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. In T h is Is s u e : A cco u n tin g for Loan Charge-offs A N ew R ecord W h eat C ro p : W ill It R ed u ce Farm In co m e ? T he Sixth D istrict Share of In co m e in M ississippi, Louisiana, and T en n e ssee Banking N otes: R eb uilding Bank Liquidity 1 9 7 5 F e d e ra l A u g u st Fed eral Reserve B a n k O f A tla n ta Fe d e ra l R e se rve S ta tio n A t la n t a , G e o r g ia BULK RA TE U .S . P O S T A G E PAID 3 0 3 0 3 A tla n ta t G e o rg ia P e rm it N o . 2 9 2 A d d r e s s C o r r e c t io n R e q u e ste d B B H Accounting for Loan Charge-Offs by John M . G o d frey At the end of 1974, District member banks had loans outstanding of $26.3 billion, an increase of $1.7 billion during the year. W hile originally most of these loans were unquestionably sound credits and many would have remained so if the economy had remained strong and credit easy, some should have never been put on the banks' books in the first place. Acting both on their own initiative and under pressure from the regulatory authorities, District member banks "bit the bullet" and charged off $201 million in bad loans during 1974 (see Table 1). And, although based upon past experience it is likely that up to one quarter of these reported losses will be at least partly recovered, banks still have a large volume of doubtful loans on their books; an equally large amount of these loans may well be written off during 1975. And, in addition to the loans actually charged off, an even larger amount are now substandard credits, even if they do not result in a direct loss of principal. But since banks generally expect to experience high loan losses at some time, District member banks have tried to provide for that possibility and have established reserves for bad loans equal to nearly twice last year's losses. Compared to loan losses in 1973, last year marked an abrupt change. In 1973, District loan losses amounted to about one-half of last year's total, or $102 million. By way of further comparison, gross loan losses amounted to 0.76 percent of total loans in 1974, in contrast to 0.41 percent in 1973 (see Table 2). Despite the magnitude of last year's loan write-offs, higher losses were not entirely unexpected, since they generally rise during recessions. For example, banks had to charge off considerably more loans during 1970 (a recession year) Monthly Review, Vol. LX, No. 8. Free subscription and additional copies available upon request to the Research Department, Federal Reserve Bank of Atlanta, Atlanta, Georgia 30303. Material herein may be reprinted or abstracted provided this Review, the Bank, and the author are credited. Please provide this Bank's Research Department with a copy of any publication in which such material is reprinted. 118 AUGUST 1975, MONTHLY REVIEW TABLE 1 LOAN LOSSES Sixth District Member Banks ($ M illio n s) All B a n k s Large B a n k s * Other B a n k s D istrict 1973 1974 101.6 200.6 63.6 130.8 38.0 69.8 A la b am a 1973 1974 13.6 21.1 6.0 10.3 7.6 10.8 Florida 1973 1974 25.2 58.2 7.4 23.5 17.8 34.7 G eorgia 1973 1974 32.7 68.7 27.3 56.9 5 .4 11.8 L ouisiana** 1973 1974 9.7 15.6 7.0 10.3 2.7 5.3 M ississipp i* * 1973 1974 6.1 8.8 4.7 7.0 1.4 1.8 T e n n e sse e* * 1973 1974 14.3 28.2 11.2 22.8 3.1 5.4 * B an k s w ith lo a n s o f $ 1 0 0 ,0 0 0 ,0 0 0 a n d o v e r a s of D e c e m b e r 1974 **Sixth D is tric t p o rtio n than they did in 1969 (see Table 3.) And, although losses declined in 1971, they were still above 1969's rate. In this way, last year's rise was not unusual; and if the past is any guide, losses may be as large again this year. Increased provisions for loan losses (and much larger payments for interest on deposits and borrowed funds) were significant factors in holding down the gain in net income at banks in 1974. Last year, net income at District member banks rose $30 million to $370 million, despite a 50-percent increase in total operating income to $3,879 million. The profit rate on capital was 10.0 percent in 1974, down from 10.2 percent the previous year. However, if loan loss provisions had been at the same rate as in 1973, net income would have surged to $452 million and the rate of return on capital would have risen to 12.2 percent. W hile the average District rate of loan charge-off in 1974 was 0.76 percent, it varied considerably among the 646 member banks (see Table 4). The overwhelming majority of District member banks had loan losses of less than one percent last year. A large part of the charge-off was concentrated at relatively few banks, with one hundred and seven member banks charging off more than one percent of their loans. Four banks charged off more than 5 percent last year. By contrast, 56 banks reported no loan losses, and 59 more reported that they charged off less than one-tenth of one percent of their loans. There was considerable variation among the District states in loan losses (see Tables 1 and 2). Over three-fourths of the total dollar losses last year were in Georgia, Tennessee, and Florida; banks in these same states also charged off a higher FEDERAL RESERVE BANK OF ATLANTA proportion of their loans than those in the rest of the District. W hile on average District banks charged off 0.76 percent of their loans, Georgia member banks charged off 1.22 percent of their loans; Tennessee, 0.74 percent; and Florida, 0.68 percent. O f all District states, however, Georgia member banks accounted for a disproportionately large amount of loan losses. While Georgia banks have only 21 percent of District loans, they accounted for 34 percent of the losses. Losses also varied according to bank size. For example, the District's larger banks (loans in excess of $100 million) charged off 0.84 percent of their loans in 1974, up from 0.43 percent in 1973. In contrast, the medium- and smaller-sized banks charged off 0.65 percent of their loans last year and only 0.38 percent the year before. The largest banks had outstanding slightly more than 50 percent of the District's loans but accounted for 56 percent of loan losses. In Florida, Georgia, Mis sissippi, and Tennessee, the larger banks have tended to charge off a much higher proportion of their loans than have smaller banks. Both large and small banks in Georgia had higher rates of loan losses in 1974 than did banks in other states. In Alabama and Louisiana, however, the larger banks accounted for a smaller percentage of losses than they have loans outstanding, indicating that the smaller banks have disproportionately more losses. While the larger banks tended to have a higher loss rate than smaller ones, there was considerable variation within each size group (see Table 4). Arranging the banks by loan volume and then distributing them according to the ratio of losses to total loans, the variation is apparent. Even though most of the smaller banks have a smaller average TABLE 2 LOAN LOSSES AS A PERCENT OF TOTAL LOANS Sixth District Member Banks All B a n k s Large B a n k s * Other B a n k s D istrict 1973 1974 0.41 0.76 0.43 0.84 0.38 0.65 A labam a 1973 1974 0.42 0.57 0.34 0.51 0.51 0.65 F lorida 1973 1974 0.31 0.68 0.25 0.76 0.34 0.63 G eorgia 1973 1974 0.59 1.22 0.66 1.34 0.39 0.87 L ouisiana** 1973 1974 0.33 0.50 0.31 0.42 0.43 0.78 M ississippi** 1973 1974 0.45 0.63 0.45 0.72 0.46 0.43 T e n n e sse e* * 1973 0.42 0.43 0.38 1974 0.74 0.81 0.53 *B an k s w ith lo a n s of $ 1 00,000,000 a n d o v e r a s of D e c e m b e r 1974 **Sixth D istric t portion 119 TABLE 3 RESERVES FOR LOAN LOSSES Sixth D istrict M e m b e r B a n k s ($ M illio n s) 1969 1970 1971 1972 1973 1974 2 3 2.4 26 1 .6 266.9 277.9 311.0 358.8 4-P rovision fo r Loan L o sses 40.5 5 1 .4 55.5 60.4 78.3 175.5 + R e c o v e rie s 13.2 18.6 25.4 30.4 29.8 36.1 + O