DISTRICT NO. 5-RICHMOND.

CALDWELL HARDY, Chairman and Federal Reserve Agent.

FINANCIAL RESULTS OF OPERATION.

The financial results of the operations of the Federal Reserve Bank of Richmond for 1918 have been most satisfactory. The increase in the productive assets from $46,000,000 on December 31, 1917, to over $97,000,000 on December 31, 1918, is reflected in the earnings for the year. These show a gross increase from $770,000 in 1917 to $2,979,000 in 1918, which, with an increase in expenses from $307,000 to $667,000, results in a corresponding increase in net earnings from $462,000 to $2,300,000. After payment of dividends, there remains $2,079,000, one-half of which was carried to surplus, the other half being payable to the Government as a franchise tax. Earnings, dividends, and comparative report of profit and loss are shown in Schedule 1, and expenses in detail in Schedule 2.

Schedule 3, comparative balance sheet for December, 1917-18, shows an increase in total assets and liabilities from $111,700,000 to $204,800,000. While deposit liabilities show an increase of less than $7,000,000, Federal Reserve notes have increased approximately $81,000,000, from $56,500,000 to $137,478,000. This expansion in Federal Reserve notes is a striking illustration of the elasticity and power of the Federal Reserve system.

GENERAL BUSINESS AND BANKING CONDITIONS.

The year 1918 was the most prosperous ever enjoyed by the territory comprising this district. The most notable activities are, of course, agricultural. The cotton crop has been the largest ever produced, with one or two exceptions. Prices have averaged in the neighborhood of 30 cents per pound as against a normal average of about 10 cents, but the cost of producing the present crop has been much greater than usual. Farmers who have sold their crops are in better position than ever before, but much cotton is being held for higher prices.

The tobacco crop has been large in acreage and output, South Carolina in particular having increased her acreage considerably.

The average price has been in the neighborhood of 30 cents and the return the highest ever received for a tobacco crop. There have been unusual farm developments, transactions in farm lands have increased largely in volume, large farms have been subdivided, and a great deal of money spent for building houses, barns and other buildings. These conditions have been reflected in an unprecendented volume of business and great activity in commercial and banking circles.

Labor has been very scarce and inefficient, and wages have been limited only by what has been demanded. Money has circulated freely, the volume exceeding anything ever before known, and has been liberally spent.

The money market has been active, and while the supply of credit has been ample for all purposes, the prevailing rate has not fallen below 6 per cent. Bank profits have been satisfactory after providing for heavy Federal taxes.

DISCOUNT OPERATIONS.

The volume of commercial paper handled during the year, including trade and bankers' acceptances and Liberty loans, is shown on Schedule 4, by quarters, including daily average during the year and balance held on December 31, 1918. The volume classified by States is shown in Schedule 5. The schedules show an increase in the total bills held from $42,800,000, December 31, 1917, to $91,700,000, December 31, 1918. The principal increase has been in loans secured by Government obligations. Discount rates current for the year 1918 are shown in Schedule 6.

TRADE ACCEPTANCES.

Trade acceptances have been used to an increasing extent, particularly in financing sales of cotton to mills. The volume of bankers' and trade acceptances actually discounted has been much larger than the average volume held would indicate. Our contingent liability on bills rediscounted with other Federal Reserve Banks on December 31, was $4,787,000. This was due to our rediscounting commercial paper and bankers' acceptances from time to time with other Federal Reserve Banks (to an aggregate of $69,000,000 during the year) in order to maintain our reserve on a fair parity with those of other Federal Reserve Banks and at the same time meet the increasing demands of member banks for loans on Liberty bonds and United States certificates of indebtedness.

OPEN MARKET FOR ACCEPTANCES.

We have maintained an open market for bankers' acceptances originating in this district. Large transactions have been financed by these acceptances to a very considerable extent, particularly in cotton and tobacco. While we have endeavored to see that such

acceptances are issued only under legitimate conditions and in conformity with the regulations of the Federal Reserve Board, our policy has been to foster their use. There are 19 banks in the district now authorized by the Federal Reserve Board to issue acceptances to 100 per cent of their total capital and surplus, aggregating $28,000,000.

