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D e ce m b e r 1991

Catfish Are Jumpin,
Why Are There Foreign-Owned Firms in the Eighth District?
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District Bankers Sustain Profitable Course




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THE EIGHTH FEDERAL RESERVE DISTRICT

ILLINOIS

INDIANA

ARKANSAS

CONTENTS
Agriculture

The Emerging Importance of Aquaculture.......................................................................................................... 1
Business

How Foreign-Owned Firms Benefit The Eighth District............................................................................

.5

Banking and Finance

District Banks Navigate Recession’s Waters...............................................................................................

.9

Statistics ....................................................

14

P i e c e s o f E i g h t — A n E c o n o m i c P e r s p e c t i v e o n t h e 8 t h D is t r ic t 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 Emerging Impor­
tance of Aquaculture
by Kevin L. Kliesen
Kevin B. Howard provided research assistance.

w

Y
Y ^en Pe°ple consider the various en­
terprises associated with agriculture, aquaculture is
unlikely to spring to mind. Simply put, aquaculture
(or, as it is commonly called, “ fish farming” ) is
the growing and harvesting of fish—similar to any
other agricultural commodity—for human consump­
tion or other purposes. Since the 1960s, selected
states in the Eighth Federal Reserve District have
played a major role in the emergence of the largest
component of the domestic aquaculture industry—
the channel catfish. This article examines the
growth of the catfish industry in the Eighth Dis­
trict, looks at recent trends, and discusses future
challenges.1

Supply and Demand Trends

One key sector is the production of farm-raised
channel catfish. In 1990, catfish production was
the fourth most valuable fish crop in the United
States—just behind salmon, shrimp and crabs. To­
tal catfish sales reached a record $323.2 million in
1990, a 19.8 percent increase over 1989. In fact,
since 1981, catfish sales have grown at an average
annual rate of 18.2 percent. In comparison, the to­
tal value of U.S. commercial fish landings between
1981 and 1990 increased at an annual rate of 4.6
percent from $2.4 billion to $3.6 billion.2

The growth of the catfish industry since the
early 1970s has been rapid. As shown in figure 1,
catfish production in 1970 totaled about six million
pounds; production then grew rapidly, reaching
46.5 million pounds in 1980—an average annual
growth rate of 23.3 percent. Although the produc­
tion numbers posted in the 1980s dwarf those of
the 1970s, the average annual growth rate from
1980 to 1990 is still 22.7 percent. Growth,
however, has slowed in recent years. From 1987
to 1990, production has increased at an average
annual rate of 8.7 percent; year-to-date production
as of September 1991 is up 5.9 percent from one
year earlier.

One factor contributing to the slowdown in
production is the disincentive of lower prices. The
average price paid to producers in September 1991

U.S. aquaculture is a diverse industry—
producing everything from alligators to baitfish.
Figure 1

Total Catfish Production
Annual Data

Weight
(Millions of Pounds)

-3 5 0

Missouri, Arkansas
and Mississippi
produce 80 percent
of the nation's catfish.

1970

72

74

76

78

80

'Measured as total live weight of fish delivered for processing.




86

88

1990

2

(59 cents per pound) was roughly 21 percent less
than the previous year and was the lowest in more
than four years.3
Additional perspective on the growth of the
catfish industry can be gained by examining the
number of producers and the number of acres of
water surface area devoted to catfish production.
In 1982, there were 987 operations producing cat­
fish. Operations more than doubled to 1,987 in
1988. Since then, the number has increased
slightly—rising to 1,998 as of July 1, 1991.
The doubling of catfish operations has pro­
duced a commensurate increase in water surface
area. In 1982, 73,840 acres were used in catfish
production. By July 1991, this number had more
than doubled to 166,160. Furthermore, this acre­
age understates somewhat the actual production ca­
pacity of the industry, as an additional 13,000
acres are reported as either under construction, un­
der repair or withheld from production. The num­
ber of producers has declined for the past two
years, while water surface area has continued to
increase, which reflects a trend noticed in other
agricultural sectors, namely, a larger production
capacity per farmer.
The increased production of catfish —and larg­
er harvests of wild fish species—suggests that an
increase in demand for fish has occurred. Indeed,
per capita fish consumption has increased steadily
over the years. This trend has coincided with an
upward trend in poultry consumption and a down­
ward trend in beef and pork consumption. For ex­
ample, in 1980, per capita consumption of fish
measured 12.5 pounds, beef consumption measured
72.1 pounds and poultry consumption measured
42.6 pounds. Since 1980, per capita consumption
of fish has risen by an average annual rate of
2.2 percent to 15.5 pounds in 1990. During the
same period, per capita poultry consumption has
risen by nearly twice as much—4.1 percent per
year—while beef consumption has fallen by 1.2
percent per year.4
One well-publicized factor that partially ex­
plains the preceding trends is the change in con­
sumer preferences away from red meat toward fish
and poultry. While the dietary benefits of in­
creased fish and poultry consumption—at the ex­
pense of red meat consumption—are open to
debate, this shift in consumer preferences has cer­
tainly aided the catfish industry.
Changes in supply and demand for fish, poul­
try and beef affect not only the quantities consumed
and produced, but also their prices. Figure 2
shows catfish, beef and broiler prices from 1970 to
1990. In 1970, catfish prices averaged $2.15 per
pound, while beef prices averaged $1.98 per pound
and chicken prices averaged $0.68 per pound.
Although the inflation-adjusted price of all three
goods has decreased between 1970 and 1990, the
price of broilers has decreased much more than



beef or catfish. This may explain the higher growth
rates of per capita broiler consumption.

