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T

he Federal Reserve Bank of

Atlanta is one of twelve regional
Reserve Banks in the United States

that, together with the Board of Governors

in Washington, D.C., make up the Federal
Reserve System-the nation’s central
bank. Since its establishment by an
act of Congress in 1913, the Federal
Reserve System’sprimary role has been
to foster a sound financial system and a
healthy economy.
To advance this goal, the Atlanta Fed
helps formulate monetary policy,
supervises and regulates banks and bank
holding companies, and provides financial
services to depository institutions and
the federal government.
Through its six facilities in Atlanta,
Birmingham, Jacksonville, Miami,
Nashville, and New Orleans, the Federal
Reserve Bank of Atlanta serves the Sixth
Federal Reserve District, which comprises
Alabama, Florida, Georgia, and parts of
Louisiana, Mississippi, and Tennessee.







Message from the President

....

. . . .2

Insight into a Changing World

...

. . . .5

Directors
Officers

, . . .22

..
..... .

Financial Reports

,30

.

. . . . 34

M E S S A G E

F R O M

T H E

P R E S I D E N T

“We want to serve the general public.”
So argued Joseph A. McCord, the Federal Reserve Bank of
Atlanta’s first governor, at the Federal Reserve’s Fourth
Conference of Governors in June 1915. In McCord’s day, the
Sixth Federal Reserve District was struggling, with money and
credit in short supply. For McCord, therefore-and for the
Atlanta Fed’s nine-member board of directors-serving the
public meant lowering interest rates. And in 1915, that would
have meant lowering the discount rate.
Almost everything has changed

clear checks, but we also operate the

since then. The Sixth Federal Reserve

Automated Clearinghouse and Fedwire

District is now among the nation’s

and are pushing hard for innovations

fastest growing regions. The discount

like electronic check presentment. We

rate is no longer the primary instru-

still regulate state-chartered banks that

ment of monetary policy. District

are members of the Federal Reserve

governors are now called presidents.

System, but we also now regulate bank

And the Federal Reserve Act-the

holding companies and supervise

1913 legislation that created the

foreign banks operating in the United

Federal Reserve System and defined

States. We educate banks and others

its duties-has

about effective community development

been amended more

efforts. And at the broadest level, the

than eight times.
Nevertheless, the Fed‘s three principal duties-monetary

stabilization,

Fed remains the central bank of the
United States, though we now carry

payments processing, and bank

out this domestic mission in an

supervision-remain. We continue to

environment where the dollar is the




Jack Guynn, Atlanta Fed president and
CEO (left), and Pat Barron, first vice
president and chief operating officer,
in the Bank’s boardroom




world's reserve currency. At the

manifestations of that role, a particularly

Atlanta Fed, in 1998 we processed

important one in a region as rich in

more checks than any other Federal

economic, industrial, and social diversity

Reserve Bank. We became headquar-

as ours. Some of those activities-

ters for the Federal Reserve System's

economic intelhgence, for example-

Retail Payments Office. We supervised

are more obvious than others. But a l
l

five of the nation's fifty largest banks.

contribute to the effective execution

Our economists produced research

of our duties.

focusing on the most innovative

Governor McCord's views on mone-

and rapidly changing aspects of the

tary policy did not carry the day in

economy and the financial system. An

1915. Fortunately, however, his vision

expanded community service program

for the Federal Reserve System in

demonstrated our strong commitment

general-and

to the people of our district, and

particular-did prevail. We still want

management worked to enhance our

to serve the general public. Our

attractiveness as an employer.

directors help ensure that we succeed

Few of these activities would be
familiar to Governor McCord. Still, he
surely would recognize one thmg that
has not changed since 1914: the central
role of Reserve Bank directors. The
pages that follow examine a few
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the Atlanta Fed in

in that mission, and this annual report
looks at how they do so.

GP
JACKGUY"

I N S I G H T

I N T O

A

C H A N G I N G

W O R L D

Federal Reserve Banks uniquely combine public and private elements. As Governor
McCord declared long ago, the Federal Reserve System has serious public
purposes. Yet Congress, in 1913, chose to organize each bank much like an ordinary
private business, complete with a corporate charter, member banks that are shareholders, and a board of directors. In addition to this corporate board, Congress
allowed Federal Reserve Banks’ directors to designate directors at each Reserve
Bank branch. These corporate parallels help shield the Federal Reserve System’s
decision making from the shifting winds of day-to-day political issues, a proper safeguard for an institution charged with stability of the U.S. monetary system.
Reserve Banks’ unique structure also gives the Federal Reserve System
several ways of fostering stability and efficiency in a world in which change rules
the economy and the financial system. Each Reserve Bank and branch board and
each Bank’s advisory council on small business, agriculture, and labor plays an
important role in accomplishing the Federal Reserve’s mission. The directors and
council members, who represent the broad interests of banking, business, labor,
agriculture, and consumers, meet the world at their doorsteps every day and must
meet its changing demands to be successful in their private pursuits. They brina
their varied knowledge and insights to the Reserve Bank.
The Federal Reserve Bank of Atlanta particularly benefits from the involvement
of these outside leaders. With its main office and five branches, the Atlanta Fed
has more directors than any other Fed Bank. These leaders lend a business perspective to implementing the Bank’s strategic plans. The Bank’s advisory council
brings focused attention to the specific concerns of small business, agriculture,
and labor. Together, the experience and insights of the directors and council members, as well as their observations on current economic developments, give the
bank a deeper, more forward-looking perspective into the work of serving the public in a changing economy.
The photos and stories that follow feature a small sample of Federal Reserv
Bank of Atlanta directors and advisers, the diverse array of economic activities
they represent, and the important place this representation has in helping the
Atlanta Fed serve the public effectively.



I N S I G H T

I N T O

Technology

A

t Martin Farm in Courtland, Alabama,
autumn hails the cotton harvest, as it
has for more than two centuries across

the South. But for Larkin Martin, farming is not

what it used to be. In industries from cotton
farming to space technology and lugh finance,
the southeastern economy faces the changes
reverberating from breath-taking technological
advances and shifting global dynamics. Indeed,
these forces are felt worldwide.
Directors like Martin are essential to the
Bank's success. Martin, like Miami branch
director Mark Sodders, a sugarcane and sweet
corn producer in south Florida, gives the Fed a
window onto agriculture. As a cotton farmer,
Martin has accompanied the South's oldest
industry into the current environment of
globalization and technological advances that
have revolutionized the industry. Such
experience in using technology to manage
challenges-like

increasing worker productivity

to overcome tght labor markets-helps

the

Atlanta Fed understand the depth of these
changes and the ways businesses are adapting.

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array of businesses, nonprofits, and financial

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Like Martin, who also oversees family

institutions keep the Atlanta Bank mindful that

interests in a ginning operation, an agricultural

it must not only respond to but also embrace

custom application business, and a tractor deal-

and lead in d e w with the forces of change. In

ership, many of the Bank's directors wear more

1998 one of the biggest challenges the Federal

than one hat. The perspectives from a broad

Reserve System faced was leading changes in the




country's retail payments system. To play a
strategic part in these changes, the Federal
Reserve Bank of Atlanta took on this charge for
the entire Federal Reserve System, with the
transfer of the System's Retail Payments Office
to the Atlanta Fed.




I N S I G H T

I N T O

Globalization

W

Me regional industries like cotton
farming have long been a focus of

Bank staff as they monitor economic

and financial conditions, today's scope of analysis
is unbounded by regional or national limits.
Globalization is behind the way businessesand the Fed-do

almost everythug because of

the implications for financial systems, payments

t




A

systems, markets for goods, and information

Southeast’s textiles, paper, and produce. From

flows. Directors like Maria Camila Leiva

her post at the Miami Free Zone Corporation,

and Carlos Migoya help the Federal Reserve

Leiva sees what cannot be conveyed in statistics.

make sound, informed decisions in the face of

More than just the numbers of inbound contain-

global concerns.

ers, she knows what’s in them, where they’re

As the nation’s eighth-largest seaport,

from, and the impact they’re likely to have on

Miami is both a point of entry for the world‘s

the economy at large. And in 1998, lower-priced

largest market and a point of departure for the

imports made a very substantial contribution to




the low-inflation environment.
Increased international trade through ports
at Miami and the Gulf Coast is one feature of the
southeastern economy today of keen interest
to the Bank‘s regional research in support
of monetary policy. But the implications of
globalization are much broader than trade. The
research arm of the Atlanta Fed, headed by
Robert Eisenbeis, explores international issues
with a view toward formulating effective
monetary policy in today’s dynamic and open
environment, in which disruptions in exchange
rates halfway around the world can send shock
waves through U S . financial markets and shake
confidence in the domestic economy. In
addition, the Atlanta Bank has the charge of
examining banks with parent organizations in
Latin America and the Caribbean and, generally,
providing in-depth information on the region’s
financial systems. This information helps other
Federal Reserve Banks and the Board of
Governors determine whether banks seeking a
U.S. charter have comprehensive and consoli-