RESERVE POSITION.

Schedule 7 shows deposit liability to member banks and to the United States Government, the average increase of deposits of member banks in the past year being from $31,000,000 to $46,000,000, or nearly 50 per cent. Schedule 8 shows average liability by months to member banks and the Government, net deposit liability, net liability in outstanding Federal Reserve notes, net liability to all deposits and Federal Reserve notes combined, amount of legal reserve percentage of legal reserve to net liabilities and percentage of reserve against Federal Reserve notes after allowing 35 per cent reserve against deposit liability. This percentage against Federal Reserve notes shows a decline from a maximum of 80.33 in March to 53.40 in December, with an average of 61.19 for the year, this decline being, due to an increase in the volume of loans and a corresponding increase in the amount of Federal Reserve notes outstanding.

MOVEMENT OF MEMBERSHIP.

National bank and State bank membership is shown in Schedule 9, by States and in total. The number of national bank members has increased 11 in the year-from 517 to 528-and State bank members 23-from 14 to 37. Total stock subscriptions have increased during the year from 73,279 shares (50 per cent paid-$3,663,950) to 81,244 shares (50 per cent paid-$4,062,200). State institutions have been admitted to membership as follows:

Liberty Bank of Baltimore County, Arlington, Md.

American Bank, Baltimore, Md.

Hamilton Bank, Hamilton, Md.

Cambria Bank, Cambria, Va.

Bank of Christiansburg, Christiansburg, Va.

Greensville Bank, Emporia, Va.

The Marine Bank, Norfolk, Va.

Union Bank, Richmond, Va.

Kanawha Valley Bank, Charleston, W. Va.

The Franklin Bank, Franklin, W. Va.

Battery Park Bank, Asheville, N. C.

American Trust Co., Charlotte, N. C.

Bank of Commerce, High Point, N. C.

Newbern Banking & Trust Co., Newbern, N. C.

Wachovia Bank & Trust Co., Winston-Salem, N. C.

Carolina Savings Bank, Charleston, S. C.

Bank of Cheraw, Cheraw, S. C.

The Commercial Bank, Chester, S. C.

Bank of Darlington, Darlington, S. C.

Commercial & Savings Bank, Florence, S. C.

Bank of Georgetown, Georgetown, S. C.

Peoples Bank, Georgetown, S. C.

Nicholson Bank & Trust Co., Union, S. C.

Their resources amount to about $62,000,000, capital and surplus $7,580,000, and their stock subscriptions are for 4,551 shares (50 per cent paid-$227,550).

RELATIONS WITH NATIONAL BANK MEMBERS.

Relations with national bank members have been more extended than ever before and have emphasized the importance of mutual cooperation. The demand for national financing has been met only by the cooperation of all interests, particularly the banks, coordinated through and in turn supported by the Federal Reserve Bank.

Commercial and agricultural demands have been unusually large, particularly for carrying cotton, which has moved slowly and is still being largely held. Member banks have expressed their realization of the need for the Federal Reserve system and appreciation of its assistance in meeting this situation, which would otherwise have proved embarrassing. Figures on discounts are shown in Schedules 4 and 5, heretofore referred to.

It is hoped during the coming year to promote even closer relations, smoother operation of current business, and the rendering of increas ingly valuable service to our members. The service charge of 11 cents per item on items outside of Richmond was discontinued after June 15, 1918, and on October 24 we assumed all charges on the shipment between the Federal Reserve Bank and member banks of Federal Reserve notes, Federal Reserve bank notes, and lawful money. We were already bearing the expense of gold shipped to us and Federal Reserve notes given in exchange for gold. Many expressions of appreciation were received from our member banks.

FIDUCIARY POWERS.

Applications for the exercise of fiduciary powers have been increasing and those granted are as follows:

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