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June 1991

Two States Up, Two Down in Regional Business in 1990
Area Banks Sustain Only Minor Injuries in 1990
Livestock Feeds Farmers’ Incomes in 1990




( \j

THE EIGHTH FEDERAL RESERVE DISTRICT

CONTENTS_________________________________________________________________________________
Business
The District Real Economy in 1990: Losing Its Fizz........................................................................................1
Banking and Finance
District Banks in 1990: Bruised, But Not B roken............................................................................................9
Agriculture
U.S. and District Agricultural Economies: The Expansion Continues..........................................................21
Statistics ............................................................................................................................................................31
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

The District Real
Economy in 1990:
Losing Its Fizz
by Thomas B. Mandelbaum
Thomas A. Pollmann provided research assistance.

n addition to the Iraqi invasion of Kuwait,
1990 will be long-remembered as the year in which
the nation’s second-longest economic expansion
since World War II came to a halt. The national
economy, already sluggish in the first half of the
year, officially entered a recession in July. As the
U.S. economy weakened, the Eighth District econ­
omy also softened.1 Nonetheless, the surprising
strength of the Arkansas and Kentucky economies
allowed employment in the District to rise through
year’s end.

District Income and Employment
Comparing the first and second halves of the
year reveals the deteriorating conditions that char­
acterized the District’s economy in 1990. Real
District income rose at a 2.1 percent rate in the
first half of the year, but fell at a 2 percent rate in
the year’s second half. Increasing energy prices,
declining farm income and falling dividends, in­
terest and rent contributed to the decline.
After rising at a 1.7 percent rate in the year’s
first half, District nonfarm payroll employment
growth slowed to a 0.7 percent rate of increase in
the second half. In comparison, U.S. payroll em­
ployment declined at a 0.6 percent rate after mid­
year. District unemployment rates, which had fal­
len from 5.7 percent in IV/1989 to 5.4 percent in
11/1990, rose to 6.2 percent by the final quarter of
1990 as employment growth decelerated.
These developments produced a District eco­
nomic performance that, on net, was similar to the
nation’s weak showing for 1990. As table 1 shows,
real personal income was essentially flat in both
the District and the nation, while nonfarm payroll
employment grew slightly faster regionally. The
rough similarity between District and national eco­
nomic growth in 1990 is what we might have ex­
pected. Throughout the last two decades, there has
been a close correspondence in regional and na­
tional employment and personal income growth.2
The employment relationship is shown in figure 1.



This correspondence stems from the structural
similarities of the two economies and the common
factors, such as interest and exchange rates, that
affect consumers and businesses throughout the na­
tion. Also, since many District businesses now
serve national markets, they are affected directly
when national spending fluctuates. Despite the longrun similarity, District employment growth has
been slightly stronger than the U.S. average in re­
cent years. As figure 2 shows, before weakening
in 1990, District employment had grown at a 3.2
percent annual rate since the end of 1985, com­
pared with a 2.6 percent national rate.
The national-regional correspondence can be
seen in the 1990 job growth of the District’s larg­
est sectors shown in table 1. Wholesale/retail
trades and services, which together employ almost
half the District’s nonfarm workers, showed job
growth just slightly faster than the national aver­
age. The lack of significant job growth in the trades
sector reflects flat retail sales. After adjusting for
inflation, retail sales fell slightly nationally, as they
did in Missouri and Tennessee, the two District
states for which consistent sales data are available.
As in previous years, services’ job growth out­
paced the other sectors, as the demand for medi­
cal, business and other services continued to ex­
pand.3 Because services tend to be less affected by
business cycles than manufacturing, the shift of
District jobs from manufacturing to services has
been a stabilizing influence on the regional econ­
omy. In fact, District services jobs expanded just
as fast in the second half of 1990 as in the first.
District manufacturing employment, which ac­
counts for about one-fifth of total employment, fell
1.1 percent between the fourth quarters of 1989
and 1990, a drop not quite as steep as nationally.
As is typical in times of national downturn, most
durables sectors in the District downsized their
workforces—most notably, transportation equip­
ment, electrical equipment and industrial machin­
ery. On the other hand, several large nondurables
sectors—food processing, chemicals and printing
and publishing—showed small employment gains.
Table 1 shows that both residential and nonresidential building activity declined sharply last
year, both regionally and nationally. While build­
ing activity is always sensitive to national down­
turns, this decline is a continuation of a trend since
1987. The Tax Reform Act of 1986 precipitated
this decline by eliminating federal income tax pro­
visions that had encouraged a mid-1980s building
boom and, in many areas, a glut of multifamily
and commercial structures. In 1990, the number of
housing permits fell 14.1 percent in the District
and 17.6 percent nationally, with the multifamily
sector being especially hard hit. District single­
family homebuilding held up relatively well, fall­
ing just 5.3 percent compared with a much steeper
national decline. The value of nonresidential build-

2

Table 1
1990 Percent Change in Selected Indicators
United
States

D istrict

Arkansas

Kentucky

Missouri

Tennessee

-0 .5 %

-0 .4 %

Real personal income1

0.2%

0.0%

1.0%

0.8%

Payroll employment2
Goods-producing sectors
Manufacturing
Construction
Mining
Service-producing sectors
Services
Wholesale/retail trades
Government
Transportation, communi­
cations and public
utilities
Finance, insurance and
real estate

0.9

1.2

3.1

2.6

0.3

0.4

- 2 .7
- 3 .8
3.1

-1 .1
-0 .8
0.4

0.6
5.6
- 4 .7

-0 .2
0.9
1.6

-2 .2
1.7
0.6

-1 .3
-6 .6
-3 .2

3.6
0.2
2.3

3.8
0.7
2.2

7.8
2.3
2.4

4.9
1.9
4.3

2.4
-0 .9
1.7

3.1
1.1
1.1

2.8

0.9

2.8

3.4

0.3

- 0 .7

0.9

0.5

1.2

0.4

1.3

-0 .6

Housing permits3
Single-family
Multifamily

-1 7 .6
-1 4 .3
-2 4 .9

-14.1
- 5 .3
-3 6 .9

- 1.2
8.0
-2 5 .6

-9 .6
- 1 .9
-25 .1

-18 .1
-1 0 .0
-3 8 .6

Nonresidential building
contracts4

-1 3 .0

- 17.2

-4 0 .7

-1 7 .3

- 5 .9

-1 6 .4
-6 .6
-4 6 .7

-1 6 .8

1Deflated by personal consumption expenditures price index. Growth rates are percent changes from IV/1989 to IV/1990.
2Growth rates are percent changes from IV/1989 to IV/1990.
3Growth rates compare total for 1990 to total 1989. Multifamily includes building with two or more dwelling units.
4Growth rates compare total for 1990 to total 1989. Nominal value of nonresidential building contracts, excludes non­
building construction. SOURCE: F.W. Dodge Construction Potentials (December 1990).

ing contracts awarded in the District fell 17.2 per­
cent in 1990. The District economy was not alone
in this regard: all U.S. regions posted declines last
year, except for the Pacific Northwest.

Interstate Variations: The Good
News And The Bad
Despite the similar performance of the Eighth
District and U.S. economies, a noteworthy feature
of 1990 was the divergent performances of individ­
ual states. The Arkansas and Kentucky economies
showed surprisingly strong growth, given the na­
tional context, while the Missouri and Tennessee
economies showed little growth throughout the
year and even trailed the national average. As the
table on page
of this publication shows, this
pattern of job growth continued through the first
quarter of 1991.



Arkansas: Chickens Hatch, Services Explode
Arkansas experienced the most rapid income
and nonfarm job growth in the District in 1990.
To some extent, this growth is related to the grad­
ual recovery of the Southwest economies, especial­
ly Texas, where many Arkansas products are sold.
Also, the state has a relatively small exposure to
the auto sector—Arkansas has no large vehicle
assembly plants—which hampered growth in
many areas. Most importantly, however, services
boomed, with the number of jobs rising almost
8 percent.
State real personal income rose 1 percent in
1990, following a 2 percent annual rate of growth
between the final quarters of 1985 and 1989. Pay­
roll employment rose a strong 3.1 percent last
year, matching the state’s annual rate in the prev­
ious four years and outpacing the national average
(see figure 2). The state’s largest metropolitan
area, Little Rock, contributed to the state’s job
growth in 1990: its payroll employment rose 2.5
percent.
Arkansas’ unemployment rate dipped sharply
in the first quarter, but rose to 7.2 percent in the

3

Figure 1

Payroll Employment Growth

1974

76

78

80

82

84

86

88

Figure 2

Payroll Employment Growth in D istrict States




United
States

Eighth
District

Arkansas

Kentucky

Missouri Tennessee

1990

final quarter of 1990, as figure 3 shows. The
slight increase in the jobless rate over the year
reflects a rise in the number of unemployed work­
ers, while the state’s labor force was virtually
flat.4
Arkansas gained more than 28,000 new jobs
in 1990. In 1990, employment in the services sec­
tor rose at twice the U.S. rate, providing half of
Arkansas’ new jobs. Many of these jobs provided
relatively low earnings, however, holding back
state earnings growth somewhat. In part, the low
earnings reflect the part-time nature of many of
these services jobs.5 In addition to services,
many—almost 5,000—of the state’s new jobs were
in the wholesale/retail trades, particularly in eating
and drinking establishments, which on average do
not provide high incomes. Most new manufactur­
ing jobs were in food processing, again a sector in
which comparatively low wages are the norm. The
food processing job gains occurred largely in ex­
panding poultry processing operations in Arkansas.
Employment declined in some manufacturing
sectors, including the chemicals industry and sev­
eral durables industries. The steepest decline was a
5.1 percent drop in electrical equipment manufac­
turing. As U.S. homebuilding activity waned, de­
mand weakened for electric appliances, such as the
refrigerators made in Fort Smith. Were it not for
an increase in manufactured exports, Arkansas’
weakness in durables manufacturing would have
been even more severe.
Despite a mild decline in the number of hous­
ing permits and a sharp drop in the value of nonresidential building contracts, 1990 was not a bad
year for the Arkansas construction industry. Con­
struction employment rose 5.6 percent during the
year, as more workers were needed to build more
single-family homes; the housing permit decline
was due solely to a drop in multifamily dwellings.
The decline in nonresidential contracts reflects a
return to more normal contract levels following
record levels in 1989. Construction activity con­
tinues on several industrial projects that were con­
tracted last year, such as a $300 million paper
plant in southwestern Arkansas.

Kentucky: A Thoroughbred Performance
on a Muddy Track
After a severe contraction that lasted from
1979 through 1983, the Kentucky economy has
rebounded strongly. This momentum was evident
in 1990, as the state showed net economic gains
through the end of the year. Real personal income
in 1990 was 0.8 percent higher than a year earlier,
outpacing the national average for the second
straight year. Payroll employment grew a strong
2.6 percent, the fourth consecutive year in which
it outpaced the national average.



