"-■^^^fW" :^»jrftisii»^£i«nft\T^atBf£»EiSf^d'ir^vAiffaia££LTii in 2007 with funding from ^Microsoft Corporation THE BANKER'S CREDIT MANUAL THE 'BANKER'S CREDIT •MANUAL A COMPLETE SURVEY OF THE CREDIT DEPARTMENT— ITS OBLIGATIONS AND ITS OPPORTUNITIES. HOW TO SYSTEMATIZE THE WORK, STABILIZE OPERATIONS, AND FACILITATE INVESTI- GATIONS; TOGETHER WITH SCHEMES FOR COMPARATIVE ANALYSES AND MANY APPROVED FORMS REPRODUCED IN FACSIMILE A By / ALEXANDER WALL n Credit Manager National Bank of Commerce Detroit l/^' INDIANAPOLIS THE BOBBS-MERRILL COMPANY PUBLISHERS Copyright 1919 The Bobbs-Merrill Company "■f^ //AS '&r/z)/) ^in£>i^ir) THIS BOOK IS DEDICATED TO ST. MARK'S SCHOOL, SOUTHBORO, MASSACHUSETTS, WHOSE MOTTO, AGE QUOD AG IS, SHOULD BE THE MOTTO OF EVERY CONSCIENTIOUS CREDIT MAN FOREWORD Every book should have an object, and that object, whether it be to entertain or educate, should be clearly understood at the very start so that only those to whom it would be of value may undertake its reading. The reason for this Foreword is to ex- plain clearly in a few words the objects of this book, which are two — for it may be called A Why and How Book. The basic reason of this book is to educate. The idea of enter- tainment does not enter into its conception except as some of the ideas in it may please those students of bank credit who are in love with their work and to whom it may bring the stimulating effect of giving them an opportunity to compare their own ideas \Aith the ideas of others. Primarily it is not meant for the more mature minds in the field of bank credit, except in some chapters, but is more widely meant for younger men — assistants who are possessed of suffi- cient zeal to study the technique of bank credits so that they may more readily achieve judgment and credit knowledge. The opening chapter deals with the theoretic principle of credit very briefly. The colleges provide long courses for the deeper study of economics, but no book on credit can be complete without some discussion of the subject from this standpoint. The average man approaches this kind of study, however, in an attitude of skepticism and distrust. "Give us something practical," is the cry, and so this is written with the idea of giving as little theory as possible and as much of the practical as can be. There are many forms; nearly all reproductions of those in actual use by representative banks, but some are adaptations and combinations made with the idea of offering suggestions. These are -by no means only the forms used by the author, in his own FOREWORD work, but are in many instances forms received through the courtesy of friends whose departments touch other phases of credit than his own. Every part of every form, however, has been tested by actual use and serves a definite purpose. The objects, then, are to show how and why certain things are done and certain records kept in any well-organized bank credit department with the object of making it easier for the younger credit men to learn and understand the use of their tools and to help the older man compare his method with that of others. A. W. CONTENTS CHAPTER PAGE I Some Credit Economics and Word Definitions 1 What Is Political Economy — Barter, Exchange, Money — Credit — Is Credit a Power or an Executed Act — Banks : The Manu- facturers of Credit — Banks : The Accumulators of Credit — Banks : The Trustees of Credit. Percentage of Loss — Banks not Partners — Peaks of Borrowing — Liquidity of Credit Essen- tial to Good Banking. II Bank Credit Department Functions 13 Quality, not Size, the Measure of Goodness — Proper Presenta- tion of Essentials to Discount Cornmittee — When Should Credit Investigations Begin — The Credit Folder — A Credit Record Card for New Accounts — A Credit Record Card for the Bor- rower. III Sources of Credit Information 30 The Property Statement — The Statement Request — Statements and the Federal Reserve Banks — Remembering to Ask for Statements : The Statement Tickler — The Personal Credit In- terview — Commercial Agencies — The Interchange Bureaus — Trade-Checking the Customer — The Press — General Hearsay and Impressions. IV Statement Forms for Borrowers 57 Statements or Collateral — Statements Audited and Unaudited — Typical Statement Forms in Use — The Comparative Analysis Sheet— The Two for One Theory— Some Points to be Watched in Comparative Analysis — Synopsis of Statements for Loaning Officers. V Internal Statement Analysis 137 The Current Ratio— Receivables to Merchandise Ratio— Worth to Fixed Assets Ratio— Debt to Worth Ratio— Inertia or Sales to Receivables Ratio — Momentum or Sales to Merchandise Ratio— Vitality or Sales to Worth Ratio— Internal Compara- tive Analysis Record. VI Type Analysis 151 The Internal Tests— Method of Figuring Ratios— The Law of Average— Types an Interesting Study— Types Diverge from Two for One— Securing Sales Records Most Important. CONTENTS— a«/m«^^ CHAPTER , PAGE VII Discount Committee Organization 165 Rotation of Members — Formal Type of Organization — Size of Committee — Frequency of Meetings — Order of Business — Use of Credit Department Loan Cards — Using the General Knowl- edge of the Board. VIII Cost and Profit of a Checking Account 178 Margin of Profit on Bank Sales Low — The Borrowings of a Customer Secondary Profit — Cost of Operating Caused by Physical Volume — Cost in Proportion to Salary Handlings — The Count System. IX Commercial Paper 194 Different in Character from Depositor Borrowings — Character of Commercial Paper — Absence of General Open Credit Mar- ket — Method of Issue — Character of Commercial Paper Seller Important — Differentiation of Types of Paper — Under Option — Credit Department Record of Purchases — Inquiry Letters — File Revision Abuses — Territorial Economic Condition — Co- operation : How to Get It. X The Interview and Visit to Plant 211 The Fraudulent Statement — Questions Supplement Asset and Liability Statement — Interview Questionnaire — Comniercial Paper Questionnaire — Visiting the Plant — Things to Consider at the Plant— The Route Through the Plant— General Plant Efficiency — Use for a Kodak. XI Depreciation and Generalities 225 Sales and Losses — Repossession Loss — Merchandise at Cost — Plant Depreciation — Depreciation Due to Obsolescence — Ap- praisals — Patents as Assets — Collateral Loans — Acceptances — •The Robert Morris Club and a Code of Credit Department Ethics. THE BANKER'S CREDIT MANUAL The Banker's Credit Manual CHAPTER I Some Credit Economics and Word Definitions If we are to study any subject it behooves us first of all to understand what we are to study. While the object of this book is to disclose some of the theories and practises by which a bank credit man attempts to solve his problems, yet we can not under- take the study of the machinery itself until we know what we are handling. So many business men and- successful bankers have achieved their successes by dint of their own intuitive, clear- headed judgment, that they are sometimes too prone to dismiss as futile all study of the theoretical kind. The college professor and his economic laboratory are put aside as theoretic vagaries to be tolerated perhaps as a kind of plaything for the boys and girls, but not to be considered as of any practical value in the every-day affairs of business. There can be no doubt, however, as to the fact that every business success of long standing and firm foun- dation has become so because the man at the head of that busi- ness operated, knowingly or subconsciously, in accord with the basic laws of political economy. Some men may have developed their theories by academic study, trimmed and rounded by experi- ence. Others may have reached success by the long, hard daily grind. But either extreme and all between, if they are to continue successful, must conduct themselves in accordance with the laws of political economy. 1 4 THE BANKER'S CREDIT MANUAL all the dangers that surround business. The bartering of the ancients accomplished the trade and the payment at one and the same time. The double necessity of wants tended to this. But in the modern world the product passes through many hands before it ultimately reaches him who wants it for consumption, and, while the old barter laws of want or demand, h.aving or supply still govern value, the maker or producer parts with his product long before it reaches the hand of the consumer. The interval between is an ever-widening one, and the machinery is more and more complex, so that perhaps the most difficult part of the system to understand and at the same time the most nec- essary to our modem world, is credit. Credit has been variously defined. The dictionary says ''sale on trust/' Henry Dunning McLeod says of credit: ''Credit is the present/right to a future payment." William Stanley Jevons, an English economist, says : "Credit is found to be nothing but the deferring of a payment." Professor Richard T. Ely defines credit as "A transfer of goods for a promised equivalent." Pro- fessor C. J. Bullock states, "Credit may be defined as the power to secure commodities or services at the present time in return for some equivalent promised at a future time." There are several main points that are present in each of these definitions. First, that there must be an exchange of goods, wealth or service for which