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m ^ T ed eta l ]Q.e$etv><s Sank < ie A m a e t(£ m A with Stancke5 In fSG.Ltitn.ote zndL (2hatLotte &) s O u r forty-fifth y e a r of o p e r a t io n h a s d r a w n to a close. T h r o u g h o u t the f o l l o w i n g p a g e s w e h a v e tak en a brief lo ok at s o m e of our activities in 1959 w hich w e feel will be of the most s ig n ific a n c e a n d interest to you. This y e a r ou r report fe a tu re s e m e r g e n c y p l a n n in g, a subject w h ic h is of g r e a t im p o rta n c e to the A m e r i c a n b a n k i n g system a n d to our country. We present this i n f o r m a tio n for y o u r c o nsidera tio n in the h o p e that it will be o f a s sist a n c e to y o u in set ting u p y o u r o w n e m e r g e n c y p l a n n i n g p r o g r a m . A l s o inc lu ded a re articles on b a n k i n g a n d credit policy, the Fifth District ec o n o m y, a n d ou r o p e r a tions in 1959, a s w ell a s c o m p a r a t i v e fin a n c ia l statements. O n b e h a lf of ou r directors a n d s ta ff w e take p le a su re in p re se n tin g this report to you. A lon g w ith it g o e s ou r a p p r e c ia t i o n for the k in d n e s s a n d u n d e r s t a n d i n g y o u h a v e s h o w n us th r o u g h o u t the years. V e r y truly yours, President C h airm a n of the Board S-metGencu Planning j2tejaatedne54: the I believe that man will not merely endure: he will prevail. not because he alone among creatures has an inexhaustible voice, but because he has a soul, a spirit capable of compassion and sacrifice and endurance * ptlCQ °D futisira/ He is immortal, William Faulkner Prologue In the cool quiet dawn o f July 16, 1945, a group o f men with grim faces and great expectations stood on the arid desert o f New M exico and w atched with intent eyes as a thirteen pound bomb blasted mankind into the atomic age. It happened in a fragm ent o f a second. Throughout time man had taken thousands o f years to bridge the ages, and yet on July 16, 1945, the very foundation o f nature itself, the atom, was ripped apart in the length o f time it takes a baby to awake in Baltimore, or a milkman to set down his bottles in St. Louis, or a streetcar conductor to check the time in San Francisco. The new age was less than one month old when a B-29 banked slightly and started its bom b run over Hiroshima— dropping w ar fa re ’s first atomic bom b, which killed 70,000 people and injured at least that many more. Three days later a similar bom b fell on Nagasaki, destroying 36,000 people and injuring 40,000 more. By now it was painfully clear to the w orld that the transition to the atomic age was com plete, bringing with it a horror that even today man finds difficult to com prehend— although he has pro duced a weapon that is hundreds o f times more pow erfu l than the first. *F a u lk n e r , W illia m , S p e e c h o f A c c e p ta n c e , N o b e l P r iz e f o r L ite r a tu r e , R a n d o m H o u s e , I n c ., N e w Y o rk , 1953. A Burden of Trust Man has advanced 15 years into the atomic era, and being trap ped in this cubicle of time he has learned one truth above all else, that his survival will not be by accident, that to insure the best things o f his life he must prepare fo r the worst. Certainly we Am ericans have learned this to the extent that we are willing to devote our time, our energy and our prayers to the pursuit of peace, while at the same time we are spending approxim ately 46 billion dollars a year fo r military preparedness. In the event of an enemy attack we look to our military forces fo r protection and counter-attack, we look to the Office o f Civil and Defense M obiliza tion for leadership in sustaining the lives of those who survive, and we look to various groups in our society to pull order out of chaos. As bankers, we comprise one o f these groups, and we are held responsible for the perpetuation of our m onetary system, without which even the remnants of our modern civilization cannot survive. This is the greatest burden o f trust ever placed on the Am erican banking system. Historical Precedent It is not the first time a people has placed heavy responsibility on its bankers fo r the continuance o f their econom ic w ay o f life. As recently as W orld W ar II when England’s m ajor cities were being bom bed almost daily, when it was not certain from one day to the next which buildings w ould remain standing, the banks o f England never closed. And the reason they did not close was that they had prepared in advance fo r the worst blitzkreig H itler’s legions could devise. V ery early in the war British leaders realized that the most im portant key to maintaining high m orale was to assure that payrolls w ould be met and on time. They found that as long as the p eop le’s basic wants were satisfied and their confidence in the econom y assured, they w ould turn out vital w ar production even under the most harassing danger. circumstances of inconvenience and personal British bankers based their survival plans on the dual concept o f decentralization and alternate location. To insure liquidity of the banking system, reserve stocks o f currency were m oved to numerous “ cash centers” about the country. Individual banking offices maintained high levels o f vault currency, principally in small denominations. Currency was kept in circulation until absolutely unfit fo r further use; and in order to spare transportation facilities, the banks agreed not to supply coin. The London Bankers Clear ing House Association, which is the check clearing agency fo r the British Isles, m oved to an alternate location in a rural area at the beginning of the war. Every banking office was assigned another banking office which served as custodian fo r duplicated essential records. This method o f records protection significantly assured To tal d e s tru c tio n _______________ In itia l r a d ia tio n —50% m o r ta lity Lim it o f n u cle a r ra d ia tio n Severe fla s h b u rn s —— Lim it o f p a rtia l b la s t d a m a g e M o d e ra te skin b u rn s the continuity of individual offices whose original records were destroyed. A preconceived plan, immediately available, enabled the British banking system to maintain operating capability. Their experi ence provides a valuable precedent fo r us. The National Plan In a message to the U. S. Senate in August, 1959, President Eisenhower said, “ It would be unwise to neglect our civil defense mission because our total defense is