th e r T ra n s fe rs to R ese rv e s 37.4 25.5 20.1 27.8 41.9 28.2 323.5 357.1 367.9 396.5 461.0 598.6 57.2 88.8 83.9 82.7 101.6 200.6 5.0 1.4 4.5 2.9 2.3 8.0 261.3 2 6 6.9 279.5 310.9 357.1 390.0 26,321.7 B eg in n in g B alan c e Total R ese rv e s —G ross Loan L o sses —O th e r T ra n s fe rs fro m R ese rv e s E nding B alan c e T otal L oans 13,452.6 14,089.5 16,081.7 20,151.0 24,596.9 R e se rv e s a s % of L oans 1.94 1.89 1.74 1.54 1.45 1.48 G ross L o sses a s % of L oans 0.43 0.63 0.52 0.41 0.41 0.76 N et L osses* 44.0 7 0.2 58.5 52.3 71.8 164.5 N et L o sses a s % of L oans 0.33 0 .50 0.36 0.26 0.29 0.63 *G ross L o sses M inus R ec o v e rie s N ote: S tru c tu ra l c h a n g e s a c c o u n t for th e d iffe re n c e b e tw e e n in th e follow in g y ear. th e e n d in g b a la n c e in o n e y e a r a n d th e b e g in n in g b a la n c e ratio of loan losses, they do account for a high proportion of the number of banks with high loan-loss ratios. O f 107 banks with 1974 loss ratios exceeding 1 percent, 42 have loan volumes of less than $10 million. In contrast, only 12 banks with loans in excess of $100 million charged off more than 1 percent of their loans, but these 12 comprise one-fourth of that size category. In generalizing about the rate of loan loss and loan volume, we must keep in mind the considerable differences within each size group. Defaults on bank loans in the Southeast were not caused by any one single business failure or generally lax credit standards, but by many different situations. There is no doubt, however, that in many situations banks did make some unsound loans and they have been hit by losses on these credits. Some loans were made for speculative purposes without adequate security and a sound plan for making repayments. Businesses, both large and small, were confronted by a sluggish economy and were unable to repay bank loans they had taken out to finance increased inventories, ac counts receivable, working capital needs, and capital expenditures. Businesses associated with various aspects of construction and real estate development were especially hard hit by cost overruns, overbuilding, high interest rates, and a lack of permanent financing. Higher unemployment and the rising cost of living hit many consumers and TABLE 4 DISTRIBUTION OF DISTRICT MEMBER BANKS BY L0AN-L0SS RATIO AND SIZE OF LOAN PORTFOLIO Loan L o ss Ratio Loans U nder .25 .25-.50 .50-.75 .75-1.00 1.00-5.00 Over 5.00 Total ($ m illio n s) u n d e r 10 125 48 28 14 41 1 257 10 - 25 66 54 33 11 29 2 195 25 - 50 38 30 17 12 14 0 111 50 - 1 0 0 7 12 6 2 7 1 35 100 - 50 0 3 12 8 6 9 0 38 500 1 3 1 2 3 0 10 240 159 93 47 103 4 646 T otal 120 AUGUST 1975, MONTHLY REVIEW caused them to default on loans taken out to purchase homes, autos, and other goods. Some loans that were sound when they were made deteriorated as adverse economic conditions intensified during 1974. When the borrowers defaulted, the collateral securing these loans was not sufficient to repay the loan. Providing for Loan Losses Banks typically do not treat a loan charge-off as a current expense. Instead, standard bank accounting techniques call for establishing a reserve account for possible loan losses and adding to it each year. Banks build up reserves for loan losses in years when losses are low; in years when losses are large, they draw down these reserves. In this way, the impact of exceptionally large loan losses in any one year does not necessarily result in higher expenses and reduced net income. This procedure also has the effect of tending to smooth out net income insofar as it is affected by varying loan charge-offs. Larger reserves also keep the bank from having to reduce a capital account when the large amounts of loans are charged off. (See the example of Conservative Bank and Aggressive Bank.) Banks generally follow one of three methods in providing minimum reserves for loan losses each year .1 One method is to base the current year's provision on the average net charge-offs (losses less recoveries) as a percent of total loans over the most recent five-year period. For newly established banks, an interim measure may be used that makes use of a moving average of loan-loss rates until five years have elapsed and the first method can be used. Finally, banks may elect to provide for loan losses based upon their actual experience each year and not establish reserves at all. While these methods represent minimal provisions for possible losses, a bank may want to provide more than a minimum. There are advantages and disadvantages, however, to a bank's building up its loan-loss reserves in its published financial reports. A "conservatively" managed 'S in c e b a n k s ty p ic a lly e s ta b lis h lo a n -lo ss re s e rv e s o u t of p re ta x in co m e, th e y a re lim ited by F e d e ra l ta x law s a s to th e a m o u n t of in c o m e th e y c a n s e t a s id e e a c h y e a r fo r re s e rv e s in e x c e s s of c u rre n t lo s se s . T h e Tax R eform Act of 1969 allo w s b a n k s to m a k e a d d itio n s to re s e rv e s up to 1.8 p e rc e n t of e lig ib le lo a n s u n til 1976, w h e n th e lim it d e c lin e s to 1.2 p e rc e n t. P rev io u s |R S ru lin g s h ad allo w ed b a n k s to build up th e ir re s e rv e s to 2.4 p e rc e n t. In 1982, re s e rv e s e s ta b lis h e d o u t of p re ta x in c o m e c a n n o t e x ce e d 0.6 p e rc e n t of lo a n s; a n d a f te r 1988, all b a n k s w ill b e allow ed to e s ta b lis h re s e rv e s only to th e e x te n t of a v e ra g e loan lo s se s d u rin g th e p re v io u s six y e a rs. Of c o u rs e , n o th in g w ill p re v e n t b a n k s from e s ta b lis h in g m o re re s e rv e s o u t of a fte r-ta x in c o m e if th e y w ish ; b u t b a se d on p a s t e x p e rie n c e , th e y a re n o t likely to b u ild re s e rv e s o u t of a fte r-ta x in co m e. FEDERAL RESERVE BANK OF ATLANTA bank might wish to ensure that its reserves are more than adequate to meet the worst possible situa tion. But a conservative stance means that provision for loan losses (an expense) will be higher than what is currently necessary and, therefore, that net income will be lower. If the bank is conscious of its image in the investment community, it may be reluctant to report a lower rate of return on capital than its competitors or to curtail its dividends. On the plus side, provisions for loan losses represent an addition to a tax-free quasi-capital account. If a bank provides for possible losses in excess of its actual experience, it accrues an expense (like depreciation) for which it does not have to pay out any money. Therefore, its balance sheet projects a solid image because of substantial reserves. An "aggressive" bank, on the other hand, may want to provide only minimum current expenses for possible loan losses in order to report higher profits. This bank faces the possibility, however, of large loan losses in a given year, losses it will have to charge to current income. The higher charge will tend to cause earnings to fall sharply in that year. The conservative bank, in contrast, may report a lower level of profits in years it is building its reserves but will report constant earnings in a year of heavy losses. District Loan-Loss Reserves How adequate are loan-loss reserves in the Sixth District ?2 Is the Sixth District like a "conservative bank" or an "aggressive bank?" The answers clearly suggest that aggregate loan-loss reserves appear adequate and that the District appears to be represented most closely by a "conservative bank." However, this should not be construed to mean that all banks have taken a conservative approach to loan-loss reserves. After 1974 charge-offs, District loan-loss reserves totaled $390 million, nearly