no actual final payment was made at the time of that exchange. Second, there must be an expectation of future payment based on a promise of the buyer to make such payment. Third, there must be confidence on the part of the seller that the promise of the buyer to effect a final settlement is certain of fulfilment. There should be a fourth element present where we are considering this subject from the angle of com- CREDIT ECONOMICS; WORD DEFINITIONS 5 mercial use; that is, there should he some expression of the medium in which, or the measure by which the future payment is to be gauged. Taking all these points into consideration and using the dollar as our accepted measure of value for the proper fourth element, the following seems to be a good definition for our purpose : Credit is the power to secure the present transfer of wealth, measured in dollars or other monetary standard, by a promise to pay at a future time, based on the confidence of the seller in the ability and willingness of the buyer to meet his obli- gations. IS CREDIT A POWER OR AN EXECUTED ACT ? There is a very decided difference of opinion as to whether credit is a power or a fact. Some very able men claim that credit only exists after having been used. That is to say the transfer of goods must have been made before credit exists. Others be- lieve that credit is a potential power to secure goods upon the conditional promise. If the opinion of the first group is correct^ then there is a little difference between credit and debt. It seems more narrow and less forceful than the interpretation that credit is something vital, potential, a power and not a dead transaction awaiting only the burial. From the banking standpoint there can be little argument but that credit is a power. In its larger uses, the liest firms or individuals arrange for a credit line, or a line of credit, with their bankers. This means that under certain agreements and with certain restrictions the borrower is assured that he may at any time borrow up to the amount of the line agreed upon, and certainly credit in this instance is a power which does exist prior to the actual use of the line granted. The extent of a man's credit is not measured by what he has used, 4 THE BANKER'S CREDIT MANUAL all the dangers that surround business. The bartering of the ancients accomplished the trade and the payment at one and the same time. The double necessity of wants tended to this. But in the modern world the product passes through many hands before it ultimately reaches him who wants it for consumption, and, while the old barter laws of want or demand, h.aving or supply still govern value, the maker or producer parts with his product long before it reaches the hand of the consumer. The interval between is an ever-widening one, and the machinery is more and more complex, so that perhaps the most difficult part of the system to understand and at the same time the most nec- essary to our modem world, is credit. Credit has been variously defined. The dictionary says ''sale on trust." Henry Dunning McLeod says of credit: "Credit is the present right to a future payment." William Stanley Jevons, an English economist, says : "Credit is found to be nothing but the deferring of a payment." Professor Richard T. Ely defines credit as "A transfer of goods for a promised equivalent." Pro- fessor C. J. Bullock states, "Credit may be defined as the power to secure commodities or services at the present time in return for some equivalent promised at a future time." There are several main points that are present in each of these definitions. First, that there must be an exchange of goods, wealth or service for which no actual final payment was made at the time of that exchange. Second, there must be an expectation of future payment based on a promise of the buyer to make such payment. Third, there must be confidence on the part of the seller that the promise of the buyer to effect a final settlement is certain of fulfilment. There should be a fourth element present where we are considering this subject from the angle of com- CREDIT ECONOMICS; WORD DEFINITIONS 5 mercial use; that is, there should l^e some expression of the medium in which, or the measure by which the future payment is to be gauged. Taking all these points into consideration and using the dollar as our accepted measure of value for the proper fourth element, the following seems to be a good definition for our purpose : Credit is the powder to secure the present transfer of wealth, measured in dollars or other monetary standard, by a promise to pay at a future time, based on the confidence of the seller in the ability and willingness of the buyer to meet his obli- gations. IS CREDIT A POWER OR AN EXECUTED ACT ? There is a very decided difference of opinion as to whether credit is a power or a fact. Some very able men claim that credit only exists after having been used. That is to say the transfer of goods must have been made before credit exists. Others be- lieve that credit is a potential power to secure goods upon the conditional promise. If the opinion of the first group is correct, then there is a little difference between credit and debt. It seems more narrow and less forceful than the interpretation that credit is something vital, potential, a power and not a dead transaction awaiting only the burial. From the banking standpoint there can be little argument but that credit is a power. In its larger uses, the l>est firms or individuals arrange for a credit line, or a line of credit, with their bankers. This means that under certain agreements and with certain restrictions the borrower is assured that he may at any time borrow up to the amount of the line agreed upon, and certainly credit in this instance is a power which does exist prior to the actual use of the line granted. The extent of a man's credit is not measured by what he has used. ^6 THP: BANKER'S CREDIT MANUAL but by the amount he is able to use. The full measure of credit is the greatest amount that may be purchased at any time with promises of future payment. This maximum may or may not be in use. That part which has been used is surely debt and that which has not been used is still a potential power for further • purchases. Modern business is transacted in this country almost entirel}' by instruments based on credit and depending upon the credit judgment of commercial and bank credit men for the soundness of these instruments. The system is intricate in the extreme and the space afforded here can not begin to cover the various phases of credit in all its ramifications. It can only touch upon a few of the high spots to bring the matter out in relief or suggestive form so that the student may perhaps have his desire stimulated to dig deeper into that most interesting subject, credit. BANKS THE MANUFACTURERS OF CREDIT T The place occupied by banks in the credit scheme is distinctly peculiar. They are in fact manufacturers and jobbers of credit. Unlike their commercial brothers, they have no merchandise wares which they sell for cash or on credit terms. They have only one main staple article for sale and that is credit itself. The demand for this commodity is dependent upon the activity of business, and at the same time the activity of business is the source of the supply. Credit is an endless circle when viewed from the bank man's standpoint. In every stage of development from the production of the raw material until the time it reaches the ultimate consumer there are a series of endless circles whose perimeters touch first one banking ofifice and then another. Here they are loans, there they create deposits and in the end one oper- CREDIT ]^:CONOMIC\S; WORD DICFINITIONS 7 ation washes another, one credit wipes out another, and one de- posit goes to build up another. . It may he interesting- and ilhiminating to take as an example a single commodity and trace it through its most important stages. A man with a few thousand dollars and some land starts as a farmer and plants a crop of corn. He owns his land free and clear and has enough cash to carry him through the planting season up to the harvest. First he may deposit his cash in a bank to buy his seed corn — he draws checks against his account, and continues to draw until the harvest time. Harvest time finds him short of money to pay the harvest hands. He goes to his bank and demonstrates to the loaning officer that he is good for a cer- tain amount of credit. He gives his note and secures a credit against w^hich he can continue to draw so as to pay for the ex- pense of harvesting. Then he sells his corn to the country ele- vator. The elevator company has not enough funds to pay for all the corn they wnsh to buy. After the first few carload lots are purchased the elevator company sells to the grain dealer in the central city. The corn is loaded, consigned to the city purchaser and the railroad company issues a bill of lading. The country elevator man gpes to his banker and by drawing a draft against the purchaser of the corn and attaching the bill of lading and dis- counting the draft with his banker is put in funds to buy more corn. He repeats the operation many times. These drafts are forwarded to the city in which the purchaser is located. The purchaser takes up w4iat he can with his own