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J u n e 1990 An Economic Perspective on the 8th District SEP 2.7 2001 TH E FEDERAL 1RESERVE RANK o f ST. IX >1 IS , Mixed Results For Banks in 1989 t Internationalization in the Eighth: The Role of Exports . Understanding Farm Income: Proceed with Caution — w x h . 1* -U THE EIGHTH FEDERAL RESERVE DISTRICT CONTENTS_____________________________________________________________________________ Banking and Finance Bank Performance in 1989: The Pluses and Minuses..............................................................................................1 Business Eighth District Manufacturers Expand Exports........................................................................................................ 6 Agriculture Potential Pitfalls of Interpreting Farm Income D a ta......................................................... ................................... 10 Statistics ............................................................................................................................................................14 Pieces of Eight—An Economic Perspective on the 8th District is a quarterly summary of agricultural, banking and business conditions in the Eighth Federal Reserve District. Single subscriptions are available free of charge by writing: Research and Public Information Department, Federal Reserve Bank of St. Louis, Post Office Box 442, St. Louis, MO 63166. The views expressed are not necessarily official positions of the Federal Reserve System. 1 Bank Performance in 1989: The Pluses and Minuses By Michelle A. Clark Thomas A. Pollmann provided research assistance. T ^ H L h e 1989 performance of commercial banks in the Eighth Federal Reserve District, like that of their national counterparts, was marked by both positive and negative developments.1 In con trast to U.S. banks of comparable size, District banks experienced an overall decline in profitabili ty, but improvement in asset quality in 1989. A state-by-state analysis of the financial performance and condition of banks in Eighth District states is presented here.2 Statewide Performance Arkansas As table 1 indicates, Arkansas banks posted an average return on assets (ROA) of 1.02 percent and an average return on equity (ROE) of 11.89 percent in 1989.3 Earnings totaled $196.06 million in 1989, up 12.7 percent from 1988 earnings of $173.98 million, and the largest increase of the District’s seven states. The average net interest margin of 4.37 percent was down slightly from 1988, but was the highest margin in the District in 1989. Profitability ratios rose in 1989 because of decreases in the net noninterest margin and the loan loss provision ratio. The net noninterest margin declined because of a decrease in noninter est expense (overhead), from 3.24 percent of assets in 1988 to 3.19 percent in 1989. The loan loss provision ratio continued to decline in 1989, and the year-end ratio of 0.33 percent was approximate- Table 1 Earnings Analysis United States and Eighth District States, 1987-89 United Eighth States1 District AR IL IN KY MS MO 0.86% 0.99 -0 .2 3 0.98% 1.02 0.79 1.01% 1.00 0.94 0.80% 0.83 0.85 0.88% 0.86 0.64 TN Return on Assets 1989 1988 1987 0.74% 0.72 0.54 0.88% 0.92 0.80 1.02% 0.95 0.91 0.59% 0.81 0.87 Return on Equity 1989 1988 1987 10.25 10.04 7.54 11.26 11.68 10.24 11.89 11.28 10.96 13.60 15.69 -3 .9 0 12.75 13.46 10.54 12.65 12.38 11.60 9.87 10.58 10.93 11.64 11.24 8.64 8.13 10.89 11.79 4.44 4.42 4.48 4.13 4.16 4.27 4.37 4.43 4.70 3.64 3.62 3.61 4.19 4.12 4.22 4.09 4.10 4.12 4.24 4.40 4.70 4.12 4.16 4.29 4.34 4.50 4.71 2.12 2.17 2.21 1.93 1.99 1.98 2.14 2.19 2.13 1.46 1.54 1.68 1.92 1.92 2.04 1.76 1.87 1.90 2.16 2.19 2.25 1.86 1.96 1.99 2.09 2.07 2.07 0.69 0.59 0.79 0.46 0.38 0.60 0.33 0.40 0.66 0.35 0.27 1.45 0.37 0.34 0.55 0.47 0.43 0.52 0.43 0.41 0.53 0.52 0.48 0.77 0.82 0.62 0.55 Net Interest Margin 1989 1988 1987 Net Noninterest Margin 1989 1988 1987 Loan Loss Provision 1989 1988 1987 1Because all banks in the Eighth District have assets of less than $10 billion, this category includes 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, 1987-1989 2 Table 2 Asset Quality and Capital Adequacy Analysis United States and Eighth District States, 1987-89 United Eighth States1 District IL AR IN KY MS MO TN Nonperforming Loans 1989 1988 1987 2.20% 2.10 2.40 1.60% 1.62 2.10 1.90% 2.10 2.94 2.170/o 2.40 2.63 1.41% 1.19 1.37 1.73% 1.53 1.68 1,420/o 1.48 1.57 1.57% 1.67 2.30 1.82% 1.41 1.44 0.83 0.87 0.89 0.67 0.73 0.70 0.56 0.75 1.24 1.37 0.83 0.73 0.60 0.54 0.66 0.65 0.61 0.64 0.69 0.65 0.84 0.70 0.90 0.73 1.03 0.93 0.60 8.25 8.12 8.11 8.71 8.72 8.72 9.40 9.21 9.14 7.63 8.03 7.86 8.36 8.29 8.28 8.72 8.78 8.86 8.87 8.61 8.55 8.54 8.60 8.45 8.37 8.35 8.33 Net Loan Losses 1989 1988 1987 Primary Capital 1989 1988 1987 ’ Includes only U.S. banks with assets of less than $10 billion. 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, 1987-1989 one-third its 1986 level. A decline in the ratio of nonperforming loans to total loans from 1988 to 1989 allowed banks to lower their loan loss provi sion ratios. As table 2 illustrates, the nonperforming loan ratio of 1.90 percent in 1989, however, was still well above the District average of 1.60 percent; nonperforming real estate loans comprised almost 60 percent of total nonperforming loans at Arkan sas banks compared with the 49 percent average for District and U.S. banks. The ratio of net loan losses to total loans fell by more than a quarter in 1989 to 0.56 percent, the lowest charge-off rate among District states. For the third consecutive year, Arkansas banks registered the highest primary capital ratio of District states, averaging a ratio of 9.40 percent in 1989 compared with a District average of 8.71 percent. At year-end 1989, just three Arkansas banks failed to meet the minimum primary capital requirement of 5.5 percent.4 Illinois After a substantial rebound in 1988, Illinois banks recorded lower profitability ratios in 1989: ROA of 0.86 percent and ROE of 13.60 percent, compared with 0.99 percent and 15.69 percent in 1988.5 Despite the drop in profitability, Illinois banks still achieved the highest ROE of all District states. Aggregate earnings fell 7.3 percent to $1.69 billion in 1989 primarily because of large additions to loan loss provisions by the state’s largest banks, most of which are not located within the Eighth District. The loan loss provision ratio increased from 0.27 percent in 1988 to 0.35 percent in 1989, a ratio substantially lower than the 1.45 per cent recorded in 1987 when the state’s biggest banks set aside large sums to cover nonperforming foreign loans. Unlike the loan loss provision ratio, both the net interest margin and the net noninterest margin showed improvement over 1988. The net noninterest margin declined to 1.46 percent in 1989, as the state’s banks were successful in lowering overhead. Asset quality, as measured by the ratio of non performing loans to total loans, improved at Illinois banks in 1989 because of a large decline in the nonperforming loan ratio for the state’s two largest banks. Nonperforming real estate loans as a per cent of total nonperforming loans rose in 1989, but comprised little more than 21 percent of total nonperforming loans, less than half the District and national averages. The net loan loss ratio, however, rose more than 65 percent in 1989, primarily because the state’s largest banks wrote off loans to lesser-developed countries (LDCs) that they had taken provisions for over the past several years. Foreign loan losses made up more than 56 percent of overall net loan losses in 1989. For the third consecutive year, Illinois banks recorded the lowest average primary capital ratio of District states; the 1989 ratio of 7.63 percent was down from the 1988 ratio of 8.03 percent par tially because of the large write-offs in 1989 that reduced the allowance for loan losses, a compo nent of primary capital. 