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1956 TO THE DIRECTORS I N D E X Directors and Officers ................................ Changes in Directors and Officers ..................... 6 . . ........... 8 National Economic and Credit Conditions Assets .......................... .............. . . Liabilities 1 ............. .............. ............ 19 21 Departmental and Other Comments: Accounting ......... . .......... . Chock Collection ............................ . . Currency and Coin ............. ................ Discount and Credit ........... .......... . ................... ................ Duplicating Examination ................. . ................ Fiscal Agency ................... . . . . . . . . Noncash Collection .............................. ......... ........................... Personnel Planning ....................................... Protection . . . . . . ........................... Public Services .................................. Purchasing . ..................................... Research ......................................... Safekeeping .................................... Capital Accounts Dividends ............... . . . . . . . . . . . ..................... ............ . Bank Premises 25 29 34 39 44 45 50 56 57 65 67 68 72 73 77 79 82 ........................................ 83 Earnings . ....................... .................. 86 Expenses ............................ .............. 93 HEAD O F F IC E DIRECTORS AND MEMBER OF FEDERAL AD VI SO RY COUNCIL DIRECTORS Leslie N. Perrin, Chairman, and Federal Reserve Agent 0 . B. Jesness, Deputy Chairman Term Expires December 31 Class A Harold C. Refling, Cashier, First National Bank in Bottineau Bottineau, North Dakota 1957 Joseph F. Ringland, President, Northwestern National Bank of Minneapolis, Minneapolis, Minnesota 1958 Harold N. Thomson, Vice President, Farmers and Merchants Bank, Presho, South Dakota 1959 Class B Ray C. Lange, President, Chippewa Canning Company, Inc., Chippewa Falls, Wisconsin 1957 T. G. Harrison, President, Super Valu Stores, Inc., Hopkins, Minnesota 1958 J. E. Corette, President and General Manager, Montana Power Company, Butte, Montana 1959 Class C 0 , B. Jesness, Head, Department of Agricultural Economics, University of Minnesota Institute of Agriculture, St. Paul, Minnesota 1957 F. Albee Flodin, President and General Manager, Lake Shore, Inc., Iron Mountain, Michigan 1958 Leslie N. Perrin, Director, General Mills, Inc., Minneapolis, Minnesota 1959 MEMBER OF FEDERAL ADVISORY COUNCIL Julian B. Baird, Chairman, The First National Bank of Saint Paul, St. Paul, Minnesota 1957 -1- OFFICERS 0 . S. Powell, President A. W. Mills, First Vice President C. W. Groth, Vice President and Cashier General Supervision over all internal operations Building: Construction Maintenance Telephone Equipment Protection Purchasing Duplicating Vault Assignments Equipment Repairs M. B« Holmgren, Vice President W. C. Bronner, Assistant Cashier Fiscal Agency Securities: Purchase and Sale Withheld Federal Taxes Commodity Credit Corporation Government Coupons Destruction of Unfit U. S. Currency Registered Mail A. W. Johnson, Vice President J. J. Gillette, Assistant Cashier Check Collection Non-cash Collection Ordinary Mail Check Standardization and Routing Symbol E. B. Larson, Vice President H. G. Me Connell, Vice President R. K. Grobel, Chief Examiner Bank Examination Security Exchange Act Secretary, Board of Directors OFFICERS (C o n t d .) M. H. Strothman, Vice President Loans and Discounts Industrial Loans Regulation V Loans Secretary, Discount Committee Sigurd Ueland, Vice President & Counsel Legal Secretary of the Bank 0. W. Ohnstad, Assistant Vice President Expenditures Operating Reports Security Program Loan Assistant Telephone Personnel C. Ries, Assistant Vice President Currency and Coin Securities: Safekeeping Clement Van Nice, Assistant Vice President Carl E. Bergquist, Assistant Cashier Public & Bank Relations Announcements Circulars Correspondence Press Relations George M. Rockwell, Assistant Cashier M. 0. Sather, Assistant Cashier Accounting: General Books and Member Bank Reserve Accounts Transfer of Funds Foreign Exchange Reports Files and Old Records Ji E. Lysen, Operating Research Officer '. Operating Letters Operating Manuals Planning: Efficiency Studies Equipment Office Forms Space Studies Suggestions Retirement System Trustee OFFICERS (Contd.) F. L. Parsons, Director of Research 0. F. Litterer, Business Economist Research Statistics Publications Library F. J. Cramer, Personnel Officer Personnel: Personnel Maintenance Retirement System Social Security Modical Education and Welfare Cafeteria Office Boys and Pages A. J. McNulty, General Auditor K. K. Fossum, Vice President H. A. Berglund, Assistant Vice President J. L. Heath, Assistant Cashier Assigned to Helena Branch -4- HELENA BRANCH DIRECTORS Carl McFarland, Chairman George R. Milburn, Vice Chairman Term Expires December 31 George R. Milburn, Manager, N Bar Ranch, Grass Range, Montana 1957 A. W. Heidel, President, Powder River County Bank, Broadus, Montana 1957 Carl McFarland, President, Montana State University, Missoula, Montana 1958 J. Willard Johnson, Financial Vice President and Treasurer, Western Life Insurance Company, Helena, Montana 1958 Geo. N. Lund, Chairman of the Board and President, The First National Bank of Reserve, Reserve, Montana 1958 -5- CHANGES IN DIRECTORATE At the annual election in November, Harold N. Thomson, Vice President of the Farmers and Merchants Bank, Presho, South Dakota was re-elected Class A director and J. E. Corette, President and General Manager of the Montana Power Company, Butte, Montana was re-elected Class B director. Each was chosen for a term of three years expiring December 31, 1959The Board of Governors reappointed Leslie N. Perrin, Director, Gen eral Mills, Inc., Minneapolis, Minnesota as Class C director for a three-year term beginning January 1 , 1957 and redesignated him as Chairman and Federal Reserve Agent for 1957* The Board also redesignated Dr. Oscar B. Jesness, Head of the Depart ment of Agricultural Economics at the University of Minnesota, as Deputy Chair man for 1957* Our Board of Directors re-elected Julian B. Baird, Chairman, The First National Bank of Saint Paul as member of the Federal Advisory Council for the coming year. At the Helena Branch Dr. Carl McFarland, President, Montana State University, Missoula, Montana was reappointed by the Board of Governors to serve as a director for a two-year term beginning January 1, 1957. Our Board of Directors re-elected J. Willard Johnson, Financial Vice President and Treasurer, Western Life Insurance Company, Helena, Montana and Geo. N. Lund, Chairman of the Board and President, The First National Bank of R e se rv e , Reserve, Montana for two-year terms commencing January 1, 1957. The Helena Branch directors elected Carl McFarland, Chairman, and George R. Milburn, Vice Chairman for the year 1957. CHANGES IN O F F I C I A L STAFF Effective March 1, Oliver S. Powell and A. W. Mills were reappointed as President and First Vice President of the bank respectively for five-year terms. On April 1, Otis R. Preston, Vice President retired from active service. On December 17, the following promotions were announced, effective January 1, 1957s Clarence W. Groth was promoted to Vice President and Cashier. A. W. Johnson was promoted to Vice President. M. B. Holmgren was promoted to Vice President. NATIONAL ECONOMIC AMD C R ED I T CO ND IT IO NS Despite a receding level of output in two important industries, autos and housing, the American economy in 1956 produced goods and services at a faster pace than ever before. This prodigious outpouring of wealth was accomplished in an environment of relatively scarce credit, a condi tion reflected by the highest level of interest rates generally since the start of the depression of the 'thirties. Statistical measures of the great prosperity were numerous, Gur most valuable resource, labor, was employed in larger quan tities than ever before. The number of people at work grew more rapidly than the labor force with the result that unemployment declined to a level little higher than the historical, irreducible minimum. The degree to which available labor is utilized constitutes one of the most meaningful measures of economic welfare. Negotiated in an atmosphere of labor scarcity, 1956 wage agree ments were generous. In canufacturing, average wages rose a dime an hour, the same increase as in 1955. Real wages grew somewhat less rapidly than money wages owing to rising prices. Indeed, the practice of adjusting wage rates with changes in the "cost of living" index has become a part of many labor agreements. A more comprehensive measure than wage rates of our people's economic welfare is the level of real, per capita, disposable (after taxes) income. This figure, since it is adjusted for price changes, allows us to observe changes in the average American's "standard of living" — of goods and services his income will buy after payment of taxes. the amount It is remarkable that despite the highest level of Federal tax receipts in history and despite the upward drift of consumer prices, U. S. per capita income after taxes would buy more goods and services in 1956 than ever before. Thus, judged by the criterion of how well it satisfies human wants, our economic system performed admirably last year. For analytical convenience, the Department of Commerce distin guishes three groups who, together, purchase the nation's output. These are— in order of importance— consumers, government and business (capital expenditures). Each of the groups mentioned increased their spending in 1956. The most noteworthy change in the pattern of consumer expendi tures was a decline in the level of spending for durable goods which was more than offset by higher spending for nondurables and for services. Lowered sales of new automobiles were chiefly responsible for the lesser rate of spending on durables. Assemblies of new cars fell from 7.9 mil lion in 1955 to 5.8 million in 1956 ; this was a drop of more than 26 per cent. For other than autos, consumers spent freely in 1956; retail sales, for example, averaged more than 3 per cent higher in 1956 than in 1955 — despite the inclusion of new car sales in the retail figure. ing by consumers, at £264. 1 billion, was up . U Total spend per cent from 1955 . Besides curtailing their expenditures for new cars, Americans also cut back on spending for new housing. The number of homes erected fell by 16 per cent from 1955 to 1956 ; the figures were 1 ,324- thousand and 1,120 thousand respectively. The dollar value of new homes built fell much less (from C l ? 6.6 billion to $15.5 billion or 6.5 per cent) than the number of homes started owing to higher average prices. Most of these homes will be paid for over the next 20 or 25 years. But construction spending by business and government rose more than enough to offset the decline in residential construction. Spending for construction by business alone, up £1.9 billion, was enough to offset the $1.1 billion drop in residential construction. Spending by business increased too owing to larger purchases of capital equipment. A gain of cent in this type of spending. billion represented an increase of 17 per Spending by business for the purpose of adding to inventories was little changed from 1955 . It might be noted that capital formation by business has been growing since 1953 ; this has constituted an important offset to the decline in government expenditures which followed the conclusion of the Korean War. Spending by consumers, on the other hand, has increased in every year since the beginning of World War II. Federal Reserve efforts to stop inflation were aided by the re duction in federal government expenditures which took place in 1954 and 1955. In 1956 the U. S, Treasury spent approximately the same amount as in 1955. But in 1957 the official budget indicates an upturn. Unlike the federal government, state and local governments have increased their spending in every year during the postwar period. From 1955 to 1956 nonfederal government spending rose from £30.1 billion to > 032.6 billion. The continued rapid growth in population and housing, of course, has required stepped-up state and local budgets for schools, sewers and other public improvements. The fraction of the nation's output taken by all levels of government fell to 19 per cent in 1956 ; not since 1951 had it been less than 20 per cent and in 1953 it was 23 per cent. Most of the improvement came because of expanded output rather than cutbacks in spend ing. The increase in spending of consumers, business and government was greater than the increase of goods and services available for purchase -10- with the result that prices for a wide variety of things moved up in 1956 . The inflationary threat motivated a continuation of credit restraint by the Federal Reserve, This policy allowed interest rates to rise higher than at any time in more than twenty years. The demand for credit was growing faster than the supply. That spending could rise so much without a comparable increase in the nation's supply of money is explained with reference to the turn over, or velocity, of money. Turnover continued to rise in 1956 as it had in 1955 . All types of money market instruments were yielding substantially more at the end of 1956 than at the beginning. Treasury bills went from 2 .5 per cent to 3 .3 per cent in yield; long term governments went from 3 per cent to 3.4-5 per cent (and 3.5 per cent early in 1957). In keeping with market yields, the Federal Reserve discount rate was lifted from 2*5 per cent to 3 per cent. It is worthy of note that the policy of credit restraint in 1956 was accomplished not by reducing the reserves or the "lending power” of banks but simply by failing to provide banks with additional reserves. Thus, interest rates rose because credit demands grew, not because the supply of credit was reduced. DISTRICT ECONOMY The district's most important industry, agriculture, enjoyed a slightly higher total of cash receipts in 1956 than was true in 1955 . Preliminary income estimates indicate that cash receipts from marketing farm products may be up 3-4- per cent in Minnesota and North Dakota. The same estimates show a slight drop in Montana receipts and a more substantial -II- decline from a year ago in South Dakota, perhaps 10 per cent. District farmers experienced both good and bad crop conditions during 1956— with weather and moisture accounting for most of the differ ences. Such differences took on a distinctly regional pattern for the most part. Across the western Dakotas and eastern Montana, drouth and the threat of drouth was a major concern during the spring and the summer months. Particularly damaging was a siege of hot, searing winds about mid- June which caught early seeded small grains, particularly oats, at a tender stage and cut yields over a wide area, including parts of southern Minnesota. The 1956 season was unusual in that late-seeded small grains on spring plow ing seemed to suffer considerably less damage than early seedings on fall plowing— contrary to the usual experience. Early-season dryness cut hay yields sharply in many western areas of the district, with the result that winter feed supplies were reduced from normal. Even where early heat and dryness hurt hay and small grains, how ever, many of these same areas got enough moisture at just the right time to produce one of the best corn crops in several years. Further east, Minnesota produced a record corn crop, even with some 1 + per cent less / acres planted to corn than in 1955 and despite some conversion of land to the soil bank. In fact, most of the eastern district, including much of North Dakota and some areas of eastern South Dakota enjoyed excellent crops, while crops in western areas of the district were reduced well below normal. Despite area extremes, however, crop production for the district as a whole was relatively large, but about 6 per cent below 1955 output. Most of the reduction was in wheat, down 12 per cent from 1955. Production of durum wheat was the exception— good crop yields throughout much of North -12- Dakota, helped by newly-developed rust resistant varieties along with weather conditions favorable to rust free development, produced a durum crop of 39 