September 1952 Banking Operations in the First Half Important operating results in Fifth District member banks for the first six months of 1952: ã Net profits af t er taxes—unchanged from first hal f ' 51. ã Current operati ng earnings—up substantially. ã Income taxes—up one-t hird, offsetti ng higher profits before taxes. ã Loans and investments—up 9.3% from mid-1951. ã Total deposits—up almost 10%; ti me, up 7.8%. ã Capi tal accou
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  September 1952   Banking Operations in the First Half  Important operating results in Fifth District member banks for    the first six months of 1952:ã Net profits after taxes—unchanged from first half '51.ã Current operating earnings—up substantially.ã Income taxes—up one-third, offsetting higher profits before   taxes.ã Loans and investments—up 9.3% from mid-1951.ã Total deposits—up almost 10%; time, up 7.8%.ã Capital accounts—up 5 . 5 %,  to equal 7.3% of deposits. F ifth  D istrict   member banks’ net profits after taxes in first half 1952 were virtually the same as in the same period last year, but, because of the continuing rise in total capital ac counts, profits after taxes as a ratio to capital drop ped sharply from first half 1951. Member banks throughout the United States by contrast reported a small increase in the rate of return on capital.Net profits after taxes were 8.2% of average to tal capital accounts for Fifth District member banks (on an annual ba sis), down from 8.6% in the first half of 1951, and substantially below the 9.5% return for first half 1949. By contrast, first half earnings of member banks in the United States as a whole were up from 7.8% to 8.0% of capital. For the past several years, the average return for Fifth Dis trict member banks has remained almost 1% above the nationwide rate of return. For first half 1952, this dif ferential was reduced to 0.2%, largely because of a rela tive increase in net losses reported by District banks. A more favorable picture was reported in current operating earnings of Fifth District member banks, which were up a substantial 11.6% from the first half of last year, largely because of the increased volume of loans and investments. Also significant was the gen eral increase in interest rates. Although loan portfolios were larger in the first half of this year than in the same period in 1951, the share of earning assets held in this form actually was slightly smaller than a year ago. Hold ings of Government and other securities (which yield a lower average gross rate of return) comprised a cor respondingly larger share of earning assets, a factor which tended to reduce the average rate of return on earning assets.The creeping up-trend in costs continued—currentoperating expenses were up 10.6% from a year ago. This is the largest percentage increase for any first half year since the early postwar period, but it did not offset the higher gross earnings, and the dollar volume of net current earnings was up 13.0%.The ratio of net current operating earnings to capital continued to increase—it rose from 15.2% in the first half 1951 to 16.2% in the first six months of this year, compared with national figures of 14.2% and 15.2%. In terestingly, the District maintained its differential over the national average rate of net current earnings, but, because of relatively higher reported net losses, the netrate of return after taxes dropped to only slightly above the national average.Sustained high levels of production and continuing low rates of business fail ures have served to reduce both reported losses and reported recoveries. The backlog of bad debts from earlier periods has been re duced substantially; conse quently, total recoveries were reported down 28.2% from first half 1951 in the District. Reported losses were down 14.6% from a year ago. Other factors contributing to deceased reported losses were smaller changes in prices of Gov ernment and other securities (it was in the first half of 1951 that prices of many issues of Governments broke below par), and the fact that many banks have completed their build-up of valuation reserves for bad debt losses on loans. A ruling of the Commissioner of Internal Revenue made in December 1947 provided a fixed formula for determining allowable deductions from taxable income for setting up and maintaining reserves for bad debt losses on loans. The amounts that may be set up are, with certain exceptions, limited to three times the annual allowable deduction. The greater part of these reserves was built up in the three-year period end ing in 1950. However, some banks did not start build ing these reserves until 1949 or later. Further, the subsequent growth in loans has served to stretch the period during which these reserves can be built up. Therefore, substantial transfers to these reserves are still being made. Reported recoveries, it should be noted, do not include recoveries credited directly to these reserves, and reported losses do not include losses charged directly to these reserves. 4 5  y    September 1952  Federal Reserve Bank of Richmond BANK PROFITS - THE MIDYEAR PICTURE Higher CurrentOperatingEarningsat 1951 levels 1951 1952  As reported recoveries fell further than reported losses, reported net losses were larger than in the first half of last year. This increase in reported net losses caused the ratio of net profits to capital in the District to drop relative to the nation; reported net losses for member banks in the United States were down substan tially from first half 1951. Even after deduction of larger losses, profits before taxes were up 13.2% in the Dis trict.Taxes on net income, almost a third higher than in first half 1951, ate up the entire increase in profits. Member banks paid out almost half of their profits in income taxes, and net profits after taxes held at virtually the 1951 level (actually, down about 1/50 of 1%).In line with the action of recent years, banks in the aggregate maintained a fixed percentage dividend on capital. Both dividends and capital accounts were about 5-1/2% above first half 1951. Retained earnings were correspondingly reduced below the same period last year.  