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ANNUAL
STATEMENT
1956

r E DE R A L RESERVE BANK OF M I N N E A P O L I S




FOREWORD

It is a pleasure to transmit herewith the 1956 Annual Report
of this bank. The bank has had a successful year with a growing
volume of operations. In addition, the head office building ex­
pansion program has gone along without delays, and at the close
of the year the building was nearing the end of its remodeling
and expansion program.
In this report, as in those of the past several years, it is a pleas­
ure to review the developments in one of the district’s important
industries. This year attention is focused on the forest industry.




Chairman of the Board

President

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Forests of the Ninth district offer one of the most
’
potentials of the basic resources that sustain
/ ■;." district’s economy. This may appear somewhat of a
,n'ise to many of us who may be accustomed to thin\T ■ of timber as a ‘has-been industry. Realization of the
ti
*. ///n potential means added wealth to many localities
"> rhr district and to the bankers who serve them. So it's
wnrth a closer loof{. This special article in our 1956)
Annual Report see\s to examine the forest resource in
,< "> what the same brief and general way in which we
><
ntt/'\ ctl about trends in our district's population last year.




Assets grow in 'timber bank’
Forests of the Ninth district are an important basis
for industry today. With material demands of our
national economy constantly growing, the forest
resource, renew able by nature, promises an even
greater contribution to the future.

As resources go, timber has a
pleasant twist. Given enough time
it will, like a savings account, re­
plenish itself. In the ‘timber bank,’
we can collect a return on our sav­
ings, the ‘timber bank’ being, of
course, an analogy between our
favorite form of enterprise, the bank,
and timber growing. Suppose we
sketch out this analogy just a bit.
Let the savings account be repre­
sented by forest land . . . land with
soils and characteristic climate best
suited to forest growth. About onefifth of the land area of our district
qualifies under this heading—over 50
million acres. The living trees in­
vested in the account are principal
and the net annual growth would
represent interest earnings.
You might even figure out an interest rate. As a rough estimate of
the rate of return, lumping all
species together, there is about 33
billion cubic feet of timber in live

Digitized forSAWTIMBER IN WESTERN MONTANA
LO G G IN G FRASER


trees of marketable size* in our dis­
trict. The net annual growth of
wood in forests in this district is
roughly 980 million cubic feet.
Hence the annual rate of return is
a shade under 3 percent on the prin­
cipal.
There is one other point we want
to make before we leave the savings
account analogy. That concerns the
way we withdraw funds. If we with­
draw more each year than is added
in interest, we soon eat up our prin­
cipal. On the other hand, suppose we
want a perpetual income. Then we
had best withdraw only the interest
earnings each year — leaving the
principal intact to maintain earning
power in future years.
This is the real difference between
using a self-replenishing resource
like timber as an investment and
using it simply as a wasting asset—
*Greater than five inches diameter at breast
height.

3

sort of a storehouse to be tapped
until it’s empty. One of the prob­
lems in parts of our district is that
in the past we used up much of our
principal—and we are still using it
up in the case of our most-prized
types of timber; eg., the white, red
and yellow pines. The real challenge
is to build up the principal until the
annual interest will take care of our
needs. Unless demands get out of
hand, this is a realistic goal on a re­
gional scale.
The return we get from our forest
capital refuses to behave in the sim­
ple fashion of interest on savings de­
posits or investment. Nature pays a
variable scale of returns on trees.
When trees are very young, the an­
nual return is small. As a matter of
fact, for a long time, until a tree
gets to five or six inches in diameter,
it represents little more to the timber
grower than a skeleton on which to
hang next year’s growth of wood.
Return is highest when trees begin
to approach their ultimate size, be­
cause growth is added immediately
under the bark, encircling completely
all previous growth. It’s a case of
geometry: the bigger the tree, the
more can be added.
Once trees have passed maturity,
however, compounding of interest
breaks down. The annual return
may drop to nothing. Therefore, in
order to get the maximum return
from forest holdings, it is necessary
not only to have an adequate num­
ber of trees for the site but also to
have a stand properly balanced be­
tween different age groups so that
4



an optimum proportion of them are
in their most productive years. Not
only might the interest realized drop
to zero if the capital is allowed to
become too old, but decay resulting
from age may actually erode the
capital. In such a situation, the net
return is negative.
To get down to cases we can see
the effects of overmature forest
stands right within our own district.
Look at the following table which
gives some figures for softwood tim­
ber for two of our states with impor­
tant timber areas:
Montana Minnesota
ACREAGE— millions of
a c r e s of commercial
15.1
6.8
f o r e s t in softwoods
VOLUME — millions of
b o a r d f e e t of live 55,100
5,000
softwood sawtimber
GROWTH — millions of
board feet net annual
g r o w t h of softwood
229
328
sawtimber.
Source: U. S. Forest Service

A glance at the table will show
you that Montana forests, with twice
the acreage and n times the wood
volume of Minnesota’s softwood
stands, add only two-thirds as much
sawtimber growth annually as do
the forests of Minnesota. Surprising ?
Not really. Much of Montana’s tim­
ber is ‘too old.’ The younger Min­
nesota timber, while rather spotty
as a sawtimber supply, is growing
much more rapidly than the Mon­
tana timber.
Then, of course, the timber bank
has its ‘bank robbers.’ These are the
natural (or unnatural) factors that
may make the capital disappear
right before our eyes. Fire is one,

PULPWOOD CUT, NORTHERN MINNESOTA

of course, but a surprisingly minor
one. Only a fraction of i percent of
our commercial forest land is burned
in a typical year. Other factors—in­
sects, diseases—are far more signifi­
cant. Insects have their greatest rela­
tive impact in the western part of
our district, while diseases (funguscaused rots and cankers) are the
major single cause of tree mortality
in the eastern part of the district.
These predators don’t go in for a
simple case of robbery of our timber.
Only rarely is the principal de­




stroyed. Even in the wake of forest
fire, much sound and salvageable
wood may remain in a dead tree. Of
course, if the tree is killed, that puts
a stop to collecting annual interest.
Insects frequently kill a tree out­
right. Take the case of dendroctonus
engelmanni. More people know the
creature as the spruce bark beetle,
an insect less than half as long as a
man’s thumbnail, which since 1950
had laid to rest 2 billion board feet
of live and growing spruce in the
western Montana area. A goodly
5

CHART I, MAJOR COMMERCIAL FOREST AREAS

share of this bug-killed timber has
been salvaged, thanks to one of the
most concerted large-scale programs
of road building, wood salvage, and
promotional selling in recent times
—but that’s a story in itself.
Worse yet is the typical effect of
tree disease. Disease may not kill
our trees, but may leave us with a
stand of sickly, slow-growing trees
that would be more like a bank full
of assets that earn practically no re­
turn. Of course, such a situation
could cumulatively rob us of a great
deal of wood growth over a period
of many years. The Forest Service
has attempted to evaluate this type
of loss (they call it growth impact)
and finds it to be an even greater de­
stroyer of forest wealth than the out­
right killing of trees.
This pilfering of capital and pinching-off of the interest goes on all the

6



time in the timber bank—though sel­
dom as dramatically and thoroughly
as the spruce bark beetle invasion.
There are a multitude of further
complexities affecting timber as an
earning account. We’ve scarcely
scratched the surface in our consid­
eration of them. But in our year-end
stock-taking for this annual report,
we’ve got to get down to cases and
look at the situation in our district.
Not only has there been expansion
within existing forest industries here,
but a number of substantial new
plants to utilize wood supply have
been announced in the past year.
Forestry is a particularly timely sub­
ject since the U. S. Forest Service
has released in preliminary form its
Timber Resources Review. This
study gives us a wealth of informa­
tion on the present status and future
prospects of timber growth. Some of

6 0 0 ' & £ o o o 'j

this data is summarized in table i
(see page 12).