million bushels, the largest in recent years. Although some cattle liquidation occurred in severely dry areas, cattle production continued large for the district as a whole. Numbers on feed were down about 9 per cent from a year ago on October 1, but by the end of the year had increased more than seasonally to 5 per cent more cattle on feed than a year ago. Hog production, on the other hand, was cut back even further in district states than the estimated national cutback of 8 per cent. Reduc tions in 1956 spring pig farrowings in district states ranged from 17 to 26 per cent, and farrowings for the year were down 16 to 23 per cent. With re duced marketings, however, hogs enjoyed significant price improvement during the latter half of 1956. In fact, it can probably be said that the turning point in farm prices was reached about mid-1956 . A good measure of nonagricultural business in the district is the level of nonfarm employment. During 1956, employment rose in all district states; in the greater part of the district, a new postwar record was established. In Upper Michigan and Northwestern Wisconsin nonfarm employ ment rose from the relatively low level of 1955 but it did not equal the level which prevailed from 1950 - 55 . The volume of nonresidential construction, which proved to be a main prop to the nation's economy in 1956 , set another record during the year. The expansion in this type of construction more than offset the contraction in home building. The amount of contracts awarded for all types of nonresidential construction— industrial, commercial, educational, public and heavy engineering— aggregated t >542 million in this district, an increase of $92 million from 1955. The district boom in nonresidential construction was less marked than the national expansion. Industrial plant expansion, in particular, was not as strong here in 1956 as in the more industrialized areas. The smaller bulge in construction activity is reflected in the relatively moderate em ployment rise in this field— 3 per cent above the average monthly total in 1955 for both residential and nonresidential projects. A strong district rise in manufacturing employment compensated for the moderate rise in construction. labor exceeded the national rate. in 1956 was U In this field the hiring of additional The increase in the average monthly total per cent; in the whole nation it was only 2 per cent. Most of the additional district workers were engaged in the manufacture of durable goods. In Minnesota, where nearly 90 per cent of the total district work ers in the manufacture of durable goods are employed, the large increase in employment in 1956 was concentrated in the manufacture of electrical and non electrical machinery, excluding agricultural machinery. (In the latter industry, the average monthly employment in 1956 was down almost 10 per cent from 1955.) Smaller increases in employment occurred in lumber and wood products, fabricated metal products, stone, clay and glass, and in primary metals. In the field of government service, which ranks third among the employment categories in the ninth district, the 1956 increase averaged 3 per cent, due largely to the hiring of additional teachers in schools and colleges, one result of the steadily growing school population. In the other enterprises— mining, transportation and utilities, trade, finance, insurance and service— the increases in employment ranged from a fraction of 1 per cent to a maximum of 2 per cent. -U - Not all industries enjoyed prosperity. clining market was residential building. One industry to face a de The number of new housekeeping units authorized by permits in ninth district cities was down 19 per cent from the number authorized in 1955. During the autumn builders in the larger cities cut back sharply on their building and laid off some of their workers. The mining of iron ore was interrupted by labor disputes in the steel industry and, later, in the Pittsburgh Steamship division of the United States Steel Corporation. These disputes drastically reduced shipments of ore to lower lake ports in July and August. Shipments in these two months totaled 10.7 million gross tons as compared with over 12.5 million gross tons each in fey and in June. During this period employees lost substantial amounts of income so that it became necessary for many firms to adjust re payments on charge accounts and instalment loans. Before the end of the shipping season part of the lost income was recovered through overtime pay. In the 1956 season 77.6 million gross tons were shipped as compared with 87.5 million in 1955 and 60.8 million in 1954 . Slow farm implement sales caused layoffs by manufacturers. Because of the strong demand for workers in industrial centers, some of these workers secured either temporary or permanent employment with other firms. This shortened the period of idleness and, thereby, reduced the loss of income for many laid-off workers and their families. The mild upturn in cash farm income has created some confidence that the sales prospects for farm imple ments will be brighter this spring. The slump in automobile sales did not affect the economy of this district as much as it did other regions of the nation. Only one assembly plant and a small number of parts-manufacturers are located here. Obvious ly, however, automobile dealers and salesmen were affected by the drop in sales. In the four district states the decrease in sales, according to -15- registrations, ranged from 9 per cent in Minnesota to 19 per cent in South Dakota. Even the latter percentage is small compared with a 3 - per cent 4 decrease in the state of Michigan. Nationally, passenger car sales dropped from 7.2 million in 1955 to an estimated 6.0 million in 1956 , a decrease of 16 per cent. DISTRICT BANKING IN 1956 Judging by the profit and loss statements of district member banks for the first half of 1956 (last half not yet available) the year just con cluded was the most prosperous in history for member banks in the ninth Federal Reserve district. Four aspects of district banking in 1956 are worthy of particular comment: behavior of deposits. earnings, loans, interest rates, and the The latter rose above the previous record level set in 1954Factors responsible for the improvement of earnings included the substitution of loans for lower yielding investments and a boosted average rate of return on both loans and investments. In 1955 the proportion of total earning assets represented by loans averaged 4-6 per cent; in 1956 this proportion averaged 52 per cent. The effect of this change in the com position of earning assets was to raise the average rate of return on earn ing assets as a whole. This is because the average yield on loans held by district banks is more than double the yield on securities held. It is estimated that the average yield of loans and investments respectively was 5.22 per cent and 2 .4.0 per cent in early 1956 and 4-.99 per cent and 2.06 per cent in early 1955. These estimates are based on averages of amounts reported monthly for holdings of loans and investments and on semiannual reports of earnings from loans and investments submitted by the banks. -16- The upward movement of interest rates generally has added to bank expense as well as to revenue. Thus, in the first half of 1956, interest expense reported by district member banks amounted to 1 ,4.1 per cent of average time deposits while a year earlier the ratio was 1.34- per cent. upward trend of interest on time deposits is likely to continue. The Beginning January 1, 1957, member banks and other insured commercial banks were permitted higher maximum rates on time deposits and certificates than was true previous ly. The highest rate which can now be paid is 3 per cent for savings or for time deposits and certificates of deposits with a duration of six months or more. Not since 1932 has the ratio of loans to deposits been so high at district member banks. The loan growth, which occurred in every district state and part state last year was a phenomenon common to banks throughout the nation. A comparison of the autumn (most recent available) Call Reports for 1955 and 1956 discloses that almost half the indicated 0159 million loan increase at district banks represented additional commercial and industrial loans. Loan Increase In Millions 10-5-55 to 9-26-56 Commercial and Industrial Loans Real Estate Loans Automobile Paper Other Loans Total Loans $ 74 49 21 0159 Many lenders found real estate loans of fixed yield less attractive in 1956 than in 1955 owing to the rising interest yielded by other types of loans. Although real estate loans have increased in every postwar year at district member banks, the rate of increase declined markedly in 1956, Real estate loans rose £ 4 9 million in the year ended October 1956 while in the >- previous year an increase of $74 million was reported. The rate of increase in auto paper held by district banks also fell in 1956, but only slightly. Paper worth $21 million was added in the year ended October 1956 while C 25 million was added in the previous year. > Of course, new car sales in the district also fell from 1955 to 1956, as mentioned previously. At the end of 1956 district member bank loans were $181 million higher than a year earlier; this was a gain of 10.6 per cent for the year. In 1955 loans rose 14.6 per cent. The loan growth in 1956 was financed mostly with additional deposits but partly by the liquidation of invest ments and by borrowing. Holdings of U. S. government securities were re duced by $78 million while other securities were acquired in the amount of $4 million. District member banks added almost 3 per cent to total deposits in 1956. This increase compares favorably with the 2+ per cent gain re ported by member banks in the rest of the nation and represents a reversal of the net outflow of deposits sustained in 1955. Deposits were up in every district state (or part state) except South Dakota. The South Dakota experience reflected in part the fact that— farm incomewise— that state fared least well of any in the district last year largely because of drouth conditions. In the rest of the district, cash farm income was up and other business continued at the prosperous level of 1955. Of course, the reversal of the previous decline in farm product prices was helpful to deposits at country banks in particular. Percentagewise, country bank deposits (55 per cent of the member bank total) were up 3 .5 per cent while city banks reported a 2 .3 per cent gain. Country bank loans were up 7 per cent while loans at city banks rose -18- MILLION DOLLARS MILLION DOLLARS 1600 1600 1400 1400 1200 1200 1000 800 600 400 200 i i_j vO i 11 97 COMPARATI VE STATEMENT OF A S S E T S MINNEAPOLIS AND HELENA BRANCH COMBINED (thousands of dollars) 12/31/56 Assets: Cash Reserves: Interdistrict Settlement Fund Gold Certificates with F.R. Agent Redemption Fund - F.R. Notes Total Gold Certificate Reserves F.R. Notes of Other F.R. Banks Other Cash Bills Discounted Foreign Loans on Gold Industrial Loans U. S. Government Securities: Bills Certificates of Indebtedness Notes Bonds Total U. S. Government Securities Due from Foreign Banks Uncollected Items: Transit Items Exchanges for Clearinghouse Other Cash Items Total Uncollected Items 12/31/55 189,279 150,000 23,729 363,008 9,587 7,908 3,530 625 42 1,355 25 60 38,879 246,937 206,759 63,283 555,858 36,414 143,476 343,283 67.895 591,068 1 1 131,918 2,671 . ..1*356 135,945 132,375 4,010 1.278 137,663 — + - 457 1,339 78 1,718 6,257 + + + 2,569 44 2,525 + + — + + + 19 1,885 44 15 6 1,881 4,719 3,688 1.494 2,194 Miscellaneous Assets: Fiscal Agency expense, reimbursable Interest Accrued Premium on Securities Deferred Charges All Other Assets Total Miscellaneous Assets 207 5,377 45 49 8 5,686 188 3,492 89 34 2 3,805 1,104,447 1,116,674 + 12,114 777 + 11,337 + 4,790 + 1,411 201,393 150,000 22,952 374,345 14,377 9,319 Bank Premises Less Reserve Bank Premises - Net Total Assets Change from 12/31/55 1 .5 3 8 + + - 2,175 600 18 + 2,465 +103,461 -136,524 - 4,612 - 35,210 - 12,227 MILLION DOLLARS MILLION DOLLARS 1600 1600 1400 1400 1200 1000 t H I COMPARATIVE STATEMENT OF L I A B I L I T I E S MINNEAPOLIS AND HELENA BRANCH COMBINED (thousands- of dollars) Change from 12/31/55 12/31/56 12/31/55 Liabilties: Federal Reserve Notes in Circulation 498,236 531,709 -33,473 Deposits: Member Bank - Reserve Accounts U. S. Treasurer - General Account Foreign Nonmember Bank - Clearing Accounts Officers1 Checks Other Deposits Total Deposits 398,117 22,651 7,400 1,460 194 2.182 432,004 405,586 25,108 9,650 457 56 5.180 446,037 - 7,469 - 2,457 - 2,250 + 1,003 + 138 - 2.998 -14,033 5,615 . 116*982 . 142,597 7,094 101.674 108,768 - 1,479 +35.308 +33,829 2 238 342 13 595 2 233 166 10 411 .,073,432 1,086,925 -13,493 7,182 18,520 1,073 4.240 31,015 6,861 17,586 1,073 .... .4,221 29,749 321 934 + 11 + 1,266 1,104,447 1,116,674 -12,227 Deferred Availability Items: U. S. Treasurer - General Account All Other Total Deferred Availability Items Miscellaneous Liabilities: Unearned Discount Discount on Securities Sundry Items Payable Suspended Credits Total Miscellaneous Liabilities Total Liabilities Capital Accounts: Capital Stock Paid In Surplus Fund - Section 7 Surplus Fund - Section 13 b Reserve for Contingencies Total Capital Accounts Total Liabilities & Capital Accounts + + + + 5 176 3 184 + + -22- almost 15 per cent. Our member banks face the new year with more loans relative to deposits than at any time in the past quarter century. While this develop ment has benefited bank earnings, it has also reduced the amount of liquid assets in banks. Problems of bank liquidity are likely to occupy more attention of bankers in the future than in the recent past— particularly if loan trends of 1956 continue unchanged. The table below indicates the ratio of loans to deposits at member banks in the various district states and at the same banks classified according to city or country location. Ratio of Loans to Deposits at District Member Banks 12 - 26-56 3S% U9% 39% A2% U2% 38% A5% 51% Michigan Minnesota Montana North Dakota South Dakota Wisconsin District City Country FEDERAL RESERVE BANK OF MINNEAPOLIS Despite a reduction in the volume of borrowing at this bank during 1956, earnings from loans exceeded a million dollars. This was an increase of almost 20 per cent over 1955 earnings from loans and was produced by an increase in the discount rate from 2.5 per cent to 3 per cent in April of 1956. The average daily volume of borrowing fell 17 per cent in 1956 from the level of the previous year. largest for the postwar decade. Even so, borrowings in 1956 were second Thy average daily volume of borrowings from the Federal Reserve Bank of Minneapolis is shown in the table below for each -23- of the past ten years. §10 2 2 5 11 16 27 7 1947 194-8 1949 1950 1951 1952 1953 1954 1955 1956 U2 35 Earnings from securities also advanced in 1956 despite a reduc tion in the average daily volume held. This development reflects the replacement of maturing securities with others yielding higher rates of interest. Market yields on government securities of all maturities have been moving up since mid-1954 . While gross earnings of the bank rose $3.6 million in 1956, ex penses were up §.8 million with the result that net current earnings were up $2 .8 million. A 5.7 per cent addition to the amount of dividends paid by the bank was required by the issue of additional shares. The paid-up portion of these shares is held by the member banks in an amount equal to 3 per cent of their capital and surplus. The amount paid to the U. S. Treasury as interest on our Federal Reserve Notes outstanding amounted to 90 per cent of the bank's net earn ings after payment of dividends. The remainder was added to surplus. -24- DEPARTMENTAL AND OTHER COMMENTS ACCOUNTING Reserves Reserve requirements in 1956 remained unchanged as shown by the table below. Bank Classification Country Reserve City Central Reserve City Net Demand Deposits Time Deposits 12$ 18$ 20$ 5$ 5$ 5$ On April 13 9 the Board of Governors approved the action of the Federal Reserve Bank of Minneapolis in increasing the discount rate from 2.50$ to 3.00/t. As penalties for deficiencies in reserves are computed at 2$ above the current discount rate* this increase raised the penalty rate from 4*50$ to 5. $ 00 . Penalties for deficiencies in reserves assessed at the Head Office during the year 1956 showed an increase of ^9 * $ in amount and 16 . $ in number• 5 3 Penalties assessed at the Helena Branch showed a decrease of 8 .8$ in amount and 2 2 o9$ in number. Penalties for deficiencies in reserves at the Head Office which were waived decreased 3 -^$ in amount and remained substantially the same in number and at the Helena Branch waived penalties decreased 51*1$ in amount and 22.