Production by States
Although catfish is grown commercially in
several states, a few states dominate the process.
Table 1 shows that the six largest producing states
account for roughly 94 percent of U.S. catfish
sales, 71 percent of all operations and 93 percent
of water surface area devoted to catfish produc­
tion. Moreover, approximately 80 percent of all
domestic catfish production occurs in the District
states of Arkansas, Mississippi and Missouri.
Mississippi is, by far, the largest catfishproducing state in the United States. As of July 1,
1991, Mississippi had a little more than one-half of
the U.S. water acreage devoted to catfish produc­
tion and slightly more than two-thirds of U.S. cat­
fish sales. Although catfish production in Missis­
sippi is fairly widespread, two counties in the Delta
region account for more than one-half of the water
surface acreage. In fact, Humphreys County—with
31,865 acres—and Sunflower County—with 24,420
acres—each have more acres of catfish production
than any other state.
As of 1990, catfish farming in Mississippi ac­
counted for approximately 17 percent of livestock
and products cash receipts and roughly 9 percent
of total cash receipts (excluding government pay­
ments). Furthermore, at $227 million, cash receipts
from catfish operations in 1990 exceeded the com­
bined cash receipts from corn, rice and wheat by
nearly $65 million.
The dominance of Mississippi catfish farming
is reinforced by looking at Arkansas—the nation’s
second-largest catfish-producing state. In 1990, Ar­
kansas had total sales of just under $30 million.
Although significant, this was still just over $1 for
every $8 sold by Mississippi growers. Similarly,
production acreage in Arkansas, at about 21,000
acres, is less than one-quarter of that in Mississip­
pi. Moreover, the average size per operation is ex­
actly one-third as large as it is in Mississippi.
Catfish production in Arkansas occurs in
several counties, but the greatest concentration is
located in the extreme southeastern counties of
Chicot and Ashley. Because of Arkansas’ diversi­
fied agricultural sector, the catfish industry does
not generate as large a share of agricultural output
as it does in Mississippi. In fact, in 1990, catfish
sales in Arkansas were 1.1 percent of livestock
cash receipts and an even smaller 0.7 percent of
total cash receipts.
Missouri is the only other District state to
have significant commercial catfish production. As
of July 1991, Missouri had 2,800 water surface

3

Figure 2

Prices of Wholesale Catfish, Beef and Broilers

1970

72

74

76

78

acres engaged in production. This was same as last
year and an increase of 200 acres from two years
ago. Total sales, however, increased from $2 mil­
lion in 1989 to $2.6 million in 1990. Other Dis­
trict states that have catfish production include
Illinois, Kentucky and Tennessee. These states
have relatively small operations, though, with each
under 500 total acres.

Challenges Faced by the Catfish
Industry
According to analysts, the largest obstacle fac­
ing the catfish industry today is over-capacity in
the processing sector. Although it is estimated to
be at least 50 percent—and possibly as much as
100 percent or more—processing capacity con­
tinues to increase.
This expansion has tended to increase the sup­
ply of catfish and reduce the real price of catfish
received by the processing firm. In 1989, total
processor sales of catfish (in pounds) increased
17.9 percent from the previous year; in 1990,
although fairly moderate, the increase was 3.9 per­
cent. Through September of this year, processor
sales are running 5.9 percent ahead of last year’s
total. During the same period, real prices received
by catfish processors have declined from an aver­
age of $1.87 per pound in 1988 to $1.71 per
pound for 1990 (see figure 2). Moreover, since
January 1991, real processor prices have fallen
from $1.61 per pound to $1.48 per pound; this is
nearly a 21 percent decline in real prices in a little



80

82

84

86

1988

more than two years, and the lowest price in
roughly six years. Consequently, profit margins
have likely shrunk or turned negative for some
processors. Economic theory suggests that those
processors who are the least efficient at employing
their economic resources will likely be forced out
of the business.5
Despite this problem, the industry continues to
add capacity.6 One explanation for this puzzling
behavior might be that future prices are expected
to be significantly higher, though there is no evi­
dence to support such an explanation. Two other
explanations provide better insights. First, grants
have been issued by federal and state governments
to build catfish processing plants in economically
depressed areas with a goal of creating jobs. Se­
cond, catfish growers, lacking a viable marketing
alternative for their product, band together to build
a processing plant. Given that 75 percent to
85 percent of all processing plants are farmerowned, this behavior may have been a response to
the high growth in stocking rates undertaken by
growers since the late 1980s.
A second, more long-term challenge facing the
catfish industry is how to increase product aware­
ness. The broiler industry faced an identical
problem in its recent history. As the broiler indus­
try developed new marketing techniques (admitted­
ly, other factors such as vertical integration and
mass production played a significant part as well),
the industry began to post impressive growth.
A recent study found that slightly more than
one-half of the respondents to a nationwide survey
had heard of farm-raised catfish.7 More important­
ly, the study also found favorable attitudes toward

I
Table 1
Catfish Statistics By State

State
Arkansas
Alabama
Louisiana
Mississippi
Missouri
Texas
Total U.S.

No. of
Operations1

Water Surface
Area1

Sales1
23
*
5
4

Average Acres
per Operation

202
353
225
310
125
202
1,998

20,700
18,700
14,500
95,000
2,800
3,300
166,160

$ 29.6
24.1
15.2
227.4
2.6
6.0
323.2

102
53
64
306
22
16
83

1Measured as of July 1, 1991. Water surface area measured in acres.
2Total catfish sales for 1990 in millions of dollars.
SOURCE: Operations and water surface area taken from Aquaculture Situation and Outlook, United States Depart­
ment of Agriculture (September 1991). Total sales listed in Aquaculture Situation and Outlook (March
1991).

catfish among consumers, grocers and restaurants.
Not surprisingly, favorable attitudes tended to be
the highest in the South and the lowest in the
Northeast. These favorable inclinations may have
induced the McDonald’s Corporation to test-market
a catfish sandwich in parts of five Southern states.
Such marketing attempts by fast food chains,
grocers and restaurateurs, as well as those by the
industry itself, appear to be essential to continued
expansion of the industry.
The industry faces other challenges as well.
These include issues related to waste disposal in
the growing and processing sectors and the poten­
tial gains that could result from genetic engineer­
ing, such as nutritional improvements and produc­
tivity gains resulting from a more efficient feed
conversion process.
Because the catfish industry has become an
important economic entity in the Delta Region,
another concern is the maintenance of a viable
labor force.9 Although the industry is relatively
capital-intensive, the demand for experienced wor­
kers, whether in the growing or processing sector,
remains high. As a consequence, average (nomi­
nal) wages in the processing sector have risen by

1The author wishes to thank Seymour Johnson, Mike
McCall and David Harvey for providing assistance.
2U.S. commercial fish landings are classified as harvest
of wild fish species (for example, salmon, shrimp or
crabs) and exclude aquaculture products such as cat­
fish or trout.
3Catfish prices tend to be seasonal. The price of the
good, therefore, will be at its highest (lowest) when de­
mand for the good is at its peak (trough).
4Measures of per capita consumption are on an edible
weight basis.
5A good example would be the bankruptcy of a large
processor in Texas, which had difficulty competing in
the current market environment of tight profit margins.




approximately 20 percent since last year. Although
this wage increase resulted primarily from collec­
tive bargaining agreements reached last year be­
tween catfish processors and workers’ unions, the
fact remains that processors were willing to pay
even higher premiums in some cases because of
shortages of workers with certain skills.