3 Indiana Indiana banks earned $535.5 million in 1989, up 1.6 percent from 1988 earnings of $527.3 million. Aggregate profitability ratios were down from their 1988 levels, however, because asset and equity growth exceeded earnings growth. Indiana banks averaged ROA of 0.98 percent and ROE of 12.75 percent in 1989, ratios well above the District averages. The net interest margin rose 7 basis points as growth in interest income exceeded growth in interest expense. The net noninterest margin re mained unchanged at 1.92 percent, a level identical to the District average. An increase in the loan loss provision from 0.34 percent of average assets in 1988 to 0.37 percent in 1989 dampened Indiana banks’ aggregate earnings. Overall asset quality deteriorated at Indiana banks in 1989 as both the average nonperforming loan ratio and the average charge-off ratio increased from 1988 levels. Nonperforming commercial and industrial loans made up the the largest share of total nonperforming loans at year-end 1989 at slightly more than 46 percent; nonperforming real estate loans rose to approximately one-third of total nonperforming loans in 1989. Indiana banks wrote off 60 cents for every $100 of loans on the books at year-end 1989 compared with 54 cents in 1988. Consumer loan losses comprised the highest share of net loan losses in 1989 at 43.5 percent. Indiana banks on average were capitalized well above the minimum standards in 1989. The average primary capital ratio of 8.36 percent in 1989 was an improvement over the 1988 level, but was once again below the District average. Only two of Indiana’s 310 reporting banks failed to meet the minimum primary capital ratio compared with one out of 336 reporting banks in 1988. Kentucky Kentucky’s 335 reporting banks registered the second-largest increase in earnings of District states; earnings rose 9.1 percent in 1989 to $389.68 million. Kentucky banks also recorded the second-highest average ROA in 1989 at 1.01 per cent and posted the third-best ROE at 12.65 per cent. Despite the District’s second-lowest net in terest margin, Kentucky banks’ earnings rose in 1989 because of a sharp drop in the net noninterest margin. The net noninterest margin of 1.76 per cent was the second-lowest margin recorded among District states, and resulted from a rise in the noninterest income ratio and a fall in the noninterest expense ratio. A decline in asset quali ty prompted an increase in the loan loss provision, which rose from 0.43 percent of average assets in 1988 to 0.47 percent in 1989. After two years of improvement, asset quality at Kentucky banks weakened in 1989. The nonper forming loan ratio increased more than 13 percent in 1989 to 1.73 percent. Nonperforming real estate loans to total nonperforming loans rose from 39.4 percent in 1988 to 42.9 percent in 1989, while the share of nonperforming commercial loans fell from 47.5 percent to 39.2 percent. Net loan losses in creased from 0.61 percent of total loans in 1988 to 0.65 percent in 1989. Commercial loan losses once again made up the greatest share of net loan losses, followed by consumer losses and real estate losses. One Kentucky bank fell short of the minimum pri mary capital ratio in 1989. Mississippi Mississippi banks earned $158.46 million in 1989, up just 0.2 percent from 1988 earnings. Weak earnings growth coupled with relatively strong asset growth (5 percent) led to lower pro fitability ratios for Mississippi banks in 1989: 0.80 percent ROA and 9.87 percent ROE compared with ratios of 0.83 percent and 10.58 percent in 1988. A lower net interest margin and higher loan loss provision ratio accounted for the relatively flat earn ings growth at Mississippi banks. Interest income as a percent of average earning assets rose 5.4 per cent, but the interest expense ratio increased 12.7 percent, leading to the decline in the net interest margin. Although it fell slightly in 1989, Mississip pi banks still recorded the highest net noninterest margin of all District states. Asset quality continued to improve in 1989, as the nonperforming loan ratio fell for the third con secutive year. Nonperforming real estate loans made up slightly more than 46 percent of total nonperforming loans in 1989, but unlike District and national trends, the ratio declined from 1988 when it was more than 50 percent. Mississippi banks’ charge-off rate increased to 0.69 percent in 1989. Commercial loan losses comprised the largest portion of net loan losses (45.5 percent), followed by consumer loan losses at 33.4 percent. Mississippi banks improved their capital ade quacy in 1989 and registered the second-highest average primary capital ratio among District states at year-end 1989, 8.87 percent, compared with 8.61 percent in 1988. All of Mississippi’s 123 reporting banks met the minimum capital re quirements in 1989. Missouri Missouri’s banks increased their earnings 9 percent in 1989 to $500.67 million. Greater earn ings growth than asset growth boosted ROA from 0.86 percent in 1988 to 0.88 percent in 1989, while ROE increased from 11.24 percent to 11.64 percent. The average net interest margin declined 4 basis points in 1989 while the net noninterest margin declined more than 5 percent from 1988, I because of a drop in the ratio of noninterest ex pense to average assets. The loan loss provision ratio edged above the District average to 0.52 per cent in 1989. Overall asset quality improved at Missouri banks in 1989 as both the nonperforming loan ratio and the net loan loss ratio declined. The nonper forming loan ratio of 1.57 percent at year-end 1989 was the lowest ratio recorded in three years. Nonperforming real estate loans increased from 38.5 percent of total nonperforming loans in 1988 to 55.8 percent in 1989, surpassing both District and national averages. Other nonperforming loans, which includes loans to foreign governments, de clined from 12.6 percent of total nonperforming loans in 1988 to 4.1 percent in 1989 as Missouri banks continued to decrease their exposure to LDC debt. This decrease in exposure is also reflected in the net loan loss data; the ratio of foreign loan losses to net loan losses declined from 26.6 per cent in 1988 to less than 1 percent in 1989. The ratio of real estate loan losses to net loan losses almost doubled from 1988 to 1989, and stood at 27 percent at year-end 1989. Despite increased profits and improved asset quality, the average primary capital ratio for Missouri banks fell slightly in 1989 to 8.54 per cent. Four Missouri banks failed to meet the minimum primary capital ratio in 1989. Tennessee Tennessee banks posted the sharpest decline in profitability among District states: earnings totaled $269.51 million in 1989, down 22.7 percent from 1988 earnings of $348.48 million. ROA and ROE declined more than 25 percent from their 