money and then arranges to have the bank with which he does business extend him credit based on the com represented by these bills of lading. The bank of the original grower has been paid by the farmer when he received payment from the country elevator. The coun- "^8 THE BANKER'S CREDIT MANUAL try elevator pays its bank when its drafts are paid by the city dealer and the city dealer pays his bank when he finally sells the corn to the consumer. In all these operations very little cash figures ; possibly none at all. The banks have provided the credit which has taken the form of a credit to the checking account of the customer and the credit has been passed along and washed by transfer of ownership of the corn and the issue and execution of checks and notes. BANKS THE ACCUMULATORS OF CREDIT r Banks are the accumulators of credit through the receipt of deposits. The deposits so received are either transferred into liquid credit directly by the bank's machinery or are used as the {_ basic reserve for the manufacture of credit. If a bank has to keep a ten per cent, reserve against deposits and, for argument's sake, is keeping exactly such a percentage, then for every ten thou- sand reserve funds the bank would be allowed to receive one hun- dred thousand deposits. Therefore a bank having received a ten thousand dollar deposit from some customer of funds that could be used as reserve would be in the position of being able to manufacture one hundred thousand additional deposits by ex- panding its credit machinery. This could be done by granting loans of one hundred thousand dollars, the results of which were credited to the borrower's checking account. As a practical mat- ter it is this principal of loans resulting in bank balances that binds the loans and deposits so closely and that in the past caused such strain and stress on the bankers and on credit machinery. CREDIT ECONOMICS; WORD DEFINITIONS 9'^ BANKS THE TRUSTEES OF CREDIT. PERCENTAGE OF LOSS This position of the loans being so closely connected with the deposits puts banks in a rather peculiar position in that the bulk i of the funds they lend are in truth the funds of their depositors. The position is in reality akin to a position of trust. It is well to keep this in mind as a danger sign against being too liberal in making loans or too superficial in making credit investigation, as the loans are from funds held in trust and therefore worthy of careful handling. However, this condition should not make the -^ credit man timorous. A certain amount of loss is bound to occur, except in an air-tight policy, and it is very difficult to make any policy air-tight enough to stop all loss. There is such a thing as a fair percentage loss, and if the bank falls much below such a fair percentage then it is either extremely fortunate, or, more probably, too conservative and losing good business through fear of ''tak- ing it on," as the phrase goes. If a bank can operate on a one- ' fifth of one per cent, of its loan turnover as a loss it is safe. If this percentage be reduced to one-eighth of one per cent, it prob- ably has good credit management. If it falls to a one-tenth or a twelfth of one per cent, the bank is becoming conservative, and if it gets much below this it is a pretty certain thing that the bank is losing good business by being afraid to take a fair bank- ing risk. A normal risk will be accompanied by a normal loss.^ Therefore if the loss is far above or below normal the risks taken have tended to be too great or too narrow. The grain loans referred to differ in security, if not in eco- nomic effect, from the ordinary commercial loan in that there was security back of the loan at all times. Not the general credit of the borrower, but the actual grain itself having at all times a \ 10 THE BANKER'S CREDIT MANUAL pknown market. In the case of commercial loans this condition does not exist and it is more with this class of loan that the credit man of a bank is directly interested. Loans in which he is most deeply interested are the non-collateral loans based en- tirely on credit and business performance. However, in any case the circle between credit and deposit works in the same manner, and when a loan is unusual the credit study becomes more acute, - more difficult and more interesting, BANKS NOT PARTNERS In making a straight loan the bank man must realize and im- press upon the borrower the fact that the bank in no way ex- pects or intends to become a partner in the business. In this kind of loan the function of a bank is clear and distinct. There is no doubt as to just what a bank is supposed to do when it is engaged in commercial business. The only mistake is that too often the borrower does not understand the proper use of his credit line and gets into bad business practice. This is so often the case that it is worthy of comment, and perhaps a full economic under- standing by the bank man himself may put him in a proper posi- tion so that he will feel stronger in making his side of the story perfectly plain at the very start. PEAKS OF BORROWING In either a manufacturing plant or a jobbing house there is nearly always a seasonal condition of the inventory or the re- ceivables. By this is meant a time when the house stocks up in inventory either raw material to be manufactured and sold or a stock of merchandise to be jobbed. There is a peak load in inven- CREDIT ECONOMICS; WORD DEFINITIONS II tory running maybe for several months before the selhng activity reduces it to a normal or sold-out state. It requires a greater amount of investment to carry this inventory over this period than the funds of the company are capable of handling. To meet this condition a large quantity of goods is sold with the option of paying for them in sixty or ninety days under the supposition that a certain amount of selling will have resulted in sufficient liquidation from the goods to permit of payment. These long terms are almost always accompanied by a proposition allowing a discount for cash payment within a comparatively short time. The wise man in good credit standing arranges for a credit line with his bank to enable him to secure funds with which to pay his debtor on the cash basis so that he may get the full advantage of this discount. He in turn should then so arrange his business that he will use the proceeds of the sale of the goods to reduce his bank loan, paying out when the inventory has been worked down again. From another angle a manufacturer may justly and w^ith proper economic foresight use his bank credit to secure a proper amount of raw material, pay manufacturing costs and merchan- dise the completed product. This is a proper use of bank credit. But the operation should run in cycles and there should be ex- pansion and contraction, not just expansion nor even steady borrowing. LIQUIDITY OF CREDIT ESSENTIAL TO GOOD BANKING Bank credit is designed to be used only in a liquid manner and should not be used as a permanent partnership capital at any time. This latter is the affair of the stockholder or owner of the \ 12 THE BANKER'S CREDIT MANUAL business and permanent capital should be the result of invest- ment or earnings. p There should be a minimum and maximum of need to carry merchandise, or perhaps accounts, and the difference between these is the real field of the bank loan. From the minimum down the carrying should be a matter of investment and not commer- cial borrowings. One of the greatest causes for financial stress and the trials and tribulations accompanying commercial panics is, beyond question, the transforming of commercial credit that should be liquid and liquidating into a semi-moribund form of ^capital or non-liquid credit extensions. The thought of keeping credit at all times in a truly liquid state should always be foremost in the minds of bank men in par- ticular, as it is through the instrumentality of banks and bank loans that this fluid force is moved from industry to industry as the demands of commerce shift and change. The best proof of liquidness is occasional liquidation. CHAPTER II Bank Credit Department Functions The function of a bank credit department is not as simple as some may at first suppose. It has a much wider scope than merely preventing loss through the failures of certain names that may be owing the bank money. Of course these departments are primarily intended to investigate carefully all applications for credit with the idea of throwing out or rejecting those unworthy of support and credit extension. But there is a field beyond the mere rejection of loans, and that bank credit man is not always the best who, at the end of the year, can point with pride to his. loss record and say we have had less loss than ever before. It is not such a difficult thing to become a human negation, saying no at every turn of the wheel. The really valuable credit man must have vision. He must be able to see the dangers, estimate the risk and have enough courage to steer a course on the outside stormy seas as well as in the land-locked harbor. It is far easier to cry ''Wolf, Wolf," and run to cover than it is to stand at the front line taking the knocks for some struggling, striving pro- ducer, who, left alone, would go down carrying ruin to himself and loss to others with him. It is the man who, with the courage