Summary
Few industries in the agricultural sector can
match the high growth rates posted by the farmraised catfish industry during the last 20 years.
Although the growth rate has slowed somewhat,
the increasing importance of fish in the consumer
diet should enable catfish to play a larger role in
the future. Whether the catfish industry can be­
come the high-growth broiler industry of the 1990s
is not certain. What is certain, however, is that the
farm-raised catfish industry faces many of the
challenges—and opportunities—inherent to a rela­
tively new industry.

6See the Catfish Journal, Catfish Farmers of America
(April 1991), p. 6 and p. 11.
7See Carole Engle, et. al. “ The U.S. Market for FarmRaised Catfish: An Overview of Consumer, Supermar­
ket and Restaurant Surveys,” Arkansas Agricultural Ex­
periment Station, Bulletin Number 925 (September
1990).
8These and other issues are discussed in David Harvey,
Aquaculture Situation and Outlook, United States
Department of Agriculture (September 1991).
According to one unofficial estimate, the catfish indus­
try annually contributes almost $2 billion to Mississip­
pi’s economy and employs approximately 8,000.

5

How Foreign-Owned
Firms Benefit the
Eighth District
by Cletus C. Coughlin
Kevin M. White provided research assistance.

M

y
ultinational corporations (MNCs)
play an important and frequently controversial role
in international trade and investment. The foreign
investment decisions of MNCs, which have impor­
tant consequences on production, employment and
international trade, affect the well-being of resi­
dents across many countries. As a result, it is not
unusual to hear leaders of some countries express
concerns that foreign investment is excessive, while
others worry that it is insufficient. The former fear
exploitation and foreign dominance of their econo­
mies; the latter fear inadequate access to foreign
capital and technology.
Until recently, the United States was generally
viewed as a “ home” country for MNCs rather
than a “ host” country for foreign-based MNCs. In
every year since 1981, however, investment by
foreign-based MNCs in the United States has ex­
ceeded investment by U.S. firms abroad. Eighth
Federal Reserve District states have received a
portion of this increasing flow of foreign direct in­
vestment in the United States.1 This article, after a
brief explanation of foreign direct investment (FDI)
and two competing views of foreign investment
theory, examines the extent of FDI in the Eighth
District.

What is Foreign Direct Investment?
FDI is any flow of lending to, or purchases of
ownership in, a foreign enterprise that is “ largely”
owned by residents of the investing country. It can
be a loan from a parent to its subsidiary or the
purchase of the subsidiary’s stock by the parent.
The percentage of ownership that defines “ largely”
varies; however, the minimum percentage is selected
to allow the investor some control over the opera­
tion of the enterprise. The official U.S. definition
of FDI requires the investing firm to have a mini­
mum of 10 percent ownership of the enterprise in
the United States.
The investor’s control over the subsidiary’s
behavior allows for much complexity in their rela­
tionship. The parent might provide its subsidiary



with managerial skills, trade secrets, technology,
rights to use brand names and instructions about its
involvement in certain markets. Such transactions
make FDI much more than simply a movement of
capital from one country to another. For example,
a parent can build a production facility in a foreign
country by using funds borrowed in the host coun­
try. By adding its brand name, managerial formu­
las and other intangible assets, the parent can
effectively engage in FDI, in an accounting sense,
without an explicit flow of capital from the par­
ent’s country to the host’s country.

What Explains FDI?
Standard theories rely on “ firm-specific ad­
vantages” to explain why FDI occurs. The foreign
investor must have some advantage over local
firms to compensate for the fact that the MNC in­
curs additional costs because of 1) cultural, legal,
institutional and linguistic differences; 2) a lack of
knowledge about local market conditions; and 3)
lengthier lines of communication and, therefore, an
increase in communication failures.
Advantages held by the foreign investor can
take many forms. Technology is the primary ad­
vantage; however, access to large amounts of capi­
tal, superior management and products differenti­
ated by successful advertising are often cited.
A company’s advantages are exploited by FDI
only if, given the firm’s information and expecta­
tions about its prices, costs and legal environment,
it can earn higher profits. It is possible that a tech­
nological advantage, defined broadly as economi­
cally valuable knowledge, can be exploited by
exports to a country as well as by production and
sales in that same country. Thus, the firm selects
FDI over exporting only if the former is more
profitable. FDI and exporting, however, are not
the only alternatives. A firm with a technological
advantage may license a firm in another country to
produce a good using its technology. Once again,
the firm with the technological advantage will
choose the route with the highest anticipated
profits.
Firm-specific advantages have led scholars to
develop theories of FDI in which the MNC has
some unique market power. Two variants, one
most closely associated with Stephen Hymer and
the other with Stephen Magee, demonstrate this
approach.2
In Flymer’s view, because a foreign direct in­
vestor is one of a small number of producers of a
specific good, the firm can affect the price of the
good by altering its production. By decreasing its
production, the firm can force the market price
higher and vice versa. Hymer views FDI as being
used strategically by the MNC to limit competition

6

Table 1
Royalties and License Fees (millions of dollars)
Receipts of
U.S. affiliates from
foreign parents

Payments by
U.S. affiliates to
foreign parents

$ 69
60
68
102
171
209
243
343
333

$ 394
465
665
568
773
1105
1244
1662
1954

21.7%

22.2%

1982
1983
1984
1985
1986
1987
1988
1989
1990
Compounded annual
growth rate

SOURCE: U.S. Department of Commerce, Bureau of Economic Analysis.