1988 levels, and the 1989 averages of 0.59 percent and 8.13 percent were well below District and national averages. More than 10 percent of Tennessee’s reporting banks recorded losses in 1989. The net interest margin, net noninterest margin and loan loss provision ratio all contributed to the decline in profitabil-ity ratios. The loan loss provision ratio increased by almost one-third to 0.82 percent in 1989, the highest ratio among District states by far. Deteriorating asset quality was primarily responsible for Tennessee banks’ poor performance in 1989. Both the nonperforming loan ratio and the net loan loss ratio increased substantially in 1989. Nonperforming real estate loans climbed from 39.9 percent of total nonperforming loans in 1988 to 55.8 percent in 1989, primarily due to the delin quent commercial real estate loans of one developer. Tennessee banks wrote off $1.03 for every $100 in outstanding loans in 1989. Although real estate loan losses to net loan losses increased in 1989, commercial loan losses still made more than half of net loan losses. Equity growth surpassed by a small margin asset growth of 4.7 percent at Tennessee banks in 1989, accounting for the slight rise in the average primary capital ratio from 8.35 percent in 1988 to 8.37 percent in 1989. Eight Tennessee banks failed to meet the minimum primary capital ratio in 1989, up from two banks in 1988. CONCLUSION Commercial banks in most Eighth District states continued to outperform their national peers in 1989, with higher earnings ratios, better asset quality and higher capital ratios. Although ROA and ROE declined on average for District banks in 1989 while they rose for U.S. banks of com parable size, the ratios were still well above nation al averages. Despite lower net interest margins, District banks were able to generate higher pro fitability ratios than U.S. banks overall because of lower overhead and loan loss provision ratios. Asset quality as measured by the nonperform ing loan ratio generally improved at District banks in 1989. As with banks across the country, nonper forming real estate loans made up a greater share of total nonperforming loans at most District banks in 1989 than in 1988. Although the net loan loss ratio declined at the District level in 1989, it rose in all states except Arkansas and Missouri as banks wrote off loans they had taken provisions for in the current and previous years. Finally, all District banks had average primary capital ratios well above the minimum standard. 5 RATIO DEFINITIONS Return on assets ratio (ROA): a bank’s net in come divided by its average annual assets. Return on equity ratio (ROE): a bank’s net in come divided by its 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: the difference between in terest income and interest expense divided by aver age earning assets. Interest income comprises the interest and fees earned 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 trading accounts. Interest expense includes the interest paid on all categories of interest-bearing deposits, the expenses incurred in purchasing federal funds and selling securities under agreements to repurchase and interest paid on capital notes. Net noninterest margin: noninterest income less noninterest expense (overhead), usually a negative value, divided by average assets. Noninterest ex pense is the sum of the costs incurred in the bank’s day-to-day operations, which includes employee sal aries and benefits, expenses of premises and fixed assets, as well as legal and directors’ fees, insurance premiums and advertising and litigation costs. Non interest income includes income from fiduciary (trust) activities, service charges on deposit ac FOOTNOTES 1The Eighth Federal Reserve District comprises the following: Arkansas, entire state; Illinois, southern 44 counties; Indiana, southern 24 counties; Kentucky, western 64 counties; Mississippi, northern 39 counties; Missouri, eastern and southern 71 counties and the City of St. Louis; Tennessee, western 21 counties. State data presented in this article cover the whole state, not just the portion of the state located within the Eighth Federal Reserve District. 2A more detailed analysis of the financial performance and condition of U.S. and Eighth District banks in 1989 is provided in the May/June 1990 issue of the Federal Reserve Bank of St. Louis’ Review. 3Refer to the shaded insert “ Ratio Definitions” for a brief description of the ratios presented in this article. “Since 1985, banks have been required by the regulatory agencies to maintain minimum standards of 5.5 percent primary capital-to-total assets and 6 percent total capital-to-total assets. By year-end 1990, these stan dards will be replaced by a new core capital-to-total assets ratio (leverage ratio) and capital ratios based on risk-adjusted assets, standards designed to adjust counts, trading gains (losses) from foreign ex change 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. The net noninterest margin is reported as a positive number, so smaller net non interest margins indicate better bank performance. Loan (and lease) loss provision ratio: the provi sion for loan and lease losses divided by average assets. The provision for loan and lease losses is an income statement account that reduces a bank’s current earnings. Nonperforming loan and lease loss ratio: loan and lease financing receivables that are 90 days or more past due or in nonaccrual status divided by average 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 (charge-off rate): loan losses (adjusted for recoveries) divided by total loans. Primary capital ratio: primary capital divided by average adjusted assets (total assets less goodwill). Primary capital is the sum of common stock, per petual preferred stock, surplus, undivided profits (retained earnings), contingency and other capital reserve, qualifying mandatory convertible instru ments, loan and lease loss reserves, minority inter ests in consolidated subsidiaries, less intangible as sets excluding purchased mortgage servicing rights. (For the purposes of this article, only the goodwill portion of intangible assets was deducted). capital requirements to the risk of investment activity. Through 1990, banks have the option of meeting the primary capital/total capital standards, or the transition capital requirements effective December 31, 1990, of 7.25 percent qualifying capital-to-risk-adjusted assets, 3.625 percent core capital-to-risk-adjusted assets and 3 percent leverage ratio. By year-end 1992, all banks will be required to meet the 3 percent leverage ratio, an 8 percent capital-to-risk-adjusted assets ratio and a 4 per cent core capital-to-risk-adjusted assets ratio. 5Some performance measures at Illinois banks are skewed by the results at the biggest Illinois banks, the eight banks with assets of $1 billion or more, none of which are in the Eighth District. For example, overall earnings were negative for Illinois banks in 1987 because of huge provisions the big banks took for loans to lesserdeveloped countries. 