^$ in number. 7 1 *1$ of the amount and ^7 *8$ of the number of all penalties waived for the year were waived under the Board’s rule which allows a deficiency in one period to be offset by excess in the following period, provided that such deficiency does not exceed 2$ of the bank’s required reserve. The large reserve city banks in the Twin Cities and Helena account for 56.2$ of the amount and 1 9 .8$ of the number of penalties waived under this rule, - 25 - 2 5 .2io of the amount and 1 7 .6% of the number of penalties waived were waived under the rule which permits a penalty to be waived for a deficiency of not more than 5$ of a member bank's required reserve provided that a penalty has not been waived under that rule within a two-year period. Only 3.75b of the amount and 34.6$ of the number of all penalties waived for the year were waived under the rule which applies to penalties not in excess of $5.00. During 1956, 90 banks were penalized for a total of 171 times compared with 91 banks for 175 times in 1955* The following is a comparative report by states of penalties for defi ciencies in reserves during 1956 and 1955. Penalties Assessed No. 1956. Amount Michigan 13 $ 470.36 Minnesota 55 2,251.35 No.Dakota 370.85 7 18 So.Dakota 767.72 14 Wisconsin 675.47 Head Offioe Totals 107 $4,535.75 Helena Branch Combined . .1955 .. . . No. Amount Penalties Waived 1956 No.. Amount 1955 . . No., .Amount Banks Affected Assessed Wai'ved 1956 1955 1956 195' No. No, No. No 18 $ 688.51 35 $ 322.78 34 $ 394.19 42 1,156.75 175 4,488.74 178 5,219.86 442.36 12 526.47 34 569.35 26 582.78 774.20 39 13 415.2? 37 7 247.14 23 .. 72.87 25 6 32 8 4 9 11 27 6 9 4 19 84 14 20 26 20 89 16 26 13 92 $3,034.14 304 $6,486.71 302 $6,712.06 59 57 163 164 83 2.012.76 31 34 39 44 171 $31,644.93 175 $L0,829.02 370 $7,469.59 387 $8,724.82 90 91 202 208 64 7.109.18 7.794.88 66 982.88 85 -26- Wire Transfer Division On April 12, 1956 we started using an improved method for sending and receiving (a) transfers of funds5 (b) transfers of securities, and (c) allotment transfers of securities over the leased wire system. The new procedure provides for the transmission of transfer messages in clear language instead of code and for automatic preparation as a by-product of transmission at both the sending and receiving points of forms and entry tickets. Because of the new procedure, the number of telegrams coded by us decreased 66% for the year and the number of telegrams decoded decreased 60 %• The number of words sent over the leased wire increased 37$* There was a general volume increase of 10$ for telegrams sent and received and transfers of funds handled set a new record for number and amount. The bulk of the increase in transfers of funds was reflected in transfers from other districts resulting in a net dollar gain to the district of $1.8 billion. The tables on the following page reflect a comparison of activities in the Wire Transfer Division for the year 1956 with 1955* -27- Transfer of Funds Dollar Totals (000 Omitted) 1956 Transfers to other Federal Reserve districts Transfers from other Federal Reserve districts Intra-district transfers Change from 1955 9,240,986 11,009,722 2.743.715 22,994,423 +1,578,871 +2,304,639 - 133.827 +3,749,683 Number of Transfers Made 19,569 22,240 12.576 54,385 +1,440 +3,726 - 427 +4,739 33,270 3,021 ____ 4 36,295 Transfers to other Federal Reserve districts Transfers from other Federal Reserve districts Intra-district transfers +3,123 7 Number of Telegrams Sent Private Wire Western Union TWX +3,116 Number of Telegrams Received Private Wire Western Union 41,650 4,273 855 46,778 +5,125 - 867 - 159 +4,099 Number of telegrams coded by us Number of telegrams decoded by us 7,969 10,520 -15,897 - 15,880 -28- CHECK COLLECTION The 108.5 million items handled by this department in 1956 were 6.3$ more than those handled in 1955? surpassing volume of all previous years. The amount of $30 billion was also an increase of 6.3$ over the dollar amount handled in 1955 and was the highest total in the history of the department. The table below shows the number and dollar amounts of the items pro cessed during 1956 as compared with 19552 Volume (000 Omitted) 1956 Twin City Checks Country Checks Government Checks Paper Card— Our District Card— Other Feds Return Items Postal Money Orders 1955 No. of Items Inc. or Dec. Per cent of Inc. or Dec, 22,036 59,278 15,340 60,886 +6,696 -1,608 +4 3 .7$ - 2.6 980 11,237 4,952 805 _ 2. 2 . ,51 108,543 1,157 10,562 4,276 757 9*151 102,129 - 177 + 675 + 676 + 48 + 104 +6,414 -15.3 + 6.4 +15.8 + 6.3 + 1 .1 + 6.3 $ Dollar .Amount (000 Omitted) 1956 Twin City Checks Country Checks Government Checks Paper Card— Our District Card— Other Feds Return Items Postal Money Orders 1955 Dollar taount Inc. or Dec„ Per cent of Inc. or Dec 16,360,374 10,636,812 15,375,57^ 10,154,620 + + 984,800 482,192 + 6.4$ + 4.7 1,322,803 930,209 494,108 108,331 ,.-152^4£ 30,005,185 1,135,535 84-9,149 450,625 104,996 142^822 28,220,398 + 187,268 + 81,060 + 43,483 + 3,335 + 2,642 +1,784,787 +16.5 + 9.5 + 9.6 + 3.2 + 1.8 + 6.3 $ Country checks decreased 1.6 million in volume despite the general in crease in checks of all classifications. This was due to the fact that during the entire year of 1956 checks drawn on certain Minneapolis suburban banks were han dled and counted as Twin City checks. This method of handling checks drawn on thirteen suburban banks located just outside of Minneapolis began on October 1, 1955. This accounts for part of the increase of 6.7 million of Twin City checks processed during 1956 compared to 1955« On three different days during 1956 the department handled more than one half million checks of all classifications with processed on October 8 , 1956. the highest record of 536 >7^6 This total broke the previous all-time record of 51^*269 se^ on December 7 5 1955# k record of 1^1,607 Twin City checks were handled on November 19, 1956 surpassing the previous years’ high of 128s 170 handled on December 19, 1955* The 1955 record was first broken on February 20, 1956 when 138,921 Twin City items were processed. Another new record was set in 1956 when 1023 928 Treasury Punch Card Checks drawn on other Federal Reserve banks were processed on September 10th. The former years5 record of 83*550 items handled on August 8 , 1955 was also broken on May 7 9 1956 when 9^, ^ 8 items were processed. On August 1, 19563 the Treasury Department began making use of electronic equipment for processing the payment and reconciliation of government checks and this equipment will ultimately be used for processing all government checks. The conventional government paper checks are being replaced with punch card checks. Government Disbursing Offices which issue relatively few items use card checks prepunched as to serial and symbol number, and the Federal Reserve banks key punch the amounts in such items before forwarding to the Treasury Department. The Gov ernment Disbursing Offices which issue a large volume of items use punch card checks, prepunched as to serial and symbol number9 but before forwarding to the payees> also punch the month and year of issue and amounts in the items. All Disbursing Offices will issue government checks drawn on the Treasury of the United States without being payable through a designated Federal Reserve bank and upon completion of the conversion program approximately 175 million government checks which, have heretofore been handled annually by two Federal Reserve Offices (one -3 0 - receiving the items for deposit and the one through which payable) will be handled only by the office at which deposited. The Treasury Department has heretofore furnished without cost the tabu lating equipment for handling government checks to Federal Reserve bank head offices, and the rental for such equipment required under the new program will be paid for by the Federal Reserve banks. As government checks hereafter will not be payable through a designated Federal Reserve bank, the reserve banks will be relieved of the task of sorting government checks by symbol and serial number, checking items received for stop payment orders, signatures, etc., and preparing statements of items paid. Approxi mately six million items payable through this bank were received in 1956 from other Federal Reserve banks and branches out of a total of 11 million such items issued payable through this bank. It is expected that the conversion to elec tronic accounting of government checks will be completed about July 1, 1957* As in former years the department continued to check on delayed remit tances for cash letters and remittances in other than immediately available funds in an effort to encourage good banking practices and reduce float. The department has continued to operate on a 2^-hour basis. Checks are functioned continuously from 10:30 p.m. Sunday through 6:00 p.m. Saturday of each week. The night shift now operates six nights, Sunday through Friday, each em ployee working five nights with a different night off each week. Postmasters9 Deposits This bank has been designated by the Treasury Department as a depository for surplus funds of postmasters since July 2 5 195^* The deposits include checks, savings stamp albums, money orders and currency, all of which are processed by this department after the currency has been removed. -31- From July 2, 195^ through December 31, 195^ deposits were received from postmasters located within the geographical limits of the ninth district. Frcm January 1, 1955 through September 30, 1955 deposits were received only from post masters in Minnesotas Montana, North Dakota and South Dakota. Since October 1, 1955 deposits have been received from postmasters located in the ninth district and also from postmasters located in that portion of Wisconsin assigned to the Seventh Federal Reserve District, The table below indicates the number and dollar amounts of deposits processed during 1956 as compared to 1955* Volume No. of Deposits Inc. or Dec. Per cent of Inc. or Dec. m k Total Number of Deposits Number of Deposits Contain ing Cash 1251 3?2S218 2^6,016 +126,202 +51.3# 176,581 110,700 + 65,881 +59.5% Dollar Mount (000 Omitted) mi 1956 Total Amount of Deposits Total Mount of Cash 376,995 37, 9 ^ , 209 0^8 2 k ,689 Dollar Mount Per cent of Inc. or Dec. Inc. or Dec. +167,9^7 + 13,255 +80.3# +53 •7 o / Volume and dollar amounts increased sharply because 1956 represented the first full year that deposits were handled from the expanded territory. Check Routing Symbol The use of the check routing symbol increased again in 1956 according to the annual survey made as part of a system-wide study which indicated that 97-3$ of checks drawn on par banks in this district carried the symbol. The percentage of use of the symbol by ninth district banks is shown by states in the table on the following page. Michigan Minnesota Montana 96.7 97-3 95-6 North Dakota South Dakota Wisconsin 97.3 98-6 98.7 Check Standardization Program The campaign to improve check design continued during 1956. Several National Association of Bank Auditors and Comptrollers groups were addressed and slides shown to them by our two representatives. made numerous visits to business firms and banks. These two representatives also Legislation affecting municipal disbursement procedure has now been successfully concluded in Minnesota, North Dakota, South Dakota and Wisconsin. It is anticipated that similar legislation will be presented to the Michigan Legislature in 1957* Work was also done early this year in Montana to show the need for similar municipal legislation in that state but it had to be postponed for lack of sponsorship. -33- CURRENCY AND COIN There appears to be a general increase in the work handled by the Currency and Coin Department this past year with one exception, and that is the wrapped coin unit. The shipments of currency and coin to member banks as measured in dollar value were approximately 10$ higher than those for 1955* currency and coin from member banks were up 15$ from a year ago. Shipments of The dollar volume of out-going coin shipments increased 6$ and incoming shipments indicated an increase of approximately 5$ as compared with a year ago. Our Currency Sorters counted and sorted better than 3 l/2 million more bills during the year of 1956 than they did during the year of 1955* coins wrapped showed a decrease of 6$ and a decrease of pared with the year of 1955* 6% The number of in dollar volume com The decrease in our wrapping operation is partly due to the fact that on December 30, 1955, we had considerable quantities of wrapped coin on hand in anticipation of possible delays, because of the building expansion and remodeling program, and partly due to other inconveniences experienced by our coin wrapping unit during the expansion program. This is the first time after showing a continuous increase for nine straight years that a decrease was experienced in this activity. In July, 1954, it will be remembered, that the Federal Reserve Act was amended to permit Federal Reserve Banks to pay out the notes of other Federal Reserve Banks. The note circulation of this bank on June 30, 1954, just prior to the passage of the legislation amounted to 622 million dollars. At the end of 1954 our note circulation had declined contraseasonally to 584 million dollars. December 31, 1955, it was down to 532 million dollars. On On December 31, 1956, a further decline was noted, the amount being 498 million dollars. Meanwhile, cash on hand in our Currency and Coin Department reached a new high of approximately 71 million dollars at the end of 1956 as compared with -34- 63 million dollars in 1955• Approximately 5 million dollars of our cash on hand is due to an increase in our fit 9-1 notes, the total of which was 36.5 million dollars in 1955 and 41 million dollars in 1956. The building expansion and remodeling program which began June 1, 1955, has not affected the Currency and Coin Department to any great extent, except as previously mentioned with respect to wrapped coin. The current year showed a U5% decrease in the amount of coin received from U. S. Mints from the previous year, which was caused by the mints shipping rather sizable shipments the later part of 1955. We experienced no trouble meeting our demand for coin this year, as there were ample stocks of all denominations at all times. A very unusual trend has been noticed the past few years with respect to $50 bills. The demand for these bills has been consistently dropping off. on hand at the present time $3,500,000 fit-for-use ^50 bills. We have It is anticipated that a good portion of these bills, as well as other large denominations, of which we have an excess of our current needs, will be retired with the Federal Reserve Agent very shortly. There was quite an increase in the volume of currency handled in the post office depository division during the year. There was an increase of number of deposits received and an increase of the year compared with 1955* 55% in the in dollar value received during The reason for this large increase in the number of deposits and in dollar value is as follows: On January 1, 1955, post offices in the upper peninsula of Michigan and the ninth district portion of Wisconsin dis continued sending their deposits to us. This left us with only the post office in North Dakota, South Dakota, Montana, and Minnesota, as depositors, and consider ably reduced our work. On October 1, 1955, we not only got back all of the upper Michigan and Northwestern Wisconsin post offices, but also added all of the post offices in the seventh district portion of Wisconsin. This is the first full year of operation since we were assigned the new area in October of 1955. -35- During December of this year, we received two new Federal Bill Counting machines to replace two worn out machines. No other type of equipment was acquired during the year. The rate of premium on Canadian currency reached a high of A% during the later part of 1956. -36- Currency Paid Out by Denominations to Member Banks mi 1956 1 5 $ 29 , 636,000 and 2's . 