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Twenty-fifth cAnnual deport of the FEDERAL RESERVE BANK OF PHILADELPHIA 1939 Third Federal Reserve District Directors as of 1\Iay 1,1939 Croup Cl: l, n A: Joseph 11ayne,. 1r President, ................................... Philadelphia National Philadelphia, I'cnnsykania. George WC. lteily President, ..................................... National I Iarrisbarg Ilarrisbarg, Term expires I I911 Bank, _° Bank, 193() Pennsylvania. 1940 I. li. Il(. nning ... .3.................................... PresidenL, National Rank, AVwaoinR Tunkhannuek, Penns)h ania. Class B-. 1 19111 Harry L. Cannon .................................. 11. P. Cannon & Son, Inc., Bridgeville, Delaware. ., 1911 J. Carl I)e La Cour ................................. Vice President, Win. S. Scull Company, Camden, New Jersey. 3 1939 f,... f John It. Evans and Company, Camden, New Jersey. .. (]aa: K C: Thomes B. McCabe, Chairmann and Federal Reserve Agent President, ...................................... Scott Paper Company', Chester, PennsýIvania. Alfred 19: 59 1911 If. Williams ................................. Dean, Al harlon School, l lni%ersit ý of PennsSIvania, I'hiladelphia. 11) 11) Officers JOIIN FRANK First 5. S' IXCL: J. DRINNEN, C. A. MZCILIIENNY, Vice President and Cashier \V. J. DAVIS, Vice President ERNEST C. HILL, C. A. SIENK 1w1CZ Assistant Vice President JAMES DI. Toy, Assistant Cashier GLENN K. Monius, Assistant Cashier Vice President Assistant President L. E. DONAI LEON, Assistant Vice President Vice President \\'ILLIAm V It, G. MCCREEDY, ARTItuR Vice President PHILIP E. Pos'r, Secretary M. POORMAN, Auditor FEDERAL RESERVE OF PHILADELPHIA BANK CONTENTS Page I Business conditions ........... . .............. 3 Industry l Income 15 ........................... Distribution ....................................... Prices 17 ......... .... Ranking and credit conditions .............................. Rank reserves .... ................ ...... Federal Reserve Rank .................. Member banks ..................................... Condition of member banks ................................. Deposits ... ............. ................... Loans and discounts. ..... * .............. ...... ..... investments funds Capital ........ Earnings and expenses ........... . 20 20 20 ..... 22 26 26 27 30 37 . 3rß ...................... 40 Analysis of member bank investments ....................... 52 Money rates ................................ Federal ReserveBank ...................... Reservebank credit ................. 57 59 ........... 60 Industrial advances .......................... ......... Volume of work .................................... Earnings and expenses............... .......... 62 63 65 Membership .... ....................................... Changes in officers and directors ......................... . 66 FEDERAL RESERVE BANK OF PHILADELPHIA April 30,1940. To the Stockholders of the Federal Reserve Bank of Philadelphia: For your information there is presented herewith the twenty-fifth annual report of this bank. It contains a review of the operations of the bank and a survey of developments in business, banking and credit conditions in the Third Federal Reserve District during 1939. It also gives a brief analysis of investments of member banks in this district. JOHN S. SINCLAIR President Business Conditions Industrial and trade conditions in the Third Federal Reserve District improved substantially during 1939, and by the end of the year activity approached the high levels reached in 1937. The expansion occurred in the second half of the year, as in the first five months the sharp upward trend which began in the middle of 1938 was temporarily halted. Buyers had been cautious throughout the earlier expansion period, and after the turn of the year the volume of purchases declined somewhat further as domestic business slackened, apparently to appraise the outlook following the sustained advance. The most unsettling feature of the situation at that time was the growing possibility of war in Europe in addition to that in the Orient. During the first five months, the seasonally adjusted index of industrial production in this district declined for the about 2 per cent and the production index country, published by the Board of Governors of the Federal Reserve System, dropped 12 per cent. I In June 1939, however, business activity resumed the advance that was in evidence during the second half of 1938. Consumer incomes had been fairly well sustained and provided a backlog of purchasing power; inventories throughout trade and industry continued near the low levels reached at the end of the liquidation period in the middle of 1938; increased production had stimulated the demand for new industrial equipment and replacements; the volume of foreign buying was beginning to increase; and domestic credit conditions continued easy. The general expansion was well under way by the end of the summer when war broke out in Europe. While the threat of war had been an unsettling influence and its effects on business generally regarded as unpredictable the actual outbreak occasioned an unprecedented wave of buying in domestic markets, and prices increased sharply. Industry I Annual Report, Federal Reserve Bank of Philadelphia Twenty-fifth anticipated large foreign orders in addition to active local demand, and the current high operating levels gave rise to widespread anxiety with respect to prompt deliveries. The effects were particularly apparent in the markets for imported goods including many essential materials, owing to the possibility of interrupted ocean shipments. Industrial activity increased sharply as a result of these large orders, especially in such lines as machine tools, airplanes, chemical products, railway equipment, and automobiles. Between May and December the adjusted index of production in the Third District advanced 21 per cent, nearly twothirds of the gain occurring after the middle of September. The expansion began to taper off in December, and in January and February 1940 activity declined. The war demand which had been anticipated was not generally in evidence. Costs of production had increased sharply in several industries, and inventories had been expanded. The volume of goods on hand was not unusually large in relation to the level of business, but supplies were adequate to assure reasonably prompt deliveries. The volume of new orders declined sub- INDUSTRYAND TRADE PHILADELPHIA FEDERAL RESERVE DISTRICT PERCENT 1923-23ývG "ý00 INDUSTRIAL PRODUCTION WHOLESALECOMMODITYPRICES win UT SE-NAI.. IUSTIEIT 40 'ýDiDSi[D ý . ... 1932 ýaq . ScýSOqýc ..... ... 1933 výqlýTioq ......... 1934 _... '. I... __...... 1935 ý.........., 1936 2 ýi ý.............................. 1937 _. _... 1936 1939 194 Qý I Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia stantially from the unusually high level reached in the middle of October, and by the end of the year operating rates were being reduced toward levels more consistent with incoming business. The outlook for industry and trade in 1940 was regarded as generally favorable at the turn of the year, although some decline from the December highs was in prospect for the first quarter. Consumer incomes were large and a substantial unsatisfied demand was still in evidence for such durable goods as dwellings, household equipment, and automobiles, as well as for clothing and other nondurable items. inIndustrial purchases of equipment and expansion of plants were creasing somewhat and a larger volume of foreign orders for war materials was beginning to appear. Shipments of peacetime goods to other nations on the whole were well sustained. The heavy backlogs of orders accumulated in the fall were largely worked off by the end of January but were still high in industries with long fabricating Canprocesses, such as machinery and equipment. cellations on the heavy commitments made in previous months continued small, specifications were being received in substantial volume and an increase in orders later in the first quarter of 1940 was in prospect in some important lines. Prices continued weak after the turn of the year, following declines in several raw materials in November and December. The greater stability in quotations on finished goods last fall as compared with the sharp rise in raw and semi-finished materials tended to restrict profit margins somewhat, but the high level of operations had more than offset this influence in most lines. Basic unsettling conditions, however, continued to prevail, the principal problems being uncertainty as to various aspects of the domestic outlook and the unpredictably nature and duration of the wars abroad. Industry Industrial production in this district during 1939 averaged 17 per cent above the level of the preceding year, reflect- ing a sharp expansionin the output of manufactures,coal, and electric 3 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia Construction activity power. Production of crude oil declined slightly. Employment in general averaged 19 per cent above the level of 1938. industry during the year was 3 per cent higher and income to wage earners was 14 per cent larger than in the preceding year. Productive Philadelphia Annual averages of monthly indexes activity Federal Reserve District (1923-25 average = 100) Industrial production 11 ý! Dec. Iýý'I 1929 1932 1936 1937 1935 1939 1935 . -ii- Coal mining Anthracite .................. Bituminous ................. ................ Crude oil ..................... Electric power output.......... Building contracts 92 91 98 230 191 awarded Total ........................ Residential ................. Nonresidential... *... Public works and -.utilities Agricultural marketing Cash income (1932 avg. 111 110 112 * ... ... = 100). 132 104 160 146 181 i', Dec. 1939 86 91 70 82 79 94 61 39 77 84 77 91 89 88 91 68 55 77 80 72 87 76 62 87 93 95 92 60 62 =1 68 67 75 65 64 76 56 56 53 63 63 63 66 67 62 61 59 76 295 433 498 445 437 437 479 177 228 242 238 263 248 269 34 17 41 66 56 36 58 108 1 110 11 63 ......... Manufacturing...... Durable goods............. Nondurable goods........... Monthlv 100 Ij 149 54 35 66 87 65 57 50 124 166 'I 152 152 57 38 71 84 60` 44* 72" 95* 141 53" 52* 45" 85' 148 'Three-month moving average Retail and wholesale trade salesby December were well above December 1938,and for 1939as a whole averaged 8 and 10 per cent higher than the year before. The volume of freight shipments by rail increased 22 per cent from 1938 to 1939. The general level of wholesale commodity prices averaged lower for 1939 than for 1938, despite marked increases in September and October. After August, prices of staple industrial materials rose sharply and continued substantially higher than in 1938; agricultural staples also advanced but by the end of the year they were not much higher than the average level in the previous fifteen months. 4 Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia Manufacturing activity in the first five months of 1939 declined about 2 per cent from the relatively high level reached in the preceding December. The output of nondurable goods was reduced about 5 per cent, the sharpest contraction being in the production of textiles. The output of silk goods, hosiery, and woolens and worsteds showed particularly large declines in this period. The production of durable manufactures, on the other hand, continued the advance which started in September 1938 and by May 1939 was 3 per cent above the level at the end of the previous year. The output of railway and electrical equipment expanded substantially in the five months ended in May. During the balance of the year manufacturing activity advanced considerably, increasing 24 per cent from May to December, on a seasonally adjusted basis. The output of durable goods rose 49 per cent, the largest gains among the major groups being in the production of metals and metal products, building materials, and transportation equipment. Production of pig iron more than doubled, that of crude steel increased 90 per cent, and iron and steel castings advanced MANUFACTURINGACTIVITY PHILADELPHIA FEDERAL RESERVE DISTRICT PERCCNT vNJ \1 ".; \I V. 40 :, .,;.. ,.'_ _I. `, ý I zo' .ý-. ý, ý ý. ACIIVITY ' ý" .. _. ý DURABLE UUUUJ GOODS ,,, "" ' ý. ,- IyJZ., ýoýoAs1933__ ...aý,,oý 1934 __.......: 1935 !'ýI _.. 1936. __ý. _....... 1937 ) 1938 1939 _..... 1940 ___.. Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia lines, the close to 60 per cent. In finished and semifinished metal largest gains were in locomotives and cars, motor vehicles, automobile bodies and parts, ships, and electrical apparatus. The greatest improvement in the output of durable goods occurred in October, following the heavy wave of buying that started in the middle of September. In the final quarter of the year production of these materials increased 31 per cent. Activity in consumers' goods industries turned up slightly in June and more sharply in July and August, increasing 11 per cent between May and the end of the year but only 5 per cent in the final quarter. The only marked expansion was in the output of textiles, the weaving of carpets and rugs, woolens and worsteds, and cotton products showing particularly large gains. Much of the increase in the output of consumers' materials in the fi. 11 quarter was in woolens and worsteds, owing primarily to widespread fears that the supply of wool would be curtailed and that prices would advance further. ACTIVITYIN STEEL AND TEXTILE INDUSTRIES PENNSYLVANIA PERCENT TOTAL EMPLOYEE-HOURS PER WEEK .13--oo 160 160 140 120 40 ................ 1932 ... 1933 ...... ....... 1934 ...... 1935 1936 6 ... ............. 1937 ..... ... 193 .8.. '. . .... ..... 1.939 ..... 1940. I Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia Index: 1935 average = 100 Employee-hours in Pennsylvania factories 1936 All manufacturing First quarter........... Second quarter .................... Third quarter Fourth quarter ............ .................... Average ...................... Metal products First quarter ...................... Second quarter Third quarter .................... Fourth quarter..................... .................... Average ....................... Textile products First quarter ...................... Second quarter Third quarter .................... ..................... Fourth quarter . .................. Average ...................... .. 1 1938 1937 149,2 153.3 144.7 119.4 108.4 124.0 131.9 144.8 ý I 1 1939 91.1 85.5 87.6 101.2 104.3 103.7 110.0 139.1 127.3 141.6 91.4 114.3 112.7 137.2 144.8 160.5 170.1 178.0 169.6 130.5 94.5 87.0 84.6 101.1 107.6 108.9 114.3 157.0 138.8 162.0 91.9 121.9 100.6 97.7 107.6 118.4 121.6 112.0 101.6 85.6 79, g 75.4 87.9 97.4 100.4 90.7 98.0 106.0 106.1 1 105.2 1 85.1 1 98.9 For the year as a whole the output of manufactures in this district 1938 increased in all major lines. The average gain of 19 per cent over was due to an increase of 32 per cent in the durable lines and 12 per cent in industries producing nondurable goods. Among the specific groups, the greatest improvements were in transportation equipment, metals, textiles, and building materials. Mining activity in this district also increased substantially. Production of anthracite amounted to 50,800,000tons, or 10 per cent above 19.37.The low the record of 46,100,000 in 1938 but 2 per cent below principal factors in the anthracite situation during 1939 were the shutdown of bituminous mines in April, which resulted in an increase in the production of anthracite of 1,7(X),000 tons in that month, and the outbreak of war, which contributed to an increase of 1,000,000tons in September. Agreement was reached in January 1940 upon the problem of allocating production among the so-called line and independent companies. 