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TIIE
EEDERYL
RESERVE
RANK of
ST. IjOHS

St. Louis: Still Growing Slowly
1990 Farm Forecast
Banks Gain Ground in Mortgage Market



THE EIGHTH FEDERAL RESERVE DISTRICT

CONTENTS_____________
NTENTS
__ _____________________________________________________________
Business
1980s St. Louis Economy: Still Growing Slowly After All These Years ..................................
Agriculture
1990 Agricultural O utlook.

.............1

....................... ......................................................................................................... 5

Banking and Finance
Competition Heats Up In the Home Mortgage M a rk e t.................................... .................... ............................... 9
Statistics ......................... ............ .............................................................................................................................. 14
Pieces of Eight—An Economic Perspective on the 8th District is a quarterly summary of agricultural, banking and
business conditions in the Eighth Federal Reserve District. Single subscriptions are available free of charge by writing:
Research and Public Information Department, Federal Reserve Bank of St. Louis, Post Office Box 442, St. Louis,
MO 63166. The views expressed are not necessarily official positions of the Federal Reserve System.



1

1980s St. Louis
Economy: Still
Growing Slowly After
All These Years
by Thomas B. Mandelbaum
Thomas A. Pollmann provided research assistance.

T

.^ B ^ im e s have changed since the 1940s when
St. Louis earned the distinction of being “ first in
booze, first in shoes, and last in the American
League.” Anheuser-Busch’s beer production allows
St. Louis to claim the first title, but the latter two
assertions have been false for decades. The trans­
formation of the St. Louis economy, however, has
involved much more than a decline in the shoe in­
dustry and the relocation of a professional baseball
franchise. This article highlights the major changes
in the St. Louis economy during the 1980s and
identifies some of the changes likely to occur in
the 1990s.1

Non farm Employment Grows
Slowly
St. Louis nonfarm employment rose at a 1.4
percent annual rate in the 1980s, matching the rate
of the previous decade (1970-79). At the national
level, the expansion of employment slowed in the
1980s to a 1.9 percent rate rate compared with a
2.7 percent rate in the 1970s.
Nonfarm employment grew more slowly in

St. Louis than nationally in the 1980s because of
the relatively longer and more severe recession in
St. Louis early in the decade. The number of jobs
in St. Louis fell each year from 1980 through
1982, while national employment fell only in
1982. Area unemployment rates almost doubled in
the early 1980s, from 5.4 percent in 1979 to 10.7
percent in 1983. By 1989, steady employment
growth allowed unemployment rates to return to
near the 1979 rate.

Manufacturing Employment
Continues to Decline
Manufacturing was especially hard-hit by the
recession. As the nation’s employment growth




slowed and unemployment rates began rising, con­
sumers postponed purchases of manufactured
goods, particularly of durables, causing area pro­
ducers to curtail operations and lay off workers.
St. Louis manufacturing employment declined by
44,100, or by 17 percent, between 1979 and 1983,
with most of the lost jobs in durables industries.
The most severely affected were producers of pri­
mary and fabricated metals, together losing ap­
proximately 15,000 workers during the period;
electric and nonelectrical machinery, losing ap­
proximately 12,000 workers and motor vehicle
producers with a decline of about 11,000 jobs.
Smaller losses were posted by some nondurables
sectors such as textiles and apparel, chemicals and
leather.
The loss of manufacturing jobs between 1979
and 1983 would have been even greater if not for
a 3,300 job expansion in aircraft production.
McDonnell Douglas Corporation, which produces
military aircraft and missile systems in the St.
Louis area, captured a substantial portion of the
rising federal defense budget in the first half of the
decade and rapidly expanded operations. The value
of defense contracts received by St. Louis firms
peaked at $7 billion in fiscal 1985, making the
metropolitan area the nation’s largest recipient of
federal defense dollars for that year.
Manufacturing employment has trended up­
ward since 1983, with a sharp post-recession re­
bound in 1984 and steady gains in 1988 and 1989.
Nonetheless, in 1989, manufacturing employment
was more than 35,000 below its 1979 peak. While
manufacturing employment also contracted na­
tionally during the 1980s, the decline was steeper
in the metropolitan area. Between 1979 and 1989,
factory jobs declined by 13.5 percent in St. Louis
compared with 6.8 percent nationally.
To a slight extent, this more severe local
decline was due to St. Louis’ unfavorable industry
mix. In other words, St. Louis manufacturing
tended to be concentrated in industries that ex­
perienced slow growth at the national level. At the
beginning of the decade, St. Louis had relatively
large concentrations in several industries, including
the production of primary metal products, motor
vehicles and footwear, that declined rapidly at the
national level during the decade. The effect of
these concentrations was offset partially by the
area’s small concentrations in the nonelectrical
machinery and textile/apparel industries, both of
which experienced sharp declines nationally. Also,
St. Louis manufacturing had a comparatively large
aircraft production sector which experienced rapid
national growth.
Most of the slower-than-national growth of
St. Louis manufacturing was due to the fact that
the majority of the area’s individual manufacturing
industries grew more slowly than their national
counterparts. Employment in electrical machinery

2

factories in St. Louis, for example, fell by 6,500
jobs, a third, between 1979 and 1988 compared
with a 2 percent national decline. Employment in
motor vehicle assembly and equipment fell by
6,600, or 28 percent, more than twice the national
rate of decline. Taken together, area producers of
primary and fabricated metal products lost almost
16,000 jobs, more than a third of their 1979
workforce. In comparison, the national decline was
26 percent.

Nonmanufacturing Expands
Steadily
The slower job growth of the St. Louis
economy was not due entirely to a sluggish
manufacturing sector. Although St. Louis gained
more than 183,000 nonmanufacturing jobs between
1979 and 1989, the 2.2 percent annual rate of
growth during the period trailed the 2.4 percent
national average slightly. As the table shows, ex­
cept for construction, each of the major sectors of
the St. Louis economy grew slower than the na­
tional average during the period.
The slower nonmanufacturing growth is not
entirely independent of the weaker manufacturing
sector. As manufacturers expand, they purchase
more services, especially legal, maintenance, ac­
counting, computer and data processing services.
Increasingly, manufacturers find it is more pro­
fitable to purchase such services rather than using
their own personnel. Also, as the number of
relatively well-paid factory workers increases, so
does the demand for local personal and financial
services, as well as for retail outlets and other
service-producing firms.
Research on this relationship by Beyers and
Hull (1989) reveals that in large metropolitan areas
in which producer services employment grew the
most rapidly in the 1974-85 period, manufacturing
employment growth was well above average.
Meanwhile, slow growth of producer services oc­
curred in those areas with rapidly declining
manufacturing employment.2
On the other hand, services are not totally
dependent on the area’s manufacturing base or
other sources of local demand. If average produc­
tion costs of some services decline as the scale of
production rises, and the scale of production to
minimize these costs is greater than the needs of
the producing city, then specialization and trade of
services among regions will be beneficial to all
regions. A recent study indicates that, while the
majority of producer services in the nation’s 183
Bureau of Economic Analysis economic areas is
consumed locally, approximately 12.5 percent was
sold outside of the economic region.3 In large




