Missouri's spring profile shows solid bank performance

Missouri’s economy added 6,700 jobs in the fourth quarter of 2004, which contributed to an increase of more than 21,000 jobs for the year, according to the state’s spring profile, recently released by the Federal Deposit Insurance Corp. The increase was the largest annual gain posted by the state since 1999, with most of the added jobs in trade, transportation, utilities and finance.

Specifically, the manufacturing sector added 1,900 jobs in the fourth quarter, which contributed to the first increase in manufacturing in a calendar year since 1999. However, the profile noted, manufacturing employers have recovered less than 2,000 of the more than 67,000 manufacturing jobs lost in the previous six years.

Missouri’s unemployment rate changed to 5.8 percent in the fourth quarter, compared to 5.5 percent one year earlier.

Banking performance

The profile also shows that asset quality, which suffered modestly through Missouri’s 2000-03 economic downturn, continues to improve. Loan volume has climbed for the last two years and stands at 70.4 percent of assets after remaining flat 2000 through 2002.

Loan mix continues to shift into real estate lending, specifically commercial real estate and farmland. The median loan-to-asset ratio for commercial real estate has increased sharply in the past five years, from 19.9 percent in 2000 to 26.3 percent in 2004. Business lending has been steady. Residential, agriculture production and consumer lending have declined.

Also, the proportion of unprofitable, established institutions in Missouri was 1.9 percent at the end of 2004, unchanged from the previous year.

Deposit rates

The profile shows that commercial banks are likely to face pressure to raise nonmaturity deposit rates.

In relatively stable interest rate environments, the cost of bank nonmaturity deposits typically runs at about half of the federal funds rate. When short-term rates fell in 2001 and 2002, however, deposit rates did not follow completely, indicating that nonmaturity deposit rates had reached a natural floor. If interest rates continue to rise, banks are likely to feel pressure from customers to raise deposit rates.

Farmland values

In 2004, Missouri’s farmland values moderately increased. According to the U.S. Department of Agriculture’s annual survey of land values, the average value of Missouri farmland increased more than 7.5 percent in 2004, compared to an annual average of 6.6 percent in the previous decade.

While the average price of $1,580 per acre was the highest recorded in current dollars, farmland prices in the 1980s were considerably higher in inflation-adjusted dollars. In 1981, for example, Missouri’s average land prices exceeded $1,812 in 2004 dollars.

Favorable crop yields, low interest rates and investment demand are among the most important influences on increased land prices, according to the profile report.

The profile designates Springfield, Kansas City, St. Louis, Jefferson City and Columbia as the largest banking markets in Missouri.

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