incom plete and meaningless without reliable and responsible home defense. Survival cannot be guaranteed merely with a capacity fo r reprisal. Equally im portant is our ability to recover. This means staying pow er and endurance beyond that ever before required o f this Nation or any nation.” Congress has assigned national responsibility fo r non-military preparedness to the Office o f Civil and Defense M obilization, which is an arm of the Executive Office of the President. Many of the measures that England tested under fire have been included by OCDM in the National Plan for Civil Defense and Defense Mobi lization. As a part o f the broad plans, drafts of em ergency legislation and regulations, contributing to the continuity o f essential banking functions in undam aged areas, have been approved tentatively by the agencies responsible. The Board o f G overnors o f the Federal Reserve System has drawn up em ergency plans, which provide for the relocation o f the Board and key personnel at an alternate site in case o f attack, and a succession plan for surviving members of the Board. Provision is made fo r an “ Interim” Board having tem porary authority pending availability o f a mem ber o f the Board, or appointm ent and qualification o f a new member. In addition to specific plans fo r its own continuity, the B oard’s em ergency plan provides fo r delegation o f certain duties to the Reserve banks. Reserve Bank Planning Several years ago this bank set up an In-bank Civil Defense Program fo r protection of personnel and w ork in progress. P er sonnel have been trained as to w hat to do in case o f em ergency, and practice alerts are held about every six months. Em ergency stores o f fo o d and m edical supplies are maintained. W ritten instructions have been distributed to all members of our staff. Provision has been made fo r m anagem ent succession, operation at a relocation site (o r an alternate site) and a records center has been established. Duplicates o f all essential records are main tained at the records center; they enable com plete reconstruction o f all asset and liability accounts, including contingent items such as securities in custody. Em ergency operation manuals are filed at all offices, including the records center. F or continuation o f the check collection function in an em er gency the Fifth District has been divided into 46 localized g e o graphical areas. The com m ercial banks in each area will com prise an Em ergency Clearing Group. This bank will be represented in each group by an agent which may be a bank, clearing house association, or other specially organized committee. Broadly, the Em ergency Clearing Group plan contem plates the check agent acting as a group clearing house, which will effect settlements fo r exchanges am ong participating banks in its group. The agent will accum ulate net debits and credits to be recorded on the books o f the relocation office o f this bank. F or items payable outside its \ CONELRAD 640 1240 group the check agent will operate in a manner similar to our transit department. This plan will be outlined in detail in an em ergency circular soon to be issued to all banks in the District. For the em ergency distribution o f currency this bank will desig nate strategically located member banks throughout the District as cash agents. In broad terms, the cash agent will effect an equitable distribution o f currency available and forw ard entries arising from distribution and acquisition to our relocation office. Details o f the currency distribution plan will be explained in a forthcom ing em ergency circular. Commercial Bank Planning During a period o f national em ergency the econom ic survival o f this country would depend to a great extent on a functioning com m ercial banking system. The Executive Office o f the President through the Office of Civil and Defense M obilization recognized this fa ct on February 15, 1956, when it issued Defense M obilization O rder 1-20, which reads in part: The Federal Reserve Board (through the Reserve banks) in cooperation with the Department of the Treasury, the Federal Deposit Insurance Corporation, and others, “ will develop national security preparedness program s relating to the operation of the banking system .” Tw o committees o f com m ercial bankers were form ed under the authority o f this order. The A dvisory Committee on Commer cial Bank Preparedness and the Banking Committee on Emergency Operations brought together some o f the leading bankers o f the country to study problem s of em ergency preparedness in the com mercial banking system. From the beginning the com mittees recognized that actual form ulation o f em ergency plans w ould have to be undertaken by the management o f each bank. A ccordingly, they began develop ing manuals which could serve as broad, general guides fo r all banks, follow in g the reasoning that measures which would be adequate fo r one bank may not necessarily prove suitable fo r another. Five manuals dealing with pre-attack planning have been issued to com m ercial banks in booklet form . Additional copies are available at fifty cents each from either o f the above com m it tees at 200 Madison Avenue, New Y ork 16, New Y ork. A bound reprint o f the five booklets may be obtained from state and local civil defense authorities or direct from the Industry Office, Office o f Civil and Defense M obilization, Battle Creek, Michigan. The first booklet deals with the organization and administration o f a pre paredness program . The second one tells what should be done fo r protection o f bank personnel, and the third deals with con tinuity o f managem ent and alternate headquarters. The last two published explain the precautions that should be taken fo r protec tion o f physical properties and records. The committees are now working on manuals concerning post-attack measures, including collection o f cash items, currency operations, credit and customer participation. These plans are just words, o f course, and are worthless unless used as guides to action by commercial bankers. A review o f recent examinations o f 453 m ember banks in the Fifth District indicated that only 18 banks, or 4 per cent, had taken any steps tow ard survival in case o f a national em ergency. This is slightly below the national average, where the latest study shows that about 5 i/2 Per cent o f the com m ercial banks have taken at least some action. W e have not taken the lead in our communities. W e have not, as yet, carried