Compounded Annual Growth Rates of
Employment, 1979-89

Total nonfarm employment
Construction
Manufacturing
Transportation and public
utilities
Wholesale/retail trade
Finance, insurance and
real estate
Miscellaneous services
Government

St. Louis
Metropolitan
Area

United
States

1.4%
1.8
- 1 .4

1.9%
1.7
- 0 .7

0.5
2.1

1.1
2.5

2.6
3.8
0.2

3.2
4.6
1.1

NOTE: Growth rates are based on data from the
Missouri Division of Employment Security and
the U.S. Department of Commerce.

metropolitan areas, such as St. Louis, it is likely
that the proportion of “ exported” services is
somewhat higher, as nonmetropolitan communities
often purchase some services from firms in
metropolitan areas.

Construction Activity Slows in
Recent Years
The table shows that construction employment
rose at a moderate 1.8 percent rate in St. Louis
between 1979 and 1989. This rate obscures a
boom in construction activity that occurred in the
mid-1980s. Area construction employment peaked
at 56,600 in 1986, 35 percent higher than the 1982
trough; however, construction employment declined
slightly in 1987 and 1988 and fell 5.1 percent last
year. The figure shows that both residential and
nonresidential building activity expanded strongly
after the early 1980s recession and weakened only
after 1987.4 In terms of the number of square feet
built, residential and nonresidential building de­
clined since 1987 at annual rates of 12 percent and
9.4 percent, respectively. Despite the recent de­
clines, the levels of both residential and nonresi­
dential building activity remain stronger than in the
1981-83 period.
Residential building in the middle years of the
decade was stimulated by a construction boom of
multi-family dwellings. The elimination of federal
tax provisions encouraging such construction and
widespread increases in vacancy rates contributed
to the sharp multi-family construction declines
since 1987.5 Much of the decline in residential
construction activity since 1987 has been concen­
trated in this sector.

3

Figure 1

1979

80

81

82

83

84

85

86

87

88

1989

NOTE: Chart created by the Federal Reserve Bank of St. Louis using Dodge Construction
Potentials data. Excludes Jersey County, Illinois. Nonresidential excludes non-building
construction.

The 1985 openings of St. Louis Centre and
the restored Union Station were among the most
dramatic retail construction developments during
the decade. More recent developments include the
opening of a mall in St. Charles County, the
modernization and enclosure of Northwest Plaza
and the construction of numerous strip shopping
centers. In the office market, the one-millionsquare-foot Metropolitan Square office tower was
completed in early 1989, causing area office
vacancy rates to rise more than 2 percentage points
in the first quarter to 17.9 percent. The area’s
vacancy rate was 17.6 percent at the end of 1989
compared with approximately 16 percent at the end
of the previous three years.6

Income and Population Gains
Mirroring the area’s slower employment
growth, personal income received by St. Louisans



grew more slowly than the national average. Real
personal income rose at a 1.9 percent annual rate
between 1979 and 1988, compared with a 2.3 per­
cent rate for the United States. Despite some out­
migration, population also grew, rising at a 0.4
percent annual rate in the 1979-88 period. Na­
tionally, population rose at a 1 percent rate during
the same period.
The preceding income and population gains
combined to allow average income per resident of
St. Louis to rise during the decade. In constant
(1982-84) dollars, per capita incomes rose from
$13,202 in 1979 to $15,054 in 1988, a 1.5 percent
rate of increase. This compares with a 1.3 percent
national rate of increase during the period to
$13,961 in 1988. The rise in per capita income oc­
curred despite the area’s substantial loss of
manufacturing jobs, which pay well above the all­
industry average.

n
Outlook: More Slow Growth
Projections by governmental agencies and
private forecasters, shown in the table indicate that
population, employment and income are expected
to increase slowly through the end of the century,
at a rate slightly less than the national average.
The projection of slow population growth reflects
an anticipation of continued slow economic
growth, as shown in the employment projections.
The Missouri Division of Employment Services
(MDES), in projections released in late 1989,
estimates that nonfarm employment will grow at a
1.3 percent annual rate during the 1990s, a rate
similar to the 1980s’ pace. MDES foresees
moderate growth in health, business and profes­
sional services and in wholesale and retail sectors.
Health services are expected to provide the most
new jobs by the year 2000, approximately 35,000,
and will be the area’s largest sector with more
than 132,315 jobs at the end of the century.
The employment deceleration to a 0.8 percent
annual rate anticipated by DRI/McGraw-Hill reflects
less rapid growth in nonmanufacturing sectors than
in the 1980s. DRI analysts suggest that what they
consider to be St. Louis’ strengths—its central
location, superior distribution capabilities, low cost
of living, diversification toward services and large
number of major corporate headquarters—will allow
the area’s economy to continue to expand, but
growth may be limited by a slowing national
economy and problems related to manufacturing.
Many aging, inefficient plants within St. Louis’
manufacturing sector were replaced by state-of-theart operations in the 1980s. The productivity gains
made possible by this modernization have elimi­
nated some factory jobs, but have created a manu­

facturing base more likely to withstand the competi­
tion of the increasingly global market in the 1990s.
Consistent with this view, both DRI and MDES
project a stabilization in St. Louis’ manufacturing
workforce, after at least two decades of contraction.
Both expect jobs to decline slightly in non­
durables sectors, particularly in industries like food
products, textiles, apparel and leather products, but

FOOTNOTES
1The following discussion refers to the entire St. Louis
metropolitan area, that includes the City of St. Louis,
the four surrounding Missouri counties and five Illinois
counties.
2See William B. Beyers and Theodore J. Hull, “ Explain­
ing the Growth of Producer Services in the United
States, 1974-1985,” presented at the North American
Regional Science Association Meetings, Santa Barbara,
California, November 10-12, 1989.
3See Beyers and Hull (1989). Erica L. Groshen, “ Can
Services be a Source of Export-Led Growth? Evidence
from the Fourth District,” Economic Review, Federal



expect durables manufacturing employment to in­
crease marginally by the end of the century. DRI
expects that the weakening of the auto sector, as
dramatically evidenced by the planned closing of
Chrysler Plant 1, will continue through most of the
current year, but as car sales strengthen in subse­
quent years, the durables sector will grow. MDES
projections suggest motor vehicle production jobs
will decline through 2000, but suggest gains in
sectors such as instruments and aircraft manufac­
turing will allow the durables sector to expand.
The preceding projections were developed
before the dramatic Eastern European develop­
ments led some analysts to predict deep defense
spending cuts. Such cuts could cause substantial
contraction of defense-related activity in St. Louis,
most notably in the production of military aircraft
and missiles which directly employs approximately
40,000 St. Louisans. Most analysts agree, how­
ever, that it is unlikely that cuts in the nation’s
defense budget will have any substantial local im­
pact in the next few years. Recently announced
developments may mitigate any adverse effects of
defense spending cuts in the mid-1990s. McDonnell
Douglas Corporation will shift production of Navy
trainer jets and MD-11 commercial jet parts from
California to the St. Louis area during the next
few years. In addition, if approved by the federal
government, the corporation will begin local pro­
duction of F-18 Hornet aircraft and aircraft kits for
export to South Korea in 1992 or 1993.