TWO BROAD AREAS
PRESENT SHARP CONTRASTS

There are two broad forest regions
in our district. Each of these pro­
vides a most instructive contrast,
since the problems and potentials of
each are quite different. These are
forests which are roughly defined as
occupying the western and eastern
extremities of our district. They are
separated by the vast natural prairie
of the northern Great Plains. The
major commercial forest stands are
shown on the map of chart 1 (pp.
6>7)Let’s look at the eastern region
first—historically the first area to re­
ceive extensive cutting. The eastern
forest area of the Ninth district, the




shaded area on chart 1, runs 75 to
80 percent forested. Altitudes are less
than 2,000 feet, with generally slight
relief; rainfall 20 to 40 inches a year,
with the average frost-free growing
season on the order of 100 days . . .
more in the south, less in the north.
As an area it is a heavy exporter of
wood to points south in central Wis­
consin and lower Michigan. It stocks
a majority of the commercial forest
land in the three-state region which
the industry and the U. S. Forest
Service refer to as the Lake States.
Today it is a region of second
growth forests, interspersed with
hardwoods and softwoods. Hard­
woods such as birch, aspen, maple
and oak predominate. A hundred
years ago the forests of the Lake
States covered twice the area they
do now—then the land was graced
with vast stands of sawtimber-size
7

softwood trees including white pine,
red pine, spruce and balsam fir.
There are differences from place to
place within the eastern part of the
district. For example, Upper Michi­
gan has some good stands of hard­
wood sawtimber. As a matter of
fact, probably the best concentration
of old stock hardwood sawtimber in
one area in the Lake States is found
in Upper Michigan. A substantial
share of the region’s softwood for­
ests are concentrated in northern
Minnesota. These intraregional dif­
ferences cast a slightly different light
on the industries, problems and
prospects from one locality to the
other.
The region’s forestry background
is a story of extensive cutting, de­
structive burning, and of unwise
clearing for farm land in many areas
which later were demonstrated to
be incapable of supporting profitable
agricultural enterprise. Between the
mid-i8oo’s and the first decade of
the 1900’s, large parts of these for­
ests were liquidated for lumber,
leaving a cutover area that presented
many economic problems in the en­
suing decades. The drastic inroads
made on the forest resource many
decades ago has markedly changed
the role and importance of forests in
the regional economy today.
According to Forest Service esti­
mates, sawtimber stands remaining
in the Lake States contain only about
5 percent of the original sawtimber
volume. (Sawtimber trees are those
whose diameter at breast height is
greater than about 10 inches.) Fur­




thermore, only a third of the existing
sawtimber is of the quality which
will make standard lumber. Total
cut of sawtimber from the Lake
States, which reached nearly 10 bil­
lion board feet annually at one time,
is now down to less than 1 billion
out of a total national cut of some
75 billion board feet (1952 figures
from U. S. Forest Service).

Pulpw ood lea d s in eastern forests

Today with only 12 percent of the
commercial forest land of the Lake
States stocked with sawtimber and
with much of this of inferior quality,
the supply of wood for lumber is
only a minor part of industrial forest
use. The number of large sawmills
today is but a fraction of what it was
years ago. In Minnesota, for exam­
ple, the largest active sawmill cuts
only about 5 million board feet an­
nually. That places it only midway
in the conventional medium-size
category which runs from 1 million
to 10 million board feet annually.
The most significant, in fact the
dominant enterprise that forests of
the eastern part of our district sup­
port is the pulp and paper industry.
It consumes by far the greatest por­
tion of the softwood trees cut in the
region — and from current signs it
may not be long until pulp mills
will be taking the greatest share of
the hardwoods, too. The total net
drain of all species from cutting in
the Lake States in 1952 was 541 mil­
lion cubic feet. By major use these
break down:

Sawlogs and sawbolts
Pulpwood
Fuelwood
All other uses

1 million
95
1 million
83
1 million
04
59 million

cu. ft.
cu. ft.
cu. ft.
cu. ft.

Minnesota’s cut is even more
heavily weighted for pulpwood. Half
the cubic volume cut goes for pulp­
ing. Currently, above 880,000 cords
or roughly 9 million trees are cut an­
nually for pulpwood in the state.
Pulp and paper is the key indus­
try in forest utilization today and
will be for many years in the future.
Most significant is the fact that much
more pulpwood is added by growth
in the region each year than is cut
for use, though not necessarily of the
species most used in the past. The
annual harvest could be expanded
considerably. These prospects are the
subject of a study, Pulp and paper
in the upper lakes region, published
by the bank last year. (All who are
interested are invited to write us for
a copy.)
The point is clear, particularly
taken in comparison with data from
the western part of our district, that
the bulk of the output of our eastern
forests is still small stuff growthwise,
and much of it in what have been
traditionally considered i n f e r i o r
species. The bread-and-butter prod­
uct is pulpwood. Yet sawtimber pro­
duction is a goal of most forest man­
agement programs—even here in the
none-too-well stocked second growth
forests of the Lake States. Sawtimber
is a more valuable product than pulp­
wood on a dollars per unit volume
basis. But don’t get the mistaken
idea it’s an either-or proposition.




M ECHANIZED PULPWOOD LO ADING

Both pulpwood and sawtimber, and
for that matter poles, firewood, posts,
Christmas trees and many other
products can be complementary
crops from the same forest tract at
various stages of its growth cycle. In
spite of the prominence of pulpwood
in this region today, sawtimber is the
natural end-crop of any managed
forest. Whether or not we can begin
to realize anything near the economic
return our forest land is capable of
giving us, depends directly on the
success of those who own and har­
vest these forests in upgrading the
quality and quantity of sawtimber
yield.
The plain fact is that we can’t be
any too complacent about our prog­
10




ress in the direction of realizing
maximum return from our forests.
The volume of our most valuable
softwoods actually has been reduced
over the past 20 years. Yet forestry
authorities are quick to point out a
number of encouraging signs.
First, recent surveys have shown
that the total timber volume in the
eastern part of our district is not
only up over that of two decades
back, but the stands in which it oc­
curs are generally thicker—there is
more merchantable wood per acre.
From the human side there is the
fact that progress has been made in
forest management. And too, owner­
ship is more stable. The rising im­
portance of pulpwood underlines the

great potential for further use of
hardwoods to expand output of the
regionally important pulp and paper
industry. There is a great surplus of
hardwoods. Some localities even
have local surpluses of softwoods
suitable for pulpwood. For example,
in a three-county area of northeast­
ern Minnesota an estimated 170,000
cords of surplus softwoods of pulping
species (balsam fir, black and white
spruce, and jack pine) are available
annually.

Problem : sm all holdings

Well, it’s clear that things are
looking up. Forest authorities assure
us timber output could be greatly
enlarged if some of the challenging
problems that face the forest indus­
try could be met. Perhaps chief
among these problems is the fact
that the small timber owner does
not have sufficient incentive to man­
age his holdings as they should be
managed for maximum long-run
gain. In fact he is typically under
strong temptation to liquidate his
holdings long before they have con­
tributed their greatest return. Most
other classes of holders are doing
pretty well in the task of husbanding
their forest holdings. But the small
forest owners, including the farmer,
because of the great share of total
commercial forest land which they
in aggregate hold, are really the key
to future improvement.
In the Lake States nearly 16 mil­
lion acres of commercial forest land
are held in ownerships of less than




100 acres. In Wisconsin 9^2 million
acres—over half the total commer­
cial forest land—are in private own­
erships of less than 500 acres. (In
Montana, on the other hand, with
roughly the same amount of com­
mercial forest land, ownerships of
that size aggregate only about 1 mil­
lion acres.)
The root of the problem is the sim­
ple biological fact that it takes per­
haps twice as long to carry out a
complete cycle of timber crops as the
length of the average man’s produc­
tive life. In spite of the inherent dif­
ficulty of this problem there is evi­
dence that interest in small forest
holdings in this sector of our district
is on the upswing. Increasing dollar
value of forest land and of forest
growths of all grades is the long­
term outlook. This should serve as
strongly as any conceivable factor to
interest many small land owners in
the business potential of forest hold­
ings. The problem of adequate profit
incentives for small-tract timber op­
erators is only partially solved. Many
programs of assistance have been
developed by government and indus­
try, and added emphasis on the prob­
lem seems inevitable. The outlook
now appears more hopeful than ever.

Problem : deforested a re a s

Another major challenge is that
large areas of our eastern forest land
remain nonstocked or poorly pro­
ductive. The Lake States show very
poorly among regions of the country
in terms of acreage of nonstocked

forest land. Minnesota alone has over
10 percent of the total nonstocked or
poorly stocked commercial forest
land in the United States, according
to U. S. Forest Service statistics.
Some authorities feel that a steppedup planting program is needed to
overcome this situation. However,
not all nonstocked land is suitable
for planting. Since planting is expen­
sive, it is far preferable to let nature
reseed whenever feasible.
In Wisconsin a county-by-county
forest inventory which has now been
published for 12 of 16 forested Ninth
district counties reveals some inter­
esting facts on plantable acreages.
The total commercial forest land of

these counties is 5.6 million acres of
which nearly 2.3 million acres are
understocked or nonstocked. Of the
2.3 million acres deficient in trees,
about one third (845,000 acres) is
restocking naturally and about one
fifth (455,000 acres) is suitable for
replanting. The remainder is un­
suitable for planting. Only about a
fourth of the plantable acreage could
be handled by machine planting
methods.
This particular challenge of bring­
ing about adequate stocking of large
areas of the region’s forest land is
felt to offer one of the best possi­
bilities for increasing wood supply.

