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F IR S T B A N K OF Sc TRUST SOUTH C O M P A N Y BEND S o u /A & tn /, /n c/l(m a TRUST DEPARTMENT R. FLOYD SEARER Vk« PTMidant and Trust Officer MURRAY C TRESCOTT Vic# Pr*sidwit November 26, 1947 * LEO R. BOYLE Assistant Trust Offk«r LAURENCE J. DENNERT Assistant Trust Officer Mr. Marriner S. Eccles, Chairman Federal Reserve Board Washington 25, D. C. Dear Mr. Eccles: A letter the same as that attached has been directed to Mr. C. S. Young, President, Federal Reserve Bank of Chicago, and we have taken the liberty to address you in this matter as we believe our case may be somewhat typical of commercial banks throughout the country. It is also possible that the thinking as well as the fears as outlined in the attached inquiry may be typical of that of similar bank managements today. I might add that in recent weeks we have been on the verge of selling some medium and longer term bonds which we purchased some time ago for income. Your candid opinion would be very much appreciated. Very truly yours, Aurray UV Trescott Vice President MCT:njs ' December 4, 1947- Mr. Murray C. Trescott, Vice President, First Bank & Trust Company of South Bend, South Bend, Indiana. Dear Mr. Trescott: I have your letters of November 26 with regard to the investment policies of your institution. You will appreciate, I am sure, that I could not undertake to offer advice as to the risk position of a bank, for apart from the impossibility of doing so in one case without being obligated to do so in others, it would re quire more time for analysis than I could,give to the matter and would involve an obligation on my part that I feel no one in my position should assume. As to my present thinking and convictions with respect to long-term Uovemment bonds, I would suggest that you note the marked portion of the enclosed copy of the statement I presented before the Joint Committee on the Economic Report on November 25. Sincerely yours, M. S. Eccles, Chairman. Enclosure ET:b F I R S T B A N K OF trust m p a r t m c n t & TRUST SOUTH C O M PA N Y BEND SouiA J ten t/, Jne/tana November 26, 191*7 MURRAY C TRESCOTT Vic* President LEO R. BOYLE Assistant Trust Officer LAURENCE J. DENNERT Assistant Trust Officer Mr. Marriner S. Eccles, Chairman Federal Reserve Board Washington 25, D. C. Dear Mr. Eccles: There is attached schedule of our U. S. Treasury holdings as of October 31, 19U7. It -will be noted our maturity.schedule is broken down into a l-to-3-year group, a lj.-through-10-year group and an over-10-year group. This bank has followed this formula for a number of years and, as shown at the bottom of the page, the formula calls for bP% of the bond account maturing under 3 years; 30$ U through 10 years; and 30% over 10 years. It will be further noted that the present actual break down is 57% under 3 years; 28% U through 10 years; and V~>% over 10 years. We have purposely followed a more conservative maturity programing since the end of the was for two reasons: (1 ) to take care of our loan demand which has grown substantially and (2) to be purposely heavy in short maturities during this period when it is logical to expect some transition in money market rates. There has been a rather rapid adjustment in U. S. Government Bond prices, especially in the medium and longer term maturities in recent weeks, by virtue of which the question has been raised with our management as to the advisability of maintaining as many medium and longer term bonds as we presently hold. With respect to the longer tern bonds, it was decided in 19U± to invest approximately $0% of the savings of the bank in longer term Governments to hold for income. Our savings deposits are now in the neighborhood of $11,700,000* Thus, you will see we have only 30$ of our savings deposits invested in long-term bonds. In June of 19^7 when the cash needs of the bank increased as a result of additional loan demand, we did bring about some adjustment in the medium and long-term group by the sale of $500,000 U. S. Treasury 2§»s of 12-15-72/67 and $1,000,000 U. S. Treasury 2's of 9-15-53/51. We mention this to point out our medium and long-term holdings have been reduced some in'the last six months. During 19^6, income from