Summary
Despite severe declines in manufacturing ac­
tivity early in the decade, the St. Louis economy
expanded in the 1980s. To the extent that projec­
tions of the St. Louis economy are correct, the
area’s economic growth in the 1990s will be simi­
lar to that of the past decade. Area population and
employment will continue to expand slowly, led by
service-sector growth. But unlike previous decades,
no further decline in manufacturing employment is
anticipated. Increasing uncertainties regarding the
defense and motor vehicle industries, however, ob­
scure the future of the St. Louis economy.

Reserve Bank of Cleveland (Third Quarter 1987), pp.
2-15, also found evidence of substantial exporting of
services in U.S. metropolitan areas.
4Data excludes Jersey County, Illinois. Nonresidential
building excludes non-building construction such as
highways, bridges and utilities.
5See Thomas B. Mandelbaum, “ The Nation and the
Region: Home Building in the 1980s.” Pieces of Eight
An Economic Perspective on the Eighth District,
December 1989, pp. 5-8.
6Vacancy rates from Turley Martin Company.

5

1990 Agricultural
Outlook

rate of return on farm assets, including returns
from current income and real capital gains, was
about 5.9 percent in 1989 and will range from 4
percent to 5 percent in 1990.

by Jeffrey D. Karrenbrock
David H. Kelly provided research assistance.

T

^ ■ L h e U.S. agricultural economy will likely
show continued strength in 1990.' This article
discusses some of the factors that will allow the
agricultural economy to remain relatively strong in
1990. The article begins by focusing on the gener­
al U.S. farm economy and then provides an out­
look for several commodities important in the
Eighth Federal Reserve District.

U.S. Farm Finances
The United States Department of Agriculture’s
(USDA) current forecast of 1990 U.S. net farm in­
come is between $44 billion and $49 billion, close
to the preliminary estimate of 1989 net farm in­
come of $48 billion (see the table). Factors that will
tend to boost net farm income in 1990 include high­
er crop production, lower feed prices and higher
total cash receipts. These gains, however, will be
counteracted by lower fall crop prices, higher crop
expenses and lower government payments.
Strong livestock receipts and higher crop
receipts, largely due to increased crop production,
may push total commodity receipts past $160 bil­
lion for the first time ever. As crop production in­
creases and grain stocks build, crop prices will
likely fall 5 percent to 10 percent this fall, hurting
crop farmers, but making livestock feed cheaper.
Farmers will spend about $1 billion more for fer­
tilizer, chemicals and fuel in 1990, offsetting some
of the expected increase in total commodity receipts,
which could rise as much as $5 billion. Direct
government payments may fall as much as $3 bil­
lion as the combination of lower deficiency pay­
ments for rice and cotton and lower disaster pay­
ments will likely outweigh higher wheat arid feed
grain deficiency payments during 1990.
Farm asset growth, together with a moderate
increase in farm debt, will allow the balance sheet
of the farm sector to improve again in 1990. The
value of U.S. farm assets increased about 4.8 per­
cent in 1989 and is expected to increase another
3.7 percent to 4.8 percent in 1990. The increased
asset values are expected to encourage farm bor­
rowings to increase $1 billion to $2 billion, fol­
lowing six years of declining farm debt. The total




Livestock
Beef
U.S. beef production will increase about 1
percent in 1990, less than the anticipated increase
in demand stemming from U.S. population growth
and exports. This continued tightening of beef sup­
plies relative to demand will push retail beef prices
1 percent to 2 percent higher in 1990, after rising
5 percent in both 1988 and 1989. Larger supplies
of poultry and pork will help moderate the in­
crease in retail beef prices.
Similar to the changes at the retail level, beef
producers will receive higher prices in 1990,
although the rate of price increase will be slower
than in 1988 and 1989. Net returns on cow/calf
operations will average about $5 to $10 per head
more in 1990 than in 1989, aided by strong feeder
calf prices and lower feed costs. Consequently,
1990 is expected to be the fifth consecutive year of
positive returns for cow/calf operations. While fed
beef prices may be as much as $5 per hundred­
weight higher in 1990, higher feeder cattle prices
may limit feedlot profitability.
U.S. international trade in live beef and beef
products will increase in 1990. A lower export
tariff on Mexican feeder calves will help increase
U.S. live imports in 1990. U.S. exports of beef
will increase in 1990, due largely to a relaxation
of import quotas in Japan. While U.S. beef and
veal exports increased about 46 percent in 1989,
export growth will be limited to between 12 per­
cent and 15 percent in 1990.
Pork
Pork producers will likely see another pro­
fitable year in 1990 as average barrow and gilt
prices may rise a dollar from 1989 to around $45
per hundred weight and feed costs will fall. Profits
will be strongest in the first two quarters of the
year although margins may become negative toward
year-end. The strength in early 1990 will stem
from limited production expansion and stronger de­
mand factors. Retailers aggressively discounted
pork in the fall of 1989, helping to reduce current
pork supplies. Pork exports from the United States
rose 23 percent in 1989 and will remain relatively
strong into 1990, with total exports likely to be
slightly below 1989 levels. Adding to pork demand
is the re-introduction of the McRib at McDonalds
restaurants. If industry projections are correct,

6

Farm Income Outlook for 19891
Receipts ($ billions)

1988

Preliminary
1989

Forecast
1990

$ 79
36
9
13
18
3

$ 83
37
9
14
19
4

Crops (total)
Wheat
Corn
Soybeans
Fruits/Vegetables
Other

73
6
10
12
19
26

75
7
11
11
19
27

77-80
8
13
10
19
27-30

Direct Payments from
Government Programs

14.5

11

8-11

Cash Expenses

111.7

121

119-122

Inventory Change

- 4 .3

6

1-3

Net Farm Income
Net Cash Income

45.7
59.9

48
53

44-49
52-57

Livestock (total)
Cattle/Calves
Hogs
Poultry/Eggs
Dairy
Other

$

80-83
37
10
14
18
1-4

1This partial table, compiled from speeches at the USDA Outlook Conference, does not include all income and expense
items necessary to derive the Net Farm Income and Net Cash Income figures.