TABLE I— SELECTED FOREST STATISTICS FOR NINTH DISTRICT STATES
FOREST AREA
Total commercial forest
percent in sawtimber
percent in holdings of
less than 100 acres

S. Dakota
Mich.
Wis.
Minn.
(west)
Mont.
Thousands
18,849
16,325
18,098
1,266
15,727
14% of acres
52%
12%
36%
H%
28%
39%
32%
23%
2%

SAWTIMBER VOLUME AND GROWTH
Total volume live sawtimber
softwood
hardwood
Net annual growth 1952
softwood
hardwood

55,770
55,075
695
247
229
1
8

3,167
3,167
61
61

12,538
5,039
7,499
788
328
460

16,1 11
3,847
12,264
895
187
708

21,141
5,469
15,672
1,010
287
723

Million
board ft.

GROWTH, CUT, MORTALITY ALL TIMBER
Gross annual growth
Mortality
Net annual growth 1952
Annual total cut 1952

295
123
172
118

30
4
26
8.5

558
173
385
148

538
176
362
174

569
136
433
216

CAUSES OF MORTALITY
By
By
By
By

fire
insects
diseases
other causes*

1.6 %

61%
5%
32%

25%
"75%

0 .6 %
8%
40%
51%

4%
31%
65%

*Weather, animals, suppression, etc.
Source: Timber Resources Review, U. S. Forest Service, Preliminary draft.

12



0.7%
10 %
32%
58%

Million
cu. ft.

Significant g a in s possib le

Among other problems we might
briefly mention is the challenge of
upgrading the general low quality
of these eastern forests. Also, the
still-dangerous destructive potential
of forest insects and diseases deserves
and is receiving a lot of attention.
Through concerted efforts to solve
these problems the volume of wood
products yielded by the eastern for­
est land in our district could be
doubled. Necessarily, a long period
of adjustment would be required.
However, an important point for
us today is that we don’t have to
think in terms of several decades to
realize gains from our forests. Im­
proved management practices if un­
dertaken immediately on a wide
scale could jump our annual timber
growth by as much as one-fourth in
very short order. Even more imme­
diate than this is the fact that a lot
of wood growth—particularly hard­
woods—is going unused today. This
surplus material offers an important
potential for increased industrial use.
Events of 1956 demonstrated that
industry growth based on forest ma­
terials is still active in the Lake
States section. Examples include the
following: At L ’Anse in Upper
Michigan, Celotex Corporation be­
gan construction of a $6.5 million
mill to utilize an abundant north­
ern hardwood supply for the manu­
facture of fiber board and related
products. The new plant will create
several hundred jobs. In Minnesota,
late in 1956, the Northwest Paper
Company announced an expansion




program at its paper mills in the
northern part of the state. This par­
ticular program, costing about $5
million and resulting in 200 new
jobs, will provide 150 tons a day of
additional paper output. Other paper
companies have also initiated or con­
tinued substantial expansion pro­
grams.
We can summarize these thoughts
neatly enough by recognizing that
our eastern forests have much un­
tapped potential for timber produc­
tion, and if fairly treated they can,
over a period of time, contribute in­
creasingly to the economic prosperity
of this region. Now let’s turn west.

SPRUCE STAND IN MONTANA

13

FORESTS OF THE WEST

The western part of our district
contains about half as much forest
land as do the stretches in the east­
ern part bordering Lake Superior,
and the forest scene is of sharply dif­
ferent complexion. Rainfall drops off
as we go westward, from the 30 inch
annual average in the Lake States
forest areas to 15 inches or less on
crossing the Dakotas and entering
Montana. Beyond the plains, we
reach scattered areas of higher eleva­
tion where loss by evaporation is
less than in the plains and rainfall
may be more.
Our western forests occur in broad
stretches from the Idaho border on
the west through the Black Hills of
South Dakota, typically at high alti­
tudes and in mountainous or hilly
country. Most timber here is asso­
ciated with the Rocky Mountain sys­
tem, which supports substantial for­
ests of western softwood at eleva­
tions from 3,000 to 7,000 feet.
Toward the east this forest is re­
stricted to the higher elevations,
while west of the continental divide,
in Montana, forests reach in to the
valley floors. In acreage terms Mon­
tana has 15.7 million acres of com­
mercial forest land; in the Black
Hills of South Dakota there are an­
other 1.3 million acres.
Softwoods far outnumber the hard­
woods and are for practical purposes
the sole commercial timber source.
By species about half of Montana’s
sawtimber is either larch or douglasfir, while ponderosa pine, lodgepole
pine and spruce are also important.




South Dakota’s commercial softwood
timber is almost entirely ponderosa
pine. Forests are typically densest
and fastest growing toward the west
—similarly the best sawtimber is lo­
cated there. Over two-thirds of the
sawtimber in the western Ninth dis­
trict is located west of the continental
divide in Montana, though but a
small fraction of the gross land area

CHART 2, TRENDS IN LUMBER OUTPUT
jq

Bi 11 i o n B o a r d F e e t

9 ----------------------------J i .f.&
! ;;
jf

lies west of the divide. Generalized
location of commercial forest land in
the western part of our district is
mapped in chart i.

S aw tim b er dom inates cutting

In Montana and South Dakota
sawtimber for lumber manufacture
is by far the dominant use of the for­
est harvest. For example, timber pro­
duction in Montana during the years
1939-48 averaged as follows:
Total timber output
for sawlogs & sawbolts
for fuelwood
for pulpwood
all other uses

90.0 million
6 1.4 million
16.1 million
1 .2 million
I 1.3 million

cu. ft.
cu. ft.
cu. ft.
cu. ft.
cu. ft.

The reason is that much more
sawtimber is to be found in the west­
ern forests of our district. In fact,
there are many overmature stands
that hold virgin timber.
Timber industries rank high in
importance among manufacturing
enterprises in the western part of the
district. Employment in the lumber
and wood products industries in
Montana accounts for nearly onethird of total employment in manu­
facturing industries in the state, ac­
cording to the 1954 Census of Busi­
ness. In northwestern Montana the
dominance of the industry is far
greater even than this surprising fig­
ure. Capital expenditures by the lum­
ber and wood products industries in
Montana during the year 1954 were
two or three times as large as those
in Minnesota.
Lumber production in Montana
(though it’s had its ups and downs)
has shown a general historic trend




upward as is illustrated in chart 2.
Large-size sawmills have declined in
number and output since 1921, while
medium sized sawmills (1 million to
10 million board feet annually) have
shown a great increase in relative
and absolute importance. Close to
90 mills of this size operate today.
The two largest Montana mills are
those of the ]. Neils Company at
Libby (recently purchased by St.
Regis Paper Company) and of the
Anaconda Company at Bonner. In
the Black Hills there are two saw­
mills of 10 million feet annual ca­
pacity or larger, while the total ca­
pacity of all mills is about 70 million
feet annually. Total sawmill capacity
in the western part of our district is
probably close to a billion board-feet
annually.
W estern forest
h as its problem s, too

One feature that the western for­
ests share with our eastern forests is
that the actual growth of timber is
far less than its ultimate potential.
According to U. S. Forest Service
estimates, the annual growth of saw­
timber in Montana averages only 38
board feet per acre in contrast to a po­
tential of 85 board feet per acre. This
is largely the result of the fact that
Montana has too much overstocked
forest land (as well as a goodly share
of sizes smaller than are tallied in
the estimates). This situation ac­
counts for the fact that the forests
of Montana are adding less cubic
volume to sawtimber stands an­
nually than are the much smaller
!5

acreages of softwoods in Minnesota.
The major challenges to improving
growth are distinctive and different
from those of the east. Let’s consider
them briefly.