7 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia Despite the six weeks' shutdown in bituminous mines, when production declined from 8,600,000tons in March to 137,000 tons in April, 90, the output of bituminous coal for the year as a whole aggregated in 1938 800,000 tons, or 18 per cent more than the 77,000,000 produced but 18 per cent less than the seven-year high in 1937. Following the curtailed operations in the spring, production increased more than seasonally through November, partly to replenish stocks and partly as a result of improved industrial conditions. The output of crude oil in the Bradford Field fluctuated irregularly in the first three-quarters of the year but increased substantially in the final quarter, contrary to the usual tendency. The expansion foreign and appeared to be due primarily to an anticipated increase in domestic demand for lubricants, as stocks of finished petroleum products were accumulated. Production for the year totaled 14,700,000 barrels, or 2 per cent less than in 1938 and 12 per cent below 1937, when a record of 16,700,000barrels was reached. I The output of electric power in this district followed an irregular upward trend to a record peak in October and for the year as a whole averaged 10 per cent above 1938. Total sales by companies representing about 95 per cent of the aggregate sales in this district declined in the early part of the year but advanced thereafter to an all-time high of 708,000,000kwh. in December. Total sales for the year were 7,782, 000,000 kwh. or 11 per cent more than in 1938. Sales to industry amounted to about 3,850,000,000kwh. or 13 per cent more than a year before, and, at a record high in December, were 16 per cent above a year earlier. Awards of construction contracts in the district in 1939 amounted to $196,900,000 or 19 per cent more than in 1938 and 13 per cent above 1937. The total was the largest since $329,200,000 was awarded in 1930. Activity expanded irregularly in the first ten months of the year; on a seasonally adjusted basis, the peak was reached in September and was the highest since 1931. Residential building increased 64 per cent in the year to $81, 350,000, the highest since 1929. Awards for family houses totaled 8 Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia ACTIVITY CONSTRUCTION PHILADELPHIA FEDERAL RESERVE ý , .: DISTRICT ý"/ ,. I ... p ý 'ý ý. oýus*co ron susoa.. 1932 1933 ` `"! ý' ,, ! vený.noý 1934 I ý ....... 1935 ýi ýRESIDENTUL li i`ý II L_. 1936 ........ 1937 ................... 1938 1939 '............... ýol ý 1940 $61,400,000 46 being or per cent more than in 1938, the peak in activity financing facilireached in October. The gain was due in part to the ties of the Federal Housing Administration. The local office of the FHA reported that in 1939 commitments for insurance on mortgages on new construction amounted to $30,878,600 and on existing properties totaled $7,074,000as against $17,500,000for new construction and $11,000,000 on existing dwellings in 1938. These figures cover 38 counties in Eastern Pennsylvania and the State of Delaware. Contracts for nonresidential $55,structures declined 24 per cent in the year to 700,000, owing to a reduced volume of construction on educational and miscellaneous buildings. Awards for commercial and factory buildings increased 38 per cent to nearly $26,900,000, about 19 per cent below 1937but, except for that year, the highest since the $102,400,000each in 1929 in 1930. This and type of construction was unusually active October and November be Contracts declines were to expected. when for public works and utilities increased 43 per cent in the year to 4e59, 900,00(),the highest since 1931. Income Employment and consumers' income in 1939 improved substantially as a result of the sharp expansion in industrial activity in the second half of the year. In twelve lines of trade and industry, employment and payrolls in Pennsylvania declined in the first four months of 1939, but in the last eight months of the year 9 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia EMPLOYMENTIN PENNSYLVANIA PERCENT ioýz "ioa PERCENT 0 zz II Ii4O io0 FAC70RY 50 -. ý', '". :' .ý1 _ 60 -ý1OO 80 100 80 60 40 .. _ ._...... . 1932 1933 ! lý ý ,. 1934 i .........:... 1935 1936...__:... 1937 _ 1936 ý... 1940 _. __.. __... 1939 employment increased 20 per cent and wage disbursements expanded 33 per cent, over two-thirds of this gain occurring after August. By December, employment was 8 per cent and payrolls 19 per cent above the previous year. The principal gains were at factories and quarries. Factory employment in Pennsylvania increased 16 per cent from low in the late spring to the peak at the end of the year, and wage the payments expanded 33 per cent. For 1939 as a whole employment averaged about 869,000 workers, or 8 per cent above the 801,000 employed in 1938 and 12 per cent below 1937. Employment in the peak year 1929 averaged over 1,000,000workers. Wage payments in 1939 averaged $20,500,000a week, reaching a peak of about $24,000,000 in ln Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia Index of general employment and payrolls Relative impor- -Pennsylvania. (1732 avg. = 100; indexes are annual averages. ) tance°,% of total General index*....... M: unilacturing...... Anthracite........... Bituminous coal...... Quarrying ............ Crude petroleum...... Public utilities....... . Retail trade......... . Wholesale trade..... . I Iotels ............. .. Laundries........... Dyeing and cleaning. . 100.0 48.9 6.9 5.7 0.6 0.2 4.4 15.8 4.7 1.1 0.7 0.2 I; mplocnunt 1936 II PayroIIs 1937 11938 11939 111936 1937 1938 1939 117 125 105 108 135 147 120 129 70 67 84 81 89 121 123 102 119 94 101 107 178 161 145 132 94 91 96 95 113 119 107 106 111 118 113 116 106 112 110 106 98 99 105 100 96 100 105 104 146 180 85 199 1&1 160 97 117 107 111 105 108 172 217 81 217 228 171 104 130 119 123 119 120 129 146 152 184 67 66 158 167 154 186 164 155 103 105 122 123 114 119 123 119 121 125 126 117 'Includes building and construction. December. Total in Pennsylvania in wage income of factory workers the year amounted to over $1,000,000,000,or 21 per cent more than in 1938 but 15 per cent less than in 1937. In 1929 the total was about $1,380,000,000. Employment in the manufacture of durable goods increased almost steadily throughout the year and in December was 31 per cent above January. Most of the gain occurred after May and nearly two-thirds increase of the was in the final quarter. Wage disbursements in durable declines industries goods also expanded steadily except for fractional in April and May, and in December were 56 per cent above the year's low in January, 52 Sepper cent above May, and 34 per cent above tember. The level in December was the highest in two and one-half years. In consumers' goods lines, employment declined from February to June but recovered to a peak in October, about 9 per cent above the year's low. Wage disbursements at these plants were the smallest for the year in May but by October had expanded 15 per cent to the highest level 1937. since the spring of The largest increase in wage payments from the low point of the year was 58 per cent in iron and steel lines. Transportation equipment followed, with an expansion of 36 per cent from April to December, reflecting principally gains at establishments producing loco11 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia motives and cars and at railroad repair shops. Large advances also occurred in the nonferrous metal; lumber; stone, clay and glass; and Wage disbursements coke industries, and in certain chemical industries. 13 increased about per cent from May to at textile and clothing mills December but at the end of the year were about the same as in December 1938, despite sharp gains at mills turning out cotton products, hosiery. Wage payments carpets and rugs, and knit goods other than hosiery 21 in December to per cent below a year workers were about earlier. Average hourly earnings of factory workers in Pennsylvania during 1939amounted to 69 cents, about the same as in 1938 and in 1937 but 10 cents an hour above 1936,21 cents an hour above 1932 and 1933, and 11 to 12 cents an hour above 1929-1930. The peak for the year was 71 cents in December. ;iý ý , '4 1I. Weekly earnings of factory workers in 1939 averaged $25.08 compared with only $22.31 in 1938. The peak for the year of $27.36 in December was more than double the depression low in early 1933 and in the past ten years was exceeded only in April and May 1937. The average work week at factories in 1939 was 36.3 hours compared with 32.5 in 1938 and 37.9 in 1937. In 1929, when weekly earnings were only $1.89 more, work weeks averaged 121/, hours longer. The cost of living for wage earners and lower salaried workers in Philadelphia was 1 per cent lower in 1939 than in 1938, about 2 per cent below 1937, and 18 per cent below 1929. Total farm cash income in Pennsylvania, New Jersey, and Delaware was estimated at $388,535,000in 1939 or 2 per cent more than in 1938. Receipts from the sale of crops increased about 10 per cent to $125,100,000,while income from sales of livestock products declined 3 per cent to $255,200,000.Government benefit payments were more than doubled from $4,000,000to $8,200,000.The increase in farm cash income, however, was partially offset by a small decline in the buying power of the agricultural income dollar, calculated by taking the ratio of prices received to prices paid by farmers. 11) Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia INCOME PHILADELPHIA FEDERAL DISTRICT RESERVE 125 J 150 ib.,... evc. ion I 125 AVERAGEHOURLY EARNINGS Ifliý . "'o ýI ýý __ - -7S- 50 ,--. r: ^: .ý Wr i AVERAGEWEEKLY EARNINGS "ý, ý II 2ý 1932 . r-- 1933 1934 1935 ............ 19'3 1 º........... i ... ........... 1937 1938 1939 1940 Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia Farm cash incomePenna., New Jersey, Delaware (In millions of dollars) 1929 --1930 ............................. Livestock products Crops Government rental and benefit Total payments i 1931 ............................. 1932 ............................. 1933 ............................. 1934 ............................. 1935 ............................. 1936 ............................. 1937 ............................. 1938 ............................. 1939 ............................. ............................. $1535 13 2.9 101.7 80.2 105.6 96.6 111.3 137.8 136.0 114.2 125.1 $266.4 244.8 194.0 152.4 151.0 176.4 214.2 248.6 269.4 261.9 255.2 s... .s 2.3 1.8 3.0 3.2 4.0 8.2 $419.9 377.8 295.7 232.0 257.5 275.4 327.3 389.4 408.6 380.1 388.5 Source: United States Department of Agriculture. Expenditures by the Federal government for emergency relief continued substantial,as shown in the following table. Under Expenditures during fiscal years in Pennsylvania, New Jersey and Delaware Federal Emergency Relief Appropriation (In thousands of dollars) Department of Agriculturc"* Other executive departments** .............................. ............................. Civilian Conservation Corps Public Works Administration ............................... (housing, loans and grants to states. etc. ) .......... . .............................. Works Progress Administration" Other independent establishments*" ......................... ........................ letal ............................................. Pennsylvania ............................................ New Jersey .............................................. Delaware ................................................ Total 1935-1939 Acts* . 1939 $21,188 30,806 43,590 (Cr.) 15 27,451 674,786 184,413 694 287,938 12,359 $982,234 $313,384 $ 709,909 262,647 9,678 $221,289 89,026 3,069 $4,594 7,914 "Prom Report of the President of the United States to the Congress, January 15,1940. ''Allocation of expenditures revised according to departmental reorganisation. Relief expenditures in Pennsylvania declined about $20,000,000 to $260,000,000from 1938 to 1939, reflecting decreasesin expenditures for old-age assistanceand the Federal works program. General assistance and aid to dependent children and the blind increased. 14 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia Average number of persons (in thousands) Public assistance in Pennsylvania by type Direct relief I'ederal work ............... relief......... Old-age assistance......... Pensions for the blind...... Aid to dependent children l otal.... . .. Amount spent (in millions) 1937 1938 1939 744 694 83 12 93 S57.8 134.1 22.6 3.8 6.1 $76.0 169.5 23.5 4.2 7.2 $91.6 132.7 20.3 4.4 10.9 1,564* $224.4 $280.4 $259.9 1937 1938 1939 463 700 86 10 37 642 897 91 11 61 1,296 1,672* 'Adjusted to eliminate duplication. Source: Pennsylvania Department of Public Assistance. Distribution Retail trade sales increased less than usual in the first half of 1939 and the seasonally adjusted index declined 7 per howcent from January to June. Sales advanced sharply, June December exever, after the mid-summer lull, and between and panded 20 per cent more than usual. The adjusted index in the final month of the year reached the highest level since January 1937 and was 12 per cent above December 1938. Total sales at retail for the year as a whole were 8 per cent larger than in 1938 and only 3 per cent less than in 1937. Reflecting increased consumer incomes, the principal increases over the preceding year were in such durable consumers' goods as radios, refrigerators, furniture, and other household equipment. At department and men's apparel stores the gain in the year amounted to about 8 per cent, while at shoe and women's apparel stores the increases were 3 and 2 per cent, respectively. Inventories at retail half of the establishments during the first year continued at the lowest level since 1936, following the period of heavy liquidation in late 1937 and early 1938. Stocks were increased somewhat more than usual in the fall, when stores expected active business,but were sharply reduced as a result of large holiday sales in I)ccember. At the end of the year retail inventories were at the same level in December as 1938, when the volume of business was substantially smaller. Stock turnover in 1939 was 10 per cent above the year before, which in turn was only slightly below 1937. 15 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia Sales of new passenger automobiles in the district in 1939 infor the 217,800 creased 38 per cent over 1938 to 160,600 units. Except in 1937 and the 200,800 in 1936 the volume of registrations was the highest in the past ten years. Wholesale trade sales were well sustained, despite the continued cautious attitude on the part of retailers. The unusually small volume of inventories at retail stores necessitated extensive reordering throughout the year. Following the summer lull, buying in the wholesale markets became very active and in September was 24 per cent above that in the previous year, reflecting prospective increases in consumer purchases and possibilities of delayed deliveries. Total sales at wholesale during the year were 10 per cent above 1938, gains being particularly large in sales of electrical supplies, hardware, paper, and jewelry. Inventories at wholesale establishments at the end of the year were about 12 per cent above the same period in 1938. Freight shipments by rail in the Allegheny District declined in the first four months of the year, after allowing for seasonal changes, but DISTRIBUTION PHILADELPHIA FEDERAL RESERVE DISTRICT PERCENTI 75 "(] ýj 100 FREIGHT CAR LOADINGS, IAERCMANbiSl .