sales of the sandwich could account for 1 percent
to 1.7 percent of commercial pork production. Po­
tential increases in fall pork production could push
prices lower in the third and fourth quarter, squeez­
ing producer margins. Overall, however, 1990
should be a profitable year for pork producers.
Poultry
Poultry producers’ profit margins will be
squeezed in 1990 as broiler prices will likely fall 4
cents to 11 cents per pound, due to an expected 7
percent increase in production. Lower feed costs
and continued expansion of demand, however, will
help keep profit margins positive throughout the
year. 1990 will mark the sixth consecutive year of
positive average net returns to poultry producers.
Rapidly expanding demand has been the main
factor allowing for continued profits in the in­
dustry. During 1980-1989, per capita consumption
of poultry increased from 42 pounds in 1980 to
around 65 pounds in 1989. Consumption in 1990
is expected to increase another 5 pounds per capi­
ta. Much of the increase in domestic demand has
stemmed from increased health consciousness of
consumers and an increased selection of valueadded poultry products from which consumers may
choose. Export demand for U.S. broilers will also
continue to be strong in 1990 at about 900 million




pounds, or almost 5 percent of production. This
will be down slightly from last year’s record ex­
ports of about 940 million pounds. Despite these
strong demand factors, the increased production
will lower both producer and retail poultry prices
in 1990, with retail prices expected to fall 7 cents
to 10 cents per pound to around the low-to-mid 80
cent to 85 cent level.

Crops
Corn
Increased domestic use and continued strong
export demand will partially offset the price impact
of the rebound in the 1989 corn harvest. For the
1989/90 marketing year that started September 1,
the USD A is forecasting a season average price in
the range of $2.00 to $2.40 per bushel, down from
the season average of $2.54 in the 1988/89 market­
ing year. Domestic corn use is expected to in­
crease about 6 percent during the marketing year
and exports are forecast to rise 4 percent. Total
U.S. corn use is expected to be about 7.6 billion
bushels, close to the 1989 production level. There­
fore, ending stocks of corn in August 1990 will be
close to last year’s.

With corn stocks stable, the question may rise
as to why prices are forecast to fall in 1989/90.
Part of the explanation lies with farmers’ selling
patterns in 1989. Movement of corn to elevators
was slow in the fall of 1989, perhaps due to sever­
al factors: ample on-farm storage, farmers specu­
lating on higher prices due to Soviet purchases
and/or relatively high farm income in 1989. Re­
gardless of the cause, movement to elevators was
slow and there was very little seasonal downward
movement in prices last fall, helping to boost the
overall marketing year price. The timing of sales
in 1990 will be determined by several factors, but
with the heldover stock coming on to the market
next year and with a likely seasonal decline next
fall, overall corn prices are expected to be lower
in 1989/90 than the year before.

Soybeans
Increased U.S. production in 1989 and poten­
tial record-breaking harvests in South America in
1990 will push soybean prices lower in the 1989/90
marketing season as total soybean use will increase
only slightly. Similar to corn, the 1988 drought
sharply lowered beginning U.S. soybean stocks in
1989. helping boost soybean prices. The increased
1989 soybean yields helped lower prices and con­
sequently, domestic crush and exports are expected
to rise slightly in 1989/90. Part of the expected in­
crease in crush is a result of lower availability of
cottonseed meal, due to fewer acres of cotton
planted in 1989. Export growth will be limited by
an abundant supply of South American beans com­
ing on the market in 1990. As U.S. soybean stocks
return to pre-drought levels, soybean prices are ex­
pected to fall into the $5 to $6 per bushel range
during 1989/90.

Tobacco
Tobacco production may rise for the fourth
consecutive year in 1990. Since the enactment of
legislation in 1986 that significantly altered the
quota setting procedure, altered price support lev­
els and instituted the no-net-cost assessments for
burley and flue-cured tobacco, production has been
held below 1986 levels and surplus stocks have
been depleted. While U.S. cigarette consumption
has continued to fall, increased exports enabled
manufacturers to increase cigarette production in
1987 and 1988. Cigarette consumption in the
United States will likely continue to decline an
average of 2 percent to 3 percent per year for the
next several years as health concerns, increased
taxes and smoking restrictions further curtail smok­
ing. Cigarette exports are expected to continue to
increase, but not enough to offset declining domes­




tic consumption. Contrary to cigarette consump­
tion, U.S. snuff consumption likely rose in 1989
and will probably rise again in 1990. Snuff con­
sumption perhaps is gaining popularity as smokers
maneuver around smoking restrictions.

Wheat
U.S. wheat production will likely expand
again in 1990 in response to continued high wheat
prices. Prices received by farmers for wheat are
predicted to range from $3.85 to $4.00 per bushel
during the 1989/90 marketing year, the highest
price since the record $4.09 per bushel in the
1974/75 marketing year. U.S. wheat supplies in
the 1989/90 marketing year (June 1, 1989 to May
31, 1990) are down about 11 percent from a year
ago. The quantity of wheat demanded during
1988/89 was larger than the quantity produced that
year, leaving smaller beginning wheat stocks for
the 1989/90 marketing year. By the end of May
1990, U.S. wheat stocks are expected to be down
37 percent from May 1989. Total use of U.S.
wheat is expected to decline slightly in the 1989/90
marketing year as increased domestic consumption
will not quite offset declining exports. The summer
wheat crop harvest should increase supplies by
about 10 percent.
Several unknowns exist in the wheat market
that could have significant impact on the price of
wheat. With supplies extremely tight, modest
changes in production or consumption could cause
wide price swings. One of the most important fac­
tors will be whether or not the drought continues
in the Plains states and lowers wheat yields again
in 1990. Another important unknown is how much
other countries, including Canada and the Euro­
pean Community, will expand production in re­
sponse to high world prices. How aggressively the
Soviets enter the wheat market as purchasers will
also be a key factor in determining wheat prices
this year.

Consumer Food Prices
Retail food prices rose about 6 percent in
1989, the largest increase since 1981. Food prices
in 1990 are expected to increase at a slower rate
of about 3 percent to 5 percent. Food categories
expected to rise faster than the overall food
category include fresh fruits and cereals and
bakery products, both expected to rise 5 percent to
7 percent. Commodities putting downward pressure
on food prices include poultry and eggs, which are
expected to drop about 6 percent to 8 percent and
14 percent to 18 percent, respectively.