I

Supplementingthe formal economic
research of Bank staff, Atlanta Fed
Senior VP and Director of Research
Robert Eisenbeis (center) confers at
the Port of Miami with Atlanta
director Maria Camila Leiva (left),
executive VP of the Miami Free Zone
Corp., and Miami branch director
Carlos A. Migoya, a reglonal
president for First Union National
Bank of Florida, about how
developments in Asia might affect
trade and financial flows to Latin
America and the United States.

dated supervision in their home countries.

l N S l B H T

I N T O

Financial
Systems

G

lobal and technological changes affect

providers of financial services no
less than industries like farming and

shipping. Credit-scoring models allow loan
applications to be approved in seconds. Risk
portfolios can be managed with sophisticated
computer t r a m strategies. Financial firms
offer more products, serve more markets,
and take and manage more risks. These broad
transformations, combined with regulation,
deregulation, and numbingly rapid advancements in the way ventures are financed and
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funds marshaled, offer particular challenges to
financial leaders and the Federal Reserve today.
Because Federal Reserve Banks serve
financial firms directly, supervise them, and
depend on them as a path for the influence of
monetary policy, leaders in banking and other

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kinds of financial activities make up the largest
industry group on Reserve Bank boards. To
secure insight from a variety of perspectives,

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banks that are members of the Federal Reserve

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System elect representatives of commercial

Kirk Landon and Hundley Batts, insurance

banks of al sizes to the Bank's corporate board.
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executives, keep the Atlanta Fed up to date and

Recognizing the need for a broader perspective

loolung ahead on current practices and products

on the financial services industry, however, the

and on credit flows and quality.

Atlanta Fed has also recruited directors from a

One of the greatest challenges the Fed faces

variety of financial iirms: Whitney Johns, a

is to help formulate a modern approach to

venture capitalist,.Michael Poole, an investment

ensuring financial system safety and soundness,

banker, Terry West, a credit union CEO, and

one that can prevent or at least contain systemic

Page 10




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breakdown without impedmg the innovation that

has become the hallmark of this industry. The
interaction of directors like Johns and Howard
McMiUan with Federal Reserve Board Governor
Roger Ferguson, a former banking consultant,
and Bank staff helps the Fed understand issues
like the impacts of deregulation.




1

Atlanta director Howard 1 McMillan Jr.
.
(right), chairman of the Jackson
[Mississippi] Advisory Board of Deposit
Guaranty National Bank, and Nashville
branch director N. Whitney Johns (left),
chairman and CEO of Whitney Johns
& Co., discuss changes in the financial
system and the challenges these
pose to the current approach to
regulation with Roger W Ferguson Jr.,
.
a member of the Federal Reserve’s
Board of Governors.




I N S I G H T

I N T O

Deregulation

D

irectors David Jones and David Guidry

firms. Their input also keeps the Fed close to

each manage a business in the energy

developments in a part of the economy that has

industry, where rapid changes in tech-

long been under global influences. Over the past

nology and industry economics have recently

three decades, the energy industry has been

combined with deregulation to provide a

central to both recession and recovery in

challenging environment. As chairman of the

the nation’s economy and a major influence

natural gas utility AGL Resources Inc., Jones has

on prices.

witnessed the Georgia company’s transition from

A smgle technological innovation or the

a regulated monopoly to a price- and service-

deregulation of natural gas services to consumers

sensitive provider in a highly competitive market.

in a single state may seem trivial in the grand

Guidry‘s company, Guico Machine Works,

scheme of monetary policy. But the cumulative

fabricates metal parts for the oil extraction

impact of one innovation and one policy initiative,

industry (among others). So when advanced

multiplied over fifty states and thousands of

horizontal drilling technologies arrived in the

energy-consuming industries, is truly macro-

Gulf a few years ago, Guidry literally helped

economic in its reach. When consumers spend

build the platform they stand on.

less on energy and energy-consuming products,

Along with other directors from the energy

they’re able to spend more on other things.

industry, like Glenn Pumpelly of Sulphur,

Declines in energy prices can offset upward price

Louisiana, Jones and Guidry inform the Atlanta

pressures in the short run.These kinds of

Fed about their industry’s experience with

insghts are vital to the Bank as it contributes to

deregulation and technological change, which

the formulation of monetary policy.

complements that of directors from financial




I N S l a H T

I N T O

Health Care

A

s the impressive instrument towering

through acute-care hospitals. Through the

over directors Paula Lovell and

monthly reports of branch directors, he offers

James Dalton and Atlanta Fed

an insider’sperspective on technology’s impact

executive Ronnie Caldwell suggests, vast

on the industry as well as the direction of

technological changes have made health care a

managed care.

major economic concern. While technological

One of Caldwell’s responsibilities is the

developments in telecommunications,

Bank‘s human resources function. As it is for

transportation, and energy extraction have .

businesses everywhere, the issue of attractmg

helped slow price increases or even reduce

competent and creative staff is of great concern

prices, such developments in the health care

to the Atlanta Fed. Both the costs and delivery of

industry have not always done so. In assessing

health care hold an important place in decisions

developments in the overall economy and in

on offering attractive employee benefits, so the

providmg benefits to employees in businesses

Bank values the guidance that directors like

throughout the economy, it is essential to take

Lovell and Dalton and others in health care-

health care issues into account.

related organizations, like Florida Blue

Lovell’s public relations E m ,like other small

CrossBlue Shield chief William Flaherty and

companies, faces challenges of providing

Teri Fontenot of the Women’s Health Foundation,

competitive benefits and working conditions in

can provide. If the Bank is to lead, it must also

an evolving labor market. She brings that

adjust to other labor force changes occurring all

particular perspective as well as those of her

over the nation. Directors and advisory council

large national clients to monetary policy

members representing labor organizations, like

discussions of the Atlanta board as it considers

Bruce Carr of the Alabama AFL-CIO and Saturn’s

recommending discount rate changes. Dalton’s

Michael Bennett, help keep Bank managers

company provides health services directly

informed on a variety of labor force issues.

voge 14







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the health care industry of increasingly
sophisticated medical equipment, like this
digital angioplasty machine at Vanderbilt
University Medical Center in Nashville.

I N S I Q H T

I N T O

Tourism
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n the burgeoning Mississippi coast,
Lucimarian Roberts, as past president
of the Mississippi Coliseum Commis-

sion, has been a leader in another of the big
changes in the southeastern economy. Over the
past thirty years, developments in tourism and
business travel have transformed pockets
of the region. No longer content to see tourists
only in New Orleans’s French Quarter or on
Florida’s beaches, fmns and governments
throughout the Southeast have built attractions
like theme parks, casinos, and convention
centers to bring in visitors from the United
States and abroad for recreation or meetings and
trade shows. The convention trade, for example,
now thrives in cities throughout the region,
including Atlanta, Miami, Orlando, Nashviue, and
New Orleans, which have expanded aggressively
beyond traditional tourism. Tourism includes
an array of services, from food service,
transportation, and lodging to entertainment.
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So in addition to attractmg visitors, tourism also

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provides jobs across a wide range of skill levels.
This influx has brought rapid growth to

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places like the Mississippi coast. It has furthered

about problems arising from tight markets

the region’s economic diversification by giving

for labor in fast-growing industries and the

it another engine of growth. It has taught

sometimes negative effects that rapid growth in

managers of businesses and financial institutions

industries like gaming can have on consumer

that deal with tourism about global develop-

welfare. Directors who serve tourists and

ments. Recently, it has also generated lessons

business travelers, like Roberts and Keith Cobb,

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past vice chairman and CEO of Alamo Rent A
Car Inc. in Fort Lauderdale, Florida, give the
Atlanta Bank insights into both consumer and
business behavior.




I N S I G H T

I N T O

Gonsumers
N

A

ny public institution must turn to the
ultimate user of its services for
validation. Thus, the Federal Reserve

must turn to the behavior of the general
public-ultimately

as consumers-to

assess

the economy in which it operates. Because purchases by U S . consumers account for two-thirds
of the country’s gross domestic product, an
understanding of consumer behavior is critical to
effective monetary policy malung, particularly in
a year like 1998, when spending grew faster
than income for several months. Director
Suzanne Boas, president of the Consumer Credit
Counseling Service of Greater Atlanta, gives
particularly valuable insights from the
consumer’sperspective about the effects of
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changes in industry, employment, credit
practices, and financial institutions generdy.

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Success stones like that of Alpharetta, Georgia,
entrepreneur Gordon Wadsworth, who paid off
$30,000 of debt, contain the elements of

problems consumers face in today’s demandmg
society as well as solutions of which the Atlanta
Fed can be a part. Wadsworth now helps CCCS
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educate consumers about overcoming problems
and malung wiser choices in the future.
Boas and other directors like automobile

they apply for credit and from misinformation

dealer Juanita Baranco, home builder John

in the process of choosing financial products.

Wieland, and those from financial firms that

Through its community affairs activities, the

serve individuals and familes also contribute to

Bank fosters responsible programs for promoting

the Atlanta Bank in another important way.

economic development in low- and moderate-

Reserve Banks are charged with protecting

income communities. The experiences of

consumers from bias and unfair practices when

directors who sell or lend to consumers or who

page 18



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his success in paying off $30,000
of debt and welcome hls help In
educating other consumers.