6 Eighth District Manufacturers Expand Exports Figure 1 State Export Shares Percent of U.S. Totel Thomas B. Mandelbaum Thomas A. Pollmann provided research assistance. ^ ^ ^ n te m a tio n a l business activity has become in creasingly important throughout the United States. This activity takes numerous forms involving vir tually all types of trade and investment flows. State leaders have recognized this fact and have become more involved in attempting to influence these flows. According to the National Governors’ Association, for example, governors from 41 states and territories made trips to 34 countries in 1989. These visits, which generally include a delegation of state government and business officials, are de signed to increase exports and attract investment. The goal of this paper is not to assess the effective ness of these efforts but rather to highlight the im portance of one underlying reason for many of these business trips, the export of manufactured products. This article examines manufactured exports from the Eighth Federal Reserve District since 1963, with an emphasis on changes that took place between 1976 and 1986. District exports are first described in the context of the overall regional shift of U.S. export activity. A discussion of the economic significance of exports in the Eighth District and in District states and the composition of these exports follows. The Regional Shift o f Export Activity Export activity involving manufactured pro ducts has played an important, and growing, role in the U.S. economy. In 1986, the value of direct manufactured exports totaled almost $160 billion, more than three times as much as in 1963, after adjusting for price changes.1 The share of gross national product accounted for by these exports rose from 2.8 percent in 1963 to 4.3 percent in 1986. Not all regions, however, have enjoyed the rapid growth of manufactured exports found at the national level. Export activity has shifted away from the so-called Rustbelt in recent decades, mir roring the general shift of manufacturing activity. The shares of U.S. manufactured direct exports from the Middle Atlantic Census Region declined from 21.3 percent in 1963 to 12 percent in 1986 while the East North Central Census Region’s share declined from 29.9 percent to 23.3 percent.2 The export shares of all other Census Regions have risen in that period, with the largest increase in the Pacific Region, which includes the three Pacific coast states, Hawaii and Alaska. The Eighth District, which straddles several Census regions, experienced export growth slightly faster than the national average since 1963.3 The District share of the U.S. total increased from 4.7 percent in 1963 to 5.6 percent in 1976 and 6.4 per cent in 1986. The District’s 1986 share was its largest for any year in the 1963-86 period. As figure 1 reveals, the District gain since 1963 has reflected relatively rapid growth in Arkansas, Missouri and Tennessee. Real direct manufactured exports expanded rapidly between 1976 and 1980 in both the nation and the District. In subsequent years through 1986, however, these exports declined slowly in the na tion and grew only weakly in the District. The lack of substantial export growth in the first half of the 1980s is partly attributed to the strengthening ex change value of the dollar, which tended to increase the price of U.S. exports in foreign markets. Other factors, such as sluggish economic growth abroad and rising levels of trade barriers, also hindered export growth. No consistent state or regional export data is available after 1986.4 At the national level, how ever, manufactured exports have grown rapidly in recent years. To the extent that the District share of U.S exports has been stable, or has continued to rise, District manufactured exports have also expanded. I Table 1 Employment Related to Manufactured Exports Export-Related Manufacturing Employment As a Percent of Mfg. Employment 1986 1976 Level (thousands) 1976 1986 United States Eighth District Arkansas Kentucky Missouri Tennessee 2125.4 119.2 14.7 25.6 40.7 38.2 2318.2 128.4 17.8 24.4 44.0 42.2 Total Export-Related Employment, 1986 11.3% 8.7 7.8 9.2 9.6 8.0 12.6% 9.8 9.2 10.3 10.8 9.0 Level (thousands) As a Percent of Total Employment 4576.6 260.7 35.9 52.8 89.4 82.6 4.1% 3.7 3.5 3.4 3.7 3.8 SOURCE: U.S. Bureau of the Census. 1977 Census of Manufactures, and Exports from Manufacturing Establishments: 1985 and 1986. How Export-Dependent is the District Economy? cluding both manufacturing and nonmanufacturing workers, more than 260,000 District workers, or 3.7 percent of all civilian workers, held jobs related to exports in 1986. As table 1 shows, the corre sponding national percentage of 4.1 percent was slightly higher. Despite relatively rapid growth to more than $10 billion in 1986, District exports accounted for a slightly smaller share of District economic activi ty than did exports at the national level. The value of District direct exports in both 1976 and 1986 accounted for approximately 6 percent of total man ufacturing shipments compared with about 7 per cent nationally. In 1986, Missouri, with 7.3 per cent, was the only District state in which exports as a percentage of shipments exceeded the national average. Employment data, shown in table 1, tell a similar story. Export-related manufacturing employ ment accounted for less than 10 percent of manu facturing employment in 1976 and 1986 compared Table 2 provides a more detailed picture of the value of direct export shipments in 1986. It is clear that the composition of state and District ex ports, shown in the first column for each area, dif fers substantially from the national average. The most significant differences include the District’s relatively higher export concentration in transporta tion equipment, chemicals and food and kindred products and its smaller concentration in nonelec with more than 11 percent nationally. The number trical machinery and electrical equipment. of District manufacturing workers dependent on exports rose from approximately 119,000 in 1976, or 8.7 percent of manufacturing employment, to 128,000 in 1986, or 9.8 percent of manufacturing employment. Export-related manufacturing employ ment includes not only workers producing goods for export, but also workers in factories or manufac turers’ administrative offices furnishing intermedi ate material inputs or services to the exporting plants. These supporting workers account for more than half of all export-related manufacturing em ployment in both the District and the nation. The total number of workers dependent on manufacturing, however, goes beyond those in the manufacturing sector. Nonmanufacturing workers who supply services to export producers as well as workers in wholesale/retail trade, mining and trans portation, communication and utilities firms who facilitate the production and shipping of exports are also dependent on manufactured exports. In The second column for each area in table 2 in dicates export orientation, that is, the percent of each industry’s total shipments that was exported. Wide variation in export orientation is evident among District industries, ranging from 0.3 per cent for printing and publishing—indicating it pro duces almost exclusively for the domestic market— to 10.6 percent for the transportation equipment sector. Whereas transportation equipment was the leading export industry in both the District and the nation, the District share was much larger. The in dustry’s $3.7 billion in direct exports accounted for more than a third of all District direct exports in 1986. This large share primarily stems from Missouri’s export of motor vehicle- and aircraftrelated