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FE D E R A L R E SE R V E BAN K O F NEW YORK r Circular No. 3 3 1 5 1 L March 9, 1948 J Operating Ratios of Member Banks in the Second Federal Reserve District for the Year 1947 To all Member Banks in the Second Federal Reserve District: Net profits of all member banks in the Second Federal Reserve District declined sharply in 1947, owing primarily to a heavy reduction in security profits, and secondarily to an increase in expenses relative to earnings. The average net profit was 8.1 per cent of the slightly increased capital funds, compared with 11.2 per cent in 1946 and a record rate of return of 11.6 per cent in 1945.1 Despite the 30 per cent decline in the past two years, the profit rate in 1947 was still two-thirds above the average of the prewar years, 1936-39. The relative position of different groups of banks varied widely; the rate of net profits earned on capital funds was still substantially higher than before the war for the smaller banks of the District, but was back approximately to the prewar level for the large New York City banks. The group of New York City banks with deposits of 100 million dollars or more has been divided into two groups this year— Group V I banks with 100 million to 1 billion dollars of deposits, and Group V II banks with more than 1 billion dollars of deposits. It was found that in a num ber of cases ratios for banks in the former group were appreciably different from the corresponding ratios for banks in the latter group. The banks in Group V I required a considerably higher percentage of total cur rent earnings to cover expenses than banks in Group V II, and in addition a few banks in the group made substantial charge-offs or other deductions from net current earnings for special purposes. Consequently, the average ratio of net profits to capital funds for this group was the lowest for any group— about 4 per cent, compared with an average of 6 per cent for New York City banks with deposits over a billion dollars. The decline during 1947 in net profits relative to capital funds occurred in all groups of banks but was generally most pronounced among the larger banks of the District. Two thirds of the total number of banks had lower dollar amounts of net profits than a year ago. Fifteen banks reported net losses after taxes, usually because of a combination of high expenses and either substantial tax payments on the previous year’s high earnings or substantial charge-offs. In general, the larger banks in the District sustained greater declines in the volume of security profits and took a larger proportion of their income to cover expenses than did the small banks. Partly offsetting these adverse factors in the earnings of the larger banks were lower income taxes, due to the reduced level of taxable net profits; in the smaller banks, many of which are on a “ cash basis” , income tax pay ments were higher, as they were calculated against larger 1946 incomes. The sources and disposition of earnings from 1939 to date for all member banks in the Second District are shown in Chart I. Chart I — Percentage Distribution of Total Earnings of Member Banks in Second District nor r e p o r t s o sep a ra tely serous i»4s. ' i n c l u d e d i n o t h e r E X P E N S £ S “P R !O R TO t » * l . 1 All percentages represent unweighted averages of the figures for individual banks. Total operating income, except in the largest New York City banks, in which a moderate decline occurred, was greater in 1947 than in 1946. In general, the postwar increase in loans and loan income more than offset the reduction in interest received on a reduced volume of United States Government securities, which in turn reflected the effect of the Treasury debt retirement pro gram. The divergent trends which have characterized these two primary sources of income, loans and Govern ment securities, have progressed to a point where each now contributes