to protect its market power. Thus, the MNC en­
gages in FDI to beat its competitors into a particu­
lar foreign market.
Some concerns have been raised about FDI in
this context because of fears that the foreign inves­
tor, as part of the firm’s commitment to invest­
ment, will extract promises from the host govern­
ment to limit imports from other competitors or
prevent FDI by other competitors. If this were to
happen, there would be little competition in the
host country for the foreign investor. Consumers
would ultimately pay higher prices than they would
in the absence of trade or investment restrictions.
In Magee’s view, which is known as the ap­
propriability theory, the firm-specific advantages
that stimulate FDI do not threaten competition in
product markets. Even though firm-specific advan­
tages allow the MNC to generate profits, they do
not necessarily imply that the firm will have mar­
ket power in product markets. Rather, FDI allows
the benefits of technology to spread.
FDI is necessary for the firm to “ appropriate”
the potential gains from its technology. Generally
speaking, the reasons to favor FDI rather than the
explicit sale of the advantage to outsiders revolve
around the difficulties involved in market transac­
tions. In some cases, the technology involved in a
particular activity, such as running a factory, is
embodied in a group of individuals. Since the
knowledge is not easily summarized and communi­
cated, it is hard to package and sell. Such a market
transfer is also complicated because it is difficult
for a potential buyer to decide how much the
knowledge is worth. If the buyer had sufficient in­
formation to value the knowledge, it is likely that
the buyer would know as much as the seller and,
thus, have no reason to buy.
The appropriability theory, therefore, stresses
the importance of the transfer of technology from



one country to another within a MNC. Restrictions
on FDI limit the transfer of the firm-specific ad­
vantages of MNC. Since these advantages contrib­
ute to rising productivity and incomes, restrictions
on FDI flows into a country can harm that coun­
try’s economic performance.
The preceding views of FDI stress the impor­
tance of the transfer of technology from a parent
to its foreign affiliate. MNCs, however, can also
transfer technology from the affiliate to the parent.
Rapid increases in foreign direct investment in the
United States during the 1980s have aroused con­
cern that foreign firms are, in fact, investing
primarily to acquire U.S. technology, which could
harm the competitive position of U.S. firms.
One way to assess international transfers of
technology involving U.S. affiliates of foreignbased MNCs is to compare receipts of royalties
and license fees from their foreign parents with
payments of such fees to their foreign parents.
Receipts measure the value of technology trans­
ferred from foreign-owned companies in the United
States to their parents, while payments measure
purchases of technology from their parents. Ac­
cording to table 1, both measures have increased at
annual rates of more than 20 percent since 1982.
Payments of U.S. affiliates, however, far exceed
receipts in each year and are nearly six times the
value of receipts in 1990. Thus, technology trans­
fers are occurring to a far greater extent from
foreign-based MNCs to their American affiliates
than the reverse.

FDI in the Eighth District3
One indicator of the involvement of foreignbased MNCs in economic activity in the Eighth
District is the employment at affiliates owned by

B
Table 2
Employment at Nonbank Foreign-Affiliated Firms
Annual
Growth
Rate

Employment
(thousands of people)
1988
1977

Percent of all
Nonbank Employment
1988
1977

Arkansas

9.8

25.9

9 .2 %

1.6%

3.5%

Kentucky

15.5

43.6

9 .9

1.6

3.8

Missouri

20.2

56.1

9 .7

1.3

2.9

Tennessee

26.2

95.6

1 2 .5

1.9

5.4

Eighth District

71.7

221.2

1 0 .8

1.6

4.2

1,200.3

3,662.8

1 0 .7

1.8

4.1

All States

SOURCE: U.S. Department of Commerce, Foreign Direct Investment in the United States (August 1991).

Table 3
Manufacturing Employment at Foreign-Affiliated Firms
Manufacturing
Employment
(thousands of people)
1977
1988

Percent of all
Manufacturing
Nonbank Employment
1977
1988
4.1%

6.5%

1 1 .6

2.5

8.5

23.9

5 .2

3.1

5.5

21.5

61.7

10.1

4.2

12.0

50.7

123.8

8 .5

3.5

8.5

685.6

1,495.0

7 .3

3.5

7.7

Arkansas

8.5

14.8

Kentucky

7.0

23.4

Missouri

13.7

Tennessee
Eighth District
All States

Annual
Growth
Rate
5.2%

SOURCE: U.S. Department of Commerce, Foreign Direct Investment in the United States (August 1991).

these firms. As shown in table 2, employment at
nonbank foreign-affiliated firms grew rapidly be­
tween 1977 and 1988 in the United States and in
the Eighth District. The annual growth rate in the
Eighth District was 10.8 percent, much faster than
employment grew at nonbank domestic firms. As a
result, employment at nonbank foreign-affiliated
firms rose from 1.6 percent of all nonbank em­
ployment to 4.2 percent.
Among Eighth District states, Tennessee ex­
perienced the most rapid annual growth rate, 12.5
percent. This caused employment at nonbank
foreign-affiliated firms to rise from 1.9 percent of
all nonbank employment in 1977 to 5.4 percent in
1988. The other District states — Arkansas, Ken­
tucky and Missouri — experienced growth slower
than the national rate; nonetheless, in each of these
states, the share of non-bank employment account­
ed for by foreign-affiliated firms more than dou­
bled in the 11-year period.
The manufacturing sector has long been fa­
vored by foreign investors. The concentration of



foreign investment in manufacturing reflects the
technical expertise of foreign firms, especially
those in Japan and Germany. In the Eighth Dis­
trict, almost 56 percent of employees at foreign af­
filiates in 1988 worked in manufacturing plants.
Nationally, manufacturing accounted for a smaller
segment, employing 41 percent of workers in for­
eign affiliates.
The growth of foreign-affiliated manufacturing
has been impressive. As shown in table 3, District
manufacturing employment in foreign-affiliated
firms rose from 50,700 in 1977 to 123,800 in
1988, an 8.5 percent annual growth rate. This
growth is especially noteworthy because it oc­
curred during a period in which total manufactur­
ing employment in the District showed virtually no
net increase.
Of the four District states, Arkansas has ex­
perienced the slowest growth in employment at
foreign-affiliated manufacturers. Though the rea­
sons are unclear, Arkansas’ industrial structure
may have contributed. Traditionally, Arkansas’

