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size. They have seen banks come and go, THE EASTERN TRUST COMPANY
have passed through periods when the finan
cial skies were dark with panic and bright Head Office
with prosperity. Through all the years they HALIFAX, CANADA
have been inseparable in their work. The Company has organized Ten Departments: In 1869 C. L. Murfey secured a position 1. Trust
6. Guaranteed Investment with what was then the Merchants National 2. Corporate Trust 7. Financial 3. Transfer 8. Agency
Bank in Cleveland, as collector. About two 1. Real Estate 9. Insurance
years later his brother, L. A., was employed 5. Real Estate Loan 10. Safety Deposit Vaults by the same bank as messenger. They conCorrespondence Invi'ed on all Trust Matters tinued their association without interruption THE EASTERN TRUST COMPANY with the Mercantile National Bank, of which 184 Hollis Street, Halifax, N. S.
C. L. Murfey became president. When the
institution. When the Guardian Savings and BROTHERS ASSOCIATED. IN BANKING
Trust Company absorbed the National ComFOR OVER FIFTY YEARS
mercial Bank the Murfey brothers continued
in charge of the Commercial Branch and at In the Commercial Office of the Guardian
the same location which they have occupied Savings and Trust Company of Cleveland
for over half a century. there is a double mahogany desk at which,
"I believe that if L. A. and myself had facing each other, are two brothers who have been engaged in banking, side by side, for
our lives to live over again, we would choose more than fifty years. They are c. L. and
to enter the banking world," said Mr. C. L. L A. Murfey, vice-presidents of the Guar Murfey. “We have had many pleasanit exdian Sarings & Trust Company. Many mil periences in our 50 years' work; we hare lions of credit have passed through their dealt with thousands of wonderful people; bands and they have seen Clereland grow we hare been part of the activities of a great from a comparative hamlet to its present and growing community."
C. L. MURFEY
L. A. MURFEY Vie-Presidents C. I. and L. A. Murfey of the Guardian Savings & Trust Company of Cleve
land who have teen associated in banking work for more than half a century.
HOW TO DETERMINE THE COST OF ACCOUNTS IN
SMALL BANKS OR TRUST COMPANIES
ELIMINATION OF UNPROFITABLE BALANCES
A. P. HOWARD
HE subject should be divided into two We have thus arrived at the profit or loss parts. First, the analysis of country of the country bank account, without taking
bank accounts on the books of city into consideration the highly complex analy. Lanks, and second, the analysis of individual, sis of general overhead expense of the departfirm or company checking accounts.
ment, taxes paid by the bank, salaries to It would appear that a better understand executive officers, etc. In other words, for all ing of the method of analyzing country bank intents and purposes, this calculation gives accounts on the books of city banks would a sufficiently accurate analysis for the prac. lead to a recognition of the mutual problem tical needs of the bank's officers. involved. There are several systems of analyzing these accounts, but the basis of all
Analysis of Individual or Company Accounts of them is deducting the amounts in transit
The analysis of individual, firm or com$ as to arrive at a net balance. A form
pany checking accounts referred to above, provides for keeping the average daily bal
can be made as complex or as simple as you ance by months, from which is subtracted
please. Of course, the analysis of these acthe arerage balance in transit, easily deter
counts in a large bank with many different mined by keeping the transit items day by
departments is entirely too complex to take day. From this average net balance for the
up at this time. For ordinary purposes, a month is deducted the ten per cent. reserve
much simpler, and per se less accurate, anrequired by the Federal Reserve Act, leaving
alysis can be arrived at where the institution what is ordinarily termed "Loanable Funds."
under consideration is a small bank with a A further subtraction is considered safe cashier and five or six employees, or a branch and conservative, although not absolutely
bank with a manager in place of a cashier. accurate, and that is a ten per cent. deduc
Even then, it must be assumed that some one tion for the purpose of estimating amounts
is willing to see that the usual records are outstanding at other banks. In this connec
kept in such a way that the figures can be tion, it should be remembered that the State
obtained. This simpler 'method might be law provides for a reserve of twenty per
termed a "Gross Analysis.” Such an analysis cent, four per cent. of which must be carried
depends upon averaging all of the earning in the bank vault; also that the Federal Re
deposits, and is shown by the following exserre Act permits a member bank to deduct
ample of a six months calculation: -Balance due from Banks" from "Balance Average deposits, saving... .$+00.000 due to Banks." Obviously some allowance Average deposits, checking..