While some weakening in state economic
growth was evident in the second half of 1990,
it was less severe than at the national level. Real
income contracted slightly, in part because farm
income fell sharply. Payroll employment, on the
other hand, continued to rise moderately. Unem­
ployment rates rose after the first quarter, but less
so than in Arkansas, Missouri or Tennessee. As
figure 3 shows, Kentucky’s jobless rate fell rapid­
ly in 1988 and 1989.
To some extent, the state’s recent strength
reflects manufacturing’s rebound from its sharp
declines in the early 1980s; between 1985 and
1989, state manufacturing employment rose at a 3
percent rate. In 1990, manufacturing employment
was essentially flat, which, when compared with
the nation’s substantial decline, should be con­
sidered a good performance.
Employment fell in several of the largest man­
ufacturing industries: apparel/textile mill products,
industrial machinery and electrical equipment.
Makers of home appliances and other consumer
durables cut production after the first quarter as
the probability of recession increased. These de­
clines, however, were offset by increases in sev­
eral other industries. Producers of transportation
equipment—led by the suppliers and assemblers of
Ford trucks and sports/utility vehicles in Louis­
ville, GM sports cars in Bowling Green and
Toyotas near Lexington—increased their workforce
4.4 percent last year. Fabricated metals producers,
many of which make products tied to the region’s
vehicle production, saw similar job gains.
While manufacturing employment was stable,
most of the state’s growth came from the five
services-producing sectors shown in table 1. The
services sector alone accounted for almost 16,000
of the state’s 37,770 new jobs, with health and
business services growing rapidly. In Louisville,
Humana, Inc. consolidated and expanded opera­
tions, while other medical providers also expand­
ed. Approximately 11,000 government jobs were
created in Kentucky in 1990, with strong gains at
all levels.
Housing permits and nonresidential building
contracts showed declines in 1990. As in many
parts of the nation, most of the residential decline
stemmed from the multifamily sector; single-family
housing permits fell just slightly. Louisville, how­
ever, bucked state and national trends, as steady
gains in homebuilding continued, with total hous­
ing permits up 3.7 percent and single-family per­
mits up 7.4 percent. The value of nonresidential
building contracts awarded in Kentucky fell sharply
last year, after growing at a 6.3 percent annual rate
over the previous four years, twice the U.S. rate.
Growth in both industrial building, especially in
central Kentucky, and commercial building through­
out the state contributed to the prior increases.
Many of these projects are still under construction

5

Figure 3

Unemployment Rates Rise in 1990

1988

and account, in part, for the slight gain in con­
struction employment in 1990.
In addition to the gains in services and homebuilding already noted, the Louisville metropolitan
area enjoyed widespread growth across most sec­
tors. Payroll employment rose 2.9 percent in 1990,
its fourth consecutive year of strong growth.
Missouri: Cars Crash, Defense Retreats
Two of Missouri’s leading industries, vehicle
assembly and defense contracting, have tended to
follow differing cycles. Car and truck production,
of course, is sensitive to national business cycles,
while regional defense activity primarily reflects
military and political decisions and the success of
area contractors in winning contracts. In the early
1980s, the nation’s defense buildup provided a
boost to Missouri defense contractors, mitigating
the sharp decline in auto production and other
durables manufacturing sectors. Unfortunately, in
1990, contractions in both defense spending for
Missouri-made products and a cyclical decline in



1989

1990

spending for cars and other durables coincided.
St. Louis, home of four car and van assembly
plants and the state’s largest defense contractor,
McDonnell Douglas Corporation, was most severe­
ly affected by these developments.
The result has been a year of stagnation and
rising unemployment in Missouri. Payroll employ­
ment fell slightly in the second half of the year;
manufacturing declined by more than 10,000 as
vehicle assembly plants ordered frequent intermit­
tent layoffs and defense contractors cut production.
The largest cuts came when McDonnell Douglas
eliminated several thousand jobs. Producers of
electrical equipment cut an additional 6,200
workers from their payroll in the second half of
the year. Construction employment, stimulated by
unusually mild weather, jumped in the first
quarter, but then declined. As figure 3 shows, the
state’s unemployment rate rose sharply after the
second quarter; by year’s end, it reached its
highest point since 1987.
For the year as a whole, payroll employment
was essentially flat. Declines in manufacturing and
wholesale/retail trades offset gains in the other sec­

6

tors. In addition to the layoffs in transportation
equipment, other durables producers, such as those
making electrical equipment and industrial machin­
ery, cut their workforces. Employment declined in
some nondurables sectors, such as food processing
and apparel/textile mill products, while others, like
printing/publishing and chemicals, registered mod­
est job gains.
As real income received by Missourians con­
tracted, they consumed less. Real retail sales fell
0.3 percent in 1990 (year-over-year comparison);
consumers spent slightly more on nondurables
goods during the year, but purchased fewer cars
and other durables. Consequently, employment in
wholesale/retail trades declined, with most types
of retailers, other than eating and drinking estab­
lishments, paring their staffs. Employment in the
services sector rose moderately, as hospitals, doc­
tor offices, nursing homes and business services
continued to expand. One positive note is that
services employment growth showed no signs of
slowing as the year progressed.
Construction activity in Missouri weakened in
1990. The number of housing permits has fallen
steadily for four years. In 1990, they declined 18.1
percent to 16,424, a level half the 1986 figure.
The value of building contracts for nonresidential
projects in Missouri fell 5.9 percent in 1990, the
second consecutive annual drop. Much of the
state’s decline in construction activity occurred in
the St. Louis area. Building activity in St. Louis
makes up approximately half of the state’s activity
in both the residential and nonresidential sectors.
Housing permits in St. Louis fell 22.6 percent in
1990, while nonresidential contracts were down 6
percent.
Despite major job losses in construction, aero­
space and auto employment, the St. Louis metro­
politan area posted a slight gain in payroll employ­
ment, 0.5 percent, between the fourth quarters of
1989 and 1990. This increase was mainly due to
gains in government and business and health
services.
Tennessee: A Fading Star?
Before last year, Tennessee’s economy had en­
joyed several years of rapid growth, as virtually
all sectors of its economy expanded. Between the
final quarters of 1985 and 1989, state real personal
income rose at a 3.7 percent rate, while payroll
employment rose at a 3.6 percent rate. Both fig­
ures exceeded national and District averages. In
1990, this rapid growth ended. Real income de­
clined slightly, as did real retail sales. Payroll em­
ployment declined in the year’s final quarter, and
finished the year just 0.4 percent higher than a
year before.
The primary sources of the state’s earlier job
growth—its services, wholesale/retail trades and



government sectors—slowed in 1990 to less than
half their rate of growth of the previous four years.
The state’s smaller transportation/communication/utilities and finance/insurance/real estate sec­
tors, which had also grown fairly rapidly in the se­
cond half of the 1980s, saw their workforces con­
tract in 1990.
Manufacturing employment, which had risen at
a healthy 1.8 percent rate in the four years through
1989, declined throughout 1990. Many industries,
including producers of industrial machinery, elec­
trical equipment and apparel/textile mills products,
laid off thousands of workers during the year, re­
flecting weakening national demand. Employment
levels were nearly flat in factories making fabri­
cated metals or food products. On the other hand,
printing and publishing establishments, which had
experienced strong 4 percent annual job gains since
the last quarter of 1985, expanded an additional
1.8 percent in 1990. In contrast to their national
counterparts, producers of transportation equipment
in Tennessee expanded their workforce in 1990;
employment rose by 3,600, or 9.7 percent last
year. Gains stemmed from GM’s Saturn plant that
began production in mid-1990, the Nissan plant,
which is expanding its capacity, and numerous
suppliers of the region’s vehicle assembly plants.
Construction activity in Tennessee weakened in
1990, causing 6,500 construction workers to lose
their jobs. While the number of residential build­
ing permits authorized in the state has declined
each year since 1986, 1990’s 16.4 percent drop
was the steepest. The value of nonresidential con­
tracts fell in 1989 and 1990, after several years of
strong industrial and commercial building activity.
Fairly high office vacancy rates in Memphis, Nash­
ville and other cities suggest that comparatively lit­
tle additional office space will be erected in the
near future.

Looking Ahead
Given the ties between the Eighth District and
the national economies, the performance of the U.S.
economy is a critical determinant of the region’s
economic performance. Accordingly, state eco­
nomic forecasts prepared by university and govern­
mental economists, presented in table 2, are heav­
ily influenced by projected changes in U.S. eco­
nomic activity.6 Note that all growth rates compare
annual averages, in contrast to the fourth-quarterto-fourth-quarter growth rates used for employment
and income in table 1.
The U.S. forecast shown in table 2 is from
the Data Resource Incorporated (DRI) March fore­
cast used for the Kentucky forecast, but is similar
to those used in developing the forecasts for the
other states. DRI, the Wharton Econometric Fore-

B
T a b le 2
E co n o m ic P ro jec tio n s fo r D istrict S tates

Projected

Actual
1990

1991

1992

5.3%
7.2
6.2
5.5
5.1

5.5%
6.9
5.8
5.7
5.2

6.8%
7.2
N.A.
6.6
6.5

6.4%
6.6
N.A.
6.1
6.4

1989

1990

1989
Unemployment rate
United States
Arkansas
Kentucky
Missouri
Tennessee

Percent change1
1991

1992

-0 .6 %
1.0
0.0
-0 .8
0.4

1.2%
1.3
1.4
1.2
2.1

Nonagricultural payroll employment
United States
Arkansas
Kentucky
Missouri
Tennessee

2.7%
3.3
3.7
2.5
3.6

Manufacturing employment
United States
Arkansas
Kentucky
Missouri
Tennessee

0.4
2.1
3.7
1.6
2.1

- 1 .9
0.7
0.9
- 0 .8
- 0 .4

-3 .1
-2 .0
- 1.2
N.A.
- 1.1

0.6
-0.7
2.1
N.A.
2.1

Personal income (current dollars)
United States
Arkansas
Kentucky
Missouri
Tennessee

7.6
7.1
7.5
6.8
6.7

6.4
6.9
6.8
5.5
5.9

3.8
5.3
4.5
5.9
4.9

6.1
6.4
5.4
6.5
7.0

1.8%
3.6
2.9
1.1
1.3

1Percent changes compare entire year with previous year.
SOURCES: United States: DRI/McGraw-Hill, Review of the U.S. Economy (March 1991); Arkansas: University of Arkansas
at Little R ock, Arkansas Economic Outlook (J a n u a ry 1991); K e n tu c k y : K e n tu c k y F in a n c e an d A d m in is tra tio n
Cabinet based on DRI/McGraw-Hill March 1991 Control Forecast (January 1989); Missouri: College of
Business and Public Administration, University of Missouri-Columbia, Missouri Economic Indicators
(December 1990); Tennessee: Center for Business and Economic Research, University of Tennessee, Knox­
ville, An Economic Report to the Governor of the State of Tennessee on the State's Economic Outlook
(February 1991).

casting Associates (WEFA) Group and the Univer­
sity of Missouri all forecast a relatively mild na­
tional recession, with real GNP increasing slightly
in the second quarter of 1991—after the two
quarters of decline already reported—then growing
moderately in subsequent quarters.
Unemployment rates for the United States,
Arkansas, Missouri and Tennessee are expected to
rise somewhat in 1991, then decline slightly in
1992. These projections are well below those fol­
lowing the last recession; in 1982 and 1983, unem­
ployment rates in the nation and Missouri were
nearly 10 percent, while those in the other District
states were even higher.



For 1991 as a whole, DRI expects U.S. pay­
roll employment to decline slightly and grow only
slowly in 1992. Missouri is expected to follow the
national pattern, while Arkansas, Kentucky and
Tennessee are expected to show slightly stronger
performances for 1991. Excluding Missouri, per­
sonal income will also slow in 1991 from 1990
rates, as receding inflation cuts nominal growth
rates and the growth in earnings derived from new
jobs slows.
Arkansas’ job growth in 1991 is expected to
be derived from the same sources as in 1990. The
services sector is expected to continue to be the
state’s most rapidly expanding sector, though its

8

growth is expected to slow, as employment and in­
come in other sectors slow. Most other serviceproducing sectors are also expected to continue ex­
panding, albeit more slowly than in 1990. Nondur­
ables manufacturing, led by food processing, will
continue to add workers, but most durables manu­
facturing sectors will show declines. Exports of
manufactured goods will continue to rise.
After its rapid growth in 1990, Kentucky’s
payroll employment is projected to be flat in 1991,
then rise slowly in 1992. Manufacturing employ­
ment is expected to decline in 1991, but less than
at the national level; this is largely a reflection of
the comparative success of Kentucky’s manufactur­
ers. Orders have remained relatively strong for
products made in many of the state’s smaller fac­
tories, as well as in large establishments, like the
assembly plants that make Toyotas and Ford Ex­
plorers. In fact, Toyota is in the process of doub­
ling the capacity of its Kentucky plant.
Missouri’s 0.8 percent projected decline in
payroll employment represents the most pessimistic
outlook among the states. Employment in private
nonmanufacturing sectors is expected to increase
slightly, while government and manufacturing em­
ployment is expected to decline. Manufacturing
will be hardest hit, with much of the impact felt in
the St. Louis area: the May closure of a Chrysler
assembly plant will eliminate roughly 2,000 jobs,
while the U.S. Defense Department’s January can­
cellation of McDonnell Douglas’ A-12 jet contract
will eliminate roughly 5,000 aerospace jobs. In
April 1991, McDonnell Douglas lost its bid to help
build the Air Force’s Advanced Tactical Fighter,
which will result in a loss of an additional 500
jobs in 1991. On the positive side, the Navy hopes

Also, construction activity on several major public
sector projects, including St. Louis’ light rail sys­
tem, convention center expansion and arena, will
stimulate the state’s economy in 1991 and 1992.
Tennessee’s projected deceleration of job
growth in 1991 to 0.4 percent reflects an expecta­
tion that employment in its three goods-producing
sectors will continue to decline, while employment
in service-producing sectors will rise, though much
more slowly than in recent years. Manufacturing's
job decline is expected to be concentrated in non­
durables sectors; the apparel, textiles and chemical
sectors, for example, are expected to eliminate al­
most 4,000 jobs in 1991. The decline in durables
manufacturing will be mitigated by moderate job
gains in transportation equipment production; this
increase stems from employment commitments
made by Nissan and Saturn.

to significantly expand its order for McDonnell

the historical relationship between national and

Douglas’ F/A-18 jets, though the order is yet to be
authorized by Congress.
Other positive developments in Missouri are
anticipated in the construction sector. Housing per­
mits, for both single and multifamily dwellings, are
expected to begin rising in Missouri after the first
quarter and continue to increase through 1992.

regional economic growth continues, it is likely
that, as the U.S. economy rebounds from its cur­
rent downturn, the District states will also see their
economies strengthen. The timing and strength of
the national recovery, however, are major un­
knowns that make the performance of the District
economy subject to much uncertainty.