ý, AY? Id$(. IILA',! OVS 1 S0 25 i'. °.'. ... ....... 1932 o.... 1933 1934 1035 1936 16 1937 1938 1939 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia expanded almost steadily thereafter to a level which in December was 34 per cent above a year ago and the highest since January 1937. Car loadings for the year averaged about 563,000 cars a month or 22 per cent above 1938 but 11 per cent below 1937. The largest gains in the year were in shipments of ore and coke, reflecting increased activity in the steel industry. Loadings of merchandise and miscellaneous in Decemfor goods, accounting nearly two-thirds of total shipments, ber reached the highest level for the year as a whole since 1930 and averaged 21 per cent above 1938. Freight shipments originating in Philadelphia, 13 per comprising chiefly manufactured goods, increased cent from 1938but were 6 per cent below 1937. Distribution 1'hiladclphia Federal Reserve District W)23-25 average = 100) Annual II 1929 Retail trade Sales 100 . ..... Stocks.... . ....... 94 .... . .............. New passenger 131 automobiles.... Commercial hotels (1934 = 100) pa ne v ................ Incornc - Total .............. F . loadings Allct; hcTIN,Uist riet-total....... \lerch; uulise, urdmiscellancous 1'1li1-u1cip1lia industrial Port of Philadelphia area..... I. Xports (1935-37 = 100)....... mports (1935-37 = 100) ....... 'Aldjnsted averages of monthly indexes Monthly II 1933 1936 1937 1938 1939 59 59 62 SO 72 12d 83 83 136 75 78 73 81 77 lOl 86 82 119 124 123 129 117 122 114 111) 107 55 56 58 62 70 70 70 68 74 74 71 70 54 55 55 61 GG 66 64 62 170 156 66 58 8`) 101 127 122 121 69 106 112 92 127 84 Dec. 1938 Dec. 1939 so" 77" 89" »" 122 122 101 124 G2" G2" G2' G4" 136 69 106 136 R-4" Ka" 71" 72" 177 85 for seasonal variation. Exports through the Philadelphia in 1939 customs district amounted to $92,840,000, about the same as in 1937 and 5 per cent larger than in 1938. Imports 22 per cent aggregated $131,885,000or 1938 but ,ihuve 31 per cent below 1937. Prices Prices of commodities continued to decline somewhat during the first eight months of the year but advanced sharply after the outbreak of war. The index of wholesale prices of 17 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia 813 commodities, published by the United States Bureau of Labor Statistics, decreasedfrom 76.9 per cent of the 1926 average in January to 75.0 in August, advanced to a peak of 79.4 in October and declined slightly in November and December. Prices of farm and food products showed the greatest declines in the first eight months and the sharpest recovery in September. Quotations on raw materials and semifinished goods also declined to August, advanced sharply in September and October, and receded toward the end of the year. Prices of finished goods were more stable and the spread between raw and finished goods narrowed appreciably in the latter part of the year. PRICES UNITED STATES PERCENT FINISHED so RAW MATERIALS 1932 1933 1934 1935 ___ ............ 1937 .....1938......:..... _-...:. -1940 1939 -- ý 1936 In the markets for staple commodities, prices of industrial materials were weak in the first five months, especially in the case of hides, steel scrap, and copper. From May to October quotations advanced sharply, steel scrap rising from $14.08 to $22.50 a ton, copper from 10 cents a pound to 121/2 cents, wool from 72 cents a pound to $1.10, Twenty-filth Annual Report, Federal Reserve Bank of Philadelphia hides from 10 cents a pound to 16/2 cents, and rubber from 16.2 cents to 21'/2 cents a pound. These sharp gains, particularly in imported materials, reflected the expectation of heavy war demand, increased domestic pur- PRICESOF 15 STAPLE COMMODITIES STATES UNITED fAR ý00 II ii ý ----... INOUSI Kin` ýI i: i. t ý '.; ', ý ' chases,and the possibility of interrupted shipments. Quotations on most industrial staple commodities declined somewhat to- :ý..'V, .: ward the end of the year, the principal exception being silk, which advanced almost steadily throughout 1939 from $1.90 a pound in January to $4.65 in December. In the first quarter of 1941)the price of silk dropped more than $2.00 a pound. i I ndustrial ................. ................... \y ~' I ,` i" I Iv 40 1937 1936 1938 1939 1932 1940 Monthly averages of monthly indexes 1936 1937 1938 1939 Dcc. 1938 Dec. 1939 77 11 77 79 85 1 72 85 1 75 82 87 70 II 77 71 75 80 ao 73 82 82 81 82 80 86 69 86 74 ý 82 85 68 (,5 73 70 81 1 80 77 68 72 84 , 62 71 i 52 87 I 65 65 52 75 95 65 81 86 98 94 95 55 59 70 80 76 82 48 61 70 39 105 100 92 . . . iý ýP. 50 1929 4t3ple commodities-........ Agriculnlral ýI 1i :. Annual .............. Raw materials ................ Semifinished articles...... Finished goods. '. *.'. *.* . .. . ....... Farm products............... Foods, . ".... " ................ (), her commodities............ I 'ýý AGRICULTURALý, Commodity prices (1926 average = 100) All commodities" ý- , 79 61 49 70 68 72 84 72 5G 86 'United States Bureau Labor Statistics index of wholesale prices of 813 commodities. of fotal-Moody's index of prices of 15 staple commodities. 19 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia Quotations on agricultural staples were generally steady until SepThe tember, when anticipation of war buying forced prices up sharply. largest advances were in so-called war commodities such as sugar, hogs, cocoa, wheat, and corn. The price of cotton continued to rise until 11.4 cents a pound as against about the middle of December, reaching 8.8 cents in January, owing to increased foreign and domestic purfiber for burlap in chases and to some extent to the substitution of the fibers in heavy bagging and for other high-priced various textile lines. The price of wheat also continued to rise until the end of the year, belt. owing to unfavorable growing conditions in the winter wheat The price reached $1.30 a bushel in December compared with 86.5 cents in January. Quotations on livestock products, on the other hand, declined sharply in the year, despite a temporary abrupt rise in September following the outbreak of war. After the turn of the year prices of practically all staple commodities weakened. Banking and Credit Conditions Bank Reserves Federal Reserve The cash reserves of the Federal Reserve Bank of Philadelphia increased by $296,700,000during 1939 to a record Bank high of $873,600,000,an expansion of about 50 per cent during the year. The aggregate cash holdings of the twelve Federal Reserve banks, which comprise the basic monetary reserves of the banking system, expanded 28 per cent to $15,524,000,000, reflecting principally the large volume of gold received in this country in payment for goods or services or as transfers of capital occasioned by disturbed conditions abroad. Much this of gold was used in payment of trade balances, thus tending to increase bank reserves in all sections of the country. Short term bank balances held on foreign account were concentrated primarily in New York City. 20 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia Funds gained by member banks in commercial and financial transactions with other districts, were the principal source of the increasein the cash reserves of this bank. Only $52,000,000 represented Treasury deposits of gold certificates in the interdistrict settlement fund for the account of this bank or transfers on Treasury account from other districts. Smaller amounts were derived from payments made to this bank as a result of reduced participation in System holdings of government securities and increased balances held for foreign central banks. The aggregate gain of $296,700,000 in cash reserves was the largest for any Reserve Sysyear since the establishment of the Federal tem. The increase was entirely in the form of gold certificates. HoldStates notes, ings of other cash, including silver certificates, United coin, and other types of Treasury currency, declined slightly. The expansion in the cash reserves of this bank was substantially larger than the increase in held against larger reserves required to be volumes of deposits and of Federal Reserve notes in circulation. At the close of the year, reserves were considerably more than double legal requirements, as shown in the accompanying table, and would have been adequate to support twice the volume of notes in circulation and deposits held at that time. These deposits at the Reserve banks consist primarily of member bank reserves. Cash reserves the Federal Reserve ofbanks (Ell d of year, in millions) Total reserves All Federal Reserve banks Philadelphia ................. 1938 1939 1938 1939 $576.9 $873.6 $12,165.8 $15,524.2 kcquircd reserves: Against Federal Reserve notes.. (40% in gold Against depositscertificates) ( 35% in ............. gold certificates or lawful money) 'T'otal required............ M, ICessreserves ................ Proportion of total to required ... 128.2 139.6 1,780.7 1,983.4 160.6 251.9 3,530.8 4,529.3 $288.8 $391.5 $5,311.5 $6,512.7 $288.1 $482.1 $6,854.3 $9,011.5 200% 223% 229% 21 238r;%o Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia Reserve balances of all member banks increased 34 per cent in 1939 to $11,653,000,000at the end of the year, of in excess of legal rewhich more than $5,200,000,000was district expanded quirements. The reserves of member banks in this 60 per cent in 1939to $598,600,000and in the middle of January 1940 reached a record high of $641,700,000.These balances totaled more than twice the amount required by law. Member banks The sharpest increase was at banks in Philadelphia, where average reservesin the first half of January 1940 were 110 per cent in excess of banks. requirements as against only 80 per cent in the case of country Reserves with Federal Reserve Bank Member banks Phila. Fed. Res. District (Dollar figures in millions) Philadelphia banks 1938-Jan.: 2nd week 1939-Jan.: Ist half July: Ist half 1940-Jan.: Ist half Held Required Due from Excess domestic banks Per cent of required reserves Excess reserves 27% 40 84 111 Due from banks 64 °Jo X238.3 243.6 345.2 444.6 $187.4 174.3 187.(, 210.8 33.3 40.4 39.4 40.9 27.7 23.5 23.8 25.0 5.6 16.9 15.6 15.9 33.2 52.7 63.5 83.1 20 72 66 64 120 224 267 332 49.5 47.4 53.7 60.2 37.1 31.6 31.0 32.3 12.4 15.8 22.7 27.9 26.8 35.4 46.1 50.6 33 50 73 86 72 112 149 157 2nd week Ist half Ist half Ist half 61.8 60.3 64.0 74.6 49.4 41.4 40.4 40.5 12.4 18.9 23.6 34.1 47.8 58.0 70.1 92.2 25 45 58 84 97 140 174 228 All member banks 1938-Jan.: 2nd week 1939-Jan.: Ist half July: Ist half 1940-Jan.: Ist half $382.9 391.9 502.3 620.5 $301.6 270.8 282.8 308.6 $81.3 121.1 219.5 311.9 $228.5 286.2 346.7 400.7 27% 45 78 101 1060/, 123 130 Country banks Cities with population of 100,000 or more 1938-Jan.: 2nd week 1939-Jan.: Ist half July: 1940-Jan.: Ist half Ist half Cities with population of 15,000 to 100,000 1938-Jan.: 2nd week 1939-Jan.: Ist half July: Ist half 1940-Jan.: Ist half $50.9 69.5 15 7.6 234.0 $120.7 140.1 167.0 174.8 80 89 83 Cities with population under 15,000 1938-Jan.: 1939-Jan.: July: 1940-Jan.: 22 Taventy-fifth Annual Report, Federal Reserve Bank of Philadelphia A year earlier Philadelphia banks and country banks respectively held excessreserves of 41 and 53 per cent. The percentages of deposits, which member banks are legally required to hold as reserves,were unchanged throughout the year at the levels established in April 1938 when requirements were reduced. On net demand deposits these proportions were respectively 22%, 17'/Z, and 12 per cent at central reserve city, reserve city and country banks, and on time deposits 5 per cent at all member banks regardless of location. Balances carried by member banks with correspondents also increased substantially, rising from $286,200,000 a year ago to $400,700,000after the turn of the year. In the first half of January 1940 the combined total of reserves and amounts due from banks was equal to 331 per cent of required reserves as against 251 per cent early in 1939. While the capacity of member banks for the extension of credit was greatly expanded, actual increases in loans during 1939 were moderate and investment portfolios were somewhat reduced, with the result that the aggregate amount of their cash increased further. The preceding figures show the reserve positions of member banks in this district by location. The principal source of the increase of $224,000,000 in member bank reserves during 1939 in commercial was a gain of $219,000,000 and financial transactions with other districts which followed a moderate loss sustained in the previous year. Although in most instances the exact character of the transactions responsible for this gain cannot be determined, available records indicate that it was caused in part by payments from other districts for new public and private securities of local origin for and other securities sold by banks, including a portion of new government issues received on allotment. The sharp increase in business activity, particularly in the heavy manufacturing industries, also resulted in an increased flow of business payments to this district. Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia Treasury operations contributed substantially to the increase in reserve funds, as government disbursements were $66,000,000 greater than local receipts. The excessof disbursements was somewhat smaller than in 1938, owing in part to a reduction in payments for work re- MEMBER BANK RESERVES BILLIONS ßi 161-F15I iI -----14 'i I3 12 II 10 9 8 7 6 5 4 3 2 0 MILLIONS 5 700 PHILADELPHIAFEDERAL RESERVEDISTRICT 600 500 400 300 11200 100 29 30 31 32 33 34 35 36 37 38 24 939 1940 1941 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia lief. Expenditures by the Treasury included heavy payments in connection with the shipbuilding and armament programs which involve particularly large purchases from the industries in this district. The amount of unemployment trust funds paid into the Treasury for investment was considerably larger than the total amount withdrawn by the states for benefit payments. Demand for currency in this district in 1939 increased $53,000,000, offsetting in part the large volume of funds gained through the interdistrict settlements and Treasury transactions. The need for additional currency was met chiefly through increased issues of Federal Reserve notes and silver certificates. This demand for currency was occasioned primarily by the sharp expansion in industrial payrolls and in trade activity, but it also reflected some increase in amounts held by individuals. Figures for the country as a whole showed that about $330,000,000of the increase of $790,000,000in money in circulation during the year was in notes of $50 and higher denominations. A substantial volume of currency moved abroad in the spring, and later, during the period of smaller shipments, additional currency withdrawn was probably held in this country for foreign account. Mferttber bank and related items Philadelphia reserves Federal Reserve District (Millions Sources of dollars) 1937 1938 1939 -f- 2 +118 -}- ý -131 _ 39 + 74 4- 2 +219 +, -{- 61 ý 35 +287 + 22 + 53 +224 + lo of fund Reserve bank credit extended in district.... Interdistriet constncrcial transfers.......... Mint gold purchases, I reasury net .................. operations ......... ............ Total...... Uses of funds: . ....................... - Currency demand Member bank .... ............... "Other deposits°reserve .d.eposits Oil ,! -r Federal + - .............. at reserve bank.......... Reserve accounts.......... . 12 16 +3 }- i -1 Total...... -5 25 + 35 +287 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia The influence of other factors upon member bank reserves was less marked. An increase of $10,000,000in unclassified deposits with issued in this bank was due chiefly to an increase in officers' checks bank Reserve connection with special transactions. The volume of but slightly. credit extended directly within the district expanded Condition Deposits of Member Banks The volume of depositsat member banks in this district in 1939 increasedby $370,000,000 to $3,231,000,000,the largest on record. This expansion was due principally to funds gained through business or security transactions with other districts and through Treasury operations. The amount of deposits arising from increased loans and investments was comparatively small. Over 97 per cent of the increase was in demand deposits, most of this being to the credit of individuals, partnerships, and corporations. This was in contrast with the trend in 1938, when the growth in deposits reflected chiefly interbank and government balances. In 1939, interbank deposits also expanded more sharply than in 1938 and by the end of the year they were at the highest level on record. The volume of time deposits continued practically unchanged, and for all banks was 34 per cent of total deposits as compared with an average of 44 per cent in the period from 1927 to 1929. Nearly three-fourths of the total expansion in deposits was at member banks in Philadelphia, where a sharp increase in demand balances of individuals, partnerships, and corporations was supplemented by heavy receipts of funds to be held for other banks. Proportionately the increase in individual demand deposits at country banks approached that reported by the city institutions, but the gain in the dollar amount was much smaller. Nearly one-half of the deposits of country banks are in savings balances, and these registered a comparatively small increase from 1938to 1939. 26 Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia Deposits at member banks Phila. Fed. Res. District (Millions of dollars) Actual-end of year 1 1938 1937 1 1939 Changes in1938 1939 + 27.7 + 42.3 5.3 + 52.3 4.0 - +220.5 1.0 + + 20.0 +117.1 + 2.4 +113.0 +361.0 Demand: Individuals, partnerships, and corporations U. S. Government ................ States and political ................ subdivisions.... Interbank ....................... Other ........................... Total Time: Individuals, demand............ 1,204.5 34.5 109.2 270.0 24.4 1,452.7 77.8 123.9 439.4 22.8 1,642.6 11,755.6 12,116.6 partnerships, and corporations ................ Postal savings, ................... States and political subdivisions.... Interbank ....................... 't'otal time ................ 'T'otal deposits............ 1,232.2 76.8 103.9 322.3 20.4 1,037.4 16.3 35.7 17.6 1,056.5 1,046.2 10.2* 12.1* 31.0 34.9 12.1 17.1 + - 8.8 4.2 + 10.3 1.9 .83.9 5.5 + 5.0 1,107.0 1,105.3 1,114.8 - 1.7 2,749.6 2,860.9 3,231.4 +111.3 + 9.5 +370.5 'Includes U. S. Treasurer's time deposits, open account. Despite the substantial improvement in business conditions during 1939, the use made of bank deposits, as indicated by check payments, did not measure These deup to the expansion in demand deposits. posits at all member banks in the district averaged 15 per cent above 1938, while the 8 per aggregate amount paid by checks expanded cent, as shown by the records of hanks in leading cities of the district. Deposits at in all member banks averaged 25 per cent larger than 1929, while 40 per cent check transactions in large cities were about smaller. The turnover of individual and corporate demand deposits at weekly reporting member banks in 1939 was only 18 times, a rate which was much lower than that prevailing in the Nineteen Twenties. Loansand The loans and discounts of member banks expanded from disc°""sS $905,600,000at the end of 1938 to $945,400,000at the end of 1939, owing principally to increases in commercial and real estate credit. This represented an increase of about 4 per cent, whereas industrial activity expanded 17 per cent during the same Period. The proportion banks of loans to total credit extended by these continued to reflect changed conditions with respect to the general type 27 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia of bank credit, as indicated by the fact that total loans at the end of 1939 constituted only 40 per cent of loans and investments combined as against almost 70 per cent in 1929. About one-half of the increase in total loans was in the form of business loans extended to commerce, industry and agriculture. That borrowing for current productive purposes increased only about 7 per cent in the face of expanding activity was due partly to the fact that inventories on the whole were controlled and that the resources of many enterprises continued adequate to finance the volume of current business at prevailing price levels. A further evidence of ample work- ALL MEMBER BANKS PHILADELPHIA FEDERAL RESERVE DISTRICT MILLIONS 3000 2500 2000 INVESTMENTS 1500 ý°" ,i i _- -` -' ýi ., .\i i/ ýý ý. ý-ýr-ýýý` `ýº i 500 1929 1930 1931 .. 1932 1933 I CASH ASSETS II oý / r1000 __-- - ... ... 1934 28 LI.. 1935 1936 1937 1938 1939 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia ing capital is found in the sharp expansion in demand deposits of individuals, firms and corporations. The increase of about 7 per cent in real estate loans occurred solely due at member banks outside of Philadelphia. Most of this gain was to mortgage loans on residences,many of which are insured by the Federal Housing Administration, and on business properties. The increase in loans on farms was relatively small. Changes in other short term credit, including open market paper, brokers' and security loans, and loans to banks were of minor importance. The so-called "other loans", which include small personal loans, declined at Philadelphia banks but increased somewhat at country banks. The following data loans show changes in various categories of between 1938 and 1939: Actual-December Loans of member banks Phila. Fed. Res. District (Millions ofdollars) Commercial. Open market .paper..... irokers' loans........... Other loans to carry securities Rcal estate loans...... 1-alls ... . hanks............ to Other loans........ Total loans ......... Philadelphia hanks Country banks Changes in 1939 30,1939 All member banks Philadelphia banks Country banks +13.. S + 1.3 + 4.3 + .2 .3 .2 170.4 326.4 37.1 25.7 61.2 245.0 1.0 249.0 + 7.2 + 2.6 + .4 - 4.9 {-1(i. 4 4.4 + 4"4 576.2 945.4 + 13.9 188.0 18.6 21.1 22.4 39.7 138.4 18.5 4.6 38.8 205.3 .8 78.6 369.2 - +25.9 All member banks +20.7 + 3.9 + 4.7 - 4.8 +16.2 0 + 39.8 Probably the bank most important development in the field of loans has been the loans, magradual expansion in the so-called term turing in one year or more, to commercial and industrial enterprises. For example, outstanding loans of this type by the weekly reporting banks in April amounted to about $16,200,000 or 4 per cent of total 1 29 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia loans. The original amounts of such loans aggregated $20,400,000, of for three years or longer. which nearly two-thirds had been made Loans averaging less than $100,000 predominated in number. Another evidence of the activity of banks in the lending field is Association in shown by the survey made by the American Bankers Pennsylvania, New Jersey and Delaware. Reports from 763 of the 1,504 commercial banks in these states show that 459,279 new business and personal loans for an aggregate amount of $592,069,000, or an average of $1,289, were made in the first six months of 1939. Renewal loans in the same period numbered 1,326,101 and amounted to $1,352,770,000,the average being $1,020. In addition, 12,444 new mortgage loans were made, showing a dollar total of $53,384,000or an average of $4,290.This survey also showed that customers of 129 banks as of June 30,1939 were using only 27 per cent of the lines of credit that were made available to them. The trend toward more diversified types of loans, longer term credit, and the purchase of insured mortgages on an amortized basis reflects (a) an adaptation of banking to changing business requirements, (b) a changed attitude of the bankers in their interpretation of short and long term credit, with a consequent recognition of the part that banks must play in meeting varied business needs, and (c) an effort to employ idle funds in order to serve business communities and sustain bank earnings. These factors in the lending situation appear to have been in greater evidence during 1939 than in previous years. Invest- Changes in the investments of member banks during 1939 reflect diverse trends. At the end of the year banks in Philadelphia held in their portfolios almost $15,000,000 more in securities while banks in other parts of the district held $40,000,000less in securities than at the end of 1938. As a result, the total investments of all member banks in this district declined to $I, 396,000,000on December 30,1939 as compared with $1,421,000,000 a year before. tuents 30 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia INVESTMENTS OF ALL MEMBERBANKS PHILADELPHIA FEDERAL RESERVE DISTRICT MILLIONSi OBLIGATIONS US GOVERNMENT uirea 800 -ý. . ---ý- 01 anu ýuo -j ý/ i 29 30 31 32 33 34 35 36 37 38 39 Banks sold first substantial amounts of their holdings during the half of 1939 high bonds to record when prices of were advancing grade levels. But in the second half of the year member banks in PhiladclPhia increased their investments, despite some liquidation early in September when the European war broke out, while member banks outside of that city continued to reduce their holdings to the end of the year, reflecting in part the influence of disturbed world conditions and in part domestic uncertainties with respect to the trend of businessand money markets. The most striking developments to be noted are the changes in composition, type and maturity of holdings by member banks in Philadelphia and by those in other parts of this district. These changes are indicated in general by the accompanying analysis of investments held by these two classesof banks. 31 DIRECTORS, PRESIDENT AND FIRST VICE-PRESIDENT FEDERAL RESERVE BANK OF PHILADELPHIA Joseph Wayne, Jr. Class A Director-—Group 1 George W. Reily Class A Director—Group 2 Thomas B. McCabe Chairman, Class C Director Warren F. Whittier Class C Director John B. Henning Class A Director—Group 3 C. Frederick C. Stout Class B Director—Group 1 Harry L. Cannon Class B Director—Group 2 Alfred H. Williams Deputy Chairman—Class C Director Ward D. Kerlin Class B Director—Group 3 John S. Sinclair President Frank J. Drinnen First Vice-President lL il II IW ý. Iv i IL P M ý i 7 V a C ý ,a I` Iü ý- Cy ÜL .n° Gy ö F =L C1L Cý O Üz ý- N N U) ^... -- M, ý . -ýý Mwh -M rý "-" .. ^ nl ý TV! O, O o v"YM T'T1n"1^ -}, .-. tý ýr. Y. Vi c-z 000, C `C `" `v .ý r.., aD^'ý ooc _- '? '-f. '. nýOQ --' . -. . -ý . ^, . -i . j, ýI ý ""." -. ýh C r. O. l7 G ýGn'' V1 ar- wýý _: .ý .ýf. -i ä -v ý'. `ý ++I nlý N .. II ^tM`1ý 00 tý'ý. nU . -. ý.. ci .-.. ý i r eM Ufý. ' N' OJ I- - ý i+i aý w ++i ^. ý ýi MýC C y. _ 1+1 rr ý O^ O. pri öcý pz o- ý L, oZ . ýý o ý, - ry! h^ dl -ý ýý ýý, ýý Vý ýý ý ý '0 PC" M .. [r ý. ivj ü" öiG1 hý aý ýwv c" c"C dyQ yiý"ü ý_. _. :: 00 ýM to ..., MN NW 00 t_ ý.; -}` rvj NN .rv. MVD N ^ý[ý Jý .p ^ý A N ^-ý If. ^ N ý--ý Go> ýý, ý. j ýh 1+1 -. "-" rý rýl tý ^I I++I+I++I+ .ý Iý hM IA a0 «, ýn ýý Oý yý i r. NýN.. M^^-I ++II11++1+ OOý .r ." "'ý ff! .-; - -, o i cc ." ý. ý .QN. Nlfn -r o ''.....: ýOýýil-_ 'n M. Vi MM c. -1. ... - a00, . -i V! ........... :. ý: ö ,-":.:: .T'-"C c. "ýý ti " ;bn.. ý-ý::.. :.::: CO C'« OA OV ööýý_ :ü rycý, ýCuý. -=üi" ý : eiO4 yý __ c hüý C = Eo ý. E-' äi äv OC 'ýöýam A c' p\ ýaVC a Rý"'J d°a -% 5 C4 G.. "7 -% 0.: CÖÖ rr ý'mý. "Jcn?: I "J -, >ý_ö öö:: ý'ý., _ý yäü`, ýý c r. cn..., Gy_m 0, ý ý. ý ,ýý :.: ý..° :; .. Ccý., oý0Vý'ý-. oý 'y' I-F I I-F-I -F I++++ Mh1t-"FM-[ýlrl ý.ý.. 0ö V1 ý t^, _N ý-/' "ý ti "-" ý`ý "-" +ýIII+I+++I+++ý ýn ýM "' ---='ý :nýý 1+ý . ý.. ý,... -r, ý...,. ......,11 fýýN-, -F ýMOý^ I+II++I+++I+i++ .c.. M nn w ä nýý.. n Ný M 140 ...... NrýpU Vi C.... ý^OC ý; ý...... Iý:: iý ý..... a+ ý. ý =r"=', g': O äý Rý y0 : ýw : 'OI cu -5 C7 -. C cý Oý C^ oö 'äc. 7ojE ý,. -" ai :. >. 'JOOC] y"a . t'J CÄ u oa ý -° d v ý Twwcnty-fifth Annual Report, Federal Reserve Bank of Philadelphia Ä o, ýhl ýý VP ý ý 'e i m! a a ý, ý 'y ý, ti 14 Ä lllý b ý ýý ýv ýý L Orý R Yy 7 L G Uý `ý-' 34 !'wenty-fifth Annual Report, Federal Reserve Bank of Philadelphia Member banks in Philadelphia generally increased their holdings )f direct and guaranteed obligations of the United States, but showed banks, little change in their portfolios of all other securities. Country direct in hand, investments gov-)n the other reduced noticeably their ernment obligations and corporate bonds, but increased holdings of guaranteed and nonguaranteed obligations of government corporations and credit agencies and of securities issued by states and political subdivisions. At the close investments of of the year 63 per cent of the Philadelphia banks and 49 per cent of the securities of country banks were in United States Government obligations. An equally interesting development is the fact that banks in Philadelphia lengthened the holdings of direct average maturity of their holdings of banks government obligations, while country reduced their longer maturities from 5 and increased those of governments running to 10 years. Of their total investments amounting to $674,400,000, member banks in Philadelphia at the end of 1939 held $127,600,000or 18.9 per cent in securities maturing within five years. The investments of the country banks in securities of similar maturities amounted to $174,$721,800,0(X). 000,000 or 24.1 per cent of total holdings aggregating Such increases in banks reflect short maturities as are apparent at all in kart purchases by issues the of municipal and securities guaranteed United States Government and the approach to maturity of securities already in bank portfolios. The trend toward shortened maturities in portfolios, especially among smaller banks, obviously accentuates the problem of bank earnings becauseof the lower yields on short than on long maturities and low interest levels prevailing generally. Closely related to the of the question of maturity and earnings is the quality of investment assets, but no data on this aspect arc available in the usual call reports on member bank condition. An analysis of the type, maturity and quality of bank investments in this district is given on pages 40 to 51 of this report. ý" 35 Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia ALL MEMBERBANKS PHILADELPHIA RESERVE FEDERAL DISTRICT PERCENTOf CAPITAL ACCOUNTS TO DEPOSITS 25J -ýI ýf- ý , . --. "N -'ýý, ` ýýýý. PERCENTOF CAPITALACCOUNTS TO LOANS,INVESTMENTSAND REAL ESTATEASSETS o! 27 28 29 '30 '31 , '32 '33 36 '34 '35 '36 37 '38 40 Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia Capital funds Member banks in 1939increasedtheir capital accountsby $2,900,000 to $490,000,000 at the closeof the year. This in- in deposits, crease was much smaller than the expansion from so that the proportion of capital accounts to deposits declined 17 to 15.2 per cent. In 1929, when deposits were smaller, the percentage was 26.3. While the cushion of capital has been reduced, cash assets have increased sharply from an average of 13V2 per cent of total assets in the period from 1927to 1933 to 32 per cent at the close of 1939. Assets been subject to depreciation-loans, investments, and real estate-have The reduced from an average of 85 to 67 per cent of total resources. 