Problem : insects most destructive

Perhaps the chief problem is to
counter those destructive forces that
are now claiming over one-fourth of
the gross timber growth in this re­
gion. Fire, while more of a problem
16



than in the east because of the many
lightning-caused mountain fires, has
been fairly well brought under con­
trol. Forest service smoke jumpers,
headquartered at Missoula, can be
dropped in any remote area of the
region within two hours after iden­
tification of a fire.
Insects, in contrast, favored by re­
duced vitality of overmature trees,
have been highly destructive agents.
Two general types of insects supply­
ing the major threats are the budworm (which is susceptible to spray­
ing) and the bark beetle (which is
not). Because the relative dryness
of many of these forest stands in­
hibits spore-carried organisms, dis­
eases do not have the importance and
destructive factor that they do in the
Lake States. (As an example, there
are vast stands of lodgepole pine,
east of the Bitterroot valley in west­
ern Montana, killed by bark beetles
in 1931-32, and still standing today,
bleached and upright, though largely
unaffected by decay.)
The best insurance against exten­
sive loss from insect attack is an ade­
quate road system that enables im­

mediate salvage of infested or killed
timber. One of the prime objectives
of the Forest Service during the
spruce bark beetle epidemic of 19503 in western Montana was just that—
to construct roads enabling loggers
to salvage as much of the 2 billion
feet of killed spruce as possible.
Considerable progress has been made
in the direction of an adequate for­
est road system in recent years. Com­
prehensive spraying programs have
been carried out, also, where they
could prove effective.
Then, too, there is the problem of
bringing about a better age distribu­
tion . . . more stands in the most
productive middle years. This can
be done by planned cutting of ex­
tensive areas of old overmature for­

est and allowing them to be replaced
over a period of time with vigorous
young growth—preferably from the
cost standpoint by natural seeding.
As in the case of the Lake States,
there are some areas that require re­
planting to insure their conversion
to desirable forest land.
Problem : ad ju stin g cutting to
grow th

Some species are overcut, particu­
larly in western Montana. These in­
clude the most valuable species of
sawtimber in western Montana,
white pine and ponderosa pine. If
future supplies of these species are
not to be endangered by too rapid
depletion of the present growing
stock the cutting schedule will have

$12 MILLION ON ROADS TO UNDO ITS DIRTY WORK
Windstorms caused heavy blowdowns of spruce stands in
the northwestern Montana area in 1949-50. Great numbers of
dead and fallen spruce trees became breeding grounds for
the spruce bark beetle, and within four years, over 2 billion
board-feet of spruce were killed by the insect's tunneling
habits.
The only really effective control measure is removal of the
infested timber. Lack of roads proved a major obstacle. In a
sense the epidemic had one beneficial effect: twelve million
dollars worth of public and private spending for road con­
struction has provided needed avenues of access into some of
the remote forest areas. Need for an adequate forest road
system was emphasized by this costly bark beetle epidemic.







!f!

to be readjusted. The 1948 cut of
ponderosa and white pine in Mon­
tana was 81 percent above the al­
lowable cut—the drain was particu­
larly heavy west of the continental
divide. However, for most other
species the amounts actually cut are
far below the sustainable annual cut
of material available. One of the big­
gest challenges lies in the use of
much unused wood material. Par­
ticularly is this true for trees of poletimber size (5 inches to 11 inches in
thickness at breast height). More
extensive cuts of this material can
and should be made now. Dead tim­
ber holds another large store of
usable wood fibers. A cleanup prob­
lem of large proportions that stems
from previous insect attacks is sal­
vage of dead timber. An estimated
1.2 billion board feet of salvageable
dead sawtimber are to be found to­
day in the forests of Montana. In the
abundant smaller sizes and littleused species and in the great quan­
tities of dead timber, as in the case
of hardwoods in the eastern part of
our district, there exists an imme­
diate possibility for expanded indus­
trial utilization.

Industrial developments in this
direction are clearly in evidence. A
number of new sawmills introduced
in the past few years are operating
in areas previously untouched. These
particularly interesting trends in the
wood products industries will be the
subject of an article to appear shortly
in our Monthly Review.

Problem : using w o od w a ste

One final challenge to be men­
tioned here is the use of wood ma­
terials now wasted. About one-fourth
of the sound timber cut in the U. S.
is never used—half of this falls by
the wayside in logging, the other
half is sawmill waste. There are
good opportunities for increased in­
dustrial output from these sources
in Montana. Among highlights of
the past year has been the announce­
ment of the beginning of an indus­
try new to Montana in the form of
pulp and paper operations. An­
nouncements were made in 1956 of
plans for construction of two pulpmaking operations: one at Missoula
by Waldorf Paper Products Company
and the other at Libby by the St.




HARDWOOD FOREST, ST. C RO IX VALLEY, M INNESOTA-W ISCONSIN

Regis Paper Company. An interest­
ing feature these two operations
share is that each will utilize saw­
mill wastes from nearby sawmills
almost exclusively, thus leaving the
significant possibilities for pulpwood
production directly from forest
stands still untouched.
It’s well documented, therefore,
that Montana’s forest lands have
considerable unexploited potential
for industrial production. Further­
more, the yield from existing forest




lands of the types of products used
today can be greatly increased by
improved management and protec­
tion of Montana’s forests. From a
practical standpoint, perhaps an in­
crease of 50 to 60 percent in the vol­
ume of timber output can be accom­
plished with better balance of stands
on forest lands in the western part
of our district. The timber-based in­
dustries, already of great local impor­
tance, could contribute even more to
the economy of this western region.

SUMMARY AND CONCLUSIONS

Forests, covering about one-fifth
of the land area of the district, are
clearly an important resource. A
variety of industries is supported by
them, such as lumber, millwork,
pulp and paper and many wood spe­
cialties.
The district is divided into two
broad forest areas which have very
sharp contrasts—in the west the ac­
tivity is focused on the production
of sawtimber, in the east on pulpwood. The industries thus supported
are significant ones, accounting for
anywhere from one-third to threefourths of total manufacturing em­
ployment in the strictly forest area
communities.
Far from a has-been resource, the
potential of our forests is most prom­
ising. We can point to plant expan­
sions announced during 1956 as evi­
dence of its vitality. Our forests can
sustain an important segment of em­
ployment in contrast to many of our
depletable resources which must
eventually play out.
The forest potential is both imme­
diate and long run.
(1) There is immediate potential
to expand industry in both forest re­
gions of our district—in the east
through expanded use of hardwoods
and in the west through the use of
smaller size stock, little used species,
great amounts of dead timber, and
sawmill wastes.
(2) There is long-run potential for
greatly increased productivity where­
by we can as much as double the out­
put of some key wood materials.




This is a problem of forest manage­
ment that will call for programs by
the many owners of forest lands in
the district working toward the same
general goal—managing the forest
resources to sponsor a sustained yield
of timber. Specific measures include
such things as improvement thin­
nings, planting, road building, pro­
tection and increased cuttings in sur­
plus areas—of which the district has
a surprising number. And as we
have pointed out, one of the keys to
solving this problem lies in the hands
of farmers and other small private
holders of forest land.
Forest authorities assure us that
such an achievement is within our
grasp. To return to the theme of our
introduction, it would mean both a
greater principal invested in the tim­
ber bank and a greater rate of re­
turn. The result would be better
earnings than ever from our 50 mil­
lion acres of forest land—if we treat
them wisely.
END
ACKNOWLEDGMENTS

Most of the basic statistics used
were drawn from the Timber Sources
Review of the U . S. Forest Service.
Additional information and com­
ments were received from the Forest
Service s Northern and North Cen­
tral regions and from the Division of
Forestry, State of Minnesota.
Photo Credits: Pages 2, 6, 13, 14,
18,19 , courtesy of U. S. Forest Service
Photos. Pages 5, 7, 9, 20, courtesy of
Division of Forestry, State of Minne­
sota.

21

The district economy, 1956
In many respects, district economic
developments resembled those of the
nation in 1956. Thus, such wage
rates as are periodically reported to
government registered a new high
both in the district and for the na­
tion. Employment, perhaps the most
important single economic statistic,
was also at a high in the district and
nationally. And in 1956, prices for
the district’s most important product,
food, turned up. Previously, food
prices had been falling while the
cost of things we ‘import’ from the
rest of the country edged up.

AGRICULTURE

District farmers enjoyed a slightly
higher total of cash receipts in 1956
than was true in 1 9 5 5. Preliminary
income estimates indicate that cash
receipts from marketing farm prod­
ucts may be up 3-4 percent in Min­
nesota and North Dakota. The same
estimates show a slight drop in Mon­
tana receipts and a more substantial
decline from a year ago in South
Dakota, perhaps 10 percent.
Both good and bad crop conditions
were experienced in the district dur­
ing 1956—with weather and mois­
ture accounting for most of the dif­
ferences. Such differences took on a
22



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. A siege of hot,
searing winds about mid-June 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 plowing seemed to suffer con­
siderably 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 sup­
plies were reduced from normal.
Even where early heat and dryness
hurt hay and small grains, however,
many of these same areas got enough
moisture at just the right time to
produce one of the best corn corps in
several years. Further east, Minne­
sota produced a record corn crop,
even with some 14 percent fewer
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 ex­
cellent crops, while western areas of
the district were reduced to well
below normal.
Despite area extremes, however,
crop production for the district as
a whole was relatively large, about
6 percent below 1955 output. Most
of the reduction was in wheat, down
12 percent from 1955. Production of
durum wheat was the exception.
Good crop yields throughout much
of North Dakota, helped by newlydeveloped rust resistant varieties
(along with weather conditions fa­
vorable 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 percent from a
year ago on October 1, but by the
end of the year had increased more
than seasonally to 5 percent 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 percent. Reductions in
1956 spring pig farrowings in district
states ranged from 17 to 26 percent,
and farrowings for the year were
down 16 to 23 percent. With reduced
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 generally was
reached about mid-1956.