twice the gross amount of loans charged off. In theory, then, District banks could sustain twice the gross losses charged off -T he a d e q u a c y of lo a n -lo ss re s e rv e s d e p e n d s u pon th e fu n c tio n s th e s e re s e rv e s sh o u ld serv e. O ne s tu d y h a s id e n tifie d fo u r fu n c tio n s . T h e G o le m b e S tu d y s p e c ifie d th e p u rp o s e of re s e rv e s in th e follo w in g m a n n e r: (1) th e e x p e r ie n c e fu n c tio n : " to a b s o rb lo s s e s w h ic h c a n re a so n a b ly b e a n tic ip a te d on a n e x p e rie n c e b a s is from th e loan p o rtfo lio ” of a n in d iv id u a l b a nk; (2) th e c a ta s tro p h e fu n c tio n : “ to e n a b le b a n k s to w ith s ta n d th e e x c e p tio n a lly heavy loan lo s se s to b e e x p e c te d from su c h u n fo re s e e n c irc u m s ta n c e s a s a m a jo r d e p re s s io n ” ; (3) th e s ta b ility fu n c tio n : “ to se rv e a s a s ta b iliz in g fo rc e for th e in d u s try by h o ld in g to a m in im u m th e n u m b e r of b a n k s t h a t m ig h t e x p e rie n c e s e rio u s c a p ita l im p a irm e n t b e c a u s e o f loan lo s s e s ” ; a n d (4) th e c a p ita l s u p p le m e n t fu n c tio n : “to se rv e a s a s u p p le m e n t to b a n k c a p ita l.” See The Adequacy of Bad Debt Reserves For Banks— A Preliminary Study, C a rte r H. G o le m b e Associates, Inc. T his a n a ly s is will c o n s id e r only th e e x p e rie n c e a n d s ta b ility fu n c tio n s . 121 TABLE 5 RESERVES FOR LOAN LOSSES, 1974 Sixth D istrict M e m b e r B an V s ($ M illio n s) B e g in n in g B alan c e + P ro v . fo r Loan L o sses D istric t Ala. Fla. G3. La.* M iss.* T enn.* 3 5 8.8 53.2 118.9 77.6 43.3 20.6 45.2 15.0 55.0 62.4 12.4 7.5 23.2 175.5 -(-R ecoveries 36.1 6.6 10.0 7.2 3.2 1.9 7.2 + O th e r T ra n s fe rs to Res. 28.2 4 .9 7.9 4.6 5.7 1.0 4.1 T otal 59 8 .6 79.7 191.8 151.8 64.6 31.0 79.7 —Loan L o sses 200.6 21.1 58.2 68.7 15.6 8.8 28.2 8 .0 .1 5.9 .9 .2 .1 .8 39 0.0 58.5 127.7 82.2 48.8 22.1 50.7 —O th e r T r a n s fe rs fro m Res. E n d in g B a la n c e * D istric t P o rtio n last year even if current loan reserves were not augmented further. Alternatively, District loan-loss reserves now almost equal the total losses charged off from 1969 through 1973. Therefore, reserves appear to be adequate, based upon the criterion of stability. While total loss reserves may be adequate, there has been a decided decline in the proportion of loan-loss reserves to total loans (see Table 3). In 1969, reserves amounted to 1.94 percent of loans, but by 1973 they had deteriorated to 1.45 percent. By the end of 1974, the proportion had improved slightly, however, to 1.48 percent. Early in 1974, District member banks had $359 million in loan-loss reserves (see Table 5), plus an additional capital cushion of $3,690 million. During 1974, they added $176 million as a provision for possible loan losses and increased reserves another $28 million by transferring some capital funds to bad debt reserves and recovering $36 million from loans previously charged off. From this balance of $599 million, banks charged off $201 million in bad loans and transferred out $8 million. So by the end of the year, reserves for loan losses totaled $390 million, up 9 percent, despite the much larger losses. While aggregate loan-loss reserves appear adequate, the same cannot be said of reserves at 122for FRASER Digitized some individual banks. At 116 District banks, 1974 loan losses exceeded the amount of reserves held at the beginning of the year. These 116 banks held only 14 percent of the District's loans and 11 percent of the reserves but accounted for 36 percent of losses. This also indicates the concentration of loan losses. And of the 116 banks, 77 had notably large losses in 1974 (over 1 percent of loans). While these banks' total reserves amounted to $39 million, they charged off $72 million in bad loans. As a result, these banks had to make large provisions during the year in order to maintain some reserves for future losses. In many respects, these banks more closely approximated the behavior of the "aggressive bank" because their reserves were not sufficient to cover their bad loans. From the standpoint of the "experience function," many individual District banks may not have sufficient reserves without further augmentation. During 1974, loan losses were much higher than in previous years. The high charge-off rate points out the need for adequate loan-loss reserves. Nearly 20 percent of District member banks charged off loans in excess of their current reserves. To avoid seriously impairing their capital base, many banks have realized the need to raise credit standards and reserve levels. AUGUST 1975, MONTHLY REVIEW APPENDIX Providing for Loan Lo sses: A C o n servative and A n A ggressive Bank C o n se rv a tiv e B ank $10 M illion C ap ital A gressive B ank $10 M illion C ap ital $ T housands Y ear 1 Y ear 2 Y ear 3 Y ear 1 Y ear 2 6 ,0 0 0 6,000 6,000 6,000 6,000 6,000 - 4 ,0 0 0 -4 ,0 0 0 - 4 ,0 0 0 - 4 ,0 0 0 - 4 ,0 0 0 - 4 ,0 0 0 - 1 ,0 0 0 - 1 ,0 0 0 - 1 ,0 0 0 - - - 2 ,0 0 0 1,000 1,000 1,000 In c o m e Less: E x p e n se s P rovision fo r Loan L o sses N et In co m e R ate of P ro fits 10% 10% 10% 500 1,500 500 1,500 15% 15% Y ear 3 -0 -0 - R e se rv e s for Loan L o sses B eg in n in g B a la n c e P ro vision fo r L o sses A ctual L o sses —0 — 1,000 - E n d in g B alan c e 500 500 - 500 1,000 1,000 500 1,000 - 2 ,0 0 0 1,000 -0 - In this example, there are two banks identical in every respect except their approach to providing for loan losses. Each bank generates $6 million a year in income and has general expenses of $4 million. The conservative bank takes a relatively prudent approach, which provides for loan losses each year based upon past experience. It knows that in some years loan losses will total less than its provisions for them and that reserves will increase. This happens in years 1 and 2 in the example. At some point, however, it expects loan losses to exceed that year's provision and it will have reserves to fall back on. This happens in year 3, when losses total $2 million and it charges reserves to meet these losses. Over this period, the conservative bank will report a constant amount of net income and rate of return on capital. Furthermore, when losses are low, the conservative bank will strengthen its balance sheet by building up loan-loss reserves. The aggressive bank, on the other hand, wishes to report the maximum annual net income and a high rate of return on capital in order to impress the investment community and pay out more dividends to stockholders. In order to maximize net income, this bank elects to charge current income only for that year's loan losses. As a result, the aggressive bank does not build up any reserves. During years 1 and 2, this bank reports net income and a rate of return 50 percent greater than does the conservative bank. But when loan losses rise in year 3, the aggressive bank must charge all of that year's losses against current income and report a net income of zero. FEDERAL RESERVE BANK OF ATLANTA -0 - - 500 500 -0 - -o - - 500 500 -0 - -0 2,000 - 2 ,0 0 0 -0 - Although each bank ends up with the same results over the three-year period, the pattern is different. (This simple example ignores, among other factors, the income tax effect, which in actuality may be significant.) The conserva tive bank was able to report a constant profit level and presumably would have paid the same dividends in each of the three years. And, although some investors may not have purchased its stock because its profit rate was lower, this bank did have a strong balance sheet and consistent earnings. The aggressive bank at first may have attracted the attention of investors by its high rate of profits and higher dividends, but by year 3, these previous advantages would no longer be in its favor. By reporting no earnings and having to eliminate dividends entirely, the very reason that investors were attracted to this bank would cause them to desert it as an investment. While this example assumes that both banks are the same except for the manner in which they provide for loan losses, in actual practice this is not likely to be the case. A bank that takes a conservative approach to loan losses is also likely to take a conservative approach in other respects, and a bank that is aggressive in not providing for loan losses is apt to be aggressive in other parts of its operations. Therefore, while the conservative bank may not grow the most rapidly, it will be a consistent and sound institution. The aggressive bank may draw attention with its rapid growth and new innovations, but its performance may be more volatile and risky as a result. 