out our responsibilities to the nation, our customers, and stockholders. Should we be subjected to nuclear attack, most authorities agree we w ould be capable o f retaliating with at least an equally devastating attack. But to continue with a successful war effort we w ould have to recover from the initial blow . econom ic recovery is essential to preserve order. Prom pt As custodians o f the m onetary and credit structure o f our country we have a rather large decision to make. paredness” ? Shall it be “ preparedness” or “ unpre The price o f the latter could be total destruction. On the other hand, “ preparedness” is not solely a dollars-and-cents p rop osition ; it has no specific price tag, but it is the price o f survival. An End, A Beginning Here in the early grayness o f the atomic age it is hard to tell if man stands at the twilight o f an old civilization or the beginning o f a new one. Future generations may look back on us with the same amused tolerance with which we stare at the early scratching on earthen walls. They may laugh at our feeble efforts at survival as we laugh at the caveman who ran from a spark o f fire. these things do not matter. But W hat really matters is that there be future generations, and that they can say Twentieth Century Man fa ced an uncertain future with the same unyielding courage and dignity that has made him indomitable from the dawn o f history to the Atom ic Age. credit policy and H a n k ina i . . with a view to fostering conditions in the money market conducive to sustainable econom ic grow th and stability.” This quotation is from the P olicy Directive o f the Federal Open Market Committee under which open market purchases and sales o f Government securities were being conducted as 1958 becam e history and 1959 reality. As recovery from recession wT gradu as ally replaced by broadly based econom ic expansion, emphasis was placed on the “ sustainable” aspects o f grow th. W hat does Federal Reserve’s emphasis on sustainable econom ic grow th have to do with banking developm ents in the Fifth District in 1959? The Basis for Economic Growth The rate of econom ic grow th stems largely from inventiveness, improvements in technology, or increased capacity to produce through additions to plant and equipment already in use. The m aterialization o f these means fo r grow th, however, depends upon a number o f econom ic factors including (1 ) the rate at which saving is made available fo r capital form ation, (2 ) the prudent utilization o f the pow er to create new money to supplem ent sources o f funds fo r investment in plant and equipment, and (3 ) the main tenance o f a favorable long-run outlook fo r the businessman. The ability o f an econom y to show real grow th rests ultimately upon the extent to which its resources are applied tow ard this end. Saving represents refraining from consumption, and thereby per mits the diversion o f resources from the production o f consumer goods to the production o f producer goods. Thus, in general, an increase in saving enables investment expenditures to be made, increasing the capacity o f the econom y to produce new or im proved products or a larger quantity o f existing products. In addition to the flow o f funds from saving into capital form a tion, there is generally at the outer margin of change in the econom y some amount o f expenditures based on the creation o f new money. Monetary policy is more immediately directed tow ard this margin o f change, and through its influence here such policy can contribute to stability in the value o f the dollar and to sus tainable econom ic growth. W hen there are unused resources in the econom y, the creation o f new purchasing pow er by the banking system may supplement funds available fo r investment and contribute to real economic growth by bringing about a fuller em ploym ent of resources. At other times, however, the creation of new purchasing pow er by the banking system cannot result in real econom ic grow th. When our resources are already close to full utilization, additional spending made possible through new money creation can only generate up ward price pressures. W hat may appear momentarily to be growth may turn out to be nothing more than inflation. The first half of 1959 threatened the em ergence of such a time as the econom y shifted out o f recovery from recession and into rapid expansion. Accordingly, Federal Reserve policy emphasized the sustainability of the grow th getting under way and attempted to contribute tow ard a credit environment conducive to increased saving and one favorable to the prudent investment o f funds by businessmen to make available to the public the fruits o f the nation’s inventive ness and its technological progress over the long-run. The Credit Environment in 1959 As part and p a red o f the broad econom ic expansion sweeping the nation in the first half o f 1959, borrow ers’ demands fo r funds were very strong. Despite the 116-day steel strike which straddled the third and fourth quarters o f the year, demands fo r funds by many classes o f borrow ers continued at very high levels at that time, and those demands which were affected by the strike re bounded tow ard the end o f the year. Rising demands, when not accom panied by an adequate supply of the com m odities involved, bring upward pressures on prices. And rising demand put the price o f money— interest rates— in an up w ard trend during 1959. The interest yield on 91-day Treasury bills, the best-known and most w idely used o f all very short-term m arket credit instruments, began the year at around 2 % % and closed the year at over 4 V2 % • As indicative o f changes in rates on longer term borrow ing, the average yield on long-term U. S. Government bonds was around 3 % % at the beginning o f 1959 and by the close o f the year had advanced to over 4%%. The continuing strong demand fo r credit during the year was accom panied by Federal Reserve actions designed to limit bank credit expansion in the interest o f encouraging a continuation o f econom ic grow th on a sustainable basis. Federal Reserve pur chases o f Government securities in the open market, on balance, supplied only a relatively small amount o f reserves to the banking system during the year. As m arket rates tended upward, the discount rate at the Federal Reserve Banks— the interest rate that m em ber banks pay when they borrow from the F ed— was increased in three steps during the year from 2i/2 % to 4 % , the increases at the Richm