FOOTNOTES
1The Eighth District is defined as Arkansas, Kentucky,
Missouri and Tennessee for purposes of this article.
2The simple correlation between District and U.S. fourquarter growth rates of payroll employment is .94 for the
I/1971-IV/1990 period; for personal income growth the
correlation is .95.
3For an explanation of this growth, see Thomas B.
Mandelbaum, “ District Services: What They Are and
Why They Have Grown,” Pieces of Eight—An Economic
Perspective on the Eighth District, Federal Reserve Bank
of St. Louis (December 1990), pp. 10-13.
4Unemployment rates are based on a survey of
households, indicating the number of people that are
employed or unemployed, while payroll employment is
based on a survey of establishments, indicating the




Conclusion
Overall, the District economy was sluggish
in 1990. This characterization, however, tends to
obscure the varied performance of individual
states. Like that of the nation, Missouri and Ten­
nessee’s economic growth faltered, with manufac­
turing activity declining and services growth slow­
ing. In contrast, in Arkansas and Kentucky, em­
ployment continued to expand moderately through
the end of the year, with services expanding rapid­
ly and manufacturing stabilizing. Furthermore, real
incomes in Arkansas and Kentucky remained higher
in the fourth quarter of 1990 than a year before. If

number of jobs. Because payroll employment is based
on a larger, more reliable sample, it is used in this arti­
cle as the primary measure of employment growth.
5 Most workers, however, do not consider the part-time
nature of their services jobs as undesirable: among U.S.
services workers with part-time schedules in 1989, only
one-fifth worked part-time involuntarily. See Thomas B.
Mandelbaum, “ Are District Services Jobs Bad Jobs?”
Pieces of Eight—An Economic Perspective on the Eighth
District, Federal Reserve Bank of St. Louis (March
1991), p. 7.
6 The U.S. forecasts used in developing the projections
for Arkansas and Tennessee were prepared by the
WEFA group; Kentucky’s forecast were based on a U.S.
forecast from DRI/McGraw-Hill, Inc. and Missouri’s
forecast is based on a U.S. forecast from the University
of Missouri-Columbia.

g

District Banks in
1990: Bruised, But
Not Broken
by Michelle A. Clark
Thomas A. Pollmann provided research assistance.

F

ew bankers in the Eighth Federal Reserve
District would characterize 1990 as a good year.
Nonetheless, District banks fared better than their
ailing counterparts in other regions, especially
those on the East Coast. An injured national econ­
omy affected banks in all regions in 1990, but the
damage to Eighth District banks can be character­
ized as “ bruises” rather than “ breaks.” Measures
of profitability dipped only slightly in the District
as did measures of asset quality, a barometer for
future earnings prospects. Injuries to District banks
were minor because of the absence of major prob­
lems in real estate loan portfolios, continued low
overhead ratios and a District economy that, al­
though weak, outperformed the national economy.
A detailed analysis of Eighth District commer­
cial bank performance in 1990 is presented below,
with comparisons drawn between District banks
and their national peers.1 Conventional perfor­
mance measures, including bank earnings, asset
quality and capital adequacy, are examined to assess
the financial condition and soundness of the
District’s banking industry.2 Precise definitions of
the measures discussed are provided on page 12.
In addition, selected performance ratios (by state)
for banks in Eighth District states are presented in
the tables following the conclusion.

Earnings
Eighth District banks earned $1.16 billion in
1990, an increase of 2.7 percent over 1989 earn­
ings of $1.13 billion. Earnings growth in 1990 ex­
ceeded that of 1989, but still lagged inflation. In
contrast to their performance in 1989, U.S. peer
banks saw their earnings decline almost 20 percent
in 1990, from $14.71 billion to $11.77 billion.
Despite the larger earnings increase, more
District banks reported losses in 1990 than in 1989.
Seventy-two banks (or 5.8 percent of all District
banks) incurred losses in 1990, compared with 54
banks (4.3 percent of District banks) in 1989.
While higher than the previous year, the propor­



tion of District banks losing money was roughly
half the U.S. peer bank figure of 12.4 percent.
Return on Assets and Equity
When examining bank earnings, two standard
profitability measures are generally employed: the
return on average assets (ROA) ratio and the
return on average equity (ROE) ratio. ROA indi­
cates how successfully bank management employed
the bank’s assets to earn income; ROE provides
shareholders with a measure of the institution’s
return on their investment.
ROA and ROE declined slightly at District
banks in 1990. As shown in table 1, District banks
averaged an ROA of 0.89 percent in 1990, down 2
basis points from 1989, and an 11.21 percent ROE,
down 35 basis points from 1989. The average de­
cline would have been larger if not for the earn­
ings improvement at the largest District banks. In
contrast to the declines recorded by banks in every
asset category of less than $1 billion, the 12 Dis­
trict banks with average assets of $1 billion to
$10 billion experienced substantial increases in
ROA and ROE in 1990. Despite this improvement,
the largest District banks continue to lag the
District average in these measures of profitability.
U.S. peer banks posted declines in ROA and
ROE across every asset category and fell further
behind District banks in these profit measures.
U.S. banks of comparable size to District banks
recorded an average ROA of 0.60 percent and an
average ROE of 8.14 percent, both down signifi­
cantly from their previous year levels. In contrast
to the gains experienced by District banks with
assets of $1 billion to $10 billion, the largest
declines at the national level occurred at banks of
this size. At those banks, ROA fell 38 percent and
ROE fell 40 percent from 1989.
Components of Earnings
As with any business, a bank’s financial suc­
cess is determined by how much revenue its activi­
ties generate over and above the costs incurred in
generating that revenue. In assessing the earnings
performance of banks, analysts typically examine
the three major components of income and ex­
pense: net interest income, net noninterest income
and the loan loss provision. These components,
like net income, are typically adjusted by average
assets to facilitate comparison among banks.
Net Interest Margin—The net interest margin
(NIM) is an indicator of how well interest-earning
assets (basically loans and investments) are being
employed relative to interest-bearing liabilities
(deposits and other sources of funds). After rising
modestly in 1988 and holding steady in 1989, the
NIM at District banks declined 9 basis points in
1990 to 4.21 percent (see table 2). Every asset

10

Table 1
Return on Average Assets and Return on Average Equity
Return on Average Assets (ROA)

Asset category
All banks1
Less than $25 million
$25 million-$50 million
$50 million-$100 million
$100 million-$300 million
$300 million-$1 billion
$1 billion-$10 billion

District

u .s.

0.89%
0.78
0.91
1.02
0.96
0.97
0.72

0.60%
0.47
0.75
0.82
0.87
0.74
0.42

District

U.S.

0.91%
0.83
1.02
1.09
1.04
1.05
0.63

1987

1988

1989

1990

0.76%
0.59
0.77
0.86
0.95
0.82
0.68

District

U.S.

0.95%
0.84
0.98
1.05
0.99
1.02
0.85

0.74%
0.35
0.66
0.78
0.81
0.70
0.77

District

U.S.

0.82%
0.70
0.96
0.93
0.96
1.10
0.53

0.55%
0.17
0.51
0.68
0.74
0.53
0.50

Return on Average Equity (ROE)
1989

1990
Asset category
All banks1
Less than $25 million
$25 million-$50 million
$50 million-$100 million
$100 million-$300 million
$300 million-$1 billion
$1 billion-$10 billion

District

U.S.

11.21%
7.95
9.96
11.34
11.76
12.50
11.05

8.14%
4.63
8.15
9.33
10.84
9.93
6.45

District

U.S.

11.56%
8.43
11.10
12.20
12.78
13.49
9.83

1987

1988

10.53%
5.76
8.46
9.85
11.86
11.43
10.73

District

U.S.

12.07%
8.67
10.94
11.88
12.20
13.06
13.07

10.46%
3.55
7.45
9.16
10.41
10.19
12.24

District

U.S.

10.45%
7.37
10.75
10.80
12.09
14.05
7.99

7.72%
1.75
5.86
8.21
9.70
7.29
8.02

SOURCE: FFIEC Reports of Condition and Income for Commercial Banks, 1987-90.
’ Includes only those banks with average assets of less than $10 billion.

Table 2
Net Interest Margin (NIM)

1990
Asset category
All banks1
Less than $25 million
$25 million-$50 million
$50 million-$100 million
$100 million-$300 million
$300 million-$1 billion
$1 billion-$10 billion

District
4.21%
4.44
4.37
4.27
4.28
4.47
3.92

1988

1989
U.S.
4.54%
4.68
4.63
4.62
4.69
4.79
4.38

District
4.30%
4.52
4.37
4.31
4.41
4.57
4.04

U.S.
4.60%
4.80
4.74
4.76
4.86
4.76
4.41

District
4.30%
4.51
4.34
4.33
4.43
4.51
4.05

SOURCE: FFIEC Reports of Condition and Income for Commercial Banks, 1987-90.
11ncludes only those banks with average assets of less than $10 billion.




1987
U.S.
4.60%
4.74
4.69
4.71
4.76
4.67
4.49

District
4.28%
4.53
4.40
4.36
4.35
4.56
3.99

U.S.
4.57%
4.76
4.71
4.68
4.68
4.71
4.42

11

Figure l

Interest Income and Interest Expense as a Percent of
Average Earning Assets
District

U.S.
Interest Income

Year

z'-------------------------- A------------ x

1990

I
10.40

6.19

1
v

V6.23
^
y
Interest Expense

10.74

9.91

1987

6.46

6.44

1986

OST
9.55

10.77

111

pm

1989

'
NIM

|

|

5.61

5.63

1 ....l l ; .

11.05

10.23

I

5.27

5.26

9.83

0
Source: FFIEC Reports of Condition and Income for Commercial Banks, 1987-1990

category of banks but one registered drops in the
NIM last year, with banks in the asset classes of
more than $100 million experiencing the sharpest
declines.
The NIM for U.S. peer banks, while also de­
clining in 1990, once again exceeded the District
average by a substantial margin. U.S. peer banks
recorded an average NIM of 4.54 percent in 1990,
down 6 basis points from 1989 but 33 basis points
above the District average. Unlike the pattern at
District banks, small and mid-size U.S. banks (those
with assets of less than $300 million) posted larger
declines in the NIM than their larger counterparts.
Interest Income and Expense—Differences in
net interest margins among banks in different asset
classes and geographic areas can be explained by
looking at the income and expense components of
the ratio. In 1990, NIMs fell at District and U.S.
peer banks because interest income declined more
than interest expense. Interest income as a percent
of average earning assets at District banks declined
34 basis points to 10.4 percent in 1990 (see fig­
ure 1). This ratio declined across all asset cate­
gories of District banks but one, with the biggest
declines recorded among banks in the largest asset
categories (more than $100 million in average
assets). After posting the highest ratio in 1989, the
largest District banks (those with more than $1 bil­
lion in average assets) registered the largest decline
and the lowest average ratio in 1990.



The decline in the interest income ratio can be
traced to increased holdings by District banks of
securities, which tend to be lower-yielding than the
other major earning asset, loans. District banks in­
creased their holdings of securities by more than
10 percent in 1990 after increases of about 4 per­
cent in 1988 and 1989.
District banks continued to lag their U.S.
peers in interest income generation in 1990. U.S.
peer banks recorded higher interest income mar­
gins than District banks in every asset category,
with the spread between the margins generally in­
creasing with bank size. A greater concentration of
securities holdings in District asset portfolios (26.8
percent) than in U.S. peer bank portfolios (21.5
percent) largely explains this gap. Nonetheless, in­
terest income margins declined across all asset
categories of U.S. peer banks in 1990, as they too
increased their securities holdings relative to loans.
The largest U.S. banks faced the steepest interest
income margin declines as a combination of large
increases in nonperforming loans (a great propor­
tion of which are not generating interest income)
and lower interest rates on adjustable-rate loans
dampened income.
As illustrated in figure 1, interest expense as a
percent of average earning assets declined 25 basis
points to 6.19 percent in the District in 1990; U.S.
peer banks recorded a 23 basis-point decline in the
ratio. The largest District and U.S. peer banks

12

Ratio Definitions
Return on average assets ratio (ROA):
An indicator of how well management is em­
ploying the bank’s assets to earn income, return
on average assets (ROA) is calculated by divid­
ing a bank’s net income by its average annual
assets.
Return on average equity ratio (ROE):
An indicator to shareholders of the bank’s re­
turn on their investment, return on average
equity (ROE) is calculated by dividing a bank’s
net income by its average annual equity capital.
Equity capital consists of common and perpetual
preferred stock, surplus, undivided profits and
capital reserves and cumulative foreign currency
translation adjustments.
Net interest margin (NIM):
An indicator of how well interest-earning assets
are being employed relative to interest-bearing
liabilities, the net interest margin is calculated
by dividing the difference between interest in­
come and interest expense by average earning
assets. Interest income comprises the interest
and fees realized from interest-earning assets,
and includes such items as interest and points
on loans, interest and dividends from securities
holdings, and interest from assets held in trad­
ing accounts. Interest expense includes the in­
terest paid on all categories of interest-bearing
deposits, the expenses incurred in purchasing
federal funds and selling securities under agree­
ments to repurchase and interest paid on capital
notes. Average earning assets rather than aver­
age assets are used in the net interest margin
because they are the only assets from which a
return in the form of interest is generated.
Net noninterest margin (NNIM):
An indicator of a bank’s operating efficiency
and its ability to generate income from noninter­
est-earning assets, the net noninterest margin is
calculated by subtracting noninterest expense
(overhead) from noninterest income and divid­
ing by average assets. Noninterest expense is
the sum of the costs incurred in the bank’s dayto-day operations, which includes employee
salaries and benefits, expenses of premises and
fixed assets, as well as legal and directors’ fees,
insurance premiums and advertising and litiga­
tion costs. Noninterest income includes income
from fiduciary (trust) activities, service charges
on deposit accounts, trading gains (losses) from
foreign exchange transactions, gains (losses) and
fees from assets held in trading accounts, and
charges and fees from miscellaneous activities
like safe deposit rentals, bank draft and money
order sales, and mortgage servicing.