123 A N ew R e co rd W h e a t C ro p W ill It R e d u c e F a rm In c o m e ? by G e n e D . Sullivan Since 1972 the size of the annual wheat crop has aroused much more public interest than in many years before. The grain shortage of 1972 and the subsequent sales of our surplus stocks, largely to the Soviet Union, created a heightened awareness of the dependency of food supplies on annual agricultural production. Food prices have risen sharply during the past two years in response to competing demands for limited grain supplies as well as other foodstuffs. Although wheaf production has risen each year since 1972, supplies have not yet returned to their former abundant level. Consumers look expectantly to each new crop for signs of renewed bounty that will set food prices on a lower course. At the beginning of 1975, the USDA released estimates of acreages planted to winter wheat, along with projected production o f each state and the nation. Winter wheat accounts for all of the crop in this District, but other types account for about one-fourth of the nation's total wheat crop. Based on those indications, both District and U. S. productions were projected to increase by 15 percent or more in 1975. On June 10, with most of the crop having reached maturity (and largely harvested within the District), total U. S. production was indicated to have increased by 16 percent, or 272 million bushels, over 1974's level, while the District's gain had fallen to 12 percent, or 2.5 million bushels (see Figures 1 and 2). This is still by far the largest winter crop ever produced and nearly double the 1973 District crop. Per acre yields, though improving in District states, lagged substantially behind those of the nation which fully recovered from 1974's sharp dip (see Figure 3). Yield improvement accounted for all of the increase in this region's wheat production in 1975, since planted acreage changed only slightly from 1974's level. Prospects for the bumper crop, combined with a weakening demand for wheat throughout the first half of the year, were responsible for a rather sharp decline in prices from 1974's average. By June, prices had fallen 25 percent or more in both the District and the nation as a whole (see Figure 4). As a result of sinking prices, the value of the 1975 winter wheat crop was estimated in June to shrink from 1974's level in both the District and the U. S. despite the sharp increase in output (see Figures 5 and 6). Based on June's average price per bushel in the Southeast, the District crop value would drop about $10 million, or 14 percent, in sharp contrast to last January's projected increase of $20 million. In the U. S., the crop value would drop 124 AUGUST 1975, MONTHLY REVIEW W in t e r W h e a t Production — U. S. 2.0 1.5 I 1.0 I (2 ) 0 1972 1973 1974 1975** B u s h e ls D o lla r s ----- 40 __________ _ U.S. U.S. f 30 $4.00 D istrict* \ $3.00 / _ D istrict* 20 - $ 2 .0 0 / 10 ----Yield P e r A cre 0 131 P rice P e r B ushel I I I I 1972 1973 1974 1975* 1 1972 1 I I 1974 J . , 1 1 M (4) 1 1975 V alue of P ro d u ctio n U.S. (5) I 1972 1973 1974 1975* 1972 1973 I I 1974 1975* <6> ' D i s t r i c t S t a t e s : A la b a m a , F lo r id a , G e o rg ia , L o u i s i a n a , M is s is s ip p i, a n d T e n n e s s e e . 'I n d ic a t i o n s b a s e d on U S D A 's C ro p P r o d u c tio n re le a s e d J u n e 1 0, 1 9 7 5 . by 16 percent, or $930 million. However, this would be a reduction of nearly $2.0 billion from the anticipated crop value based on prices when farmers decided to increase plantings. In early July the news broke that the Russian wheat crop was suffering from dry weather and that Soviet agricultural representatives were negotiating with grain traders in the U. S. and Canada for substantial quantities of wheat. By midmonth the size of the first purchases was made public. Grain prices reacted sharply to this news and wheat had risen 50 cents per bushel by mid-July. The sudden appearance of this unforeseen demand for grain reversed the downward trend in wheat price movements, at least temporarily. FEDERAL RESERVE BANK OF ATLANTA The lasting effect of renewed export demand will depend on the total volume of grain eventually purchased as well as on further developments in domestic crops as the season progresses. From this vantage point (late July), it seems certain that despite bumper crops in prospect, the rapid decline in grain prices has been halted. The stimulus to increase livestock feeding will in turn be weakened, possibly delaying the anticipated growth in meat supplies that lower feed prices would have encouraged. Consumers may now have to look beyond 1975 for any food supply bulge that brings lower prices. But the income prospects of wheat farmers who have not already sold their crop are brighter than at the end of June.B 125 In c o m e Sixth District Portions of Louisiana, Mississippi, and Tennessee Shown in Color Sixth Federal Reserve District boundaries divide the states of Louisiana, Mississippi, and Tennessee, as shown in the accompanying map. Banking data accumulated and published by this Bank cover only commercial banks within the District. Employ ment, income, and production data, on the other hand, are typically published on a statewide basis, either by state agencies or by the U. S. Departments of Labor and Commerce. In statistics such as those listed at the end of this R e v ie w (page 130), for instance, the reader is comparing financial data for three states and parts of three others with other data for six whole states. To provide some rules of thumb for offsetting this inconsistency in coverage, we have estimated the percentage of income received within the Sixth District portion of the three split states. To do this, we made these calculations with county census data for the entire years of 1950, 1959, 1967, 1972,and 1973. These percentages are fairly stable: We found that about three-fourths of Louisiana's personal income, six-tenths of Mississippi's, and seven-tenths of Tennessee's is received on the Sixth District side of the line. It should be emphasized that a higher percentage for one state than another is no indica tion of superior economic performance. The per centages are basically the result of historical and political considerations which determined Federal Reserve District boundaries almost 60 years ago. 126 AUGUST 1975, MONTHLY REVIEW B an k A n n o u n ce m e n ts May 12, 1975 CITY AND C O U N TY BANK OF GREENE CO U N TY Greensville, Tennessee O p ened for business as a p ar-rem itting nonm em ber. O f ficers: Charles M . Arm strong, president; Gene E. Helm s, vice president and cashier. C apital, $480,000. May 22, 1975 BANK O F W ASHINGTON CO U N TY Chipley, Florida O pened for business as a par-rem itting nonm em