1939 proportion of capital accounts to depreciable assetsat the close of was 19.5 per cent, about the same as in the previous three years. Real estate assetsdeclined $8,600,000during 1939 to $172,400,000 35 or per cent of capital accounts as against 37 per cent a year earlier. Federal Reserve This ratio was 24 per cent for all member banks of the System. Federal Philadelphia Reserve District All member banks Lud of year Capital Percentage ofaccounts: I)eposits........... Loans, investments and real estate Investments.... Investments Government assets'..... ..... ........................... other than 17. S. .. obligations...... Surplus, Percentage undivided ofLoans, investments, Investments..... profits ... and real estate assets'..... representing . .. nvesttnents other than S. Government obligations...... . Banking house, equipment and other real estate-: Percentage ofCapital accounts... . ......................... assets indirectly 1938 1939 1939 17.0% 19.4 34.3 15.2% 19.5 35.1 11.2% 15.7 27.6 75.(, 79.6 97.7 11.9 20.9 12.0 21.6 9.0 15.8 46.1 49.0 55.9 and reserves: ......................... U. *IncIndes United States 37.2 real estate. A 37 1 35.2 1 24.3 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia The net profits of member banks in this District more from $10,000,000 and than doubled from 1938 to 1939, rising due principally to to approximately $21,200,000.This was expenses increased profits from security sales in the first half of the $600,000 to $17,400,000. year. Dividend payments were reduced by Earnings As in other recent years, the volume of the principal earning assets and the sources of bank earnings are in striking contrast to the Nineteen Twenties. In general, the amount of and income from loans declined drastically, but holdings of investments expanded greatly, while income from this source decreased,owing largely to the changed composition of security portfolios and to generally lower yields on bonds. The following data indicate these diverse trends: All member banks Philadelphia Federal Reserve District Deposits Loans .............................. ................................ Earnings therefrom ................... Investments ........................... Earnings therefrom ................... Earnings from other sources ............. Total current earnings .................. 1927-29 (average) 1939 Per cent change $2,434,000,000 $3,047,000,000 1,718,000,000 95,501,000 925,000,000 42,099,000 - 46 -56 924,000,000 46,773,000 1,394,000,000 44,772,000 +S1 -4 16,007,000 21,012,000 +31 158,281,000 107,883,000 -32 +25%%a Gross earnings from current operations declined from $108,400,000 in 1938 to $107,900,000in 1939. Increased income was reported from loans, service charges, and from miscellaneous sources, but these gains were more than offset by a smaller amount of interest on securities and lower earnings from trust departments. I Current expenseswere reduced more than earnings, declining from $73,100,000in 1938 to $72,000,000in 1939. This was due to a decrease of $1,900,000or about 10 per cent in the interest paid on time and savings deposits. On the basis of combined dollar totals for all member banks, the rate paid on these deposits in 1939 was 1.5 per cent, which 38 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia compared with 4.6 per cent earned on loans and 3.2 per cent on investments. In the years 1927-29,when the rate paid on time deposits was about 3.2 per cent, the average returns on loans and investments were respectively 5.6 and 5.1 per cent. Earnings from current operations remaining after the payment of expenses have been rising slowly in late years, $35,900,000 being reported in 1939, as against $35,300,000in 1938 and $34,500,000in 1937. In recent years the amounts available for final distribution have been Earnings and expenses banks I'hiladclpluaof member Federal Reserve (000's omitted) District 1937 1938 1939 $42,790 47,680 8,943 2,034 9,508 $41,501 46,007 9,168 2,317 9,399 $42,099 44,772 8,827 2,501 9,684 $110,955 $108,392 $107,3N3 Current Interest earnings: and discount loans.......... Interest and dividends on on securities...... 't'rust department Service ..................... charges on deposits All other .............. ............ . ................. . . 't'otal ............................ Current expenses: Salaries and wages .................... pterest on tinge and savings deposits..... I: Ixcs-real estate I: All . ..................... lxt5--(>ther .................... other.. ....... total... Net earnings . ............. ................... ...... . from current operations. Recoveries and profits Recoveries on sales: Recoveries on loans. . .... on securities .............. Profits on security sales ................ All other ................ ..... ........................ Total... . . . ......................... house and e.quipment....... . ......................... . Toral ............................. Net addition to profits Gash dividends declared................ ...... $27,498 18,474 2,738 4,754 19,612 $27,616 16,557 2,795 5,149 19,863 $76,409 $73,076 $71,980 K34,546 $35,31( $35,903 S3,139 3,293 9,270 1,696 $17,398 ................... Posies and depreciation: on luaus ................. (I1securitics . tln banking All other.... $27,207 19,583 2,737 6,166 20,416 . ... 39 10,523 11,94 7 2,951 2,'995 $1,449 3,007 10,(31 1,109 Kl, tic,7 6,21R 16,631) 1,27') M6,686 $25,994 X10,625 22,067 $12,167 19,706 3,053 6,773 2,70.3 6,631 $28,446 $42,028 S40,699 $23,498 $9,974 17,')82 $21,198 19,597 i7,;ý; Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia depreciation have exsmaller than net current earnings, as losses and ceeded recoveries and profits on sales. Recoveries and profits on sales increased sharply from $16,700,000 in 1938 to $26,000,000in 1939. This was due chiefly to heavy profits from security sales. Recoveries on securities also increased materially, figure. the amount realized from this source being double the 1938 Losses and depreciation declined $1,300,000from 1938 to 1939, but in the latter year were still in the heavy volume of $40,700,000. A small part of this is accounted for by the charging off of premiums on securities and on insured mortgages. Analysis of Member Bank Investments In view of the increased importance of investments in the earning assetsof commercial banks and the accompanying change in the nature of credit problems, the Federal Reserve Bank of Philadelphia undertook studies of the bond portfolios of member banks in 1937 and again in 1939. The sharp decline in the proportion of bank loans and the expansion in investments have reflected several influences and created new problems of earnings and management. This change in the character of bank assetshas been due primarily to an increasing tendency on the part of business to finance operations through the open security market rather than by direct private borrowing, to the substantial reduction in the use of credit after 1930, and to the growth in public financing during the past decade. The effect of these changed conditions has been accentuated by the inflow of over $10,000,000,000in gold from abroad, which was primarily the result of disturbed world conditions. In consequence, the funds available to banks and the reservesof banks have expanded sharply, while the traditional medium for the use of bank funds in commercial lending has been less in evidence, and banks generally have found it increasingly necessaryto employ their funds in the investment market. 40 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia Constant study of bond portfolios is essential in view of recurring uncertaintiesin money markets, the increasein unpredictable elements in businessand finance, and the widespreadindustrial obsolescence occasionedby the introduction of new products and methods. The purpose of the analysis of bond portfolios in 1939 was to ascertain the character of the investments of member banks in the Third Federal Reserve District and the extent to which the composition of investments is consistent with the general and specific operating conditions of the institutions. The data from used in the study were taken during reports of examinations of 652 banks made, for the most part, the first eight months of the year, prior to the outbreak of war in Europe. As these reports were not available for all institutions at any date, given the statistics were not strictly comparable throughout, but this technical limitation may be minimized by the fact that investment positions were relatively stable during the period. In making the analysis, percentage distributions were computed covering the general nature of assetsand liabilities, the quality, type, and maturity of investment holdings, the quality of loans, the composition of the capital accounts, and the relation of capital to liabilities and to depreciable assets.These data were further distributed to show variations occasioned by differences in size, location, and types of assetsand liabilities. The analysis showed certain broad changes from the investment position of member banks in 1937. The average volume of investments in 1939 was about $1,400,000,000as against approximately $1,450,000,000 in 1937.The difnature of the investments in 1939 was somewhat ferent from form the earlier period. The proportion of portfolios in the of direct and guaranteed obligations of the United States increased from 50 per cent in 1937 to 55 per cent in 1939. Holdings of state, municipal and other local governmental obligations and of corporate securities of the first three grades declined from 34 per cent to 25 per cent of total investments, while the proportion of corporate securities rated in the fourth grade was unchanged and that of lower grade bonds increased.The average maturity of portfolios was somewhat shorter in 1939than in 1937, as bonds maturing in over ten years, defaulted issues, 41 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia 58 per cent of the total, while and stocks declined from 64 per cent to from 13 per cent to securities due in from five to ten years increased 23 per cent. Proportions of shorter term securities declined somewhat in the period. The proportion of earning assetsin the form of investments was unchanged at 60 per cent, but the cushion of capital against deposits and substandard investments declined. Funds available for investment by banks are traditionally regarded as being supplied by time deposits and by that portion of capital which is not utilized in fixed assets. In the period of the study, 39 per cent of the total dollar volume of deposits was in the form of time deposits, and the average proportion of time to total deposits among the individual banks was 65 per cent. Of the volume of capital funds, 42 per cent was in fixed assets,the average proportion among the banks being 38 per cent. Although 60 per cent of earning assetswas in the form of investments, only 80 per cent of the volume of funds available for the extension of this long term credit was used for this purpose. The banks on the average used scarcely more than one-half of their so-called investment funds in securities. Owing to the lack of profitable outlets for lendable funds the banks held large proportions of unused cash. At the end of the year, 32 per cent of member bank assetswas in the form of cash or its equivalent, and during the period of the study over 88 per cent of the banks held from 10 to 30 per cent of their assetsin this form. On a dollar basis the quality of member bank investments in the aggregate was generally high, over one-half or 55 per cent being in direct and guaranteed obligations of the United States, about 11 per cent in state, county, and municipal obligations, and 14 per cent in corporate securities of the first three grades, a total of 80 per cent in high grade issues. Of the remaining 20 per cent in lower quality securitics, 7 per cent comprised holdings of fourth grade corporate bonds, 9 per cent was in lower grade bonds, 3 per cent in stocks, and 1 per cent in defaulted issues. The average holdings of individual banks, however, showed only 69 per cent in the high grade issues,reflecting smaller 42 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia proportions of government securities and larger holdings of all grades of corporates. Variations among individual banks and groups of banks were pronounced, and in many cases substantial proportions of inferior assetswere in evidence. The quality of aggregate investments of member banks is shown in the accompanying table and chart. Quality Total dollar VUILI nC bank investments of member (Per cent of total investments) l'. S. Government obligations, direct and guaranteed......... State, county and municipal obligations, etc. ... -.. ----------. Corporate securities of the first three grades ................. orporare securities fourth grade Lower grade bonds of the .................... Defaulted issues ....................................... ......................................... Stocks .................................................. Total Average . of ratlos 7.0 9.1 1.4 2.7 39.7% 10.2 19.1 11.3 16.8 1.7 1.2 100.0% 100.0% 54.6% 11.3 13.9 . ............................................. I QUALITY OF MEMBER BANK INVESTMENTS PCP,r,[ hi THIRD FEDERAL RESERVE -- DISTRICT výnceýr or oo. un *ouý 1, U CPST, SCCONý cnýicnTOýSP[TC " TninDnýTirW1 inOn the basis types of of securities, 66 per cent of the volume of vestments was in obligations of Federal and other governmental bodies. Holdings of corporate issuestotaled about 28 per cent of the aggregate portfolio, comprising 12 10 per per cent in obligations of railroads, cent in public utilities, Foreign and 6 per cent in industrial bonds. obligations comprised only 2 per cent of member bank investments. On the average, however, the individual hanks held about 50 per cent in public obligations, with 18 per cent in railroads, 16 per cent in public utilities, and 10 per cent in industrials. The following table shows the holdings of various types of securities on a dollar basis and 43 Annual Report, Federal Reserve Bank of Philadelphia Twenty-fifth on the basis of the average proportion dual banks: of each type held at indivi- 'T'otal dollar volume Types of securities in member bank portfolios (Per cent of total investments) U. S. Government direct and guaranteed........ obligations, State, county and municipal obligations ................. Railroads ................................................ Public utilities ...... .................................... Industrials ............................................... Foreign ................................................. Miscellaneous ............................................ Defaulted issues .......................................... Stocks ..... ............................................ Total . . 54.6% 11.9 11..5 9.6 5.9 1.9 0.5 1.4 2.7 100.0% ............................................. 100.0% The average maturity of investments in individual banks was somewhat longer than that of the composite portfolio for all banks together. Average holdings of securities maturing in over ten years amounted to 61 per cent of total investments as against only 54 per cent in the dollar total. Maturities of member bank investments (Per cent of total investments) Up to 5 years S to 10 years ........................................ Over 10 years ............................................ ............................................ Defaulted issues and stocks ................................ Dotal ............................................ Total dollar volume Average of ratios 19.3% 22.6 54.0 4.1 16.0% 20.0 61.1 2.9 100.0% 100.0% The aggregate capital position of member banks in this district was relatively strong in some respects.The figures in many instances, however, indicate need for considerable improvement, particularly in the case of certain individual banks and groups of banks, where variations were wide. Total deposit liabilities amounted to less than six time! capital accounts comprising capital stock, surplus, profits, and reserves The total of substandard loans and investments, including fourtl 44 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia grade corporate securities, however, was equal to 85 per cent of capital funds, substandard investments alone being equal to 55 per cent of invested stockholders' equity. But after deducting the amount of capital in fixed assets,substandard investments represented 95 per cent of the remaining capital funds, and substandard loans and investments combined were nearly one-half again as much as net available capital. The following table shows the aggregate capital position of the banks. Ratios in per cent Capital position of member banks (Based upon aggregate dollar volume) 541iä 42 It sits to capital account Fixed assets to ...................................... capital account ................................... Substandard assetsl'o capital account ............................................ 1'o capital account minus fixed assets ............................ Substandard investments- 1,55 o capital account ........................................... . o capital account minus fixed assets l. onK term investments ........................... fo capital fo capital account ...................................... . .. account min us fixed assets............................ 4$ 1'15 . . 95 164 282 While these figures showing the aggregate investment Position of all member banks are significant, large variations were shown among various banks and groups of banks, reflecting broad differences in operating conditions. For example, as between national and state member banks, the quality of investments was the same, but the average maturities at the state banks were shorter and the proportion of substandard to total loans was smaller. The state banks had more capital invested in fixed assets but also held larger cushions of total capital against both substandard and long term bonds. Wide variations were also apparent in the composition of Portfolios among banks of different sizes. The small banks held somewhat larger proportions of defaulted securities and of corporate issues, espcdally those lower of ratings, than was the case in larger institutions. Isanks with deposits less ranging up to $2,000,000on the average lield than 40 per cent of their investments in the form of direct and guarantec(l obligations of the United States, while banks with $10,000,000or 45 Annual Report, Federal Reserve Bank of Philadelphia Twenty-fifth form. Conversely, more in deposits held from 60 to 70 per cent in this 23 held from 19 to per cent of their portthe group of smaller banks issues, as against in defaulted folios in bonds below the fourth grade and Differences in the quality only 6 to 8 per cent at the larger institutions. in the following of investments in banks of varying size are shown table: Deposits in millions of dollars Quality of investments by size of banks U. S. Government obligations, direct and guaranteed....... State, county and municipal obligations, etc.. **'*...... Corporate securities of the first three grades........... Subtotal Corporate of fourth grade ............... Lower grade bonds........... Defaulted issues .............. Stocks ...................... 'I'ot 11 . ..... . ..... 39% the 510 ý_ _, 1020 2050 46% G7°Jo 61 % 10 14 50 & over -59ýö 15 6 9 9 12 10 12 18 21 20 20 19 17 12 10 11 64ý-, 69% 72% 75% 89% 85 (J 85 !';, 13 20 2 1 11 15 4 4 ; i i > t ý 4 6 2 3 13 20 3 1 13 19 2 1 I100 .... I2 35`7e 35% 37% 43ýc 1 63% 65`; ............. securities %1 %Y2 o- 11 17 2 1 9 12 2 2 1 JoI100% 100%, 100oa 100% 100% 100% 100% 100% ý . DISTRIBUTIONOF HIGH GRADE SECURITIESBY SIZE OF BANK PERCENT THIRD FEDERAL RESERVE DISTRICT 100 m m m m m ME o 1., výýii.. irv uiLýioHS or oOýýýRS ýi5r ý innCC I Convon&iCS- //SiAiC ETC, 5 LovCnnuCni Among the corporate securities, banks with deposits up to $2,000 . held from 17 to 20 per cent of total investments in 000 railroad bond! 46 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia and the same proportion in public utility bonds, while banks with $10,000,000or more in deposits held from 6 to 10 per cent in each of these types of securities. Holdings of industrial issues ranged from 10 to 13 per cent in the group of smaller banks as compared with 3 and 4 per cent in the larger banks. Maturities of investments also varied widely among the banks of different sizes.The proportion of portfolios in securities maturing up to five years increased from 9 less than per cent at institutions with $250,000in deposits to 30 per cent at banks with $10,000,000to $20,000,000 in deposits. There was little variation in holdings of medium term securities, but in the caseof bonds maturing in over ten years the smallest banks held about 70 per cent of their portfolios in this form while the largest, with $20,000,000or more in deposits, held only about 40 per cent. The proportion banks conof substandard loans at the smallest stitutes 7 per cent of total loans, while they were as much as 18 per cent in some groups of larger-sized banks. The following data show the varying quality of loans at banks of different size. Quality of loans by size of banks Class 11 .............. ('lass 111 . Cl ass................... lV .................... Total-substandard loans.. .... ....... Deposits in millions of dollars 0--4 G% 1 0 77 %- Y21125 10% 1 9% 1 0 0 11% 1 0 212% I 0 510 15% 2 1 11% 10% 12% 13ofo 18% 1020 2050 11% 3 14'J UVCC 10% 3 1ý1 I 15';; SO & ý 18`7, 14`iä The large banks held larger a proportion of their earning assetsin the form of investments, had smaller proportions of time deposits, and had substantially lower rates of earnings on both loans and investments. With respect to capital positions, large banks generally had heavier investments in fixed assets, higher ratios of deposits to capital, and larger cushions of capital against substandard investments. 47 Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia Deposits in millions of dollars Capital position of member banks %Y40Y2 174 by size of banks Ratio of Deposits to capital Fixed assets to i account. capital account.......... Substandard investments to capital account........ 352ö 4S5% 523 12 25 5- 10 517% 523% 549 0 50 & over 1020 2050 643 G00'/¢ G87% 30 28 37 37 38 57 51 56 71 84 74 66 62 31 71 37 34 47 The variation in the amount of capital in relation to substandard investments among banks of varying size is further illustrated in the following table. Percentage of substandard investments to capital accounts by of banks Deposit (Thousands Nunn ber of banks anks 1204080039.9% 799% 119.9`% 159.9'; 160', ', and over Total ranges of dollars) Up to 249 25 250499 96 500999 156 1,000- 1,999 162 2,000- 4,999 140 5,000- 9,999 41 10,000-19,999 15 20,000-49 999 8 50,000 and ,over... I91.4 Tocal.......... --- Per cent of banks ' 652 -- -- 3.8%% 40.0% 14.7 29.1 21.1 23.9 19.7 24.9 21.5 27.8 6.3 31.7 2.3 73.3 1.2 75.0 33.3 36.016.0'jß 28.1 27.1 26.3 30.1 40.1 27.8 40.0 22.9 43.9 17.1 20.0 6.7 25.0 0 55.6 11.1 8.0% 14.6 1(i. 7 9.9 6.4 4.') 0 0 0 0 1.1 5.8 2.5 2.9 2.4 0 0 0 100.0`% 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1100.0% - The size of the communities in which banks operate naturally has bearing upon the size of the banks themselves, and differences direct a in population are also reflected in the composition of the portfolios of banks serving the areas. Banks in cities of 50,000 or more population held over 50 per cent of their portfolios in the form of direct and guaranteed obligations of the United States as against proportions of lessthan 40 per cent in towns with population up to 3,000. Holdings of these obligations ranged from 35 per cent of total portfolios at banks in towns with less than 1,000 in population to 55 per cent at Philadelphia banks. Investments in bonds of state and local governments also 4S Trventy-fifth Annual Report, Federal Reserve Bank of Philadelphia CAPITALPOSITIONS BY SIZE OF BANK PERCENT 100" THIRD FEDERAL FIXED ASSETS RESERVE DISTRICT TO CAPITAL ACCOUNTS 75 DEPOSITS TO CAPITAL ACCOUNTS i SUBSTANDARD INVESTMENTS 49 TO CAPITAL ACCOUNTS Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia increased as population increased, and conversely, holdings porate obligations declined. of cor- Banks in larger centers held portfolios with shorter maturities than did institutions in smaller centers. Banks in towns having populations in five under 1,000 had only 10 per cent of their investments maturing 50,000 banks in cities of or years or less as against nearly 30 per cent at 23 Philadelphia, the proportion was where more population, excluding bonds in ten over years varied maturing per cent. The proportion of from a high of 68 per cent at banks in the smallest towns to a low of 44 per cent in cities over 100,000,excluding Philadelphia. The banks in larger centers also showed lower rates of current deposits earnings on both loans and investments, had larger volumes of fixed invested in in relation to capital, and had more capital assets. These conditions reflect broad differences in the nature of bank operations in rural and urban sections. In the larger cities, financial operations are generally more competitive than in less industrialized sections; correspondent balances held for other banks are concentrated in larger centers; and proportions of demand deposits are larger in cities, where manufacturing and primary distribution require frequent and substantial outlays of cash. I Banks with large proportions of earning assetsin the form of bonds, as compared with banks concentrating upon a commercial lending business,showed investments of somewhat higher quality, had smaller proportions of capital invested in fixed assets,had smaller holdings of capital in relation to substandard and long term investments, and showed lower rates of current earnings on both loans and investments. Banks with large proportions of time deposits had relatively smaller holdings of public obligations and larger proportions of all grades and types of corporate securities, especially those below the fourth rating, than did banks whose deposits were primarily of the demand type. As would be expected, because of the lower rate of turnover in deposits at banks holding substantially larger proportions of time and savings accounts, average maturities of portfolios at these 50 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia institutions were longer than at banks doing a primarily commercial business. Because bank credit, of the limited demand for short term had have to resort to commercial banks as well as savings institutions the investment market for the employment of their funds, so that on the whole no great differences appeared with respect to the proportion of earning assetsin the form of securities at banks with heavy demand deposits as against those with heavy time deposits. In general, banks high quality with loans and investments of showed substantially different investment and capital positions from those found at institutions with larger proportions of substandard and borderline loans and securities. Average maturities of portfolios at banks with higher larger proportions of a grade of assetswere shorter, earning assetswere in the form of investments, rates of current earnings on investments were lower and on loans were higher, proportions of time to total deposits were smaller, cushions of capital against deposits and substandard assetswere larger, holdings of cash were larger, and the relative amounts of capital utilized in the form of fixed assetswere smaller than at banks where the quality of assetswas lower. The general investment position of the member banks in the Third Federal Reserve District, be as shown by this analysis, appears to fairly well adapted to current operating conditions. Wide variations in the composition of portfolios and in the nature of other assets and liabilities, however, exist among individual banks and groups of banks. These variations in the quality and types of security holdings and in their relations to capital and liabilities reflect in part the changes in credit positions and ratings of bonds occasioned by the wide fluctuations in business activity in recent years. But in many casesinvestment positions suggest the absenceof an effective portfolio policy and program. The adaptation of the policies of banks to the changed and changing financial requirements of the communities they serve is necessarily and properly a matter of evolution. Recent developments indicate that the sweeping changes in the nature of bank credit have been recognized by the banks increasing and that attention is being given to the management of investments in order to meet the new credit problems. 