300.000 should be made for this calculation of the reserve.
.$700.000 This would leave a net loanable fund, on Less average cash in vault.. $20,000 which interest is earned by the Discount De Less 3% cash reserve on savings partment. The cost of handling the business deposits
12.000 is summed up in (a) interest allowed, (b) Tess 10% cash reserve on checking collection charges, and (c) exchange charges.. deposits
30,000 The sum of this will give the cost which should be exceeded by interest earned on net Total ...
$62.000 loanable funds added to two and a quarter Loanable funds
$638,000 per cent. interest received on the ten per 7% on loanabie funds.
22.330 cent, of outstanding funds at other banks. Office rent collected.
ly) that is so small as to leave a loss on a year average. In other words, a checking account that averages $100 for one year will earn a gross profit of $3.30, and consequently a side calculation must be made to allow for the immediate outlay during the period covered. A pass-book has been given the customer, which cos so much per book, and a check book has been given, which costs so much more. If the cost of these two things exceeds $3.30 for a year, you have actually lost money on the account. Again, you can readily see that familiarity with the method of analyzing shown above will open a further field of thought, limited only by the matter of detail. Some banks keep all of these items segregated in such a way as to tell exactly what the account is worth. If a close analy. sis is desired, at least, it can be easily worked out.
$10,000 Net Profit
13,300 From this must be figured the following percentages : Gross earnings to deposits.... .3.3% Net earnings to deposits..
.1.9% Total deductions to deposits.... ...1.4%
You may say that it is not fair to charge against the percentages the interest paid on sarings deposits when analyzing the value of checking deposits, or the total expense of doing business when determining the value of savings deposits. As a matter of fact the differences must be carried to the third decimal place to be found at all, and to the fourth fifth decimal place to be noticeable. Besides, in the small bank it has been found that interest paid on savings deposits, where 342 per cent. is the basic ráte, just about balances the extra cost of handling checking business. Therefore the proportions have not been materially disturbed and we have a practical plan that works without a mass of detail.
Apportioning of Income and Expense
It is admitted that this system is not absolutely accurate, but it is submitted that a familiarity with this method of analyzing will give the basis for understanding a more detalled analysis, and, incidentally, the figures thus obtained will permit any further calculations in order to obtain greater ac('uracy by a more careful apportioning of income and expense items. In other words, it gives a fairly good working knowledge to the bank officer and places him in a position to pursue the idea to almost any reasonable extent, merely by a further subdivision of the items segregated. It is genprally admitted that the average figures are more reliable on the whole for a cost analysis, because they give the actual costs, which woull vary from ́ month to month and be subiect to constant revision.
Of course, there is an irreducible minimum and no account shonld be taken (theoretical
Treating the “Average Balance" The term "Average Balance" comes into this idea because it is necessary to figure the average balance of an account over a given period of time, in order to use the percentage figures. Every account can be averaged by taking the daily balance from the ledger, or the statement sheet, and placing it on a card. The addition of these figures for a month will give the average'if divided by thirty days. Probably, you would rather not keep such a detailed card indes, but would prefer to analyze an account in order to ascertain the average balance at the particular time that a customer is asking for something that suggests the value of the account to you. In this case, no average balance cards need be kept as the book keeper can easily give you the average for as long a period as you desire. Then make your calculations on that basis. Experience has shown that an analysis of an account gives information that places you in a position to tell your customer "no" and at the same time convince him that his account does not justify the request. Two or three, experiences of this kind, with consequent increased balance and a more profitable account, will convince you that it is worth the time and trouble to check up occasionally on a customer.
Human psychology enters into the discussion. Some customers will leave you no matter what your arguments may be. They will not understand you. This state of mind cannot be avoided, but is it not better to lose a profitless account rather than maintain it because of the unreasonable attitude of
(Continued on page 71)
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THE CORPORATION TRUST COMPANY
37 Wall Street, New York
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Portland, Me., 281 St. John Street (Corporation Registration Co.) Wilmington, duPont Bldg. Pittsburgh, Oliver Bldg.
(Corporation Trust Co. of America) Washington, Colorado Bldg.
Albany Agency, 158. State Street Jersey City, 15 Exchange Place Buffalo Agency, Ellicott Square