ber. O f ficers: Kenneth C. Jennings, president; Nolan F. Treglow n, Jr., vice president and cashier. C apital, $325,000; surplus and other funds, $325,000. May 26, 1975 CITY SAVINGS BANK AND TRUST COM PANY May 12,1975 ROBERTSON STATE BANK DeRidder, Louisiana Began to rem it at par. Springfield, Tennessee O pened for business as a p ar-rem itting nonm em ber. June 3, 1975 FIRST BANK O F OAKLAND PARK May 15, 1975 Fort Lauderdale, Florida BANK O F LAFAYETTE O pened for business as a p ar-rem itting nonm em ber. O f ficers: John H. Payne, chairm an; Ph illip J. Rogers, presi dent; M argaret J. Johanson, vice president and cashier. Capital, $1,000,000; surplus and other funds, $500,000. Lafayette, Louisiana O pened fo r business as a p ar-rem itting nonm em ber. May 15, 1975 June 23, 1975 BAYM EADOW S BANK FIRST NATIONAL BANK OF ST. CHARLES PARISH Jacksonville, Florida O pened for business as a par-rem itting nonm em ber. O f ficers: Edward W . Starkey, president; Irving B. Leverock, executive vice president and chief executive; Lewis T. Rich, cashier; N ew ton A. C o lee, vice president. Capital, $625,000; surplus and o ther funds, $625,000. May 15,1975 ELLIS NATIONAL BANK O F DAVIS ISLAND Tampa, Florida O pened for business as a m em ber. O fficers: Adolphus D. W ilb u rn , chairm an and president; Thomas L. Trim m ier, executive vice president and cashier; Elton D. Am m ons, assistant cashier. C apital, $500,000; surplus and other funds, $250,000. Statistics on the D evelo p in g South Boutte, Louisiana O pened for business as a m em ber. O fficers: Brandt J. Dut'rene, chairm an; G eorge Liverm ore, president and chtef executive officer; J. Ned Mayeux, vice president and cashier. Capital, $480,000, surplus and other funds, $320,000. July 1,1975 FIRST NATIONAL BANK O F D OUGLASVILLE Douglasville, Georgia O pened for business as a m em ber. Officers: Ezra Buell Jones, Jr., chairm an; David Rogers Peters, president; Gary L. Pressley, cashier. Capital, $600,000; surplus and other funds, $400,000. (1 9 7 4 ) Statistical time series for tracing long-run economic changes in the Southeast and United States. Single copies free; additional copies, $0.75. Research D e partment, Federal Reserve Bank of Atlanta, Atla f a , Georgia 30303. Essays on Southern E co n o m ic G ro w th (1 9 7 4 ) collection of articles analyzing development of Southeastern industry, business and banking. Drawn from the Federal Reserve Bank of Atlanta's M o n t h l y R e v i e w of the early 1970's. Complimentary copies to teachers, m em ber bankers, and libraries; others, $1.00 per copy. Research Department, Federal Reserve Bank of Atlanta, Atlanta, Georgia 30303. A FEDERAL RESERVE BANK OF ATLANTA 127 BANKING STATISTICS Bil CREDIT* - Loans & Investments - 40 40 - 36 36 - 32 14 — Loans (Net) /V A/ - 24 >— ' Other Securities rj 10 20 nj 18 O O ---- U.S. Gov’t. Securities 14 r u ________ - A/ 10 2 6 rj 1 1I 1 11 11 111 i i i i i i i i i ii 1 111 1111 1 11 1973 1974 1975 ‘Figures are for the last Wednesday of each month. **Daily average figures. LATEST MONTH PLOTTED: June SIXTH D ISTRICT BAN KIN G R e b u ild in g B a n k NDTE 5 L iq u id it y BORROWED FUNDS AT LARGE BANKS ($ M illions) L arge CD's and N et F e d e ra l T im e D e p o sits Funds D isco u n t A ctivity O th e r B orrow ed Funds Total B orrow ed Funds C h an g e in T otal B orrow ed Funds L o an s C h an g e in L o an s 1974 Ju ly 4,790 1,510 149 512 6,961 + 286 13,083 + 134 A u g u st 4,8 8 5 1,521 184 472 7,062 + 101 13,164 + S e p te m b e r 5 ,004 1,592 191 39 8 7,185 + 123 13,223 + 59 O c to b er 5,251 1,357 141 40 8 7,157 - 13,186 - 37 N o v e m b er 5,295 1,077 94 385 6,851 -3 0 6 13,115 - 71 D e ce m b e r 5 ,3 8 6 1,094 59 363 6,902 + 51 13,025 - 90 28 81 1975 J a n u a ry 5,504 863 3 337 6,707 -1 9 5 12,842 -1 8 3 F e b ru a ry 5 ,3 3 9 1,088 6 344 6,777 + 70 12,591 -2 5 1 M arch 5,345 1,008 12 354 6,719 - 58 12,499 - April 5,273 990 11 314 6,588 -1 3 1 12,384 -1 1 5 May 5 ,1 6 2 1,052 22 250 6,486 -1 0 2 12,245 -1 3 9 June 5,132 917 0 260 6,309 -1 7 7 12,159 - 92 86 Note: Data are a monthly average of Wednesday figures. 128 for FRASER Digitized AUGUST 1975, MONTHLY REVIEW Most of the District's largest banks have greatly im proved their liquidity position in recent months. Their current, more liquid posture marks a sharp recovery from mid-1974's extremely tight condi tions. Because these banks experienced strong loan demands and very weak deposit inflows last year, they then increasingly turned to borrowed funds to support additional lending. Their total borrowed funds peaked in September at nearly $7.2 billion, up one-third from late 1973. This put these banks under intense liquidity pressures. Since that time, bank liquidity positions have improved significantly. During the first half of this year, they have shifted into longer-maturity bor rowed funds, and use of total borrowed funds dropped $593 million. This happened through a combination of weak loan demand and stronger deposit gains from more stable and traditional sources. Just as importantly, these banks have been able to build up secondary liquidity sources. The cutback in borrowed funds began in late 1974 and has accelerated this year. At first, the banks tended to reduce their dependency upon the overnight Federal funds market; net purchases dropped from September's $1 .6-billion peak to less than $920 million by midyear. After continuing to add to large-denomination CD issues and other large time deposits through January in order to reduce exposure to the Federal funds market, banks have let $372 million in these money market time deposits run off through mid-year, mostly in the second quarter. Also, borrowings at the discount window have fallen from a high of $191 million last September to virtually nothing most of this year. In all, they have continued to pay down all types of borrowed funds, especially more volatile, shortmaturity, Federal funds. This improves bank liquid ity both quantitatively and qualitatively. In addition to paying down borrowed funds, these banks have been able to accumulate liquid assets in the form of short- and intermediatematurity securities. In the first half of 1975, holdings of Treasury securities maturing within five years were up $335 million and municipal obligations maturing within one year rose $110 million. These securities provide a potential source of funds that can be realized by letting them run off or selling them. Banks have been able to repay borrowed funds because of slow loan demand and improved de posit inflows. Loans outstanding have declined $866 million during the first half of this year; about one-half of the runoff involved commercial and industrial loans. Consumer instalment loans, "other" loans, and loans to nonbank financial institutions have dropped significantly. From last September to June, deposits rose $730 million. Demand de posits were up nearly $200 million, and consumer time and savings deposits increased $400 million. Liquidity measures more clearly indicate the FEDERAL RESERVE BANK OF ATLANTA Measures of Liquidity at Large District Banks L/D* - - - 'v /v L/D - - - - II - 11 J M M J 1974 S N J M 1975 M extent of the recovery. For example, the traditional loan-to-deposit ratio (L/D) has declined from a high of .95 in mid-1974 to .83 in June 1975, considerably below early 1974's .93. (A low L/D indicates more liquidity than a high one.) But the L/D includes a large amount of borrowed funds in the denomi nator and, therefore, is not always an appropriate measure of liquidity for banks highly dependent upon borrowed funds. A better measure of liquid ity at the largest banks is L/D*, where deposits have been adjusted for purchased funds such as largedenomination negotiable CD's and other time de posits. The L/D* has