products. Of Missouri’s $4.3 billion total direct exports in 1986, more than two-thirds origi nated in this sector. The rapid growth since 1976 of transportation equipment exports from Missouri Which District Industries Export? Table 2 Composition of Direct Exports and Industry Export Orientation, 1986. KENTUCKY ARKANSAS Percent Percent Export of Total of Total Export Exports Orientation1 Exports Orientation1 Manufacturing Food and kindred products Tobacco products Textile mill products Apparel and textile Lumber and wood products Furniture and fixtures Paper and allied Printing and publishing Chemicals and allied Petroleum and coal Rubber and plastic Leather products Stone, clay, glass Primary metals Fabricated metals Nonelectrical machinery Electrical equipment Transportation equipment Instruments Miscellaneous 4.8% MISSOURI Percent of Total Export Exports Orientation1 5.2% TENNESSEE EIGHTH DISTRICT Percent Percent Export of Total of Total Export Exports Orientation1 Exports Orientation1 7.3% 7.1 NA 14.6% 2.4 7.0 2.5 4.4% NA 2.1 NA 9.9% 3.7 0.7 3.6 0.9 3.6 0.0 1.7 0.8 0.6 2.0 0.8 1.8 0.4 2.3 3.0 2.3 0.5 2.2 0.1 0.2 7.7 0.4 4.1 0.1 4.9 1.1 9.1 NA NA NA 15.2 16.2 2.2 7.1% 11.0% 1.5 4.2 6.6 7.0% 1.3 1.4 0.5 2.1 1.1 3.2 1.6 2.0 0.8 2.0 0.9 2.4 0.9 0.6 1.9 0.6 2.0 1.7 4.6 0.2 0.3 1.4 0.6 1.0 1.7 1.9 1.8 0.4 2.4 1.5 3.1 0.3 2.5 1.5 4.1 NA 0.3 0.5 0.3 0.4 0.2 0.3 0.8 1.1 17.8 8.8 7.5 6.6 31.2 12.3 17.0 10.1 13.2 10.6 4.3 NA NA 0.5 5.2 0.3 1.4 0.5 3.4 2.0 2.5 3.5 0.5 3.4 2.5 2.4 NA 3.7 NA 1.3 0.5 4.6 3.4 2.3 0.5 2.6 3.1 2.0 0.4 3.4 3.2 1.9 0.4 4.0 7.2 0.2 1.1 0.6 1.2 1.6 2.6 5.3 2.0 0.9 1.2 3.5 3.5 3.4 2.6 6.3 3.5 1.7 1.9 4.7 2.6 1.0 2.1 2.7 3.2 4.5 2.8 1.7 1.6 2.5 3.1 2.8 2.8 2.6 2.7 3.3 3.8 7.9 5.3 17.0 9.1 5.3 9.4 15.6 10.3 10.7 9.1 20.4 15.6 9.8 3.8 6.2 3.6 6.2 7.0 7.8 4.8 7.0 4.9 11.4 9.2 4.8 2.6 0.8 5.5 7.8 4.1 22.5 1.0 Z 6.4 7.6 NA 67.2 1.0 0.2 12.7 9.4 2.3 10.3 2.5 1.0 6.8 12.5 3.6 35.9 1.6 0.4 10.6 9.9 3.4 22.6 5.3 1.0 11.5 13.8 6.1 3.5 22.7 SOURCE: Figures were computed from data in U S. Bureau of the Census. Exports from Manufacturing Establishments (January 1989). NOTE: NA indicates that data are not available. Z indicates less than .05 percent. ’ Percent of each industry’s total shipments that were exported 6.0% 5.5% 4.0°/o NA UNITED STATES Percent of Total Export Exports Orientation1 3.6 10.6 9 contributed heavily to the state’s, as well as to the District’s, faster-than-national export growth. Almost 13 percent of transportation equipment shipments produced in Missouri were exported in 1986, making the industry the state’s most exportoriented. In addition to those from Missouri, ex ports of transportation equipment from Kentucky and Tennessee, including trucks and motor vehicle parts, also were substantial in 1986. Exports of chemicals and allied products ac counted for 17 percent of District exports and was the region’s second-largest export industry in 1986. While chemical exports from all four states were considerable, more than half of District chemical exports emanated from Tennessee. The $908 million in chemical-related exports from Tennessee ac counted for almost a third of the state’s $2.9 billion in direct exports. More than 40 Tennessee firms are involved in exporting chemicals and allied pro ducts. They export a wide variety of products, in cluding pharmaceutical, industrial, organic and agricultural chemicals. The rapid expansion of chemical-related exports in Tennessee since 1976 were partially responsible for the state’s relatively rapid export growth. Reflecting the District’s sizable agricultural sector, exports from the food and kindred products industry are relatively larger than at the national level. Poultry products from Arkansas and liquor from Kentucky are among the primary processed food products being exported. On the other hand, exports from the nonelec trical machinery sector, which includes many ma jor capital goods, accounted for a substantially smaller proportion of District exports than in the nation. Nonelectrical machinery production plays a smaller role in the region’s manufacturing sector and is less export-oriented than at the U.S. level. None of the products that dominate U.S. nonelec trical machinery exports, such as computers and construction equipment, are produced extensively in the region. The importance of exporting to District state economies goes beyond the number of jobs exports generate. Reflecting its abundance of skilled labor relative to the rest of the world, the United States FOOTNOTES 1Direct export data represent the value of export ship ments. Data are from the Bureau of the Census’ Census of Manufactures, 1963 and 1977 and Exports from Manufacturing Establishments: 1985 and 1986 (January 1989). 2The Middle Atlantic Census Region comprises New York, New Jersey and Pennsylvania. The East North Central Region includes Ohio, Indiana, Illinois, Michigan and Wisconsin. 3Arkansas, Kentucky, Missouri and Tennessee, whose economies account for the bulk of Eighth District economic activity, are used to represent the District. tends to export goods that require skilled labor. Wages, which are related to skill, tend to be higher in those U.S. industries that are more exportoriented. Such an association was also found for each District state.5 Some of the highest wage rates, for instance, were earned in the states’ transporta tion equipment and chemicals industries, which were among the most export-oriented. Conclusion Several developments suggest exports will con tinue to be a major source of economic activity for District states; however, the future course of ex ports remain uncertain. The U.S.-Canada Free Trade Agreement, recent Japanese commitments to remove trade barriers and the development of mar ket economies in Eastern Bloc nations may provide enhanced opportunities for exporting. The economic integration of Europe after 1992 will most likely aid exporters by creating a more uniform and more rapidly growing market. Competition for sales to this market from nations in Europe and elsewhere in the world, however, is expected to intensify. It is also likely that some U.S. manufacturers will shift operations to Europe, making the net impact of the European integration on U.S. exports uncertain at this time. Finally the soon-to-be-completed Uruguay Round of General Agreement on Tariffs and Trade (GATT) negotiations should produce a more open international trading environment. Even if U.S. manufactured exports continue to expand, some regions may not share in this growth. Between 1976 and 1986, real direct exports rose by almost 25 percent nationally but declined in the Middle Atlantic and East North Central regions. The District share of U.S. exports rose slightly during this period, as exports from some of its leading industries, particularly transportation equip ment, chemicals and food processing, captured larger shares of the U.S. total. In light of the past importance of skilled labor for U.S. exports, states that are able to attract, develop and retain skilled labor are likely to fare relatively better in the 1990s. 4A relatively new source of data, the “ Origin of Move ment of U.S. Exports by State” shown in the FT900 report published by the U.S. Census Bureau’s Foreign Trade Division, provides insights into manufactured ex port activity beginning in 1987. See Tim R. Smith, “ Regional Export Growth: Lessons from the State-Level Foreign Trade Data,” Regional Science Perspectives, (1990), pp. 21-38, for discussions using this series and some of its limitations. Correlations between an industry's 1986 average hourly earnings and its export orientation in 1986 were .49, .28, .51 and .40 for Arkansas, Kentucky, Missouri and Tennessee, respectively. 