approximately 40 per cent of the gross income of the average bank; in 1945, the last year of the war, the proportions were 49.2 per cent for Government security income and 28.8 per cent for loan income. Other gross income, consisting of income from other securities, service charges, and all other sources, declined slightly in importance during this period, accounting for 19.2 per cent of total income in 1947 compared with 22.0 per cent in 1945. Among the items of expense, salaries and wages and “ all other” expenses, which consist largely of the physical costs of providing banking services, increased propor tionately more than total earnings. Consequently, there was a moderate decline in net current operating earnings expressed as a fraction of gross operating income. How ever, 55 per cent of the banks in the District showed an increase in the dollar amount of net current earnings before income taxes. In the two smallest groups outside New York City more than two thirds of the banks had higher net current earnings than in the previous year, but in all other groups, more than half of the banks showed decreases, and every bank in New York City with total deposits over 100 million dollars showed a decrease in net current earnings. Net recoveries and profits on securities sold were reduced for the average member bank from 10.6 per cent of total current earnings in 1946 to 1.8 per cent in 1947. This decline was caused mostly by the much lower volume of security profits which accompanied the declin ing tendencies in prices of Government securities, especially in the latter half of the year. Dividend payments remained conservative during the year, amounting on the average to 27 per cent of the net profits available for distribution. The small increase in 1947 merely kept pace with the growth in capital funds, and as a result, the ratio of dividend payments to capital funds remained unchanged at 2.2 per cent. The average bank retained and added to its capital funds nearly three fourths of its net profits in 1947 (although the proportion was considerably smaller in the larger banks). This was in keeping with the general policy of the banks in the period of high earnings during and since the war. They have used the greater part of their expanded earnings in this period to strengthen their capital funds, which in the aggregate have increased by about 46 per cent since 1939. In Chart II, the 1946 to 1947 percentage changes in some of the major asset and liability accounts, based on averages of three “ call dates” each year, are shown for the various sized groups of member banks. Declines in holdings of Government securities and demand deposits were generally greatest in the larger banks, reflecting the effect of public debt retirements by the Treasury. Loan increases were proportionately greatest ampng the smaller banks as commercial, agricultural, consumer, and real estate loans— types which represent a relatively large proportion of the smaller banks’ loan portfolios — increased rapidly in 1947; in the two groups of largest New York City banks the contraction in security loans outweighed increases in other types of loans. Holdings of securities other than United States Government obliga tions showed the greatest increases in the larger banks outside New York City and the smaller banks in New York City. Time deposits generally showed moderate increases but there was no consistent difference between large and small banks. Capital accounts rose more in the smaller banks owing to proportionately larger profits and smaller dividend payments. Chart II — Percentage Increase or Decrease from 1946 to 1947 in Selected Asset and Liability Items by Size Groups of Member Banks in the Second District* * Percentage changes are based upon aggregate dollar figures of each size group, which groups correspond to those in the table showing operating ratios; figures used as basis for comparison are averages of amounts