declined from 1.48 in Septem ber to 1.27 in June, considerably below early 1974's level. While the L/D* has improved, on average, for the District's 32 largest banks, there has also been a noticeable improvement at many such individual institutions. In September, less than one-third of these large banks had an L/D* of 1.20 or less. By the end of June, however, the liquidity situation had greatly improved. Only a few had an L/D* of 1.60 and over (down from 11 banks in September) and a majority had dropped below 1 .20. In summary, large District banks have done much in the last nine months to restore their liquidity to levels they consider more acceptable. They are, however, still highly dependent upon borrowed funds. Loans are now slightly less than early 1974's volume, but borrowed funds, though down from their peak, are up about $640 million since then. Over the coming months, liquidity should continue to improve. Deposit gains will likely provide banks with sufficient funds to meet credit commitments so that they will not have to rely heavily upon bor rowed funds as loan demand strengthens. JOHN M. G OD FREY 129 S ix t h D is t r ic t S t a t is t ic s S e a s o n a lly A d ju s te d (A ll d a ta a re i n d e x e s , u n le s s in d ic a te d o t h e r w is e .) L a t e s t M onth 1975 O ne M onth Ago Tw o M o nth s Ago One Year Ago S IX T H D IS T R IC T U n e m p lo y m e n t R a te (P e rc e n t o f W o rk F o r c e ) ..........................J u n e Avg. W e e k ly H rs. in M fg. (H rs .) . . . Ju n e IN C O M E A N D S P E N D IN G M a n u fa c tu rin g P a y ro lls . . . . F a rm C a sh R e c e i p t s ................................ C r o p s ............................................................... L iv e s to c k ................................................... In s ta lm e n t C re d it at B a n k s * (M il.! New L o a n s ................................................... R e p a y m e n ts ............................................ L a t e s t M onth 1975 . . Ju n e . . M ay . . M ay . . M ay 175.3 199 334 94 . . Ju n e . . Ju n e 598 632 171.8 172 227 165 595 r 604 r 170.1 224 391 177 552 ■ 629 179.5 215 289 200 Ju n e Ju n e Ju n e Ju n e Ju n e Ju n e Ju n e Ju n e Ju n e Ju n e Ju n e Ju n e Ju n e Ju n e Ju n e Ju n e Ju n e . Ju n e . Ju n e Ju n e Ju n e Ju n e . Ju n e Ju n e M ay . . . . . . . . . . . . . . . Ju n e Ju n e Ju n e Ju n e Ju n e . Ju n e M ay Ma y M ay M ay M ay M ay M ay M ay M ay M ay M ay M ay M ay M ay M ay M ay M ay M ay 129.2 108.3 108.2 102.1 100.1 105.4 103.3 122.8 106.1 108.3 9 4.8 114.7 100.8 117.3 146.7 9 8.5 136.6 122 .4 122.1 135.0 149.7 154.6 104.5 142.8 7 8.5 129.9 108.1 107.7 103.6 9 9.3 102.7 105.5 123.5 106.4 108.6 94.3 115.3 >01.2 120.5 146.9 9 8.6 137.6 127.5 123.6 134.5 150.1 155.1 105.9 143.7 79.1 8.4 9 .7 6.6 6.8 3 9.4 216 135 296 61 141.2 142.3 134.3 138.6 120.0 131.6 126.1 157.6 139.6 141 .0 119 .4 140.8 99.1 111.7 147 .4 2 41 .5 126.8 39.1 182 134 228 56 140 .4 142 .4 134 .9 136.0 118.2 131.4 125.7 1 59 .6 137.8 138.9 116.2 137.4 100.8 111.1 148 .8 240 .1 122.0 129.8 107.7 106.7 104.5 9 7.3 101.7 104.6 123.7 105 .4 108.9 94.4 116.6 102.9 121.0 148 .9 9 7.6 137.6 132.6 123.4 134.3 150.0 153.9 105.4 143.3 78.5 10.2 6 .9 3 8.7 163 133 191 56 1 39 .7 142.5 135.8 135.9 117.7 132.1 126.3 160.6 135.0 129.3 114.0 134.0 101 .4 111.3 150.5 2 2 6 .2 122.5 1.34.6 119 .9 117 .0 104.9 114.9 115.7 115 .6 132 .0 112.0 123.4 110.5 131.8 115.7 132.9 166.1 109.5 139 .8 151.0 127.0 139.2 154.3 154.0 103.2 137.8 7 8.4 264 241 270 251 267 250 O ne Year Ago 8 .7 3 9.2 9 .6 3 9.2 264 221 287 269 218 283 265 216 309 253 205 254 183.7 125 • 178.3 212 178.1 309 191.9 245 Ju n e Ju n e Ju n e Ju n e M ay 148.6 1 17.6 1 54.6 140 .8 7 7.0 149.5 1 17 .6 155.6 1 46 .4 72.7 149.2 117.5 155.3 156.9 7 0.9 157.7 129.6 163.1 2 08 .8 8 3.4 Ju n e Ju n e 10.4 3 9.5 12.3 39.1 3 9.0 5.1 4 0 .4 Ju n e Ju n e 288 244 294 248 288 240 315 247 159.1 197 154 .7 188 149.1 170 .3 202 222 Ju n e Ju n e Ju n e Ju n e M ay 124.1 9 9.9 135.2 116.5 103 .7 1 24 .9 9 9 .6 136 .4 122.3 103 .9 124.3 9 8.7 136.0 123.5 103.7 130 .3 Ju n e Ju n e 7 .6 3 9.3 9 .7 39.1 10.5 38.7 4.0 4 0.1 M em b er B a n k L o a n s ......................... M em b er B a n k D e p o sits . . . B a n k D e b i t s * * ...................................... Ju n e Ju n e Ju n e 2 39 193 364 252 195 3 49 248 195 3 78 269 196 328 M a n u fa c tu rin g P a y ro lls . . . F a rm C a sh R e c e i p t s ......................... Ju n e M ay 166 .5 3 24 161.7 131 166 .2 239 158.1 162 Ju n e Ju n e Ju n e Ju n e M ay 1 17 .4 104.2 120.1 119 .5 105.2 122 .5 9 7 .4 7 2.6 102.8 7 5.7 107 .2 122 .9 105.5 7 4.8 Ju n e Ju n e 7.5 3 8.4 7.6 3 8.0 3 8.5 3 9 .9 Ju n e Ju n e Ju n e 246 205 271 246 206 249 253 207 261 246 189 235 Ju n e M ay 2 0 2 .4 293 197 .9 173 195 .5 233 202.8 Ju n e Ju n e Ju n e Ju n e M ay 125.2 119.5 127.9 109 .4 5 9.6 126 .5 119 .8 129.6 117 .8 63.5 1 26 .4 118 .4 130.1 125 .9 58.3 131 .8 135.0 130.3 143 .0 6 9 .9 F IN A N C E A N D B A N K IN G M em b er B a n k L o a n s ............................................ Ju n e M em b er B a n k D e p o s i t s ................................J u n e B a n k D e b i t s * * .........................................................Ju n e F L O R ID A M a n u fa c tu rin g P a y ro lls ................................J u n e F a rm C a sh R e c e i p t s ............................................ M ay EM P LO YM EN T C o n s t r u c t i o n ................................ F a rm E m p lo y m e n t ................................ U n e m p lo ym e n t R ate (P e rc e n t of W ork F o rce ) . . A vg. W e e kly H rs. in Mfg. (H rs .) 12.2 F IN A N C E A N D B A N K IN G B ank D e b its* M a n u fa c tu rin g P a y ro lls ................................Ju n e F a rm C a sh R e c e i p t s ............................................ M ay EM PLO YM EN T 4 .6 2.3 4 0.3 208 214 201 79 149.5 149.7 1 35 .2 1 47 .9 138.7 136.5 137.1 161.8 149 .8 152.8 158.0 158.7 106 .9 126 .6 148.8 2 49 .6 129.0 F IN A N C E A N D B A N K IN G Loan s* A ll M em b er B a n k s ............................................ Ju n e L a rg e B a n k s ......................................................... Ju n e D e p o sits* AM M em b er B a n k s ............................................ Ju n e La rg e B a n k s ......................................................... Ju n e B a n k D e b its * / * * ...................................................Ju n e Tw o M o nth s Ago 724 668 E M P L O Y M E N T AN D P R O D U C T IO N N o n fa rm E m p l o y m e n t ................................ M a n u fa c tu rin g ............................................ N o n d u ra b le G o o d s ................................ F o o d ............................................................... T e x t i l e s .................................................. A p p a re l .................................................. Paper ......................................................... P r in tin g an d P u b lis h in g . . C h e m i c a l s ............................................ D u ra b le G o o d s ...................................... L b r., Wood P ro d s ., F u rn . & F ix . S to n e , C la y , and G la s s . . . P r im a ry M e t a l s ................................ F a b ric a te d M e t a l s ......................... M a c h i n e r y ............................................ T ra n s p o rta tio n E q u ip m e n t N o n m a n u f a c t u r in g ...................................... C o n s t r u c t i o n ...................................... T ra n s p o rta tio n ................................ T r a d e ...................................................: F in ., in s ., an d real e s t. . . . S e r v i c e s ................................................... F e d e ra l G o v e rn m e n t . . . . S ta te and L o c a l G o v e rn m e n t F a rm E m p lo y m e n t ............................................ U n e m p lo y m e n t R a te (P e rc e n t o f W ork F o rc e ) . . . . In su re d U n e m p lo ym e n t (P e rc e n t of C ov. E m p . ) ......................... Avg . W e e k ly H rs. in M fg. (H rs .) . . C o n s tru c tio n C o n t r a c t s * ......................... R e s i d e n t i a l ......................................................... A ll o t h e r ............................................................... C otton C o n s u m p t io n * * ............................... M a n u fa c tu rin g P ro d u c tio n . . . . N o n d u ra b le G o o d s ...................................... Food ......................................................... T e x t i l e s ................................................... A p p a re l .................................................. Paper ......................................................... P r in t in g a n d P u b lis h in g . . C h e m i c a l s ............................................ D u ra b le G o o d s ............................................ L u m b e r a n d W o o d ......................... F u rn itu r e a n d F ix t u r e s . . . S to n e , C la y , a n d G la s s . . . P r im a ry M e t a l s ................................ F a b ric a te d M e t a l s ......................... N o n e le c tric a l M a c h in e ry . . E le c tr ic a l M a c h in e ry . . . T ra n s p o rta tio n E q u ip m e n t O ne M o nth Ago 276 259 220 222 192 306 193 297 219 192 307 215 187 288 179.1 311 179.8 193 171.2 204 189.7 255 N o n m a n u fa c tu rin g . . . . C o n s t r u c t i o n ................................ F a rm E m p lo y m e n t .......................... U n e m p lo y m e n t R a te (P e rc e n t of W ork F o rc e ) . . Avg. W e e kly H rs. in Mfg. (H rs .) 112.0 138 .6 144.2 93.6 F IN A N C E AND B A N K IN G EM P LO YM EN T N o n fa rm E m p lo y m e n t . . . . M a n u fa c tu rin g ................................ N o n m a n u f a c t u r in g ......................... C o n s t r u c t i o n ................................ F a rm E m p l o y m e n t ................................ U n e m p lo y m e n t R a te (P e rc e n t of W ork F o rc e ) . . Avg. W e e k ly H rs. in Mfg. (H rs .) 120.2 8.1 117 .0 106 .8 119.1 9 5.4 7 8 .6 6.2 F IN A N C E A N D B A N K IN G M em ber B an k Lo an s* . . . . M e m b e r B a n k D e p o sits* . . . B a n k D e b i t s * / * * ...................................... A LA B A M A M IS S IS S IP P I IN C O M E M a n u fa c tu rin g P a y r o l l s ......................................Ju n e F a rm C a sh R e c e i p t s ............................................ M ay EM P LO YM EN T N o n fa rm E m p lo y m e n t M a n u fa c tu rin g . . N o n m a n u fa c tu rin g C o n s tru c tio n . . F a rm E m p lo y m e n t . . 130 IN C O M E M a n u fa c tu rin g P a y ro lls . . . F a rm C a sh R e c e i p t s ......................... 192 EM PLO YM EN T 119.0 107.4 124.3 129.0 7 2.3 118.9 107.6 124.0 128.8 73.0 118.4 106.6 123.8 129.6 74.6 123.5 118.7 125.7 140.0 70.4 N o n fa rm E m p lo y m e n t . . . . M a n u fa c tu rin g ................................ N o n m a n u f a c t u r in g ......................... C o n s t r u c t i o n ................................ F a rm E m p l o y m e n t ................................ AUGUST 1975, MONTHLY REVIEW O ne M onth Ago L a t e s t M onth U n e m p lo y m e n t R a te (P e rc e n t o f W o rk F o r c e ) ......................... Ju n e Avg. W e e k ly H rs. in M fg. (H rs .) . . . Ju n e Tw o M o nth s Ago O ne Year Ago Two M o nths Ago O ne Year Ago EM P LO YM EN T 8.2 3 9.3 262 218 257 260 219 266 248 217 259 265 219 256 Ju n e Ju n e Ju n e Ju n e May 125.5 108.3 135.0 127.4 125.1 107.3 135.1 133.0 1 25.4 107.1 135.5 137.2 129.6 121 .4 134.2 131.4 7 8.9 . Ju n e . Ju n e 7.5 4 0.0 8.5 3 9.5 8 .9 3 9.2 3 .8 4 0.3 . Ju n e . Ju n e . Ju n e 271 218 257 277 223 244 274 265 258 2 64 . . . . F IN A N C E A N D B A N K IN G M em b er B a n k L o a n s * ......................................Ju n e M em b er B a n k D e p o s i t s * ................................Ju n e B a n k D e b i t s * / * * .........................................................Ju n e One M onth Ago L a t e s t M onth F a rm E m p lo y m e n t . U n e m p lo ym e n t R a te Avg. W e e k ly H rs. in M fg. (H rs .) 86.6 88.0 88.6 TEN N ESSEE F IN A N C E A N D B A N K IN G 174.4 158 M a n u fa c tu rin g P a y r o l l s ......................................Ju n e F a rm C a s h R e c e i p t s ............................................ M ay 171.6 197 180.9 277 B a n k D e b its * / * • F o r S ix th D is t ric t a re a o n ly ; o th e r to ta ls fo t P rr eelim n tirin e asrix y ds ata ta te s 220 201 *ised * D a ily a v e ra g eNb.Aa .s is Not a v a ila b le Note: All indexes: 1967 = 100. S o u r c e s : M a n u fa c tu rin g p ro d u ctio n e s tim a te d by t h is B a n k ; n o n fa rm , m fg. an d non m fg. e m p ., m fg . p a y ro lls a n d h o u rs, a n d u n e m p ., U .S . D ept, o f L a b o r an d co o p e ra tin g sta te a g e n c ie s ; cotto n c o n su m p tio n , U .S . B u re a u o f C e n s u s ; c o n s tru c tio n c o n t ra c t s , F . W. Dodge D iv ., M cG ra w -H ill In fo rm atio n S y s te m s C o .; fa rm c a s h re c e ip ts an d farm e m p ., U .S .D .A . O th e r in d e x e s b ase d on d a ta c o lle c te d by th is B a n k . A ll in d e x e s c a lc u la t e d by t h is B a n k . 'D a ta b e n ch m a rk e d to J u n e 1971 R e p o rt of C o n d itio n . D e b it s to D e m a n d D e p o s it A c c o u n t s In su re d C o m m e rc ia l B a n k s in th e S ix th D is tric t (In T h o u s a n d s o f D o lla r s ) P e r c e n t C h an g e P e r c e n t C h an g e Ju n e 1975 fro m Ju n e 1975 May 1975 5 ,0 40 ,7 40 108 ,1 10 3 8 8 ,9 6 3 1 ,4 05 ,9 73 8 0 8 ,4 5 0 2 9 0 ,7 7 6 4 ,9 9 6 ,0 0 7 r 1 04 ,7 85 3 8 1 ,0 91 1 ,4 4 1 ,4 4 6 7 7 4 ,5 4 5 2 9 2 ,6 8 9 Ju n e 1974 M ay 1975 Year to d ate m os. 1975 fro m 1974 6 Ju n e 1974 S T A N D A R D M E T R O P O L IT A N S T A T IS T IC A L A R E A S ' B irm in g h a m G ad sd e n ......................... H u n ts v ille . . . . M o b i l e ............................... M o ntg o m ery . . . . T u sc a lo o sa . . . . B a rto w -La k e la n d W in te r H a ven . . D a yto n a B e a c h . . F t. La u d e rd a le H o llyw o od F t. M y e r s ......................... G a in e s v ille . . . . J a c k s o n v ille . . . M elb ou rneT itu s v ille - C o c o a M iam i ............................... O r l a n d o ............................... P e n s a c o la . S a ra so ta ......................... T a lla h a s s e e . . T a m p a -S t. P e te . . W. P a lm B e a c h . . 4 .3 5 2 ,2 0 2 100,021 3 6 0 ,9 8 8 1 ,2 5 2 ,5 7 6 6 5 0 ,9 8 7 2 4 2 ,8 3 6 1 —16 + 19 + 8 + 1 2 + 8 + 14 2 + 12 + 20 + 24 + 16 1 +20 + 10 ’ 4- 3 + + 4 - + 2 + 2 + 7 10 + 10 + 12 8 6 0 ,1 6 8 5 0 4 ,6 9 5 8 7 4 ,4 1 8 4 5 8 ,0 3 6 8 4 2 ,3 55 4 5 9 .6 51 1 ,9 1 8 ,8 3 0 4 2 9 ,8 1 1 2 5 5 ,2 3 0 5 .1 7 5 .5 9 1 1 .8 33 ,8 01 4 3 2 ,4 1 3 2 3 7 ,8 2 0 5 ,0 6 5 ,4 7 9 1 .8 3 9 ,5 6 6 343 ,8 31 2 5 2 .8 9 6 4 .9 1 7 ,5 2 9 + 7 + 4 4 6 ,6 4 6 7 ,1 2 2 ,8 7 9 1 ,7 93 ,5 55 5 55 ,6 74 5 2 9 ,2 7 0 9 23 ,5 22 4 ,4 6 1 ,6 0 0 1 ,1 48 .9 43 4 3 5 ,2 5 9 7 ,1 7 0 .5 0 8 1 ,6 7 4 ,6 5 2 5 3 0 .0 95 5 7 5 .6 6 9 1 ,2 2 9 ,8 3 2 4 .2 7 5 ,9 3 8 1 ,1 39 ,0 69 4 9 1 ,2 9 3 7 ,2 0 8 ,7 8 8 1 .5 5 8 .4 8 9 5 1 1 ,8 6 0 5 3 8 ,7 0 3 7 3 4 .7 9 7 4 ,0 9 6 .7 2 9 1,2 18 ,0 65 r 3 + 7 r 5 25 \ 4 + 1 92,182 1 9 ,8 3 7 ,9 8 9 r 6 6 4 ,2 6 4 4 8 6 ,2 37 8 4 5 ,7 2 0 1 .0 6 1 ,4 1 8 2 0 7 ,4 8 6 1 8,99 9,10 3 5 91,271 4 7 4 ,5 7 5 7 7 4 .5 9 8 6 25,881 + 5 ... i 2 1 8 1 t f 7 7 4 0 t + 3 3 3 2 5 ,2 0 9 2 ,1 1 7 ,1 7 2 4 2 3 ,9 3 1 2 7 9 ,8 8 4 5 ,6 8 8 ,2 4 0 3 2 2 .2 5 3 1 ,8 9 4 .0 6 9 4 0 3 .0 71 2 9 6 .6 6 6 r 5 .5 5 1 ,5 5 6 2 7 1 ,4 2 8 1 .7 8 4 ,1 1 0 311 ,7 31 2 4 7 ,7 0 0 4 ,8 5 2 .8 4 1 ■ t + + 5 r B ilo x i- G u lfp o rt . . Jackso n ......................... 