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Banking & Finance
AN EIGHTH DISTRICT PERSPECTIVE
SUMMER 1988

District Banks: Facing the Competition
Differences among commercial banks, thrifts and credit
unions have diminished beginning with the early 1970s and
more recently, in response to the Depository Institutions
Deregulation and Monetary Control Act of 1980 and the
Garn-St. Germain Depository Institutions Act of 1982.
Having begun as specialized entities, financial institutions
are now taking on a more diverse character. Regulations have
changed their powers, and technological innovations have
increased the number of alternative “banking” services
available to consumers.
This article looks at the composition of financial service
providers in Eighth District states at year-ends 1984 and
1987.1The second half of the article investigates banks, thrifts
and credit unions as suppliers of consumer, real estate and
commercial credit.

The Banking Industry, 1984-87
The number of District banks declined between 1984 and
1987. This decline (table 1) was experienced by all District
states, particularly Missouri where the number of banks fell
by 118 or 16.5 percent. Mississippi, which has the fewest
number of banks among District states, reported a 16.3
percent decline—from 153 in 1984 to 128 in 1987.
At the same time, commercial bank deposits in District
states grew at a 6.2 percent average annual rate. The largest
increases were in Tennessee and Kentucky, where deposits
grew at 8.2 percent and 7.8 percent annual rates, respectively.
Arkansas reported the slowest deposit growth, increasing
only 3.8 percent annually.
Associated with the overall rise in deposits
was an increase in the number of banking
offices. While the number of District banks
declined, the number of bank branches
increased, rising 11 percent between 1984 and
1The Eighth District includes all of Arkansas and
portions of Illinois, Indiana, Kentucky, Mississippi,
Missouri and Tennessee. Due to data constraints,
however, this article refers to these seven states in their
entirety as the Eighth District.




1987. Missouri, which had the greatest percentage decline
in the number of banks, had the largest increase in the
number of branches. In 1984, Missouri had 595 offices; in
1987, it had 765. Illinois also reported rapid growth,
increasing 18.4 percent from 1984 to 1987.

The Thrift Industry, 1984-87
Changes in federal laws have allowed savings and loan
associations to provide many services traditionally furnished
by commercial banks, such as checkable deposits and
commercial loans. Thus, the level of competition between
commercial banks and savings and loans has intensified.
The number of thrifts in District states declined between
1984 and 1987, from 696 to 667, a 4.2 percent reduction.
In Illinois there were 10 fewer thrifts in 1987 than in 1984,
while Indiana and Missouri lost four each.
Total deposits at District thrifts increased at an average
annual rate of 2.4 percent, much slower than the 6.2 percent
at District commercial banks. Total deposits declined in
Arkansas and Kentucky from 1984 to 1987, while increasing
slightly in the other five states.
As with District commercial banks, the number of thrift
offices increased slightly during this period. The number
of offices grew in all District states except Illinois and
Kentucky.

The Credit Union Industry, 1984-87

The number of District credit unions also declined during
this period, falling from 2,658 in 1984 to
2,360 in 1987. Total deposits at District credit
unions grew at an average annual rate of 20.1
percent compared with increases of 6.2
percent at commercial banks and 2.4 percent
nii:
at
thrifts. All District credit unions together
FEDERAL
RESERVE
held assets worth $19.7 billion at the end of
RANK of
1987, up from $12.2 billion in 1984. The
S T .m ilS
growth of credit union assets has been aided
by favorable loan rates compared to those of

SUMMER 1988

FEDERAL RESERVE BANK OF ST. LOUIS

1984 to 1987, thrifts reported a 24.2 percent average annual
increase in consumer loan business. At commercial banks
and credit unions, consumer loans grew more slowly,
increasing at average annual rates of 4.9 percent and 2.5
percent, respectively.
In keeping with their original purpose as a major provider
of mortgage credit, thrifts held $80.3 billion of real estate
loans at year-end 1987, representing more than 58 percent
of total District thrift assets. Commercial banks, responding
to greater competitive pressures, substantially increased their
exposure in mortgage lending from 1984 to 1987. With $74.6
billion in outstanding credit in 1987, banks expanded their
real estate portfolio by an average annual rate of 14.8 percent.
Mortgage lending at thrifts, on the other hand, grew at only
a 1.6 percent rate. Credit unions are fairly recent competitive
additions to the mortgage credit market; and at year-end 1987,
they held $2.1 billion in outstanding debt. Finally,
commercial loan demand continues to be served primarily
by commercial banks where 18.6 percent of District bank
assets are dedicated.

commercial banks and thrifts. Credit unions are able to
profitably offer lower installment loan rates because, in most
cases, they experience lower loan costs. Since credit union
regulations require a common bond among members, this
commonality often provides an established source of
information and facilitates loan payment through payroll
deduction. Moreover, because credit unions are subsidized,
they often realize free office space and clerical “volunteers.”
Credit unions also pay no federal tax and generally little
state tax, thus escaping many expenses other institutions face.

