.”CommitteeonBanking,HousingandUrbanAffairs.UnitedStatesSenate;538DirksenSenateOfficeBuilding.30June2011.StatementAddress.

KansasCityFederalReserve.“RoleofCommunityBanksintheU.S.Economy”(2002)

Federal Deposit Insurance Corporation. www.fdic.gov. 2014. Web. Oct. 2014.

MISSION AND VISION

The mission of the UWSP Central Wisconsin Economic Research Bureau is to foster economic development by bringingtimelyeconomicanalysistoourregion,focusingonMarathon,PortageandWoodcounties.

The mission has been accomplished through the publication of Economic Indicator Reports. These reports are compiled and released for each county in Central Wisconsin.

The CWERB aspires to be Wisconsin’s premier research center focused on regional economic development.

HISTORY

TheCWERBisanonprofitorganizationfoundedinOctober 1983. Its operating budget comes from the private sector and the UWSP School of Business and Economics. The CWERB also represents an important part of the outreacheffortsoftheUWSPSchoolofBusinessandEconomics.

SOURCES OF FUNDING • UWSP School of Business and Economics•BMOHarrisBankofStevensPoint•BMOHarrisBankofMarshfield•BMOHarrisBankofWausau• Centergy Inc. of Wausau• Community Foundation of Greater South Wood County - Wisconsin Rapids

SCHOOL OF BUSINESS & ECONOMICS •Enrollmentof1,000students;Morethan30%ofourstudentscomefromMarathon,PortageandWoodcounties;approximately50%ofourgraduatesstayinthethree-county area • The SBE is in the pre-accreditation phase by the AssociationtoAdvanceCollegiateSchoolsofBusiness(AACSB),oncecompleted,SBEwillbeamongthetop18%of all business schools in the world.

CWERB CLIENTELE •CentralWisconsinbusinessfirmsarethemostcrucialcomponent in the economic development of our region. Businessfirmsarekeenlyawareoftheimportantrolethatinformeddecisionmakingplaysinanydevelopmentalstrategy.

• Private sector organizations devoted to economic developmentinCentralWisconsin,suchasareachambersofcommerceandtheiraffiliatedeconomicdevelopmentagencies.

• Public sector organizations devoted to economic development in Central Wisconsin.

•Thegeneralpublic,inordertomakeinformeddecisions,takeadvantageoftheunbiasedinformationandanalysisabout the economy.

• The CWERB employs student research assistants which provides an excellent educational setting while also providing the opportunity for students to earn funds towardeducation.Faculty,staffandstudentsatUWSPutilize the reports and resources of the CWERB.

CWERB ACTIVITIES ThedisseminationoftheCWERBresearchtakesplacethroughvarioushardcopypublications,electronicmediareportsandpresentations.Forexample,theEconomicIndicatorReportsarepresentedinMarshfield,StevensPoint,WausauandWisconsinRapids.Theaudiencesconsistofbusiness,politicalandeducationalleaders.

The Economic Indicator Reports also contain a special report section that is devoted to a current issue in economics. These special reports are usually presented by UWSP faculty.

Substantialnewspaper,radioandtelevisioncoverageofthe publications and presentations have been instrumental in focusing attention on the School of Business and Economics. Chief Economist Randy Cray has been interviewed by the local media as well as the Chicago Tribune and CNN Radio on a variety of economic matters.

ABOUT THE CENTRAL WISCONSIN ECONOMIC RESEARCH BUREAU


www.uwsp.edu/busecon/cwerbfacebook.com/uwspsbetwitter.com/uwspcwerb

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