ond Bank being effective M arch 13, June 12, and Septem ber 11. District Banks Felt the Credit Tightness Early in the year the demand fo r loans at District mem ber banks began mounting, and the banks were fa ced with a grow ing scarcity o f free reserve funds to meet this increasing loan demand. In the absence o f the creation o f additional reserves by Federal Reserve and because o f the necessitous desire to meet all legitimate requests fo r loans from their customers, District banks sought other sources o f funds. During the six months from the end o f January through the end o f July, the period o f strongest loan demand, District mem ber banks reduced their securities portfolios by $275 million as one means o f obtaining funds to satisfy loan customers. This approach to raising funds becam e more and more costly as the months progressed and bond prices declined with the gradual tightening in general credit conditions. The twin pressures o f increasing loan demand and declining bond prices led many District mem ber banks to borrow funds from their Federal Reserve Bank. Recourse to this source o f funds rose sharply in the first half of the year, reaching an average daily amount outstanding of $86 million in the first half o f June, the highest level of such borrow ings fo r many years. The larger re serve city banks borrow ed by fa r the larger dollar amount o f funds from the Federal Reserve Bank o f Richm ond during this period, but many banks outside the fou r reserve cities (Baltim ore, W ashing ton, Richm ond, and Charlotte) were also heavy borrow ers. A larger number of banks, as a m atter o f fact, borrow ed from the Federal Reserve Bank o f Richm ond in the first half o f 1959 than in the com parable period in any other post W orld W a r II year. Over-all loan dem and facin g District m em ber banks held rela tively stable near the high level reached in July as the steel strike spread its influences throughout the econom y. Repayments on outstanding loans were sufficient to meet most o f the loan demands during this period so that the need to liquidate securities was not as pressing as earlier in the year and borrow ing from the Federal Reserve Bank was reduced. H ow ever, with the resumption of steel production under court injunction in early Novem ber, provid ing a pre-Christmas boost to the econom y, District banks again fa ced the problem o f raising funds to support further expansion in their loans. W h o W e re the B o rro w e rs? Despite the difficulties in doing so, District member banks did increase their loans in 1959 and by a substantial amount. Total loans outstanding rose by over $400 million during 1959 as com pared with less than $200 million in both 1958 and 1957. Commercial and industrial firms, contrary to w hat might nor mally be expected, did not provide the m ajor additions to District mem ber bank loans in 1959. A lthough borrow ing by business firms picked up seasonally in the second quarter, their bank loans then remained at this high level with only m inor fluctuations until tow ard the end o f the year. The pre-Christmas pickup in business borrow ing was about as intense as usual, but fo r the year as a whole the increase in outstanding com m ercial and industrial loans at District member banks was only a little greater than in the tw o preceding recession-straddled years. The unusually high utilization o f borrow ed m oney by individuals fo r personal expenditures throughout the nation in 1959 was re flected in a high demand fo r such funds at District m em ber banks. Loans fo r the purchase o f automobiles accounted fo r more than a third o f the total increase in consumer loans at District banks. Consumers also borrow ed a substantial am ount from the banks on instalment and single payment notes fo r unspecified purposes which, in general, cover such things as consolidation o f bills, edu cational and m edical expenses, funds fo r household operation, and the like. Loans fo r home purchase also added to the dem and pressure on the banks. District member banks increased their m ortgage loan portfolios considerably over the year, mostly with “ conventional” loans, meaning loans not guaranteed or insured by the Federal Government. They increased their holdings o f F H A loans by a small amount but, on balance, reduced their holdings o f V A loans. D e p o sit M o n e y Reacted to Restraint Credit restraint is em ployed during a period o f rapid expansion in part to reduce the availability of new ly created m oney and thus to m oderate additions to the total amount o f spending taking place. The largest portion o f our “ immediately available fo r spending” money supply is made up of demand deposits o f com m ercial banks. As indicated in the accom panying chart, dem and deposits at Fifth District m em ber banks, after a greater than seasonal decline in the first three months o f the year, were increased only m oderately in ensuing months and failed to approach their previous peak until the end o f the year. District banks felt the pressure o f tightening credit in 1959 as they sought to meet a strong loan dem and; and the adjustments they found it necessary to make in meeting this demand restrained the expansion o f deposit m oney. “ The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its opera tion . . .” This was Adam Smith’s summary o f the origins o f econom ic growth. It first appeared in print in 1776 in his famous book, The Wealth of Nations. lect. Smith himself was a man of virtue and intel His theories clearly assume that a grow ing society will possess these qualities in good measure. Division of labor, mass production, and higher standards o f living for the w hole o f society were all part o f Smith’s vision. The modern concept recognizes stable and sustained econom ic grow th as the goal tow ard which an econom ic system should be guided. A necessary adjunct to growth, which provides more of the admittedly good things of life for each citizen, is stability, which provides each citizen with protection against the uncer tainties o f excessive fluctuations in econom ic activity. Relatively stable prices contribute substantially to effective econom ic plan ning, especially to the planning o f savings to finance grow th. Stabil ity o f em ployment at the highest sustainable level is most desirable. The attainment o f these mutually interdependent objectives calls fo r insight and responsible participation on the part o f both public officials and private citizens. Customs and