NEED FOR AN OBJECTIVE STUDY OF NONBANKING AFFILIATES BY THE COMMITTEE We feel very sure that it is not in the public interest to require severance from bank holding companies of all nonbanking affiliates where their activity is limited to owning a diversified list of marketable securities or holding stock in a corporation which a member bank may own. The Federal Reserve Board has recognized the justification for ownership by a bank holding company of diversified investments outside the field of banking, and we submit that the principle applies equally to ownership of such securities by a holding company affiliate. The Federal Reserve Board comment on this matter, included in their memorandum submitted to Senator Robertson in April 1950, in connection with S. 3547, which was offered as a substitute for S. 2318, is as follows: "Comment: The substitute bill contains an exception to this provision which would permit the ownership of 5 percent or less of the securities of any one company. Such an exception, the Board believes, is a justifiable one because it permits a bank holding company to continue to have diversified investments where the amount of each such investment is so small that it does not contravene the basic objective of the bill. In this connection, it should be noted that under provisions of existing law which would still be applicable to any holding company which held a voting permit, a holding company is required to build up certain reserves of readily marketable assets; these assets now may consist of readily marketable stocks, as well as bonds, and there appears to be no good reason why this should not continue to be permitted." REQUEST FOR AMENDMENT TO THE COMMITTEE PRINT Specifically we respectfully urge the following: (1) That no additional legislation with reference to bank holding companies is required. (2) That if legislation is originated by the Senate Banking and Currency Committee, the committee print be amended to include section 6 (b) 6 of S. 1118 (83d Cong., 1st sess.) which is identical with section 6 (b) 5 of H. R. 6504 (82d Cong., 2d sess.) as follows: "The prohibitions in this section shall not apply to the ownership by a bank holding company of shares or other securities or obligations of an investment company which is not a bank holding company and which is not engaged in any busineess other than investing in securities: Provided, That if the Board, after notice and opportunity for hearing, determines that the ownership or control of such shares, securities or obligations of any such investment company is resulting in the violation or evasion of any of the purposes or provisions of this act, it may by order require such bank holding company to dispose of all or any part thereof forthwith." (3) That any legislation should provide that a holding company can retain an investment in the stock of any company which it "is legal for a bank which is a member of the Federal Reserve system or insured by the FDIC to retain." EXHIBIT A January 1-December 31 This is a report of the trustees under a trust agreement with reference to the stock in the First National Bank of Louisville, Ky., and other corporations. TO THE OWNERS OF FIRST NATIONAL BANK TRUSTEES' CERTIFICATES On July 1, 1925, all of the shareholders of the Kentucky Trust Co. and all of the shareholders of the First National Bank of Louisiville, Ky., placed the stock of these companies in this trust, receiving in exchange First National Bank trustees' participation certificates. All of the capital stock of these two banks (except directors' qualifying shares sold under a repurchase agreement), and all of the common stock of First Kentucky Co. (an investment company with assets invested in marketable securities), First Kentucky Fire Insurance Co. and First National Bank of Buechel are held in this trust for your beneficial interest. In addition, the trust owns 4,546 shares of the capital stock of First National Bank of St. Matthews out of 5,000 shares outstanding, this holding having been in creased by the purchase of one additional share during the year. A brief description of the functions of the six corporations owned by the trust is given below. The purpose of this summary is to emphasize the fact that each trustees' certificate represents a share in the assets and earnings of six separate corporations. While each corporation is a separate entity, each serves to complement the services of the other. This close, coordinated relationship results in benefits for both the customers of the corporations and the holders of trustees' certificates. 1. First National Bank of Louisville-"the oldest national bank in the South❞— is a large commercial bank. Through its 11 neighborhood offices, Louisville is offered a complete banking service. 2. The Kentucky Trust Co. offers a complete individual and corporate trust service and a banking service for its trust customers. 3. First Kentucky Co. is an investing company. Its assets consist of marketable securities. Income from these securities is the source of dividend paid on its capital stock. 4. First Kentucky Fire Insurance Co. operates as an underwriting fire company and as an agency provides full facilities for all lines of fire, marine, casualty, and surety coverages. 5. First National Bank of St. Matthews is a neighborhood bank in the St. Matthews community of more than 20,000, which adjoins Louisville on the east. 6. First National Bank of Buechel is a neighborhood bank organized November 1, 1951, to provide banking service in the locality of General Electric's appliance park. Assets held in trust, Dec. 31, 1953 Shares and descriptions 20,000 First National Bank of Louisville, Ky., common $100 par--- Total stocks owned__. Total assets of trust, evidenced by 138,501 First National Affiliated corporations book value 1 $9,052, 358. 10 3,004, 825. 32 2,283, 541. 12 308, 814. 43 279,447.93 161, 705. 54 15, 107, 692. 44 16, 579. 55 15, 107, 271.99 1 The book value on the trustees' books is equal to capital, surplus, and undivided profits of affiliated corporation applicable to stock held in the trust. Accrued interest, taxes, expenses, and unearned discount__ Other liabilities___ Net worth (capital, surplus, and undivided profits): $46, 915, 141. 91 78, 283, 925. 85 10, 023, 426. 81 326,250.00 50, 174, 673. 33 517, 784. 31 224, 590.99 1, 303, 273. 41 187, 769, 066. 61 169, 028, 089. 46 1, 515, 259. 21 1,513, 258. 28 583, 359. 31 38, 407.91 15, 090, 692. 44 187, 769, 066. 61 NOTE.-Intercompany deposits of $924.852.35 have been eliminated in the above statement. 1953 COMPARED WITH 1952 The following tabulation presents pertinent comparative figures relative to the trust as of the dates indicated: 1 The consolidated book value is that part of the capital, surplus and undivided profits of the affiliated companies applicable to the stock of those companies owned by the trust. It includes, however, no value for substantial reserves established by those companies by transfer from undivided profits to reserves. (See footnote 2.) 