51 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia Money Rates Money rates in 1939 continued the irregular downward trend Disturbed political and economic which has prevailed since early 1932. flow of gold to conditions throughout the world sharply stimulated the billion dollars, swelling this country to a record volume of over three bank deposits and reservesto new high levels. The demand from busidespite ness for new capital was even less than in the preceding year, Such new issues of rapidly improving industrial and trade conditions. both corporate and government securities as were marketed were well idle funds were received, as investors under the continuing pressure of low willing to accept unprecedentedly returns. Yields on investment securities in the middle of the year declined to the lowest levels on record, and short-term funds continued virtually unchanged from the low levels of the previous two years. During the summer, when international relations were growing increasingly strained, rates advanced somewhat, and immediately after the outbreak of war in September the investment market was subjected to considerable selling pressure chiefly from smaller banks and non-institutional investors. In this period of sharp decline in the bond market, the Federal Open Market Committee of the Federal Reserve System purchased United States Government obligations amounting to about $470,000,000from August 28 to September 25 to aid in maintaining orderly conditions in the market. Some banks in large money centers and investing institutions generally bought securities on the decline. As the bond market subsequently showed strength and demand for high grade bonds again became active, the Committee sold securities. As a result of the active demand for securities, yields by the end of the year declined to prewar levels. i Rates on new 91-day Treasury bills fluctuated considerably during the year, varying from a slight negative yield on a few issues which were purchased for tax purposes to a discount rate as high as 159 per . cent on the issue offered in the first week of the war. The average place_ 52 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia nient rate for the year on new issues,however, was only .022 per cent, compared with .053 per cent in 1938. The average rate on outstanding 91-day bills was 05 per cent, or 02 points below the year before. . . The supply of commercial paper during the year was again extremcly limited, and the demand continued active. Offerings by dealers were allocated among customers, who were seeking a liquid form of assetin which to employ their large volume of cash. The average rate on this type of paper was only 59 per cent in 1939 as against .81 per . cent in 1938 and 95 in 1937. . The return on Treasury in 3 to 5 years averaged notes maturing 59 per cent during in the the year, and reached a low of .35 per cent . early summer. The average yield for 1938 was 83 per cent. . The yield on long-term Treasury bonds declined to a record low 2.07 of per cent early in June and for the year as a whole averaged 2.36, the lowest on record and more than 1 per cent under the 3.42 per cent which prevailed in the period from 1927 to 1929. In the case of municipal bonds, average returns reached a new low of 2.52 per cent in December and for the year averaged below the level in 1938. The rates highest on the grade of corporate bonds also reached a new low in the summer, these bonds selling to yield 2.88 per cent. After advancing to a temporary peak in the early fall, returns again declined, reaching 2.91 issues, reflecting per cent at the end of the year. Speculative corporate more fully the uncertainties in the international and domestic business situations, sold at rates substantially above the lows of early 1937. The average yield for the year, however, was below 1937 and 1938. The demand for new money in the capital market was sustained primarily by federal and local government issues. New obligations of the United States Government offered to the public in 1939 amounted to about $1,600,000,000 excluding savings bonds. Issues of states and municipalities to obtain new capital totaled $931,000,000. Flotations of new corporate securities, on the other hand, aggregated only $371,000,000, compared with $872,000,000in 1938, about $1,225,000,000 in 1937, and an average of $6,000,000,000in the years 1927-29. 53 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia Annual averages of money and security rates and the levels prein the following table. vailing at the end of the past two years are shown Annual Money rates and yields Commercial paper, prink Bankers' acceptances, 90 ............ days........ Call money renewals, New York.... Treasury bills, 91-dayY()....... (dealers) Treasury notes, 3-5 year.. ........... Treasury bonds, over 12 years........ Municipal bonds (Stand. Statistics).. Corporate bonds (Moody): Rating-Aaa Aa ..................... A ...................... ....................... Baa ..................... TypeIndustrials Public Rails ............... utilities........... .................... 1937 1 1938 95`/0 . 43 . 1.00 "2S 1.40 2.68 3.10 3.26 3.46 4.01 5.03 3.55 3.93 4.34 End averages 1 1939 of }'car 11 1938 1 1939 S1% 44 . 1.00 07 S3 . 2.56 2.91 59°iä . 44 . 1.00 05 . 59 . 2.36 2.76 62%0 . 44 . 1.00 05 . 69 . 2.48 2.71 56 %. . 44 . 1.00 04 . 46 . 2.30 2.52 3.19 3.56 4.22 5.80 3.50 3.87 5.21 3.01 3.22 3.89 4.96 3.30 3.48 4.53 3.05 3.39 3.99 5.17 3.36 3.61 4.73 2.91 3.10 3.72 4.89 3.15 3.36 4.44 Average rates of interest paid to customers on time and savings deposits continued below the returns on the highest grades of securities. Although the legal maximum rate that member banks generally are allowed to pay is 2'/Z per cent, the trend of rates actually paid on such deposits has been downward. In the case of New Jersey the legal maximum for banks was reduced to 1 per cent in July 1939. The spread between interest rates paid on deposits and yields on securities has widened since 1935.Average yields on long-term governments and Aaa corporate bonds in 1939 were respectively 2.36 and 3.01 per cent, showing declines of .43 and .59 per cent from 1935. The rate paid by member banks on time and savings deposits, calculated from dollar totals, showed a reduction of %4per cent in this period to approximately 111/Z per cent. The continued easy money conditions in the investment markets caused by increasing supplies of idle funds and limited demand for capital and credit were also reflected in the market for commercial loans. The volume of loans made by large Philadelphia banks at low rates increased substantially toward the end of the year. The average 54 i Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia BOND YIELDS AND INTEREST ON DEPOSITS PERCENT II ioý 6 5 4 3 ýýý.... RATE PAID ON TIME DEPOSITS PHILADELPHIA DISTRICT ALL MEMBER BANKS COUNTRY BANKS 2 0 27 28 '29 '30 '31 '32 .33 '34 35 v2 ý I '36 '37 '38 '39 40 rate on the dollar volume of new and renewed loans with maturities of 30 days or more, declined to 2.7 per cent in the first half of Dccember. '1'he corresponding; rate in September was 3.4 per cent and in June 55 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia and March, 3.6 per cent. From 80 to 90 per cent of the total number of loans made by these banks in 1939 bore from 4 to 6 per cent interest. The quarterly reports for 1939 arc summarized below. loans Commercial and industrial in 30 days or more maturing banks made by seven Philadelphia (D( llar figures in thousands) Rate I percent.... ................. Between 1 and 1! , per cent.......... 112 per cent ................ ........ Between 112 2 and per cent.......... 2 percent.... Between 2 and 3 per cent. ........... .... ....... 3 per cent Between ............................ 3 and 4 per cent ............. 4 per cent Between ............................ 4 and 5 per cent............ i per cent Between ............................. 5 and 6 per cent ............ 6 per cent Between ............................ 6 and 7 per cent ............. Total, dollar amount........... Total number ................... Mar" 16-31, 1939 J 1-15, 1939 U $211 250 2,080 150 332 548 3,096 1,265 2,147 1,767 1,350 250 1,547 0 $15,960 1,117 $14,993 991 0 0 $2,040 200 1,524 1,011 2,520 437 2,059 1,749 2,239 607 1,575 . . . . . Dec. 1-15, 193`) Sep. 1-15, 1939 0 x70() 3,3; 0 197 1,234 514 1 SI '9 _; 1,129 2,2(2 1,527 1,(Q 243 1,505 0 $17,108 1,184 51,1(, 7 500 10,151 115 754 2,2(. 0 2,460 2,824 2,550 948 1,614 249 1,179 $26,780 1,115 The rate of discount charged by this bank on advances to and rediscounts for member banks under sections 13 and 13a of the Federal Reserve Act has continued since September 1937 at a record low of 1% per cent. Rates on advances to member banks under section Discount and interest rates Federal Reserve Bank of Philadelphia I Discounts for member banks (Sections 13 and 13a) ................... Advances to member banks tinder Section 10(b) . Advances secured by U. S. Government direct ................. for indi-I obligations victuals, last paragraph partnerships and corporations tinder of I Section 13: To banks To others ........................... ......... ....... Rates on industrial 131): ............... advances-Section Advances direct to industrial or commercial organizations.......... Advances to fitiancin g institunons On portion for which institution - is obligated .................... On remaining portion ........................................ Commitments to make advances ................................ 'Same as to borrower; minimutn of 'ý(,,o. 56 December 1939 iö ßf'1 I t 2! 4-6 21 1; -2 31, Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia 10(b) and on industrial advances under 13b were also unchanged in the year. On advances to individuals, partnerships, and corporations securedby direct obligations Federal Government, the rate was the of reduced as of September 1 from 4 per per cent'in the case cent to 111/Z of nonmember banks and 2'/2 per cent for others. The preceding table shows the schedule of rates in effect at the close of 1939. Federal Reserve Bank Total resources of the Federal Reserve Bank of Philadelphia increased substantially during 1939, reaching at the end of the year $1,176,000,000 as compared with $870,000,000at the same time in 1938. This expansion of about 35 per cent in resources was due to gains in cash reserves. As the rise in cash reserves materially exceeded increased requirements against Federal Reserve note and deposit liabilities, the capacity for the extension of credit was greatly enlarged. But the volume of credit outstanding declined. Loans and advances to member banks continued small Reserve bank and the credit outstanding was principally in the form of government securities, comprising 98 per cent of the earning assets. Federal Reserve Bank of Philadelphia Dollar figures in millions) Tülls discounte( Bills boo in(InsSSItllýt.... I nite<I Staus .... ....... ""...... government obligations.. ther securities..... . Total bills securities Annual averages of daily figures . . 1936 1937 1938 $0.4 $1.4 0.3 4.0 $1.6 0.4 5.4 193.8 0 208.9 0 219.1 0 214.5 0 20.4 0.5 $200.0 $214.7 $223.9 $217.9 $122.9 323.1 494.8 86.9 708.2 1-17.0 1939 X0.5 3.2 1929 KRR.9 13.1 0 and 1'edcrtI Reserve Member bank nute circulation tither deposits...reserve d eposits. focal Rcscrvecash reser.ves..,,,,.. ratio... 299.4 324.6 27.1 464.0 72.4% 57 313.1 341.2 32.6 534.4 73.5% 303.3 375.1 43.2 530.5 72.5'J ý 75.3 ýý, 131 (1.5 191.5 07. (, ''; Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia Statement of Condition End of year Federal Reserve Bank of Philadelphia (000's omitted in dollar figures) RESOURCES Gold certificates on hand and due from U. S. Treasury Redemption .............................. fund-Federal Other cash .............................. Reserve notes .. Total reserves .................. Bills discounted: Secured by U. S. Government obligations* Other bills discounted . ................. Total bills discounted......... Bills bought in open market ............... Industrial advances ...................... United Status Government securities...... 1937 1938 1939 $474,891 500 26,940 $546,461 1,236 29,221 $S-t6,062 1,071 $502,331 $576,918 $873,603 1,498 655 704 473 $2,153 293 3,627 216,853 $1,177 56 3,120 222,761 $222,926 is 1,662 54,588 4,826 5,067 $227,114 17 2,OS1 54,506 4,699 4,637 $216,442 $791,418 $869,972 $1,176,352 $318,036 $320,562 . . Total bills and securities...... . Due from foreign banks ................... Federal Reserve notes of other F. R. banks. Uncollected items ........................ Bank premises ........................... All other resources ....................... Total resources ................. LIABILITIES Federal Reserve notes in circulation.... Deposits: Member bank reserve account.......... U. S. Treasurer-general account....... Foreign bank Other deposits .......................... ......................... ) 365,046 . . 1,092 17,002 2,269 Total deposits .................. Deferred availability sterns ................ Other liabilities .......................... $385,409 53,747 1,092 Total liabilities CAPITAL 1 $791,418 Ratio of total reserves to deposit and Federal Reserve note liabilities combined......... Contingent liability on bills purchased for foreign correspondents .................. Commitments to make industrial advances . fully 71.4 % 58 $663 0 3,084 212,69$ 5 1,945 73,955 4,572 5,830 $348,938 374,231 58,155 19,545 6,899 598,597 65,043 39,41(, 16,821 $458,830 57,591 664 $719,877 73,866 $837,647 $869,972 `)6 $1,143,646 12,11 i 14,19tt 4,393 2,000 $1,176,352 74.0%, S 1.711';. S7 1,525 Y+0 930 SiGC, 173 guaranteed 1 i0 513 12,213 13,696 4,41(; 2,000 12,255 13, i66 4,ý111 2,999 Total liabilities and capital accounts ..................... bills secured by obligations ý $758,284 ................. ACCOUNTS Capital paid in Surplus-Section .......................... 7 ....................... Surplus-Section 136 .......... Other capital accounts .......... .................... 'Includes 26,470 by United States Government Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia Moderately increased earnings and reduced expenses contributed to a rise in net earnings available for distribution. Statements of the earnings and expensesfor the years 1938 and 1939 are given on page 64 of this report. The table on page 57 shows the types of Reserve bank credit outstanding and the items which are used in determining the reserve position of the bank. Reserve bank credit Bill and security holdings of the Federal ReserveBank of Philadelphia at the end of 1939 amounted to $216,400,000as compared with $227,100,000 at the same time in 1938. The largest reduction and accompanying fluctuations occurred in holdings of United States Government obligations, although bills and industrial advances also declined. Holdings of government securities, which represent a participation in the System Open Market Account, declined from $222,800,000 to $212,700,000.The dollar volume varies in accordance with changes in total holdings of the System and the proportion allocated quarterly to this bank. At the lowest point of the year this bank held $205,200,000, while the peak was $243,500,000 in September, following active purchases by the Federal Open Market Committee in the disturbed markets immediately preceding in and following the outbreak of war Europe. The sharp changes in composition shown in the accompany11" S. government securities held 14der: d keserve (Bank of YhiLtdclpltia I'. nd of vcar Dollars (000's omitted) 1)3C" 1937* " "... ....................... 1`)3H............................ 1)39. ....... ........... .... ......................... I'crccntame 1)36".. (list rihution: 1)37 ..,......................... 1938... ................. ' 1)39 ............................. .................... Runds 42,193 63,561 73,057 115,673 20.2% 29.3 32.8 54.4 59 Notes Bills 115,317 97,685 100,515 97,022 51,479 55,607 49,189 U 55.2 45.0 45.1 45.6 24.6,; 25.7 22.1 0 Total 208,989 216,853 222,761 212,695 100.0% 100.0 100.0 100.0 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia ing table reflect three principal factors: purchases of securities late in holdAugust and in September; the exchange of a portion of the note ings for bonds under the terms of Treasury refunding offers; and the maturity of Treasury bills without replacement. In view of the increasing volume and wide distribution of surplus funds, member bank borrowing continued almost negligible, declining further during 1939 from $1,177,000 to $176,000. At the close of the year total holdings of bills discounted by this bank amounted to $663,000. Discounts for member banks dropped as low as $30,000 in November. Comparatively few banks were borrowing at any one time; only 86 banks borrowed during the year as against 143 in 1938. Advances under section 10(b) at the highest points reached in January and February amounted to $495,000 and for half of the year no bank was borrowing under this provision. There was no demand for loans by individuals, partnerships, or corporations under the provisions of the last paragraph of section 13 of the Federal Reserve Act, even though interest rates were reduced in the late summer. Industrial Outstanding industrial advances by this bank to provide working capital maturing in up to five years to established business concerns declined from $3,120,000 at the 1938 to less than $2,500,000in the summer of 1939, but by the close of end of the year had increased to $3,084,000. Outstanding commitments to make industrial advances at the end of the year amounted to $930,000as compared with $1,525,000at the end of 1938. advances The number of inquiries for industrial loans has been declining in recent years. In 1939 only 89 inquiries were received and many of these did not reach the stage of formal application. Applications were received from 27 prospective borrowers seeking advances in the aggregate amount of $5,051,000as compared with 27 applicants asking for $6,065,000in 1938. In 12 casesthe applicants had previously borrowed from this bank. 60 Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia Approval was given to 17 applications for a total amount of $4,013,000. Most of these were from manufacturers. Eight applications calling for an aggregate of $948,000 were rejected because of unsatisfactory financial condition, inadequate management, uncertain businessprospects, insufficient collateral, or because the credit was available elsewhere. In several instances applications were withdrawn or the amount of credit requested was reduced before action was taken by this bank. The following table shows the disposition of applications received during 1939 and since June 1934. Applications for industrial loans f edcral Reserve Bank of Philadelphia 1939 June 30,1934Dec. 30,1939 Number Approved..... ............................... dts Witithdr hd r:, ...................................... o .................................. Total Dollar number . ......................... . 