practices which are designed to continue existing econom ic relationships in the status quo invariably obstruct growth. Such practices dam pen the fires o f individual initiative, and block the introduction o f new products, methods, and machinery. Growth requires that resources be ready to move into new opportunities, willing to fa ce the risks and able to reap the benefits of rapid change. The year 1959 has been in considerable degree a year o f stable and sustained econom ic growth. Em ploym ent’s Upw ard Trend It has been a year o f steady progress fo r m ajor Fifth District industries. Nonagricultural em ploym ent adjusted fo r norm al sea sonal variations increased steadily month by month during 1959, except in M aryland and W est Virginia where the steel strike had its sharpest impact. The close o f the year found M aryland non farm em ploym ent with the lost ground regained and running better than 2 % ahead o f 1958. W est Virginia, the only District state which failed to equal its 1958 nonfarm em ploym ent record, was down by less than 1 % . Relative to 1958, late 1959 em ploym ent levels in the District (excluding farm s) were up 3.2 % in Virginia, 2.6% in North Carolina, and 1% in South Carolina. The District total show ed a better than 2 % im provem ent over 1958. The national gain was almost 3 % . Em ploym ent data, even though they seem to reflect the success o f an econom ic system in its most essential function o f providing people with an opportunity to meet their basic needs, are really an uncertain measure o f econom ic progress. O f great significance, although difficult to evaluate, are the ways in which labor is used. Plant m odernization and expansion in the Fifth District indicate that industry is in a period o f physical grow th and technical im provem ent which is gradually increasing output per em ployee. The great textile industry, its recent history m arked by many difficult years, is an excellent symbol o f this trend. Long, clean r o w s o f lo o m s s y m b o li z e the great size a n d p ro d u c tiv ity o f the D i s trict textile industry. A ll o f the District’s grow ing industries are bringing new and renovated facilities into production as 1960 begins. Plans now in process will carry this current expansion well into, if not throughout, 1960. M anufacturing M an-H ours Reveal Gains The strength o f District business revealed by the record o f em ployment gains a sharper outline upon examination o f man-hours statistics. In terms o f total hours worked, District m anufacturing industries by the end o f 1959 had about returned to the levels established at the peak o f activity in 1956. North Carolina had tow ard the close o f the year established records which were above com parable 1958 man-hour figures by 11 % in total manufacturing, 14% in durable goods, and 10% in nondurable goods. South Caro lina’s record in the above three categories respectively showed gains of 7 % , 1 3 % , and 6 % . The increases in the Virginia figures were 7 % , 1 2% , and 5 % . Maryland and W est Virginia showed gains in spite o f the steel strike. The District as a whole improved between 1958 and 1959, according to the man-hour yardstick, by 7% in all m anufacturing, 9% and 6% in durables and nondurables, respectively. A llow ing fo r the adverse influences o f a long steel strike, these percentage gains in a single year are impressive. In all m ajor m anufacturing industries of the District except trans portation equipment and food , activity measured by man-hours showed gains over 1958. Although District coal mining em ploy ment in 1959 was about 7% below the 1958 level, output was slightly higher. Production in 1958 and 1959, however, was about 20% below the previous tw o years during which the output of coal also held about even. M odest gains o f from 2 % to 4 % were regis tered in tobacco, chem icals, and printing. Increases over 1958 in the other m anufacturing sectors o f the District ranged from 7 % to as high as 16 % . The m odern, c h e m ica l added d y n a m ic in d u stry g iv e s d ive rsific atio n and n e w p ro m is e for the future. I n c r e a s e d e ff ic ie n c y a t the m in e s a n d g r o w in g d e m a n d s for p o w e r strength e n th e s a g g i n g o u t l o o k fo r District coal. District steel h a s a d v a n t a g e s o f c o a l b y rail, ore b y w ater, a n d co nvenient fac ilities f o r s h i p p i n g . Textiles Gain Significantly The relative gain fo r the textile industry was not the largest established in 1959 over 1958, but may well be the most significant since the textile industry is the largest m anufacturing em ployer in the Fifth District. Textile man-hours tow ard the close o f 1959 were supporting a level fo r that year about 9 % above 1958. Peak production cam e in July when the seasonally adjusted index o f textile mill products fo r the United States reached 123, its highest level, 4 percentage points above its previous high which was estab lished back in 1950. The present period o f gathering strength is reaching all sectors and levels o f the textile industry except fo r certain relatively small volume specialty items. Textile prosperity began to take definite form during the final quarter o f 1958 and gained steadily to the July peak. Then, while orders continued to pile up into very large backlogs, bottlenecks in carding and spinning, accentuated by a shift in dem and tow ard a greater volum e o f the heavier fabrics which require more yarn per yard o f product, caused output to slow down. The fa ct that the response o f m anufacturers to these specific problem s and to the extraordinary strength o f demand has been gradual and deliberate attests to the industry’s intention to follow policies which will tend to stabilize its grow th. The im pact o f strong demand has caused substantial increases in textile prices. At the same time plentiful supplies o f cotton have contributed to low er prices o f this basic item o f cost. Textile indus try profits, only 0.3% o f sales in early 1958, have risen steadily. With the end o f 1959 drawing near, the textile com panies were still reporting gradually rising profits, heavy order backlogs (som e lines o f production sold into the 1960 fourth q u arter), and low inventories. “ Furniture’s Greatest Year” r u i i m u i c o [ j c i L c m a ^ c ^ aiii iui -lc oc' ' uvci i i/ u o m t c i ni£> u i _Lct^- tory man-hours was 1 6 % , best among m ajor District industries. Furniture production in 1959, based on rather incom