48.643.000 130.376.000 128 842.000 5,539,000 16 451.000 734.000 936.000 15,000 40.000 $361, 212,000 10 20 50 . 100 500 1,000 5,000 10,000 $ 31 , 258,000 45.255.000 119.042.000 111.841.000 4,887,000 15.454.000 596,000 909,000 0 40.000 $329, 282,000 Outgoing Shipments for Account of Member Banks Number Currency paid out Currency shipped to Helena Branch Coin paid out 19,438 101 14.341 33,880 1956 Amount $361,212,000 12.754.000 14.101.000 $388,067,000 Number 1955 Amount 18,648 78 14.704 33,430 $329,282,000 11,800,000 13.267.000 $354,349,000 Number 1955 Amount Incoming Shipments for Account of Member Banks Number Currency Coin Fit-for-use $l's received from Helena Branch Postmasters' deposits received Total Currency < Coin Received k 1956 Amount 20,745 A, 269 25,114 $440 ,244,000 12.619.000 $452,863,000 20,946 U, 398 25,344 $380,868,000 12.050.000 $392,918,000 25 198.114 223,253 1,710,000 38.236.281 $492,809,281 13 147.924 173,281 1,020,000 24, 690 .644 $418,628,644 -37- Number & Amount of Pieces Handled Currency Number Bills received & counted . Bills rehandled Bills hand verified 1956___________ Amount 64,029,945 $436,268,200 4,306,780 72,260,400 21.611.715 242.222.475 89,948,440 $750,751,075 _________ 1955 Number Amount 60,735,350 $389,388,910 3,707,389 67,831,430 18.058.323 201.926.237 82,501,062 $659,146,577 Coin 1956 Number k Coins received < counted Coins rehandled Coins wrapped ......... Amount 129,940,966 $ 12,465,475 900,400 130,500 97,216.000 7.699.000 228,057,366 $ 20,294,975 1955 Number Amount 121,668,777 $ 11,569,799 768,250 81,725 102.729.000 8.223.950 225,166,027 $ 19,875,474 Amount of Coin Received From U.S. Mints 1956 $ 1,253,000 1955 $ 2,274,500 Number of Bills Redeemed 1956 28,732,342 1955 30,421,207 -38- DISCOUNT AND CREDIT Discounting activity in the Ninth District remained at a relatively high level during the first part of 1956. The restrictive monetary policy of the Federal Reserve System and the strong demand for loans at commercial banks were responsible for continued borrowing during the first seven months of 1956 at the rapid pace of 1955• This trend was reinforced by the seasonal outflow of deposits in the spring, and by the decline of bank liquidity resulting from the lowering of bond prices. Discount rates were raised by all Federal Reserve banks in April in an attempt to restrict credit expansion and consequent inflationary pressures. This bank raised its discount rate from 2 l/2 percent to 3 percent while ten of the Federal Reserve Banks raised rates to only 2 3/4 percent. The l/2 percent increase did not prove to be excessive, however, and the other Banks also went to 3 percent shortly after the steel strike ended in August. Discount activity during 1956 divides itself into two periods, JanuaryJuly and August-December. Borrowing began the year at a high level and continued to exceed the sizeable figures of a year earlier until the end of July, with a few exceptions (see Chart 1 on following page). Average daily borrowings for the January-July period in 1956 equaled v48.8 million, while borrowings for the com parable period in 1955 were $36.6 million. Peak levels were reached in May and June, contrasted to 1955 when the spring peak occurred in April, (This is another example of the situation in which borrowings rise rapidly shortly after the discount rate has been raised, despite the higher cost incurred.) -39- Chart 1 BORROWINGS O F M E M B E R B A N K S I N THE N I N T H (Semi-monthly A ve rag e of Daily Figures) DISTRICT The large amount of borrowing by reserve city banks during this period was particularly striking (see Chart 2 on the following page). On the basis of the ratio of borrowings to required reserves for these bankss the Ninth District was far above the other eleven districts from January through July except for a few scattered weeks. Several of the Twin Cities banks were both large and con sistent borrowers being in debt to the Federal Reserve on 60-90 per cent of the days involved. Although the borrowings of the country banks relative to required re serves for all country banks averaged much lower than those of reserve city banks, the general average hides certain widely varying cases. For example, if this ratio is based on required reserves of borrowing banks only, it shows that those country -40- Chart 2 RATIO OF B O R R O W IN G S TO REQUIRED RESERVES - RESERVE CITY MEMBER BA N K S Ninth District Compared With High and Low of 11 Other Districts (by weekly reserve periods) -41- banks were borrowing 28.7 percent of their required reserves for the period January through July. Some individual banks, in turn, showed borrowings far in excess of this average. A dramatic shift took place after August 1. Advances to member banks in this district showed sharp declines both absolutely and relative to the national average. These low levels of borrowing provide a significant contrast to the high levels which prevailed in the fall of ’55. (Chart l) During the August-December period, the ratio of borrowings to required reserves averaged only 4 percent in this district which was slightly below the. national average. The abnormally large seasonal increase in deposits during the fall of '56 provides a major explanation for the sharp decline in borrowings. During the last two weeks of December, a sharp upturn in discount activity was experienced. Statistical Summary; 1256 $3,698,667,000 1255. $ - 156,277,000 4, 3,4-77,100,000 3,'929,235,000 221,567,000 227,042,000 106 101 From Minneapolis 84 80 From Helena 22 21 Total Amounts Borrowed From Minneapolis From Helena Total Number of Banks Borrowing (1) With a few exceptions, all advances were secured by direct obliga tions of the United States. These exceptions included: advances to three banks, aggregating ^38,740,000 secured by eligible paper; and advances to three banks, aggregating $2,578,000 made on collateral other than government obligations or eligible paper under Section 10 (b) of the Federal Reserve Act. (2) Our bank’s participation in foreign loans on gold during the year totaled $1,900,000. -42- (3 ) No applications for industrial loans under Section 13b of the Federal Reserve Act were received during the year. The total amount of industrial advances (current) outstanding on our bank's books on December 31, 1956, was $4, ,349 .90 . 2 The borrowers were (a) a packer and shipper of fresh vegetables and (b) a wholesale and retail grocery business. (4) Two applications for guaranteed loans under Regulation V totaling ^ 300,000 were received during 1956, one was approved and the other is under con sideration. One guarantee agreement for $800,000 was executed. (5 ) In 1956, advances totaling $39,384,701.93 were made by financing institutions under Regulation V: s>2,800,000 was guaranteed by the Department of the Air Force; $1,329,812.45 by the Department of the Army; ^>35,245,000 by the Department of the Navy; and $9,889*48 by the Atomic Energy Commission. Loans actually outstanding under guarantee agreements at the year end aggregated $690,000 for the Navy (guaranteed portion $621,000); and $4,292,670.35 for the Atomic Energy Commission (guaranteed portion $4,078,036.83)- -43- DUPLICATING The two more efficient methods of reproduction, mimeographing and offset duplicating, show substantial increases over 1955* The Mimeograph had a total run for the year of 104,135 more than the previous year, and the produc tion of the offset duplicators was increased by more than 2,000,000. This in crease was partly due to the acquisition of a new A B Dick duplicating machine the first of October which made the higher production figure possible. Multigraph production continued to decline because much of the work formerly done on this machine can now be done more efficiently on the offset duplicators. The amount of work done by the Ditto and Photostat machines re mained about the same and there was no material change in the volume of work performed by the Addressograph section. mi 1956 Forms Ditto Mimeograph Multigraph Offset Duplicator (Multilith-A B Dick machine) Photostat Total Run Forms Total Run 489 2,286 593 40,070 541,070 370,355 580 2,161 898 42,619 436,935 545,998 1,685 ____ 5,053 6,390,965 3.888 7,346,348 1,452 ____ 5,091 4,329,956 3.997 5,359,505 -44- EXAMINATION There were at the close of business December 31* 1956, one hundred twenty-nine State member banks in this district* A regular examination of each of the State member banks was made, and a second examination was made of four of those banks. One examination was made in connection with an application of a State bank for membership in the Federal Reserve System. As of the end of the year, thirteen State member banks were exercising trust powers. ers. Nine other State member banks are not exercising their trust pow Sixty-three national banks held permits to exercise full or limited trust powers. The examinations by this department in the various states were as fol lows t State Banks Michigan Minnesota Montana North Dakota South Dakota Wisconsin 31 46 15 13 ^ Holding Company Affiliates 14 1 1 2 26 2 There are four holding company affiliates which are residents of this district. They are Bank Shares Incorporated, First Bank Stock Corporation, North west Bancorporation, all of Minneapolis, Minnesota, and Montana Shares, Incorporated, Havre, Montana. biennially. It is the policy to examine the holding company affiliates In line with that policy, an examination was made of Northwest Ban corporation and Montana Shares, Incorporated during 1956, Bank Shares Incorporated and First Bank Stock Corporation having been examined in 1955• One application for membership in the Federal Reserve System was received from a State bank, and the bank was admitted to membership. -4 5 - Ml examination reports5 both State and National, were analyzed on comparative analysis sheets, a copy being furnished to the president of this bank and to the officer in charge of the discount department, and to the Helena Branch for Montana member banks. These analyses include summary statements as to the management, condition, etc#, of the bank* Five hundred ninety-five reports were received from the Chief National Bank Examiner’s office# The cost of these reports was $5,950#00. Sixty-seven duplicate copies of reports of examination of Montana national banks were received from the Chief Examiner’s office, and the cost of these additional copies was $335*00. In addition, thirty separate reports of examination of trust departments were received at a cost of $150.00# The number of 1956 reports of examination received from the various State Banking Departments in the Ninth Federal Reserve District of State member banks examined independently by them was as follows: Minnesota North Dakota Wisconsin 26 1 3 Four calls for reports of condition of each member bank were issued, ill member banks were also required to submit semi-annual reports of earnings and dividends. The condition and related reports, together with reports of earnings and dividends, were received, checked, and recorded. A charter was issued to one bank, application for which had been referred to us by the Board of Governors of the Federal Reserve System in 1953* There were two 1955 applications which had been referred to us by the Board of Governors that were pending at the end of that year. During 1956 a char ter was issued to one bank,and the other application, which had preliminary ap proval by the Comptroller of the Currency during 1955, was still pending at the end of 1956# -4-6- Six applications for national bank charters were referred to us during 1956 by the Board of Governors for investigation and recommendation, A charter was issued to one bank, two applications were approved by the Comptroller of the Currency conditionally9 one had preliminary approval, one was disapproved , and one was pending at the year end. Five applications for general or limited voting permits were received from holding company affiliates in the district. The applications were reviewed and submitted9 with memorandums and recommendations of our Executive Committee, to the Board of Governors of the Federal Reserve System for action as to approval or disapproval. Two registration statements of bank holding companies were recieved and processed. Also two applications of bank holding companies to acquire shares of bank stock were received and processed. One of those applications was approved and the other application is being held in abeyance at the end of the year at the request of the bank holding company. Investigation was made in connection with the application of one national bank for permission to exercise full fiduciary powers* The application, together with the recommendation of our Executive Committee, was sent to the Board of Gov ernors. At the year end, the application was still pending. One hundred eighty-three applications for adjustment of holdings of Federal Reserve Bank stock were received from member banks. three new members. Stock was issued to Three applications for total surrender of stock were received and the stock cancelled. The bank examination department approves applications for adjustment, for new stock, and for cancellation of stock. Monthly reports were forwarded to the Board at Washington showing changes in the status of all state and national banks in the district. Records are also maintained and a weekly report sent to the Board with reference to status of appli cations received from state banks for membership in the Federal Reserve System, status of applications for fiduciary powers, and examinations started by our exam iners during the week. -* 47— The bank examination department handles correspondence and inquiries with reference to many of the Board’s regulations5 and with respect to Regulation T prepares and forwards to the Board at Washington consolidated statements of those firms which are members of national securities exchanges where the home office of such firms is within this district. At the close of the year there were ^73 member banks in this district9 the same number as at the beginning of the year. The number of National banks increased one and the number of State member bank decreased one. The total mem bership at the close of the year was divided into 3 ^ National banks and 129 State banks. Total number of member banks in the district January 1, 1956 National banks organized State banks admitted 473 2* 476 National banks liquidated National banks absorbed by nonmember state banks State member banks withdrawn from membership 1 Total number of member banks holding stock in the Federal Reserve Bank of Minneapolis at the end of the year __2 * . 