Loan and lease loss provision ratio:
An indicator of expected loan and lease losses,
the loan and lease loss provision ratio (usually
shortened to loan loss provision ratio) is calcu­
lated by dividing the provision for loan and
lease losses by average assets. The provision
for loan and lease losses is an income statement
account which reduces a bank’s current
earnings.
Nonperforming loan and lease loss ratio:
An indicator of current and future loan pro­
blems, the nonperforming loan ratio is calcu­
lated by dividing loan and lease financing re­
ceivables that are 90 days or more past due or
in nonaccrual status by total loans. Restructured
loans and leases that fall into the 90 days or
more delinquent status or in nonaccrual status
are included as well.
Net loan loss ratio:
An indicator of actual loan losses, the net loan
loss ratio is calculated by dividing loan losses
(adjusted for recoveries) by total loans. Also
called the charge-off rate.
Risked-based capital and leverage ratios:
Two risk-based capital measures have been
established to control for credit risk across
banks. One ratio comprises Tier 1 capital div­
ided by risk-adjusted assets and the other com­
prises total capital (Tier 1 + Tier 2) divided by
risk-adjusted assets. Tier 1 capital consists of
common stock and its related surplus, undivided
profits and capital reserves (retained earnings),
noncumulative perpetual preferred stock and its
related surplus, minority interests in consoli­
dated subsidiaries and mortgage servicing rights
(the FDIC definition of eligible intangible as­
sets) less net unrealized loss on marketable
equity securities. Tier 2 capital consists of al­
lowable subordinated debt and limited life pre­
ferred stock, cumulative preferred stock, man­
datory convertible debt, the allowable portion of
the loan and lease loss allowance and agricul­
tural loss deferral. Risk-adjusted assets are com­
puted by attaching weights of 0, 20, 50 and 100
percent to on- and off-balance sheet assets and
subtracting disallowed intangible assets, recipro­
cal capital holdings, the excess portion of the
allowance for loan and lease losses and the allo­
cated transfer risk reserve. In addition to the
risk-based ratios, banks are required to meet a
leverage ratio of at least 3 percent. The lever­
age ratio is computed by dividing Tier 1 capital
by average total consolidated assets (average
assets less ineligible intangible assets and in­
vestments in unconsolidated subsidiaries).

13

Every asset category of District banks but one ex­
perienced a decline in the noninterest income ratio
in 1990, although the declines were generally small.
In contrast, the noninterest income gains among
the largest asset categories of U.S. peer banks
compensated for declines in the smallest asset
categories, leading to a six-basis point rise in the
average U.S. ratio in 1990.
Noninterest expense as a percent of average
assets declined overall in the District in 1990 while
rising slightly for U.S. peer banks. Declines in
overhead ratios at the largest District banks more
than compensated for increases at banks in asset
categories of less than $100 million. The largest
District banks (those with assets of more than
$1 billion) experienced a 5.7 percent decline in the
overhead ratio in 1990. U.S. peer banks in that
category saw their overhead ratio rise an average
2.8 percent in 1990. The gap between overhead
ratios at District and U.S. peer banks actually
widened in 1990 to 57 basis points, a substantial
margin. Lower average salaries in the District and
a higher proportion of banks located in nonmetro­
politan areas (where other operating costs are rela­
tively low) largely explain the consistently lower
overhead ratios recorded by District banks.
Loan and Lease Loss Provision—District
banks set aside $659 million from 1990 earnings to
replenish and bolster the fund used to absorb loan
losses (called the loan and lease allowance). The
District’s 1990 loan loss provision was 9.1 percent
higher than the $604 million provision taken in
1989. U.S. peer banks increased their provision
more substantially, setting aside $18.95 billion in
earnings in 1990 versus the $14.37 billion provi­
sion taken in 1989, a 32 percent increase. The large
increase at U.S. banks was necessary to keep up
with mounting troubled loans in many areas of the
country.

consistently have the highest interest expense ratios
because of a greater reliance on purchased funds, a
more expensive source of funds than retail depos­
its. Despite the lower average, most District banks
continued to record higher interest expense ratios
than their U.S. peers because of higher ratios of
interest-bearing deposits to total liabilities and
higher average deposit rates. In addition, District
banks rely more heavily than their U.S. peers on
fed funds (overnight loans purchased from other
financial institutions), a more costly source of
funding.3
Net Noninterest Margin—The net noninterest
margin (NNIM) is an indicator of a bank’s opera­
ting efficiency and its ability to generate fee in­
come. Because noninterest expense (overhead) usu­
ally exceeds noninterest income, the calculation of
the NNIM yields a negative number; it is common
practice, however, to report the noninterest margin
as a positive number. Smaller NNIMs, therefore,
indicate better bank performance, all else equal.
In 1990, as in previous years, all asset cate­
gories of District banks recorded lower NNIMs
than their national peers because of substantially
lower overhead ratios. As indicated in table 3,
District banks averaged a NNIM of 1.96 percent
in 1990, while their U.S. peers averaged a 2.15
percent ratio. Although both groups of banks expe­
rienced declines in the NNIM from 1989, the Dis­
trict decrease was larger.
Noninterest Income and Expense—District
banks registered a noninterest income to average
assets ratio of 1.02 percent in 1990 versus a 1.04
percent ratio in 1989, while U.S. peer banks’ non­
interest income ratio rose modestly in 1990 to 1.40
percent. This divergent performance led to a wid­
ening of the gap between the noninterest income
ratio for District banks and U.S. peer banks to 38
basis points in 1990 from 30 basis points in 1989.

Table 3
Net Noninterest Margin (NNIM)

1990

1989

1988

1987

Asset category

District

U.S.

District

U.S.

District

U.S.

District

U.S.

All banks1
Less than $25 million
$25 million-$50 million
$50 million-$100 million
$100 million-$300 million
$300 million-$1 billion
$1 billion-$10 billion

1.96%
2.63
2.26
2.06
2.01
2.08
1.63

2.15%
3.02
2.61
2.45
2.37
2.29
1.87

2.00%
2.59
2.20
2.03
2.05
2.11
1.75

2.16%
2.84
2.60
2.48
2.43
2.28
1.88

2.05%
2.59
2.19
2.10
2.11
2.15
1.79

2.25%
2.95
2.61
2.48
2.47
2.36
2.01

2.03%
2.57
2.20
2.11
2.05
2.03
1.79

2.29%
2.99
2.64
2.50
2.44
2.41
2.05

SOURCE: FFIEC Reports of Condition and Income for Commercial Banks, 1987-90.
in clu d e s only those banks with average assets of less than $10 billion.




14

Table 4
Provision for Loan Losses as a Percent of Average Assets

Asset cateqory
All banks1
Less than $25 million
$25 million-$50 million
$50 million-$100 million
$100 million-$300 million
$300 million-$1 billion
$1 billion-$10 billion

District
0.50%
0.27
0.36
0.32
0.43
0.48
0.74

U.S.
0.96%
0.40
0.41
0.45
0.52
0.80
1.34

District
0.49%
0.32
0.28
0.29
0.41
0.44
0.77

1987

1988

1989

1990

U.S.
0.74%
0.49
0.47
0.46
0.48
0.65
0.95

District
0.39%
0.31
0.33
0.31
0.40
0.37
0.47

U.S.
0.62%
0.62
0.55
0.52
0.50
0.60
0.68

District
0.62%
0.50
0.42
0.44
0.46
0.43
0.99

U.S.
0.82%
0.82
0.72
0.61
0.61
0.81
0.96

SOURCE: FFIEC Reports of Condition and Income for Commercial Banks, 1987-90.
in clu d e s only those banks with average assets of less than $10 billion.

As revealed in table 4, the loan loss provision
ratio for District banks increased just 1 basis point
in 1990 to 0.50 percent, despite the 9 percent in­
crease in the provision; a 5.6 percent increase in
the District’s average assets in 1990 mitigated the
effect of the rise in the provision. U.S. banks of
comparable size, however, experienced almost as
large an increase in their loan loss provision ratio
(29.7 percent) as in their provision (31.9 percent),
as average assets increased just 2 percent in 1990.
The large rise in 1990 follows a 19 percent in­
crease in the ratio in 1989. Loan loss provision
ratios at District banks in every asset category re­
mained well below the ratios of their U.S. peers,
as troubled loans continue to make up smaller por­
tions of District asset portfolios than they do at
U.S. banks overall.
Despite the modest average increase in the
District, some asset categories of banks exper­
ienced large increases in their loan loss provision
ratios: banks with assets of $25 million to $50 mil­
lion averaged a 28.6 percent increase, while banks
with assets of $50 million to $100 million had a
10.3 percent increase. Only the very smallest and
very largest asset categories of District banks saw
declines in their loan loss provision ratios in 1990.
In contrast, the rise in the overall U.S. ratio was
due to substantial increases in asset categories of
more than $100 million. The three smaller asset
categories posted declines in the ratio, while the
three largest categories recorded increases ranging
from 8.3 percent to 41 percent.

Asset Quality
Asset quality problems continue to hamper
earnings performance at many banks throughout



the country. Though some areas, notably New
England, have suffered more than others, loan
quality problems were widespread in 1990. Shaky
real estate loans received a great deal of attention
from bank regulators, analysts and the media in
1990; yet, increases in problem loans occurred in
all parts of the loan portfolio. The economic down­
turn that began in the second half of 1990 made it
more difficult for businesses and consumers to
repay outstanding loans; a great part of the in­
crease in delinquent loans (as well as slow loan
growth), therefore, can be attributed to these
conditions.
Concern over asset quality figured largely in
decisions by regulators to adopt capital require­
ments for banks based on the riskiness of the asset
portfolio. These new risk-based capital require­
ments, which went into effect for U.S. banks and
many of their overseas counterparts at the end of
1990, are discussed in the next section. Regulatory
concern about real estate loan quality, in particu­
lar, also prompted changes to the quarterly reports
banks file with their chief regulators. Banks must
now report delinquent real estate loans by type,
rather than lumping all nonperforming real estate
loans together, so that delinquent commercial real
estate loans can be distinguished from delinquent
residential loans and construction loans. Beginning
with the March 1991 report, banks are also re­
quired to fill out a separate schedule on assets that
are related to highly leveraged transactions. Both of
these measures give regulators and bank analysts a
clearer picture of a bank’s loan problems.
Asset quality may be gauged by examining the
nonperforming loan ratio and the ratio of net loan
losses to total loans. The nonperforming loan ratio
indicates the current level of problem loans as well
as the potential for future loan losses. The ratio of
net loan losses to total loans specifies the percen-

15

Table 5
Nonperforming Loans as a Percent of Total Loans

Asset category
All banks1
Less than $25 million
$25 million-$50 million
$50 million-$100 million
$100 million-$300 million
$300 million-$1 billion
$1 billion-$10 billion

1987

1988

1989

1990
District

U.S.

District

U.S.

1.81%
1.57
1.61
1.56
1.82
1.60
2.11

2.81%
1.97
1.97
2.02
2.02
2.52
3.35

1.60%
1.62
1.67
1.50
1.64
1.45
1.65

2.28%
2.12
2.31
1.99
1.92
2.31
2.41

District
1.62%
1.71
1.68
1.67
1.70
1.28
1.65

U.S.