plete evidence, appears to have exceeded 1958 by more than one-fourth, an indi cation of increasing efficiency. Production and shipments reached a seasonal high in March, then, follow in g the June-July low, began to set new records in each successive month. Like the textile industry, furniture is expanding under the impetus o f new orders accumulating at the highest rate in recent years. Orders booked, cumulative fo r 1959, were about one-third higher than in 1958, 1957, and 1956, three years o f rather similar, although gradually decreasing activity. The highly successful fall furniture market, centered in the District, set the stage fo r a strong finish fo r what some are calling “ furniture’s greatest year.” Other Industries Improve Other typical District industries im proved their records in 1959. In terms o f productive man-hours, 1959 exceeded 1958 in tobacco manufactures by 4 % , in apparel and paper by 1 0 % , in machinery by 1 1 % , and in lumber and glass by 12 % . Cigarettes cannot be ex pected to show spectacular gains but continue to hold their own as a reliable source o f Fifth District em ploym ent and income. The Federal Department o f Agriculture estimates 1959 cigarette pro duction in the United States at 3 % above the previous record level established in 1958. Fifth District cigarette production represents 81% o f the national total. The c o lo ssa l B u ild in g Pentagon sy m b o liz e s a s t a b le se cto r o f D istrict e m p l o y m e n t in g o v e r n m e n t . The fortunes o f many farm ers declined in 1959, especially when com pared with the very good year they had in 1958. Farmers planted larger acreages o f most crops, which helped to maintain crop income in spite of low er yields and reduced prices fo r cotton and peanuts. Livestock income, how ever, was substantially re duced by low er prices of hogs, broilers, and eggs. Total p rodu c tion expenses again increased, so that net income declined by a greater amount than sales. The Case for Confidence The year 1959 has been one of significant accom plishm ent fo r Fifth District industry. The rising trends which originated in the later months o f 1958 gained strength through the first half o f 1959. Except where the impact o f the steel strike was direct, the upswing in District industries paused only briefly, or continued upw ard at a slow er pace. W hen production was resumed, Baltim ore steel w orkers returned in force to start filling the depleted distributive channels. Miners and transportation w orkers also returned to w ork to dig coal and haul it to the furnaces. In 1959 the national econom y dem onstrated im posing basic strength in w eathering a protracted strike in a key industry. The effects in the District were largely confined to a few industries and to a few geographic areas. The im pact on general econom ic activity was relatively light. Expansion o f Fifth District industries which are sources of relatively stable em ploym ent— tob acco, tex tiles, utilities, forest products, foods, chem icals and governm ent service— justify confidence as 1960 begins. I m a g i n a t i o n in d e s i g n a n d i n g e n u i t y in p r o d u c t i o n keep southern f u r n i t u r e p r o d u c e r s a m o n g th e l e a d ers in t h e ir field . D istrict a g r ic u lt u r e is b oth a s o u rc e o f im p o r t a n t r a w m a t e r ia ls a n d a m a r k e t fo r g o o d s a n d se rv ic e s. Our forty-fifth year o f operation has been a busy one ! Expanding along with the Fifth District’s econom y, the volume o f operations o f this bank and its branches increased in nearly all areas o f activity. W e topped $97 billion in checks cleared in 1959, which was about $6 billion more than the amount cleared in the preceding year. During the year the amount o f currency handled was over $5 billion, surpassing 1958 by about 3 % The amount o f coins received and paid out was also up, nearly $10 million ( 8 % ) over the previous year. Probably the sharpest contrast in our 1959 activities was in the area of transfers o f funds, which amounted to more than $91 billion — topping 1958 by $22 billion. Another item which may be o f interest to our members is that considerably more governm ent securities were issued, exchanged, or redeemed during this year— well over $6 billion as com pared with $5 billion in 1958. Our net earnings before payments to the U. S. Treasury amounted to $45.9 million, an increase of $8.1 million from 1958. Statutory dividends paid to m ember banks amounted to $1.0 million. Pay ments to the U. S. Treasury as interest on Federal Reserve notes totaled $61.7 million. These payments consisted o f all net earn ings after dividends and that portion o f surplus in excess o f sub scribed capital (w hich is tw ice paid-in capital). Section 13b On August 21, 1959, Section 13b of the Federal Reserve Act went out o f existence. A year earlier Congress repealed it by passing the Small Business Investment Act. A significant part o f Section 13b had authorized Reserve banks to make loans direct to business. Changes In Official Staff There were several changes in our official staff during 1959. John G. Deitrick and Raym ond E. Sanders, Jr., were made assistant vice presidents and W elford S. Farm er was named secretary, and assistant counsel. Stuart P. Fishburne, W illiam B. Harrison, III, and Joseph F. Viverette were made assistant cashiers. A t the Charlotte Branch Fred C. Krueger, Jr., was also made assistant cashier. During the year Vice Presidents Robert L. Cherry and C. B. Strathy retired. Mr. Cherry was succeeded as officer in charge o f the Charlotte Branch by Thom as I. Storrs, vice president from the Head Office. Robert R. Fentress, assistant cashier at the Head Office, also will assume new duties at the Charlotte Branch early in 1960. New Member Banks Tw o newly organized banks in the Fifth District join ed the F ed eral Reserve System in 1959. They w ere: the National Bank of Bethesda-Chevy Chase, Bethesda, M aryland, which opened on June 15; and the Potom ac National Bank o f Potom ac, Maryland, which opened fo r business on April 17. New Department The emphasis on nationwide em ergency preparedness by the banking system led to the establishment o f an E m ergency Planning Department at this bank in 1959. Assistant V ice President J. G ordon Dickerson, Jr., is the officer in charge. Changes In Boards of Directors The Board o f Governors reappointed A lon zo G. D ecker, Jr., executive vice president o f The Black & D ecker M anufacturing