the bank's investment account constituted 1*6.25$ of the bank's total gross income, and for the first ten months of 19li7, investment income has amounted to 33.30$ of total gross income. This decline in the contribution of investment income to the total income is the result of a decline in total holdings of U. S. Treasury obligations and a substantial increase in loans. Mr. Marriner S. Eccles -2- November 26, 19l;7 It has been our feeling our maturity arrangement is well on the conservative side and that it is so constituted as to adequately meet our foreseeable cash needs, as well as to continue to be an important source of bank revenue. It also has been our belief that the risk position insofar as medium and longer term Treasury Bonds are concerned is not too great a risk to assume. However, the decline in medium and longer term Governments in the last few weeks has again raised questions in the minds of some as to whether or not longer term Governments will break through par, in which case they might go further. With the foregoing background to our situation, it would be of considerable interest and help to us to have your thinking as to (1) whether of not you believe we are in too large a risk position for our bank, (2) if so, what suggestions would you make for its correction without too great a loss of investment income, and (3) what is your present thinking (and convictions) as to whether or not the long-term Treas uries will be allowed to drop below par. Our assumption^ is that should long-term Governments for any reason be allowed to. break thrpupfo p^~~Ttwuidnr\'] v be a mat%er^crf^ttbEl“ ’ ^Bftirerifl!^med5.um-term maturities might also follow suit, thereby bringing about even greater depreciation. There also is enclosed copy of our June 30, 19U7 statement. Total deposits are now about $50,000,000 and total loans in the neighborhood of $18,900,000. Very truly yours, MCTsgls Enclosures U .S . GOVERNMENT BOND INVESTMENT ACCOUNT OCTOBER 31# 19U7 Gross Yield @ Cost ■ “".H1I 2.90 .8U 2.90 .80 1.27 .875 1.U6 1.00 2.90 2.00 1*60 1.60 2.90 1.8U 1.31 2.00 Market Amount Cost I S S U E 1-3 Yrsi 10-31-U7 OT. “ ...5EH Treas. T / S 'T ^ k ? ldCOT 98. 10M Svgs. Ser. C 12-1-U7 75. 100, 100.02 1.500M Treas. 7/8 1-1-U8 98. 1CW Svgs. Ser, C 1-1-U8 75. 100. i ,5o o m Treas, 7/8 2-1-U8 100.03 100.16 2,00CM " If 6-15-U8 100 .la 100. 100. 62M « 7/8 7-1-U8 100.16 " l£ 9-15-U8 100,u 2,00011 100. 100. 2,75CM " 1 10-1-U8 10M Svgs. Ser, D, 1-1-49 93. 75. 101.12 100. UOOM Treas, 2 9-15-51/U9 10U.12 « 3-1/8 12-15-52A9* 110,27 100M 106 . l it 200M 103. « 2£ 12-15-53A9* 10M Svgs. Ser. D 1-1-50 89. 75. 101.16 i ,5o o m Treas. 2 3-15-52/50 100.29 10U. l 30QM « 2\ 9-15-52/50# 107.17 101.22 100. Al.OOOM •• 2 9-15-52/50 ^HJP352H Par Value Costing $1U,926,397.91 yielding approx . 1.28* U-10 Yrs 300K 1,300M 1,200M 1,00011 300M 300M 56m 300M 30QM 200M 10M "T jm l| 12-15-50 101.u 2f 6-15-5U/51* 108.19 100, 2 9-15-53/51 103.31 2 6-15-51/52 100. 2 12-15-W52 102,11 2 6-15-55/53* " 2i 6-15-56/5U* 10U.15 100, " Dep, 2 9-15-55 " 2j 3-15-58/56 102.7 " 2| 9-15-59/56* 109.25 100. " 2f 9-15-59/56 100. " Dep. 2 7-1-57 Par Value Costing $6,912,625.00 yielding Treas. » « » " s • approx. 113.2U 102.16 105.8 CM JPS 1.81 2.50 2.U7 CM Over 10 Yrs. 112,26 “I / O T T !rreas. 2f 12-15-65/60* 100. 5o o m » 2} 3-15-71/66 2,000M " 2§ 9-15-72/67 100.15 3,500M Par Value costing $3,637,968,75 yielding 100.16 105.20 101.30 102.3 102.8 10U.22 106.2U 100. 106.U 111.16 IOI1.I6 100. approx. 1-69* 1.25 1.72 2.00 1.3U 2.00 1.77 1.85 2.00 2.30 1.99 2.25 2.00 Par Value costing $2U»U76»$91.66 yielding approx., 1.53* on the whole account. * P a r t A a lly t a x exem pt i s s u e s . ■too* under 3 years pO* U thru 10 years 30* over 10 years Approx. Annual Income xa w . Uoo, 12,600, Uoo. 12,000. 25,1|00. 5U2.50 29,200. 27,500. Uoo. 8,000. 1 ,699. 3,186. 200. 27,701*. U,132. 20,000. 177,563.50 18,750. 5,U09. 26,000. 16,100. 2d,000. 5,U2U. 5,711. 1,120. 7,ooU. 6,292. U,5oo. 200. 116,510. 19.3U7.20 12,500. U9,575. wcrcrar 3?5,U95.70 M a tu r ity s c h e d u le computed t o o p t io n d a t e . Program “575U0B 7,235M 7,235M 2U,118M Present Account 6,766m 3.500M 2U,ll8M Per Cent 57T 28* 15* 100* Difference U,20Um (Over) U69M (Under) 3,735M (Under) -0-
@FedFRASER