NONFARM ECONOMY

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 dis­
trict a new postwar record was
established. In Upper Michigan and
CHART I— DISTRICT EMPLOYMENT
COMPOSITION BY INDUSTRY
Numbers in bars indicate percent of total
M i ll io n E m p lo y e e s

-ILLi

10.4

11 2 ■ 11,1 10-6' 10*5;

12.4

----12.0 12.4s •12.5
« • '
'12. T' 11 9 ' 12-° Servic* t
] * 0 ^*****

•

1II-.. ■1

?,----

•

j

^

a 4S#

*5.9 ** 16.4 . >6.7 J 7-0 ' :

'-.1s.7. i«-°.
> ^
;;
<< ern f$f ^
3 ^ rn
«
— ■■
—
j( .... --- *1;
_
21 -1 ' 20.1 '' 19.9^20-4
o'* 20.8 20.9

20.3

.6

J-

* ''2 6 .9

M tyrin <^fac g
'__ I;— ' — : ,— | — p
26.3^ 26.2 ' 25. 8 |

2 6 . S . 2 6 .6 V 26.2

*

.4 *
T rad e

.2>
13 J

, 1 3.4

13.3

’ 3 .7

,1 4 .1

A l l Othyarf

1950

1951

1952

1953

1 4 .K
'

1954

1 4 .1 ^ /
,

1955

k "

1956

northwestern Wisconsin nonfarm
employment rose from the relatively
low level of 1955 but it did not equal
the level which prevailed from the
years 1950 to 1 9 5 5.
The volume of nonresidential con­
struction, which proved to be a main
prop to the nation’s economy in 1956,
set another record during the year.
23

The expansion in this type of con­
struction more than offset the con­
traction in home building. The
amount of contracts awarded for all
types of nonresidential construction
— industrial, commercial, educa­
tional, public and heavy engineering
—aggregated $542 million in this dis­
trict, an increase of $92 million from
the 7955 figure.
The district boom in nonresi­
dential construction was less marked
than the national expansion. Indus­
trial 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
employment rise in this field — 1956
employment being 3 percent above
the average in 1955 for both residen­
tial and nonresidential projects.
A strong district rise in manufac­
turing employment compensated for
the moderate rise in construction. In
this field the hiring of additional la­
bor exceeded the national rate. The
increase in the average monthly total
in 1956 was 4 percent; in the whole
nation it was only 2 percent. Most of
the additional district workers were
engaged in the manufacture of dur­
able goods.
In Minnesota, where nearly 90 per­
cent of the total district workers in
the manufacture of durable goods
are employed, the large increase in
employment in 1956 was concentrated
in the manufacture of electrical and
nonelectrical machinery, excluding
agricultural machinery. (In the lat­
ter industry, the average monthly
24



employment in 1956 was down al­
most 10 percent from 1955.) Smaller
increases in employment occurred in
lumber and wood products, fabri­
cated metal products, stone, clay and
glass, and in primary metals.
In the field of government service,
which ranks third among the em­
ployment categories in the Ninth
district, the 1956 increase averaged
3 percent, 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, transpor­
tation and utilities, trade, finance,
insurance and service—the increases
in employment ranged from a frac­
tion of 1 percent to a maximum of
2 percent.
Not all industries enjoyed pros­
perity. One industry to face a declin­
ing market was residential building.
The number of new housekeeping
units authorized by permits in
Ninth district cities was down 19
percent 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 in­
terrupted by labor disputes in the
steel industry and, later, in the Pitts­
burgh 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 mil­
lion gross tons as compared with
over 12.5 million gross tons each in

May and June. During this period
employees lost substantial amounts
of income so that it became necessary
for many firms to adjust repayments
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 compared with 87.5
million in ’55 and 60.8 million in ’54.
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 cre­

ated some confidence that the sales
prospects for farm implements will
be brighter this spring.
The slump in automobile sales did
not affect the economy of this dis­
trict as much as it did other regions
of the nation. Only one assembly
plant and a small number of parts
manufacturers are located here. Ob­
viously, however, automobile deal­
ers and salesmen were affected by
the drop in sales. In the four district
states the decrease in sales, according
to registrations, ranged from 9 per­
cent in Minnesota to 19 percent in
South Dakota. Even the latter per­
centage is small compared with a 34
percent decrease in the state of Michi­
gan. Nationally, passenger car sales
dropped from 7.2 million in 1955 to
an estimated 6.0 million in 1956, a
decrease of 16 percent.

Ninth district member banks
Their annual financial statements
disclose that our member banks en­
joyed a prosperous 1956. Deposits,
net current earnings and loans regis­
tered new all-time highs. Interest
rates, of course, were also rising.
Bank expense rose too. Salaries and
interest 011 time deposits were re­
sponsible for almost 70 percent of the
$10 million addition to Ninth district
member bank operating expense in
! 956Bank income accounts last year




primarily reflected a substantial de­
mand for loans of all types. Thus $14
million of the $18 million additional
revenue at district member banks
in 1956 represented increased reve­
nue from loans.
Loans increased at member banks
in every district state or part state.
Gains ranged from 2.4 percent at
member banks in South Dakota to
13.5 percent at our member banks in
Michigan. During the year 1956
loans and investments averaged
25

$1,823 million and $1,692 million re­
spectively at all district member
banks. In the previous year loans and
investments averaged $1,621 million
and $1,856 million respectively.
Thus, in 1956, for the first time in
many years, the value of loans ex­
ceeded the value of investment se­
curities at our member banks. This
notable occasion is marked on chart 2
by the intersection of the lines repre­
senting loans and investments.
In every year for the past decade
loans at our member banks have
grown. Every major category of bank
loans has shared the growth. Loans
secured by real estate scored the
largest gain in the postwar decade—
up $436 million. Business-type loans,
officially labeled ‘commercial and in­
dustrial,’ rose $362 million in the
same period. Consumer loans and
production-type loans to farmers
were up by $336 million and $113

million respectively in the 10-year
period.
The impressive expansion of real
estate credit was, of course, fostered
by government insurance and guar­
antees of home mortgages. At the
end of 1956 over half the real estate
loans on the books of district mem­
ber banks were insured or guaran­
teed. Loans with this feature are not
strictly comparable to other types of
bank loans owing to the reduced risk
entailed. The lower risk factor in
turn has induced banks to acquire
government-underwritten mortgage
loans in spite of the fact that they
yield less than most other kinds of
bank loans.
Chart 3 indicates that loans se­
cured by real estate rose less rapidly
in 1956 than they did in previous
years. This reduction of the growth
rate reflected the fact that yields on
other loans and investments were

CHART 2— DEPOSITS, LOANS AND INVESTMENTS OF DISTRICT MEMBER BANKS
Mi l l i on

dollars

26



CHART 3—TYPES OF LOANS AT DISTRICT MEMBER BANKS

MILLION

1947

DOLLARS

1948

1949

1950

1951

rising while yields on insured and
guaranteed mortgages remained un­
changed at the fixed legal maximum.
Hence, lenders found such mort­
gages becoming less attractive rela­
tive to other uses for funds.
While the increase in all kinds of
mortgages held was $74 million in
1955 it was down to $46 million in
1956. Furthermore, while $41 million
of insured or guaranteed mortgages
were added in 1955, only f n million
of such mortgages were added in
1956. These figures indicate that
mortgage loans without a fixed yield
were added more rapidly in 1956
than in 1955 while loans of fixed
yield were added less rapidly.
The rate of increase in commercial
and industrial loans was also reduced
in 1956. These loans rose $116 mil­
lion in 1955 and $55 million in 1956.
Since the proceeds of commercial