of his true convictions, takes a decided stand for real develop- ment and pockets his losses that makes a real credit man. It takes l)ackbone and some mental and moral fiber .to be a developer, to make a credit man. With nothing but "NO" from bank credit 13 14 THE BANKI^R'S CR1^:DTT MANUAL men there would l)e little development in Imsiness, and as a class there is none other that has a greater task or a more wonderful opportunity for big things than bank credit men. QUALITY, NOT SIZE, THE MEASURE OF GOODNESS The true function of a 1)ank credit department is to investigate minutely all requests for loans, assemble all possible data and make such an analysis of conditions that the fair banking risk may be assumed by that bank of which the credit department is a j~ component part. No matter should be too Small to investigate, no case so big as to allow its mere bulk to overawe and secure accommodation to which it is not entitled. It happens far too often that loans are made to large interests just because they are large and because the credit man may ])e intimidated l)y mere size. It happens quite as often that small loans are turned down l3ecause they appear insignificant and their Liliputian size alone gets them L a negative answer. The bank man should never lose track of the fact that all capital, all wealth of every kind is economically the certain result of saving. At its inception all wealth was small and many of the largest industries of to-day are the outgrowth of very small be- ginnings. All cases, both large and small, should l)e considered on their merits and if things are reduced to a relation or per- centage basis, the small risk may often show up more advan- tageously than the big one that takes so much more space in the sun. Therefore it would seem that the truest and first function of a credit department is fearless, impartial investigation and decision. BANK CREDIT DEPARTMENT EUNCTIONS 15 PROPER PRESENTATION OF ESSENTIALS TO DISCOUNT COMMITTEE The second function is a proper presentation of the case to the discount committee, or such other part of the bank organization as exercises the decision of making or rejecting loans. To do this in a right manner means a proper keeping of records indi- cating the history of the account in the bank, the use of all the sources of credit information at the disposal of a l)ank credit man and an analysis of the information received so that it may l>e condensed and appear before the loaning officers, or discount committee, in as short a form as is consistent with a complete assembling of all essential information. WHEN SHOULD CREDIT INVESTIGATIONS BEGIN While some credit men and executives do not agree, the fact seems, to the writer, to be patent that the proper time to start a credit investigation is at the moment any account is opened. There are of course a large number of accounts that are accom- modation accounts, such as those of the families of officers of large corporations, friends of depositors carrying large accounts and a great mass of people who wish to avail themselves of the advantages of paying bills' by check, etc. Among these there are many that will never be borrowers in the strict sense of the word. That is, they may never offer a note for discount or ask that kind of credit accommodation. It may seem idle or useless to keep any record of these accounts in the credit department. The occasion often arises, however, when such an account may through error or otherwise issue checks in excess of its balance and create an overdraft. The question then arises as to whether or not such a check should be paid, allowing the overdraft; or 16 THE BANKER'S CREDIT MANUAL whether it should be thrown out for ''not sufficient funds." Its re- lation to other accounts then plays a most important part in the decision and this should certainly be a matter of record some- where, and the proper place is in the credit department. Another matter that enters very largely into the payment of a small overdraft check is the normal condition of the account, which is most surely shown in the average balance that the ac- count has displayed during its life in the bank. This is also a very important thing in connection with all accounts, as the average balance is the customer's contribution to the welfare of the bank and in a degree determines the consideration, at least, which his association with the bank is entitled to receive. The start then of credit records should be made at the inter- view that the officer opening the account has with the customer. It is a simple matter for that officer to ask a number of questions and to make a note of such general information as comes to his attention at this time. However, it is not enough for the officer to make inquiries and accumulate the information for himself only and then attempt to carry this information in his own mind. All credit information should be a matter of record for the use of all officers of the bank and should be properly tabulated and filed so as to be readily available. This should be part of the records of the credit department. The form and manner in which this information should be filed has been, and must necessarily be, largely a matter of choice in the different departments of the various banks. Most banks have adopted one of two or a combination of two methods : the use of a folder containing the whole information, the use of card files, or a combination of card file and folder. There is much to be said in favor of any one of these three methods. The writer him- BANK CREDIT DEPARTMENT FUNCTIONS 17 self believes in the combination plan, using the folder for the more bulky material and the card file for the less bulky or the digested matter. THE CREDIT FOLDER As the folder is to be the resting place of much credit infor- mation a discussion of its style should come first in our efforts to standardize or prepare for the proper handling of informa- tion. As a matter of expense it is wiser to accept as a size for the folder such dimensions as will fit into some standard filing device. The one most used is a vertical folder that will accom- modate the ordinary letterhead size sheet without folding. Many men use a folder capable of holding full legal size sheets, but this is more cumbersome to handle and in addition wastes much space because letters are usually on a standard sheet and most reports come on sheets of about the same size. It seems but a matter of good sound judgment to decide that any information that is worth filing at all is worth filing in such a manner that it will not become lost, and the best way to accomplish this is to have it attached to the folder. Some credit men have adopted the plan of having the information put on sheets that can be fastened on the margin. Others have it fastened on the top, others at the bottom. Some folders have elaborate indexes as part of their equipment. Another point to be considered is the subdivision idea. Too many subdivisions tend, in the writer's opinion, to make a file cumbersome and unwieldy. For himself he has adopted the file with two main divisions. One for information received direct from the customer and the other for information received from other sources. The attaching of the information to the file is 18 THE BANKER'S CREDIT MANUAL accomplished by having two ears turned in at the bottom of the file, one on each side. Each ear at the bottom being folded in and punched with two holes makes it possible to attach, by the ordinary brass spreader- pins to be found in any office supply store, all sheets or mem- oranda that the credit department wishes to keep. Another very good folder form has a central leaf to each side of which information may be easily attached by the same kind of spreader-pins. This may be more desirable as it makes possi- ble a larger division of types of information. It, however, is a much more costly file and the advantages gained may or may not warrant the expense as the needs of the department determine. In any case the method of attaching the information sheets hav- ing been decided upon the subsequent forms used by the depart- ment should be designed with this in mind. If we are to use the two-sided form of folder with attaching space at the bottom, the form on the opposite page is suggested as a serviceable sheet for collecting information when an account is opened, using ordinary letterhead size as mentioned, the cut here being reduced in size, for obvious reasons. This is at least a beginning and gives the credit man authentic information as to when an account was opened, how it came to the bank and what kind of an account it is supposed to be. It forms at least a starting point that will be helpful for future in- vestigations. BANK CREDIT DEPARTMENT FUNCTIONS 19 Name Date Address Occupation Other bank accounts T. . Reason for opening this account, commercial Will the account l^e Sr°,r,^,i„g Approximate balances $ Introduced ])y Account accepted by References for possible credit investigations Relation to other accounts General remarks O O A CREDIT RECORD CARD FOR NEW ACCOUNTS The writer has developed the idea a little further than this and uses a seven by nine and one-fourth card for this purpose that really serves two purposes. It collects the information obtained at the time the account is