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F ederal reserve Bank OF DALLAS Dallas, Texas, August 25,1944 SELECTED MEMBER BANK OPERATING RATIOS To Member Banks in the Eleventh Federal Reserve District: We are pleased to send you again a brief report presenting selected average ratios of member banks in the Eleventh Federal Reserve District which reflect operations during the first half of the current year. This report is designed to supplement the more detailed annual statement of member bank operating ratios and is not a substitute for that state ment. This mid-year study, which was presented for the first time last year, has been limited to eight important ratios which were selected because they measured financial statement accounts currently showing the most significant changes. To permit comparison, the ratios for the corresponding period of 1943 are presented along with those for 1944. In general, the ratios indicate a continuation of certain significant trends which have been in evidence since the outbreak of the war. Holdings of Government securities by all member banks were 53 per cent of earning assets on June 30, 1944, as compared with 49 per cent a year earlier. Interest and dividends on securities accounted for 30 per cent of total earnings during the first half of 1944 as compared with 25 per cent for the first six months of 1943, while interest and discount on loans declined from 58 per cent to 51 per cent of total earnings during the same two periods. Largely as a consequence of increased holdings of Government securities, member banks moved closer toward a position of full investment, the ratio of cash assets to total deposits declining to 42 per cent on June 30, 1944, as compared with 45 per cent a year earlier. Over the same period, the ratio of total capital accounts to total deposits declined from 1 0 per cent to 8 per cent, reflecting the steady expansion of deposits resulting from war financing. Generally speaking, the above trends were in evidence for all size groups of banks. It is interesting also to note the increasing size of member banks as is indicated by the changing number of banks in each size group for the two years under review. Wages and salaries, the largest single bank operating expense, absorbed a smaller percentage of total earnings during the first half of 1944 than for the corresponding period of 1943. This decline reflected a substantial increase in income and not a decrease in wage and salary expenditures. With the exception of the smallest banks, the net profit ratio for all size groups was substantially higher for 1944 than for 1943, the average ratio for all banks rising from 5.3 per cent to 6.5 per cent. It should be remembered that this ratio reflects net profits for a half year only. If the experience of the second half of 1944 is the same as was realized during the first six months, the average net profit ratio for all banks for the year would be 13 per cent. The ratios for your bank have been inserted in the columns on the left in order to facilitate comparison with the experience of banks in your size group. For your con venience, the proper size group has been checked on the table. The group averages should not be considered as “ standards” of performance, but a study of the figures may provide useful suggestions for further analysis. This report has been prepared principally because of the interest shown by member banks in the annual statement of operating ratios. Since the information has been prepared for its value to you, we shall appreciate any suggestions you may wish to offer. We will be pleased to provide additional copies of this report on request. Sincerely yours, R. R. GILBERT President This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) ELEVENTH FEDE^ RESERVE DISTRICT Selected Mem’ r hnk operating Ratios JANUARY l . -H AND 1943 ..... ..... 1944 Your Bank Number of Banks RATIOS TO TOTAL EARNINGS 1. Interest and discount on loans....................... 2. Interest and dividends on securities............... 3. Salaries and wages......................................... RATIOS TO TO TAL CAPITAL ACCO UNTS 4. Net current operating earnings..................... 5. Net profits after taxes..................................... RATIOS TO TOTAL DEPOSITS 6. Cash assets*................................................... 7. Total capital accounts..................................... RATIO TO TO TAL EARNING ASSETS 8. U. S. Government securities......................... * Minimum primary reserve requirements (required legal reserve plus 1943 -------- --- BANKS WITH JUNE 30, DEPOSITS (in thousands of dollars) Under $250 1943 1944 $500- $999 $250- $499 1943 1943; 1944 1944 $ 1,000 - $1,999 $2,000 - $4,999 $5,000 - $9,999 1944 1943 1944 1943 1943 41 37 31 $10,000-$24,999 $25,000 and over 1944 1943 1944 1943 All Grouns — 12 24 46 61 101 117 152 154 158 111 1944 39 75.8 81.7 73.4 14.2 35.4 75.5 59.4 14/ 25.2 36< - 36.3 64.7 20.4 38.4 54.4 35.7 56.2 26.3 37.3 46.1 26.8 33.1 33.5 52.6 26.6 37.0 38.5 37.9 32.2 42.2 33.9 36.5 32.9 41.4 33.1 39.3 36.7 35.3 32.3 47.8 29.6 37 2 42.4 30.9 51 3 29 8 9 Q i1 9 34.6 36.9 3 Z. A 0.4) A 5.3 5 10.2 31 25 1944 576 14.4 40.9 39.4 3.5 2.3 4.3 4.1 6.8 5J 6.0 4.B 5.8 5.3 5.3 6.5 5.5 5.7 7.9 6.6 7.2 5.7 5.5 9.0 7.3 5.8 5.8 6.6 5.8 5.4 4.9 6.4 5.8 52 4.8 71 6.5 49.1 19.7 53.0 24.0 47.0 15.0 44^*45.3 16; 10.2 47.5 11.4 42.6 7.9 45.8 8.9 40.9 6.4 44,3 7.1 33.8 5.7 44.2 6.5 35.8 5.5 42.5 5.6 33.5 4.6 37 6 5.1 41 9 3.2 ! 