473 * Does not include the conversion, effective at the close of business December 31, 1956, of Bank of Boyceville, Boyceville, Wisconsin (State member bank), to National Bank of Boyceville, Boyceville, Wisconsin. The Federal Reserve Bank stock held by the State member bank had not been cancelled and reissued in the name of the national bank at the year end. Stock in the Federal Reserve Bank Issued to New Member Banks Date 9-18 10-1 6-28 Name of Bank First Southdale National Bank of Edina Tri-County State Bank of Ortonville The Western National Bank of Rapid City Location Edina, Minnesota No. of Shares Subscribed 120 Ortonville, Minnesota 39 Rapid City, South Dakota 90 -A 8 - MEMBER BANKS SEVERING CONNECTION WITH THIS FEDERAL RESERVE BANK DURING 1956 NATIONAL BANKS ABSORBED BY NONMEMBER STATE BANKS Date 2-27 No. of Shares Surrendered Location Name of Bank The First National Bank of Harmony, Minnesota (Absorbed by Harmony State Bank, Harmony, Minnesota) 60 NATIONAL BANKS LIQUIDATED 11-8 The First National Bank of Parkston, South Dakota 90 STATE MEMBER BANK WITHDRAWALS 4-2 First State Bank of Pierpont Pierpont, South Dakota 30 CHANGES IN TITLES OF MEMBER BANKS Date Name of Bank Location 3-1 The Union National Bank of Rochester changed to Northwestern National Bank of Rochester Rochester, Minnesota 6-1 The American National Bank of St. Cloud changed to The First American National Bank of St. Cloud St. Cloud, Minnesota 2 -1 The Commercial National Bank of Bozeman changed to First National Bank in Bozeman Bozeman, Montana 9-1 The First State Bank of Gilby changed to Valley Bank of Grand Forks Gilby, North Dakota 11-1 3-15 First National Bank of The Black Hills, Rapid City changed to First National Bank of The Black Hills The National Bank of La Crosse changed to First National Bank of La Crosse Grand Forks, North Dakota Rapid City, South Dakota La Crosse, Wisconsin -49- FISCAL AGENCY During the year 1956 we received and processed tenders for the Treasury Department’s weekly offering of Treasury Bills, for cash and in exchange for maturing bills, as followsi Tenders Received Subscribers 4,645 Amount Accepted $760,614,ooo $727,169,000 6,646 The lowest average yield on the bills during the year was 2,1731° on the bills dated March 8 and March 29, 1956, The highest yield during the year was 3»3311° on the bills dated December 20, 1956. The Treasury Department also offered one issue of Tax Anticipation Treasury Bills during the year. December 17, 1956, and will mature on March 22, 1957* These bills were dated This issue will be accepted by Directors of Internal Revenue at face value in payment of income and profits taxes due on March 15, 1957* This bank received and allotted tenders for this issue as followss Tenders Received Subscribers 152 152 Amount $94,442,000 Allotted $45,832,000 There were also two special offerings of the Treasury Bills for which we received and allotted tenders as follows i Issue Date Maturity Date Oct• 1 7 , 1956 Nov* 16 , 1956 Janc 16, 1957 Febo 15, 1957 Tenders Received 224 243 Subscribers 225 243 Amount $101,745,000 128,565$000 Allotted $45,115,000 68,985,000 On August 6 , 19563 the Treasury Department also offered, for cash, 2 3/4% Treasury Certificates of Indebtedness of Series B-1957* Tax Ancitipation Series, dated August 15, 1956, due March 22, 1957* This issue will be accepted by Directors of Internal Revenue at face value plus accrued interest to maturity in payment of income and profits taxes due on March 15, 1957* This bank received and allotted subscriptions for this issue as followss Applications Subscriptions for Banks Subscriptions for Others Amount Allotted. 39 $2 5 5 , 454,000 $84,886,000 307 326 The Treasury Department offered the following securities, during 1956, in exchange for matured or called issues % Subscriptions for Banks Subscriptions for Others Allotted in Full 2 5/8^ Treasury Certificates of Indebted ness Series A-1957 Dated 3-5-56, Due 2-15-57 237 66 $ 46,858,000 2 7 /8 Treasury Notes of Series A-1958 (Additional Issue) Dated 12-1-55, Due 6-15-58 197 39 28,991,000 2 3 / ^ Treasury Notes of Series D-1957 Dated 7-16-56, Due 8-1-57 660 207 97,466,000 3 l/4$ Treasury Certificates of Indebtedness, Series C-1957 (Tax Anti cipation Series) Dated 12-1-56, Due 6-24-57 123 63 32,591?000 317 118 44,630,000 ____ __ _ ___________ 1,534 493 $250,536,000 Issue 3 l/4fo Treasury Cert ificates of Indebtedness, Series D-1957 Dated 12-1-56, Due 10-1-57 Totals We bought and sold marketable government securities . n government ad guaranteed securities, on the open market5 for the account of banks in our dis trict, as follows; Sale Transactions Purchase Transactions Number - 1127 Par Value - $70,911,000 Number - 1018 Par Value - $40,061,300 During the year 1956, we processed exchange transactions covering United States government securities and government guaranteed securities, as follows; -51- Coupon bonds e xch anged for registered bonds (CXR) Transactions Received 355 Pieces Received Transactions Delievered 153 Pieces Delivered 42? 1,058 Par Value $ 16,460,600 $ Par Value 2,402,050 Registered bonds exchanged for coupon bonds (RXC) Transactions Received 333 Pieces Received 684 $ Par Value 3,739,850 Transactions Delivered 2 69 Pieces Delivered 495 $ Par Value 2,578,300 Transactions Received 113 Pieces Received 212 $ Par Value 551,700 Transactions Delivered 51 Pieces Delievered 126 $ Transactions Received 2.331 Pieces Received 5,457 Par Value $146,647,700 Transactions Delivered 2.331 Pieces Delivered 15,900 Par Value $146,647,700 Transfers (TR) Par Value 116,100 Denominational Exchanges (DX) On December 31, 1956, 1,274 banks with 114 branches and 36 other organizations with 4 branches in our district were qualified to act as paying agents for Series A through E United States Savings Bonds and Armed Forces Leave Bonds. Two hundred twenty-six of these agents are also qualified to pay matured Series F and G bonds. During 1956 these agents and our bank and our Helena Branch paid bonds as follows % Series A through E and matured F and G and \rmed Forces Leave Bonds paid by agents (includes \rmed Forces Leave Bonds paid by our bank) Pieces Redemption Value 2,214,544 $163,336,045.99 k through E, F and J and matured G bonds paid by our bank and the Helena Branch 170,395 119,814,250.00 G, H and K bonds paid by our bank after release of registration 28,911 40,911,725.00 - 52 - The paying agents in our district were reimbursed this year for paying savings bonds of Series A through E and Armed Forces Leave Bonds, paid during the last quarterly period of the year 1955 and the first three quarterly periods of 1956, in the amount of $297,925.90 for 2,204,257 pieces. Beginning with the quar terly period ending on December 31, 1956, the fees due qualified paying agents for paying Series 4 through E savings bonds and Armed Forces Leave Bonds will be paid by Treasury Department checks drawn and mailed direct to the payee, by the Treas ury Department in Washington. There were 1,412 qualified issuing agents for Series E savings bonds in this district, as of December 31, 1956. 1,289 of these agents were banks. These issuing agents were consigned bonds and reported sales during the year as follows: Number of Shipments Pieces Amount (Maturity Value) 10,294 1,650,663 $195,569,650.00 Number of Sales Reports Received Pieces Issued 21,541 1,575,034 Mount (issue Price) $140,217,468.75 Our bank issued United States savings bonds during 1956 as follows; Series Number of applications Pieces Issue Price E H J K 287,571 27,435 3,433 4.049 322,488 299,401 52,655 10,808 7.811 370,675 $ 9,179,343.75 55,164,000.00 8,521,470.00 15.364.000.00 $88,228,813.75 During the year 1956, we reissued for all purposes 125,296 savings bonds with a maturity value of $30,811,940, Our safekeeping division handled United States savings bonds during the year 1956 for the account of individuals and organizations other than banks as follows ? Number of pieces received for safekeeping Number of pieces released from safekeeping Total pieces held in safekeeping on December 31, 1956 1,245 22,170 186,984 -53- As of December 31, 1956, 1,198 banks in this district were qualified as ^Depositaries for Public Moneys", and accordingly, were qualified to maintain a "Treasury Tax and Loan Account". Number of active Class A Accounts Number of active Class B Accounts Total active accounts 1,002 46 1,048 Aggregate total deposits for the year $1,017,356,071.11 Total deposits in Treasury Tax and Loan accounts on December 31, 1956 102,297,669.39 There were 779 banks in this district qualified to act as "Depositaries for Federal Taxes" as of December 31, 1956. During 1956 we received from these qualified depositaries and direct from taxpayers, depositary receipt cards repre senting deposits for the following taxes; Number of Depositary Receipts Amount of Taxes 266,972 453 28,021 295,446 $509,005,545.19 23,757,986.66 84.555.911.74 $617,319,443=59 Withheld Income and Federal Insur ance Contributions Act Taxes Railroad Retirement Act Taxes Excise Taxes Totals During the year, interest coupons were redeemed as follows? Pieces Coupons from Treasury Issues Coupons from securities for which the Treasurer of the United States acts as Fiscal Agent Totals Amount 281,392 $44,855,971*20 14.809 296,201 1.627.919.18 $46,483,890.38 The currency verification and destruction unit verified and destroyed 225 3113000 unfit bills amounting to $34,110,000.00 during the year 1956. The Fiscal Agency now occupies space on the bank floor and the seventh floor. There were 80 full time and 3 part time employees in the department on December 31, 1956, as compared with 85 full time and 3 part time employees on December 31> 1955. -5 4 - Commodity Credit Corporation There are 527 agencies in this district qualified to make Commodity Credit Corporation loans and to service such loans. According to the Minnea polis Office of the Commodity Credit Corporation, all of these agencies were active in 1956. These agencies drew 373,010 sight drafts on the Commodity Credit Cor poration, which we paid. There were 14-8,223 collection items handled by us for the Commodity Credit Corporation. We issued 31,238 Treasury checks totaling $542,994>391*33 on disbursement schedules received from the Commodity Credit Corporation. We cleared 118,079 checks totaling $124,224,185.41 deposited by the Commodity Credit Corporation lending agencies. There were 2 full time employees and 1 part time employee in this division as of December 31? 1956. Reconstruction Finance Corporation Pool Loans Banks in this district, which service such loans, made 773 remittances totaling $592,699.22, for payments on the principal and interest of such loans, during the year 1956. We credited the Federal Reserve Bank of Chicago, as Fiscal Agent of the Reconstruction Finance Corporation, for the payments received each day. -55- NONCASH COLLECTION Amount COOP Omitted) Amount Change from 1955 COOO Omitted) Number City Collections Grain Drafts City Items Country Collections Security Collections Change from 1955 601,977 111,041 -185,947 - 17,840 $532,261 69,249 2,161 24,017 + 900 + 21,211 17,083 + 1,975 23,528 248,056 - $ - 172,262 - 11,334 Most of the decrease of approximately 31 per cent in city collections grain drafts was caused by a change in operations resulting from an arrangement between our bank, the American National Bank, St. Paul, and the Farmers Union Grain Terminal Association. Under this arrangement, drafts drawn on the Farmers Union are presented through clearings to the American National Bank. The banks sending us these drafts now receive immediate credit instead of the one or two day deferment of credit in effect heretofore. PERSONNEL In October the personnel department returned to a temporary loca tion on the seventh floor of the bank building after being located for over a year in the Thorpe Building, 523 Marquette Avenue. The staff on December 31, 1956, totaled 627 employees. hundred ninety-four were women and 233 were male employees. Three The accessions for the year totaled 207 and the separations 220. Total clerical employment in Minneapolis is at its highest. The Minneapolis board of education indicates that approximately one-half of the graduates from Minneapolis high schools plan to attend a college or univer sity instead of entering the labor market. Because of these and other cir cumstances, it was difficult to obtain qualified clerical applicants during the year. However, by careful recruitment, interviewing and testing, we were able to fill our employment requirements. It appears to be signifi cant that separations were again down for the year as they have been for the last four (see chart below). NUMBER OF SEPARATIONS FER YEAR 268 1952 1953 1954 1955 1956 -57- We believe this indicates a good attitude on the part of the staff during a period when our building expansion has made working conditions less desirable. During March our board of directors approved a revised policy for annual medical examinations at bank expense for the officers of the bank. These examinations are conducted by our bank physician or by the officer's personal physician if approved by the bank physician. In order that the nurse could offer the greatest possible aid when an employee or one of his family needs blood, an appeal for voluntary blood donors was made in January to the entire staff so that the nurse could have a list of employees who would like to be contacted to donate blood if the need arose. In July staff members were contacted regarding a new group special diseases insurance policy at a reduced cost with greater coverage, to take effect August 1, 1956. The coverage provides for $15,000 maximum reimburse ment at a cost of $4 for individual and 09 for family coverage instead of the previous policy of $10,000 maximum at a cost of $5.40 for individual and 010.80 for family coverage. Two hundred-three members of the staff (172 at Minneapolis and 31 at Helena) took advantage of this coverage, which will be in effect for two years. Under our Blue Cross-Blue Shield contract for the period August 1955 through July 1956, 1^.6 of our employees had claims under Blue Cross, totaling ^25,694.29. by Blue Cross. Of this amount, $23,172.90, or 90 per cent, was paid Under Blue Shield, there were 172 claims, amounting to $7,228.50. As in past years, we have continued to use the cooperative school work program to train employees by hiring them on a part-time basis. Eight senior girls from local high schools were employed during September on a -58- part-time basis to become full-time members of the staff after graduation. In order to better acquaint local high school and college graduates with the opportunities afforded by a career in banking, we participated with other Twin City banks in sponsoring a banking booth at a Career Festival, which was held at St. Thomas College in St. Paul during April. In August, based on salary surveys conducted in Minneapolis and Helena, we received approval from the board of governors in Washington, D. C. to increase all salary ranges by approximately 7 per cent at the head office and Helena branch. In December, the discount committee of the board of directors amended our vacation policy, to become effective January 1, 1957. Under our new policy, employees will be entitled to receive three weeks of vaca tion each year after completion of ten years of service instead of fifteen years, and will receive four weeks of vacation each year after twenty-five years of service instead of thirty years. As a security measure, it was decided to microfilm certain personnel records every six months and send the film to the Helena branch for safekeeping. The film would furnish enough vital information so that records could be reconstructed as to employees' job title, grade, salary, retirement system and group insurance provisions, last known address, etc. Our records were microfilmed twice during the year. In connection with a savings bond campaign sponsored by the Minnesota Bankers Association, the Federal Reserve Club conducted a solici tation of the staff to obtain new bond subscribers. Fifty staff members enrolled in this plan, to bring total participation through our payroll deduction plan to 35 per cent. For the fourth consecutive year, a campaign was conducted for - 59- United Appeal for Charities. was $7,692.80. The total amount pledged by our employees Ninety-six and one-half per cent of our staff partici pated in the campaign with an average pledge of $12.87. Our bank re ceived special recognition from the Community Chest by virtue of our average pledge to the Community Chest exceeding $8 per employee. In order to insure proper alignment of positions in relation to all others, we have continued to rewrite and evaluate positions under our job evaluation program. During 1956, 37 job descriptions were written or reviewed and submitted for evaluation, 10 job descriptions no longer being used were cancelled, 2 jobs were reinstated, and at the end of the year many others were being processed. Since our audit of job descrip tions was begun three years ago, approximately 80 per cent of our jobs have been reviewed. Cur cafeteria, operated by Nationwide Food Service, has con tinued to serve wholesome and well-prepared food for our staff at mini mum cost. We are currently absorbing approximately 39 per cent of cafe teria costs. For the twentieth consecutive year, our employees1 suggestion system has been in operation. During 1956 there were twenty suggestions submitted; four were accepted and $130 was awarded. In 1956 the bank again sent two additional men to the Central States School of Banking at Madison, Wisconsin, to keep our total enroll ment at six. We also enrolled one officer in the Graduate School of Bank ing at Rutgers University, he being our only representative at that school. - 60- One senior man completed the two-year course of the Agricultural Credit School at Iowa State College. Two senior men were enrolled in the Dale Carnegie Course in Effective Speech and Human Relations in the