District

U.S.

2.13%
2.55
2.50
2.15
2.38
1.99
2.03

2.10%
2.14
2.02
2.03
1.96
1.52
2.44

2.42%
2.95
2.66
2.48
2.21
2.34
2.43

SOURCE: FFIEC Reports of Condition and Income for Commercial Banks, 1987-90.
’ Includes only those banks with average assets of less than $10 billion.

Table 6
Nonperforming Real Estate Loans as a Percent of Total Real Estate Loans

Asset category
All banks1
Less than $25 million
$25 million-$50 million
$50 million-$100 million
$100 million-$300 million
$300 million-$1 billion
$1 billion-$10 billion

1987

1988

1989

1990
District

U.S.

District

U.S.

District

U.S.

District

U.S.

1.99%
1.39
1.50
1.49
1.63
1.65
3.28

3.36%
1.91
1.83
1.77
1.83
2.87
4.76

1.71%
1.63
1.72
1.45
1.45
1.65
2.20

2.70%
2.03
2.27
1.79
1.71
2.65
3.39

1.58%
1.74
1.69
1.69
1.54
1.42
1.52

2.42%
2.52
2.53
2.01
2.22
2.38
2.59

1.82%
2.17
1.95
1.97
1.63
1.91
1.67

2.54%
2.72
2.47
2.29
2.07
2.84
2.70

SOURCE: FFIEC Reports of Condition and Income for Commercial Banks, 1987-90.
in clu d e s only those banks with average assets of less than $10 billion.

tage of loans actually written off the bank’s books
for a given period.

Nonperforming Loans and Leases
The average nonperforming loan ratio for Dis­
trict banks increased from 1.60 percent to 1.81
percent in 1990 (see table 5) as the level of non­
performing loans rose 18.7 percent while total
loans grew 4.6 percent. The nonperforming loan
ratio at U.S. peer banks increased substantially in
1990, rising from 2.28 percent to 2.81 percent.
The sharp increase in the U.S. nonperforming loan
ratio can be attributed to a significant increase in
the level of nonperforming loans (22.6 percent)
and a 0.5 percent decline in the level of U.S. bank
loans in 1990.4



Despite the large gaps between the District
and U.S. nonperforming loan ratios, the direction
of change by asset category was similar across both
groups of banks. The smallest categories of Dis­
trict and U.S. banks (those with assets of less than
$50 million) actually experienced declines in the
nonperforming ratio from 1989 to 1990. These de­
clines reflect the continued recovery from the agri­
cultural loan crisis of the mid-1980s. Large banks,
on the other hand, experienced increases in the
nonperforming loan ratio; District and U.S. banks
with assets of $1 billion to $10 billion, for exam­
ple, recorded increases of 27.9 percent and 39 per­
cent, respectively, in the nonperforming loan ratio
in 1990.
Problem real estate loans, especially those re­
lated to commercial projects, received the majority

16

Figure 2

Composition of Real Estate Loan Portfolio
Year-End 1990

District Banks

U.S. Banks
2 .2 %

6 .8%

15.9%
9.1%
52.0%

56.9%

29.9%

27.2%

|

| Residential

^

Commercial

[

l and^and*'0 "
Development

of attention in discussions concerning asset quality
in 1990, and with good reason. The proportion of
real estate loans in nonperforming status rose more
and remained at a higher level than the overall
nonperforming loan ratio at both District and U.S.
banks. The nonperforming real estate loan ratio
rose 16.4 percent to 1.99 percent at District banks,
and 24.4 percent to 3.36 percent at U.S. peer
banks (see table 6). As was the case with total
loans, the very smallest District and U.S. banks
actually experienced declines in the nonperforming
real estate loan ratio in 1990, while the larger
banks experienced increases.5 It is not surprising
that the pattern of change in nonperforming real
estate loans figures prominently in total nonperfor­
ming loan statistics, given that real estate loans
comprise 47 percent of District bank loans and 44
percent of U.S. peer bank loans. In addition,
nonperforming real estate loans make up 52 per­
cent of all nonperforming District and U.S. loans.
The large gap between the District and U.S.
nonperforming real estate loan ratio (137 basis
points) can be explained by examining the com­
position of their respective real estate loan port­
folios. As illustrated in figure 2, residential real
estate loans make up a larger proportion of the
portfolio at District banks (56.9 percent) than they
do at U.S. peer banks (52 percent). Residential
real estate loans traditionally have the lowest
default rates among real estate loans. U.S. peer
banks have higher concentrations of commercial
real estate (29.9 percent) and construction loans
(15.9 percent) than District banks—loans consider­
ably more risky than residential real estate loans.



| | |

Agricultural

Net Loan and Lease Losses
A more direct measure of loan problems than
the nonperforming loan ratio is the percentage of
loans and leases actually written off a bank’s books.
The ratio of net loan and lease losses to total loans
(also called the charge-off rate) is an indicator of
problem lending in the current year as well as
prior years, because of bank management’s partial
discretion in determining when a loan is deemed
uncollectible and is thus written off.6
As indicated in table 7, District banks wrote
off 71 cents for every $100 in loans on the books
in 1990, the same portion as in 1989. In contrast,
U.S. peer banks charged off an average of $1.11
for every $100 in loans on the books in 1990, a
22 percent increase from the 1989 ratio. Net loan
and lease losses totaled $543 million at District
banks in 1990, up 6.5 percent from 1989 chargeoffs of $510 million. Net loan losses at U.S. peer
banks rose more substantially to $13.61 billion, a
23.5 percent increase from 1989.
As in previous years, District charge-off rates
remained well below the rates of U.S. peer banks
across all asset categories. The very smallest and
the very largest asset categories of District banks
actually had declines in charge-off rates in 1990.
Charge-off rates peaked for these District banks in
the late 1980s when the bulk of bad agricultural
loans and loans to lesser-developed countries were
removed from their books. U.S. banks in asset
categories of less than $100 million experienced
declines in the charge-off rate ranging from 4.4
percent to 19.5 percent in 1990; the larger banks

17

Table 7
Net Loan and Lease Losses as a Percent of Total Loans

Asset category
All banks1
Less than $25 million
$25 million-$50 million
$50 million-$100 million
$100 million-$300 million
$300 million-$1 billion
$1 billion-$10 billion

District
0.71%
0.45
0.51
0.50
0.64
0.64
0.97

U.S.
1.11%
0.66
0.64
0.65
0.70
0.95
1.40

District
0.71%
0.48
0.47
0.45
0.57
0.55
1.08

1987

1988

1989

1990

U.S.
0.91 %
0.82
0.77
0.68
0.65
0.83
1.06

District
0.76%
0.60
0.54
0.48
0.55
0.45
1.21

U.S.
0.92%
1.08
0.89
0.78
0.70
0.77
1.04

District
0.74%
0.96
0.69
0.76
0.72
0.76
0.71

U.S.
0.95%
1.45
1.16
0.99
0.86
1.00
0.89

SOURCE: FFIEC Reports of Condition and Income for Commercial Banks, 1987-90.
in clu d e s only those banks with average assets of less than $10 billion.

had increases ranging from 7.7 to 32.1 percent
over the period.

Capital Adequacy
Banks maintain capital to absorb losses, pro­
vide for asset expansion, protect uninsured deposi­
tors and promote public confidence in the financial
soundness of the banking industry. Since 1985,
banks have been required by regulators to maintain
minimum capital standards.7 In concert with regu­
lators in 11 other industrial countries, U.S. bank
regulators in 1988 adopted new capital guidelines
that would not only standardize capital measures
across countries, but would also account for dif­
ferences in credit risk across banks. These new re­
quirements will be fully phased in by December 31,
1992; transitional requirements went into effect at
year-end 1990.
Banks are now required to meet a leverage
ratio (core or Tier 1 capital to average total con­
solidated assets) and two risk-based capital ratios
(Tier 1 capital to risk-adjusted assets and total
capital to risk-adjusted assets); the transitional
minimums for these ratios are 3 percent, 3.625
percent and 7.25 percent, respectively. U.S. bank
supervisors have made it clear that they expect
banks to exceed these minimums by a substantial
margin, with troubled banks maintaining higher
margins than well-performing banks.
Most U.S. banks recorded capital ratios well
above the new requirements in 1990 (see table 8).
A number of banks with high credit risk in their
asset portfolios found it difficult to raise capital
last year, however, and had to reduce their asset
portfolios to meet the ratios. Despite these efforts,
a larger proportion of U.S. and District banks



failed to meet regulatory capital requirements in
1990 than had failed to do so in previous years (see
table 9). Still, of 1,248 District banks at year-end
1990, just 20 failed to meet the total capital to
risk-adjusted assets ratio. Of 12,147 U.S. peer
banks, 428 were deficient in this ratio.

Conclusion
District banks, like their national counterparts,
experienced declines in measures of profitability
and asset quality in 1990. Yet, District banks once
again outperformed their U.S. peers in these areas
and experienced less trouble meeting new riskbased capital requirements.
Both ROA and ROE declined at District banks
in 1990, but proportionately less than they did at
the national level. The gaps in profitability
measures between District and U.S. banks actually
widened in 1990. While U.S. peer banks continue
to generate more revenue than District banks from
both interest-earning and non-interest-earning
assets, District banks record higher profitability
ratios than their U.S. peers because of consistently
lower interest expense, noninterest expense and
loan loss provision ratios.
Although the nonperforming loan ratio in­
creased in both the District and the nation in 1990,
troubled loans remain less of a problem in the
District than in the United States overall. Eco­
nomic conditions have not deteriorated as much in
the District as they have elsewhere, leading to
smaller increases in delinquent loans. In addition,
a slightly greater preference for securities over
loans and a preference for relatively low-risk resi­
dential real estate loans have protected District
banks from much of the real estate-induced losses

18

Table 8
Year-End 1990 Regulatory Capital Ratios1

Average Leverage Ratio

All banks2
Less than $25 million
$25 million-$50 million
$50 million-$100 million
$100 million-$300 million
$300 million-$1 billion
$1 billion-$10 billion

District

U.S.

District

Asset category

Average Risk-Based Capital Ratio

11.72%
19.51
9.16
8.82
8.07
7.26
6.52

9.32%
10.86
9.08
8.95
8.17
7.69
6.60

13.38%
16.20
12.90
12.67
11.30
10.27
10.61

U.S.
13.43%
16.52
12.96
12.46
11.24
10.45
10.76

1All banks were required to meet a 3 percent total capital to total assets ratio (leverage ratio) and a 7.25 percent total
capital to risk-adjusted assets ratio (risk-based capital ratio) by December 31, 1990.
in clu d e s only those banks with average assets of less than $10 billion.

Table 9
Proportion of Banks with Deficient Regulatory Capital Ratios*

1989

1990
Asset category
All banks1
Less than $25 million
$25 million-$50 million
$50 million-$100 million
$100 million-$300 million
$300 million-$1 billion
$1 billion-$10 billion

District
1.60%
0.60
3.17
0.31
2.62
2.63
0.00

U.S.
3.52%
3.37
3.18
2.94
3.73
6.48
6.89

District

U.S.

0.88%
1.17
1.46
0.30
0.00
0.00
7.69

1987

1988

2.87%
3.99
3.30
1.91
1.95
1.38
2.47

District
0.47%
1.05
0.27
0.00
0.58
0.00
0.00

U.S.
3.86%
4.89
3.84
2.86
3.29
3.78
3.16

District
1.14%
1.93
0.77
0.63
1.32
0.00
0.00

U.S.
3.61%
4.54
3.57
3.06
2.63
3.79
1.61

SOURCE: FFIEC Reports of Condition and Income for Commercial Banks, 1987-90.
’ For 1990, the binding regulatory capital ratio is total capital to risk-adjusted assets; for 1987, the primary capital ratio is
the binding capital constraint.
’ Includes only those banks with average assets of less than $10 billion.

ailing banks in other areas of the country. Stronger
economic conditions and less-troubled loan portfol­
ios allowed District banks to expand loan growth
in 1990. U.S. banks, on the other hand, actually
experienced a decline in total loans in 1990.
New capital requirements did not appear to be
a binding constraint for most District and U.S.
banks in 1990. Although some banks found it nec­
essary to shed assets to meet the new ratios, most
recorded ratios well above the required minimums.
Now that tougher capital requirements are in
place, preventive measures to mitigate future losses
to the FDIC insurance fund and proposals to ex­
pand bank powers top the agenda of pressing bank
issues.



The health of the banking industry in 1991
will be determined largely by the strength of the
U.S. economy’s recovery and the length of the
downturn in real estate markets. Declines in in­
terest rates have already boosted net interest mar­
gins at many institutions and a revival of consumer
spending and business investment will allow loan
portfolios to begin expanding. Banks that survive
this current round of loan trouble will have to ad­
just to slower economic growth than in the preced­
ing decade and increased competition from nonbank
financial institutions. In the meantime, decisions by
policymakers in Washington will undoubtedly af­
fect how long it takes banks’ injuries to heal.