2 These reserves in published statements of the First National Bank, the Kentucky Trust Co., First. Kentucky Fire Insurance Co., First National Bank of St. Matthews, and First National Bank of Buechel, are deducted from the book value of the assets to which they apply, but in the statement of First Kentucky Co. are separately stated. 3 Consolidated net operating earnings are reported without regard to capital transactions. As stated, they are after providing for estimated income-tax requirements and after deducting the allowed depreciation on bank buildings, vaults, and equipment. It has been the general practice of the several companies to charge off, in the year acquired, the cost of all furniture and fixtures purchased. These chargeoffs have not been deducted from the earnings reported, nor have voluntary transfers made from undivided profits to reserves been deducted. As usual, the consolidated net operating earnings do not include the net gain or loss resulting from recoveries on loans or the losses taken on loans, or the net profit or loss taken on securities sold. The quarterly dividend was increased Dec. 15, 1952, from 75 cents to 90 cents. With profound sorrow we report the death of Mr. Frank I. Dugan, vice president, on November 6, 1953, and Mr. Edwin C. Horn, assistant vice president, on December 14, 1953. These officers were associated together in the management of the Security Bank for many years prior to its acquisition by the First National Bank in 1951. Their long experience in banking and high personal qualities were of great value, and they will be sorely missed. On December 31, 1953, the directors of the First National Bank transferred $1 million from "Undivided profits" to "Surplus," increasing surplus from $5 million to $6 million. Combined capital and surplus were thereby increased from $7 million to $8 million. On the same date the directors of the Kennedy Trust Co. transferred $500,000 from "Undivided profits" to "Surplus," increasing surplus from $1 million to $1,500,000. Combined capital and surplus were thereby increased from $2 million to $2,500,000. The retention of a substantial part of our earnings in the business has been necessary in order to maintain a conservative ratio of capital funds to a steadily growing volume of deposits and trust funds. This increase in capital funds affords greater protection for depositors and trust customers and larger lending facilities to the banks. The addition of a fourth floor to the Fifth Street wing of the main office was completed during the year. The space is now occupied by the bookkeeping and transit departments and an attractive new employees' lounge. The time loan department was moved from the first to the second floor into space vacated by bookkeeping, in order to provide larger quarters necessitated by the growth of this department. The entire building has been redecorated and the second floor lounge for women employees has been remodeled. Two modern automatic elevators have replaced the original equipment. An all-wealther air-conditioning system was installed at the main office during the spring and summer months. It has added greatly to the comfort of customers and efficiency of operation. During the year, the northeast corner of Eastern Parkway and Shelby Street was purchased and plans are now being prepared by architects for immediate construction of a handsome new office which will replace our rented facilities at Preston and Oak. The First National Bank of St. Matthews continued to show a highly satisfactory growth in deposits and earnings. The First National Bank of Buechel, our newest affiliate, showed gratifying progress in its second full year of business. Its directors elected Mr. K. Raymond Badgett, assistant cashier, to assume the active management of the bank. During the year, First Kentucky Co. declared as a dividend to the trustees its holding of the entire common stock of First National Bank of Buechel, so that this bank is now owned directly by the trustees. The trust department of the Kentucky Trust Co. enjoyed a new record year of growth as measured by increase in book value of trust assets and by the volume of trust commissions. The Women's Finance Forum, first conducted in 1951, and repeated in 1952, was again presented in 1953. It is the only such forum yet to be held by any bank in Louisville. Diversified trust fund A, the first common trust fund to be established in Kentucky, continued to prove its usefulness as a medium for the advantageous investment of appropriate trusts. First Kentucky Fire Insurance Co. has returned to the second floor of the main office after 2 years in quarters outside the building. Mr. James H. Ewing, formerly cashier of the First National Bank of Buechel, was elected assistant vice president of the First National Bank, Louisville, on November 27, 1953. On December 18, 1953, Mr. Victor L. Bitter, of security office, formerly assistant cashier, was also elected assistant vice president of the First National Bank. On January 15, 1954, Mr. Clarence M. Kelly, manager of the East Broadway branch, was elected assistant cashier of the First National Bank. On January 15, 1954, Mr. Carl B. Eastes, formerly assistant trust officer, was elected trust officer of the Kentucky Trust Co. On January 15, 1954, Mr. Clifford E. Clark, Jr., was elected secretary of the First Kentucky Fire Insurance Co. You, as a shareholder in the trust, are cordially invited to ask for any information you may wish about the trust or any of its assets. We urge you also to know better and to use more fully the many services and facilities offered by the corporations owned by the trust. They are available to meet your banking, trust, and insurance needs. YOUR DIRECTORS RALPH C. GIFFORD, Chairman. The directors of First National Bank of Louisville, the Kentucky Trust Co., First Kentucky Co., and First Kentucky Fire Insurance Co. are: Charles W. Allen, Glenview, Ky. George R. Armstrong, executive vice president, Louisville Gas & Electric Co. J. McFerran Barr, president, First National Bank. George R. Bickel, vice president, Henry Bickel Co. Charles R. Bottorff, president, Belknap Hardware & Manufacturing Co. George Garvin Brown, president, Brown-Forman Distillers Corp. Archie P. Cochran, president, Cochran Foil Co. William C. Dabney, president, Devoe & Reynolds Co., Inc. Ralph C. Gifford, chairman of the board. Timothy V. Hartnett, president, Brown & Williamson Tobacco Corp. Eugene D. Hill, president, Louisville Cement Co. Preston P. Joyes, vice president, Brown Lumber Co. J. Van Dyke Norman, Jr., executive vice president, the Kentucky Trust Co. |