fall of 1956 and will com plete the course in January 1957. Two senior men finished classes at the University of Minnesota last spring and re-enrolled for additional classes this fall. The Personnel Development Committee followed its usual prac tice of recommending persons from our staff to attend educational con ferences during the year. Among the meetings of this kind at which we were represented was a Management Development Workshop sponsored by the Minneapolis Chapter of the National Office Managers Association, a conference of junior bank officers and staff members sponsored by the Minnesota Bankers Association, the national convention of the National Association of Bank Women, and an Industrial Relations Conference sponsored by the University of Minnesota. For the second year the bank sponsored a Junior Achievement group of high school students, and three members of our staff, on recommendation of the Personnel Development Com mittee, agreed to serve as advisers to the group for the 1956-1957 school year. The Committee also specifically recommended attendance at an Agricultural Credit Course sponsored by the American Institute of Banking for five senior men, all of whom completed the course. Two of our bank examiners completed the Inter-Agency School for Bank Examiners in Washing ton, D. C. during 1956. In order to keep abreast of new developments in personnel policy and salary levels at other local organizations, we continued to have repre sentatives of the personnel department attend various local meetings and conferences of personnel organizations such as the National Office Manage ment Association, Twin City Bank Personnel Group, Personnel Surveys, Inc., and the University of Minnesota. In April the bank nurse attended the 16th Annual Continuation Course for Occupational Nurses at the University of Minnesota, Center for Continuation Study. Included among the topics were: the changing emphasis in occupational health service, advances in drugs, and the expanding em ployability of physically handicapped people. Also discussed was the rehabilitation of heart and cancer employees. In February the editor of the Bank News attended the Eleventh Annual Midwest Editors' Institute at Chicago, Illinois. Included among the topics on the agenda were company publications, publication analysis, and the effect of company publications on employees. The Administrative Assistant was enrolled in two industrial rela tions courses, "Introduction to Industrial Relations" and "Vocational and Personnel Psychology", at the University of Minnesota. The courses covered determination of labor needs, methods of dealing with employees, training and safety programs, compensation, collective bargaining, and how certain factors such as age, sex, race, heredity and environment relate to differ ences in ability and temperament. On December 31, 1956, 287 employees were members of the American Institute of Banking, and during the year 161 members enrolled in 20 classes - 62 - in order to further their education and better prepare themselves for their work. One of our employees was elected first vice president of the local chapter of the American Institute of Banking. In addition, many members of the staff have been appointed to A.I.B. committees as chairmen or assistants and counsels or assistant counsels. The 54-th A.I.B. National Convention in Dallas, Texas, was attended by the A.I.B. first vice president and three other employees of the bank staff. Our most ambitious educational program for junior employees of the bank during the year was a course of Commercial Bank Training for 10 junior employees, iiach of these men spent one week in a member bank becoming acquainted with commercial bank operations and procedures. The bank followed its usual policy of reimbursing employees for tuition costs of American Institute of Banking classes where the class has been successfully completed. to the A.I.B. The bank also gave its usual financial support In addition to this voluntary attendance of A.I.B. classes, the Personnel Development Committee specifically recommended that seven junior employees take classes which would help to fit them for supervisory work. One junior member of the staff completed two courses at the Uni versity of Minnesota; one member of the staff completed a one-week course conducted by International Business Machines Corporation; and three staff members attended a Postal Classification and Rate Clinic sponsored by the U. S. Post Office. Two junior members of the staff were carried as "trainees" dur ing the year, each being assigned to specific departments for training. Another junior employee was assigned to a four-months' training program during which time he was rotated through all departments of the bank before -63- being assigned to a permanent job. In June we employed a male business college graduate as a trainee in the personnel department. During his first four months of employment, he was rotated between all departments in the bank. He is presently learning the various jobs in our payroll section and later will be trained in the em ployment section. His addition, after training, will permit us to do a more complete job in the personnel research area, fringe benefit and salary survey phase of our work. As a part of our regular program of bank calls, 13 senior men in the bank were assigned to regular territories and made calls on all of the banks in their assigned territories. During the year, the department heads of safekeeping, currency and coin, and noncash collections departments were rotated for a four-weeks' period each for the purpose of training each of them in an alternate job as well as the purpose of audit safeguard. The noncash department head spent an additional month in the safekeeping department for training purposes only. Also, during the year two officers and four of the senior men from our Helena branch spent one week each in the head office as a training assign ment. - 6U - PLANNING The planning department, during 1956, arranged for and supervised the necessary moves of employees and equipment occupying space required by the contractors as the building alteration and construction program proceeded. Layout plans for the space to be occupied by each department upon completion of the building program were prepared, including partition requirements. The planning department supervised the movement in October of de partments which occupied space in the Thorpe and Syndicate buildings to space made available in the bank building, including the sixth and seventh floors of the new addition. Our lease of space in the Syndicate building expired on November 15, 1956, and we cancelled our lease of space in the Thorpe building as of December 31, 1956. The accounting and central files departments were moved in October from space in the subbasement and basement areas to the sixth floor of the new addition. The department assisted the Helena branch in preparing plans for improvements in currency and coin vault and handling facilities, and in the purchase of the equipment required, including an armored car. The problems incident to the adoption of Saturday closing of the Helena branch, effective May 1, 1956, and the operation of the check collec tion department on Saturdays on this basis were considered and operating policies suggested for consideration and approval of management. Several surveys were conducted for the United States Treasury de partment and the check collection departments of the head office and the Helena branch on the operating problems incident to the conversion of government check accounting and reconciliation to electronic equipment at the Treasury department commencing August 1, 1956, with the scheduled com- pletion of the conversion July 1, 1957. Extensive surveys were conducted for various system committees and information, comments and suggestions furnished. M, E. Lysen, operating research officer, is currently serving as a member of a Subcommittee on the Study of Float of a Special Committee of the Federal Open Market Committee, and extensive research is being conducted for this subcommittee. The planning department considers employees1 suggestions and makes recommendations to the personnel committee for the acceptance o * rejection J of such suggestions. New forms are designed by the department and all forms are reviewed prior to purchasing. The distribution of operating letters and supplements to member banks is a responsibility of the department. - 66 - PROTECTION Two guards left the employ of the bank during 1956, and two new guards were hired to fill these vacancies. As of December 31, 1956, the personnel of the protection department was as follows: 1 5 28 Superintendent Sergeants (one acting as range instructor) Guards (one acting as chauffeur) Range work which had been discontinued was resumed in September. Ammunition for all weapons was renewed and old ammunition was fired on the range by guards in their weekly practices. All guards were given training on all arms, as well as their side arms. All outside alarms were tested monthly, and all inside alarms were tested weekly. The information clerk issued 2,233 passes to outsiders who wished to visit upper floors of the bank during the year; 1,187 work cards were issued to outside workmen, canteen employees, etc. At the request of the bond, noncash collection and currency de partments, 390 guard escorts (302 singles and 88 doubles) were furnished. By memorandum and after-hour passes, 3,4-39 employees were admitted to the bank after hours. -67- PUBLIC SERVICES The objectives toward which the activities of the Public Services Department are aimed are similar to those adopted by the Conference of Presidents of the Federal Reserve Banks in 1953 but are somewhat broader in scope. In addition to the twin objectives which the Presidents stated of bringing about a better under standing of the Federal Reserve System by the public and of keeping the System aware of public attitudes towards its activities, the Public Services program of this bank also hopes to create a feeling among the banks and general public of good will toward and confidence in Federal Reserve actions. It is our thought that, while we should aim for as broad an understanding of the System’s purposes and functions as possible, there is a limit to the number of persons who will ever achieve a complete under standing of these matters. On the other hand, there is almost no limit to the number of friends we can make for the Federal Reserve System and for the Federal Reserve Bank of Minneapolis. Our Public Services program is divided into two general fields: (1) Bank Relations, and (2) Public Information and Education The most ambitious part of our activities in the area of Bank Relations is our program of bank calls. During 1956 each of the 1,297 banks in the district was called on at least once and banks in some of the larger cities were called on twice. The district served by our Head Office is divided into 25 areas with one of our officers or senior men assigned to each area to call on all of the banks located therein. Four senior officers make an additional call on the banks in larger cities. Montana banks are called on by the officers assigned to our Helena Branch. Reports are prepared on each individual bank call and a general report of each man’s trip is sent to the president of the bank. The calls serve an excellent purpose in keeping us acquainted with business, banking, and agricultural conditions in the district and in giving us an avenue through which commercial banks can ask questions about or make suggestions or complaints on Federal Reserve policies and services. - 68 - Our program of meetings was continued in 1956 with our Assembly for Member Bank Officers and Directors held late in April being attended by 517 persons. The annual one-day Workshop meeting for college teachers of money and banking and economics held early in May brought in a record number of 122 guests. The Examiners Conference held late in November was attended by 125 persons in addition to our own staff members. This meeting is the one gathering in the district where examiners from the three Federal supervisory agencies, the State banking departments, and the local clearing house association all get together. Our Short Course in Central Bank ing, which has proved very popular over the years, had to be discontinued this year because of our building program but we hope to reopen it with several courses in the winter of 1957-1958. In addition to meetings sponsored by our own bank, members of our staff were in attendance at the American Bankers Association convention, all State bankers conventions, about 25 group meetings, and various other meetings, clinics, schools, and conferences sponsored by banking groups in this district. Attendance at such meetings is most important if we are to develop and maintain a friendly relationship with our banker friepds. Our two counterfeit displays were used 24 times during the year mostly by banks celebrating anniversaries or the opening of new or remodeled quarters. A dis play of counterfeit currency loaned to us by the United States Secret Service was also used U times during the year. As usual we have a good number of bankers call on us during the year. We continued to operate an informal placement service for banks seeking men and men seeking jobs. In the field of Public Information and Education, we continued during the year to distribute 6 movies including our own, "The Federal Reserve Bank and You". This latter film continued to prove the most popular and was seen by an additional 20,364 persons during the year to bring the cumulative audience definitely reported to us to 277,217* The Encyclopaedia Brittanica film, "The Federal Reserve System", was shown to 5,032 people; the two Federal Reserve Bank of Richmond films, "Your Money's Worth" and "You and Your Money", were shown to 3,4-79 and 2,912 persons respectively; and the Federal Reserve Bank of Cleveland films, "A Day at the Federal Reserve Bank of Cleveland" and "Soil Conservation Pays", were shown to 1,983 and 1,545 persons respectively. Our picture book, "Your Money and the Federal Reserve System", continued to’be increasingly popular during the year as we received 998 requests for a total of 15,329 copies. This brings the total number of copies distributed since its publication in 1941 to approximately 130,000. At the present time we are in the process of making a major revision of this booklet. We also distributed 1,071 copies of the Board's publication, "The Federal Reserve System, Its Purposes and Functions", and 980 copies of "Money: Reserve Bank of New York. Master or Servant?" published by the Federal A new booklet issued by the New York bank in September called "Federal Reserve Operations in the Money and Government Securities Markets" has been distributed to all teachers of money and banking in the district as well as to a number of bankers, a total of 276 copies having been sent out so far. Members of our staff gave 105 talks to a total estimated audience of 13,400 persons during 1956. While the majority of these talks were given by members of our Research staff and covered business, monetary, and agricultural topics, quite a number of them were on the Federal Reserve System, its policies and opera tions, and these for the most part were given by members of our staff Assigned to the departments other than Research. In January we set up a speakers' burea con sisting of officers other than those assigned to the Research Department for the purpose of taking some of the speaking load off our Research people. Only 785 persons toured our bank during the year as compared with more than 4,000 in 1955 because of cur deliberate policy of restricting tours during mar building program. Our building program also limited the number of special luncheons held during the year. We had no dining room facilities in the bank but a few luncheons were held outside the bank in honor of distinguished foreign visitors. A total of 522 clippings of news stories taken from papers in our district indicate that press releases prepared by the Research Department and Public Services Department are being well used by newspapers throughout our area. This total does not include news stories appearing in the Twin Cities' newspapers or in the financial press where we receive