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counsel them about credit help the Bank deal
with this important responsibility.In addition,
directors’ connections with the public and
consumers through their businesses or
community service help the Atlanta Fed gauge
new trends in the economy and public reactions
to Federal Reserve policies and programs.




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S. KMk (left), a member of
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pmvfde opportunities

I N S I G H T

I N T O

Small Business

L

ike the directors represented, Willie Kmg

daily challenge of anticipating and taking the

is in his work environment, or one of them.

next step in the various areas of business

He is owner of a transmission shop, a t x
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responsibilities, it would be easy to lose sight

service, a funeral home, and a service that reads

of whom the Bank really serves. Directors and

gas and electric meters in the Lake Charles,

advisory council members like Kmg, leaders in

Louisiana, area. In his role on the Bank's Small

community service as well as in their own fields,

Business, Agriculture, and Labor Advisory

serve as role models as the Bank is increasing its

Council, he specifically helps address small

own commitment to service in the communities

business concerns about economic develop-

where it operates.

ments, financial system changes, and Federal

In 1998 the District expanded its community

Reserve policy. Like other council members

relations programs through several new

and directors, he brings somethmg more than

initiatives like Christmas in April, a multicity

business expertise to the bank, however. Even

program to repair and paint houses in older inner

as he successfully pursues his entrepreneurial

city neghborhoods, and Each One Save One, a

goals, Kmg is deeply dedicated to serving

mentoring program for students in some of New

his community. He is a member of the boards

Orleans's most impoverished schools. Directors

of fourteen community service organizations

and advisory council members help the Bank stay

that engage in activities like job training, health

aware of community needs and true to the ideal

services, and treatment of substance abuse.

that a model public institution must also be a

It is no accident that community service

model corporate citizen. Thus, they help the

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ranks high among priorities of the Bank's

Federal Reserve Bank of Atlanta continue to

directors and advisory council members. The

pursue the vision James McCord expressed so

Federal Reserve System has been entrusted by

simply so many years ago.

Congress to do the people's business. With the




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BOARD OF

F

ederal Reserve Banks each
have a board of nine
directors. Directors provide

economic information,

have broad oversight responsibility

for their Bank’s operations, and,
with Board of Governors approval,
appoint the Bank’s president and
first vice president.

Six directors-three class A,
representing the banking industq,
and three class B-re
elected by
banks that are members of the
Federal Reserve System. Three class
C directors (including the chairman
and deputy chairman] are appointed
by the Board of Governors. Class B
and C directors represent agriculture, commerce, industq, labo?;
and consumers in the District; they
cannot be oficers, directors, or
employees of a bank; class C directors
cannot be bank stockholders.
Branch banks’ boards have five
or seven directors; the majority
are appointed by head-ofice
directors and the rest by the Board
of Governors.




DIRECTORS:ATLA

David R. Jones

D. Paul Jones Jr.

CHAIRMAN

Chairman
AGL Resources Inc.
Atlanta, Georgia

Chairman and
Chief Executive Officer
Compass Bancshares hc.
B e a m ,Alabama

John W&nd

Ma& Camila Leiva

DEPUTY CHAIRMAN

Executive Vice President
Miami Free Zone Corp.
Miami. Florida

Chief Executive
Officer and Chairman
John Wieland Homes and
Neighborhoods Inc.
Atlanta, Georgia

Juanita P. Baranco
Executive Vice President
Baranco Automotive Group
Morrow, Georgia

Suzanne L Boar
President
Consumer Credit
Counseling Service Inc.
Atlanta, Georgia

Waymon L Hieknrn
Chairman and
Chief Executive Officer
First Farmers and Merchants
National Bank
Columbia, Tennessee

Paula Lorall
President
Lovell CommunicationsInc.
Nashville, Tennessee

Howard L McMillan J.
r
Chairman
Jackson Advisory Board
Deposit Guaranty National Bank
Jackson, Mississippi

FEDERAL ADVISORY
COUNCIL M E M B E R

Stephen A H a d
.
President and
Chief Executive Officer
Hibemia Corp. and
Hibemia National Bank
New Orleans, Louisiana

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NOT PICTURED: MsWlLLAN

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BOAS

BARANCO

D. PAUL JONES




LO\

BRANCH

DIRECTORS:BIRMINGHAM

PatIiChB.colnpton

w. clurkr h y e r Ill

CHAIRMAN

Senior Executive Vice President
AmSouth Bancorporation
President, Alabama, Tenness.ee
and Georgia Banldng Group
Amsouth Bank
Birmingham,Alabama

President
Patco Inc.
Georgiana, Alabama

Hundley h t t s Sr.
Owner and Managing Agent
Hundley Bath and Associates
Insurance Agency
Huntsville, Alabama

D. Bruce cam
Labor-Relations Liaison
Laborers’ District Council
of Alabama
Gadsden, Alabama

1 Stqhw Ndsffl
.
Chairman and
Chief Executive Officer
First National Bank of Brewton
Brewton, Alabama
COUP

RolrdFe
Chairman
Roland push Construction Inc.
Northport, Alabama

v. Lafkin hl8#thl
Managing Partner

Martin Farm
Courtland, Alabama

BRANCH DIRECTORS:

JACKSONVILLE

Judy R. Jones

Wlllhm 6. Smii J.
r

CHAIRMAN

President
J. R. Jones and Associates
Tallahassee, Florida

President and
Chief Executive Officer
Capital City Bank Group
Tallahassee, Florida

William E. Flaherty

RaycaB.walden

Chairman
Blue Cross and Blue Shield
of Florida Inc.
Jacksonville,Florida

President
Walden Enterprises Inc.
Orlando, Florida

Mihad w.

TemyRW
pode

Principal
Poole Carbone Capital
Partners Inc.
Winter Park, Florida

President and
Chief Executive Officer
Jax Navy Federal Credit Union
Jacksonville,Florida

Marsha 6. W e
bg
Partner
Foley & Lardner
Tampa, Florida




N O T PICTURED: JONES

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B R A N C H D I R E C T ~ R SM
:

IAMI

R Mirk landon

callor A. Milpya

CHAIRMAN

Chairman
American Bankers
Insurance Group
Miami, Florida

Regional President
Dade/Monroe Counties
First Union National Bank
of Florida
Miami, Florida

D. Keith Cobb

James w. Moorr,

Past Vice Chairman and
Chief Executive Officer
Alamo Rent A Car Lnc.
Fort Lauderdale, Florida

Past President
G l Utility Co.
uf
Fort Myers, Florida

Kaaren Johnron-Sbwt
Vice President of Minority
Business Development and
Urban Initiatives
Enterprise Florida
Coral Gables, Florida

E.AnthonyPast President and
Chief Executive Officer
Island National Bank
and Trust Co.
West Palm Beach, Florida

WIGOVA

Mik 1 sodden
a .
r
President
Lakeview Farms Inc.
Pahokee, Florida

BRANCH DIRECTORS:

Francs F Marcum
.
CHAIRMAN

Chairman and
Chief Executive Officer
Micro Craft Inc.
Tullahoma. Tennessee

M k h d E. Benne#
U W Manufacturing Advisor
A
UAW Local 1853
Saturn Corp.
Spring Hill, Tennessee
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James E. Dalton Jr.

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President and
Chief Executive Officer
Quorum Health Group Inc.
Brentwood, Tennessee

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Dk W. polky
a
President
First American National Bank
Nashville, Tennessee

Idm E. Sewad Jr.
President and
Chief Executive Officer
Paty Lumber Co.
Piney Flats, Tennessee

L A Walker Jr.
.
Chairman and

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N A S H V I LL E

Chief Executive Officer
First National Bank
and Trust Co.
Athens, Tennessee

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N. W h i i Johns
Chairman and
Chief Executive Officer
Whitney Johns 81 Co.
Nashville, Tennessee

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NOT P I C T U R E D : BENNETT, WALKER

SODOERS




JOHNSON-STREET

I

COBS

MARCUM

SEWARD

BRANCH

D I R E C T O R S : N * ]W L E A N S
E&

Ludmarian 1 R o b
.

Howell N. Orgs

CHAIRMAN

Chairman and
Chief Executive Officer
Merchants Bank
Vicksburg, Mississippi

Past President
Mississippi Coast Coliseum
Commission and
Community Advocate
Biloxi, Mississippi

JaclQn H. Ducote
President
Public Affairs Research
council of Louisiana
Baton Rouge, Louisiana

Tari 6. Fontsnat
President and
Chief Executive Officer
Woman's Health Foundation
Baton Rouge, Louisiana

Homrd C. blner
President, Mltr Division
iiay
First USA Partners
New Orleans, Louisiana

WWlY
President and
Chief Executive Officer
Guico Machine Works Inc.
Harvey, Louisiana

R Gknn Pumpelly
President and
Chief Executive Officer
Pumpelly Ol Inc.
i
Sulphur, Louisiana

NOT PICTURED: DUCOTE

SMALL BUSINESS, AGRICULTURE,
AND LABOR ADVISORY COUNCIL

Stewart Acuff

Clark S. Coogan

Willii S. King Jr.