19

Table 10
Earnings Analysis
United States and Eighth District States, 1987-90
United
States1

AR

IL

IN

KY

MS

MO

TN

Return on Assets
1990
1989
1988
1987

0.60%
0.76
0.74
0.55

1.06%
1.04
0.97
0.91

0.69%
0.89
1.01
-0 .2 3

0.81%
1.02
1.06
0.81

0.80%
1.04
1.01
0.98

0.76%
0.79
0.85
0.88

0.86%
0.93
0.91
0.65

0.42%
0.61
0.84
0.90

Return on Equity
1990
1989
1988
1987

8.14
10.53
10.46
7.72

12.22
12.10
11.47
11.13

10.70
13.94
16.64
-3.71

10.39
13.34
13.98
10.89

9.98
12.98
12.57
11.94

9.76
9.94
10.82
11.42

11.26
2.21
11.96
8.81

5.77
8.17
11.43
12.18

4.54
4.60
4.60
4.57

4.46
4.52
4.57
4.64

3.61
3.65
3.66
3.64

4.33
4.31
4.32
4.25

4.18
4.22
4.24
4.24

4.28
4.30
4.44
4.77

4.08
4.38
.30
4.23

4.51
4.43
4.67
4.69

2.15
2.16
2.25
2.29

2.14
2.20
2.24
2.15

1.60
1.51
1.57
1.71

1.95
1.99
2.00
2.09

1.89
1.82
1.92
1.97

2.16
2.19
2.23
2.32

1.87
1.95
2.02
2.01

2.13
2.16
2.17
2.15

0.96
0.74
0.62
0.82

0.28
0.35
0.41
0.66

0.43
0.36
0.27
1.48

0.63
0.38
0.36
0.57

0.71
0.48
0.45
0.53

0.54
0.46
0.41
0.55

0.49
0.55
0.49
0.77

1.16
0.85
0.66
0.57

Net Interest Margin
1990
1989
1988
1987
Net Noninterest
Margin
1990
1989
1988
1987
Loan Loss
Provision Ratio
1990
1989
1988
1987

1Because all banks in the Eighth District had average assets of less than $10 billion from 1987 to 1990, this category in­
cludes only those banks in the United States with assets of less than $10 billion to allow for a meaningful comparison.
NOTE: State data are for whole state, not just the portion located within the Eighth District.
SOURCE: FFIEC Reports of Condition and Income for Insured Commercial Banks, 1987-90.

FOOTNOTES
1Unless otherwise noted, performance ratios for all U.S.
banks exclude those banks with average annual assets
of more than $10 billion, as there were no District banks
of that size in 1990. The one District bank whose total
assets exceeded $10 billion at year-end 1990 had aver­
age assets of less than $10 billion for all of 1990, and is
therefore included with banks in the $1 billion to $10 bil­
lion asset category.
2Because of recent changes in the method of calculating
some financial ratios, data presented in this article are
not comparable to data presented in previous year-in­
review articles by this author and others.
3See Michelle A. Clark, “ Eighth District Banks in 1989:
In the Eye of a Storm?,” Federal Reserve Bank of
St. Louis Review, May/June 1990, pp. 7-8 for an
analysis of these differences.




4The decline in loans on the books of U.S. peer banks
reflects the decline in loan demand during economic
downturns as well as the desire of many large U.S.
banks to shrink to meet the new capital requirements.
5The declines at the smallest banks can be attributed to
the rebound in agricultural land prices and other loans
secured by farmland.
6Bank management will adjust the loan loss provision in
the current year to reflect nonperforming loans; those
loans may be carried on a bank’s books for years
before a decision is made to write them off. Net loan
and lease losses do not affect current earnings as does
the loan loss provision; rather, they just alter the
allowance for loan losses (or loan loss reserve), a contra
account on the asset side of a bank’s balance sheet.
7See Clark (1990), p. 15, for a description of the capital
requirements that were in effect from 1985 through
1990.

20

Table 11
Asset Quality Analysis
United States and Eighth District States, 1987-90
United
States1

AR

IL

IN

KY

MS

MO

TN

2.81%
2.28
2.13
2.42

1.81%
1.90
2.10
2.94

2.45%
2.17
2.40
2.63

1.81%
1.41
1.19
1.37

2.07%
1.72
1.53
1.68

1.72%
1.43
1.47
1.56

1.75%
1.57
1.67
2.30

2.30%
1.82
1.41
1.44

1.11
0.91
0.92
0.95

0.49
0.59
0.77
1.27

1.08
1.39
0.85
0.76

0.71
0.63
0.58
0.69

1.03
0.68
0.64
0.67

0.74
0.74
0.68
0.89

0.65
0.75
0.95
0.76

1.41
1.06
0.98
0.63

Nonperforming Loans2
1990
1989
1988
1987
Net Loan Losses2
1990
1989
1988
1987

in clu d e s only U.S. banks with average assets of less than $10 billion.
2As a percent of total loans.
NOTE: State data are for whole state, not just the portion located within the Eighth District.
SOURCE: FFIEC Reports of Condition and Income for Insured Commercial Banks, 1987-90.




21

U.S. and District
Agricultural
Economies:
The Expansion
Continues
by Jeffrey D. Karrenbrock
David H. Kelly provided research assistance.

T

he agricultural economy continued its ex­
pansion in 1990, with U.S. real net farm income
reaching a 15-year high. As the following review
of the agricultural economy in 1990 for the United
States and the Eighth Federal Reserve District in­
dicates, strength in the livestock sector led the ex­
pansion at the national level and probably boosted
District real net farm income. Prospects for 1991,
on the other hand, are not as rosy, as real net
farm income is expected to fall.
Despite declines in real farmland values over
the past decade, the agricultural sector’s balance
sheet continued to strengthen in 1990 as well. Key
financial ratios, both at the farm level and at U.S.
and District commercial agricultural banks, im­
proved over last year’s figures. In addition to ex­
amining these issues, this article will delineate
other important features of the 1990 agricultural
sector at the national and District levels.

U.S. Agricultural Economy
Farm Income
U.S. real net farm income, as shown for the
last decade in table 1, reached $37 billion in 1990.
This is the highest level recorded since $43.1 bil­
lion in 1975. Significant growth in livestock re­
ceipts increased farm inventories and lower ex­
penses offset lower crop receipts and government
payments to nudge 1990 real net farm income
above last year’s level.1 The 0.3 percent growth in
real net farm income from a year ago, however,
was down sharply from the 7.3 percent growth in
1989.
The increase in 1990 was the seventh year of
a general upward trend in farm income from its
most recent trough in 1983. Although farmers have
enjoyed this period of recent income growth, the
United States Department of Agriculture (USDA)



expects real net farm income to fall 8 percent to
16 percent in 1991. The drop in income will be
dominated by large supplies and weak demand in
the wheat and milk markets.2
Highly variable factors, such as weather, world
production of crops and livestock and changing
farm programs make farm income fluctuate signifi­
cantly from year to year. To provide a clearer pic­
ture of the direction of the farm economy, fiveyear moving averages of U.S. real net farm in­
come and real net farm income per farm are
shown in figure l .3 The U.S. farm economy has
enjoyed a relatively long period of real economic
growth since 1984. Despite this recent growth, the
long-term trend does not appear to be upward.
Depending on the years included, the long-term
trend is downward or flat. On the other hand, the
trend for real net farm income per farm, which
rose sharply in the early 1970s and fell even more
sharply in the late 1970s and early 1980s, is up­
ward. These figures indicate that the number of
U.S. farms has been shrinking faster than has real
net farm income.
In recent years, the livestock sector has fueled
expansion of the farm economy. A brief look at
livestock and crop receipts for the 1990s provides
information as to whether the different sectors
were adding strength or putting downward pressure
on the most recent five-year moving average. Live­
stock receipts during 1990 were almost 20 percent
above the 1985 to 1989 average. Livestock receipts
were high because of record beef and pork prices,
continued gains in broiler production and increased
milk output and prices. Beef cattle prices for 1990
were 22 percent above average, which allowed beef
receipts to rise even though beef production was
12.1 percent below average. Pork prices showed
similar strength, rising to 16 percent above aver­
age. Pork production was also above average by
2.7 percent in 1990. With milk prices 7.5 percent
above average and milk production 3.4 percent
above average, dairy farmers also realized ex­
panded cash receipts. Broiler prices were even
with the five-year average, but broiler production
was up 20.6 percent. For 1991, livestock receipts
are expected to be about even with a year ago.
Cattle and broiler receipts will likely increase,
while hog and milk receipts may fall.
U.S. crop receipts in 1990 also showed rela­
tive strength, as they were nearly 10 percent above
their five-year moving average. Production of
corn, cotton, rice, soybeans, tobacco and wheat in
1990 was above the five-year average for all com­
modities. This was due to both higher than average
harvested acreage and yields. Only soybean acre­
age and rice yields were below the five-year
average for the United States. Crop prices also
showed general strength; only soybeans and wheat
fell below average in 1990. Corn, cotton and to­
bacco prices were over 10 percent above average

22

Table 1
U.S. Farm Sector Income Statement (billions of 1982 dollars)

Farm receipts
Government
payments
Gross farm
income
Total expenses
Net farm
income*2*

1981

1982

1983

1984

1985

1986

1987

1988

1989

19901

$153.2

$147.2

$135.8

$137.0

$134.5

$123.5

$125.7

$128.3

$131.6

$131.4

2.0

3.5

8.9

7.8

6.9

10.4

14.2

11.9

8.6

6.8

176.8
148.2

163.5
140.0

147.2
132.5

158.6
134.0

146.6
118.7

137.8
110.5

144.0
108.8

143.0
108.7

149.5
112.7

146.5
109.5

28.6

23.5

14.7

24.5

27.9

27.3

35.2

34.4

36.9

37.0

’ Values for 1990 are forecasts.
2Net farm income includes the value of inventory changes. Data are rounded.
SOURCE: Derived from data provided in USDA’s Agricultural Outlook, March 1991, table 32.

in 1990. Soybean prices were slightly below aver­
age and wheat prices were nearly 4 percent below
average. For 1991, crop receipts are expected to
be near 1990 levels. Feed grain receipts will likely
expand, soybean receipts will remain flat, and
wheat receipts will drop nearly 20 percent.
Government Support
Direct government payments to farmers fell 17
percent in 1990 to about $9 billion, compared with
a year ago. This marked the third straight year of
decline in government payments to farmers. Lower
disaster payments (payments accrued from the
1988 drought were still being made in 1989) and
lower overall deficiency payments account for
much of the decline in government support be­
tween 1989 and 1990. Even though the level of
government support has declined, direct govern­
ment payments as a percent of net farm income
were still 18.4 percent in 1990. During the 1970s,
this figure averaged 11 percent, while during the
1980s this figure jumped to 28.4 percent.4 Govern­
ment payments to farmers will probably fall during
the first half of the 1990s if the Food, Agriculture,
Conservation and Trade Act of 1990 (the Farm
Bill) works as planned. Through a variety of
means, the Farm Bill lowers deficiency payments
to farmers, but increases the flexibility farmers
have in making planting decisions.5
Farm Balance Sheet
Although income indicators for 1990 were
generally positive, the economic indicators from
the agricultural sector’s balance sheet were more
mixed. On the positive side, the sector’s debt-toasset and debt-to-equity ratios declined in 1990,
marking the fifth consecutive year of decline. Both
real estate debt and total debt declined in 1990,
with real estate debt declining $1.8 billion in 1990.



Since their peak in 1983, total farm debt and farm
real estate debt have shrunk about 30 percent. This
lower debt position decreases farmers’ fixed debtservice payments and mitigates their risk of finan­
cial difficulties should their cash flows diminish.
The asset side of the balance sheet raises a
point of concern. Between 1980 and 1986, farm
real estate values, adjusted for inflation, plunged
51 percent. After two years of slow real growth,
farm real estate values have again declined for the
last two years, falling almost 2 percent in 1990.
Real total farm assets have also fallen during the
last two years (real estate accounts for about 73
percent of the total asset value). This raises con­
cerns because the value of an acre of land is deter­
mined by the discounted real net income it can gen­
erate. To the extent that current real estate values
reflect expectations about future farm income,
these declining real estate prices, in a period of
real income growth, may suggest that the market
anticipates a decrease in real farm income. Real
farm real estate values are expected to slip again
in 1991.
Agricultural Lenders
U.S. commercial agricultural banks improved
their performance during 1990 due, in part, to the
improved performance of the agricultural econ­
omy.6 Selected financial indicators for agricultural
banks are shown in table 2. These banks, on aver­
age, slightly increased their return on assets and
return on equity. Agricultural loan losses (as a per­
cent of total agricultural loans) declined, as did the
percent of agricultural nonperforming loans (as a
percent of total agricultural loans). Earnings at
these agricultural banks were up 5.1 percent from
1989, although the growth was much smaller than
the 13.8 percent observed in 1989. Loan growth
was above the 1989 rate for both agricultural pro-

23

Figure 1

U.S. Real Net Farm Income Indexes

SO U R C ES: USDA, E con om ic Ind icators o f the Farm Sector, N a tion al Financial S um m ary, 1989, an d
A g ricu ltu ra l Outlook.