8

manufacturing sector has been concentrated in food
processing and metals production, two sectors in
which foreign direct investment has risen relatively
slowly. Motor vehicle production, the recipient of
a large portion of new foreign investment, is rela­
tively unimportant in Arkansas. Unlike the other
three District states, Arkansas has no major vehi­
cle assembly plants. Nonetheless, manufacturing
employment in foreign affiliates was fairly high in
Arkansas throughout the 1980s, accounting for
14,800 jobs in 1988. These jobs represented 6.5
percent of total state manufacturing employment,
2.5 percentage points more than in 1977. The state’s
largest foreign-affiliated sector is machinery; this
includes Fort Smith’s Rheem Air Conditioning fac­
tory, which employs almost 2,000 workers.
Kentucky is the District state that has exper­
ienced the most rapid growth of foreign-affiliated
manufacturing employment since the late 1970s.
Employment in foreign affiliates accounted for just
2.5 percent of the state’s manufacturing workers in
1977; by 1988, this figure had risen to 8.5 per­
cent, reflecting the addition of 16,400 workers.
The state’s largest foreign-affiliated employers —
Armco Steel Company in Ashland and Toyota’s
vehicle assembly plant in Scott County — both em­
ploy roughly 3,500 workers and are affiliated with
Japanese owners. In November 1990, Toyota an­
nounced plans to invest $800 million to expand its
Scott County operations, which will double capaci­
ty to more than 400,000 vehicles a year and pro­
vide 1,500 new jobs. In addition, the new opera­
tions will increase demand for the products of
Toyota’s suppliers. Many factories producing
automotive-related inputs have located in the region
since the Toyota plant—and the Nissan plant in
Tennessee—opened in the mid-1980s. Many motor
vehicle suppliers are owned, totally or in part, by
foreign firms, with the Japanese most heavily
represented.
In contrast to Kentucky, growth in manufac­
turing employment at foreign-affiliated firms in
Missouri has been relatively slow. Missouri’s
manufacturing sector employs more than 400,000
workers, but only a small proportion work at for­
eign affiliates. Nonetheless, in 1988, 5.5 percent

1The Eighth District is defined as Arkansas, Kentucky,
Missouri and Tennessee for purposes of this article.
2See Stephen Hymer, The International Operations of Na­
tional Firms: A Study of Direct Foreign Investment (MIT,
1976) and Stephen Magee, “ Information and the Mul­
tinational Corporation: An Appropriability Theory of




of manufacturing workers in Missouri were em­
ployed in foreign affiliates, up from 3.1 percent in
1977. The United Kingdom is the home of the
state’s two largest foreign-affiliated manufacturing
firms: Purina Mills, Inc., located in St. Louis, was
acquired by British Petroleum in 1986, while Fasco Company, which produces small motors, has its
largest Missouri operations in Springfield. Each
firm employs roughly 3,000 workers.
Foreign direct investment has boomed in Ten­
nessee. In 1989, foreigners invested almost $1.4
billion in new and expanded plants in Tennessee,
more than 40 percent of the total investment in the
state that year. Related to this investment is the
fact that the number of Tennessee workers at
foreign-affiliated manufacturing firms is more than
double that of any other District state. Between
1977 and 1988, manufacturing employment at
foreign-affiliated firms rose by more than 40,000,
a 10.1 percent annual growth rate. New plants
producing motor vehicles or related goods account
for much of this growth. Nissan’s motor vehicle
plant in Smyrna, which employs approximately
4,000 workers, is currently expanding. By 1992,
Nissan will be able to build 450,000 vehicles a
year in Tennessee, twice as many as today. The
second-largest foreign affiliate, Bridgestone, makes
tires in Nashville.

Summary
Without question, foreign-affiliated firms have
become a more important component of economic
activity in the Eighth District. While it is relatively
easy to identify the employment associated with
these facilities, it is not as easy to quantify the
technological impact associated with such foreign
investment. Nonetheless, economic theory, as well
as evidence at the national level, indicates that for­
eign technology is being transferred to affiliates lo­
cated throughout the Eighth District. As a result,
workers in the Eighth District are more productive
and better paid than they would be without the for­
eign direct investment.

Direct Foreign Investment” in The New International
Economic Order: The North-South Debate, Jagdish
Bhagwati, ed. (MIT, 1977) for additional details.
3A lengthier discussion of trade and investment in the
Eighth District is presented in the 1990 Annual Report of
the Federal Reserve Bank of St. Louis.

9

District Banks
Navigate Recession’s
Waters
by Michelle A. Clark
Thomas A. Pollmann provided research assistance.

T

banking sector, like most other indus­
tries, is affected adversely during national reces­
sions. In this article, the performance of banks in
the Eighth Federal Reserve District is compared
with that of banks nationally during the recession
that began in July 1990 as well as during previous
recessions. Also examined is recent slow loan
growth, which has been identified as evidence of a
credit crunch—does it differ from previous
recessions?

Banks Muddle Through 1990-91
Downturn
The effects of the 1990-91 recession on Eighth
District banks have not been as severe as else­
where in the United States. Falling employment
and real estate values in New England, for exam­
ple, are largely responsible for the loan problems
and bank failures in that region. Losses from real
estate loans, however, vary widely by type of loan,
with construction and commercial real estate loans
having considerably higher delinquency and loss
rates than single-family mortgages. Banks with high
ratios of single-family mortgages to commercial
real estate loans—which include the vast majority
of Eighth District banks—have fared much better
during the last two years than banks with low ratios.
Table 1 illustrates the uneven effects of the
1990-91 recession on banks. Return on average as­
sets (ROA), a measure of how well management is
employing a bank’s assets to earn income, declined
at U.S. banks to 0.60 percent in June 1991, down

Table 1
U.S and Eighth District Bank Performance, 1990-91
March
1990

June
1990

0.77%
0.78
0.97

0.70%
0.72
0.98

0.62%
0.67
0.98

All U.S. banks
U.S. peer banks
District banks

4.06
4.44
4.18

4.06
4.47
4.19

Loans/Assets
All U.S. banks
U.S. peer banks
District banks

62.0
62.0
57.5

September December
1990
1990

March
1991

June
1991

0.49%
0.53
0.88

0.66%
0.74
0.95

0.60%
0.65
0.96

4.07
4.46
4.22

4.10
4.50
4.21

4.16
4.46
4.17

4.19
4.50
4.23

61.9
61.9
58.2

62.2
61.9
58.3

62.1
61.2
56.4

62.3
61.4
56.8

61.3
60.8
57.0

3.17
2.38
1.72

3.22
2.49
1.70

3.44
2.79
1.78

3.75
3.05
1.81

4.02
3.33
1.87

4.04
3.36
1.83

30.9
20.7
12.6

31.1
21.4
12.5

33.3
24.1
13.0

36.2
26.6
13.4

37.8
28.2
13.5

37.1
28.0
13.1

Return On Average Assets1
All U.S. banks
U.S. peer banks2
District banks
Net Interest Margin1

Nonperforming Loans/Total Loans
All U.S. banks
U.S. peer banks
District banks
Nonperforming Loans/Capital
All U.S. banks
U.S. peer banks
District banks

1Annualized
2U.S. peer banks are those banks with assets of less than $15 billion.
SOURCE: Reports of Condition and Income for all Insured Commercial Banks, 1990-91.