James E. S m i i

President
Atlanta Labor Council
AFI-CIO
Atlanta, Georgia

Principal
Coogan &Associates, CPAs
Jacksonville,Florida

Owner/Operator
King's Transmission Service
King's Funeral Home
King's Meter Reading Service
Lake Charles, Louisiana

Vice President
District 3 Communication
Workers of America
Decatur, Georgia

John Hank

Luis &mil
Principal
Bermello, Ajamil &
Partners Inc.
Miami, Florida

Peter E. Black
Chief Executive Officer
W o k Corp.
Decatur, Georgia

President
Corporate Environments
Atlanta, Georgia

John lkndrickr
President
Alabama Cryogenic
Engineering Inc.
Huntsville, Alabama

L a V m L Turpin
Richard A. Machek
General Manager
Mazzoni Farms Inc.
Boynton Beach, Florida

Wta P Mitchell
.
Investment Representative
Edward Jones
Nashville, Tennessee

Jarnet A Hughas
.

Benjamin F wlrkett
.
Owner
B&BFarms
Petal, Mississippi




Hughes Family Farm
Cottonwood,Alabama

Danny Rochalle
Owner
Royal Oaks Farms
Nunnelly, Tennessee

Owner/Manager
LaVergne's Telemessaging
Alexandria, Louisiana




GAINES

ROBERTS




Standing: Herr, Elsenbeis, Caldwell, Guynn, Hawkins
Seated: Estes, Bamn, DeBeer, Brown

;-+*-

1

MANAGE MENT COMMITTEE

Jack Guynn

h a M. &Beer
n
n

FraderSekRkT

CHAIRMAN

Senior Vice President

Senior Vice President

RMA.&enbeis

Rkhard R o l i

Senior Vice President and
Director of Research

Senior Vice President

President and
Chief Executive Officer

Patriek Id Barron
VICE CHAIRMAN

First Vice President and
Chief Operating Officer

w. Ronnie C a M l
Executive Vice President




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ChhrbtopherG.Brorm

William B. Estes 111

ADVISER

Senior Vice President

Vice President and
General Auditor

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Jarnet

D. Hawkins

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Senior Vice President
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page 31

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OTHER CORPORATE OFFICERS

SENIOR VICE PRESIDENTS
Frank 1 Cman J.
.
r

DoluldLNakan

Edmund Willingham

Senior Vice President

Senior Vice President

Senior Vice President and
General Counsel

VICE PRESIDENTS
LOiSc.Bedhaume

Qnthiac.Goodrrin

BobbieH.McCrrcldn

Ad~ienne Wells
M.

Vice President

Vice President

Vice President and
Public Affairs Officer

Vice President

S u z l n ~ coatdl0
1
.

ZlllhRW

Vice President

Vice President

John D. Pelick

Vice President

Thonur, 1 Cunningham
.
Vice President

khnRb

ROMM N. Zhnennan
Vice President

Vice President

Mary S. Rosenbaum
Vice President

GfimldP.Dwyf#r
Vice President

6 F m k King
.
Vice President and
Associate Director
of Research

Lany 1 Schulz
.
Vice President

ASSISTANT VICE PRESIDENTS
VickihAndanOn

Daniel A. Maslaney

Melinda 1 Rushing
.

Assistant Vice President

Assistant Vice President

Assistant Vice President

JFoley
Assistant Vice President

Edward c. Andrrm,

Jayne Fox

Maw M. Mcconnkk

R o b d M. Schenck

Assistant Vice President

Assistant Vice President and
Corporate Secretary

Assistant Vice President

Assistant Vice President

Marie E. McNauy

Robart T sexton
.

Bany 6. Ha8tin 1
-(

Assistant Vice President

Assistant Vice President

John H. Atkiman
Assistant Vice President

Assistant Vice President

knclir A. Murphy Idgdl

Assistant Vice President

G3dYllC.W

David W. slni

Assistant Vice President

Assistant Vice President

Alvin L Filkinton J.
r

John S. Branigin

Aruna W

Assistant General Auditor

Assistant Vice President

Assistant Vice President

James L Warn
Assistant Vice President

Janet h M n g

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Assistant Vice President

Ted 6. Rddy 111

Edwina M. Taylor

-Hay
Assistant General Counsel

Assistant Vice President

Assistant Vice President

Maw M. w

Marion P Rivers 111
.

Lany D. Wall

Assistant Vice President

Research Officer

W l i m T Robardr
.

Julius 6. Wrylnan

Research Officer

Assistant Vice President

Joan H. Buchnan
Assistant Vice President

David F cam
.
Assistant Vice President

Assistant Vice President

Roberto 1 chrng
.
Research Officer

R

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.

Assistant Vice President

SusanLUobsdsm

ClUpalkD. Davis
Assistant Vice President

Albeit L Maltin 111
Assistant General Counsel

1 COuItmy Duhies
.
Assistant Vice President and
Community Affairs Officer

oage 32



lGmbedyK.windcl

Assistant Vice President

Assistant Vice President and
Community Relations Officer

BRANCH OFFICERS

ATLANTA

JACKSONVILLE

NASHVILLE

James M. McKee

RobartJ.Shck

Vice President and
Branch Manager

Vice President and
Branch Manager

Mdvyn K. Purcall
Vice President and
Branch Manager

Ma& C. Gooding

ChristoPherLoalday

Lee c. knes

Assistant Vice President and
Assistant Branch Manager

Assistant Vice President and
Assistant Branch Manager

Assistant Vice President and
Assistant Branch Manager

Christopher N. Alexander

Damn 6. Finley

Annita T Moore
.

Assistant Vice President

Assistant Vice President

Assistant Vice President

R0bedA.h

JeffreyLWelbkn

loel L W a r n

Assistant Vice President

Assistant Vice President

Assistant Vice President

BIRMINGHAM

MIAMI

NEW ORLEANS

Andre T Anderson
.

James T Curry 111
.

Rokrt 1 Murw
.

Vice President and
Branch Manager

Vice President and
Branch Manager

Vice President and
Branch Manager

Margaret A. Thomas

Juan del Busto

Amy S. Goodman

Assistant Vice President and
Assistant Branch Manager

Assistant Vice President and
Assistant Branch Manager

Assistant Vice President and
Assistant Branch Manager

Fredric L Fullerton

Fred D. Cox

W. JeffreyDevine

Assistant Vice President

Assistant Vice President

Assistant Vice President

William R. Powell
Assistant Vice President

chalks w. t i m e

Robed A. de Zayas

Edward B. Huglles

Assistant Vice President

Assistant Vice President

Assistant Vice President

Robert Id Morando
Assistant Vice President

Assistant Vice President




Paticia D. Van de Grad




FEDERAL RESERVE BANK OF ATLANTA

Financial Reports

M A N A G EM ENT’S ASS ERTI 0 N

To the Board of Directors of the
Federal Reserve Bank of Atlanta

The management of the Federal Reserve Bank of Atlanta (FRB of Atlanta) is responsible for the preparation and
fair presentation of the Statement of Financial Condition, Statement of Income, and Statement of Changes in
Capital as of December 31, 1998 (the “Financial Statements”). The Financial Statements have been prepared in
conformity with the accounting principles, policies, and practices established by the Board of Governors of the
Federal Reserve System and as set forth in the Financial Accounting Manual for the Federal Reserve Banks, and
as such, include amounts, some of which are based on judgments and estimates of management.
The management of the FRB of Atlanta is responsible for maintaining an effective process of internal controls
over financial reporting including the safeguarding of assets as they relate to the Financial Statements. Such
internal controls are designed to provide reasonable assurance to management and to the Board of Directors
regarding the preparation of reliable Financial Statements. This process of internal controls contains selfmonitoring mechanisms, including, but not limited to, divisions of responsibility and a code of conduct. Once
identified, any material deficiencies in the process of internal controls are reported to management, and appre
priate corrective measures are implemented.
Even an effective process of internal controls, no matter how well designed, has inherent limitations, including the
possibility of human error, and therefore can provide only reasonable assurance with respect to the preparation of
reliable financial statements.
The management of the FRB of Atlanta assessed its process of internal controls over financial reporting including
the safeguarding of assets reflected in the Financial Statements, based upon the criteria established in the
“Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment, the management of the FRB of Atlanta believes that the FRB of
Atlanta maintained an effective process of internal controls over financial reporting including the safeguarding of
assets as they relate to the Financial Statements.
Federal Reserve Bank of Atlanta

Jack Guynn
President and Chief Executive Officer
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Patrick K. Barron
First Vice President and Chief Operating Officer

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Anne M. DeBeer
Senior Vice President

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December 31, 1998




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page 35

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REPORT O F INDEPENDENT ACCOUNTANTS

To the Board of Directors of the
Federal Reserve Bank of Atlanta

We have examined management's assertion that the Federal Reserve Bank of Atlanta ('FRB of Atlanta")
maintained effective internal control over financial reporting and the safeguarding of assets as they relate
to the Financial Statements as of December 31, 1998, included in the accompanying Management's
Assertion.
Our examination was made in accordance with standards established by the American Institute of Certified
Public Accountants, and accordingly, included obtaining an understanding of the internal control over financial reporting, testing, and evaluating the design and operating effectiveness of the internal control, and
such other procedures as we considered necessary in the circumstances. We believe that our examination
provides a reasonable basis for our opinion.
Because of inherent limitations in any internal control, misstatements due to error or fraud may occur and
not be detected. Also, projections of any evaluation of the internal control over financial reporting to future
periods are subject to the risk that the internal control may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assertion that the FRB of Atlanta maintained effective internal control over
financial reporting and over the safeguarding of assets as they relate to the Financial Statements as of
December 31, 1998, is fairly stated, in all material respects, based upon criteria described in 'Internal
Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway
Commission.