1 952

1953

1954

1 955

1956

and industrial loans, are often used
to finance the purchase of inven­
tories, it may be that the loan figures
reflected a lowered rate of inventory
accumulation in 1956, particularly
since other data also suggest a low­
ered rate of inventory accumulation
in 1956.
Production loans to farmers, which
increased $23 million in 1955, were
unchanged in 1956. Loans secured by
farm real estate are included in the
real estate loan total mentioned pre­
viously. Farm real estate loans went
up $2 million in 1955 and $1.5 mil­
lion in 1956. Loans to farmers
guaranteed by the Commodity Credit
Corporation are not included in
either the farm real estate or farm
production loans mentioned above.
These loans fell $32 million in 1955
and $15 million in 1956.
The only major category of loans

which registered a larger gain in
1956 than in 1955 was the consumer
type. Although the auto component
of consumer loans displayed a lesser
growth rate in 1956 the increase of
other retail instalment paper was
greater in 1956 than in 1955.
The postwar loan expansion at dis­
trict banks (and at banks in the rest
of the country) has been financed in
large part by the liquidation of se­
curities, particularly Treasury obli­
gations. The removal of government
securities from bank portfolios has
narrowed the range of alternatives
available to banks in need of cash.
Thus, the importance of borrowing
by banks has been growing. In none
of the years since the early 1930’s
have borrowings of member banks
from this bank, for example, been as
large as in 1955 or 1956.
Not- since 1932 have loans repre­
sented such a large proportion of dis­

trict member bank deposits as at the
end of 1956. The ratio of loans to
deposits is one popular indicator of
bank liquidity. This ratio has risen
in every one of the postwar years as
shown by chart 4.
Principally in response to the sub­
stitution of loans for investment se­
curities, the gross receipts of our
member banks have climbed in
every one of the postwar years. The
average yield on loans held by the
member banks is well over twice the
yield earned on investments.
Another factor operating to lift
gross receipts has been a rising level
of interest rates in general. Reflecting
this is the fact that receipts from loans
were up 17 percent last year while
average loans held were up only 12.5
percent. And income from securities
was up slightly—despite a reduction
from the previous year in the average
amount held.

CHART A RATIO OF LOANS TO DEPOSITS, NINTH DISTRICT MEMBER BANKS
—
Percent

28



EARNINGS & DIVIDENDS OF DISTRICT MEMBER BANKS
(millions of dollars)
1955
$ 83.8
39.6
24.9
148.3

1956
$ 97.8
40.7
27.5
166.0

Change
$+14.0
+ l.l
+ 2.6
+ 17.7

Salaries
Interest on time deposits
Other current expense
TOTAL Current Expense

44.9
15.1
33.0
93.0

48.9
17.8
36.9
103.6

+ 4.0
+ 2.7
+ 3.9
+ 10.6

Net current earnings
Deduct net of other charges and credits
Net profits before income tax
Income tax

55.3
7.3
48.0

20.0

62.4
18.2
44.2
18.0

+ 7.1
+ 10.9
— 3.8
— 2.0

28.0

26.2

— 1.8

Loan income
Investment income
Other income
TOTAL Current Earnings

Profits after taxes

The table shows that while income
from loans, securities, and other
sources rose in 1956, the principal
components of expense also rose.
Thus, for example, salaries were up
$4 million and interest on time de­
posits was up $2.7 million in 1956.
But total current expense increased
by $7.1 million less than did total
current earnings with the result that
net current earnings rose by this
amount.
However, in financing the loan ex­
pansion which produced most of the
addition to loan revenues, the banks
liquidated securities, sometimes at
a loss. Such losses jumped from $5.4
million in 1955 to $12.1 million in
1956. Owing to deductions from net
current earnings for these and other
charges, the net profits of district
member banks fell by $3.8 million in
1956; but income taxes fell by $2
million with the result that profits
after taxes declined but $1.8 million.
It is perhaps worthy of note that




the higher level of interest rates gen­
erally in 1956 was associated with a
depressed bond market which in
turn gave rise to losses by banks on
the sale of securities; also, expenses
of the member banks were enlarged
by reason of an increase in the aver­
age rate of interest paid on time de­
posits. In other words, rising inter­
est rates have added to expense as
well as to revenue at the banks.
The behavior of member bank de­
posits serves to confirm the other
evidence of favorable economic con­
ditions in the district during 1956.
In 1955, while deposits at member
banks in the rest of the nation rose
somewhat, district banks reported a
slight loss of deposits. But in 1956,
preliminary figures disclose that dis­
trict member banks enjoyed a some­
what larger percentage deposit
growth than member banks in the
rest of the nation. The respective fig­
ures were + 2 .9 percent and + 1.8
percent (preliminary estimates).
29

CHART 5— REVENUE FROM LOANS AND INVESTMENTS AND TOTAL CURRENT EXPENSE
M IL L IO N

DOLLARS

1
1946

)
1947

1
1948

_____ I
_____ I ____ I
_
_____ I
_____ I
_____
I

1
1949

1950

Demand deposits and time deposits
accounted for $76 million and $45
million respectively of the $121 mil­
lion total district increase. The time
deposit gain of $45 million compares
with an increase of only $32 million
in 1955.
Doubtless the improvement of
prices for commodities produced on
district farms aided deposits at coun­
try banks in the district. These banks
enjoyed a 3.5 percent deposit increase
during 1956 while city member banks
in the Ninth district reported a 2.3
percent gain.
Only at member banks in South
Dakota did deposits fail to register
an increase for the year. Farm incomewise, that state fared least well
of any in the district last year largely

30



1 951

1952

1953

1954

1955

1956

because of drouth conditions. At
member banks in other district states,
1956 deposit growth ranged from a
little more than 3 percent in Minne­
sota to more than 4.5 percent in
North Dakota.
CHART 6— MEMBER BANK DEPOSITS 1956
Percentage change

Federal Reserve Bank
of M inneapolis
During 1956, as the building pro­
gram neared completion, additional
space became available for use by de­
partments previously lodged in other
buildings. By the end of the year,
for the first time since 1950, all the
bank’s operations were conducted
under one roof. The roof, inci­
dentally, had risen eight stories since
the construction program began in
I 955OPERATIONS

In spite of the many inconven­
iences which resulted from the build­
ing program, service to the member

banks, the government and the pub­
lic was undiminished in quality or
quantity. Some departments of the
bank accomplished a larger volume
of work than ever before.
For example, the Chec\ Collection
department of the head office and
the Helena branch functioned 6.5
percent more items in 1956 than in
1955. This department, which em­
ployes more workers than any other,
handles postal money orders and
savings stamp albums as well as gov­
ernment and other checks. The num­
ber of items handled has increased
in each of the postwar years and in
1956, at 123.580 million, was more

CHART 7—VOLUME OF OPERATIONS, MINNEAPOLIS FEDERAL RESERVE BANK AND
HELENA BRANCH
Mi llions of pi eces

0L

I
1946

I
1947

I
1948




I
1949

I
1950

I
1951

I
1952

I
1953

I
1954

I
1955

J
1956

than double what it had been as re­
cently as 1948.
Another department which experi­
enced larger volume in 1956 than in
*955 was Currency and Coin. More
than 70 million pieces of currency
and more than 148 million coins
were counted by the department in
1956, up 5 percent and 8 percent re­
spectively from the year before. The
dollar value of currency shipments to
and from member banks was up 10
percent and 15 percent respectively.
The bank’s Fiscal Agency depart­
ment is principally concerned with
the issue, redemption and exchange
of U. S. Treasury securities. In 1956
the department accomplished 4,469
thousand such transactions, up 3
percent from 1955.
Other tasks performed by ‘Fiscal’
for the government included the
payment of coupons detached from
Treasury securities, the bookkeeping
in connection with Treasury deposits
at the commercial banks, and the
destruction of Treasury currency
when it became unfit for use.
As a special service, Fiscal Agency
buys and sells government securities
on the open market for the account
of banks in the district. Such trans­
actions numbered 2,145 m x95^One of the few departments of the
bank to experience a slackened pace
in 1956 was the Non Cash Collections
department. A decline of almost 16
percent was recorded in the number
of items handled. This resulted from
the adoption of new arrangements
for processing certain grain drafts.
The bank’s Safekeeping depart­
32




ment had custody of securities worth
$M77 billion at the end of 1956.
This amount has been falling in re­
sponse to the liquidation of securities
by district banks to finance loan ex­
pansion. Despite the reduction in the
dollar value of securities held, the
number of securities held and the
number of coupons clipped have in­
creased. The 357,000 coupons clipped
in 1956 represented an increase of 9
percent over 1955.
A tremendous volume of funds is
shifted from one part of the nation
to another every day by means of the
Federal Reserve Wire Transfer Sys­
tem. Transactions in the market for
‘federal funds’—where one commer­
cial bank borrows from another—
are ordinarily effected by wire trans­
fers. At almost 66 thousand, the
number of wire transfers handled by
the bank in 1956 was up 6.5 percent
from the year before.