excellent coverage. With the completion of our new banking quarters this spring, we shall be able to resume some of the activities which have had to be temporarily discontinued. These include resumption of bank tours and special luncheons. We also hope to reopen the Short Course sometime during the winter of 1957-1958* Our most ambitious project for 1957 will be a two-day open house and conference of all banks in the district early in May in celebration of the completion of our new banking quarters. PURCHASING The prices paid for supplies continued to increase moderately dur ing the year 1956. Because of the building program, it was necessary to continue to limit quantities purchased of many bulky items because of in adequate stock room space and the utilization of areas temporarily vacated to safeguard employees during the heavy erection period underneath the former sky lights above the side areas on the bank floor. During the latter part of the year substantial purchases of furni ture and equipment were made in anticipation of the utilization of floors in the new addition to the building. Such purchases included equipment for the new cafeteria and dining rooms, the assembly room, etc., and involved the purchase of such items as chairs, tables, partitions, shelving, etc. -72- RESEARCH The public's increasing interest in monetary policy and the Federal Reserve System during the past year stepped up the work of the research de partment in furnishing information and statistical data for both official and public use. The board of governors requested the following information and surveys during the past year to aid them in policy decisions: February The experience of district merchants on collections and credit availability, February A study of mortgage warehousing by large banks. (Repeated again in May, August and November.) February A survey to determine the extent to which automobile paper purchased by commercial banks was on a "recourse" basis. May An analysis to show automobile financing practices of commercial banks. May A study to show characteristics of personal trusts in District commercial banks. June A survey of automobile instalment credit to show terms and practices of automobile dealers, June A new statistical series was requested on a daily basis showing member bank utilization of the federal funds market. July A new statistical tabulation of member bank borrowings and required reserves was re quested on a weekly and semimonthly basis. July A statistical series on repossessions of automobiles by commercial banks active in sales financing was instituted. August A series on repossession titles issued by the various state motor vehicle departments was set up. October Home builders operations during 1956 and intentions for 1957 were surveyed. -73- November The survey of ownership of demand deposits at commercial banks was re-established. A major research effort during the year was the Agricultural Loan survey which was planned during the first half of the year, conducted as of June 30, and processed during the last half of the year. This survey in volved 14.0 member and nonmember bankers in the ninth district. Other special projects in the field of agriculture included the establishment of a monthly series on the volume of agricultural production loans at a selected group of district banks. This was part of a pilot survey initiated by the System Committee on Agriculture to investigate the feasi bility of a more current series on agricultural loans. Two special research studies were published during 1956. These were "Pulp and Paper in the Upper Lakes Region” and "Housing and Mortgage Markets", which were issued as supplements to the Monthly Review. Other regional research projects developed during the year were as follows: January An analysis of Population Trends in the Ninth District. July A survey of the price of houses in Minneapolis. August A new set of factual and graphic tables on member bank borrowings which are maintained on a current basis was set up for use by the discount committee. September The Missouri Basin development program was resurveyed as a supplement to an earlier study. Publication of the results is scheduled early in 1957. October A new internal statistical tabulation— "Business Indicators", was established, which provides ready access to district and national economic data on a current basis. -74- November An investigation of business developments in suburban areas as they relate to the field of banking was initiated. December A study of forest industries in the western portion of the district is near completion and it will be ready for publication early in 1957. In addition to the special projects outlined above, the research department has continued with its routine statistical and analytical work. During 1956 research personnel maintained a complete record of time spent on various categories of work. 1956 summary of time distribution. The following tabulation is the It is interesting to note that more than a fifth of the department personnel’s time was spent in providing in formation to the public in one form or another. Percent of Time Function Statistical series Economic studies Reference library Public information Meetings Nonresearch activities Total 33% 29 10 22 5 __1 100% Requests for research staff speakers were numerous. During the year, the economists filled 104 speaking engagements before a combined audience of approximately 14,000. This year, as in previous years, the department sponsored the Money and Banking Workshop on May 5. The popu larity of this meeting, which is intended for college professors primarily in the field of money and banking, is attested by a mounting attendance. This year the session was attended by 119 guests— the largest of eight consecutive conferences. Participation in System committee work was continued, with members -75- of the research staff serving on 13 committees and subcommittees. With respect to department publications, circulation statistics are as follows: Circulation, beginning of year Plus; additions Less: deletions Circulation, end of year Plus: bulk shipments (end of year) TOTAL distribution, December 31, 1956 Monthly Review 6,762 1,105 516 7,351 1.130 8,481 Farm News 6,245 1,290 3.278* 4,257 8,876 *Deletions include 2,700 names not replying to a circularization of the mailing list in May 1956. A new format and layout was designed for the Monthly Reviewc This will be presented in the January 1957 issue of the Review. The services offered by the library have been expanded by the addi tion of a second librarian. material is now possible. questions per month. More complete cataloging and indexing of library The library received an average of 340 reference Of these, approximately 70 per cent originated within the bank. The number of employees in the department has remained fairly constant and has averaged about 30 employees during the year. -76- SAFEKEEPING The over-all picture of the operations in the safekeeping depart ment in 1956 continues to show declining dollar volume over the year 1955. This decline was slight, however, amounting to approximately $16,000,000. 1% or The number of pieces received during the year, however, ex ceeded those delivered by us by 5,776 pieces. The largest increase in the work during the year occurred in the number of coupons clipped, where the figure was 29,846 pieces above the 1955 figure. Securities held for safekeeping and collateral purposes as of December 31, 1956, were §>1,477 million, a decrease of Cl6 million, compared with |1,493 million held a year ago, as reflected by the comparative figures for 1956 and 1955 shown on the following page. -77- Accounts Securities held in safekeeping (not pledged) Inc. or De 12-31-56 12-31-55 thousands of dollars) (in 703,476 763,995 - 60,519 Securities pledged to secure Public Deposits 428,407 413,463 ^Securities pledged to secure Government Deposits 12,247 13,287 #*Securities pledged to secure Treasury Tax and Loan Account 269,217 230,928 #*-*Securities held as Collateral for Discounts and Advances 63,390 71,528 Securities held for other Federal Reserve Banks - r\ + 14,944 - 1,040 + 38,289 - 8,138 - Securities held as collateral to Consignment Account— U.S. Savings Bonds, Series E Securities held for Public Housing Administration 0 1,476,737 0 1,493,201 0 - 16,4-64 ^Includes -$1,118,000 held by Commercial Banks **Includes $17,172,000 held by Commercial Banks & other Federal Reserve Banks Includes $2,200,000 held by Commercial Banks The safekeeping department received 70,323 pieces of securities, issued 7,864- receipts and delivered 64. 5 - pieces in 9,479 transactions, re ,47 sulting in a net increase of 5,776 pieces of securities. The department also made 10,185 transfers of securities from one account to another and clipped 357 thousand coupons from securities held dur ing 1956. The table below shows comparative volume figures for 1956 and 1955. 1956 Receipts issued 7,864 Pieces received 70,323 Withdrawals handled 9,479 Pieces delivered 64,547 Transfers from one account to another 10,185 Coupons clipped 357,145 Custodian receipts issued 1,229 1955 8,138 78,291 9,771 66,345 9,838 327,299 1,573 Inc. or D i 274 - 7,968 292 - 1,798 + 347 + 29,846 344 -78- Ml LION DOLLARS MILLION CAPITAL ACCOUNTS 36 36 32 32 28 28 24 24 20 20 1 6 1 6 1 2 1 2 8 8 4 4 0 0 C A P IT A L ACCOUNTS CAPITAL STOCK paid in totaled $7,182 thousand on December 31, 1956, an increase of $321 thousand during the year. SURPLUS ACCOUNTS. Surplus (Section 7 ) was increased $934- thou sand on December 31, 1956, which brings the total to $18,520 thousandj Surplus (Section 13b) remained unchanged at $1,073 thousand. RESERVE FOR CONTINGENCIES. No change was made in the reserve of $1 million set aside for losses in excess of the blanket bond coverage, the reserve of ^500 thousand earmarked for losses not covered by the Loss Sharing Agreement or the special reserve for contingencies of $2,476 thousand. The reserve for registered mail losses totaled $264 thousand as of December 31, 1956. During the year we received an additional recovery of $5 from the Cokato Postmaster in connection with the net loss of $820 which we sustained in a currency shipment made to First National Bank, .Cokato Minnesota on September 29, 1955* The regular yearly addition based on shipments made amounted to $11,458.19. The following table reflects the changes made in reserve for registered mail losses during 1956. -80- Reserve for registered mail losses beginning of year 1956 $252,859.1 4 Credit : Annual addition based on 2 £ per $1,000 < of total shipments of $572,909,363 for 12-month period Dec. 1, 1955 through Nov. 30, 1956 11,458.19 Additional recovery received from Cokato Postmaster on lost shipment of currency to First National Bank, Cokato, Minnesota, 9/29/55 ______5.00 Reserve for Registered Mail Losses, Dec. 31, 1956 $264,322.33 The following table shows currency and coin shipments made during the twelve-month period December 1, 1955 to November 30, 1956, which was the basis for the addition to the registered mail loss reserve: 12 Months ended 11/30/56 (OOP Omitted) Registered or Insured Mail and Express Net F.R. currency from Washington Currency and coin between Minneapolis and Helena Other currency and coin outgoing Minneapolis and Helena Other currency and coin incoming Minneapolis and Helena $ 54,600 14,316 220,838 283.155 $572,909 The disposition of 1956 net earnings and the changes made in the surplus accounts are shown below: Net Earnings Dividends Paid Paid U.S. Treasury (Interest on F.R. Notes) Transferred to Surplus (Sec. 7) $9,762,543.34 $ 422,045.49 8.406.448.87 Surplus (Section 7) December 31, 1955 Transferred from Earnings 1956 Surplus (Section 7) December 31, 1956 8.828.494.36 $ 934,048.98 $17,586,155.47 934.048.98 $18,520,204.45 -81- DIVIDENDS As of December 31, 1956, capital stock held by member banks totaled $7,182,100, on which accrued dividends totaling $422,045 were paid. This year’s dividend payments were again the largest for any single year in the history of the bank and when combined with previous years' payments, brings the aggregate total to $9 ,173 ,310 . Distribution of 1956 and 1955 Dividends State Michigan Minnesota Montana North Dakota South Dakota Wisconsin 1956__________ Dividend No . of Banks Pa id 40 207 84 40 60 42 473 $ 20 ,819.06 272 ,281.96 46,383.60 25,528.48 34,985.69 22.046.70 $422,045.49 _______ 1955 No. of Banks 40 206 84 40 61 42 473 Dividend Paid Change $ 19,519-36 $+ 1,299.70 260,503.34 +1 1 ,778.62 42,186.93 + 4,196.67 23,496.85 + 2,031.63 32,322.73 + 2 ,662.96 21.227.72 + 818.98 $399,256.93 $+22 ,788.56 TABLE OF DIVIDENDS PAID SINCE ORGANIZATION 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 $ 57,719.87a/ 363,894.19V 168,102.97 180,186.21 195,870.65 211,657.03 213,774.01 212,732.68 202 ,827.98 193,559.46 187,609.25 180,726.51 181,202.86 184,029.92 184,445.39 180,454.53c/ 175,494.80 171,568.89 181,117-51 185,448.45 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 a/ For period November 1, 1914 through June 30, 1915* b/ For period July 1, 1915 through December 31, 1917* c j $1 34,649*67 withdrawn from Surplus to pay dividend. $ 179,052.04 174,057.31 174,231.27 174,905.39 177,400.58 179,789.68 183,336.33 190,924.19 206,158.74 221 ,686.96 238,372.30 253,251.30 262 ,776.22 2725831.22 294,034.00 314,934.23 327,905.73 348,774.12 365,162.76 399,256.93 422.045.49 $9,173,309.95 BANK P R E M I S E S The book value of the Head Office and Branch bank buildings did not change during 1956 s with normal depreciation of ings. 2?jo being taken on both build All expenditures in 1956 due to our building program were charged to the building Construction Account. During the year the Head Office fixed machinery and equipment account was increased $16,305.03 representing installation costs of a new incinerator. By year end, the fixed machinery and equipment accounts at both Head Office and Branch were fully depreciated. CONSTRUCTION ACCOUNT As of December 31, 1956, a total of $4,184,999*82 had been charged to the construction account in connection with our building program. From this total, $406,055.40 was transferred to expense with $350,000.00 being charged to repairs and alterations and $56,055*40 being charged to furniture and equip ment purchases. The bulk of the repairs and alterations figure is due to demolition costs and the major portion of the furniture and equipment expense represents cafeteria equipment. The table on the following page shows construction expense including change orders, amounts paid and balances due as work is completed. BUILDING CONSTRUCTION EXPENSE (as of 12-31-56) Total Amount Amount Paid Balance Due Naugle-Leck, Inc. (Orig. Cont.) Change Orders (Net Amount) Total, Naugle-Leck $4,252,122.00 85.709.43 $4,337,831.43 $3,578,413.00 $759,418.43 Otis Elevator Co. (Orig. Cont.) Change Orders (Net Amount) Total, Otis Elevator Co. $ $ 259,243.46 $151,622.54 $ 219,043.46 $ 20,878.39 Larson & McLaren, Architects (Original fees on Naugle-Leck and Otis Elevator Co.) $ 408,573.00 2.293.00 410,866.00 $ 233,034.75 Change Orders (Fees) 4,400.12 Fees on items totaling $40,845.64 paid direct to Sterling Electric Co. (Naugle-Leck receives no fees on these items) 2,042.28 427.20 Fees for abandoned project Fees on Insulation Sales Co. invoice ($350) paid direct (No fee to Naugle-Leck Co.) $ Less fees paid but not charged to Construction Account Total, Larson & McLaren, in Construction Account Miscellaneous Expense (to 12-31) Miscellaneous Change Order #1 (Paid direct to Sterling Electric Co. No fees paid to NaugleLeck on this item) Grand Total Less amounts transferred tos Repairs & Alterations expense Furn. & Equip. Purchases expense Balance in Construction Account 17.50 239,921.85 -4.736.68 $ 235,185.17 132,613.94* 622.64 $5,117,119.18 -4,736.68 214,306.78 $ 20,878.39 132,413.94 200.00 622.64 $4,184,999.82 $932,119.36 $ -35 0 ,000.00 - 56.055.40 $3s77 8 ,944.42 Total expenditure approved by the Board of Governors in Washington was approximately $5 ,10 5 ,000 . *Includes $84,362.98 which is not to be considered as chargeable against the $5 , 105s000 approval inasmuch as it represents costs for which commitment was made prior to our receiving the Board’s approval for the new construction program. -8 4 - BANK PREMISES Total Head Office Helena Branch BANK BUILDING: Gross Book Values Beginning of -1956 . . Additions during year Deductions during year $1 , 384, 281.50 $1 , 283, 281.50 $101, 000.00 End of Year ....... .