8

Summary
The overall agricultural economy in 1990
should show continued strength. As always, the
aggregate income figures mask the differences in
the profitability of different commodity enterprises.
Cow/calf operations and wheat farmers will likely
enjoy continued strong returns in 1990, while corn*1

FOOTNOTE
1Data in this paper was obtained from presentations at
the American Farm Bureau Federation Fall Industry
Outlook Conference in Chicago, IL, on November 9,



and soybean producers might generate lower
returns. Pork and poultry producers will likely ex­
perience strong returns early in the year with
margins shrinking late in the year. As farmers
become more specialized in their operations, the
forecast of the general agricultural economy be­
comes less relevant to describing their financial
stability and individual commodity forecasts take
on increased significance.

1989 and the USDA Agricultural Outlook Conference in
Washington, D.C., during November 28-30, 1989.

9

Competition Heats Up
in the Home
Mortgage Market
by Michelle A. Clark
Thomas A. Pollmann provided research assistance.

T

he residential mortgage market is chang­
ing dramatically, as the traditional domination of
this market by savings and loan institutions (thrifts)
is being challenged by commercial banks. This in­
creased competition from banks is occurring at the
same time that thrifts are facing tougher regula­
tions, including a requirement that assets associated
with residential mortgages make up a larger share
of thrifts’ portfolios. Recent trends in the home
mortgage market in the United States and the
Eighth District are examined below.

Mortgage Origination Trends
For the first time in 19 years of U.S. Depart­
ment of Housing and Urban Development (HUD)
record-keeping, U.S. commercial banks closed
more permanent loans on one- to four-family
residential properties (termed mortgage origina­
tions) than thrifts in June and September of 1989.
Preliminary data from HUD indicate that commer­
cial banks increased their share of the home mort­
gage origination market from 24 percent in
September 1988 to 38 percent in September 1989,
while the nation’s thrifts’ share fell from 43 per­
cent to 36 percent during the same period. These
changing shares reflect an absolute decline in
originations by thrifts and a rise in originations by
banks at a time when total originations fell.
The general decline in originations by thrifts
from the first three quarters of 1988 through the
first three quarters of 1989 is outlined in the
figure. The value of mortgage originations at all
U.S. thrifts declined 17.5 percent during the
period, from $120.01 billion to $99.02 billion.
Total mortgage originations at thrifts located in
Eighth District states followed the national trend,
falling from $9.83 billion for the first nine months
of 1988 to $8.50 billion for the first nine months
of 1989, a decline of 13.5 percent. Although
thrifts in Indiana, Kentucky and Tennessee showed
slight gains, Illinois and Missouri thrifts, which ac­
count for more than half of the originations for the
seven states, experienced declines of 20.3 percent
and 25.1 percent.




Two major forces are behind the recent trend
in home mortgage originations. The first is the
shrinkage of the thrift industry. The Financial In­
stitutions Reform, Recovery and Enforcement Act
of 1989 (FIRREA) has contributed to this shrinkage
by imposing tougher capital requirements. For ex­
ample, traditional types of intangible capital such
as goodwill will gradually be phased out in regula­
tory definitions of capital. Under this legislation,
thrifts are required to meet three capital-to-asset
ratios. In addition, by July 1991, the majority of
thrifts’ assets (70 percent) are required to be com­
posed of mortgage-related instruments, such as
mortgage loans and mortgage-backed securities
(MBSs), if the institutions wish to keep their thrift
charters.1
Although the stricter capital requirements will
not be fully implemented until 1995, a number of
thrifts are struggling to meet the 1.5 percent tangi­
ble capital-to-assets ratio and the 3 percent core
capital-to-assets ratio (leverage ratio) which went
into effect December 7, 1989. Raising the leverage
ratio requires either increasing capital for a given
amount of assets or decreasing assets while keep­
ing the amount of capital constant. Raising capital
is not an option for many troubled thrifts, as the
industry’s problems have made potential investors
wary; for most thrifts, asset shrinkage has proved
to be the only practical way to meet the new
capital requirements.
Some of this shrinkage is beyond the thrifts’
control, as huge deposit outflows at a number of
institutions have slowed lending of all types. Many
thrifts, however, are deliberately paring deposits
and selling off assets in an attempt to boost their
leverage ratios. According to the Office of Thrift
Supervision (OTS), the combined assets of the na­
tion’s thrifts declined $48.4 billion, or 3.6 percent,
from December 1988 to September 1989. Holdings
of permanent mortgage loans and MBSs fell $21.8
billion, or 2.3 percent, during the same period.
The second force at work is the increased ag­
gressiveness of commercial banks in originating,
holding and servicing mortgages and MBSs, as ex­
pected profits in traditional markets have fallen
relative to home mortgages. For example, nonfinancial U.S. companies are increasingly turning
toward the bond and commercial paper markets for
funds, eliminating a major source of lending for
many U.S. banks. Increases in problem loans by
many banks arising from third world and commer­
cial real estate lending and leveraged buyout deals
have prompted the industry to return to the resi­
dential mortgage market as a relatively stable source
of income.
With interest rates falling below 10 percent,
fixed rate mortgages are currently more popular
with consumers than adjustable rate mortgages
(ARMs), and that too has helped commercial
banks win customers from thrifts, which predomi-

10

Figure l

Changes in Mortgage Originations at Thrifts: First Three
Quarters of 1988 vs. First Three Quarters of 1989
Percent change

SOURCE: State data from Federal Home Loan Banks of Chicago, Cincinnati,
Dallas, Des Moines and Indianapolis; U.S. data from Office of
Thrift Supervision. Due to overlapping Federal Reserve and
Federal Home Loan districts, data are for whole state.

nantly offer ARMs. Many bankers have expressed
a desire to expand their consumer lending in
general; they see the home mortgage as a key pro­
duct in attracting customers who may then buy a
bank’s other products, such as automobile and
home equity loans, as well as establishing checking
and savings accounts.
The new risk-based capital requirements that
all financial institutions will have to meet by the
end of 1992 are a further inducement for banks to
hold mortgage-related instruments. The amount of
capital a financial institution will be required to
hold against its assets will depend on the riskiness
of the assets in its portfolio as determined by bank
supervisors. Regulators have assigned loans secured
by one- to four-family residential property a 50
percent risk weight versus a 100 percent risk
weight for assets such as commercial loans.
The changes in the home mortgage origination
market are already showing up in the balance



sheets of the nation’s commercial banks.2 As in­
dicated in table 1, U.S. bank holdings of residen­
tial mortgages rose from 9.42 percent of total assets
at year-end 1987 to 10.44 percent of total assets as
of September 30, 1989, an increase of almost 11
percent. For Eighth District banks, the increase
during the period was even sharper, 15.7 percent,
with residential mortgages growing from 11.11
percent of assets to 12.85 percent. Moreover,
commercial banks in four of the District’s seven
states experienced double-digit increases in the
share of residential mortgages held, with Kentucky
banks’ share rising almost 35 percent.
The ratio of residential mortgages to total
assets at District banks increased across all asset
size categories. Banks with assets of less than $300
million, which make up 96 percent of total District
banks, held between 15.4 percent and 16 percent
of their assets in residential mortgages at the end
of September compared with 14 percent to 14.5