10

10 basis points from its June 1990 level.1 The
decline in ROA for U.S. peer banks, a group that
excludes the nation’s largest banks and includes
banks of comparable size to District banks, was 7
basis points, indicating that the recession and real
estate loan problems affected large banks more
than small banks. District banks, as they usually
do even in periods of economic stress, continue to
record higher earnings ratios and smaller declines
than their U.S. peers. The District’s average ROA
of 0.96 percent in June 1991 was down just 2
basis points from its June 1990 level and is very
close to the industry benchmark of 1 percent.
District banks have performed relatively better
than their U.S. peers despite significantly lower
net interest margins (interest income less interest
expense divided by average earning assets). Lower
ratios of noninterest expense (overhead) and loan
loss provisions (funds subtracted from earnings to
cover expected loan losses) to assets are largely
responsible for the higher returns on assets
registered by District banks.
Net interest margins have risen modestly since
early 1990 at all three groups of banks, as interest
expense (the cost of deposits and other interestbearing liabilities) has fallen more sharply than in­
terest income (the revenue from loans and other
investments). The group that includes all U.S.
banks has experienced a larger increase than those
recorded at U.S. peer and District banks, in part
because the first group has a higher ratio of loans
to assets than the other two. Since loan rates have
decreased much less than rates paid on securities,
net interest margins have risen more for banks
with higher concentrations of loans in their portfo­
lios. Increased net interest margins, which vary by
region and size of bank, have cushioned, but not
compensated for, the hit to earnings resulting from
rising levels of nonperforming assets.
The most telling measures of the national down­
turn on bank performance are nonperforming loans
as a percent of total loans and nonperforming loans
as a percent of equity capital. Nonperforming loans
are those loans that are 90 days or more past due or
in nonaccrual status. Delinquent loans tend to rise
during recessions as workers lose their jobs and fail
to keep up with mortgage, credit card and other
loan payments. Small businesses, which rely heavily
on bank loans to fund inventory and expansions, also
have trouble meeting their debts during recessions.
The ratio of nonperforming loans to total loans
has risen steadily at all U.S. banks during the last
year, increasing from 3.17 percent in March 1990
(before the recession) to 4.04 percent in June 1991.
For this same period, the nonperforming loan ratio
has also climbed for U.S. peer banks and District
banks; however, the ratio rose 98 basis points for
U.S. peer banks, but only 11 basis points for Dis­
trict banks.



The ratio of nonperforming loans to equity
capital indicates how much owners’ equity (absent
any loan loss reserve, which is included in some
measures of capital) would be depleted if all prob­
lem loans were written off. Nonperforming loans
as a percent of equity capital for all U.S. banks
rose from 30.9 percent in March 1990 to 37.1 per­
cent in June 1991. U.S. peer banks experienced a
similar increase, with the ratio rising about 7 per­
centage points during the period. The District bank
average, in contrast, rose a meager one-half of a
percentage point, from 12.6 percent in March
1990 to 13.1 percent in June 1991.
As with the ratio of nonperforming loans to
total loans, the ratio of nonperforming loans to eq­
uity capital is substantially lower for District banks
than for U.S. peer banks and all U.S. banks. Dis­
trict banks have been able to maintain a lower ra­
tio of loan loss reserves to total loans than U.S.
peer banks (1.66 percent vs. 2.23 percent in June
1991) because of lower nonperforming loan ratios.
Nevertheless, District banks remain better
“ reserved” than their U.S. peers. District banks
had about 91 cents in their loan loss reserve for
every dollar of nonperforming loans in June 1991,
while U.S. peer banks had 68 cents per dollar of
nonperforming loans.

How Does This Recession Com­
pare with Previous Downturns?
Although there have been some special factors
at work, much of what has occurred in the banking
industry recently is typical of recessionary periods.
Loan demand falls when the economy slackens as
consumers put off large purchases and businesses
put expansion plans on hold. In addition, banks are
more hesitant to extend loans in a downturn and
adjust their asset portfolios toward the relative
safety of securities.2 Figure 1 illustrates this typi­
cal behavior for U.S. peer banks.
The contraction of bank credit in this recession
has received much attention from the Bush Admin­
istration, bank regulators and the press, and has
even been termed a “ credit crunch;” yet, compared
with prior periods, such a contraction is normal
(see shaded insert on page 12). Since peaking in
this expansion in the third quarter of 1989, the
loan-to-asset ratio has declined just 2 percentage
points at U.S. peer and District banks. During the
double-dip recession of 1980-82, the loan-to-asset
ratio declined 8 percentage points in the District
and 5 percentage points at U.S. peer banks.
During recessions, bank earnings typically fall
as loan delinquencies and losses rise and banks
earn relatively lower returns from substituting
government securities for loans in their asset port­
folios. Figure 2 illustrates the cyclical earnings

11

Figure 1

Loans/Assets and U.S. Government Securities/Assets, U.S. Peer Banks 1978-91
Percent

Percent

Figure 2

Return on Average Assets—U.S. Peer Banks vs. Eighth District Banks, 1973-90
Percent

pattern of the banking industry from 1973 to 1990.
ROA for District and U.S. peer banks tends to
decline during recessions and keeps declining for
several quarters afterward as troubled loans are
written off as losses. During the 1973-75 reces­
sion, for example, ROA declined 7 basis points at
U.S. peer banks and 6 basis points at District
banks. The earnings decline was even more pro­
nounced during the 1980-82 recession, when ROA
at U.S. peer banks declined from 0.93 percent in



