Chart I. BANKS GROUPED BY RATIO OF TOTAL CAPITAL ACCOUNTS TO TOTAL ASSETS, INSURED COMMERCIAL BANKS, DECEMBER 31, 1951

INCOME OF INSURED COMMERCIAL BANKS

Total income of insured commercial banks reached a record high of $4,564 million in 1951. Net income before income taxes also exceeded that of any preceding year, but increased Federal and State taxes left net income after taxes slightly below the 1950 high. Chart J illustrates the operating experienee of the insured commercial banks in 1951.

Total income is computed by adding to total current operating earnings income of a nonrecurring character, such as transfers from reserve accounts and profits from the sale of securities. The major components of total income of insured commercial banks, and the disposition of that income, are shown in Chart K. Almost three-fourths of the income came from loans and United States Government obligations. The largest expense item was wages and salaries.

Chart J. OPERATING EXPERIENCE OF INSURED COMMERCIAL BANKS, 1950-1951 (In millions of dollars)

Chart K. SOURCES AND DISPOSITION OF TOTAL INCOME
INSURED COMMERCIAL BANKS, 1951

Table 25. PERCENTAGE DISTRIBUTION OF SOURCES AND DISPOSITION OF TOTAL INCOME, INSURED COMMERCIAL BANKS, 1945-1951

After deducting all expenses, charge-offs and taxes, about a fifth of total income remained as net profits. Percentage distributions of the sources and disposition of total income for each year from 1945 to 1951 are shown in Table 25.

Total current operating earnings. Total current operating earnings in 1951 were $4,395 million, an increase of $464 million over 1950. Almost 90 percent of this increase represented earnings on loans, which rose to $2,425 million. Interest on United States Government obligations declined slightly to $984 million. Together, these two items accounted for almost four-fifths of total current operating earnings. The remaining one-fifth was made up of interest on other securities, service charges on depositors' accounts, and other current operating earnings, all of which were higher in 1951 than during the previous year. A summary of earnings, expenses, and profit data of insured commercial banks for each year from 1945 to 1951 is given in Table 26.

Table 26. EARNINGS, EXPENSES, AND PROFITS, INSURED COMMERCIAL BANKS,

1 Figures for 1934-1941 are estimated and differ from reported figures by the amount of estimated income taxes excluded from total current operating expenses. See note 3.

Book value of assets charged off, and transfers to valuation reserves, minus recoveries on assets previously charged off, transfers from valuation reserves, and profits on assets sold.

Includes surtax and excess profits tax.

• Recoveries and profits on assets sold in excess of charge-offs.

Detailed data: See Table 111, pp. 162-63.

In recent years there has been a marked change in the relative importance of the two largest sources of current operating earnings. In 1945 interest on United States Government obligations accounted for 46 percent of total current operating earnings, while loan income contributed only 29 percent. However, in each of the succeeding years the relative importance of interest on United States Government obligations declined while that of loan income increased. In 1951 only 22 percent of total current operating earnings was attributable to United States Government obligations, whereas 55 percent was composed of loan income. Chart L shows changes in the relative importance of the two items since 1945.

The larger loan income reflects both a greater volume of loans and a higher average rate of return. Between 1945 and 1951 loans held by insured commercial banks increased by 132 percent and the average rate of income on loans went from 3.09 percent to 4.45 percent. In 1951 the major part of the increase in loan income was due to the increase in the volume of loans. The average rate of income on loans advanced slightly. The average rates of income on loans and other operating ratios for the years 1945 to 1951 are given in Table 27.

Chart L. PROPORTIONS OF TOTAL CURRENT OPERATING EARNINGS DERIVED FROM LOANS, U S. GOVERNMENT OBLIGATIONS, AND OTHER SOURCES, INSURED

The average rate of income on loans varied directly with size of bank. In 1951 banks with deposits of $500,000 or less received a return of 7.19 percent on their loans; the average rate of return declined with increased size of bank, amounting to 3.56 percent in banks with deposits of more than $100 million.

The reduced income from United States Government obligations was due to a reduction in the amount held. The rate of interest received on these obligations was slightly higher in 1951, averaging 1.65 percent compared with 1.59 percent in 1950.