Assets ......... Member bank loans and investments were 9.3% high er on June 30 than a year earlier. Almost all this in crease was in the last half of 1951, when holdings of Government and other securities jumped substantially. Since year-end 1951, Government holdings were downslightly, but showed a net increase of 10.5% in the past year. Holdings of other securities continued to increase, although more moderately in the first half of this year, and at midyear were  28.8%  greater than on June 30, 1951.Net loans have continued to increase moderately since last fall, and on June 30 were 4.7% up from midyear1951. They increased more rapidly relative to usual seasonal expectations in the second quarter of this year. This is attributable only in part to relaxations of credit restrictions. Most obvious increases were in consumer loans, which pushed to a new peak level at midyear. Aft er minor revisions earlier in the year, restraints on con sumer credit were suspended effective May 7. Further authority for regulation of consumer credit expired June 30.Each category of loans to individuals has increased substantially since spring. The increase was particu larly apparent in retail automobile paper and other retail instalment loans. Cash instalment loans, repair and mod ernization loans, and single-payment loans continued to increase.In this District, the effects of the suspension of the  Voluntary Credit Restraint Program on May 12, the subsequent lapse of authority for this program at mid *16 )>   September 1952  September 1952  year and relaxation of Regulation X on June 11 have been more problematical.Commercial and industrial loans showed a less than seasonal decline in the first half of the year, with most of it in the second quarter. Except for 1949, these loans have increased in the first half of every postwar year.Conventional residential real estate loans of member banks in the Fifth District, as well as those insured or guaranteed by VA, continued upward throughout the first half of the year. Interestingly, holdings of FHA insured mortgages declined in the second quarter.Fifth District member banks reported total reserves, cash and bank balances at mid-1952 up more than 10% from a year earlier. Member bank reserves with the Federal Reserve Bank, although off from year-end, showed little change from mid-1951. However, substan tial increases were reported in cash in vault, balances with banks, and cash items in process of collection.Liabilities............Total deposits of Fifth District member banks in creased almost 10% during the last year, and on June 30 were up contra-seasonally more than 2% from March levels. Although the largest percentage increases were concentrated in time and demand deposits of Federal. State, and local governmental units, deposits of indi viduals and businesses were also up substantially. De mand deposits of individuals, partnerships, and corpora tions were 9% above a year ago. Time deposits of in dividuals, partnerships, and corporations continued the steady climb which started in the spring of 1951.Capital ............ Total capital accounts increased at about the same steady rate of recent years. Most of the increase came from retained earnings, but a part was from new capital.  At almost $463 million, capital equaled 7.3% of total deposits, as compared with 7.5% at mid-1951.—G.W.M.  ASSETS AND LIABILITIESFifth District Member Banks(Dollar amounts inmillions)Percentage ChangeJune 30, Dec. 31,June 30.Dec. 31,,-June 30,June 30,-June 30, ASSETS1952195119511951195219511952Loans and investments __  .5,051.75,040.04,623.8+0.2+9.3Loans and discounts (including overdrafts) _______________________________2,095.22,041.32,002.0+2.6+4.7U. S. Government obligations __________ 2,532.92,596.12,292.92.4+10.5Other securities ________________________423.5402.6328.8+5.2+28.8Reserves, cash, and bank balances ________ 1,746.91,908.91,583.1—8.5+10.3Reserve with Federal Reserve Bank ___ 811.1855.7811.7  _ 5.2—0.1Cash in vault __________________________ 134.8159.6103.6—15.5+30.1Balance with banks ____________________ 424.1495.1361.0—14.3+17.5Cash items in process of collection ____ 377.0398.5306.9—5.4+22.8Other assets _____________   ______  . ___ 87.285.480.8+2.1+7.9Total Assets . ______ 6,885.87,034.46,287.7-2.1+9.5LIABILITIESDemand deposits ______________   ________ 4,922.95,148.54,460.6—4.4*T10.4Individuals, partnerships, and corpora tions _________________________________3,728.93,911.73,422.5—4.7+9.0U. S. Government ________________233.4116.5195.8+ 100.3+19.2States and political subdivisions ________ 396.5414.8351.5—4.4+12.8Banks ________________________________—474.9599.9418.4—20.8+13.5Certified and officers’ checks, etc. _______ 89.2105.672.5—15.5+23.0Time deposits ____________ _ _______________ 1,447.71,384.61,343.1+4.6+7.8Individuals, partnerships, and corpora tions __________________________________1,302.41,256.11,231.1+3.7+5.8U. S. Government and Postal Savings -54.149.934.5+8.44-56.8States and political subdivisions _______ 73.661.059.9+20.7+22.9Banks _____ _ _________ _____ _____________ 17.617.617.50+0.6Total deposits _ __   ___   ____ 6,370.66,533.05,803.7—2.5+9.8Borrowings ____ _____  - ____________—8.3—38.9Other liabilities ______  _   ________ 50.450.041.9+0.8+20.3Total Liabilities ____ _  - - ___ 6,423.16,585.45,849.2—2.5+9.8Total Capital Accounts ____________ 462.6448.9438.5+3.1+5.5Total Liabilities and Capital Ac counts _ ____________6,885.87,034.46,287.7—2.1+9.5Demand deposits adjusted3,837.64,033.63,539.5—4.9+8.4Number of banks ____  _ ____ _  .. ..........475477475Note: May not add to totals because of rounding.   September 1952


Jul 25, 2017


Jul 25, 2017
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