reported for three call dates each year — the preceding year end, June 30, and the autumn call date. Average Operating Ratios of Member Banks Grouped According to Size of Deposits and Proportion of Loans to Total Assets — 1 9 4 7 A il ratios are expressed in percentages and are arithmetical averages of the ratios of individual banks in each group, rather than ratios based on aggregate dollar figures YOUR BANK SUMMARY RATIOS Group X Number of Banks.. BANKS LOCATED OUTSIDE GREATE R NEW YORK GROUP II—Deposits *2,000,000 to $5,000,000 GROUP III—Deposits $5,000,000 to $20,000,000 GROUP I—Deposits under $2,000,000 147 GROUP IV—Deposits over $20,000,000 BANKS IN GREATER NEW YORK* GROUP V GROUP VI GROUP VII Deposits Deposits Loans to Total Assets, Per cent Loans to Total Assets, Per cent Loans to Total Assets, Per cent Group Group Loans to Total Assets, Per cent Group $100 million under Under 1C 10-19.9 20-29.9 30 andup Average Under 10 10-19.9 20-29.9 30 and up Average Under 10 10-19.9 20-29.9 30 and up Average Under 10 10-19.9 20-29.9 30 and Average up $100 million to $1 billion 24 54 42 27 258 40 103 72 43 265 36 116 69 44 4 70 31 25 Deposits $1 billion 10 31 12 9 1945 1946 1947 805 798 792 1. Net current earnings before income taxes.............................. 10.2 6.8 9.4 10.6 14.1 11.3 7.6 10.1 12.5 15.5 11.6 8.5 10 3 12 1 16.5 9.8 7 2 9.0 9.6 14.2 10.7 7.6 8.1 9.4 11.3 10.9 1 2. Profits before income taxes....................................................... 10.4 7.4 10.0 10.7 13.5 11.7 8.2 10.7 13.2 15.2 12.1 10.2 10.8 12.5 16 4 10.7 9.6 11.2 9.8 11.3 10.9 6.1 8.4 14.0 14.7 11 4 2 8.2 5.8 7.9 8.4 10.5 8.5 5.8 8.0 9.5 10.7 7.9 6.8 7.3 8.3 9.9 7.9 7.8 8.8 6.8 7 5 7 3 4 1 6 1 11.6 11.2 8.1 3 1.9 1.7 1.9 2.1 2.0 2.1 1.7 2.2 2.1 2.3 2.3 2.0 2.2 2.5 2.4 2.7 2.3 2 9 2.6 2.9 1.8 3.0 3.6 2.1 2.2 2.2 4 4. Cash dividends declared............................................................ Percentage o f Total Assets 5. Total earnings............................................................................ 2.5 2.1 2.3 2.7 3.2 2.5 2.0 2.3 2.6 3.2 2.5 2.0 2.3 2.6 3.3 2.4 1.8 2.2 2 3 3.1 2.4 1.9 1.6 2.1 2.2 2.5 5 6. Net current earnings before income taxes.............................. 0.9 0.6 0.8 0.9 1.2 0.8 0.6 0.7 0.9 1.1 0.8 0.6 0.7 0.8 1.0 0.7 0.4 0.6 0.7 1.0 0.7 0.6 0.7 0.6 0.7 0.8 6 7. Net profits ................................................................................. 0.7 0.5 0.6 0.7 0.9 0.6 0.4 0.6 0.7 0.8 0.5 0.4 0.5 0.5 0.6 0.5 0.5 0.6 0.5 0.5 0.5 0.3 0.5 0.8 0.8 0.6 7 40.2 51.8 46.8 35.1 24.4 41.3 58.4 47.1 35.6 21.0 41.2 61.2 46.3 35.0 21.2 38.9 59.9 43.9 35.7 23.3 34.8 39.0 37.7 49.2 47.7 40.5 8 8.0 18.0 8.7 4.6 3.1 7.1 11.7 7.5 5.6 4.4 6.0 7.8 7.3 5.0 2.8 6.0 12.1 6.4 5.0 4.5 3.2 3.7 5.2 8.0 7.2 6.6 9 42.5 20.3 35.0 49.7 66.0 40.8 18.5 34.5 48.0 64.9 39.3 18.2 32.4 46.6 63.4 38.2 14.0 31.6 43.9 54.5 43.0 32.6 35.4 28.8 32.3 40.3 10 11 SOURCES AND DISPOSITION OF EARNINGS P ercen tage o f Total Earnings 12. Other current earnings.............................................................. 100.0 14. Trust department earnings2 ( included in item 1 2 )............... 19. Net current earnings before income taxes.............................. 20. Net recoveries and profits3 (or losses — ) .............................. 5.5 5.8 5.6 6.3 4.0 6.0 6.5 6.3 - 5.0 6.6 6.5 6.5 7.0 6.3 5.2 5.9 5.3 5.0 4.9 8.8 4.3 1.9 6.4 5.8 6.1 3.8 4.1 3.9 4.3 2.5 4.8 4.9 4.6 5.0 4.7 6.9 6.3 7.5 6.4 6.3 11.7 8.1 12.8 10.4 12.8 10.2 20.4 19.8 7.6 7.0 6.5 12 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 13 3.0 - 0 1.5 1.5 1.2 2.0 1.5 2.4 2.1 2.8 2.3 1.6 5.0 2.9 5.5 5.1 4.6 10.5 14.1 9.4 3.3 3.5 3.5 14 28.8 32.4 29.1 27.6 26.7 27.7 29.1 27.5 28.3 26.1 28.6 27.6 28.9 29.5 27.1 31.6 32.6 32.3 31.2 29.9 38.2 40.3 35.8 28.4 28.2 29.2 15 15.3 16.6 16.2 14.1 13.9 17.4 20.9 18.4 15.9 14.3 16.9 22.1 17.7 15.0 13.7 14.6 21.1 15.0 14.1 12.1 6.8 2.1 1.5 16.4 15.9 15.8 16 22.6 21.6 22.0 24.2 22.4 22.5 22.3 22.3 21.9 23.9 