11

Table 1
Residential Mortgages to Total Assets at Commercial Banks by Location and Asset Size

United States
Eighth District
Arkansas
Illinois
Indiana
Kentucky
Mississippi
Missouri
Tennessee

12/31/87

12/31/88

9/30/89

9.42%
11.11
11.85
12.73
14.14
8.22
9.88
12.74
8.42

10.00%
12.14
12.33
13.48
14.81
9.90
11.13
14.10
8.90

10.44%
12.85
12.77
13.86
14.89
11.01
11.68
15.01
9.67

13.94
14.53
13.96
14.47
9.67
6.20

15.05
15.32
14.86
15.44
10.33
7.59

15.99
15.52
15.60
15.39
13.27
8.12

District Banks
< $25 million
$25 million-$50 million
$50 million-$100 million
$100 million-$300 million
$300 million-$1 billion
$1 billion-$10 billion

NOTE: Residential mortgage data include permanent loans secured by one- to four-family residential property and se­
cond mortgages but exclude home equity loans. Data are for that portion of the state located within the Eighth District
Banks with assets greater than $10 billion have been excluded from the U.S. ratios to make them more directly com­
parable with Eighth District averages, as there are no banks in the District of that size.
SOURCE: FFIEC Consolidated Reports of Condition and Income, 1987-1989

percent at year-end 1987. The District’s largest
banks increased their holdings of residential mort­
gages even more; both categories of banks with
assets of more than $300 million increased their
shares of residential mortgages more than 30 per­
cent during the period.

The Secondary Mortgage Market
The existence of a secondary market for mor­
tgages (or mortgage-backed securities) is also a
key factor in the changes in the residential mort­
gage market. The process of bundling a portfolio
of assets with similar characteristics, such as
30-year fixed rate residential mortgages, and sell­
ing them on the capital market is called asset
securitization. Securitization started in the 1970s,
and residential mortgage loans were among the
first types of assets securitized; today credit card
receivables, home equity loans and auto loans,
among other assets, are also securitized and sold in
secondary markets.
Prior to the 1970s, mortgages were not con­
sidered liquid enough to trade as securities because
of their different terms and interest rates. In 1970,
the Government National Mortgage Association
(Ginnie Mae), an agency chartered to promote




mortgage lending and backed by the full faith and
credit of the U.S. government, effectively opened
a secondary market for mortgages by developing a
“ pass-through security.” Mortgage originators can
put together a package of mortgages in denomina­
tions such as $1 million (called a pool) and then
sell this pool to Ginnie Mae, which in turn issues
securities to be purchased by a third party, usually
an institutional investor. Ginnie Mae guarantees
the timely payment of interest and principal of the
mortgages in the pool.
Mortgage securitization is especially appealing
because loan sales remove these assets from the
balance sheet and thus reduces the need for capital,
provided the institution holds no recourse on the
underlying loans. Loan sales also reduce the need
for funding liabilities, as well as generating cash
with which more mortgages and other loans can be
made. When homeowners make their monthly
mortgage payments to their banks or savings and
loans, the institutions “ pass through” or forward
the total payments on that bundle to the owner of
the security. Because of the Ginnie Mae guarantee,
these pass-through securities have a very low
default risk. Pass-through securities owners, how­
ever, still face interest rate and prepayment risks.3
A financial institution thus has several options
regarding participation in the residential mortgage
market: (1) originating and holding mortgages in

12

its asset portfolio; (2) pooling mortgages and sell­
ing them to the secondary market; (3) providing
mortgage servicing to other institutions; and
(4) swapping mortgages for or purchasing MBSs,
earning fee income as it would from any other in­
vestment. Which combination of options an institu­
tion chooses depends to a large extent on the com­
position of the rest of its asset portfolio and the
profitability of each activity given the institution’s
resources. Many commercial banks are finding
mortgage-related activities more profitable now
than ever.
The success of the Ginnie Mae pass-through
security prompted the development of other types
of MBSs. Both the Federal Home Loan Mortgage
Corporation (Freddie Mac) and the Federal Na­
tional Mortgage Association (Fannie Mae), U.S.
government-chartered mortgage corporations, offer
MBSs as do a number of large banks and private
mortgage institutions such as Citicorp. Since 1983,
a number of MBS derivatives have been developed
to make MBSs even more marketable by elimi­
nating some of the interest rate and prepayment
risk associated with residential mortgage pooled
securities.4
The volume of MBSs issued and the number
of players in the market have grown rapidly in re­
cent years, with thrifts now holding less than $200
billion of the $1 trillion in MBSs outstanding. The

MBS market is undergoing roughly the same
transformation as the mortgage origination market:
thrifts are shedding MBSs, often the most liquid
assets in their portfolios, to meet the new leverage
ratios while banks are beefing up their MBS port­
folios even more aggressively than their holdings
of residential mortgages.
The push by commercial banks to increase
their holdings of MBSs, in particular those issued
by U.S. government-chartered agencies, is showing
up on the balance sheet. As indicated in table 2,
U.S. commercial banks increased their holdings of
U.S. agency MBSs from 6 percent of assets at
year-end 1987 to 8.28 percent of assets on
September 30, 1989, a 38 percent increase. Dis­
trict banks, which held 8.04 percent of their assets
in these MBSs at year-end 1987, increased their
holdings more than 30 percent during the period,
to 10.58 percent of assets. Each District state ex­
perienced double-digit increases in their MBSs-toassets ratios. Kentucky registered the largest gain
during the period, with MBS holdings to assets in­
creasing 51 percent. Among asset size categories,
District banks with $1 billion or more in assets
showed the greatest increase in holdings, with
MBSs to assets increasing from 4.64 percent to 7.32
percent during the period, a 57.8 percent jump.
Analysts cite a number of factors in explaining
the growing role of MBSs in the securities port-

Table 2
U.S. Government Agency Mortgage-Backed Securities and Other Obligations to Total Assets at
Commercial Banks by Location and Asset Size

United States
Eighth District
Arkansas
Illinois
Indiana
Kentucky
Mississippi
Missouri
Tennessee

12/31/87

12/31/88

9/30/89

6.00%
8.04
9.40
11.73
8.06
6.88
13.12
5.64
7.93

6.94%
9.48
11.32
13.24
9.10
9.29
14.48
6.28
9.25

8.28%
10.58
12.05
14.56
10.36
10.41
15.01
7.43
10.56

13.65
12.20
10.91
8.54
5.19
4.64

15.74
14.48
13.47
10.35
5.76
5.52

15.59
15.47
15.32
11.20
6.19
7.32

District Banks
< $25 million
$25 million-$50 million
$50 million-$100 million
$100 million-$300 million
$300 million-$1 billion
$1 billion-$10 billion