10 Potential Pitfalls of Interpreting Farm Income Data By Jeffrey D. Karrenbrock David Kelly provided research assistance. A JL JBL ecu rate information is a key element in any decision-making process. Many businesses and policy makers in the Eighth Federal Reserve District and in the United States depend on accu rate farm income data. Farm equipment dealers use farm income data to estimate potential demand for their products. Banks use farm income data to help determine clients’ ability to repay loans. Poli cy makers compare farm income to non-farm in come to see if current government programs are helping to maintain farm incomes at a “ reason able” level. The usefulness of farm income data is com plicated, however, by the existence of various farm income measures. This article highlights the differences in series designed to measure farm in come and, in the process, stresses why these series are not always interchangeable for decision mak ing.1 Much of the discussion is couched in terms of the potential pitfalls in comparing farm income to non-farm income, but readers interested solely in analyzing farm income also will find the discus sion useful. Farm Income vs. Non-Farm Income The Department of Commerce calculates per sonal income in the National Income and Product Accounts (NIPA) for both the farm and non-farm sectors. Personal income is equal to nonfarm per sonal income plus farm personal income. Personal income is the income received by households from all sources, including wages and salaries, interest and dividend payments, and transfer payments, such as social security payments. The farm per sonal income estimate includes farm proprietors’ income, wages and salaries of farm labor, other labor income, such as employer’s contributions to health insurance, and net interest. Farm proprietors’ income, the largest compo nent of farm personal income, is estimated in the NIPA by adjusting the U.S. Department of Agri culture’s (USDA) net farm income estimate. This adjustment is necessary because the method of capital consumption allowance (that is, deprecia tion) used by the USD A differs from that used in the NIPA. The relationship between NIPA’s farm proprietors’ income and USDA’s net farm income, along with the relationship between farm propri etors’ income and other income series discussed in this paper, is shown in table 1. In short, the bulk of NIPA’s farm personal income estimate depends on USDA’s net farm income estimate. Therefore, any problem associated with the USDA’s net farm income estimate will influence NIPA’s farm per sonal income estimate. Real per capita personal income for the farm and non-farm U.S. population is shown in figure 1. Clearly, per capita farm personal income has fallen short of per capita non-farm personal income every year except 1972. On average, between 1960 and 1988, per capita farm income has been 69 per cent of per capita non-farm income. The difference between the two figures, however, has changed over the years. During the 1960s, per capita farm income was about 57 percent of per capita non farm income, while in the 1970s this figure jumped to 77 percent. The figure has since fallen to about 73 percent during the 1980s. One shortcoming of using farm personal in come estimates for this comparison can arise if users assume that the farm personal income figures represent the return to only farm labor and man agement. Recall that USDA’s net farm income estimate is a key component of the farm personal income estimate. In the USDA’s net farm income figure, land rental expense and interest on real estate debt are included as expenditures. However, if a farmer owns his/her land, no imputed expense is deducted from gross receipts to account for the opportunity cost of using the land. This implies that part of net farm income represents a return to land as a factor of production and not returns sole ly to labor and management. Thus, personal farm income overstates the return to labor and manage ment and ideally should be adjusted to account for the opportunity cost of using owned land. The Role of Off-Farm Income The farm personal income figures discussed above include only income earned from farming operations and not any income earned by farm household members not working on the farm. For example, the income earned by a farmer’s spouse working at the local bank would not be included in the farm income figures, even though the spouse is considered as part of the farm population. The most important part of off-farm income is wages and salaries, but interest, dividends, pensions, re tirement, transfer payments and non-farm business or professional income are also included. 11 Table 1 Farm Income Data - Basic Accounting Relationships Net Farm Income (USDA) Plus: Depreciation and other consumption of farm capital (USDA) Monetary interest received by farm corporations Less: Capital consumption allowances with consumption adjustments (NIPA) Other Equals: Farm Proprietor’s Income1 (NIPA) Farm Proprietor’s Income (NIPA) Plus: Farm component of wages and salaries (NIPA) Farm component of other labor income (NIPA) Farm component of net interest income (NIPA) Equals: Farm Personal Income (NIPA) Farm Personal Income (NIPA) Plus: Off-Farm Income (USDA) Equals: Total Farm Income 1The complete title of this account is “ Farm Proprietors’ Income and Corporate Profits with Inventory and Capital Consump tion Allowances.” Only the non-corporate portion of the account was used in this study. Figure 1 Real Per Capita Personal Income 1960 64 68 72 76 80 84 1988 SOURCE: Derived from data provided In the Economic Raport of tha Prasidant, February 1990, and Aaricultural Statistics (USDA). various years. When comparing the income situation of the farm population to the non-farm population, it is inaccurate to assume that the farm population de rives its income solely from the farm sector. Offfarm income has become an important part of farm households’ total income and its omission clearly puts a downward bias on the per capita farm in come estimate. In 1960, off-farm income accounted for about 35 percent of total farm income. Since 1970, that number has held relatively constant at around 45 percent. Estimates of per capita total farm income and non-farm income are shown in figure 2. These new income series were calculated by switching off-farm income, as estimated by USDA, from non-farm personal income to farm personal in come. While per capita total farm income was below non-farm income during the early 1960s, per capita total farm income has been higher, as well as more variable, than per capita non-farm in come since 1965. In fact, since 1965 per capita total farm income has averaged about 28 percent higher than per capita non-farm income. Even after subtracting direct government payments to farmers from total farm income, per capita farm income has been higher than per capita non-farm income since 1970, falling below only in 1983. The preceding comparison, however, of per capita total farm income with non-farm income is not ideal. The off-farm income