24.1 22.6 23.3 24.5 27.1 26.1 23.1 25.3 27.6 26.4 26.7 26.0 23.4 24.8 22.8 23.6 17 66.7 70.6 67.3 65.9 63.0 67.6 72.3 68.2 66.1 64.3 69.6 72.3 69.9 69.0 67.9 72.3 76.8 72.6 72.9 68.4 71.7 68.4 60.7 69.6 66.9 68.6 18 33.3 29.4 32.7 34.1 37.0 32.4 27.7 31.8 33.9 35.7 30.4 27.7 30.1 31.0 32.1 27.7 23.2 27.4 27.1 31.6 28.3 31.6 39.3 30.4 33.1 31.4 19 1.4 2.4 2.3 0.9 0.6 1.9 2.1 2.5 2.7 - 0.7 2.1 6.3 2.2 1.2 - 0.1 2.8 9.0 6.3 0.9 - 5.6 0.6 5.7 1.4 15.5 10.6 1.8 20 10.6 11.1 12.2 7.6 5.9 7.1 8.4 8.1 9.3 - - - 7.5 6.5 7.4 7.8 8.3 9.2 9.0 8.5 10.0 10.2 11.1 11.6 27.2 25.3 27.6 27.2 28.1 25.1 20.8 25.8 26.6 24.8 21.4 22.4 21.7 21.1 19.8 22.9 26.3 26.6 19.6 17.9 1.9 1.8 1.9 1.9 2.1 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.7 1.7 1.7 1.7 1.7 2.9 3.0 3.2 2.6 2.9 2.7 2.9 2.7 2.7 2.5 2.6 2.6 2.7 2.6 2.6 2.7 3.9 3.1 2.3 0.1 «* 0.1 0.2 0.1 0.1 ** 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.2 5.6 5.6 5.4 * 0.1 0.1 - 0.1 51.7 57.6 57.3 7.2 13.3 7.5 20.6 7.4 19.8 - 7.9 10.3 7.8 10.1 9.4 21 19.6 18.0 30.4 38.1 33.6 23.8 22 1.7 1.5 1.4 1.4 1.6 1.7 1.8 23 2.3 2.9 2.4 2.4 3.1 2.9 2.7 24 0.1 0.1 0.1 0.1 0.4 0.3 0.1 25 5.0 26 RATES OF EARNINGS ON SECURITIES AND ON LOANS Percen tag e o f U. S. G overnm ent Securities P ercen tage o f O ther Securities P ercen tage o f Total Securities 25. Net recoveries and profits on securities.................................. • • 0.1 • • * P ercen tage o f Total Loans 5.5 5 3 5 5 5.3 5.2 4.9 4.9 4.9 4.9 5.1 4 2 4 1 0.2 0.1 0.5 * —01 —01 0 1 0.4 0 1 0 1 0 1 0 1 0.8 0 1 50.1 37.7 53.9 65.1 59.4 50.6 35.8 54.5 68.9 59.1 50.8 36.4 52.5 65.5 57.7 5.4 3.9 7.2 9.5 7.5 6.0 6.3 6.8 7.0 7.8 6.4 4.6 6.1 7.9 6.6 14.6 24.4 38.4 20.7 6.6 15.0 24.6 40.8 20.9 7.4 15.2 24.5 41.2 22.1 6.7 21.0 20.0 19.2 19.3 17.3 18.0 17.2 17.8 16.0 16.7 15.9 16.7 17.2 16.6 17.8 0.6 0.6 0.5 0.8 0.6 0.8 0.7 0.8 0.9 0.9 0.9 0.7 1.0 0.9 36.7 55.7 41.8 29.6 20.4 32.6 55.6 35.4 25.0 17.2 29.2 51.2 32.2 22.4 10.0 11.2 9.9 9.9 9.4 8.5 8.1 8.4 8.4 45.4 43.9 43.6 46.3 48.8 51.8 52.8 - 4 3 2.6 2 1 5.0 0.4 • 0 1 • 0.5 0.4 • 27 49.7 38.0 49.8 49.0 44.4 61.3 60.0 53.2 28 5.5 5.6 3.7 3.4 4.1 6.1 6.2 6.7 29 16.6 25.1 37.8 24.1 23.1 27.3 13.0 15.2 21.1 30 18.8 17.6 18.3 16.9 21.4 23.5 22.9 18.4 17.6 17.9 31 1.2 0.9 1 2 11 1 2 0.9 0 5 0.7 1.0 0.8 0.9 32 26.5 56.1 30.0 22.0 15.6 29.0 31.2 25.9 43.3 38.7 31.5 33 6.5 7.7 7.6 9 2 9.3 8.0 7.7 8.4 34 5.3 42.4 44.2 47.7 4.1 • - DISTRIBUTION OF ASSETS P ercen tag e o f Total Assets 29. 30. 31. 32. Other securities.......................................................................... Loans ....................................................... . Cash assets.....................................- ............. Real estate assets.............................. . T - CAPITAL AND DEPOSIT RATIOS — in P ercen tage 33. Capital accounts to total assets, less Gov’ts and cash assets.. 34. Capital accounts to total deposits.............................................. 35. Time deposits to total deposits................................................. 1 Interest and discount on loans plus service charges and other fees on loans. 2 Banks not reporting this item or reporting zero amounts were excluded in computing this average, and averages are not shown where there were fewer than 3 banks in a group. S Profits on securities sold or redeemed and recoveries on securities and on loans, less all charge-offs other than recurring depreciation on banking house and furniture and fixtures which is included in item 17. 7.5 14.2 7.8 51.9 * Because of the small number of banks in Groups V, V I, and V II the subgrouping “ Loans to Total Assets” has been omitted. Two banks have been omitted from Group V I because of extreme ratios due to particular types of business. • Less than 0.1 per cent, Note: Balance sheet figures used as a basis for the ratios are averages of amounts reported for December 31, 1946, June 30, 1947, and October 6, 1947.
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