opened and also acts as a record of the average balances actually kept by the customer. This result is obtained by using both sides of the card, one for the opening in- formation and the other for the average monthly balance record. A reduced facsimile of this card is shown on pages 21 and 22^ indicating both back and front of card. 20 THE BANKER'S CREDIT MANUAL There are a good many adaptations of this average balance card, some in three by five, some five by eight and some six by nine sizes. For a card showing nothing but average balances, a three by five card is ample, and can carry an average balance record for eight or ten years. But a large proportion of the accounts of a bank have another relationship than that of depositor alone. The borrowing ac- count brings into existence a whole new^ set of relationships, a record of which is desirable for use by the credit department and loaning officers. The discount ledger, of course, reflects the borrowing record in detail and with complete accuracy. But the credit department can not have the discount ledgers contin- ually, nor is it convenient or good policy for a loaning officer to drag out the discount ledger whenever a borrowing customer comes in to talk over his loan. It is desirable to have a complete survey of the borrower's relation with the bank on as small a card, as condensed as possible and still giving the essential infor- mation over as long a period as may be practical. First of all we should determine what such a record should contain and then how this record may be best kept for ready use. We have mentioned the average balance and as this is what the customer does for the bank, we retain this as part of the record. This should be the average of the daily balances figured and registered for monthly periods. The bank loaning money to its customer is contributing to the success of his business and a record of the amounts loaned and the fluctuations in the loans should be a matter of credit department record. Inasmuch as the balances are figured on a monthly basis the loan record should be kept in parallel columns and so reduced to a monthly record. In order to measure accurately the fluctuations, the high and low 0» 2 c (A PQ O a I S .2 c o a 2 '^ C o o G o C o en C u J3 8 S s G Ci o u C8 «J CO 0^ B «> Vi rj 5 - -f: :3 ^ Vt ^ a1 Q CQ U J5 a 21 " e:3 A A> Ak A> AVERAGE 1 BALANCE 1 1 \ — 22 BANK CREDIT DEPARTMENT FUNCTIONS 2Z points in the loans for each month should be recorded. Loans are often of two kinds — direct and indirect, direct loans being the paper or notes of the borrower discounted and the indirect being the notes of his customers rediscounted by him w'ith the bank, hearing his endorsement, and on which he is contingently liable. Therefore a record of both the direct and indirect loans should be kept because in both instances the customer is getting accom- modation from the bank by the extension of credit and the varia- tion and scope of this accommodation should at all times be in- stantly available for the loaning officers. These two records will disclose what the bank and the customer do for each other. A CREDIT RECORD CARD FOR THE BORROWER But a mere history of the account as to what has been done is not enough. There should be some indication on the record as to why loans were granted or on what they are based. This in- volves some sort of a memorandum taken from the statement (a full discussion of which comes at another point), perhaps a rec- ord of collateral pledged and certainly a memorandum of guar- anty on file or endorsement. There should also be a memoran- dum of the kind of business the subject name is engaged in, and if a corporation, some record of who the people responsible for its running may be. The record should also show whether or not the subject has an established line of credit held open for its use. It may also be interesting to note whether there is a ten- dency to overdraw or whether or not insufficient funds have made it desirable to return checks unpaid. The promptness with which a company takes care of its notes or whether it allows them to run past due is also an interesting and valuable thing to have at hand when talking to a borrow^er about an account. 24 THE BANKER'S CREDIT MANUAL Many banks keep all this information in various kinds of rec- ords, books, cards, sheets, folders, etc. The form on pages 25 and 26 makes it possible for the credit manager, or loaning officer to have all this information and sign-posts immediately available and in accurate but inconspicuous form whenever he may be talking to a borrower. The record shown runs for three years on one side of a card and the back holds a further three years. The card is ruled so that it is turned over on a horizontal axis when looking on the reverse side. This is technically known as a tumble card and for the writer it has proved easier and more convenient to handle than a card where the top is the same on both sides. It has the added advantage of giving a new top edge for fingering after three years' use, which in cards that are fre- quently used is a decided advantage. An explanation of this card is given here by references to the letters marked on the card. A — The name of the individual, firm or corporation. B — The kind of business engaged in. C — The business address of the subject, sometimes supplemented by the telephone number if the business is such that tele- phone calls are frequent. D — The president's full name. E — The vice-president's full name. F — The secretary's full name. G — The treasurer's full name. H — The yearly average balances for the four years previous to the record carried on the card itself. I — The date on which a statement was requested, J — The date on which the statement was received. This is not the date of the statement itself, but the day on which the bank received it. Over a number of years this indicates ■ : : : : ' si si si 2 ~ < a a a X « -J c — * < i ^^ c i — - i f i 3 t il- si •i 1 O 8 -S < 1 2 1 :s .2 J3 j < J P4 ( : i i J ' _ z -J 2 - — - ! I 3 n -1 = = 1. z -J ^ 2 - - - J ta >^ - - > ^ o 0^ Eh 5 I 5 1 1 1 =! [o c/: A ^ !5 J ^ S 3 3 1 1 a z ^ 2 >- ON c o N ,: : : : 3 MM of ^ £" 2' "" < a t X n g m < hi " ^ N 2 J J ?! it-i ■ ! " 1 1 s .S e S 1 a < J i 1 FQ 8 B 1 i 1 Z 13 - i 1 2 f - S Is ■i i e a 3 1 c r-! — UJ 2 -J I & Csl JH 3 o a. ! \ > « E- i s t 1 1 a s c = o tr «3 l! 1 < (0 c 3 3 1 s z J < UJ > •6 BANK CREDIT DEPARTMENT FUNCTIONS 27 the average time that elapses between request for and re- ceipt of a statement. It helps to know this when talking to a customer and trying to hurry along a statement a little. K — Sometimes it is l^etter policy to have some officer ask for a statement and to hold up the more formal request from the credit department. The date this decision was made and the initials of the officer who is to handle the case are then entered on the card in this space. It then becomes the duty of the officer to get the statement and the credit department is relieved of the responsibility. L — The amount of the limit of credit, or the credit line, is entered at this point together with the date the line was made and whether or not it is straight, endorsed, guaranteed or against collateral, or to cover all types in total. M — The year covering the statistics up to the double heavy rule to the right is entered here. The dates of the statements are also entered in this space over the columns in which the figures are put. N — In this space a notation of the net worth is made. This is taken from the statements rendered to the bank by the customer, or in some instances from an agency report. When taken from an agency report the figures are written down in green ink to keep this fact l^fore the minds of the loaning officers. O — The total debt of the subject is entered in this space. It in- cludes all liabilities, both liquid and funded. P — The margin between the current assets and current liabilities is entered in this space. The full explanation of these three items, their derivation and importance will be brought out in a chapter on statement analysis at a later point in this book. In these and all other entries on this card the cents are omitted as not significant. 