31.9 30.0 32.4 32M6.5 41.8 49.4 47.9 57.8 54.1 66.3 64.0 69.1 68.1 73.7 73.8 53.2 'Vfc* necessary till money) for all member banks in the Eleventh District / 7.0 1943 — 570 q A. A Z Q 7 48.7 8 JV average some 16 to 18 per cent of total deposits. EXPLANATION Ratio No. 4— Net current operating earnings to total capital accounts. The basic data used in the compilation of the ratios have been taken from reports fur nished by member banks. The asset and liability items have been taken from member bank condition reports of June 30, 1943 and 1944. Earnings and expense items are the amounts reported by member banks for the first six months of each year. Banks have been grouped according to the amount of their total deposits on June 30 of each of the two years. Group ratios are expressed in percentages, and are averages of the ratios of the individual banks. This procedure prevents the larger banks m a group from exercising an undue influence on the ratios of the group and on the ratios for al banks. It should be remembered that there are about as many banks above the average as there are below it; hence, the group averages should not be considered as standards of performance. It is not important that the ratios of your bank conform to the average, but it is important to know the reasons for the differences. The ratio is computed by dividing total capital accounts (capital, surplus, undivided pi oh and reserves, including retirement account for preferred capital) into net current opera Ling earnings. The ratio shows the rate of earnings on combined capital accounts because tins report covers earnings for a half year only and because total capital accounts of most banks will remain relatively fixed throughout the year, the ratio of net current operating earnings to total capital accounts was smaller than for the full year 1948 If however, the rate of earnings during the second half of the current year does not fall Ratio No. 1 -—Interest and discount on loans to total earnings. This ratio is computed by dividing total earnings into earnings from interest and discount on loans. The ratio shows the percentage of all earnings derived from ™terest and discount on loans. For example if total earnings dunn:g the toat si^ y ®!^ i ? f bg9 6 o amounted to $ 1 0 ,0 0 0 and earnings from loans amounted to $6 ,0 0 0 , the>iatiow ould be 00 ner cent. Most banks in this district having cotal deposits of less than $2,000,000 derive more than half of their total earnings from loans, whereas larger banks derive somewhat less than half of their total earnings from that source. The ratio tends to become smallei as the size of the bank increases. Ratio No. 2— Interest and dividends on securities to total earnings. The ratio is computed by dividing total earnings into earnings from interest and divi dends on securities, and shows the percentage of total earnings derived from seaurity■ hold ings. At most banks this ratio is showing a substantial increase, due largely to increased holdings of United States Government securities. Member banks m this district having deposits in excess of $1 0 ,0 0 0 ,0 0 0 derived a larger proportion of total earnings from then security holdings than from loans during the first half of 1944, but at banks havin^ deposits of less than $250,000 the percentage of earnings derived from loans was about live times as large as that derived from security holdings. Ratio No. 3— Salaries and wages to total earnings. ’ This ratio is computed by dividing total earnings into the amount spent on salaries and wa°'es of officers and employees, and shows the percentage of total earnings absorbed by the payment of all salaries and wages. Ordinarily, this is the largest item of expense at member banks. The ratio tends to decline as the size of the bank increases.^ Ii this ratio for your bank is higher than the average for all banks in your size group, it may mean either that your wage costs are above the average or that your current earnings are below average, or both. (\ 10.0 T all STJYv,’ ri?ti? size f?r the ful1ofyear’ 1944’ wi]I be substantially above that of last year at but thethe smallest group banks. Ratio No. 5—Net profits after taxes to total capital accounts. This ratio is computed by dividing total capital accounts into net profits after taxes. It is similar to ratio No. 4, above, except that adjustment has been made for losses and recoveries and for the payment of income faxes. Ratio No. 6 — Cash assets to total deposits. . ^ e ratio is computed by dividing total deposits into cash assets (item 6 in the call report which includes cash, balances with other banks including reserve balances and cash items m process of collection). The ratio shows the percentage of total deposits which is held m the form of cash. The ratio is largest at the smallest size group of banks and tends to become smaller as the size of the bank increases. The higher this ratio, the greater is the amount of non-income-producing cash held by the bank. Ratio No. 7— Total capital accounts to total deposits. This ratio is computed by dividing total deposits into total capital accounts: it shows total cap] cal accounts as a percentage of total deposits. The rapid growth of deposits since the outbreak of war, resulting from heavy bank purchases of United States Government securities, has not been accompanied by a proportionate increase in total capital accounts Consequently, this ratio has been declining, with the lowest ratios beino- found at the larger banks. Ratio No. 8 — United States Government securities to total earning assets. This ratio is computed by dividing total earning assets into holdings of United Statos government securities. In this study total earning assets includes all loans and all types'of security holdings. At the end of last June the smallest group c f banks had put 32 per cent oi then earning assets in United States Government securities, whereas banks having deposits m excess of $25,000,000 had invested 74 per cent of their earning assets in United States Government securities. If this ratio for your bank is below the average for vour size group, it may mean that your loan volume is above the average or that your bank has not invested as large a share of its funds in Government securities as other banks of vour size, or both. J _ _
@FedFRASER