Table 2
U.S. and District Agricultural Banking Data
United States

Return on assets
Return on equity
Agricultural loan losses*2
Agricultural nonperforming
loans2-3
Percent change in total earnings
Loan growth rates:
Agricultural
Secured by real estate

Eighth District1

1990

1989

1990

1989

1.02
11.00
.23

1.01
10.91
.37

1.10
11.73
.23

1.08
11.44
.37

1.74
5.1

2.15
13.8

2.01
8.3

2.63
6.9

6.6
7.4

4.3
3.6

8.7
7.7

8.1
2.2

’ Includes only the banks located within the boundaries of the Eighth District.
2Given as a percentage of total agricultural loans.
3Nonperforming loans that are 90 days or more delinquent.
SOURCE: Derived from data in the fourth-quarter FDIC Reports of Condition and Income for Insured
Commercial Banks.




24

Table 3
Percentage of Farm Cash Receipts From Commodity Sales
United
States

Eighth
District

Arkansas

Kentucky

Missouri

Mississippi

Tennessee

LIVESTOCK PRODUCTS
Cattle & Calves
Hogs
Dairy Products
Broilers
Other

52.9
23.1
6.6
12.4
5.0
5.9

57.7
17.6
7.0
8.2
12.6
12.4

62.4
10.4
2.7
2.9
34.4
12.0

58.8
19.6
6.5
11.1
0.0
21.5

55.3
23.0
14.2
9.8
0.0
8.3

54.2
10.5
1.7
5.2
23.8
12.9

55.8
25.3
7.8
14.4
0.0
8.3

CROPS
Rice
Wheat
Corn
Cotton
Tobacco
Soybeans
Vegetables
Fruits
Other

47.1
0.6
4.0
7.2
2.7
1.4
7.2
6.8
5.7
11.5

42.0
3.1
3.1
4.1
6.9
4.8
13.9
0.9
0.4
4.8

36.3
9.3
3.7
0.3
6.8
0.0
12.5
0.6
0.2
2.9

41.3
0.0
1.9
6.3
0.0
20.4
7.1
0.9
0.4
4.3

44.7
0.6
4.2
8.4
2.3
0.2
22.4
0.3
0.4
6.0

45.8
3.6
20
0.6
22.5
0.0
13.1
1.2
0.5
2.2

44.2
0.0
2.3
3.5
8.1
7.4
10.1
2.3
0.5
10.0

NOTE: Figures may not add due to rounding error.
SOURCE: Derived from data obtained from the Economic Indicators of the Farm Sector: State
Financial Summary, 1989. USDA, Economic Research Service.

duction loans and loans secured by real estate.7
Financial indicators of the Farm Credit Sys­
tem, a nationwide system of federally chartered
agricultural lending institutions cooperatively own­
ed by their borrowers, were mixed in 1990.8 Net
interest income was up nearly 23 percent from
1989, largely as a result of interest expense falling
more than interest income. Overall net income for
the system was down 13 percent from a year ago.
Nonaccrual loans increased 3 percent primarily due
to the adoption by some banks of a more conserva­
tive approach to the classification of high-risk as­
sets. Negative loan loss provisions played a smaller
role in determining the system’s net income. Also
a plus for the system was the fact that gross loans
at year-end 1990 were higher than the 1989 level,
the first increase in year-end gross loan volume in
the past several years.

Eighth District
Agricultural Economy
Reflecting the wide geographic diversity of the
Eighth District, the relative importance of different
agricultural activities varies throughout the District
(see table 3). Overall, livestock and livestock pro­
ducts account for about 58 percent of District farm­
ers' cash receipts from commodity sales with crops
accounting for the remaining 42 percent. Livestock
receipts are larger than crop receipts in all Eighth



District states. Cattle and calves are the most im­
portant livestock enterprise in Kentucky, Missouri
and Tennessee, while broilers take the lead in
Arkansas and Mississippi. In terms of crops, soy­
beans account for the largest share of cash receipts
in Arkansas, Missouri and Tennessee. Tobacco
dominates in Kentucky, while cotton is king in
Mississippi.
District Weather
Similar to last year, Eighth District farmers
encountered various adverse weather conditions in
1990. A freeze in March damaged the fruit crop
in the District’s southern states. Rains in May
caused flooding in Arkansas and Missouri and dam­
aged the nearly mature winter wheat crop. The
excessively moist spring delayed most row-crop
plantings well beyond their normal seeding dates
throughout the District. The surplus ground mois­
ture, in conjunction with cool temperatures, en­
couraged fungus growth in the wheat crop and
forced some farmers to replant other crops.
Delayed plantings pushed the peak crop­
growing period into the summer, which turned
out to be unusually dry over parts of the District.
Nearly 100-degree temperatures for over two weeks
also stressed growing crops at a crucial time of
development. The lack of mid-summer moisture
and extreme heat lowered potential crop yields.
Warm temperatures late into the fall, however,
enabled late-planted crops to make up for some
lost growing time and helped crops mature prior

25

to severe freezes. Wet weather returned in late
October and November to slow the harvest of
some crops. The late fall rains and warm weather
kept pastures growing well into the fall, helping
livestock farmers take their cattle into the winter
in good condition.

age, hog prices in District states ranged from 8
percent to 16 percent above average. Milk prices
were also above average, but not to the same ex­
tent as hog prices. Cattle prices were above aver­
age in all District states except Missouri, while
broiler prices were decidedly mixed.

District Crop Indicators

District Farm Income

Crop yields, production and prices for the
District states are shown in figure 2 as a percent
of their averages during the 1985-89 period. Corn
production in 1990 was generally flat to down,
compared with the five-year average. Cotton pro­
duction, however, was up in all producing states
except Tennessee. This increased production was
due to higher-than-normal planted acreage which
offset below-normal yields. Similarly, rice produc­
tion was also above-normal due largely to increas­
ed harvested acreage. Production of soybeans, the
District’s most important cash crop, was above
normal in Arkansas and Kentucky, but below nor­
mal in other District states. Because of increased
yields, tobacco production was above normal in
Kentucky and Tennessee. Wheat was the only Dist­
rict crop that had unanimous movement, across
states, in the crop production indicators. Signifi­
cant increases in harvested acreage offset sharp
drops in yields to boost wheat production in all
District states.
Corn prices were generally above the five-year
average in 1990. Cotton, rice and tobacco prices
were also up from previous years. Although these
commodities prices showed increases from prior
years, the amount of the increase was not enough
in some cases to offset the impact of inflation. That
is, real 1990 prices for some of the commodities
were down from the last half of the 1980s. Soy­
bean and wheat prices were mixed across District
states when compared with the previous five-yearperiod average price.

Net farm income figures for District states
are available with a one-year lag; therefore, 1990
figures are not yet available. Changes in District
net farm income have generally paralleled move­
ments in U.S. net farm income, as shown in figure
3. Most notable from the figure is the increased
volatility of both U.S. and District farm income
since the early 1970s. Prior to 1970, net farm in­
come did not change more than 30 percent yearly.
Since 1970, however, yearly farm income changes
of 50 percent to 80 percent have been common.
Increased international competition, more marketoriented U.S. farm programs and special farm pro­
grams (such as the Payment-in-Kind program) have
contributed to this fluctuation.
The latest net farm income data available in­
dicate that District real net farm income in 1989
was flat when compared to 1988, but 27 percent
above the five-year average ending in 1988. The
five-year moving average of District real net farm
income rose for the third consecutive year in 1989.
Only once since 1954 has this figure increased for
three consecutive years; it has never increased for
more than three consecutive years. The five-year
average that includes 1990 District farm income
may break this record. Even if District real net
farm income is flat, compared with 1989, then the
new five-year moving average that ends in 1990
will be above the 1989 five-year average.
Several factors point to the conclusion that
District real net farm income was probably flat or
perhaps up slightly in 1990, when compared with
1989. Although nominal cash crop receipts for the
first 11 months of the year were 3 percent below
previous year levels, livestock receipts were 12 per­
cent above year-ago levels. Total District cash re­
ceipts were up 5.3 percent in nominal terms, indi­
cating no growth in real terms. All District states
saw increased livestock receipts, while crop re­
ceipts were generally flat to lower, except in Ken­
tucky, where an excellent tobacco crop helped push
crop receipts 5 percent above year-ago levels. High
receipts in the livestock sector, combined with
relatively low grain prices, should have boosted
the real income of livestock farmers. Grain farm­
ers saw lower real farm income, as receipts and
government payments fell and input costs rose.

District Livestock Indicators
Livestock production and prices for District
states are shown in figure 2 as a percent of their
averages during the 1985-89 period. Cattle produc­
tion demonstrated only slow growth in Kentucky
and Mississippi and declined in all other District
states. Hog production was down substantially in
most District states, but Arkansas experienced a 39
percent increase in hog production when compared
with its 1985-89 average. Broiler production was
more than 10 percent above average in all states,
reflecting the national average. Milk production
was mixed across District states. Specifically,
Arkansas, Missouri and Tennessee experienced
moderate growth, but Kentucky and Mississippi
posted moderate declines.
Hog prices exhibited substantial increases in
1990. Compared with the previous five-year aver­



District Agricultural Lenders
Agricultural banks in the Eighth District
showed continued strength in 1990. As displayed

26

Figure 2

State A g ricu ltu ra l Indicators

Arkansas
Crop Indicators

Arkansas
Livestock Indicators

1990 as a percent of 1985-89 average

1990 as a percent of 1985-89 average

Percent
180

Percent

160
140

120
100
80
60
40

20

0

Corn

Cotton

Rice

Soybeans

Tobacco

Wheat

Kentucky
Crop Indicators

Kentucky
Livestock Indicators

1990 as a percent of 1985-89 average

1990 as a percent of 1985-89 average
Percent

Corn

Cotton

Rice

Soybeans

Tobacco

Wheat

SOURCE: Derived from data provided by the Agricultural Statistical Service of the four states and USDA, Agricultural Prices.




27

Missouri
Crop Indicators

Missouri
Livestock Indicators

1990 as a percent of 1985-89 average

1990 as a percent of 1985-89 average

Percent

Percent

Tennessee
Crop Indicators

Tennessee
Livestock Indicators

1990 as a percent of 1985-89 average

1990 as a percent of 1985-89 average

Percent
180 -----

Percent

Corn




Cotton

Rice

Soybeans

Tobacco

Wheat

28

Mississippi
Crop Indicators

Mississippi
Livestock Indicators

1990 as a percent of 1985-89 average

1990 as a percent of 1985-89 average

Percent
180

Percent
180

160

_ E3

P^ce

160

j|j Production
140

~£

140

Yield

120

120

100

100

80

80

60

60

40

40

20

20

0
Corn

Cotton

Rice

Soybeans

Tobacco

Wheat

0

Broilers

Cattle

Hogs

Milk

United States
Crop Indicators

United States
Livestock Indicators

1990 as a percent of 1985-89 average

1990 as a percent of 1985-89 average

Percent
180

Percent
180

160

160

140

140

120

120

100

100

80

80

60

60

40

40

20

20

0

Corn




Cotton

Rice

Soybeans

Tobacco

Wheat

0

Broilers Cattle

Hogs

Milk

29

Figure 3

U.S. and District Real Net Farm Income
Percent Change

-60
1950

1955

1960

1965

1970

1975

1980

1985

1990

SOURCES: USDA, Economic Indicators of the Farm Sector, National Financial Summary and State
Financial Summary.

in table 2, returns on assets and equity rose above
1989 levels as well as the levels achieved by all
U.S. agricultural banks, on average. Agricultural
loan losses and agricultural nonperforming loans,
both as a percent of total agricultural loans, also
declined. Total earnings rose 8.3 percent, compared
with only 5.1 percent for all agricultural banks na­
tionwide. Compared with 1989 levels, agricultural
production loans grew by 8.7 percent; loans se­
cured by real estate increased by 7.7 percent.
These growth rates were higher than those experi­
enced by the average of all U.S. agricultural
banks.
The two Farm Credit Banks located in the
Eighth District also benefited from the continued
expansion of the agricultural economy. The Farm
Credit Bank of Louisville reported an increase in
net income of 13.1 percent. Net interest income
was up sharply in response to a decline in interest
expense. Reversals of the provision for loan losses
was down from 1989, indicating that more income
was earned from normal lending operations and
less from reversals of loan loss provisions. Non­
accrual loans also continued to decline.9
The Farm Credit Bank of St. Louis saw its
profits drop 47 percent last year. While the drop
was significant, the quality of earnings increased.