3 0 5 .4 3 2 1 ,6 7 8 ,9 5 9 2 9 5 ,4 57 1 ,7 0 5 ,8 4 0 2 6 7 ,3 87 1 ,5 60 ,0 47 r 3 C h atta n o o g a . . . K n o x v i l l e ......................... N a s h v i l l e ......................... 1,2 37 ,1 07 1 ,4 93 ,5 17 4 ,2 5 5 ,9 1 8 1 ,2 54 ,6 22 1,4 92 ,2 63 4 ,3 2 1 ,9 5 0 1 ,3 0 8 ,2 5 3 1 ,9 29 .0 50 3 ,9 0 3 ,0 7 2 i O TH ER C EN T ER S 123 ,4 00 122.684 118 ,5 32 -r 4 + 25 + - 5 - 3 + + - 10 1 1 - 9 + 1 - 1 - 2 + 15 + 2 + 12 + 9 - 2 - 1 + 26 + 9 t 9 f- 2 - 6 - 6 - 1 - 5 + 12 + 6 - 7 *- 6 3 + 0 1 + 13 + 65 + 9 + 67 1 + 20 + 12 12 T 19 + 28 + 36 + 32 6 + 13 + 11 2 + 17 + 12 A le x a n d ria . . . B a to n Rouge L a f a y e t t e ......................... L a k e C h a r le s . . New O rle a n s . . ......................... Ju n e 1975 D o th an S e lm a A lb a n y ............................... 2 0 6 ,1 8 4 A tla n ta . . . . ; . 2 1 ,2 7 9 ,6 7 0 A u g u sta ......................... 6 3 5 ,1 61 486 ,4 51 C o l u m b u s ......................... M acon ............................... 8 7 2 ,0 8 0 Savannah ......................... 1 ,0 32 ,0 10 A n n isto n Ju n e 1975 fro m r 2 1 0 2 + 14 + 6 - 5 -2 3 + 9 1 1- 4 + 17 + 6 -10 -11 4 14 . . . . . . . . B ra d e n to n . . M onroe C o u n ty O ca la . . . . S t. A u g u stin e S t. P e te rs b u rg . Tam pa . . . . 7 . 2 0 6 .6 2 9 1 1 1 ,3 44 2 3 2 ,3 8 8 4 5 ,7 1 2 1 ,0 0 7 ,7 9 3 2 ,3 9 7 ,8 0 2 Ju n e 1974 M ay 1975 1 8 9 ,5 17 8 2,55 1 1 9 6 ,2 79 6 9 ,2 1 5 + 3 1 94 ,9 13 135 ,3 08 2 4 1 ,0 3 5 4 3 ,8 6 0 9 6 3 ,3 3 8 r 2 ,3 1 9 ,6 1 3 210,668 9 0 ,5 5 4 1 9 7 ,0 52 4 6 ,6 6 5 1 ,0 0 6 ,7 0 7 2 ,0 5 1 ,7 1 2 + 6 Ju n e 1 97 4 - 0 1 +21 6- 2 + -1 8 - 4 + 4 + 5 + 3 4 5 1 11 2 -20 0- 4 + 23 + 18 - + - - + 15 + + 17 + 9 0+ 8+2 + 19 + 19 1 - 6 -11 +22 + 36 + 12 + 10 + 22 + 10 - 9 -1 6 -12 + 0 -3 3 -1 8 + 19 -12 - 1 5 + 6 + 19 + 5 - 2 + 6 + 7 - 4 + 13 + 10 - 7 + 20 + 27 - 6 + 30 + 30 -1 6 + 29 + 33 + 16 +2 2 + 23 - 8 + 58 +6 6 + 2 + 2 + 10 + 1 _ 4 - 3 + 4 + 10 + 17 A th e n s . . . . B ru n s w ic k . . D alto n . . . . E lb e rto n . . . G a in e s v ille . . G riffin . . . . L a G ra n g e . . . N ew n a n . . . R o m e ......................... V a ld o sta , . . 171 ,8 38 126,361 1 75 ,3 54 3 3 ,9 1 5 1 76 ,7 53 6 8 ,6 1 4 4 0 ,5 1 7 5 2 .3 4 4 172 ,5 66 114,581 172 ,3 83 119 .9 97 1 7 7 ,0 22 2 7 ,9 0 9 1 60 .1 89 7 5.74 3 4 0 ,3 3 7 4 4 ,1 5 6 162 .1 52 116 .6 34 159 ,3 99 106 ,4 63 1 85 ,9 23 2 4 ,9 2 6 1 45,385 8 1 ,7 5 0 6 0,44 7 5 9 ,4 7 0 1 4 5 ,4 50 108 ,5 82 A b b e v ille . . B u n k ie . . . . Ham m ond . New Ib e ria . P la q u e m in e . T h ib o d a u x . 17,84 3 15,51 9 109 ,7 70 7 9 ,7 1 9 3 1 ,8 4 0 6 3 ,1 0 6 1 8.53 0 1 6,730 116 .3 95 9 5 ,4 4 4 2 7 ,5 6 0 6 8 ,5 0 8 15,82 2 12,97 6 8 4 .5 0 9 6 1 ,6 0 6 26,08 1 3 9 ,9 0 4 . . 1 50 ,6 10 7 6 ,7 3 5 146 ,0 63 5 7,99 0 147 ,8 66 7 6 ,2 5 0 132 .6 24 5 3 .3 8 9 1 4 7 ,2 66 7 9 ,7 9 5 1 2 4 ,9 62 5 5.81 2 + 9 + 4 + 3 186 ,7 95 7 5 .6 9 0 4 2 .7 0 6 149 ,7 98 7 5,88 6 6 6 ,4 7 0 - 5 + 3 + + 19 + 3 -3 0 + 7 . . 1 78 .3 76 7 8 ,3 3 8 4 6,32 1 B ris to l . . . . Jo h n so n C ity K in g sp o rt . . . 1 60 ,2 85 1 7 2 .6 04 3 5 7 ,8 9 6 146 ,4 50 170 .1 30 313 ,7 61 1 3 5 ,0 88 155 ,6 94 2 7 7 ,1 9 0 + 9 + 19 + + 29 H a ttie sb u rg . L a u re l . . . . M e rid ia n . . N a tch e z . . P a sc a g o u la M o ss P o in t V ic k s b u rg . . Y a zo o C ity . S T R IC T . . . . . . TO TAL A la b a m a . . . F lo rid a . . . . G eo rg ia . . . . L o u is ia n a . . M i s s is s ip p i . . T e n n e ss e e . . -1 t 1 9 6 ,1 08 8 3 ,7 7 9 M ay 1975 Year to d a te m o s. 1975 fro m 1974 + 5 - 8 + 1 + 14 . 9 3 ,0 4 4 ,0 8 6 9 0 ,8 2 9 ,4 8 4 r 8 4 ,5 0 9 .5 5 9 + . 1 1 ,2 9 0 ,8 3 9 2 8 ,5 6 0 ,3 1 3 . 2 8 .7 6 6 ,0 2 1 . 1 0 ,5 5 3 ,2 9 8 . 3 ,5 8 7 ,5 1 6 . 1 0 ,2 8 6 ,0 9 9 1 1 ,1 8 5 ,l l l r 9 ,6 9 0 ,3 8 6 2 8 ,4 9 3 ,6 8 4 2 7 ,2 7 4 ,0 9 2 2 7 ,1 6 3 ,5 7 6 r 2 5 ,1 3 5 ,2 3 0 1 0 ,1 6 5 ,2 8 0 8 ,8 6 5 ,6 9 9 3 ,5 7 7 .2 8 7 3 ,3 6 3 ,5 2 1 1 0 ,2 4 4 ,5 4 6 10,18 0.63 1 + + + + + + -10 - 7 + 15 11 + + 2 + 10 1 + 17 0 + 5 6 + 14 4 + 19 0 +7 0 + 1 0 11 + 7 + 17 + 1 8 + + 17 + 5 + 2 C o n fo rm s to S M S A d e fin itio n s a s of D e c e m b e r 3 1, 1972. -D is tric t p o rtio n o n ly , r-revised F ig u re s fo r so m e a re a s d iffe r s lig h tly fro m p re lim in a ry fig u re s p u b lis h e d in “ Ba FEDERAL RESERVE BANK OF ATLANTA 131 D is t r ic t B u s in e s s C o n d i t io n s 1967=100 — Seas. Adj. Farm Cash Receipts * S e a s. a d j. fig u re; n o t an in d ex L a te s t p lo ttin g : J u n e , e x c e p t m fg. p ro d u c tio n a n d fa rm c a s h re c e ip ts, May. At midsummer, overall economic signs are more encouraging in the Southeast. Although employment slipped, household incomes have strengthened. Construction activity advanced again and agricultural conditions brightened. Consumer deposits, at financial institutions swelled. Total nonagricultural employment fell in June as nonmanufacturing jobs posted a small decline. Despite the job losses, the unemployment rate fell primarily because of a statistical quirk. Construction, fabricated metals, and the paper industry had the largest percentage job losses. Nondurables realized moderate gains on the basis of some strength in textiles and apparel. Manufacturing payrolls grew sizably as the average workweek, hourly earnings, and employment increased. Registrations of new automobiles jumped. Bank consumer instalment debt fell considerably, owing to reduced purchases of auto loan contracts and greater repayments of direct auto loans. These reductions were partially offset by increased personal loan extensions. June was the tenth suc cessive month of significant decline for instalment lending at District banks. Meanwhile, incomes of manufacturing employees grew more rapidly and disposable income benefited from, reduced tax withholding. Department store sales rose in May and were 7 percent higher than a year ago. The value of construction contracts rose for the third straight month. Large contracts for electric power systems in Mississippi and manufacturing plants in Alabama pushed the value of nonresi dential contracts to their second highest level of the year. The value of residential contracts crept up for the fourth month in a row as savings inflows continued to flood savings and loan associations. Prices received by farmers increased in June, led by particularly sharp rises in broiler and vegetable prices. Preliminary data indicate that the rising price trend continued during July, largely reflecting an upward turn in grain prices. Cash farm receipts for the first five months of 1975 were higher than the year-ago level in four of six District states, largely resulting from higher receipts from crops and some recovery in receipts from livestock. Abundant rain fall through July has contributed to excellent de velopment of growing crops. District member banks continue to experience strong deposit gains in passbook savings accounts. The larger banks are still letting their money market time deposits run off. Loan demand has shown no signs of reviving. However, many of the larger banks have posted higher prime lending rates, as short-term borrowing costs have advanced. N ote: D ata on w h ic h s ta te m e n ts a re b a s e d h av e b e e n a d ju s te d w h e n e v e r p o s s ib le to e lim in a te s e a s o n a l in flu e n c e s. 132 AUGUST 1975, MONTHLY REVIEW
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