size. They have seen banks come and go, have passed through periods when the financial skies were dark with panic and bright with prosperity. Through all the years they have been inseparable in their work.

In 1869 C. L. Murfey secured a position with what was then the Merchants National Bank in Cleveland, as collector. About two years later his brother, L. A., was employed by the same bank as messenger. They continued their association without interruption with the Mercantile National Bank, of which C. L. Murfey became president. When the Mercantile became the National Commercial Bank, L. A. Murfey became president of that institution. When the Guardian Savings and Trust Company absorbed the National Commercial Bank the Murfey brothers continued in charge of the Commercial Branch and at the same location which they have occupied for over half a century.

"I believe that if L. A. and myself had our lives to live over again, we would choose to enter the banking world," said Mr. C. L. Murfey. "We have had many pleasant experiences in our 50 years' work; we have dealt with thousands of wonderful people; we have been part of the activities of a great and growing community."

T

HE subject should be divided into two parts. First, the analysis of country bank accounts on the books of city banks, and second, the analysis of individual, firm or company checking accounts.

It would appear that a better understanding of the method of analyzing country bank accounts on the books of city banks would lead to a recognition of the mutual problem involved. There are several systems of analyzing these accounts, but the basis of all of them is deducting the amounts in transit so as to arrive at a net balance. A form provides for keeping the average daily balance by months, from which is subtracted the average balance in transit, easily determined by keeping the transit items day by day. From this average net balance for the month is deducted the ten per cent. reserve required by the Federal Reserve Act, leaving what is ordinarily termed "Loanable Funds."

A further subtraction is considered safe and conservative, although not absolutely accurate, and that is a ten per cent. deduction for the purpose of estimating amounts outstanding at other banks. In this connection, it should be remembered that the State Law provides for a reserve of twenty per cent, four per cent. of which must be carried in the bank vault; also that the Federal Reserve Act permits a member bank to deduct "Balance due from Banks" from "Balance due to Banks." Obviously some allowance should be made for this calculation of the reserve.

This would leave a net loanable fund, on which interest is earned by the Discount Department. The cost of handling the business is summed up in (a) interest allowed, (b) collection charges, and (c) exchange charges. The sum of this will give the cost which should be exceeded by interest earned on net loanable funds added to two and a quarter per cent. interest received on the ten per cent, of outstanding funds at other banks.

We have thus arrived at the profit or loss of the country bank account, without taking into consideration the highly complex analysis of general overhead expense of the department, taxes paid by the bank, salaries to executive officers, etc. In other words, for all intents and purposes, this calculation gives a sufficiently accurate analysis for the prac tical needs of the bank's officers.

Analysis of Individual or Company Accounts

The analysis of individual, firm or company checking accounts referred to above, can be made as complex or as simple as you please. Of course, the analysis of these accounts in a large bank with many different departments is entirely too complex to take up at this time. For ordinary purposes, a much simpler, and per se less accurate, analysis can be arrived at where the institution under consideration is a small bank with a cashier and five or six employees, or a branch bank with a manager in place of a cashier. Even then, it must be assumed that some one is willing to see that the usual records are kept in such a way that the figures can be obtained. This simpler 'method might be termed a "Gross Analysis." Such an analysis depends upon averaging all of the earning deposits, and is shown by the following example of a six months calculation:

Average deposits, saving..
Average deposits, checking..

Total

Less average cash in vault. Less 3% cash reserve on savings deposits

Less 10% cash reserve on checking deposits

Total

Loanable funds

7% on loanable funds. Office rent collected..

.$400,000

300.000

.$700.000 $20,000

12.000

30,000

$62.000

.$638,000

22.330

200

You may say that it is not fair to charge against the percentages the interest paid on savings 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 3% 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.

or

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 detailed analysis, and, incidentally, the figures thus obtained will permit any further calculations in order to obtain greater accuracy 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 generally admitted that the average figures are more reliable on the whole for a cost analysis, because they give the actual costs, which would vary from month to month and be subiect to constant revision.

Of course, there is an irreducible minimum and no account should be taken (theoretical

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 costs 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 analysis is desired, at least, it can be easily worked out.

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 index, 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 bookkeeper 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 cus

tomer.

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)