1979 to 0.76 percent in 1983, and declined from
1.03 percent to 0.88 percent at District banks dur­
ing the same time.3 After 1987, real estate-induced
loan losses together with slowing economic activity
contributed to earnings declines.
In contrast to earnings, nonperforming loans
tend to decline when the economy grows and rise
when the economy contracts. Similar to ROA, the
nonperforming loan ratio worsened for all categories
of banks shown in figure 3 for several quarters

12

Are l/l/e Caught in a Credit
Crunch?
Declining employment and consumer confi­
dence, which reduce demand for credit, together
with declining creditworthiness of borrowers,
combine to produce slow loan growth during
recessions. Slow loan growth, however, is not
the sole determinant of a credit crunch. A credit
crunch occurs when creditworthy borrowers
who demand credit are unable to get credit at
prevailing interest rates.
The available data on outstanding credit do
not provide sufficient evidence to conclude that
the nation is experiencing a credit crunch, be­
cause it is not possible to separate demand fac­
tors from supply factors. Anecdotal evidence
from bankers and small businesses, especially in
this District, does not support the claim that the
economy is credit-constrained. Clearly, some in­
dustries in some regions are finding it difficult
to obtain credit. Loans to support commercial
real estate, and, in some cases, residential real
estate construction, are difficult to obtain, espe­
cially in New England. New development is
questionable, however, given excess commercial
office space, reflected in high vacancy rates and
slow sales of new and existing homes in most
parts of the country. Thus, much of the credit

contraction to this industry can be explained in
terms of the scarcity of profitable building op­
portunities.
Special factors, such as the need for some
banks to raise their capital-to-assets ratios to
meet new international risk-based capital stan­
dards, have also contributed to slow growth in
assets, especially in loans. Rising losses in the
banking industry have made it hard for banks to
raise capital in the equity markets, and thus
many have had to shrink their balance sheets to
meet these new capital requirements. This trend,
which has been dubbed the “ capital crunch” by
some New England economists, started before
the economy went into recession and has ex­
acerbated the normal contraction of credit in an
economic downturn.1
Another factor, illustrated in the figure, is
the long-term trend of the declining importance
of banks and thrifts in the extension of credit to
non-financial companies. Large corporations are
increasingly turning to nonbank sources for
credit, such as the commercial paper market. In
addition, increased securitization of assets (the
pooling of assets such as loans into large bundles
that are then sold as securities to the secondary
markets) means some lending activity by banks
may not be reported if the originated loans are
sold quickly, and thus never (or briefly) appear
on the balance sheet.

Funds Advanced by Commercial Banks and Thrifts
Relative to Total Net Borrowing by the Domestic
Non-financial Sector
Percent ot Total Borrowing

(Semi-annual average)

SOURCE.- Federal Reserve Board, Row of Funds

1See Richard F. Syron, “ Are We Experiencing a
Credit Crunch?” New England Economic Review




(July/August 1991), pp. 3-10, for a discussion of the
New England capital crunch.

13

Figure 3

Nonperforming Loan Ratio, all U.S., U.S. Peer and Eighth District Banks
Percent

into the recovery period, and then began improving
as the economy picked up steam. The ratio reached
a maximum in early 1987 when many of the na­
tion’s largest banks, including some District banks,
placed a large portion of their loans to Latin
America in nonaccrual status.4 Beginning in 1987,
the gap between the nonperforming loan ratio for
District banks and all U.S. banks widened as
problem foreign loans were replaced by troubled
commercial and real estate loans in the Southwest
and then troubled real estate loans in the North­
east. The significantly lower nonperforming loan
ratios in the District during this recession, com­
pared with the ratios recorded in the recession of
the early 1980s, illustrate quite clearly how much
better the Midwestern economy has fared during
this recession, compared with the prior recession
and compared with economies in other regions.

Conclusion
Bank performance is very dependent on local
as well as national economic conditions. Eighth
District banks have outperformed their national
peers during this recession, largely because econom­
ic conditions have not deteriorated as much as they
have elsewhere. In addition, slow loan growth in
the District and the nation during this recession is
not unlike that of previous recessions of the past



two decades. Although declining loan growth is
symptomatic of a credit crunch, it is also a predic­
table outcome of declining economic growth. With­
out corroborating evidence, declining loan growth
is insufficient evidence for a conclusion of a credit
crunch. Weakened capital positions at banks in
some regions of the country and a general decline
in depository institution participation in the exten­
sion of credit to non-financial businesses provide
other explanations for the slow growth in bank
credit during the past two years.1234

1Although the table clearly shows a downward trend in
annualized ROA for U.S. banks throughout 1990 and
from March 1991 to June 1991, quarter-to-quarter
changes are suspect because of the timing of loan loss
provisions, an expense item, which historically increase
at year-end.
2Recent studies have shown that adjustments in bank as­
set portfolios precede changes in economic activity. See
Cara S. Lown, “ Banking and the Economy: What Are
the Facts?” Federal Reserve Bank of Dallas Economic
Review (September 1990), pp. 1-14.
3The sharp decline in ROA which occurred at U.S. peer
banks, and to a lesser extent at District banks, in 1987
is due almost entirely to large loan loss provisions taken
for loans to lesser developed countries.
4See Lynn M. Barry, “ District Bank Performance in 1987:
Bigger is Not Necessarily Better,” Federal Reserve
Bank of St. Louis Review (March/April 1988), pp. 39-48.