28 THE BANKER'S CREDIT MANUAL Q — In this space is entered the highest point reached by the di- rect loan for the month. R — This space is used to indicate the lowest point reached by the direct loan for the month. S — Here is entered the highest point reached by the indirect loan. These are sometimes called rediscounts by customers. T — The lowest point reached in the month by the indirect loan is entered in this space. U — It sometimes happens that a city bank sells some of the notes from its discount ledgers to country correspondents. Once a month the amount of any name so sold is recorded in this space in green. As these notes are of course sold without recourse there is no legal liability but there is a moral responsibility, and it has often been deemed w'ise to have some indication of these activities recorded on the ready reference files of the credit department. V — At times the maker of a note does not appear at the bank on the day of the maturity of the note and the note runs past due. The space here reserved is used to indicate the num- ber of times this happens and is shown by a little green check mark. A goodly number of such marks against any name show pretty clearly habits of carelessness that react very decidedly against any one's credit standing. W — On the line in this space is entered the average monthly bal- ance of the account. X — This whole column is used for memoranda of endorsers, guaranty bonds showing amounts, expiration dates and names of guarantors. In ordinary cases the collateral on collateral loans is also entered in this space. Y — The average balance for the year is figured and entered in this space. Z — It sometimes happens that an account is so run that balances are not sufficient to pay checks. Every day that this hap- pens a little red mark is entered in the average bal- BANK CREDIT DEPARTMENT FUNCTIONS 29 ance space near the top. This happens more often on the accounts that are not borrowing accounts and is entered in the same general location on such cards. With a record like this before him any officer has at hand, in condensed form, most of the essential points of contact between the customer and the bank and is in a position to transact busi- ness quickly and without much display of lack of confidence. A great many banks have all of this information on a number of cards, sheets, or in folders, but the compactness of this record is what makes for its greatest effectiveness. Banks that do not care for such a card can adopt parts of it and complete their records in the manner that will l^est suit their needs. These cards are also useful for a quick review of loans by a discount committee or board of directors. The more detailed information needed and the types of analysis used, such as com- parative analysis sheets, etc., will be discussed in succeeding chapters. CHAPTER III Sources of Credit Information The securing of credit information of a reliable nature is of course one of the most important functions of the bank credit man. The sources from which a credit man draws his informa- tion are dual. The first is that which comes from the borrower — internal; and the second is comprised of all kinds of information derived from outside sources — external. Even though intention- ally honest the first of these sources is subject to a bit of optimism that must be counterbalanced by keen analysis and judgment on the part of the credit man. THE PROPERTY STATEMENT The first and basic bit of information that the bank credit man wants from his customer is a signed property statement. Only a few years ago the majority of borrowers became highly indignant if asked for a statement of their affairs. This was a tempera- mental relic from the time the bank's cashier and each one of its customers were first-name friends and the credit department was contained in the cranium of the cashier, to live and die with him for the most part. But in the present it is more nearly the rule that all companies willingly give their statements to their bankers. In fact, we have about progressed into the second stage in which the banks will almost universally receive statements from their customers based upon an independent audit by a firm of char- 30- SOURCES OF CREDIT INFORMATION 31 / tered accountants. It is so general a custom now that there is little or no difficulty in getting statements. It becomes more a matter of routine process resolving itself into the problem of re- membering when to ask for a statement and the writing of a courteous letter. The wise borrower no longer attempts to as- • sume a haughtier-than-thou attitude but is eager to place at the disposal of the bank all information that is essential. He does this because the function of service has come to l>e recognized in banking circles. The bank credit man who is awake to-day and realizes that he is a producer and not a destroyer prepares his files and records so that he can be of real assistance to the borrower by putting him in touch with valuable information re- garding his business. This service side has appealed to the bor- rower and he no longer goes to the banker as a sort of father confessor but rather as an advisory partner. As the credit statement is the subject-matter of a separate chapter, the further discussion of the form it should take and its analysis will be deferred except the remark that' a proper analy- "J sis of a property statement is probably the first and best source of credit information. This is true except where the statement is false, and whenever that condition exists the' credit man is treading in a quagmire and is pretty sure to come out w^ith a loss. In this connection the credit man should walk with great care. If there has been fraud the dishonest debtor should be made to feel the full force of the law and should under no circumstances be forgiven or allowed to offer a compromise. This is no J more than an ethical stand and the bank credit man, whose sole merchandise is credit based on confidence and truth, should be most insistent that confidence and truth be not violated. There have been banks that found themselves, among a host of credit- 32 THE BANKER'S CREDIT MANUAL ors, the only ones possessing absolute proof of dishonesty, and which have steadily refused to take one hundred cents on the dol- lar for themselves and surrender the proofs to the detriment, or, rather, preferment, over the other creditors. In the long run it is better to be known as a man or bank that takes a loss coura- geously, gives credit reasonably and demands honesty invariably. THE STATEMENT REQUEST Success in getting anything one wants from the person who has it, is largely a matter of diplomacy. The request for a state- ment which a bank sends out can be worded so as to arouse a spirit of antagonism in the borrower, and it can be so worded as to place him in a reasonable frame of mind and willing to co- operate quickly and gladly. There is some difference of opinion as to whether the request for a statement should be on a printed form or a special, fully written letter; whether it should be actu- ally signed or whether a specimen or rubber stamp signature will do. If the idea is to get the statement with the least friction and the greatest cordiality, then the closest personal form of letter is surely the best and there can be little doubt but that this is the straight letter, fully typewritten, not printed or multigraphed, and signed manually by the credit man or an officer. When a customer is giving the bank the full details of his business it is surely not too much for the bank to treat the matter as of some importance and send a real letter without the earmarks of routine. Friendliness always Ijegets friendliness and the personal touch helps. As a matter of suggestion the following letters are offered as good examples of letters that have been and are to-day in use by some progressive banks. Only the body of these letters is sup- plied. SOURCES OF CREDIT INFORMATION 33 Dear Sir : The custom on the part of the banks to ask an- nually for a confidential statement from customers, is, we believe, conducive to the best interests of all concerned. Will you, therefore, kindly fill out the enclosed blank, giving special attention to the questions at the foot of the page, and return it to us as soon as possible ? It is important also that the statement be signed by some one in authority. Thanking you for complying with our request, Yours very truly, Cashier. Dear Sir: In the revision of our credit files, we observe the last statement we have from you is over a year old and, that our records may be more complete, may we ask that you furnish us with figures of a more recent date ? We enclose herewith one of our blank forms and would appreciate your using it, filling out the same as completely as possible, inserting the words *'No" or *'None" where you have no other answer. This will facilitate making our comparisons and it also conforms to the requirements of our finance committee. Thanking you for your courtesy in this matter, we are, Yours very truly. Manager Credit Department. Gentlemen : In looking over our files we notice we do not liave a copy of your latest statement, and as we are anxious to keep our information up to date, 34 THE BANKER'S CREDIT MANUAL may we thank you to fill in the enclosed blank, showing your financial condition as of — . Thanking you in advance for your kindness in this matter, we are, Very truly yours, Credit Manager. Dear Sir: The last statement which we have of your com- pany is dated . It is of decided advan- tage to both your company and the bank that our files be kept up to date in every resi^ect so that we may more fully serve you by being at all times well informed concerning the progress of your company. Will you kindly fill out the enclosed form, as of your last inventory date, and return it to us as soon as convenient ? Very truly yours, Manager Credit Department. STATEMENTS AND THE FEDERAL RESERVE BANKS A new phase has come into the question of giving statements and that is the attitude of the Federal Reserve Banks. Redis- counting with them is limited to rediscounting notes that have been issued for commercial purposes, and to determine this the Federal Reserve Banks need statements. Taking advantage of this the writer has prepared a simple folder, explaining the atti- tude of the Federal Reserve Banks, which is enclosed in every statement request leaving his