FINANCIAL STATEMENTS

The number of loans made by this
bank reached a postwar high in 1956,
up 11 percent from 1955. Despite
this, the average daily amount of
loans at the Federal Reserve Bank
of Minneapolis in 1956 was lower by
17 percent than in 1955. In the first
half of 1956 Federal Reserve loans
averaged substantially more than a
year earlier while in the last half
loans averaged substantially less than
a year earlier.
The reduction in the average daily
volume of loans in 1956 was not re­
flected by a reduction in the bank’s

CHART 8— MEMBER BANK BORROWING
Average daily volume
M illio n d o llars

4 5 ------------------

'47

'48

'49

'50

'51

'52

'53

'54

'55

'56

earnings on loans. Such earnings
(see Statement of Earnings and Ex­
pense) rose by 20 percent. This was
produced by an increase in the dis­
count rate from 2V2 percent to 3 per­
cent on April 13.
Earnings on securities held for the
bank (in the Federal Open Market
portfolio) also increased in 1956 de­
spite a reduction in the daily average
amount held. The 35 percent addition
to revenue from securities held entire­
ly reflected increased yields on securi­
ties acquired to replace those sold or
matured. Since mid-1954, yields on
government securities have been in
an upward trend.
Expenses of the bank rose $838
thousand in 1956. With revenues
higher by $3,587 thousand, net cur­
rent earnings were up by $2,759
thousand. After allowance for cer­
tain other charges and credits, net




earnings available for payment to the
Treasury and stockholders and for
transfer to surplus were up $2,682
thousand from 1955.
Since the dividend rate on Fed­
eral Reserve stock is fixed by law at
6 percent, the 5.7 percent increase in
dividends paid during 1956 resulted
entirely from the issue of additional
shares. As member banks enlarge
their capital and surplus they are re­
quired to enlarge their holdings of
Reserve bank stock in the same pro­
portion.
Earnings after the payment of
dividends in 1956 amounted to
$9,340,498. Of this amount, 90 per­
cent was paid to the U. S. Treasury
as interest on Federal Reserve Notes
and 10 percent was added to the
surplus of the bank.

CHART 9— LOANS GRANTED TO MEMBER
BANKS
By the Minneapolis Federal Reserve Bank
Number of loans

1400-------------------------------------------------------------

■
46 '47

'48

'49

'50

'51

'52

*53 '54

'55

'56

33

EARNINGS AND EXPENSES
Earnings from:

1956
........................................................................... ......

Discounted Bills

$

1955

1,010,077

$

United States Government Securities...................................... ............... ][3,086,844
Industrial Advances

840,861
9,669,412

2,591

3,997

13.764

....................................................................

All Other .........................................................................................

12,007

Total Current Earnings...................................................... ---- $ 14 ,113 ,2 7 6

$10 ,526 ,277

.................................................................... . . . . $ 4,174,681

$ 3,337,558

132,600

105,000

...........................................................................

29,371

65,895

Cost of Redemption..................................................................

9,933

10,309

...................................................................... . . . .$ 4,346,585

$ 3,518,762

$ 9,766,691

$ 7,007,515

Expenses:
Operating Expenses

Assessment for Expenses of Board of Governors................
Federal Reserve Currency:
Original Cost

Net Expenses

Current Net Earnings...........................................................................
Additions to Current Net Earnings:
Profit on Sales of U. S. Government Securities (net)
All Other .........................................................................................

Total Additions .................................................................... . . . . $

7,371

— 38

377

86,520

7,748

$

86,482

$

h ,536

Deductions from Current Net Earnings:
Reserve for Contingencies...........................................................

11,4 58

All Other .........................................................................................

438

2,022

...............................................................

11,896

$

13,558

Net Addition to Current Net Earnings...........................................

4,148

$

72,924

Total Deductions

Net Earnings before payments to U. S. Treasury......................... . . . .$ 9,762,543

$ 7,080,439

8,406,449

6,013,073

.......................................................................................

422,045

399,257

Transferred to Surplus (Section 7 ) ....................................................

934,049

668,109

Surplus Account ( Section 7)
Balance at Close of Previous Y e a r.................................................... . . . .$17 ,58 6 ,155

$16,918,046

Paid to U. S. Treasury (Interest on F. R. N otes).........................
Dividends Paid

Transferred from Profits of Y e a r.........................................................

934,049

Balance at Close of Y e a r.............................................................$18,520,204

34




668,109
$17 ,58 6 ,15 5

S T A T E M E N T O F C O N D IT IO N
ASSETS

Dec. 3 1 , 1955

Dec. 3 1 , 1956

Gold Certificates ..................................................................................$

351,392,666

$ 339»
278,776

Redemption Fund for F. R. Notes..................................................

22,952,138

23,728,983

Total Gold Certificate Reserves.........................................................$

374,344,804

$

363,007,759

9,319,030

$

7,907,872

Other Cash

...........................................................................................$
..................................................................................

3,530,000

1,355,000

Foreign Loans on G o ld ......................................................................

625,000

25,000

42 ,35°

59,630

Bills Discounted

Industrial Advances

...........................................................................

U. S. Government Securities:
.............................................................................................

63,283,000

67.895.000

N o t e s ...............................................................................................

206,759,000

343.283.000

Certificates of Indebtedness.......................................................

Bonds

246,937,000

143.476.000

...............................................................................................

38,879,000

36.414.000

Total U. S. Government Securities..............................$

555,858,000

$

591,068,000

Total Loans and Securities..............................................$

Bills

560,055,350

$

592,507,630

Due from Foreign Banks....................................................................

556

557

F. R. Notes of Other F. R. Banks....................................................

14,376,750

9,587,500

146,350,942

14 3,6 6 2 ,7 11

Other Assets

........................................................................................

Total Assets .........................................................................$1,104 ,447,432

$1,116 ,6 7 4 ,0 2 9

LIA BILITIES
Federal Reserve Notes in Actual Circulation................................ $

498,235,535

$ 531,709,075

3 9 8 ,117 ,19 0

$

Deposits:
Member Bank— Reserve Accounts........................................... $

405,586,297

U. S. Treasurer— General Account.........................................

22,651,606

25,107,737

Foreign ...........................................................................................

7,400,000

9,650,000

Other Deposits

3*835,681

5,693,589

...........................................................................

Total Deposits .................................................................... $
Deferred Availability Items................................................................$

432,004,477

$

446,037,623

142,597,491

$

108,767,705

594,681

4 11,3 4 0

Total Liabilities .................................................................. $ 1,0 7 3 ,4 3 2 ,1 84

$1,086,925,743

Other Liabilities

..................................................................................

CA PITA L ACCOUNTS
Capital Paid I n ...................................................................................... $

7 ,18 2,100

$

6,860,650

23,833,148

22,887,636

Total Liabilities, Capital Accounts................................ $1,104 ,447,432

$1,116 ,6 7 4 ,0 2 9

Other Capital Accounts......................................................................




35

One weakness of balance sheets is
that they are dated, and thus, if some
of the balances fluctuate widely from
day to day, a particular balance sheet
may not accurately represent the nor­
mal condition of a business. And so
it is with the year-end statement of
this Federal Reserve Bank.
Member bank borrowings, for
example, averaged $35.4 million in
1956—down 17 percent from the
1955 average; yet, the year-end state­
ment shows member bank borrow­
ings of $3.5 million, up from the
$1.4 million figure shown at the end
of 1955.
At the end of 1956, district mem­
ber bank reserve balances were down
more than $7 million from the end
of 1955; yet, during the whole
month of December 1956, district
member bank reserve balances aver­
aged more than $8.5 million higher
than the average a year earlier. Fur­
thermore, average reserves minus
average borrowings were $434 mil­
lion in December 1956, up $25 mil­
lion from the year-earlier period.
The bank’s gold certificate re­
serves were aided in 1956 by the in­
flow of deposits to the Ninth district.
This is because when a check drawn
on a member bank outside the dis­
trict is deposited with us, gold cer­
tificates are transferred from the Fed­
eral Reserve bank serving the drawee
bank to this Federal Reserve bank.
Our note circulation declined again
in 1956. The currency needs of this
district are now satisfied in part with
notes issued by other Reserve banks;
hence, the amount of our notes out­
36



standing does not reflect the currency
circulation in the district.
The bank’s capital funds were
augmented, as noted previously, by
the sale of new stock and by the
transfer to surplus of earnings which
remained after the payment of divi­
dends and of interest on Federal
Reserve notes to the Treasury.