$1,384,281.50 VI,283,281.50 $101,000.00 Allowance for Depreciation: Beginning of 1956 . . . . Depreciation ......... 826,563.60 $ 27,685*56 795,633.96 $ 30,929.64 25.665.60 2.019-96 .$ 854,249*16 $ 821,299.56 $ 32,949.6 0 Net book value December 31, 1956 . . . $ 530,032.34 $ 461,981.94 $ 68,050.40 .$ 667,146.34 $ 16,305.03 629,944.35 $ 37,201.99 16,305*03 $ 683,451.37 $ 646,249-38 $ 37,201.99 .$ 667,146.34 $ 629,944.35 $ 37,201.99 End of Year ........... FIXED MACHINERY AND EQUIPMENT: Gross Book Value: Beginning of 1956 . . . . . Additions during year . . . Deductions during year . . . End of Year Allowance for depreciation: Beginning of 1956 . . . . Deductions during year . Depreciation ......... End of Year ........... 16.305.03 $ 16.305.03 683,451-37 $ 646,249.38 $ 37,201.99 LAND: Net book value December 31, 1956....... $ 410,520.66 $ 400,520.66 $ 10,000.00 TOTAL BANK PREMISES: Net book value December 31, 1956 . . . . 940,553*00 $ 862,502.63 $ 78,050.40 Net book value December 31, 1956. . . . $ -85- MILLION LLION DOLLARS NET EARNINGS DOLLARS NET EARNINGS AND P R O F I T S Change 1956 Total current earnings Net expenses Current net earnings $14,113,276 4.346.585 $ 9,766,691 $+3,586,999 + 827.823 $+2,759,176 Additions to current net earnings: Profit on sale of U.S. Government Secur ities held in System Open Market acct. $ 7,371 To reverse entries in connection with con struction program prior to opening our construction account Accepted as full payment for our 60$ share in the industrial loan of Clear Lake Creamery and Produce Co. which has been carried in Industrial Loans Past Due Three Months and against which a 100$ valuation allowance has been provided All other 377 Total additions $ 7,748 $- 4,000 570 78,684 Deductions from current net earnings: Reserve for registered mail losses All other Total deductions $$- 78 .1,534 1,612 77,072 7,409 81,523 — $11,458 438 $11,896 Net deductions from current net earnings $____ 4.148 $- Net earnings and profits $ 9,762,543* $+2,682,104 # For disposition of profits see page No. 81, - 87- The table below gives a breakdown of Profit and Loss during 1956: Total Additions to Current Net Earnings: Profit on sale of U. S. Government securities held in system open market account Adjustment of prepaid expense on three Tickometer machines purchased outright Unclaimed overage in employee pay for May 31, 1956, period Total Additions Deductions from Current Net Earnings: Reserve for registered mail losses Difference account Difference between actual and estimated reimbursable expense for December 1956 Loss on mutilated currency and coin Loss on counterfeits Difference between allotment and market price on $50,000 Treasury bills due 10/ll/56, purchased to correct our error in interpreting a wired order of $150,000 Discount on foreign currency and coin Head Office $ 7,370.70 $ 7,370.70 376.74 294.93 Helena Branch .19 . $ 81.81 _ $ 7,747.63 $ 7,665*82 $ 81.81 $11,458.19 228.04 §>11,458.19 206.35 $ 21.69 123-17 123.17 39.96 34.57 87.63 34.57 10.25 10.25- - 47.67 1.59 1.59 Total Deductions $11,895.77 $11,921.75 25-98 Net Deductions from Current Earnings $ 4,148.14 $ 4,255.93 ^-107.79 - 88 - MILLION DOLLARS MILLION DOLLARS GROSS EARNINGS 11 97 12 91 1925 1929 1933 1937 14 91 1945 1949 1953 1957 16 91 EA RNI NGS Despite the fact that our daily average holdings of earning assets decreased $44,165 thousand in 1956, earnings increased $3,587 thousand from the previous year due to an over-all increase in our yield rate of .747$* Borrowing by member banks was reduced from a daily average of $42,456 thousand in 1955 to $35,396 thousand in 1956 but because of higher rediscount rates during the past year, earnings were $191 thousand greater. Income from "Foreign Loans on Gold" was only $1,756 in 1956 as compared with $23,701 in 1955• During six of the first eleven months of 1956 we had no loans in this category. loans were very nominal. During the other five months of this same period, the In December the daily average was $445 thousand. During 1956 the daily average of Industrial Advances was reduced to $51.4 thousand from the 1955 average of $78.6 thousand. 1956 earnings amounted to $2,591 as compared with $3,997 in 1955* Our daily average participation in the System Open Market account dropped from $579,591 thousand in 1955 to $543,940 thousand in 1956. Despite this decrease, earnings from this source increased $3,417,433 to a total of $13,086,845 for the year. The following tables show the sources of earnings, average daily holdings, average earning rates and holdings of securities as of December 31, 1956. -90- Total Current Earnings (Minneapolis and Helena Combined) Change from ___ 1955 1956 Discounts and advances Foreign loans on ^old Industrial advances U. S. Government securities System account Deficient reserve penalties All other: Clearinghouse fines Commissions earned on Bankers' Accept ances purchased for foreign corres pondents Pro-rata charges on foreign loans Miscellaneous $ 1,008,320 1,756 2,591 13,086,845 11,637 $+ - 191,160 21,945 1,406 +3,417,433 + 808 239 + 1,546 342 ............... i $14,113,276 9 + + 643 342 45 $+3,586,999 Average Daily Holdings 1956 Discounts and advances Foreign loans on gold Industrial advances U, S. Government Securities System account Change from 1955 $ 35,396,478 47,063 51,427 $- 7,059,952 - 1,427,298 27,150 543.940.164 $579,435,132 -35.650.847 $-44,165,247 Average Earning Rate 1956 Discount and advances Foreign loans on gold Industrial advances U. S. Government Securities System account Average rate for above accounts Change from ' • 1955 2.849% 3.731 5.038 + .924% +2.123 - .049 2.406 2.433 + .738 + .747 Participation in System Open Market Account (in thousands of dollars) 12/31/56 Bills Certificates Notes Bonds $ 33,879 246,937 206,759 63.283 $555,858 Change from 12/31/55 $+ 2,465 +103,461 -136,524 - 4.612 35,210 -92- MILLION DOLLARS MILLION DOLLARS EXPENSES Vs 11 97 21 25 29 33 37 41 45 49 53 57 6 1 COMPARATIVE STATEMENT OF NET CURRENT EXPENSE Head Office 19% Salaries: Officers Employees Fees; Directors Federal Advisory Council Other Retirement Contributions; F.R. Retirement System Supplemental Death Benefit Social Security Traveling Expenses: Directors Federal Advisory Council Other Postage and Expressage: Original shipments of F.R. currency Redemptions of ER. currency Other Telephone and Telegraph Printing, Stationery and Supplies Insurance Taxes on Real Estate Depreciation Light, Heat, Power and Water Repairs and Alterations Rent Furniture and Equipment: Purchases Rentals Assessment for Expenses of Board of Governors Federal Reserve Currency: Original Cost Cost of Redemption 411 Other Total Expense Less Undistributed Recoveries Net Current Expense Helena Branch 1956, Combined .._125£ Combined ........ 1255 $ 262,725 1,705,875 $ 26,428 180,873 $ 289,153 1,886,748 $ 276,546 1,745,368 7,850 1,400 5,627 4,190 2 76 12,040 1,400 5,903 10,760 1,350 3,676 153,543 6,667 33,439 12,914 705 3,711 166,457 7,372 37,150 129,935 9,545 34,710 6,510 668 59,069 3,163 6,067 9,673 668 65,136 8,994 732 59,250 11,079 1,988 369,759 27,938 127,896 41,588 160,128 41,971 41,278 354,841 59,757 623 75,615 8,080 11,671 3,184 5,068 2,020 2,998 29,073 39 11,079 2,611 445,374 36,018 139,567 44,772 165,196 43,991 44,276 383,914 59,796 11,895 2,262 441,003 30,578 112,538 25,530 105,213 56,111 38,156 22,861 58,670 161,335 150,941 20,811 20,212 182,146 171,153 28,228 157,030 132,600 132,600 105,000 18,292 7,322 ___ 81.867 $4,033,953 18,292 7,322 87.345 $4,457,152 54,000 8,047 86.390 $3,624,378 5.478 $423,199 105. 531_____5.037_____ 110. 568_____ 105.492 $3,928,422 $418,162 $4,346,584 $3,518,886 -9 4 - NONREIMBURSABLE EXPENSE 1956 Head Office Helena Branch $ 3,928,422 418.162 $ 4,346,584 Change from 1955 $+750,990 + 76.708 $+827,698 Net changes in the various subdivisions of the expense accounts at the Head Office and Branch are distributed as follows: SALARIES 1956 Head Office Helena Branch $ 1,968,600 207.301 $ 2,175,901 Change from 1955 $+127,569 + 26.418 $+153,987 The not increase is due mainly to merit and promotional increases, plus a slight rise in the number of employees and an increase in starting salary of junior employees caused by a change in the wage and hour law. FEES - DIRECTORS 1956 Head Office Helena Branch $ 7,850 4.190 $12,040 Change from 1955 $+ 850 + 430 $+1,280 A larger number of executive meetings in 1956 plus 12 directors' meetings in 1956 compared with 11 in 1955 accounts for the increase at Head Office. -95- FEES - FEDERAL ADVISORY COUNCIL Change from 1955 1956 Head Office $1,400 $+ 50 No important change occurred in this account. FEES - OTHER Change from 1955 1956 Head Office Helena Branch v5,627 276 $5,903 $+ 2,343 116 $+ 2,227 Head Office figures include $962 for our pro rata share of the cost of a special review of the retirement system plus $1,757 paid for complete medical examinations for officers. Both of these items were new expense in 1956 . RETIREMENT CONTRIBUTIONS Change from 1955 1956 Head Office Helena Branch ,>153,543 12. 914 $166,457 *>+35,459 + 1.063 $+36,522 The increase reflects a $28,280 special contribution for a retiring officer plus a change making new employees members of the Retirement System after one month's service rather than after a threemonth period. Since contributions are in direct relation to salary costs, larger -salary expense in 1956 also added to the increase. SUPPLEMENTAL DEATH BENEFIT 1956 Head Office Helena Branch $>6,667 705 $7,372 Change from 1955 $-1,985 ■- 188 $-2,173 An increased premium refund in 1956 accounts for the decrease. SOCIAL SECURITY 1956 Head Office Helena Branch v33,439 3.711 137,150 Change from 1955 $+1,909 + 531 $+2,440 Due to increased salary costs. TRAVEL - DIRECTORS 1956 Head Office Helena Branch 46,510 3,163 $9,673 Change from 1955 *+347 +332 $+679 There was no material change in this account. TRAVEL - FEDERAL ADVISORY COUNCIL 1956 Head Office $668 Change from 1955 $-64 In 1956 our council member or alternate attended a combined total f four out-of-town meetings. -97- TRAVEL - OTHER 1956 Head Office Helena Branch ^59,069 6 .067 $65,136 Change from 1955 $+6,880 -.-994 $+5,886 The increase at Head Office is accounted for as follows 1956 Bank Examination $27,445 Public Services 14,142 Travel on general bank business (schools, conventions, conferences, etc.) 17.482 $59,069 1955 $+4,077 +1,907 + 896 $+6,880 POSTAGE AND EXPRESSAGE Original Shipments F.R. Currency 1956 Head Office $11,079 Change from 1955 $-816 No material change in this account. POSTAGE iiND EXPRESSAGE Redemption F.R. Currency 1956 Head Office Helena Branch No material change in this account. $1,988 623 $2,611 Change from 1955 $+392 - A3 $+349 POSTAGE AND EXPRESSAGE Other 1956 Head Office Helena Branch $>369,759 75.615 $445,374 Change from 1955 $+3,709 + 662 £+4,371 The bulk of the increase at Head Office is due to moving charges in connection with our building program. TELEPHONE AND TELEGRAPH 1956 Head Office Helena Branch $27,938 8.080 $36,018 Change from 1955 $+4,408 +1 .032 $+5,440 Our pro rata share of installation and rental costs for additional equipment for the improved method for sending and receiving transfer of funds, transfers of securties, and allotment transfers of securities, in clear language rather than code accounts for the increase. PRINTING, STATIONERY AND SUPPLIES 1956 Head Office Helena Branch Change from 1955 $127,896 11.671 $139,567 $+24,771 + 2.258 h^+27,029 During 1955 purchases were curtailed because of a shortage of storage space due to our building program. In 1956, as the space shortage eased, we again started buying in larger quantities to take advantage of the price differential for quantity buying. -99- INSURANCE 1956 Head Office Helena Branch *41,588 3.184$44,772 Change from 1955 $+19,103 + 139 $+19,242 The increase at Head Office is the net result of the following: 1256, . Hospital L Surgical $21,879 Bankers Blanket Bond 2,622 Workmen's Compensation 4,640 Comprehensive public and automobile liability 1,224 Building and Contents 10,784 Other 439 *41,588 1255. $+8,145 + 17 +1,773 - 302 +9,500 r 20 $+19,103 TAXES ON REAL ESTATE 1956 Head Office Helena Branch $160,128 5.068 $165,196 Change from 1955 $+59,795 + 188 $+59,983 Because of the building program at Head Office, its assessed valuation on the partially completed structure increased from $640,000. in 1955 to $986,000 in 1956. The tax rate increased 9*86 mills. DEPRECIATION 1956 Head Office Helena Branch $41,971 2 .020 $43,991 Change from 1955 $-12,120 _______ $-12,120 - 100- Normal depreciation of 2% both Head Office and Helena Branch. per annum on building was taken at At the beginning of the year the Fixed Machinery and Equipment at both offices was fully depreciated. During the year $16,305 was added to the Head Office Fixed Machinery and Equipment account and was fully depreciated by year end. LIGHT, HEAT, POWER AND WATER 1956 Head Office Helena Branch $41,278 2.998 $44,276 Change from 1955 $+6,206 -_ 86 _ v+6,120 The main reason for the increase was the necessity for heating the building during cold months at a time when the second and third floors, as well as other areas, had only temporary protection from the weather because of our building program. REPAIRS AND ALTERATIONS 1956 Head Office Helena Branch -*>354,841 29.073 $383,914 The Head Office figure includes $350,000 Change from 1955 9 + 334,441 + 26.612 $+361,053 transferred from our construction account,and the Helena Branch figure includes coin vault alterations costing $ 27 ,120 . - 101 - RENT m k Head Office Helena Branch Change from 1955 $59,757 , ____22 $59,796 $+1,128 A=____2 $+1,126 No material change in this account. FURNITURE AND EQUIPMENT Purchases Change from 1955 1256 Head Office Helena Branch $+138,515 + 15.403 $+153,918 $161,335 20.811 182,146 $ Head Office purchases include the following: Movable steel partitions Transferred from Construction Account (mainly cafeteria equipment) Desks, tables, chairs, adding machines, typewriters, files, etc., and outside cost of repairs to furniture and equipment $ 52,214 56,055 53.066 $161,335 Helena Branch purchases include the following! Armored car Coin handling equipment Passenger car Accounting machine Miscellaneous 5,646 7,335 2,992 1,713 -1,025 $ 20,811 $ - 102 - FURNITURE AND EQUIPMENT Rental 1956 Head Office Helena Branch $150,941 20.212 $171,153 Change from 1955 $+11,686 + 2.437 $+14,123 Head Office costs increased due to rental of cars to handle suburban bank clearings, plus substitution of some 32-pocket I. B. M. machines for 24-pocket machines. Helena Branch check collection activities required rental of two additional I. B. M. proof machines. BOARD ASSESSMENT 1956 Head Office $132,600 Change from 1955 $+27,600 This represents our bank's pro rata share paid to the Board of Governors of the Federal Reserve System to cover its general expenses. FEDERAL RESERVE CURRENCY Original Cost 1956 Head Office $18,292 Change from 1955 $-35,708 Because of our large stock of Federal Reserve Notes, very few were printed for us in 1956. -103- FEDERAL RESERVE CURRENCY Cost of Redemption 1956 $7,322 $-725 1956 Head Office Change from 1955 Change from 1955 No material change in this account. ALL OTHER Head Office Helena Branch $81,867 5.£78 $87,34-5 $- A U +1.369 $+ 955 Expense for extending the electric burglar alarm system at the Helena Branch accounts for this increase. COMBINED REIM B UR SA BL E EXP END ITUR ES OR RE CO VE RI E S Account of Public Debt Federal Taxes Department of the Army Department of the Navy Department of the Air Force Atomic Energy Commission Commodity Credit Corporation F.R.B. Chicago, Fiscal Agent for R.F.C. Federal Farm Mortgage Corporation Federal Land Banks Federal Intermediate Credit Banks Central Banks for Cooperatives Federal Home Loan Banks Federal Public Housing Administration Federal National Mortgage Association Coin Wrapping Services Processing Post Office Money Orders Destruction of Unfit U. S. Currency Foreign Assets Control Miscellaneous Profit and Loss - over-estimate of Reimbursable Expense 1956 Change from 19.55 $401,950 32,19? 265 188 18 203 14,235 514 8 429 42 9 49 6 27 17,423 20,042 5,794 181 29,890 $-28,071 + 1,460 247 ■ f 153 2?4 401 + 1,528 76 + 3 213 + * 24 2 531 9 - 1,611 + 872 + 2,142 619 + 181 + 7,422 __ 929 $524,399 + 806 $-17,085 -1 0 5 -