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DISTRICT NO. 6—ATLANTA.

M. B. WELLBORN, Chairman and Federal Reserve Agent.

INTRODUCTION.

The year 1918 has been the most momentous in the financial history of this district. Sudden demands occasioned by war conditions brought about rapid changes in financial and commercial activities. The financing of Government requirements and the war-savings campaigns brought the Federal Reserve Bank of Atlanta to the front in such a way that even that portion of the general public not actively engaged in business now fully realizes the worth of the Federal Reserve system.

FINANCIAL RESULTS OF OPERATION.

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Schedule 1 shows comparative statements of the earnings and expenses for 1917 and 1918. The gross earnings in 1918 increased 323 per cent over the earnings for 1917, while the expenses of operation increased 159 per cent.

This includes the expenses of the Birmingham and Jacksonville branches since their establishment on August 1, 1918. The total expenses, which, in addition to the cost of operation, include the cost of Federal Reserve notes, furniture and equipment, and depreciation of banking premises, increased 152 per cent, while the net earnings for 1918 were 474 per cent greater than in 1917.

Dividends for 1918 were $182,472.68, as compared with $145,465.61 for 1917. The annual rate of net earnings on the paid-in capital stock was 11.08 per cent and 54.07 per cent for 1917 and 1918, respectively.

COMPARATIVE BALANCE SHEETS FOR DECEMBER 31, 1917–18. Comparative statements of the condition of the Federal Reserve Bank of Atlanta, as of December 31, 1917-18, are shown in Schedule 2. The total resources have increased from $121,661,062.53 to $207,270,170.97. The earning assets have increased from $25,697,104.43 to $103,182,946.54, or an increase of 302 per cent.

Member banks' reserve deposits showed an increase of approximately $10,000,000 on December 31, 1918, as compared with December 31, 1917. The Federal Reserve note circulation has increased for the 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.

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. The 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 the entry of the United States into the war, even minor repairs and additions 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 64 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

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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.

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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

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