Company o f Towson, Maryland, to a three-year term as Class C director and renamed him chairman o f the Board and Federal Reserve A gent o f this bank for 1960. Mr. D ecker has served on the Board since 1954. D. W . Colvard, dean o f agriculture o f North Carolina State College, and a director since 1954, was re named deputy chairman o f the Board. In N ovem ber H. H. Cooley, president o f the Round Hill National Bank o f Round Hill, Virginia, was elected Class A director to succeed Robert Gage, president o f the Com mercial Bank o f Chester, South Carolina, and Raymond E. Salvati, president o f the Island Creek Coal Company, Huntington, W est Virginia, was elected Class B director to succeed W m . A. L. Sibley, vice president and treasurer o f M onarch Mills, Union, South Carolina. A t the Charlotte Branch the Board o f Governors appointed J. C. Cowan, Jr., vice chairman o f the board o f Burlington Mills, Inc., Greensboro, North Carolina, to succeed W illiam H. G rier as direc tor. Charles D. Parker, vice chairman o f the board and first executive vice president, First Union National Bank o f North Caro lina, Asheville, North Carolina, was reappointed to the board o f directors. A t the Baltimore Branch the Board o f Governors reappointed G ordon M. Cairns, dean o f agriculture o f the University o f M ary land, to a three-year term as director. Also reappointed fo r a three-year term is James W . McElroy, president o f the First National Bank o f Baltimore, Maryland. John S. Alfriend, chairman o f the board o f the National Bank o f Commerce, N orfolk, was again selected by the directors o f this bank to represent the Fifth District on the Federal Advisory Council. comparative 51atemerit 4 COrlCLlilOn ASSETS: Decem ber 31, 1959 Decem ber 31, 1958 Gold certificate account ______________________ $1,067,069,499.70 $1,033,458,931.24 R edem ption fund fo r Federal Reserve notes . 79,239,995.00 85,802,850.00 1,146,309,494.70 1,119,261,781.24 TOTAL GOLD CERTIFICATE RESERVES F ederal Reserve notes o f other b a n k s _______ 69,408,050.00 57,451,560.00 Other cash _________________________________ 25,493,580.05 22,111,899.70 D iscounts and a d v a n c e s ______________________ 5,300,000.00 2,487,900.00 U. S. G overnm ent securities: Bills ________________________________________ 166,997,000.00 146,487,000.00 C ertificates _________________________________ 673,373,000.00 1,213,948,000.00 N otes _______________________________________ 705,628,000.00 186,655,000.00 B o n d s _______________________________________ 159,180,000.00 161,674,000.00 TO TAL U. S. G O V ER N M E N T SECURITIES 1,705,178,000.00 1,708,764,000.00 TOTAL LO A N S A N D SECURITIES 1,710,478,000.00 1,711,251,900.00 719.69 740.28 502,789,096.60 433,573,331.73 Bank prem ises _______________________________ 6,650,914.13 6,654,466.73 Other assets __________________________________ 16,638,938.98 9,478,946.92 $3,477,768,794.15 $3,359,784,626.60 _______________________________________________________ $2,131,599,915.00 $2,135,757,205.00 M em ber bank— reserve accounts ____________________________________________ Due from foreign b a n k s ______________________ Cash item s in process o f collection TO TAL ASSETS L IA B IL IT IE S : Federal Reserve notes D e p o sits: 789,451,309.56 764,579,827.90 ___________________________________ 56,936,761.42 29,422,293.73 F oreign _______________________________________________________________________ 17,400,000.00 11,985,000.00 Other __________________________________________________________________________ 28,317,225.98 4,634,454.51 TOTAL DEPOSITS _____________________________________________________________________________ 892,105,296.96 810,621,576.14 D eferred availability cash items _________________________ _________ __________ 399,443,648.83 343,292,737.60 Other liabilities _________________________________________________________________ 1,592,432.04 1,130,296.22 3,424,741,292.83 3,290,801,814.96 U. S. T reasu rer— general account T O T A L L IA B IL IT IE S CA PITA L A C C O U N T S: Capital paid i n ____________________________ 17,283,050.00 16,438,600.00 Surplus 34,566,100.00 44,845,979.55 1,178,351.32 7,698,232.09 $3,477,768,794.15 $3,359,784,626.60 $ $ ________________________________ Other capital a c c o u n t s ..... .. ...... T O T A L L IA B IL IT IE S A N D C A P IT A L A C C O U N T S Contingent lia bility on acceptances purchased fo r foreign correspondents 4,115,000.00 3,457,800.00 com parative statem ent eatning5 a n d expanles E A R N IN G S : 1959 Discounts and a d v a n c e s _________________ Interest on U. S. Governm ent securities Other e a r n in g s ___________________________ 1958 1,559,501.81 54,981,403.12 18,329.15 £ 365,806.69 47,475,123.97 14,559.23 56,559,234.08 -------------------------- 47,855,489.89 -------------------------- 9,821,945.58 321,400.00 500,821.04 9,168,681.94 301,300.00 580,121.83 10,644,166.62 10,050,103 .77 45,915,067.46 37,805,386.12 11,746.06 6,500,111.52 265.56 9,794.79 6,512,123.14 11,513.43 Reserves fo r contingencies _____________________________ A ll o t h e r ________________________________________________ 1,385.24 42,636.11 2,080.06 TOTAL DEDUCTIONS ________________________________________ 1,385.24 44,716.17 + 6,510,737.90 -3 3 ,2 0 2 .7 4 52,425,805.36 $37,772,183.38 TOTAL CUR REN T E A R N IN G S EXPEN SES: O perating expenses (in cluding depreciation on bank prem ises) a fter deducting reim bursem ents received fo r certain F iscal A g en cy and other e x p e n s e s ______ Assessm ents fo r expenses o f B oard o f G o v e r n o r s ___________________________ ____ Cost o f Federal Reserve c u r r e n c y ______________________________________________ .___ N ET EXPENSES _ C URREN T N E T E A R N IN G S A D D IT IO N S TO C U R R E N T N E T E A R N IN G S : Profit on sales o f U. S. Governm ent securities (n et) T ran sferred from Reserves fo r contingencies (n et) _ A ll o t h e r ______________________________________________ TOTAL AD D ITION S ______________________________________ 1,71 D E D U C T IO N S F R O M C U R R E N T N E T E A R N IN G S : N et A dditions ( + ) or D eductions ( — ) N E T E A R N IN G S B E F O R E P A Y M E N T S TO U. S. T R E A S U R Y Dividends paid _______________________________________________________________ I Paid U. S. T reasu ry (interest on Federal Reserve notes) ___________________1 T ran sferred to surplus ________________________________________________________ TOTAL $ 5 1,016,949.98 61,688,734.93 -1 0 ,2 7 9 ,8 7 9 .5 5 $ $ 961,325.46 33,129,772.25 3,681,085.67 52,425,805.36 $37,772,183.38 44.845.979.55 10.279.879.55 $41,236,411.12 34,566,100.00 41,164,893.88 SU RPLUS A C C O U N T Balance at close o f previous y e a r _________________________ Paid U. S. T reasu ry (in terest on Federal Reserve notes) D eduction account o f tra n sfer from Section 13b Surplus ... 