component of total farm income understates the true return to the farm population’s labor and management skills. The offfarm income figures only represent off-farm in come of the farm’s principal operator’s family. Say, for example, that a farm is operated by a father and his son, who does not live with his father and has a family of his own. If the father is the principal operator of the farm, then only offfarm income of his spouse and children living at home are included in off-farm income. Off-farm income of the son’s family is not included in USDA’s off-farm income estimate. Since off-farm income is a component of total farm income, this understatement of off-farm in come causes the income position of the farm popu lation to be understated as well. On the other hand, total farm income also includes net farm income, which overstates the return to labor and manage- 12 Figure 2 Real Per Capita Income derreport government transfer payments, such as welfare and food stamp values. Thus, these aver age household income values may underestimate the true level of income for both farm and non farm families and differences in the degree of un derreporting could make any relative comparisons of income inaccurate. Commercial Farmers vs. PartTime Farmers I960 64 68 72 76 80 84 1988 SOURCE: Derived from data provided In the Economic Report o f th * President, February 1990, and varioua USDA publications. ment. Thus, within total farm income, two com ponents exist that may cause problems, one over stating and the other understating the returns to farm labor and management. Per Capita Income Income i/s. Household The two measures of income discussed above were given in terms of average per capita income. Per capita income figures were calculated by di viding the respective income figure by the total farm or non-farm population. Some analysts, how ever, prefer to use average family or household in come statistics as they are readily available for a wide variety of household descriptions. Research has shown that the average farm household’s total income far surpassed the average income of all U.S. households during the early 1970s.2 Farm household income fell below the U.S. average income during the late 1970s and early 1980s, but has surpassed the U.S. average level again in the late 1980s. Indeed, in 1988, the average U.S. farm household income was more than 20 percent greater than the average income of American households. While household income measures provide an alternative means for analyzing income levels, they too have shortcomings. First, the household in come figures say nothing about the average family size of the different groups being compared. Se cond, these household income figures are based on surveys and the accuracy of the income estimates is only as accurate as the numbers reported. The Census Bureau has noted that people tend to un The preceding farm sector income figures are based on a very broad definition of the farm sec tor, where a farm is defined to be any rural place selling $1,000 or more in agricultural commodities per year. Anyone living on such an establishment is considered part of the farm population. Many of these farms could more accurately be described as part-time farms. Agricultural commodity sales of $1,000 could be achieved by raising and selling two butcher steers or growing and selling 10 acres of corn. Neither of these enterprises would be a full-time job. Specific income characteristics of farms by commodity sales category are shown in table 2. The figures reveal that the $40,000 sales level marks a distinct difference in farm characteristics. For example, there is a sharp decline in the per cent of total sales accounted for by farms with sales less than $40,000. Although these small farms account for 68 percent of all farms, they only account for about 10 percent of farm com modity receipts. Furthermore, these smaller farm operators rely substantially more on off-farm in come than on farm income and work fewer hours per week than do the large farm operators. Farms with sales below $40,000 could perhaps be more accurately classified as part-time farms, while those farms with sales over $40,000 could be con sidered commercial farms. Referring to table 2 again, the average net farm income of commercial farms, using USDA’s net farm income series, in 1988 ranged from $15,155 to $200,766. The average net farm in come of part-time farms ranged from $4,065 to $5,717. When off-farm income is added to net farm income, the total income of commercial farm households rises to a range of $34,684 to $229,757 and part-time farm household income rises to a range of $31,910 to $46,934. These income figures by sales category reveal that when analyzing the income situation of the farm sector, it is important to specify whether or not those people who rely almost solely on farm ing for their income are being discussed or if any one, however minutely involved in agriculture, is included. If the average income of all farms is be ing used to make a decision, then it is important to 13 Table 2 January 1, 1989, Financial Characteristics of U.S. Farms by Sales Category Average Per Farm Government Payments Net Farm Income Off-Farm Income TOTAL INCOME Hours worked per week1 $250,000$499,999 $100,000$249,999 $40,000$99,999 $20,000$39,999 $10,000$19,999 $9,999 or Less 35,455 200,766 28,991 229,757 59 26,481 61,196 19,993 81,189 59 15,942 34,093 20,580 54,673 55 7,038 15,155 19,529 34,684 49 2,833 4,619 27,291 31,910 35 1,065 5,717 41,217 46,934 28 155 4,065 31,869 35,934 17 2.0 33.1 31.8 13.6 4.0 17.7 20.8 20.6 11.7 25.1 26.7 36.4 14.0 13.6 12.8 19.3 11.0 4.4 4.2 6.0 11.9 2.9 1.8 2.4 45.4 2.9 1.5 1.3 All Farms $500,000 + 5,113 15,534 28,895 44,429 32 100 100 100 100 Percent of U.S.2 Farms Livestock Sales Crop Sales Government Payments 1Farm operator average. 2Numbers may not add to 100 due to rounding. SOURCE: Derived from data taken from Financial Characteristics of U.S. Farms, January 1, 1989. Economic Research Service, USDA. Agriculture Information Bulletin No. 579. Conclusion realize that this figure is well below the average income of those farms that produce the majority of U.S. agricultural output. Many large farm opera tions that rely mainly on farm income, have total income levels that are substantially higher than the average American household. The question that remains unanswered, how ever, is: What is the per capita income of these large farm operations? Unfortunately, farm popula tion estimates by sales category size are not avail able. It is common, however, for large farms to support two or three generations of a family and the number of people depending on income from these commercial farms could be large. Thus, even though the overall profit level from these commer cial farms is generally relatively large, whether or not the per capita income levels provided from these farms is larger than non-farm per capita in come is uncertain. FOOTNOTES 1This article does not discuss all of the income series available. The USDA estimates several other income series that address some of the problems mentioned in the text. See the USDA’s Economic Indicators of the Farm Sector: National Financial Summary. The ideal definition of farm income depends on the intended use of the information. This article has pointed out that farm income data users should scrutinize the components of farm income esti mates before using them. Many farm income sta tistics have shortcomings of which users should be aware. For example, the USDA’s net farm income estimate includes returns to some land, labor and management and includes returns from farm opera tions that could be classified as part-time farms. The USDA’s off-farm income estimate is only for the principal operator’s family and may exclude a significant amount of income earned by a second family also depending on the farm for part of their income. When comparing household or family in come levels, users should remember that no dis tinction is made between the average family size of the different groups. Similarly, when discussing the income levels of large and small farms, users should not assume a one-family-to-one-farm rela tionship holds for all sales categories. 