Similar to the Louisville Farm Credit Bank, loan
loss reversals contributed to a much smaller por­
tion of St. Louis’ income this year. In addition,
interest income grew 22 percent from last year.
Non-accrual loans declined and 1990 was the first
year since 1981 that new real estate loans exceed­
ed repayments.10

Summary
The trend for net farm income continued up­
ward in 1990, largely because of continued strong
livestock returns. The agricultural sector’s balance
sheet improved, in general, although asset values
fell in real terms. In conjunction with the im­
proved income of the sector, agricultural lenders
also experienced higher profitability. District live­
stock producers experienced real returns that were
above average in 1990, while crop producers’ real
returns were probably flat. The outlook for 1991 is
for real U.S. net farm income to decline slightly.
To the extent that the District’s agricultural econ­
omy continues to track the nation’s, District farm­
ers can also expect to receive lower returns in
1991.

30

References
Drabenstott, Mark, and Alan D. Barkema. “ A
Turning Point in the Farm Recovery?” Federal
Reserve Bank of Kansas City Economic Review
(January/February 1991), pp. 17-32.
“ Farm Credit Bank’s Profit Falls,” St. Louis Post
Dispatch, March 2, 1991.
United States Department of Agriculture, Economic

FOOTNOTES
1Net farm income approximates the net value of
agricultural production in a calendar year plus govern­
ment payments, less total expenses. Net farm income
is equal to gross farm income after payment of total ex­
penses. Gross farm income includes farm receipts from
commodity sales, government payments and the value
of inventory changes. Farm receipts represent the value
of commodities that are produced and sold, while
changes in the value of inventories captures the value
of commodities that are produced, but not sold. There­
fore, a build-up in inventories leads to higher net farm
income.
2USDA Agricultural Outlook, April 1991, p. 1.
3The five-year moving average of U.S. real net farm in­
come in 1990, for example, is defined as the simple
average of this figure for 1986, 1987, 1988, 1989 and
1990.
4Part of the reason the figure for the 1980s is so high is
because the Payment-In-Kind (PIK) program in 1983




Research Service. Economic Indicators of the
Farm Sector: National Financial Summary', 1989
(January 1991).
______ Economic Indicators of the Farm Sector:
State Financial Summary, 1989 (February
1991).
University of Wisconsin. “ Policy for the 1990s:
The Food, Agriculture, Conservation and Trade
Act of 1990,” in Status of Wisconsin Farming,
1991, Madison, Wisconsin, January 1991.

boosted this figure to 60.8 percent. Excluding 1983, the
number stands at 24.8 percent for the 1980s.
5See Drabenstott and Barkema (1991) and the University
of Wisconsin (1991) for a more detailed discussion of
the new Farm Bill.
6A bank is defined as an agricultural bank if the ratio of
its agricultural loans to total loans exceeds the average
of such ratios at all U.S. banks at year-end.
7Note that loans secured by real estate need not be for
agricultural land.
inform ation in this section was excerpted from the
Federal Farm Credit Banks Funding Corporation’s
February 27, 1991 News Release.
in fo rm atio n in this paragraph was excerpted from the
Farm Credit Bank of Louisville’s February 27, 1991
News Release.
10lnformation in this section was excerpted from the
St. Louis Post Dispatch (March 2, 1991).

31

Eighth D istrict Business
Level

1/19891/1990

1990’

1989’

109,542.0
6,973.0
944.4
257.4
1,495.3
491.6
2,337.9
1,181.5
2,195.3
482.1

-2 .4 %
1.3
4.6
4.5
3.3
4.6
-0 .4
-1 .1
0.3
2.5

- 0 .3 %
0.8
3.0
2.3
2.1
3.5
-0 .4
-0 .3
0.1
1.3

1.8%
1.9
3.6
3.2
2.9
2.7
1.1
0.9
1.3
1.0

2.7%
3.2
3.3
3.2
3.7
3.7
2.5
2.3
3.6
4.2

18,482.0
1,452.3
234.2
282.0
420.9
515.1

- 6.5%
-4 .3
3.0
-5 .3
-8 .6
-3 .4

- 3 .8 %
-2 .2
0.8
-1 .4
-4 .5
-2 .1

- 1.9%
-0 .1
0.7
0.9
-0 .8
-0 .3

0.4%
2.2
2.1
3.7
1.6
2.1

50.6
299.0
342.4
411.1
1,622.6
1,647.0
1,149.0

-1 .6 %
5.2
1.8
2.3
4.4
2.2
1.3

- 1 .4 %
-2 .5
0.4
1.7
3.6
0.7
1.4

2.0%
1.6
0.6
1.8
4.5
1.0
2.6

-3 .8 %
1.1
0.7
4.2
5.8
2.5
3.3

IV/1990

111/1990IV/1990

IV/1989IV/1990

1990

1989

$3,528.7
193.2
25.2
41.7
68.0
58.3

- 3 .3 %
-3 .4
-4 .6
-3 .7
-1 .7
-4 .7

- 0.3%
-0 .6
0.4
0.2
-1 .2
-0 .9

1.0%
0.7
1.6
1.4
0.1
0.5

2.7%
1.9
2.0
2.5
1.8
1.7

1990

1989

1988

5.5%
5.8
6.9
5.9
5.8
5.1
5.7
5.9
5.2
4.5

5.3%
5.8
7.2
6.3
6.2
5.6
5.5
5.5
5.1
4.7

5.5%
6.5
7.7
6.4
7.9
6.3
5.7
5.9
5.8
5.1

1/1991

Payroll Employment

(th o u sa n d s)

United States
District
Arkansas
Little Rock
Kentucky
Louisville
Missouri
St. Louis
Tennessee
Memphis
Manufacturing
Employment

C o m p o u n d e d A n n u a l R a te s o f C h a n g e

IV/19901/1991

(th o u sa n d s)

United States
District
Arkansas
Kentucky
Missouri
Tennessee
District Nonmanufacturing
Employment ( t h o u s a n d s )

Mining
Construction
FIRE2
Transportation3
Services
Trades
Government
Real Personal Income4 ( b i l l i o n s )

United States
District
Arkansas
Kentucky
Missouri
Tennessee

L e v e ls

1/1991

Unemployment Rate

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

6.5%
6.5
7.1
5.9
6.5
5.4
6.3
6.5
6.6
5.2

IV/1990

5.9%
6.2
7.2
6.0
6.1
5.0
6.1
6.2
5.9
5.0

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.
’ Figures are simple rates of change comparing year-to-year data.
2Finance, Insurance and Real Estate
tra n sp o rta tio n , Communications and Public Utilities
4Annual rate. Data deflated by CPI-U, 1982-84 = 100.




32

U. S. Prices
L ev el
1/1991

C o m p o u n d e d A n n u a l R a te s o f C h a n g e
IV/19901/1991

1/19901/1991

19901

19891

Consumer Price Index
(1982-84 = 1 0 0 )

Nonfood
Food

134.7
135.6

3.6%
3.0

5.6%
3.6

5.3%
5.7

4.70/o
5.9

146.3
167.0
124.3

4.5%
0.0
8.8

- 3 .6 %
-2 .2
-6 .0

1.6%
6.8
-4 .8

6.6%
6.8
6.6

173.0
188.0

- 2 .3 0 /0

1.8%
3.9

2 .40/0
3.4

6 .40/0

Prices Received by Farmers
(1 9 7 7 = 100 )

All Products
Livestock
Crops
Prices Paid by Farmers
(1 9 7 7 = 1 0 0 )

Production items
Other items2

2.2

4.9

Note: Data not seasonally adjusted except for Consumer Price Index.
1Figures are simple rates of change comparing year-to-year data.
2Other items include farmers’ costs for commodities, services, interest, wages and taxes.

Eighth D istrict Banking
Changes in Financial P osition fo r the y e a r ending
M a rch 31, 1991 (by Asset Size)
Less than
$100 million

SELECTED ASSETS
Securities

U.S. Treasury &
agency securities
Other securities'

Loans & Leases

Real estate
Commercial
Consumer
Agriculture
Loan loss reserve
Total Assets
SELECTED LIABILITIES
Deposits

Nontransaction accounts
MMDAs
Large time deposits
Demand deposits
Other transaction accounts2
Total Liabilities
Total Equity Capital

2.6%

$100 million $300 million

9.00/o

$300 million $1 billion

More than
$1 billion

27.3o/o

3.9
-1 .6
4.4
7.0
1.4
-2 .7
7.5
7.0
3.0

10.7
4.2
4.0
9.0
-2 .9
-1 .6
3.5
5.7
5.3

33.9
9.8
14.0
18.2
6.9
10.8
21.9
22.0
15.7

3.0%
4.2
2.0
2.5
-4 .8
3.6
3.1
2.9

5.5%
6.7
3.2
-4 .3
-3 .4
7.0
5.2
6.9

16.9%
19.4
14.7
-1 .8
4.0
18.8
15.9
13.2

Note: All figures are simple rates of change comparing year-to-year data. Data are not seasonally adjusted.
in clu d e s state, foreign and other domestic, and equity securities,
in clu d e s NOW, ATS and telephone and preauthorized transfer accounts.




2.70/o
5.9
-6 .0
0.8
4.5
2.3
-0 .6
23.3
11.9
4.6
9.0%
11.7
13.6
-1 8 .2
-1 .2
12.0
4.6
5.5

33

P erform ance Ratios m Asset size)
United States

Eighth District
1/91

I/90

I/89

1/91

I/90

1/89

EARNINGS AND RETURNS
Annualized Return on Average
Assets

Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $5 billion
$5 billion - $15 billion
Agricultural banks

.95%
1.05
.98
.94
.77
1.13

1.08%
1.05
1.05
.89
.66
1.17

1.13%
1.08
1.13
.88
.96
1.21

.83%
.89
.83
.87
.46
1.07

.82%
.94
.84
.71
.69
1.05

.92%
1.04
.90
.91
1.03
1.13

10.50%
12.92
12.77
14.19
12.60
12.05

11.81%
12.97
13.33
13.69
10.13
12.51

12.55%
13.37
14.77
13.07
15.15
13.02

9.11%
11.11
10.98
13.06
7.73
11.59

9.08%
11.87
11.57
10.59
11.84
11.31

10.43%
13.19
12.75
13.76
17.36
12.26

4.23%
4.20
4.36
4.29
3.67
4.17

4.28%
4.26
4.49
4.09
3.67
4.19

4.32%
4.38
4.56
4.14
4.00
4.23

4.49%
4.56
4.60
4.48
4.31
4.27

4.57%
4.62
4.61
4.40
4.22
4.29

4.77%
4.88
4.79
4.51
4.49
4.42

1.71%
1.84
1.59
1.72
2.70
1.77

1.70%
1.68
1.45
1.82
1.95
1.83

1.72%
1.76
1.55
1.83
2.05
2.03

2.20%
2.19
2.62
3.38
4.66
1.93

2.16%
2.04
2.45
2.31
2.66
2.20

2.32%
1.90
2.60
1.82
2.21
2.36

1.52%
1.56
1.50
1.81
1.91
1.63

1.48%
1.53
1.40
1.76
1.56
1.65

1.49%
1.46
1.41
1.75
1.31
1.76

1.73%
1.60
1.87
2.34
2.74
1.85

1.68%
1.50
1.72
1.75
2.21
1.96

1.68%
1.48
1.65
1.57
1.91
1.99

.10%
.11
.17
.18
.25
.06

.07%
.08
.10
.24
.17
.06

.07%
.10
.08
.08
.16
.08

.12%
.14
.21
.34
.40
.07

.11%
.11
.16
.25
.46
.08

.13%
.12
.16
.18
.22
.09

Annualized Return on Average
Equity

Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $5 billion
$5 billion - $15 billion
Agricultural banks
Net Interest Margin1

Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $5 billion
$5 billion - $15 billion
Agricultural banks
ASSET QUALITY2
Nonperforming Loans3

Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $5 billion
$5 billion - $15 billion
Agricultural banks
Loan Loss Reserves

Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $5 billion
$5 billion - $15 billion
Agricultural banks
Net Loan Losses4

Less than $100 million
$100 million - $300 million
$300 million - $1 billion
$1 billion - $5 billion
$5 billion - $15 billion
Agricultural banks

Note: Agricultural banks are defined as those banks with a greater than average share of agriculture loans to total loans.
in te re st 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 and nonaccrual loans.
4Loan losses are adjusted for recoveries.




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