year approximately $57,000,000. At the close of December 31, 1918, Federal Reserve bank note circulation amounted to $5,816,000. PROFIT AND LOSS. The profit-and-loss statement (Schedule 3) shows that the net profits, after deducting dividends of $182,472.68, amount to $1,470,000, of which $735,000 has been credited to the surplus account and a like amount to reserve franchise tax. GENERAL BUSINESS AND BANKING CONDITIONS. The Except for the construction of a number of large shipbuilding plants, the year did not record any new industrial enterprises, although there has been a vast enlargement of operations in old industries, especially in the iron, steel, and coal fields. most marked activity has been in the Birmingham manufacturing district and in the shipbuilding plants at New Orleans, Mobile, Jacksonville, Savannah, Brunswick, and practically every seaport town. In plants at these places there appears to be no lessening of activity since the signing of the armistice. War demands enlivened the lumber market, and with the opening of the sea traffic this trade, as well as that in naval stores, has taken on new life. Owing to the great yields and high prices for nearly all crops the producer finds himself in a strong financial condition. The cotton yields were larger than in 1917, and during the early picking season the prevalence of satisfactory prices enabled the disposal of such an amount of the crop as sufficed to liquidate pressing obligations, the producers, however, depending on their better financial condition and improved food situation to enable them to carry their surplus crop for better prices. The end of the year finds prices lower than in the early season and the cotton holding movement largely in force. Cotton buyers are experiencing some difficulty in purchasing the staple at the prevailing prices, which are deemed to be too close to the cost of production. The banks have shown a general willingness to assist the farmer in carrying his cotton, though the producer has not found it necessary to borrow in great volume. Generally speaking, almost every line of business was handicapped during the year by a shortage of labor. The wages paid and the rules practiced with reference to compensation and overtime have somewhat demoralized labor for normal conditions. With the increasing progress in army demobilization there will be some relief, but with little or no immigration expected for some years, labor conditions are viewed as extremely uncertain. Little or no engineering or construction work was carried on after entry of the United States into the war, even minor repairs and itions being largely restricted to essentials. There has been great diversification of farming operations, and practically all industrial plants show increased capacity and output and are in better position to supply the foreign trade. Shipping has begun to open up and there will be a gradual movement of raw materials, especially cotton, with larger demand and better prices. Collections were reported unusually good during almost the entire year, with monthly increases in bank clearings, railroad and postoffice receipts. MONEY MARKET. Interest rates for loans prevailing in financial centers in this district have increased somewhat. Rates for several years past have ranged from 5 to 6 per cent, but during the latter half of 1918 were advanced to 6 and 7 per cent. These rates have advanced notwithstanding the increase in bank deposits. DISCOUNT OPERATIONS. (A) REDISCOUNTS-COMMERCIAL PAPER. Discount operations of this bank have been very active during the past 12 months. This was due largely to the fact that as each of the Liberty loans was placed on the market member banks accommodated their customers and in turn used the discount privileges of the Federal Reserve Bank. In November, 1917, there were 122 banks availing themselves of the privilege of rediscounting with us. The volume of rediscounts was then $12,343,823.69, whereas on November 23, 1918, 260 banks were availing themselves of this privilege, and the total amount of rediscounts on that date was $74,979,123.10, or a little over six times as much as in November, 1917. This ratio has prevailed throughout the year. At the same time the acceptances purchased by us from our member banks in November, 1917, amounted to $4,307,783.42, whereas on November 23, 1918, they were $13,170,936.35, or about three times as much as in 1917. The discounting banks are distributed over the entire six States, Tennessee and Mississippi possibly discounting smaller amounts proportionately to the number of banks. There are 426 members in the district, and of these 260 were using the discount privilege on November 23. (B) REDISCOUNTS-LIBERTY LOAN. As to the classification of the discount holdings of this bank, out of $74,979,123.10 there were $36,844,736.92 secured by Liberty loan bonds and United States Treasury certificates of indebtedness; and, while all of this possibly could not be charged to Government financing, yet it is believed that several member banks have used their Government securities for the privilege of rediscounting largely 100823°-19- -33 to take care of needs of their customers, using their Government securities because of the preferential rate given to that class of discounts, our rate to member banks presenting Government bonds and certificates as collateral to member bank notes being 4 per cent per annum, whereas our commercial rates ranged from 41 to 4 per cent. TRADE ACCEPTANCES. Trade acceptances, we believe, are being used by business interests in this district to a greater extent than rediscounts