The District Loan Portfolio
Total loans outstanding in 1987 at District commercial
banks amounted to $227.4 billion, $87.6 billion at thrifts and
$10.2 billion at credit unions (table 2). Commercial banks
devoted $40.6 billion to consumer loans compared with $5.7
billion at thrifts. Most credit unions’ loan portfolios are
concentrated in consumer lending areas such as installment
credit and automobile loans. Credit unions held $7.3 billion
in outstanding consumer loans in 1987, representing more
than 37 percent of total District credit union assets. From

— Lynn M. Barry

Table 1
Commercial Banking Industry in Eighth District States
(dollar amounts in billions)
Number of
Banks
Eighth District states
Arkansas
Illinois

Number of
Branches

Total Deposits
1987

Total Assets
1987

1984

1987

1984

1987

1984

3,3 7 3

3,145

5 ,5 6 7

6,177

$271.4

258

256

442

467

14.1

15.7

16.4

17.8

1,242

1,211

72 8

862

120.3

141.9

159.1

179.0

$3 22 .1

1984
$ 3 4 0 .0

$ 3 9 4 .4

In d ian a

378

344

1,252

1,372

35.5

41.7

4 2 .5

49.9

Kentucky

336

330

769

816

2 2 .7

28.0

27.7

34 .9

M ississippi

153

128

752

781

13.4

15.8

15.7

18.3

M issouri

713

595

595

765

38.0

44 .9

45.9

53.3

Ten nessee

293

281

1,029

1,114

27.4

34.1

3 2 .7

41.2

Source: FDIC Reports of Condition and Income for Insured Commercial Banks, December 31, 1984 and December 31, 1987.

Table 2
Industry Loan Portfolio in Eighth District States
(billions of dollars)
Consumer

Real Estate

Industry

1984

1987

1984

1987

Banking

$35.4

$ 4 0 .6

$5 1 .7

$74.6

Saving s an d Loan

3.3

5.7

76.6

80.3

C red it U nion

6.8

7.3

0.5

2.1

Total

Commercial
1984

1987

1984

$73.5

$1 94 .0

0.8

1.3

81.1

87.6

N/A

0.0

7.3

10.2

$6 8 .8

1987
$2 27 .4

Source: FDIC Reports of Condition and Income for Insured Commercial Banks, December 31, 1984 and December 31, 1987. Federal Home Loan Bank Board Quarterly Financial
Report, December 31, 1984 and December 31, 1987. NCUA Statements of Financial Condition, December 3t, 1984 and December 31, 1987.

Banking & Finance—An Eighth District Perspective is a quarterly summary of banking & finance conditions in the area served
by the Federal Reserve Bank of St. Louis. Single subscriptions are available free of charge by writing: Research and Public
Information Department, Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, Missouri 63166. Views expressed are
not necessarily official positions of the Federal Reserve System.
2



FEDERAL RESERVE BANK OF ST. LOUIS

SUMMER 1988

EIGHTH DISTRICT BANKING DATA

LARGE WEEKLY REPORTING BANKS1
Rates of Change
Level
11/1988
($ millions)

Current
Quarter
1/198811/1988

Same Periods
Previous Year
1/198711/198611/1987
11/1987

Current
Year
11/198711/1988

Selected Assets & Liabilities
7 .7 %

6 .2 %

9 .7 %

C o m m e rc ia l L oans

7 ,0 1 6

9 .3

8 .5

7 .3

9 .2

C o n s u m e r Loans

4 ,5 6 7

0 .5

-3 .0

1 2 .3

1 8 .3

R e a l E s ta te L oans

5 ,8 8 5

2 2 .7

T o ta l L oans & L e a s e s

$ 2 0 ,7 2 6

L oa ns to F in a n c ia l Institutions
All O th e r L oans
T o ta l S e c u ritie s