department. It has proved suc- cessful as it appeals to the borrower's natural desire to be classed with the choice or best risks. It has brought statements from delinquents and in several instances has brought the heads of business into the bank with their statements and a desire to ex- STATEMENTS Eligibility for Rediscount WITH FEDERAL RESERVE BANKS THE; R ational Rank of (][ommerc OF DETROIT 35 Rediscounting The Federal Reserve Banking System started a new era in banking practice in this country. It has made it possible for banks to rediscount in an orderly and acceptable way. such notes as they may have which meet the requirements of the law and the regulations of The Federal Reserve Board, made under authority of the law. Every merchant should be informed of the law and regulations covering rediscounts by banks so that he may put the paper of his com- pany in the class eligible for rediscount with the Federal Reserve Banks. As the system grows it is almost certain those names that are known to be eligible for rediscount will be considered the prime names. The following quotation from the regula- tions of 1917, issued by the Federal Reserve Board describes the character of paper that is subject to rediscount by the Federal Reserve Bank: "The Federal Reserve Board, exercising its statutory right to define the character of a note, draft, or bill of exchange eligible for re- discount at a Federal Reserve Bank, has deter- mined that : (a) It must be a note, draft, or bill of ex- change the proceeds of which have been used or are to be used in producing, purchasing, carrying or marketing goods in one or more of the steps of the process of production, man- ufacture, or distribution. (b) It must not be a note, draft, or bill of exchange the proceeds of which have been used or are to be used for permanent or fixed investments of any kind, such as land, build- ings, or machinery. (c) It must not be a note, draft, or bill of exchange the proceeds of which have been used or are to be used for investments of a purely speculative character. (d) It may be secured by the pledge of goods or collateral, provided it is otherwise eligible." The Federal Reserve Bank of Chicago has ruled that all paper offered for rediscount, by its members, must be accompanied by a state- ment of assets and liabilities if the amount of the note is in excess of $5,000. This informa- tion is treated in a most confidential manner, as The Federal Reserve Banks never under any circumstances discuss credit information with any bank except the bank supplying the information. The following is the form used by the Federal Reserve Bank of Chicago in securing the information upon which they base their judgment as to the eligibility of the note. CREDIT STATEMENT (To be attached to Each Note Offered for Rediscount.) Commercial or Industrial TO THE FEDERAL RESERVE BANK of Chicago Name Address Business Date of last statement ASSETS : Cash on hand $ Bills and Accounts \ Receivable — good J $ Merchandise — good $ Real Estate and 'I Buildings J $.... Other Assets $ Total $ LIABILITIES : Bills Payable $ Accounts Payable $ Mortgage or \ Bonded Debt J $ Other Liability $ Capital $ Surplus and Profits $ Total $ Contingent Liability $ Annual Business $ Profit Last Year $ Loss Last Year $ Purpose for which this loan was made ) Bank Cashier 36 SOURCES OF CREDIT INFORMATION 37 plain personally some things they feel might be obscure. Inci- dentally the statement forms used by the writer carry at the head of the balance sheet the caption in red lettering, 'This form of statement approved by the Federal Reserve Bank." This in itself helps the borrower to feel both the justice and the advantage of giving a statement. REMEMBERING TO ASK FOR STATEMENTS THE STATEMENT TICKLER It being a fixed policy then to request statements at regular, periods, it becomes a necessity to have available a tickler system of some kind. The following card, in three by five size, is a com- posite made up from and combining several forms that have come under the writer's observation. ■ • DATE WHEN REQUESTED 1916 1917 1918, 1919 1920 1921 1922 1923 1924 1925 1926 1927 DATE OF STATEMENT | 3S THE BANKER'S CREDIT MANUAL On top of this card the name of the company is entered, and the address, sometimes the name of the individual officer to whom the statement is to be forwarded. In the year column under the heading is entered the date on which a request is mailed. The card is then filed in an alphabetical file under the caption "Statements asked for but not yet received." At regular inter- vals the credit manager looks over these cards and sends a second or third, and generally terser, request for desired information. If, after several requests at reasonable intervals, no statement is forthcoming, the next maturity date is noted and a notice may be sent asking for the payment of the loan or a reason wh}^ no state- ment has been sent. This leads generally to an interesting inter- view. When a statement is received its date, not the receipt date, is entered on the card under the heading "Date of statement" and the card is filed in a monthly index section under the caption "Statements Received." Cards for statements due in months yet to come are filed in a monthly index section under the caption "Statements not yet due." The first of each month the cards for that month are reviewed and disposition of them is made, requests being sent or held for a time as is decided best and wisest in each instance. When the date of a statement has been put on a tickler card this matter is checked by the clerk, who has handled the transaction, initialing the statement itself on the upper left-hand corner, and no statement is analyzed until so initialed. This makes the record complete and reduces mistakes to a minimum and places responsibility where it belongs. THE PERSONAL CREDIT INTERVIEW ^ Next in importance to the statement is the personal interview. There are many people who hesitate to fill out questions on a SOURCES OF CREDIT INFORMATION 39 '' printed form who will talk freely in an interview and give a great mass of detailed information that can be secured in no other way. In this connection a questionnaire or printed memoranda pad may be very convenient to take down such information as applies to new loans. This formal memorandum is the subject-matter of a discussion in the chapter on the discount committee and sugges- tions concerning its use w^ill be found there. Another and very important source of information is the plant : of the company itself. An actual visit to the plant will make the statement much more understandable and the explanations given in an interview much more valuable. Whenever it is possible a visit to the plant or place of business is very much to be desired. The personal impartial examination often eliminates a great deal of the optimism that the personal ideas of the managers of the business inject into their remarks or statements. With the statement, the interview and the visit to the plant, the credit man has about all of the information that he can get direct from the management itself. After securing and ■* assimilating the internal information on any specific risk the credit man should extend his investigation into the external sources where he often gets the most suggestive information — the other man's idea. COMMERCIAL AGENCIES The most-used and most highly-developed outside source of in- formation is the commercial agency. In brief there are three gen- eral agencies: the national agency reporting on all kinds of busi- ness, the national agency limiting Its service toone line or kindred lines of trade and the local agency covering more often indi- viduals. 40 THE BANKER'S CREDIT MANUAL Of the national general type R. G. Dun & Company and Bradstreet's are the most generally used and the best established. Other agencies have sprung into existence attempting work on a national scope and reporting all lines of industry. These two, however, have the advantage of having started when our indus- trial life was not as complex as it is now and have grown in ex- perience and scope as industries themselves have grown. It is not impossible that another great reporting agency may develop, but to date these two may be held in a class by themselves. The service of these agencies begins with the issuance of a book that lists active business concerns according to their capital rating, or on the net worth basis, and also classifies them accord- ing to their manner of meeting payments. These books are re- vised four times a year and are no doubt of service to manufac- turing companies and jobbers. Their ratings, however, are, of course, based on statements received from the companies rated, of which the bank has, or should have, copies in their own files, when interested in a credit way in any particular name. The rating books are also more or less obsolete by the time they reach the banker's desk simply because of the length of time necessary to revise and print them. However, they form some sort of a starting point on a new name and can be used to a certain degree as a check against the credit man's judgment. This is so because the agency supposedly depreciates values and takes a conserv- ative stand. The special reports, however, that these agencies issue contain much of