14

Eighth District Business
Level

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

Compounded Annual Rates of Change

111/1991

11/1991111/1991

111/1989111/1990

108,950.0
6,942.9
955.4
256.3
1,489.7
488.7
2,318.4
1,169.4
2,179.4
477.2

0.4%
1.2
3.1
0.0
2.8
2.3
0.4
-1 .1
0.3
-1 .1

-1.1%
0.0
2.9
1.2
0.6
1.6
- 0 .8
-1 .1
- 0 .9
0.4

1.5%
1.9
3.6
3.2
2.9
2.7
1.1
0.9
1.3
1.0

2.6%
3.2
3.3
3.2
3.7
3.7
2.5
2.3
3.6
4.2

18,418.0
1,450.2
236.7
282.6
418.7
512.1

0.4%
2.8
3.9
1.6
2.5
3.2

-3.6%
- 2 .0
1.4
- 1 .9
- 4 .0
- 2 .0

-1 .7 %
-0 .1
0.7
0.9
- 0 .8
- 0 .3

0.5%
2.2
2.1
3.7
1.6
2.1

48.5
286.7
339.0
406.2
1,620.8
1,631.2
1,160.3

-7.1%
- 3 .0
- 1 .5
- 2 .3
1.4
- 0 .3
5.7

-4.9%
- 3 .3
- 0 .3
-0 .1
2.0
- 0 .3
1.5

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

11/1991

1/199111/1991

11/199011/1991

$3,544.1
195.1
25.9
42.0
67.8
59.4

2.2%
1.2
0.0
1.0
1.2
- 2 .0

-1 .1 %
- 0 .7
0.8
- 0 .9
- 1 .6
- 0 .2

m/1991

11/1991

19901

1989’

1990

1989

1.1%
0.7
1.6
1.7
- 0 .3
0.9

2.90/0
2.3
2.0
2.7
2.2
2.1

Levels

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

6.8%
7.1
7.6
6.5
8.2
5.7
6.8
7.0
6.5
5.8

6.8%
6.7
7.5
6.3
6.8
5.6
6.8
6.8
6.0
5.1

1990

5.5%
5.8
6.9
5.9
5.8
5.1
5.7
5.9
5.2
4.5

1989

1988

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

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
transportation, Communications and Public Utilities
4Annual rate. Data deflated by CPI-U, 1982-84 = 100.

15

U. S. Prices
Level

ComDounded Annual Rates of Chanae
111/1990-

11/1990111/1991

111/1991

111/1991

19891

19901

Consumer Price Index
( 1982 - 8 4 = 100 )

Nonfood
Food

135.3
136.9

1.8%
3.9

5.0%
4.1

5.3%
5.7

4.7%
5.9

152.0
164.7
138.3

16.5%
- 5 .4
53.3

0.0%
- 3 .7
5.0

1.6%
6.5
- 4 .8

6.6%
6.8
6.6

175.0
190.0

4.7%
4.3

2.9%
3.8

2.3%
3.4

6.4%
4.9

Prices Received by Farmers
(1 977 = 100 )

All Products
Livestock
Crops
Prices Paid bv Farmers
(1977 = 100 )

Production items
Other items2

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

Eighth District Banking
C hanges in F in a n c ia l P o sitio n fo r the y e a r e n d in g
S e p te m b e r 30, 1991 (b y A sse t s iz e )

SELECTED ASSETS
Securities
U.S. Treasury &
agency securities
Other securities1
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

L e s s th a n

$ 1 0 0 m illio n -

$ 3 0 0 m illio n -

M o r e th a n

$ 1 0 0 m illio n

$ 3 0 0 m illio n

$1 b illio n

$1 b illio n

2.8%
5.5
- 6 .5
1.0
4.2
- 4 .5
- 3 .5
6.0
12.1
2.0
2.2%
1.5
11.0
- 5 .8
0.5
7.9
2.0
1.6

13.4%
14.6
9.6
3.4
10.9
-1 0 .0
- 2 .8
18.6
10.4
7.5
8.0%
7.3
11.4
- 7 .8
5.1
15.4
7.3
9.3

24.5%
32.8
1.2
2.8
11.5
- 9 .9
0.3
14.1
11.5
7.8

20.5
6.1
3.5
9.3
2.2
- 1 .9
27.2
20.7
11.9

8.8%
8.7
15.5
-1 6 .6
1.4
18.9
7.7
9.1

14.1%
10.7
18.7
-2 7 .8
20.3
24.5
12.1
9.2

Note: All figures are simple rates of change comparing year-to-year data. Data are not seasonally adjusted.
1lncludes state, foreign and other domestic, and equity securities,
includes NOW, ATS and telephone and preauthorized transfer accounts.




16.9%

16

P e rfo rm a n c e R a tio s

(by A sset size)
E ig h th D is t r ic t

U n it e d S t a t e s

111/91

III/9 0

ni/89

111/91

III/9 0

in/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

.98%
1.08
.96
.98
.78
1.16

1.08%
1.03
1.03
.86
.75
1.17

1.12%
1.09
1.06
.42
.84
1.18

.84%
.86
.75
.67
.50
1.09

.83%
.95
.79
.59
.44
1.09

.89%
1.03
.91
.79
.86
1.09

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

10.73%
13.09
12.26
14.45
12.31
12.33

11.82%
12.65
13.01
12.97
11.48
12.51

12.25%
13.43
13.66
6.37
13.29
12.60

9.21%
10.75
9.87
9.68
7.94
11.78

9.13%
11.78
10.66
8.60
7.56
11.72

9.84%
12.87
12.80
11.85
14.52
11.75

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

4.34%
4.33
4.40
4.40
3.73
4.32

4.32%
4.28
4.48
4.18
3.70
4.21

4.36%
4.42
4.58
4.06
4.07
4.24

4.61%
4.68
4.68
4.61
4.45
4.40

4.63%
4.70
4.72
4.36
4.19
4.34

4.77%
4.87
4.78
4.44
4.40
4.43

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

1.76%
1.92
1.64
1.57
2.42
1.65

1.68%
1.84
1.64
1.42
2.49
1.64

1.68%
1.74
1.41
1.61
2.78
1.88

2.08%
2.27
2.71
3.36
4.01
1.81

2.05%
2.05
2.54
2.79
3.64
1.85

2.26%
1.98
2.46
2.22
2.71
2.20

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

1.62%
1.60
1.54
1.94
2.15
1.59

1.46%
1.50
1.42
1.78
1.70
1.60

1.48%
1.46
1.44
1.84
1.69
1.70

1.72%
1.68
1.90
2.50
2.93
1.82

1.66%
1.50
1.80
1.97
2.65
1.85

1.66%
1.47
1.61
1.68
1.94
1.96

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

.35%
.42
.48
.52
.84
.28

.27%
.39
.39
.61
.59
.22

.25%
.34
.36
.65
.59
.28

.42%
.52
.68
1.06
1.31
.26

.39%
.45
.61
.80
1.20
.29

.46%
.40
.52
.59
.81
.35

Note: Agricultural banks are defined as those banks with a greater than average share of agriculture loans to total loans.
11nterest 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