17 ti 2 208 422 49 27 679 $}, 013,000 949,000 $32,828,000 15,853,000 2,4 59,000 amount \pproved_,... Rrjrrtcd... 11'it hd " ............. ........ ........ .............................. rnt n................................. Total .. amount ................... . 90, ()()0 $5,051,000 $51,170,000 The daily average of loans and commitments outstanding over the period from June 30,1934, when industrial advances first were authorized, to December 30,1939 was $4,182,000. Income totaled $1,143,000, ýigainst which were charged expenses of $328,000 and losses and reserves for losses in the amount of $155,000. This leaves net income of X60,000 from these operations. Of this amount $366,000 has been retained and added to the surplus accounts of this bank and $294,000 has been paid to the Secretary of the Treasury as a return on funds transferred to this bank for the purpose of making industrial loans. 1n view of the risk implicit in this form of credit, the volume of advances still outstanding, and the number of actual and potential "trouble" cases,the amount of $366,000 in net income which was added (, 1 I Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia further to surplus accounts should be viewed in the light of possible be loans predicted losses, as the final outcome of outstanding cannot at this time. Volume of work The volume of work done by this bank during the year increasedfurther. The number of ordinary checks handled in 1938to 97,232,000in 1939, reflectrose from 91,762,000 ing the expansion in business. The aggregate dollar volume of these for checks was $23,467,000,000.In recent years the number of checks in 1929 For ordinary example, smaller amounts has been increasing. dollar total checks handled by this bank numbered 70,234,000,but their While the daily average of checks handled amounted to $39,123,000,000. in 1939 numbered 325,000, operations on individual days were considerably greater, reaching a new high point of nearly 700,000 on June 15. In addition to the items handled individually, 16,370,000 checks received in packages were distributed by the automobile run service to banks which are not members of the local clearing house. Transfers of funds increased from $2,813,000,000 in 1938 to $3, 197,000,000in 1939, but the number of items declined somewhat. Collection items handled, including notes, drafts and coupons, decreased slightly in number but increased in amount. In 1939approximately 167,000,000pieces of currency and 1,300 tons of coin were received and counted. These figures show some decline from 1938. Money tended to stay in circulation as the public demand increased and banks continued to cooperate with this bank in restricting return shipments to currency unfit for further use. As fiscal agent of the United StatesGovernment, this bank received subscriptions totaling over $1,100,000,000for direct and guaranteed obligations and allotted $77,000,000for cash and $146,000,000on an exchange basis. Securities numbering about 246,000 pieces were handled in issue, redemption and exchange transactions, as compared with 200,000pieces in 1938.The volume of work relief checks dropped from 6,971,000to 5,613,000,but the number of other government checks received increased from 3,055,000to 3,117,000. 62 ý Twenty-fifth Annual Report, Federal ReserveBank of Philadelphia The number of discountsfor and advancesto member banks and advances for working capital to industry declined in 1939 to 434 and the dollar amount to about $11,000,000. This was in contrast with $43,000,000in 1938. An average of $640,000,000 for of securities was held in custody banks, member chiefly for those outside of Philadelphia. In connection with this service, 490,000 coupons This were clipped during the year. bank held in 5,117 for also custody purchasers at the end of the year United States savings bonds. During the year, the bank handled for member banks 16,089 security transactions amounting to $315,000,000. Volume of work Federal Reserve Bank of Philadelphia Pieces or transactions handled (000's omitted) 1939 1938 1939 171,726 280,876 91,762 166,629 273,429 97,232 $43 698 26 21,666 $11 677 26 23,467 15,819 3,05.; 6,971 16,370 3,117 5,613 554 213 669 160 1,233 350 61 1,230 337 49 1938 Discounts Currency and advances. ............ counted ("I's counted .................. Ordinary ....................... checks ............ ('becks handled in. packages .by ...... automobile run service lJ S. Government .............. checks Work ............ relief checks ('ollection items: .................. . Coupons U. S. Government of ;'I'd agencies....... All other (notes drafts, hrinsfers and coupons) of funds...... Issues, . redemptions by and fiscal department:exchanges 11, S. agency (overnnunt direct obligations All other ................ Dollar amounts (000,000's omitted) 2 182 18 56 2,513 50 197 3,197 194 S2 d69 47 396 122 181) *I "%Sth: 500. m Earnings and Total earnings of this bank increased from $3,151,000 in 111 to a .. --- in . 1939. -----.. 1y38 to X63,164,000 This was due principally -Pvnses gain of $134,000 in the income from participation in System holdings of government securities, which provided about 94 per cent of the bank's earnings. Income from miscellaneous sourcesalso expanded, while earnings from discounts and advances declined. Net expenses were reduced $57,000 to $2,341,000, chiefly through lower in costs connection with Federal Reserve note issues. 63 I Annual Report, Federal Reserve Bank of Philadelphia Twenty-fifth Increased income and reduced expenses were reflected in an exSupplemenpansion from $753,000to $923,000in current net earnings. decreased sharply, but there tary income from profits on security sales from current income. The was also a substantial decline in deductions for largely deductions reported in 1939 were the setting up of reserves for losseson industrial loans. Net profits, after additions to and deductions from net current $152,000 over 1938 earnings, amounted to $1,205,000, an increase of Profit and loss account Federal Reserve Bank of Philadelphia (000's omitted) Earnings 1939 from: Current Additions to current $3,264 $2,078 152 168 $2,080 103 158 $2,398 $2,341 net earnings: Profits on sales of U. S. Government Other additions .................................... Deductions $3,151 ............................... securities ........ $753 $923 $697 24 Wo 37 $721 $4o7 $387 34 So 125 I from current net earnings: Prior service contributions to Retirement Other deductions ................................... . System....... $421 Net additions to current available Distribution of net earnings: for distribution .............. Paid to Treasury of United States, Sec. 136............ Dividends paid to member banks ..................... Transferred to surplus (Sec. 13b) ..................... Transferred to surplus (Sec. 7) ...................... "After penses. deducting "Transfers reimbursements received for from surplus (Section 136). 64 certain $125 $300 $282 $1,053 $1,205 net earnings ............... Net earnings i i; ý 3,070 54 2,936 21 . net expenses .............................. net earnings $7 168 Expenses: Operating expenses* ................................ Cost of Federal Reserve currency Assessment for expenses of Board ..................... of Governors........ Total 1939 $26 Bills discounted .................................... Bills bought ....................................... Industrial advances. ..... : ................... United States Government ....... securities ................ Other sources ............................. Total earnings ..... .......................... i . fiscal $84 73+ so 725 230 _22.. 502 agency and other ex- Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia and the largest since 1932. The disposition of these profits included payment of $725,000 in dividends to member banks and the transfer of the remaining $480,000to the regular surplus account of this bank. In addition, an amount of $22,000 was transferred from the surplus held separately under Section 13b to the regular surplus. No payments to the Treasury of the United States under Section 13b were necessary as reservesset aside against lossesexceeded net earnings from this source. The preceding statement shows the profit and loss account of this bank for 1938 1939. and Membership During 1939 the number of member banks in this district declined from 655 to 652. No banks were admitted to membership, but two national banks were absorbed by a member trust company and third a national bank was liquidated. As a result, the number of national banks was reduced from 589 to 586, while the number of state bank members remained at 66. The combined assets of all banking institutions in the district increased by $433,000,000 during the year to $5,217,000,000. Member bank assets expanded $373,000,000to $3,746,000,000,or 72 per cent of the assetsof all banks. The following table shows by states the number and the assets of member banks compared with all banks in the district. Banks in Philadelphia Federal Reserve District December 30,1939 (Dollar figures in millions) umber of banks focal... Member banks...... Pruportion member of total........ 'T'otal assets total Mcmher........................... hanks I'r )Portion ................... IMntI)er of total........ "I'ortinn of the state in tlcludes n-Philadelphia 9 branches of nonmember Pennsvlvania; New Jersey' 769 550 7?'%, $4,497 $427 3,260 7270% Federal banks. 65 109 83 77% Reserve 300 District. Delaware 55t 19 35°Jý $293 186 63°Jo District totals 932 652 70%, $5,217 3,746 72°'io Twenty-fifth Annual Report, Federal Reserve Bank of Philadelphia No additional grants of fiduciary powers were made to national banks in this district during 1939. The number possessing trust powers banks which was reduced from 255 to 252 by the absorption of two had full powers and the termination of restricted powers held b} another bank. The terms of George W. Reily and J. Carl Dc La Cour' officersand as directors of this hank expired December 31,1939. Mr. directors Reily was reelected in November by the banks in Group 2 as a Class A director for a term of three years. Ward D, Kerlin, Secretary and Treasurer of the Camden Forge Company of Camden, New Jersey, was nominated and elected by the banks if Group 3 to serveas a Class B director, succeeding Mr. De La Cour, who had requested that his name not be proposed for renomination. Changesin By appointment of the Board of Governors of the Federal Reserve System, Thomas B. McCabe served as Chairman of the Board of this bank and Federal Reserve Agent during 1939. He was reappointed to serve in these capacities during 1940, and his term as a Class C director was extended for three years from January 1,1940. A vacancy among the Class C directors was filled by the appoint, ment in March 1939 of Alfred H. Williams, Dean of the Whartoi School of Finance and Commerce of the University of Pennsylvania His term expires December 31,1941. Francis C. Biddle, Deputy Chairman of the Board of this bank. resigned as a Class C director in April 1939 to take office as a judge of the United States Circuit Court of Appeals for the Third District. Early in December, Warren F. Whittier, farmer, dairyman, and cattle breeder of Lonicera Farms, Douglassville, Pennsylvania, was appointe by the Board of Governors to complete Mr. Biddle's unexpired term Dean Williams was designated Deputy Chairman for the year 1940 Howard A. Loch, Chairman of the Board of the Tradesmens Na tional Bank and Trust Company of Philadelphia, who has represente 66 ''zventy-fifth Annual Report, Federal Reserve 73anlZ of Philadelphia Ills bank on the Federal Advisory Council since 1930, served during 1939and was chosen again for 1940. He continued in office as VicePresident the Council during 1939 for 1940. of and was reelected President John S. Sinclair represented the Federal Reserve Banks of Philadelphia and Cleveland on the Federal Open Market Committee for a period of two years ended March 1939. Thereafter, M. J. Fleming, President the Federal Reserve Bank of of Cleveland, served as the representative and Mr. Sinclair as the alternate. Mr. Sinclair was elected to serve on the Committee for the year ending March 1941. The only change in the official staff during 1939 was the appointment in March of Philip M. Poorman as Auditor. Early in 1940 Glenn K. Morris, an Assistant Cashier, resigned to become Vicc-President of hc . National Bank of Germantown and Trust Company, Philadelphia. On December 31,1939 this bank had 769 employees other than officcrs as compared with 772 the at close of 1938. ýr,ý ý n n: , a-4r"`°ý'; ý "'-n,. _i nrý D. 67 Directors as of March 30,1940 Group Term expire; Dec. 3l Class A: T,.,,.... Jacl, 1. \x).... « T_ _.. yr avut,, President, IF .............. Philadelphia I ....... ......................... National Bank, IJ'II Philadelphia, Pennsylvania. George W. Reily National President, ........................................ Harrisburg Harrisburg, Pennsylvania. I'M 2 Bank, J. 13. penning ........................................... ]'resident, Wyoming National Bank, 'I unkhannock, Pennsylvania. 31 . 940 Class ß: (" c.,,, i_:. i, f, c.,.... Camden, New .J'; 1 R. IZvans and Company, ...... Jersey. I tarry L. Cannon ....................................... II. P. Cannon & Son, Inc., Ward I). Kerlin Secretary-i ......................................... reasurcr, Camden Forge Bridgeville, 1940 .. . 1941 Delaware. . Company, 1942 Camden, New Jersey. Class C: Thomas B. McCabe, Chairman and Federal President, Scott Paper Company, Chester, Pennsylvania. Reserve 1942 Agent... 1941 Alfred It. Williams, Deputy Chairman ...................... Dean, Wharton School, University of I'cnnsvlvania, Philadelphia. \Varren F. Whittier ....................................... Lonicera Farms, DosClassvilIe, Pennsylvania. 19.10 Officers S. SINCLAIR, JoHN FRANK J. DRINNEN, First Vice-President C. A. MCILHENNY, Vice-President and Cashier President L. E. DONALDSON, Assistant Vice-President C. A. SIENKIEWICZ, Assistant Vice-President W. J.DAVIS, Vice-President JAMES ERNEST ARTHUR C. HILL, Vice-President WILLIAM G. MCCREEDY, Assistant Vice-President M. Toy, Assistant Cashier E. POST, Secretary PHILIP M. Auditor POORMAN,