of this class of paper with us show. We believe that quite a number of the firms are using their own paper with the member banks for discount and retaining the trade acceptances in their own portfolios, sending them out for collection through the member banks. But the movement has been started for the use of trade acceptances, and this is being done to some extent in sections where oil mills are buying from the farmers the products to be crushed into the oil products. We have quite a number in items, but a small amount in dollars and cents. We have under discount trade acceptances amounting to $2,745,900.44. ACCEPTANCES. GROWTH OF OPEN MARKET FOR ACCEPTANCES. There is practically no open market for acceptances, and the proper development of bankers' acceptances is rather difficult in the Sixth Federal Reserve District; that is, for bank acceptances to be handled by the drawer of the draft and sold in the open market. The reason for this state of affairs is the high rate prevailing for commercial paper originating outside the district and offered by brokers through our member banks at rates around 6 per cent. We are fully aware of the fact that the ideal way of handling bankers' acceptances is to have the member banks accept the paper, then throwing it upon the open market to be sold with the possibility that it will find its way into the Federal Reserve Banks. It would then be a two-name paper. Whenever business conditions get back to normal, commercial paper will not bear so high a rate and there will be a better opportunity for the marketing of bankers' acceptances in this district. This will probably take some time and will not be accomplished until the readjustment of financial conditions arising out of war transactions has been completed. POLICY REGARDING ACCEPTANCE PURCHASES. The policy adopted for the present is to purchase from member banks their acceptances for the account and credit of their customer with that member bank, and should such acceptances be for less than 10 per cent of the capital and surplus of the bank to mark the acceptances "documents detached" and thus purchase the paper. But where the acceptances aggregate more than 10 per cent of the capital and surplus of a member bank it is our policy to have the documents, such as warehouse receipts, order-notify, bills of lading, port or dock receipts, and specific insurance policies, accompany the acceptances which are discounted with the "documents attached." RESERVE POSITION. The extent to which the Federal Reserve Bank has aided member banks during the past year in financing the sale of Liberty loan bonds has had a very marked effect on our reserves. The banks of this country could not unaided finance the subscriptions of their customers and the public generally to an extent which would enable all the people to participate as subscribers. For that reason a large part of the resources of the Federal Reserve Banks was made available to member banks through the privilege of rediscounting customers' notes and member banks' collateral notes secured by Liberty loan bonds at rates of discount corresponding approximately to the rate of interest borne by the bonds. Federal Reserve Banks accordingly carried throughout the entire year a large amount of bond-secured discounts and rediscounts, the amount varying with the periods of the Liberty loans, the largest amounts being carried for a short period subsequent to the closing of each campaign. Federal Reserve Banks also aided member banks in financing their subscriptions to Treasury certificates of indebtedness issued in anticipation of each loan. The method of extending this accommodation was the same as that used in financing the Liberty loans, the Treasury certificates being used as collateral to notes. The effect of this financing was very largely to increase our discounts with a corresponding decrease in our reserves. The decrease in our reserves during the year was only partly due, however, to financing the issues of bonds and certificates. Our rediscounts of commercial, industrial, and agricultural paper increased very materially, as did also our issue of Federal Reserve notes. These were two of the factors largely responsible for reduction of the percentage of our reserve. Our reserve percentages on December 31, 1917, were as follows: Gold reserve against Federal Reserve notes in circulation.... Our reserve percentages at the close of 1918 were as follows: Total reserve against net deposits and note liability. Gold reserve against Federal Reserve notes in circulation...... Total reserves against net deposits and note liability. Gold and lawful money reserve against net deposits... Per cent. 93 67 84 41 39 40 MOVEMENT OF MEMBERS. NATIONAL AND STATE BANKS. The feeling of State banks has shown considerable change during the past 12 months, and these institutions now have a clearer understanding of the workings and benefits of the Federal Reserve system. During 1918 the following 32 State banks joined the Federal Reserve Bank of Atlanta, with combined capital and surplus aggregating $9,735,980, viz: The following is of interest as to the results to date with reference to State bank members: State banks joining the Federal Reserve Bank of Atlanta during 1918.. Federal Reserve Bank of Atlanta............ Total capital of State bank members, sixth district..... Estimated percentage of total of capital and surplus of eligible banks in Total resources of State bank members.. Estimated percentage of total resources of all eligible banks in sixth district.... 32 54 7.2 $15, 790,000 28.7 $25, 932,000 23.6 $238, 500,000 53.5 |