71,517.24 A ddition account o f profits fo r year B A L A N C E A T CLO SE O F C U R R E N T Y E A R _______ $ 3,681,085.67 34,566,100.00 $44,845,979.55 Balance at close o f previous y e a r ______________________________________________ Issued during the y e a r __________________________________________________________ 16.438.600.00 979,450.00 $15,695,050.00 879.300.00 Cancelled during the y e a r _______________________________________________________ 17.418.050.00 135,000.00 16,574,350.00 135.750.00 17,283,050.00 $16,438,600.00 C A P IT A L STOCK A C C O U N T (R epresen ting am ount paid in, w hich is 50% o f am ount subscribed) B A L A N C E A T CLO SE OF C U R R E N T Y E A R __________________ $ cLizectoti r e A i o n z o G. Decker, Jr. e t a C h airm a n of the Board and Federal Reserve A ge n t D. W . C o l v a r d d Deputy C h airm a n of the Board CLASS A H, H. C o o l e y D e n v e r L. M o r g a n President, The Round Hill N a tio n a l Bank Round Hill, V irgin ia Executive Vice President, The Charleston N a tio n a l Bank Charleston, W est V irgin ia A . Scott O f fu tt President, A n aco stia N a tio n a l Bank of W a sh in g to n W a sh in g to n , D. C. C LASS B L. V i n t o n H e r s h e y President, H a ge rsto w n Shoe C o m p a n y H age rsto w n, M a ry la n d Ro b e rt O. H u f f m a n R a y m o n d E. S a lv a t i President, Drexel Furniture C o m p a n y Drexel, North C a ro lin a President, Islan d Creek C o a l C o m p a n y Huntington, W est V irgin ia C LASS C D. W . C o l v a r d Dean of Agriculture, North C a ro lin a State C o lle ge of Agriculture a n d Raleigh, N orth C a ro lin a A l o n z o G. Decker, Jr. Executive Vice President, The Black & Decker M a n u fa c tu rin g C o m p a n y Tow son, M a ry la n d E d w in Hyde President, M iller & Rhoads, Inc. Richmond, V irgin ia m em uet fjedetaL a c L v iio lu council J o h n S. A l f r i e n d C h airm a n of the Board, N a tio n a l Bank of Com m erce of N orfolk N orfolk, V irgin ia Engineering L H u g h L each President E d w a r d A. W a y n e First Vice President N. L. A r m i s t e a d Vice President E d m u n d F. M a c D o n a l d A ssista n t Vice President J. D e w e y D a a n e Vice President G e o r g e W . M c K i n n e y , Jr A ssista n t Vice President D o n a l d F. H a g n e r Vice President J o h n L. N o s k e r A ssista n t Vice President A u b r e y N. H e flin Vice President and G eneral Counsel Victor E. P r e g e a n t , III A ssista n t G e ne ral Counsel U p t o n S. M a r t i n Vice President R a y m o n d E. S a n d e r s , Jr. A ssista n t Vice President C li f f o r d B. B e a v e r s A ssista n t Cashier E. B. C o l e m a n A ssista n t Cashie r St u a r t P. F i s h b u r n e A ssista n t Cashie r J o h n E. F riend A ssista n t Cashie r W i l l i a m B. H a r r is o n , III A ssista n t Cashie r J o h n C. H o r i g a n Ch ie f Exam iner Joseph M . N o w la n Vice President a n d C ashier Jam es M . Sla y Vice President T h o m a s I. S t o r r s Vice President C h arle s W . W illia m s Economic A dvise r J o h n G. Deitrick A ssistan t Vice President J. G o r d o n D ic k e r s o n , Jr. A ssistan t Vice President W e l f o r d S. F a r m e r Secretary, and Assistan t Counsel H. Ern est F o rd A ssistan t Vice President J o s e p h F. V iv e re t te A ssista n t Cashier R. Pierce L u m p k i n Senior Economist W y t h e B. W a k e h a m A ssista n t Cashier G. H a r o l d S n e a d General Auditor S M te .r n d ite c to ti .c h ice ti G o rd o n M . C a irn s Dean of Agriculture, University of M a r y la n d C ollege Park, M a ry la n d H a r v e y E. E m m a r t Senior Vice President and Cashier, Fidelity-Baltim ore N a tio n al Bank Baltimore, M a ry la n d Jam es W. M cElroy President, The First N atio n al Bank of Baltim ore D o n a l d F. H a g n e r A. A . S t e w a r t , Jr. J. N . S h u m a t e President, The Parkersburg N atio n a l Bank Parkersburg, W est V irgin ia C l a r e n c e R. Z a r f o s s A ssista n t C ashier President, The Farmers N atio n al Bank of A n n a p o lis A n n ap olis, M a ry la n d J o h n W . Sto u t A ssista n t Cashier A . C. W i e n e r t President, The Crosse & Blackwell C o m p a n y Baltimore, M a ry la n d A ssista n t C ashier E, R i g g s J o n e s, jr. J o h n T. M e n z i e s , jr. Cashier B. F. A r m s t r o n g Baltimore, M a ry la n d Vice President Vice President, Western M a ry la n d R a ilw a y C o m p a n y Baltimore, M a ry la n d atlatte Stanch , OfjTiiceti 1 G e o r g e H. A u l l Agricu ltural Economist, Clem son C o lle ge T h o m a s I. S t o rr s Vice President S t a n h o p e A . L ig o n C ashier R o be rt R. F entress A ssista n t Cashier Fred C. K r u e g e r , Jr. A ssista n t Cashie r E. C li n t o n M o n d y A ssista n t Cashier Clem son, South Carolin a J. C. C o w a n , Jr. Vice Ch airm an of the Board, Burlington Industries, Inc. Greensboro, North C arolin a C h a r l e s D. P a r k e r Vice Ch airm an of the Board and First Executive Vice President, First Union N atio n a l Bank of North C a ro lin a Asheville, North C aro lin a Ernest Patto n C h airm an of the Board, The Peoples N a tio n a l Bank of Greenville Greenville, South C aro lin a I. W . S t e w a r t C h airm an of the Board, Am erican Com m ercial Bank Charlotte, North C aro lin a C l a r e n c e P. Street Secretary and General M an age r, M cDevitt & Street Co. Charlotte, North C aro lin a G. G. W a t t s President, The Merchants and Planters N a tio n a l Bank of G a ffn e y G affn e y , South Carolin a PHOTO CREDITS The A m e rk q n Cotlon M onofocfw rers Institule, In c Union C a rb id e C o ip o « ilio « B ethlehem Steel C o r p o r a tio n S to n e g o C o k e & C o a f C o m p a n y O fficio ! U. S. A ir fo rc e P he fo D a v id M. Lea & Co., Inc. V irg in ia C h a m b e r of Commerce A d d itio n a l copies o f fh>*s publication m a y be o b ta ine d fro m the S a n k R e la tio n s a n d P ub lic In fo r m atio n D ep a rtm en t, fe d e r a l Reserve B a n k of Rich m ond, TEithmond 13, V irg in ia rTadi<ita[ 4 ) n n u a l J Q e ie x v e Sank 4 )Q ichm ond JQeyioit 1959
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