NOTE: U.S. government obligations include U.S. government agency issued or guaranteed certificates of participation in
residential mortgage pools and their derivatives and obligations of other government agencies or corporations, but ex­
clude Treasury securities. Data are for that portion of the state located within the Eighth District. Banks with assets
greater than $10 billion have been excluded from the U.S. ratios to make them more directly comparable with Eighth
District averages, as there are no banks in the District of that size.
SOURCE: FFIEC Consolidated Reports of Condition and Income, 1987-1989




13

folios of commercial banks. Many MBSs, even
after adjusting for prepayment risk, offer higher
yields than U.S. Treasury securities. Commercial
banks are also attracted to MBSs because munici­
pal bonds, in the wake of the Tax Reform Act of
1986, no longer offer as much of a tax break to
profitable banks.
The new risk-based capital guidelines, how­
ever, appear to be the most important factor driv­
ing up MBS holdings by commercial banks. Be­
cause they are guaranteed by the U.S. government,
Ginnie Mae and U.S. Treasury securities have
been assigned a risk weight of zero, meaning no
capital will be required for holding these assets.5
Participation certificates and collateralized mortgage
obligations issued by Freddie Mac and Fannie
Mae, in addition to some privately-issued MBSs.
will carry 20 percent risk weights, while other
MBSs will carry 50 or 100 percent risk weights.

FOOTNOTES
1See “ Resolving the Thrift Crisis’’ by Lynn M. Barry in
the December 1989 issue of Pieces of Eight for a detail­
ed explanation of the new regulatory requirements for
thrifts under FIRREA.
2Under current regulatory rules, commercial banks are
not required to report mortgage origination data, only
the value of mortgages held; therefore, a direct com­
parison with mortgage originations at thrifts is not possi­
ble. Previously cited mortgage origination data for com­
mercial banks are estimated by HUD and are not
available at the detail desired for this analysis.
interest rate and prepayment risks are the risks assum­
ed by the owner of an asset stemming from interest rate
changes. Assuming different term structures of assets
and liabilities, as interest rates rise, holders of long-term
fixed rate assets receive less return on these assets
than they have to pay out on liabilities such as short­




Conclusion
For a variety of reasons, Eighth District and
U.S. commercial banks are competing successfully
in the residential mortgage market previously
dominated by thrifts. How long the Catch-22 that
many thrifts currently find themselves in—having
to shed assets like MBSs to meet stricter capital
requirements but also being required to hold more
mortgage-related instruments in their portfolios—
will last is uncertain and depends in part on any
changes to FIRREA. For the short term, many
analysts expect banks to continue to increase their
holdings of mortgage-related instruments, but the
long-term outlook depends to a large extent on
how quickly the thrift industry recovers.

term deposits (called interest rate risk). When interest
rates fall, holders of long-term assets may receive a
lower-than-expected return if the underlying asset is
repaid faster than expected because of the ability to
refinance the asset (called prepayment risk).
4Mortgage-backed bonds, collateralized mortgage obliga­
tions (CMOs), real estate mortgage investment conduits
(REMICs) and stripped MBSs consisting of interest-only
(IOs) and principal-only (POs) strips are just some of the
MBS derivatives issued by U.S. government agencies
and private financial institutions today. For a detailed
explanation of these instruments, see “ Asset Securitiza­
tion: A Supervisory Perspective,” Federal Reserve
Bulletin, October 1989, pp. 659-69.
5ln addition to the risk-based requirements, all institu­
tions will have to meet a leverage ratio based on total
assets, currently proposed to be at least 3 percent.




14

Eighth D is tric t B usiness
Level

Payroll Employment (thousands)
United States
District
Arkansas
Little Rock
Kentucky
Louisville
Missouri
St. Louis
Tennessee
Memphis
M anufacturing
Employment (thousands)
United States
District
Arkansas
Kentucky
Missouri
Tennessee
District Nonmanufacturing
Employment (thousands)
Mining
Construction
FIRE2
Transportation3
Services
Trades
Government
Real Personal Income4 (billions)
United States
District
Arkansas
Kentucky
Missouri
Tennessee

Unemployment Rate
United States
District
Arkansas
Little Rock
Kentucky
Louisville
Missouri
St. Louis
Tennessee
Memphis

Compounded Annual Rates of Change
111/1989-

IV /1 9 8 8 -

IV /1 9 8 9

IV /1 9 8 9

IV /1 9 8 9

19891

19881

109,390.0
66,553.0
891.7
244.8
1,404.1
463.0
2,276.6
1,162.6
2,082.9
444.6

1.7%
1.7
3.0
3.7
1.3
6.1
2.4
3.2
0.7
4.3

2.4%
1.2
2.7
1.9
1.7
2.0
0.9
1.3
0.4
1.6

2.8%
1.5
2.9
2.6
1.9
1.7
1.4
1.4
0.7
2.1

3.3%
2.5
2.8
3.2
3.2
3.1
1.8
1.5
2.7
2.7

19,514.3
1,453.0
232.9
281.7
429.3
509.1

- 2 .1 %
-1 .2
-1 .4
1.4
-2 .4
-1 .6

- 0 .2 %
0.3
0.6
1.6
-0 .5
0.1

1.1%
1.2
2.5
2.6
0.6
0.5

2.0%
2.6
4.0
4.5
1.3
2.2

- 2 .9 %
-0 .8
0.9
0.7
3.0
0.9
1.4

- 4 .7 %
-1 .8
0.8
1.5
3.0
1.4
1.5

- 4.4%
-1 .4
0.5
3.5
4.5
2.4
1.7

49.4
280.8
340.0
385.1
1,472.1
1,581.0
1,092.6

- 3.9%
6.1
1.5
-0 .7
7.8
0.7
- 0 .9

111/1989

11/1989111/1989

$3,557.9
195.9
25.3
41.7
69.3
59.6

4.9%
1.7
-6 .1
1.0
2.9
4.1

IV /1 9 8 9

111/1989

5.3%
5.5
6.5
5.6
5.7
5.2
5.6
5.7
4.8
4.0

5.3%
5.4
6.6
5.9
6.2
6.1
5.3
5.2
4.5
4.0

111/1988111/1989

3.6%
3.0
2.0
2.7
3.1
3.5
Levels
198 9

5.3%
5.8
7.1
6.2
6.4
5.7
5.5
5.5
5.1
4.6

19881

19871

3.4%
2.8
2.9
2.8
2.1
3.6

3.2%
3.0
1.3
2.6
2.2
4.9

1988

1987

5.5%
6.5
7.6
6.4
7.8
6.3
5.7
6.0
5.8
5.1

6.2%
7.2
8.1
7.2
8.7
6.9
6.3
6.5
6.6
5.7

Note: All data are seasonally adjusted. On this page only, the sum of data from Arkansas, Kentucky, Missouri and Tennessee
is used to represent the District.
1Figures are simple rates of change comparing year-to-year data.
2Finance, Insurance and Real Estate
transportation, Communications and Public Utilities
4Annual rate. Data deflated by CPI-U, 1982-84 = 100.