1 1 .5

1 2 .4 %

1 9 .7

2 1 .6

851

-1 0 .1

-1 9 .6

- 1 4 .7

1 5 .7

2 ,4 0 5

16.1

2.1

1.5

-6 .9

5 ,1 6 9

6 .8

1 0 .3

1 2 .8

1 7 .8

U .S . T re a s u ry & A g e n c y S e c u ritie s

3 ,7 1 4

1 1 .3

1 5 .8

2 2 .6

3 8 .9

O th e r S e c u ritie s

1 ,4 5 4

-3 .8

-1 .5

-5 .2

-1 1 .5

T o ta l D epo sits
N o n -T ra n s a c tio n B a la n c e s

2 3 ,7 1 5

3 .0

5 .3

6 .9

8 .5

1 5 ,0 8 4

2 .9

1 0 .0

9 .8

6 .0
1 4 .3

MMDAs

2 ,7 5 3

1 5 .9

-5 .4

-1 3 .4

$ 1 0 0 ,0 0 0 C D s

4 ,8 3 3

-1 8 .5

1 6 .6

3 0 .4

7.1

D e m a n d D e p o sits

5 ,9 6 6

3 .2

-5 .8

2.1

7 .5

O th e r T ra n s a c tio n B a la n c e s 2

2 ,6 6 4

2 .7

7 .9

4 .3

2 7 .9

EIGHTH DISTRICT INTEREST RATES3
June 1988

May 1988

April 1988

June 1987

NOW s

5 .0 7 %

5 .0 6 %

5 .0 4 %

5 .0 6 %

MMDAs

5 .4 2

5 .4 3

5 .3 6

5 .2 7

9 2 — 1 8 2 d ays

6 .6 0

6.51

6 .3 4

5 .8 7

1 — 2V Z y e a rs

7 .1 8

7 .0 9

6 .9 7

6.61

2 1/2 y e ars an d over

7 .6 9

7 .6 6

7.51

7 .0 8

T im e C D S

All data are not seasonally adjusted.
1 A sample of commercial banks with total assets greater than $750 million. Historical data have been revised to incorporate adjustment factors
that offset the cumulative effects of mergers and other changes involving weekly reporting banks during 1986. These adjustment factors, which are
computed each year, are used to construct a consistent time series for which year-to-year growth rates can be calculated. Adjustment factors are available
upon request from the Statistics Section of the Research and Public Information Department. Rates of change are compounded annual rates.
2 Includes NOW, ATS and accounts permitting telephone or pre-authorized transfers.
3 Average interest rates paid on new deposits by a sample of Eighth District commercial banks.
3




QUARTERLY BANK PERFORMANCE RATIOS1
Eighth D istrict

I/88

I/87

U nited S ta te s

I/86

i/88

i/87

i/86

A n n u a liz e d R e tu rn on A v e ra g e
A s s e ts

< $ 1 0 0 m illion
$100 — $300 m illion
$300 m illion — $1 billion
$1 billion — $10 billion
> $ 1 0 billion

1.08%
1.04
1.08
.86
N.A.

1.06%
1.13
.92
.89
N.A.

1.20%
1.08
1.09
.94
N.A.

.75%
.84
.66
.73
.54

.70%
.88
.79
.87
.56

.89%
1.01
.84
.69
.65

A n n u a liz e d R e tu rn on A v e ra g e
E q u ity

< $ 1 0 0 m illion
$100 — $300 m illion
$300 m illion — $1 billion
$1 billion — $10 billion
> $ 1 0 billion

12.00
12.69
13.69
13.35
N.A.

11.99
14.14
12.01
13.22
N.A.

13.66
13.64
14.25
14.44
N.A.

8.52
10.75
9.50
11.63
12.21

8.19
11.55
11.42
13.80
10.41

10.20
13.41
11.25
11.15
12.86

55.86
65.66
69.12
83.90
N.A.

53.74
62.60
68.54
81.14
N.A.

54.68
62.52
69.65
80.14
N.A.

58.52
65.23
75.17
85.71
90.50

57.02
63.97
73.22
83.81
88.51

58.86
64.60
72.78
82.73
89.42

2.12
1.95
1.64
2.44
N.A.

2.72
2.17
2.41
2.43
N.A.

3.11
2.30
2.61
2.07
N.A.

2.72
2.27
2.48
2.37
5.21

3.28
2.55
2.59
2.56
5.76

3.47
2.60
2.40
2.22
3.38

1.53
1.36
1.38
2.13
N.A.

1.51
1.34
1.53
1.45
N.A.

1.37
1.24
1.34
1.44
N.A.

1.67
1.57
1.72
1.89
4.27

1.67
1.50
1.63
1.52
1.93

1.46
1.36
1.45
1.51
1.58

.08
.09
.08
.18
N.A.

.14
.13
.17
.15
N.A.

.15
.16
.15
.15
N.A.

.16
.14
.15
.23
.25

.22
.16
.21
.15
.21

.22
.16
.15
.18
.18

L o a n s as P e rc e n t of D e p o s its

< $ 1 0 0 million
$100 — $300 m illion
$300 m illion — $1 billion
$1 billion — $10 billion
> $ 1 0 billion
N o n p e rfo rm in g L o a n s as P e rc e n t
of T o ta l L o a n s 2

< $ 1 0 0 million
$100 — $300 m illion
$300 m illion — $1 billion
$1 billion — $10 billion
> $ 1 0 billion
L oa n Loss R e s e rv e s as P e rc e n t
of T o ta l L oa ns

< $ 1 0 0 million
$100 — $300 m illion
$300 m illion — $1 billion
$1 billion — $10 billion
> $ 1 0 billion
N e t L oa n Los se s as P e rc e n t
o f T o ta l L o a n s 3

< $ 1 0 0 million
$100 — $300 m illion
$300 m illion — $1 billion
$1 billion — $10 billion
> $ 1 0 billion

1 Size ranges based on bank assets.
2 includes past due greater than 89 days and nonaccrual.

Digitized 3for
FRASER
Loan
losses are adjusted for recoveries.



Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102