PricewaterhouseCoopers LLP
March 5, 1999
Atlanta, Georgia




REPORT O F INDEPENDENT ACCOUNTANTS

To the Board of Governors of
The Federal Resewe System and
The Board of Directors of
The Federal Resewe Bank of Atlanta

We have audited the accompanying statements of condition of The Federal Reserve Bank of Atlanta (the
“Bank”) as of December 31, 1998 and 1997, and the related statements of income and changes in capital for the years then ended. These financial statements are the responsibility of the Bank’s management.
Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence s u p
porting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 3, the financial statements were prepared in conformity with the accounting principles, policies, and practices established by the Board of Governors of The Federal Reserve System. These
principles, policies, and practices, which were designed to meet the specialized accounting and reporting
needs of The Federal Reserve System, are set forth in the “Financial Accounting Manual for Federal
Reserve Banks” and constitute a comprehensive basis of accounting other than generally accepted
accounting principles.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Bank as of December 31, 1998 and 1997, and results of its operations for the years
then ended, on the basis of accounting described in Note 3.

PricewaterhouseCoopers LLP
March 5, 1999
Atlanta, Georgia




page 37

STATEMENTS OF CONDITION

(in millions)

Assets
Gold certificates
Special drawing rights certificates
Coin
Items in process of collection
Loans to depository institutions
U.S. government and federal agency securities, net
Investments denominated in foreign currencies
Accrued interest receivable
lnterdistrict settlement account
Bank premises and equipment, net
Other assets

Total assets
Liabilities and capital
Liabilities
Federal Reserve notes outstanding, net
Deposits
Depository institutions
Other deposits
Deferred credit items
Surplus transfer due U.S. Treasury
Accrued benefit cost
Other liabilities
Total llabllitles

As of December 31,1998

$

717
602
44
1,050
4
27,779
1,295
262
4,780
137
41

As of December 31,1997

$

723
602
45
1,287
163
28,961
1,574
274
793
132
23

$36,711

$34,577

$33,103

$30,390

1,769
16
821
75
78
13

2,081
17
1,210
95
74
12

$35,875

$33,879

Capital
Capital paid-in
Surdus

$

418
418

$

359
339

Total capital

$

836

$

698

Total liabilities and capital

$36.711

The accompanying notes are an integral part of these financial statements.




$34.577

STATEMENTS O F INCOME

(in millions)

Interest income
Interest on U S . government securities
Interest on foreign currencies
Interest on loans to depository institutions
Total interest income
Other operating income (loss)
Income from services
Reimbursable services to government agencies
Foreign currency gains (losses), net
Government securities gains, net
Other income
Total other owrating income Ilossl
Operating expenses
Salaries and other benefits
Occupancy expense
Equipment expense
Cost of unreimbursed Treasury services
Assessments by Board of Governors
Other expenses
Total operating expenses
Net income prior to distribution
Distribution of net income
Dividends paid to member banks
Transferred to (from) surplus
Payments to U.S. Treasury as interest on
Federal Reserve notes
Payments to U S . Treasury as required by statute
Total distribution

The accompanying notes are an integral part of these financial statements.




For the years ended
December 31,1997
December 31,1998

$ 1,657

$ 1,679

29
1

35

$ 1,687

$ 1,714

$

108
18
122
3
2

$

98
11
(239)
1
5

$

253

$

(124)

$

128
15
22

$

113
15
20
2
38
72

$

260

-

39
68
$

272

$ 1,668

$

25
79
558
1,006

$ 1,668

$ 1,330

$

23
(66)

1,373
$ 1,330

STATEMENTS OF CHANGES I N CAPITAL

(in millions)

For the years ended December 31,1998, and December 31,1997

Capital Paid-In

Balance at January 5 1997
(8.5
million shares)
Net income transferred from surplus
Statutory surplus transfer to the U.S. Treasury
Net change in capital stock redeemed
(1.3million shares)

$

425

Surplus
$

415
(66)
(10)

Total Capital
$

(66)

840
(66)
(10)
(66)

Balance at December 3 5 1997

(7.2million shares)

$

Net income transferred to surplus
Net change in capital stock issued
(1.2million shares)

Balance at December 31,1998
(8.4million shares)

The accompanying notes are an integral part of these financial statements.




359

$

339
79

$

59

$

418

698
79
59

$

418

$

836

NOTES TO FINANCIAL STATEMENTS
1. O R G A N I Z A T I O N
The Federal Reserve Bank of Atlanta (“Bank”) is part of the Federal Reserve System (“System”) created by Congress
under the Federal Reserve Act of 1913 (“Federal Reserve Act”) which established the central bank of the United States.
The System consists of the Board of Governors of the Federal Reserve System (“Board of Governors”) and twelve Federal
Reserve Banks (“Reserve Banks”). The Reserve Banks are chartered by the federal government and possess a unique set
of governmental, corporate, and central bank characteristics. Other major elements of the System are the Federal Open
Market Committee (“FOMC”), and the Federal Advisory Council. The FOMC is composed of members of the Board of
Governors, the president of the Federal Reserve Bank of New York (“FRBNY”) and, on a rotating basis, four other Reserve
Bank presidents.

structure
The Bank and its branches in Birmingham, Alabama, Jacksonville, Florida, Nashville, Tennessee, New Orleans, Louisiana,
and Miami, Florida serve the Sixth Federal Reserve District, which includes Georgia, Florida, Alabama, and portions of
Louisiana, Tennessee, and Mississippi. In accordance with the Federal Reserve Act, supervision and control of the Bank
is exercised by a Board of Directors. Banks that are members of the System include all national banks and any state
chartered bank that applies and is approved for membership in the System.
Board of Directors
The Federal Reserve Act specifies the composition of the board of directors for each of the Reserve Banks. Each board is
composed of nine members serving threeyear terms: three directors, includingthose designated as Chairman and Deputy
Chairman, are appointed by the Board of Governors, and six directors are elected by member banks. Of the six elected by
member banks, three represent the public and three represent member banks. Member banks are divided into three
classes according to size. Member banks in each class elect one director representing member banks and one representing the public. In any election of directors, each member bank receives one vote, regardless of the number of shares of
Reserve Bank stock it holds.

2. OPERATIONS AND SERVICES
The System performs a variety of services and operations. Functions include: formulating and conducting monetary policy:
participating actively in the payments mechanism, including largedollar transfers of funds, automated clearinghouse
operations and check processing; distribution of coin and currency; fiscal agency functions for the US. Treasury and
certain federal agencies; serving as the federal government‘s bank; providing short-term loans to depository institutions;
serving the consumer and the community by providing educational materials and information regarding consumer laws;
supervising bank holding companies, and state member banks; and administering other regulations of the Board of
Governors. The Board of Governors’ operating costs are funded through assessments on the Reserve Banks.

The FOMC establishes policy regarding open market operations, oversees these operations, and issues authorizations and
directives to the FRBNY for its execution of transactions. Authorized transaction types include direct purchase and sale of
securities, matched salepurchase transactions, the purchase of securities under agreements to resell, and the lending of
U.S. government securities. Additionally, the FRBNY is authorized by the FOMC to hold balances of and to execute spot
and forward foreign exchange and securities contracts in fourteen foreign currencies, maintain reciprocal currency arrange
ments (“F/X swaps”) with various central banks, and “warehouse” foreign currencies for the U.S. Treasury and Exchange
Stabilization Fund (’ESF) through the Reserve Banks.
3. S I G N I F I C A N T A C C O U N T I N G P O L I C I E S
Accounting principles for entities with the unique powers and responsibilities of the nation’s central bank have not been
formulated by the Financial Accounting Standards Board. The Board of Governors has developed specialized accounting
principles and practices that it believes are appropriate for the significantly different nature and function of a central bank
as compared to the private sector. These accounting principles and practices are documented in the “Financial Accounting
Manual for Federal Reserve Banks” (“Financial Accounting Manual”), which is issued by the Board of Governors. All
Reserve Banks are required to adopt and apply accounting policies and practices that are consistent with the Financial
Accounting Manual.