15

U. S. P rices
Level
IV /1 9 8 9

Compounded Annual Rates of Change
111/1989-

I V /1 9 8 8 -

IV /1 9 8 9

IV /1 9 8 9

1989’

1988’

C onsum er Price Index
( 1982-8 4 = 100)

Nonfood
Food

125.4
127.4

3.9%
4.9

4.4%
5.4

4.7%
5.8

4.0%
4.1

147.0
165.7
127.7

7.7%
17.1
-3 .1

2.1%
8.8
- 5 .4

6.5%
6.6
6.5

8.8%
2.7
18.3

1.9%
2.9

5.3%
4.4

6.9%
4.4

Prices R eceived by Farm ers
( 1977= 100)

All Products
Livestock
Crops
Prices Paid by Farm ers
(1 9 7 7 = 100)

Production items
Other items2

165.0
178.0

- 2 .4 %
0.0

Note: Data not seasonally adjusted except for Consumer Price Index.
’ Figures are simple rates of change comparing year-to-year data.
2Other items include farmers' costs for commodities, services, interest, wages and taxes.

E ighth D is tric t B anking
Changes in Financial Position fo r the year ending
Septem ber 30, 1989 (b y A s s e t S ize)

SE L E C T E D A SSET S
Securities

U.S. Treasury &
agency securities
Other securities
Loans & Leases

Real estate
Commercial1
Consumer
Agriculture
Loan loss reserve
Total A ssets
SELE C T ED L IA B IL IT IE S
D eposits

Nontransaction accounts
MMDAs
$100,000 CDs
Demand deposits
Other transaction accounts2
Total L iabilities
Total E quity Capital

L e s s th a n

$ 1 0 0 m illio n -

$ 3 0 0 m illio n -

M o r e th a n

$ 1 0 0 m illio n

$ 3 0 0 m illio n

$1 b illio n

$1 b illio n

- 4 .4 %
-1 .2
- 1 5 .4
-3 .7
-2 .6
- 1 5 .2
- 1 .7
-4 .5
-3 .0
-4 .0
- 4 .0 %
-2 .6
-2 2 .1
4.1
-8 .3
-7 .4
-4 .1
-2 .4

10.6%
16.9
- 3 0 .8
14.7
17.2
6.5
13.8
34.9
20.7
13.8
14.4%
17.1
-4 .8
18.8
5.2
8.9
13.8
13.3

8.5%
14.5
- 3 3 .9
21.0
35.9
17.8
8.7
13.7
30.0
18.4
18.4%
21.2
9.6
17.6
10.3
14.7
18.4
18.5

Note: All figures are simple rates of change comparing year-to-year data. Data are not seasonally adjusted.
’ Includes banker’s acceptances and nonfinancial commercial paper
includes NOW, ATS and telephone and preauthorized transfers




18.0%
31.2
- 3 5 .4
7.9
18.1
1.1
7.1
- 2 3 .7
20.1
7.8
5.3%
10.2
16.6
-3 .6
-5 .1
-1 .9
8.7
8.1

16

Perform ance Ratios

(by Asset size)
E ig h th D is t r ic t
111/89

in/88

U n it e d S t a t e s
III/8 7

III/8 9

III/8 8

I II/8 7

.85%
1.00
.89
.81
.06
1.12

.74%
.85
.68
.75
.91
1.01

.64%
.80
.58
.60
- 1 .0 8
.76

E A R N IN G S AND R ET U R N S
A nnualized Return on A verage
A ssets

Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $10 billion
More than $10 billion
Agricultural banks

.83%
.81
.78
.43
—

1.21

.80%
.76
.80
.64
—

.74%
.75
.72
.45
—

1.15

.90

8.67%
9.12
10.10
9.60

8.28%
9.20
9.09
6.68
—
9.42

9.23%
12.28
12.23
12.52
1.31
11.42

8.26%
10.86
9.80
11.84
18.85
10.44

7.28%
10.33
8.21
9.36
-2 4 .5 0
8.09

4.28%
4.44
4.38
4.14
3.39
4.14

4.25%
4.25
4.15
4.06
3.30
4.07

4.32%
4.24
4.24
4.01
3.26
4.04

A nnualized Return on A verage
Equity

Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $10 billion
More than $10 billion
Agricultural banks

8.87%
9.75
9.81
6.74
—

12.12

—

11.68

Net Interest M argin 1

Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $10 billion
More than $10 billion
Agricultural banks

3.00%
2.98
3.09
2.70
3.92

3.83

3.01%
3.00
3.09
2.80
—
3.87

1.66%
1.72
1.38
2.18
—
1.87

1.82%
1.72
1.33
2.03
—
2.08

2.27%
2.07
1.84
2.45
—
2.84

2.15%
1.95
2.49
2.26
4.87
2.22

2.43%
2.01
2.20
2.15
5.53
2.69

2.90%
2.45
2.54
2.51
5.53
3.81

1.47%
1.43
1.42
1.79
—
1.74

1.46%
1.36
1.32
1.82
—
1.76

1.48%
1.39
1.36
1.95
—
1.75

1.56%
1.46
1.62
1.80
4.24
2.04

1.63%
1.51
1.64
1.79
4.18
2.08

1.62%
1.52
1.72
1.85
4.22
2.12

.23%
.32
.34
.59
—
.19

.27%
.32
.29
.83
—
.25

.46%
.41
.51
.46
—
.69

.42%
.38
.51
.62
.80
.32

.52%
.45
.56
.74
.77
.47

.72%
.53
.68
.52
.60
.86

—

2.96%
2.91
3.03
2.79
—

A SSET Q U A L IT Y 2
N onperform ing Loans3

Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $10 billion
More than $10 billion
Agricultural banks
Loan Loss R eserves

Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $10 billion
More than $10 billion
Agricultural banks
Net Loan L osses4

Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $10 billion
More than $10 billion
Agricultural banks

Note: Agricultural banks are defined as those with 25 percent or more of their total loan portfolio in agriculture loans.
interest income less interest expense as a percent of average earning assets
2Asset quality ratios are calculated as a percent of total loans.
3Nonperforming loans include loans past due more than 89 days, nonaccrual, and restructured loans.
4Loan losses are adjusted for recoveries.




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