MANAGEMENT

In 1956 for the first time in many
years there were no changes in the
personnel of the Boards of Directors
of either the Federal Reserve Bank
of Minneapolis or its Helena Branch.
At the head office Mr. Leslie N.
Perrin, member of the Board of Di­
rectors and former President of Gen­
eral Mills, Incorporated, was reap­
pointed Class C director by the
Board of Governors of the Federal
Reserve System for a three-year term
beginning January 1, 1957. He was
also redesignated Chairman of the
Board and Federal Reserve Agent
for 1957. Dr. Oscar B. Jesness, Head
of the Department of Agricultural
Economics at the University of Min­
nesota, was redesignated Deputy
Chairman for the coming year.
Mr. Harold N. Thomson, Class
A director, and Mr. J. E. Corette,
Class B director, were both re-elected
by the member banks of the district
for additional three-year terms begin­
ning January 1, 1957.
At the Helena Branch, Dr. Carl
McFarland, President of the Montana
State University at Missoula, Mon­
tana, Mr. George N. Lund, Chairman

of the Board and President of the
First National Bank of Reserve,
Montana, and Mr. J. Willard John­
son, Financial Vice President and
Treasurer of the Western Life Insur­
ance Company of Helena, Montana,
were all reappointed to two-year
terms on the Branch Board, begin­
ning January i, 1957. Dr. McFar­
land’s appointment was made by the
Board of Governors while Mr. Lund
and Mr. Johnson were reappointed
by the bank’s directors.
Mr. Julian B. Baird, Chairman,
First National Bank of St. Paul, was
renamed by our Board to an addition­
al one-year term as member of the
Federal Advisory Council.
There were changes in the official
staff of the bank. Retiring from the
bank on April 1, 1956 was Mr. Otis
R. Preston, Vice President in charge
of the Public Services department,
who had been on the bank’s staff for
nearly 36 years. Two other officers
announced their retirement from ac­
tive service to become effective Feb­
ruary 1, 1957; these were Mr. Earl B.
Larson, Vice President and Cashier,
and Mr. George M. Rockwell, Assist­
ant Cashier. Mr. Larson had been the
officer in charge of the Fiscal Agency
department for many years and Mr.
Rockwell had been associated with
the bank discount and credit func­
tions.
Advanced from Assistant Vice
President to Vice President were
Mr. Melvin B. Holmgren, officer
in charge of the Fiscal Agency
department, and Mr. Arthur W.
Johnson, officer in charge of the




Check Collections department. Mr.
Clarence W. Groth, Vice President,
was made Vice President and Cash­
ier. These promotions were all ef­
fective January 1, 1957. On March 1,
1956 Mr. Oliver S. Powell and Mr.
Albert W. Mills were reappointed to
five-year terms as President and First
Vice President of the bank respec­
tively.
PUBLIC RELATIONS

The bank’s programs of bank re­
lations and public information and
education were somewhat curtailed
during the year because of our build­
ing expansion program. The annual
series of Short Courses in Central
Banking, which have been conducted
each year since 1948, was temporarily
discontinued and will not be resumed
until early in 1958. Tours of the bank
and special luncheons were also re­
duced in number because of the
building program.
The remainder of our Public Serv­
ices activities was continued in much
the same form as in 1955. The annual
Assembly program for member bank
officers and directors was held in
April and attended by 517 guests.
The eighth annual Workshop meet­
ing in May drew a record 122 college
teachers of money and banking and
economics, and November marked
the 13th annual Examiners Confer­
ence for representatives of all federal
and state supervisory agencies in the
district.
Representatives from the bank and
the Helena Branch called on each
of the nearly 1,300 banks in the dis­
continued on page 40

37

DIRECTORS OF THE FEDERAL RESERVE BANK
OF MINNEAPOLIS AND HELENA BRANCH
DIRECTORS
Class A
Term Expires
December 31
C . R e f l i n g , Cashier, First National Bank in Bottineau,
Bottineau, North Dakota

1957

F. R i n g l a n d , President, Northwestern National Bank of Minneapolis,
Minneapolis, Minnesota

1958

N. T h o m s o n , Vice-President, Farmers & Merchants Bank,
Presho, South Dakota

1959

H aro ld

Jo seph

H aro ld

Class B
R ay

C. L a n g e , President, Chippewa Canning Company, Inc.
Chippewa Falls, Wisconsin

1957

T .

President, Super Valu Stores, Inc.
Hopkins, Minnesota

1958

President and General Manager, Montana Power Company,
Butte, Montana

1959

J.

G .

E.

H a r r is o n ,

C o rette,

Class C
O. B. J e s n e s s ,2 Head, Department of Agricultural Economics,
University of Minnesota Institute of Agriculture, St. Paul, Minnesota

1957

President and General Manager, Lake Shore, Inc.,
Iron Mountain, Michigan

1958

N. P e r r i n ,1 Director, General Mills, Inc.,
Minneapolis, Minnesota

1959

F.

A lb ee

F l o d in ,

L e s lie

HELENA BRANCH
Appointed by Federal Reserve Bank
A. W. H e i d e l , President, Powder River County Bank,
Broadus, Montana
J.

G eo .

1957

Financial Vice-President and Treasurer,
Western Life Insurance Company, Helena, Montana

1958

N. L u n d , Chairman of the Board and President,
The First National Bank of Reserve, Reserve, Montana

1958

W il l a r d

J o h n so n ,

Appointed by Board of Governors
G eo rge
C a rl

R.

M i l b u r n ,3

Manager, N Bar Ranch, Grass Range, Montana

President, Montana State University,
Missoula, Montana

1957

M c F a r l a n d ,1

1 Chairman
2 Deputy Chairman
3 Vice-Chairman

38



1958

OFFICERS OF THE FEDERAL RESERVE BANK
OF MINNEAPOLIS AND HELENA BRANCH
OFFICERS
S.

O liv e r
A lb e rt

P o w e ll,

W . M ills ,

Banking Department

F re d fr.ck
Jo h n

J.

J.

W.

A rth u r
E a rl

W.

B.

M il f o r d

E.

O rth en

W .

C h r is t ia n

M

O.

Sa th e r,

H .

/•

H o lm g re n ,

C.

n

-j

*

Assistant Cashier

B ro nner,

U elan d ,

Vice-President, Counsel and

Secretary

Research Department

Assistant Cashter

N ic e ,

B.

T
Vice-President

Legal Department

Assistant Cashier

S t r o t h m a n , J r .,

V an

T
T

n

W il l ia m

S ig u r d
R o ck w ell,

M a u r ic e

Vice-President

Chief Examiner

..

Assistant Vice-President

M.

C lem en t

M c C o n n e ll,
G ro bel,

Assistant Vice-President

G eo rg e

arcus

G .

K.

, ,
M e lv in

Operating Research Officer

O h n stad ,

R ie s ,

Department

Fiscal Agency— Government Securities

Vice-President

L ysen ,

R o ger

General Auditor

M cN u l t y ,

E x a m in a tio n

H a r o ld

Vice-President & Cashier
Vice-President

Jo h n s o n ,

L arso n ,

g ank

Assistant Cashier

G roth ,

J.

A rth ur

Personnel Officer

Cram er,

G ille tte ,

C laren ce

Audit Department

Assistant Cashier

C a r l E . B e r g q u is t ,

President

First Vice-President

Vice-President

Assistant Vice-President

F r a n k l in
O sca r

F.

L.

P a r so n s,

L it t e r e r ,

Director of Research

Business Economist

Helena Branch
K . F o s s u m , Vice-President
assigned to Helena Branch

A . B e r g l u n d , Assistant Vice-President
assigned to Helena Branch

K y le

H a r o ld

L. H e a t h , Assistant Cashier
assigned to Helena Branch

Jo h n

MEMBER OF FEDERAL ADVISORY COUNCIL
B. B a i r d , Chairman, The First National Bank o£ Saint Paul,
St. Paul, Minnesota

Ju lia n

INDUSTRIAL ADVISORY COMMITTEE
S h e ld o n
Jo h n

A.

H .

A.

B.

M.

W ood,

M.

Minneapolis, Minnesota, Chairman

Ishpeming, Michigan

D a g g e tt,
H e ia n ,

W a lte r




V.

B u sh ,

St.

Paul, Minnesota

Chippewa Falls, Wisconsin

R in g e r ,

S r .,

Minneapolis, Minnesota

39

trict at least once during the year.
Some of the larger banks received
more than one call. We also con­
tinued our program of sending men
from our staff to member banks for
commercial bank training during the
year. Federal Reserve Bank speakers
appeared before approximately 13,400
persons during the year; our movie
was shown to a reported 20,300 addi­
tional persons; and 15,300 additional
copies of our picture book were dis­
tributed. Other movies and publica­
tions were also in good demand and
our two currency displays were in
frequent use at bank open houses




and anniversary celebrations through­
out the district.
Two new national banks opened
in the district during 1956 and two
existing national banks closed. One
state bank became a Federal Reserve
member during the year and one
state bank withdrew from member­
ship. One state member bank con­
verted to a national bank. The net
result for the year was that the total
number of member banks in the dis­
trict remained unchanged at 473. The
total number of banks in the district
also remained unchanged at 1,296.
EN D


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102