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The financial statements have been prepared in accordance with the Financial Accounting Manual. Differences exist
between the accounting principles and practices of the System and generally accepted accounting principles (“GAAP”). The
primary differences are the presentation of all security holdings at amortized cost, rather than at the fair value presentation requirements of GAAP, and the accounting for matched salepurchase transactions as separate sales and purchases,
rather than secured borrowings with pledged collateral, as is required by GAAP. In addition, the Bank has elected not to
present a Statement of Cash Flows or a Statement of Comprehensive Income. The Statement of Cash Flows has not been
included as the liquidity and cash position of the Bank are not of primary concern to the users of these financial
statements. The Statement of Comprehensive Income, which comprises net income plus or minus certain adjustments,
such as the fair value adjustment for securities, has not been included because as stated above the securities are
recorded at amortized cost and there are no other adjustments in the determination of Comprehensive Income applicable
to the Bank. Other information regarding the Bank’s activities is provided in, or may be derived from, the Statements of
Condition, Income, and Changes in Capital. Therefore, a Statement of Cash flows or a Statement of Comprehensive




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Income would not provide any additional useful information. There are no other significant differences between the policies
outlined in the Financial Accounting Manual and GAAP.
The preparation of the financial statements in conformity with the Financial Accounting Manual requires management to
make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those estimates. Unique accounts and significant accounting
policies are explained below.
a. Gold Certlf7cates

The Secretary of the Treasury is authorized to issue gold certificates to the Reserve Banks to monetize gold held by the
U.S. Treasury. Payment for the gold certificates by the Reserve Banks is made by crediting equivalent amounts in dollars
into the account established for the U.S. Treasury. These gold certificates held by the Reserve Banks are required to be
backed by the gold of the U.S. Treasury. The U.S. Treasury may reacquire the gold certificates at any time and the Reserve
Banks must deliver them to the U.S. Treasury. A t such time, the U.S. Treasury's account is charged and the Reserve
Banks' gold certificate accounts are lowered. The value of gold for purposes of backing the gold certificates is set by law
at $42 2/9 a fine troy ounce. The Board of Governors allocates the gold certificates among Reserve Banks once a year
based upon Federal Reserve notes outstanding in each District at the end of the preceding year.
b. Special DraMng Rlghts Certlf7cates

Special drawing rights ('SDRs") are issued by the International Monetary Fund ("Fund") to its members in proportion to
each member's quota in the Fund at the time of issuance. SDRs serve as a supplement to international monetary
reserves and may be transferred from one national monetary authority to another. Under the law providing for United
States participation in the SDR system, the Secretary of the U.S. Treasury is authorized to issue SDR certificates, some
what like gold certificates, to the Reserve Banks. A t such time, equivalent amounts in dollars are credited to the account
established for the U.S. Treasury, and the Reserve Banks' SDR certificate accounts are increased. The Reserve Banks are
required to purchase SDRs, at the direction of the U.S. Treasury, for the purpose of financing SDR certificate acquisitions
or for financing exchange stabilization operations. The Board of Governors allocates each SDR transaction among Reserve
Banks based upon Federal Reserve notes outstanding in each District at the end of the preceding year.
c. Loans to l?epos/tory lnstltuffons
The Depository Institutions Deregulation and Monetary Control Act of 1980 provides that all depository institutions that
maintain reservable transaction accounts or nonpersonal time deposits, as defined in Regulation D issued by the Board of
Governors, have borrowing privileges at the discretion of the Reserve Banks. Borrowers execute certain lending agree
ments and deposit sufficient collateral before credit is extended. Loans are evaluated for collectibility, and currently all are
considered collectible and fully collateralized. If any loans were deemed to be uncollectible, an appropriate reserve would
be established. Interest is recorded on the accrual basis and is charged at the applicable discount rate established at
least every fourteen days by the Board of Directors of the Reserve Banks, subject to review by the Board of Governors.
However, Reserve Banks retain the option to impose a surcharge above the basic rate in certain circumstances.
d. U.S. Government and Federal Agency Securftles and Investments Denomlnated in Forelgn Cumncles

The FOMC has designated the FRBNY to execute open market transactions on its behalf and to hold the resulting securities in the portfolio known as the System Open Market Account ("SOMA). In addition to authorizing and directing
operations in the domestic securities market, the FOMC authorizes and directs the FRBNY to execute operations in foreign
markets for major currencies in order to counter disorderly conditions in exchange markets or other needs specified by
the FOMC in carrying out the System's central bank responsibilities.
Purchases of securities under agreements to resell and matched salepurchase transactions are accounted for as
separate sale and purchase transactions. Purchases under agreements to resell are transactions in which the FRBNY
purchases a security and sells it back at the rate specified at the commencement of the transaction. Matched sale
purchase transactions are transactions in which the FRBNY sells a security and buys it back at the rate specified at the
commencement of the transaction.
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Reserve Banks are authorized by the FOMC to lend US. government securities held in the SOMA to U.S. government
securities dealers and to banks participating in U.S. government securities clearing arrangements, in order to facilitate
the effective functioning of the domestic securities market. These securities-lending transactions are fully collateralized by
other U.S. government securities. FOMC policy requires the lending Reserve Bank to take possession of collateral in
amounts in excess of the market values of the securities loaned. The market values of the collateral and the securities
loaned are monitored by the lending Reserve Bank on a daily basis, with additional collateral obtained as necessary. The
securities loaned continue to be accounted for in the SOMA.

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Foreign exchange contracts are contractual agreements between two parties to exchange specified currencies, at a
specified price, on a specified date. Spot foreign contracts normally settle two days after the trade date, whereas the
settlement date on forward contracts is negotiated between the contracting parties, but will extend beyond two days
from the trade date. The FRBNY generally enters into spot contracts, with any forward contracts generally limited to the
second leg of a swap/warehousing transaction.

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The FRBNY, on behalf of the Reserve Banks, maintains renewable, short-term F/X swap arrangements with authorized
foreign central banks. The parties agree to exchange their currencies up to a prearranged maximum amount and for an
agreed upon period of time (up to twelve months), at an agreed upon interest rate. These arrangements give the FOMC
temporary access to foreign currencies that it may need for intervention operations to support the dollar and give the
partner foreign central bank temporary access to dollars it may need to support its own currency. Drawings under the F/X
swap arrangements can be initiated by either the FRBNY or the partner foreign central bank, and must be agreed to by the
drawee. The F/X swaps are structured so that the party initiating the transaction (the drawer) bears the exchange rate
risk upon maturity. The FRBNY will generally invest the foreign currency received under an F/X swap in
interest-bearinginstruments.
Warehousing is an arrangement under which the FOMC agrees to exchange, at the request of the Treasury, U.S. dollars for
foreign currencies held by the Treasury or ESF over a limited period of time. The purpose of the warehousing facility is to
supplement the U.S. dollar resources of the Treasury and ESF for financing purchases of foreign currencies and related
international operations.
In connection with its foreign currency activities, the FRBNY, on behalf of the Reserve Banks, may enter into contracts
which contain varying degrees of off-balance sheet market risk, because they represent contractual commitments involving
future settlement, and counter-party credit risk. The FRBNY controls credit risk by obtaining credit approvals, establishing
transaction limits, and performing daily monitoring procedures.
While the application of current market prices to the securities currently held in the SOMA portfolio and investments
denominated in foreign currencies may result in values substantially above or below their carrying values, these unrealized
changes in value would have no direct effect on the quantity of reserves available to the banking system or on the
prospects for future Reserve Bank earnings or capital. Both the domestic and foreign components of the SOMA portfolio
from time to time involve transactions that can result in gains or losses when holdings are sold prior to maturity. However,
decisions regarding the securities and foreign currencies transactions, including their purchase and sale, are motivated by
monetary policy objectives rather than profit. Accordingly, earnings and any gains or losses resulting from the sale of such
currencies and securities are incidental to the open market operations and do not motivate its activities or policy decisions.
U.S. government and federal agency securities and investments denominated in foreign currencies comprising the SOMA
are recorded at cost, on a settlementdate basis, and adjusted for amortization of premiums or accretion of discounts on a
straight-line basis. Interest income is accrued on a straight-line basis and is reported as “Interest on U.S. government
securities” or “Interest on foreign currencies,” as appropriate. Income earned on securities lending transactions is reported as a component of “Other income.” Gains and losses resulting from sales of securities are determined by specific
issues based on average cost. Gains and losses on the sales of U.S. government and federal agency securities are reported as “Government securities gains, net.” Foreign currency denominated assets are revalued monthly at current market
exchange rates in order to report these assets in U.S. dollars. Realized and unrealized gains and losses on investments
denominated in foreign currencies are reported as “Foreign currency gains (losses), net.” Foreign currencies held through
F/X swaps, when initiated by the counter party, and warehousing arrangements are revalued monthly, with the unrealized
gain or loss reported by the FRBNY as a component of “Other assets” or “Other liabilities,” as appropriate.
Balances of U.S. government and federal agencies securities bought outright, investments denominated in foreign
currency, interest income, amortization of premiums and discounts on securities bought outright, gains and losses on
sales of securities, and realized and unrealized gains and losses on investments denominated in foreign currencies,
excluding those held under an F/X swap arrangement, are allocated to each Reserve Bank. Securities purchased under
agreements to resell and the related premiums, discounts and income, and unrealized gains and losses on the revaluation
of foreign currency holdings under F/X swaps and warehousing arrangements are allocated to the FRBNY and not to other
Reserve Banks. Income from securities lending transactions is recognized only by the lending Reserve Bank.
e. Bank Premlses and Equlpment

Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straightline basis over estimated useful lives of assets ranging from 2 to 50 years. New assets, major alterations, renovations
and improvements are capitalized at cost as additions to the asset accounts. Maintenance, repairs and minor replace
ments are charged to operations in the year incurred.