2Kalbacher, Judith Z. and Nora L. Brooks. "Farmers Are Part of American Mainstream,” Choices, First Quarter 1990. The American Agricultural Economics Association 14 Eighth D istrict Business Level Compounded Annual Rates of Change IV/1989- 1/1990 Payroll Employment 1/1990 1/ 19891/1990 19891 19881 (thousands) United States District Arkansas Little Rock Kentucky Louisville Missouri St. Louis Tennessee Memphis 110,214.0 6,904.0 910.8 250.0 1,471.3 482.0 2,333.3 1,189.7 2,188.6 466.6 3.0% 4.3 4.8 5.1 6.7 4.1 2.8 2.5 4.0 3.3 2.4% 2.6 3.1 3.0 3.7 4.0 1.5 1.7 2.6 1.9 2.8% 2.9 3.0 3.0 3.8 4.1 2.2 2.3 3.0 1.5 3.3% 3.5 3.5 3.5 4.1 3.1 2.8 2.3 4.0 7.3 19,409.7 1,479.4 230.5 284.2 437.0 527.7 - 2 .1 % 0.9 2.8 -1 .1 0.0 2.0 - 1 .3 % 0.4 0.0 0.7 -0 .6 1.3 1.1% 2.0 1.6 3.6 1.2 1.8 2.0% 3.2 3.1 4.5 2.3 3.4 - 0 .2 % -5 .6 0.7 1.5 4.4 2.6 3.1 - 4.8% 1.0 0.3 3.5 5.1 3.0 2.2 - 5 .3 % 0.3 0.5 4.3 6.3 3.7 2.4 1989’ 1988’ 2.7% 2.2 2.0 2.5 1.9 2.4 3.4% 2.8 2.9 2.8 2.1 3.6 1988 1987 5.5% 6.5 7.7 6.4 7.9 6.3 5.7 5.9 5.8 5.2 6.2% 7.2 8.1 7.1 8.8 6.9 6.3 6.5 6.6 5.7 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 Unemployment Rate United States District Arkansas Little Rock Kentucky Louisville Missouri St. Louis Tennessee Memphis 49.8 307.2 339.9 398.9 1,550.6 1,662.0 1,120.1 IV/1989 $3,554.1 194.9 25.1 41.6 69.0 59.2 5.0% 12.2 1.5 1.2 5.5 6.2 4.8 111/ 1989IV/1989 4.3% 3.4 4.9 2.9 4.8 1.4 1/1990 IV/1989 5.29/0 5.7 6.4 5.5 6.0 5.4 5.8 5.9 5.1 4.4 5.3% 5.7 7.0 6.1 5.7 5.2 5.6 5.7 5.2 4.6 IV/1988IV/1989 2.6% 2.0 1.2 2.5 2.1 2.1 Levels 1989 5.3% 5.8 7.2 6.3 6.2 5.6 5.5 5.5 5.1 4.7 Note: All data are seasonally adjusted. On this page only, the sum of data from Arkansas, Kentucky, Missouri and Tennessee is used to represent the District. ’ Figures are simple rates of change comparing year-to-year data. 2Finance, Insurance and Real Estate ^Transportation, Communications and Public Utilities “Annual rate. Data deflated by CPI-U, 1982-84 = 100. 15 U. S. Prices Level Compounded Annual Rates of Change IV /1 9 8 9 - 1/1989- 1/1990 1/1990 1/1990 127.7 131.0 7.5% 11.8 152.0 170.7 132.3 14.3% 12.6 15.2 168.0 181.0 7.5% 6.9 19891 1988’ 4.9% 6.7 4.7% 5.8 4.0% 4.1 1.5% 7.4 -5 .3 7.0% 6.6 7.4 8.8% 2.7 18.3 2.4% 3.4 5.3% 4.4 6.9% 4.4 Consumer Price Index (1982-84 = 100) Nonfood Food Prices Received by Farmers (1977 = 100) All Products Livestock Crops Prices Paid by 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 D istrict Banking Changes in F inancial P osition fo r the y e a r ending D ecem ber 31, 1989 (b y A s se t Size) SELECTED ASSETS Securities U.S. Treasury & agency securities Other securities Loans & Leases Real estate Commercial1 Consumer Agriculture Loan loss reserve Total Assets SELECTED LIABILITIES Deposits Nontransaction accounts MMDAs $100,000 CDs Demand deposits Other transaction accounts2 Total Liabilities Total Equity Capital L ess than $ 1 0 0 m illio n - $ 3 0 0 m illio n - M ore th a n $ 1 0 0 m illion $ 3 0 0 m illio n $1 b illio n $1 b illio n - 5.9% -4 .4 -1 0 .5 -1 .5 0.2 -2 3 .6 -0 .4 2.8 -2 .9 -2 .3 - 2.4% -1 .0 -1 8 .5 4.5 -7 .6 -4 .8 -2 .5 -0 .9 8.6% 11.5 -3 0 .2 11.5 13.1 3.0 11.9 31.3 16.3 11.9 12.4% 14.4 -2 .1 13.4 6.2 8.5 11.9 12.0 2.8% 7.7 -3 5 .8 10.9 22.6 7.9 2.1 24.2 18.3 8.6 8.0% 10.3 2.3 2.4 -0 .4 8.4 8.4 11.1 Note: All figures are simple rates of change comparing year-to-year data. Data are not seasonally adjusted. includes banker’s acceptances and nonfinancial commercial paper includes NOW, ATS and telephone and preauthorized transfers 18.8% 30.0 -3 6 .2 9.7 20.8 2.1 9.2 -18.1 25.4 7.9 5.9% 10.9 19.5 -4 .2 -5 .3 1.5 8.0 25.3 16 P erform an ce R atios (b y A s s e t s iz e ) U n ite d S ta te s E ig h th D is tric t IV /8 9 _________ IV /8 8 _________ IV /8 7 EARNINGS AND RETURNS Annualized R eturn on Average Assets L e s s th a n $ 1 0 0 m illio n $ 1 0 0 m illio n - $ 3 0 0 m illio n $ 3 0 0 m illio n - $1 b illio n $1 b illio n - $ 1 0 b illio n M o r e th a n $ 1 0 b illio n A g r ic u l tu r a l b a n k s 1 .0 0 % 1.01 1.02 .60 — .96% .97 .99 .82 — .880/0 .95 1.07 .51 — 1.10 1.05 .73 10.96% 12.54 13.05 9.34 10.65% 11.99 12.75 12.46 9.940/0 11.80 13.68 7.96 IV /8 9 IV /8 8 IV /8 7 .75% .91 .80 .65 .06 1.03 .64% .78 .67 .75 .95 .91 .50% .73 .49 .50 -.6 7 .65 8.240/o 11.43 11.16 10.25 1.37 10.64 7.20% 9.94 9.64 11.78 18.96 9.64 5.79% 9.52 7.01 8.01 -1 5 .4 0 7.13 4.170/o 4.34 4.29 4.07 3.37 4.02 4.140/o 4.23 4.17 4.04 3.63 3.99 4.24% 4.18 4.15 3.96 3.35 3.95 1.96% 1.98 2.29 2.23 4.66 2.00 2.21% 1.94 2.26 2.08 4.59 2.33 2.62% 2.18 2.39 2.40 5.42 3.16 1.55% 1.49 1.60 1.93 4.07 1.99 1.59% 1.47 1.62 1.74 3.75 2.05 1.65% 1.52 1.75 1.93 4.39 2.12 .66% .61 .76 .94 1.58 .56 .79% .66 .79 .96 1.10 .75 1.09% .79 .94 .84 .90 1.35 Annualized R eturn on Average Equity L e s s th a n $ 1 0 0 m illio n $ 1 0 0 m illio n - $ 3 0 0 m illio n $ 3 0 0 m illio n - $1 b illio n $1 b illio n - $ 1 0 b illio n M o r e th a n $ 1 0 b illio n A g r ic u ltu r a l b a n k s — 11.26 — 11.07 — 7.82 Net Interest M argin1 L e s s th a n $ 1 0 0 m illio n $ 1 0 0 m illio n - $ 3 0 0 m illio n $ 3 0 0 m illio n - $1 b illio n $1 b illio n - $ 1 0 b illio n M o r e th a n $ 1 0 b illio n A g r ic u ltu r a l b a n k s 3.92% 3.93 4.02 3.56 — 3.89% 3.87 3.90 3.66 — 3.95% 3.95 3.96 3.64 — 3.81 3.79 3.80 1.55% 1.64 1.40 1.67 1.68% 1.63 1.28 1.67 2.05% 1.90 1.50 2.47 ASSET QUALITY2 Nonperforming Loans3 L e s s th a n $ 1 0 0 m illio n $ 1 0 0 m illio n - $ 3 0 0 m illio n $ 3 0 0 m illio n - $1 b illio n $1 b illio n - $ 1 0 b illio n M o r e th a n $ 1 0 b illio n A g r ic u ltu r a l b a n k s — — — 1.65 1.93 2.52 1.44% 1.43 1.42 1.64 1.46% 1.36 1.35 1.60 1.47% 1.32 1.29 2.18 Loan Loss Reserves L e s s th a n $ 1 0 0 m illio n $ 1 0 0 m illio n - $ 3 0 0 m illio n $ 3 0 0 m illio n - $1 b illio n $1 b illio n - $ 1 0 b illio n M o r e th a n $ 1 0 b illio n A g r ic u ltu r a l b a n k s — — 1.68 1.84 .43% .52 .51 1.03 .50% .50 .43 1.20 — 1.83 Net Loan Losses4 L e s s th a n $ 1 0 0 m illio n $ 1 0 0 m illio n - $ 3 0 0 m illio n $ 3 0 0 m illio n - $1 b illio n $1 b illio n - $ 1 0 b illio n M o r e th a n $ 1 0 b illio n A g r ic u ltu r a l b a n k s — — .42 .48 .74% .65 .71 .69 — 1.16 Note: Agricultural banks are defined as those with 25 percent or more of their total loan portfolio in agriculture loans. interest income less interest expense as a percent of average earning assets 2Asset quality ratios are calculated as a percent of total loans. 3Nonperforming loans include loans past due more than 89 days, nonaccrual, and restructured loans. 4Loan losses are adjusted for recoveries.