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f. lnterdisMct Settlement Account
A t the close of business each day, all Reserve Banks and branches assemble the payments due to or from other Reserve
Banks and branches as a result of transactions involving accounts residing in other Districts that occurred during the day’s
operations. Such transactions may include funds settlement, check clearing and automated clearinghouse (“ACH”) operations, and allocations of shared expenses. The cumulative net amount due to or from other Reserve Banks is reported as
the “Interdistrict settlement account.”

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g. Federal ReSeNe Notes
Federal Reserve notes are the circulating currency of the United States. These notes are issued through the various
Federal Reserve agents to the Reserve Banks upon deposit with such Agents of certain classes of collateral security, typically U.S. government securities. These notes are identified as issued to a specific Reserve Bank. The Federal Reserve Act
provides that the collateral security tendered by the Reserve Bank to the Federal Reserve Agent must be equal to the sum




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of the notes applied for by such Reserve Bank. In accordance with the Federal Reserve Act, gold certificates, special
drawing rights certificates, US. government and agency securities, loans allowed under Section 13, and investments
denominated in foreign currencies are pledged as collateral for net Federal Reserve notes outstanding. The collateral value
is equal to the book value of the collateral tendered, with the exception of securities, whose collateral value is equal to the
par value of the securities tendered. The Board of Governors may, at any time, call upon a Reserve Bank for additional
security to adequately collateralize the Federal Reserve notes. To satisfy its obligation to provide sufficient collateral for its
outstanding Federal Reserve notes, the Reserve Banks have entered into an agreement that provides that certain assets
of the Reserve Banks are jointly pledged as collateral for the Federal Reserve notes of all Reserve Banks. In the event
that this collateral is insufficient, the Federal Reserve Act provides that Federal Reserve notes become a first and para
mount lien on all the assets of the Reserve Banks. Finally, as obligations of the United States, Federal Reserve notes are
backed by the full faith and credit of the United States government.
The “Federal Reserve notes outstanding, net” account represents Federal Reserve notes reduced by cash held in the
vaults of the Bank of $11,326 million, and $8,023 million at December 31, 1998 and 1997, respectively.
h. Capital Paidn
The Federal Reserve Act requires that each member bank subscribe to the capital stock of the Reserve Bank in an
amount equal to 6% of the capital and surplus of the member bank. As a member bank’s capital and surplus changes, its
holdings of the Reserve Bank’s stock must be adjusted. Member banks are those statechartered banks that apply and
are approved for membership in the System and all national banks. Currently, only one-half of the subscription is paid-in
and the remainder is subject to call. These shares are nonvoting with a par value of $100. They may not be transferred or
hypothecated. By law, each member bank is entitled to receive an annual dividend of 6% on the paid-in capital stock. This
cumulative dividend is paid semiannually. A member bank is liable for Reserve Bank liabilities up to twice the par value of
stock subscribed by it.
i. surprus
The Board of Governors requires Reserve Banks to maintain a surplus equal to the amount of capital paid-in as of
December 31. This amount is intended to provide additional capital and reduce the possibility that the Reserve Banks
would be required to call on member banks for additional capital. Reserve Banks are required by the Board of Governors
to transfer to the US. Treasury excess earnings, after providing for the costs of operations, payment of dividends, and
reservation of an amount necessary to equate surplus with capital paid-in. Payments made after September 30, 1998
represent payment of interest on Federal Reserve notes outstanding.

The Omnibus Budget Reconciliation Act of 1993 (Public Law 10366, Section 3002) codified the existing Board surplus
policies as statutory surplus transfers, rather than as payments of interest on Federal Reserve notes, for federal government fiscal years 1998 and 1997 (which began on October 1 1997 and 1996, respectively). In addition, the legislation
,
directed the Reserve Banks to transfer to the US. Treasury additional surplus funds of $107 million and $106 million
during fiscal years 1998 and 1997, respectively. Reserve Banks were not permitted to replenish surplus for these
amounts during this time. The Reserve Banks made these transfers on October 1 1997 and October 1 1996, respec,
,
tively. The Bank’s share of the 1997 transfer is reported as “Statutory surplus transfer to the US. Treasury.”
In the event of losses, payments to the US. Treasury are suspended until such losses are recovered through subsequent
earnings. Weekly payments to the U.S. Treasury vary significantly.
j. Cost of Unre/mbursed Treasury Sedces

The Bank is required by the Federal Reserve Act to serve as fiscal agent and depository of the United States. By statute,
the Department of the Treasury is permitted, but not required, to pay for these services. The costs of providing fiscal
agency and depository services to the Treasury Department that have been billed but will not be paid are reported as the
“Cost of unreimbursed Treasury services.”

k Taxes
The Reserve Banks are exempt from federal, state, and local taxes, except for taxes on real property, which are reported
as a component of “Occupancy expense.”
4 . U.S. G O V E R N M E N T A N D F E D E R A L A G E N C Y S E C U R I T I E S
Securities bought outright and held under agreements to resell are held in the SOMA at the FRBNY. An undivided interest
in SOMA activity, with the exception of securities held under agreements to resell and the related premiums, discounts
and income, is allocated to each Reserve Bank on a percentage basis derived from an annual settlement of interdistrict
clearings. The settlement, performed in April of each year, equalizes Reserve Bank gold certificate holdings to Federal
Reserve notes outstanding. The Bank’s allocated share of SOMA balances was approximately 6.083%and 6.673% at
December 31, 1998 and 1997, respectively.




The Bank’s allocated share of securities held in the SOMA at December 31, that were bought outright, were as follows
(in millions):
1998
Par value
Federal agency
US. government
Bills
Notes
Bonds

1

,

1

46

11,848
11,430
4,226

Unamortized premiums
Unaccreteddiscounts

13,154
11,625
3,964

27,525

Total par value

Total allocated to Bank

21

1997

28.789

449
(195)
$

27.779

413
(241)
$

28.961

Total SOMA securities bought outright were $456,667 million and $434,001 million at December 31, 1998 and 1997,
respectively.
The maturities of U.S. government and federal agency securities bought outright, which were allocated to the Bank at
December 31, 1998, were as follows (in millions):

US. Government

Maturities of Securities Held
Within 15 days
16 days to 90 days
91 days to 1 year
Over 1year to 5 years
Over 5 years to 10 years
Over 10 years
Total

Securities
$

$

Par value
Federal Agency
Obligations

70
6,030
8,738
6,553
2,727
3,386

$

27,504

$

-

Total
$

70
6,032
8,742
6,557
2,738
3,386

$

27,525

2
1

4
1
1
-

21

A t December 31, 1998, and 1997, matched salepurchase transactions involving U S . government securities with par
values of $20,927 million and $17,027 million, respectively, were outstanding, of which $1,273 million and $1,136 million were allocated to the Bank. Matched salepurchase transactions are generally overnight arrangements.

5 . INVESTMENTS DENOMINATED I N FOREIGN C U R R E N C I E S
The FRBNY, on behalf of the Reserve Banks, holds foreign currency deposits with foreign central banks and the Bank for
International Settlements and invests in foreign government debt instruments. Foreign government debt instruments held
include both securities bought outright and securities held under agreements to resell. These investments are guaranteed
as to principal and interest by the foreign governments.

Each Reserve Bank is allocated a share of foreigwurrencydenominated assets, the related interest income, and realized
and unrealized foreign currency gains and losses, with the exception of unrealized gains and losses on F/X swaps and
warehousing transactions. This allocation is based on the ratio of each Reserve Bank’s capital and surplus to aggregate
capital and surplus at the preceding December 31. The Bank’s allocated share of investments denominated in foreign
currencies was approximately 6.545% and 9.230% at December 31, 1998 and 1997, respectively.
The Bank’s allocated share of investments denominated in foreign currencies, valued at current exchange rates at
December 31, were as follows (in millions):
1998
German Marks
Foreign currency deposits
Government debt instruments
includingagreements to resell
Japanese Yen
Foreign currency deposits
Government debt instruments
includingagreements to resell
Accrued interest
Total




764
297

44

53

406
6
$

684
155

$

1997

452
8

1.295

$

1.574

Total investments denominated in foreign currencies were $19,769 million and $17,046 million at December 31, 1998
and 1997, respectively, which include $15 million and $3 million in unearned interest for 1998 and 1997 respectively,
collected on certain foreign currency holdings that is allocated solely to the FRBNY.
The maturities of investments denominated in foreign currencies which were allocated to the Bank at December 31, 1998,
were as follows (in millions):
Maturities of Investments Denominatedin Foreign Currencies
Within 1 year
Over 1 year to 5 years
Over 5 years to 10 years
Total

$

1,232
33
30

$

1,295

A t December 31, 1998 and 1997, there were no open foreign exchange contracts or outstanding F/X swaps.
At December 31, 1998, the warehousing facility was $5,000 million, with zero outstanding.

6. BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment at December 31 is as follows (in millions):

1998
Bank premises and equipment
Land
Buildings
Buildingmachinery and equipment
Construction in progress
Furniture and equipment

32
4
1
11
17
128

Accumulated depreciation

1997

229
(92)

Bank premises and equipment, net

$

137

$

39
4
1
1
2
5
121
218
(86)

$

132

Depreciation expense was $14 million and $13 million for the years ended December 31, 1998 and 1997, respectively.
The building at 1801 5th Avenue North, Birmingham, Alabama was sold to the Allright Corporation on June 18, 1998 with
a loss of approximately $300 thousand. The building at 104 Marietta Street was sold to the State Bar Association on
April 1 1997 with a profit of approximately $ 1 million. The expansion block also located on Marietta Street was sold to
,
Turner Enterprises on August 1 1997 for a profit of approximately $ 1 million.
,
The Bank leases unused space to outside tenants. Those leases have terms ranging from 1 6 years. Rental income
to
from such leases was $ 1 million in each of the years ended December 31, 1998 and 1997. Future minimum lease payments under agreements in existence at December 31, 1998, were (in thousands):
$

575
192
134
100
83
83

$

1999
2000
2001
2002
2003

1,167

Thereafter

7. COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Bank was obligated under noncancelable leases for premises and equipment with terms
ranging from 1 approximately 6 years. These leases provide for increased rentals based upon increases in real estate
to
taxes, operating costs or selected price indices.




Rental expense under operating leases for certain operating facilities, warehouses, and data processing and office
equipment (including taxes, insurance and maintenance when included in rent), net of sublease rentals, was $7 million
and 53 million for the years ended December 31, 1998 and 1997, respectively. Certain of the Bank's leases have options
to renew. Future minimum rental payments under noncancelable operating leases, net of sublease rentals, with terms of
one year or more, at December 31, 1998, were (in millions):
ODerating

1999
2000
2001
2002

$

4.2
2.7
1.5
0.2

A t December 31, 1998, other commitments and long-term obligations in excess of one year were $79 million.

Under the Insurance Agreement of the Federal Reserve Banks dated as of June 7, 1994, each of the Reserve Banks has
agreed to bear, on a per incident basis, a pro rata share of losses in excess of 1 of the capital of the claiming Reserve
%
Bank, up to 50%of the total capital and surplus of all Reserve Banks. Losses are borne in the ratio that a Reserve Bank's
capital bears to the total capital of all Reserve Banks at the beginning of the calendar year in which the loss is shared.
No claims were outstanding under such agreement at December 31, 1998 or 1997.
The Bank is involved in certain legal actions and claims arising in the ordinary course of business. Although it is difficult
to predict the ultimate outcome of these actions, in management's opinion, based on discussions with counsel, the afore
mentioned litigation and claims will be resolved without material adverse effect on the financial position or results of
operations of the Bank.

8 . R E T I R E M E N T AND T H R I F T PLANS

Retirement Plans

The Bank currently offers two defined benefit retirement plans to its employees, based on length of service and level of
compensation. Substantially all of the Bank's employees participate in the Retirement Plan for Employees of the Federal
Reserve System ("System Plan") and the Benefit Equalization Retirement Plan ("BEP"). The System Plan is a multiemployer plan with contributions fully funded by participating employers. No separate accounting is maintained of assets
contributed by the participating employers. The Bank's projected benefit obligation and net pension costs for the BEP at
December 31, 1998 and 1997, and for the years then ended, are not material.
Thrift plan

Employees of the Bank may also participate in the defined contribution Thrift Plan for Employees of the Federal Reserve
System ("Thrift Plan"). The Bank's Thrift Plan contributions totaled $4 million and $3 million for the years ended
December 31, 1998 and 1997, respectively, and are reported as a component of "Salaries and other benefits."
9 . POSTRETIREMENT B E N E F I T S OTHER THAN P E N S I O N S A N D POSTEMPLOYMENT B E N E F I T S

Postretirement benefits other than pensions

In addition to the Bank's retirement plans, employees who have met certain age and length of service requirements are
eligible for both medical benefits and life insurance coverage during retirement.
The Bank funds benefits payable under the medical and life insurance plans as due and, accordingly, has no plan assets.
Net postretirement benefit cost is actuarially determined using a January 1measurement date.
Following is a reconciliation of beginning and ending balances of the benefit obligation (in millions):
1998
Accumulated postretirement
benefit obligation at January 1
Service cost-benefits earned
during the period
Interest cost of accumulated
benefit obligation
Actuarial loss
Conttibutions by plan participants
Benefits paid
Accumulated postretirement benefit
obligation at December 31




$

66.3

1997

6

60.6

1.7

4.2
1.8
0.4
(2.6)
$

1.8
4.5
1.5
0.3
(2.4)

71.8

$

66.3

Following is a reconciliation of the beginning and ending balance of the plan assets, unfunded postretirement benefit
obligation, and the accrued postretirement benefit cost (in millions):
1998
Fair value of plan assets at January 1
Actual retum on plan assets

$

Contributions by the employer
Contributions by plan participants
Benefits paid
Fair value of plan assets at December 31
Unfunded postretirement
beneft obligation
Unrecognized initial net transition
asset (obligation)
Unrecognized prior service cost
Unrecognized net actuarial loss
Accrued postretirement beneft cost

-

1997
$

-

2.3
0.3

2.0
0.3

(2.6)
-

(2.3)

$

$

-

$

71.8

$

66.3

-

$

-

5.4
(7.1)

5.8
(5.2)

70.1

$

66.9

Accrued postretirement benefit cost is reported as a component of "Accrued benefit cost."
The weighted-average assumption used in developing the postretirement benefit obligation as of December 31 is
as follows:
1998
Discount rate

1997

6.25%

7.00%

For measurement purposes, an 8.5% annual rate of increase in the cost of covered health care benefits was assumed
for 1999. Ultimately, the health care cost trend is expected to decrease gradually to 4.75% by 2006, and remain at that
level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one
percentage point change in assumed health care cost trend rates would have the following effects for the year ended
December 31, 1998 (in millions):
1 Percentage
Point Increase
Effect on aggregate of service and interest cost components of
net periodic postretirementbenefit cost
Effect on accumulated postretirement beneft obligation

$

2
19

1 Percentage
Point Decrease
$

(2)
(16)

The following is a summary of the components of net periodic postretirement benefit cost for the years ended
December 31 (in millions):
_______~~

1998
U
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2

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a
I
-

U

Service cost-benefitseamed during the period
Interest cost of accumulated benefit obligation
Amortization of prior service cost
Recognized net actuarial loss

$

Net periodic postretirement beneft cost

$

1997

1.7
4.2
(0.4)

$

5.5

$

1.8
4.4
(0.4)

-

-

5.8

L

0

Net periodic postretirement benefit cost is reported as a component of "Salaries and other benefits."

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Postemployrnent bene&
The Bank offers benefits to former or inactive employees. Postemployment benefit costs are actuarially determined and
include the cost of medical and dental insurances, survivor income, disability benefits, and self-insured workers' compensation expenses. Costs were projected using the same discount rate and health care trend rates as were used for
projecting postretirement costs. The accrued postemployment benefit costs recognized by the Bank at December 31,
1998 and 1997, were $8 million in each year. This cost is included as a component of "Accrued benefit cost." Net
periodic postemployment benefit costs included in 1998 and 1997 operating expenses were $2 million in each year.

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Head Office and Atlanta Branch
104 Marietta Street, N.W.
Atlanta, Georgia 303032713
Birmingham Branch
1801 Fifth Avenue, North
Birmingham, Alabama 35203-2104
Jacksonville Branch
800 West Water Street
Jacksonville, Florida 32204-1616
Miami Branch
9100 N.W. 36th Street
Miami, Florida 33178-2425
Nashville Branch
301 Eighth Avenue, North
Nashville, Tennessee 37203-4407
New Orleans Branch
525 St. Charles Avenue
New Orleans, Louisiana 70130-3480

Thanks to Vanderbilt University
Medical Center, the Port of Miami,
and Production Management
Companies Inc. for allowing
photography on their premises.

a

Printed on Recycled Paper

For additional copies contact
Public Affairs Department
Federal Reserve Bank of Atlanta
104 Marietta Street, N.W.
Atlanta, Georgia 303032713
404.521.8020
www.frbatlanta.org

Federal Reserve Bank of Atlanta
l'O4 Marietta Street, N.W.
Atlanta, Georgia 30303-2713
404/521-8020
www.frbatlanta.org