value. They usually have a pretty fair antecedent his- tory of the company and some word about the ability and integ- rity of the management. It surely is valuable to have the past SOURCES OF CREDIT INFORMATION 41 history of a company and especially the past histories of its exec- utives. This is one of the main things the special reports get for the credit man. Another thing these reports do is to supply a number of trade opinions. Sometimes these lead to very interesting information, but in many instances they are too much colored by the borrower himself. As a matter of routine the trade reporter asks the sub- ject for trade references and naturally enough the subject al- ways refers to such houses as he has been prompt with, forget- ting to mention any with whom he may have been slow or had trouble. For this reason trade references must be read with a grain of caution, and if any source of buying that would seem logical has not been mentioned the credit man himself should inquire and perhaps unearth the slow record. Both agencies supply inquiry tickets, which should be carefully filled out, and if there is any special feature the credit man wants covered it is well to make a note of it on the inquiry ticket. It is also well to make these tickets in duplicate, retaining one. The duplicate should be so filed that it will come to the credit man's attention in a reasonably short time, and if the report has not been received a second request or a delinquent ticket can be sent to the agency. A good way is to file these duplicates in an alpha- betical file and make it a point to look over them all on some cer- tain morning each week. The following forms show the tickets used by both the main agencies and a delinquent report form used by the writer to stimulate the activity of the agency. This delinquent ticket should be sent to the branch manager direct, ad- dressed to his name, and printed on some distinctly colored paper that will be noticed. 42 THE BANKER'S CREDIT MANUAL SUBSCRIBERS TICKET The Mercantile Agency, R, G. Dun A Co. Give U8 In confidence, and for our exclusive use and benefit in our business, viz.: that of aiding us to determine the propriety of giving credit, information respecting the standing, responsibility, etc. of Name, Business, Street & No. Town, County, — State, - Subscriber. J^'Subscribers to sign the above themselves. Detroit, Mich., 191 No It costs nothing but a little cordiality, a kindly word and the time to talk, to get one of the reporters from these agencies to drop in once in a while and tell you what he knows. In their trips about the city they pick up a deal of general information that, fitted together by a credit man, often leads to important dis- coveries. It is a bad plan to be "too busy to talk this morning," for the reporter's friend often gets the news first. The special agencies operating along trade lines transact their business in much the same manner as do the general agencies. Local agencies reporting on the pay habits of individuals are a very important source of information. It is often a good thing to see what manner of man may be running a business. If he is SOURCES OF CREDIT INFORMATION 43 habitually slow personally these agencies will pick up this infor- mation, and men of bad personal habits can not expect to be the best executives. These are, perhaps, straws, but they are im- Commercial Inquiry DELINQUENT TICKET On we called for report on This has not yet been received by us and we would ask when a report on this name may be expected. =THE: National Rank of f. ommerce OF DETROIT f\tM\t\r\l\ Name Address Business Requested Bradstreet Dun Interchange Com'l. Cr. Bank City This request for credit information is from The National Bank of Commerce of Detroit Kindly use due diligence so as to secure this information for us as soon as possible. For general agency inquiries. Folded at the serrated line it makes possible a carbon copy for the check-up to show whether a report has come in 44 SOURCES OF CREDIT INFORMATION 45 portant straws and should be heeded, as should the reports of the larger agencies. THE INTERCHANGE BUREAUS A new agency which is advancing rapidly is the Interchange Bureau of the National Association of Credit Men. There are some seventy-odd of these bureaus operated by local branches of the National Association of Credit Men. Their one aim is to check on the method of pay by means of cooperative interchange. By a system of inquiry sheets and reply tickets the members of these bureaus give one another the benefit of their combined Jedger experience. The member wishing to get the experience of the other m.embers fills out an inquiry ticket, giving his own ex- perience in advance. The form on page 47 shows the character of this ticket and the information given . The names coming from all members are assembled each morn- ing on a sheet and the complete sheet is sent to every member. See form, page 49. In addition to sending this sheet to every member, a copy is sent to the central interchange bureau, where a card record is kept showing all bureaus interested at any time in any name. By reference to this card index the central bureau can tell the local bureau where people selling the name under inquiry are located. This makes it possible to secure the experience of every member interested from any bureau. As there are over ten thousand members in this system it can readily be seen that a very great deal of information can be gathered in this manner. It has the advantage, too, of being information from people interested but not referred to, and its percentage of slow pay uncovered is ahead of the referred method by a substantial margin. 46 THE BANKER'S CREDIT MANUAL When the information is in it is put on to an assembly sheet and every one who has contributed to its compilation is supplied with a copy. On page 51 is a reply ticket for the individual inter- ested, and on page 53 a specimen of the assembly sheet : If the member is in a hurry, and so states, advance reports may be sent him supplemented at last by the complete report. This speeds up the information and gets more rapid action. Banks have another means of getting information that is not as readily available for commercial houses. This is in a manner like the interchange bureaus, only it comes from very direct clues and brings accurate, as well as speedy, returns. This is known as trade-checking the customer. TRADE-CHECKING THE CUSTOMER As the method of pay is a most interesting and instructive in- dication of the risk it behooves the bank credit man to apply this test at times. It is rather ineffective to ask the borrower for a list of references, because, as already stated, those given are the best. The bank credit man has an excellent method of getting ref- erences. It is an easy matter to have some one watch the check files and discover to whom any customer has been paying money. By making more or less regular inspections of the files a bank credit man .can build up a fine list of references on any name he may wish to trade-check. This is not a special list to whom good payment has been made, but is a general list with a pretty good chance of shaking down the adverse opinion along with the good. There are two ways of using this list, one direct and the other indirect. In the first the bank sends a letter direct to each name on the list. In the second the bank asks some agency to trade-check the list for him, thus concealing the bank's iden- tity. The first method, while it may bring more direct returns SUBSCRIBER'S INQUIRY TICKET Date No Interchange Bureau DETROIT ASSOCIATION OF CREDIT MEN 1031 Dime Rank Roildin^ Telephone Main 4778 Please secure report on : Name Street No Business- Town. State Formerly at — Also uses style «... ~ — Successor to. .^ OUB EXPERIENCE I AMOUNTS IN DOLLARS ONLY 1 If first order, give amount $ 2 How long sold 3 Amount of unfilled orders $ 4 Highest credit within past year $. (Open Account $. (Open Account $ , 5 Owing "j 6 Past Due -j (Notes $ (Notes $ MANNER OF PAYMENT AND COMMENTS Place X in front of answer Q Discounts D C. O. D. or cash D In attorney's hands D When Due D Secured D Collected by attorney D *Slow days D Makes unjust claims Q UncoHectible Q Settles by note D Unsatisfactory Q Declined order *On slow accounts, state number of days, NAMES OF HOUSES KNOWN TO BE INTERESTED Name Town Remarks. 47 DAILY INQUIRY SHEET •• INTERCHANGE BUREAU Detroit Association of Credit Men | 917-918 DIME Bank building. Main 4778 When reporting on names listed below use the SUBSCRIBER'S REPLY TICKET ONLY. FiU in at top of form, the I NUMBER of NAME reported on and DATE of the LIST. CAUTION—Use great care in getting the NUMBER and DATE CORRECT, as this is our ONLY nvans of idwitification. Give, in confidence, per rules of the Bureau, your experience vnth and indebtedness of parties named below. Please examine this sheet and mail your comments on "names*' interested in. at once. JUNE 5, 1918 DETROIT . *58 W. W. BARTLETT 323 BROOKLYN AVE. GROC. 59 WM. BURMSTEIM 1458 MICHIGAN AVE. G.D. & NOT'S ■60 SAM COHEN 322 MICHIGAN AVE. GROC. *61 COMSTRUCTIOIJ SERVICE CO. 62 MCGRAW BLDQ REAL ESTATE •62 EMERSON MPG. CO. 110 FREMONT PL. MACHINISTS ■'63 FIDLER BROS. 262 MEDBURY AVE. CONT. & MASON ■^'64 MARQUETTE PRINTING CO. MARQUETTE BLDG. PRINTING 65 MICHIGAN CLO. GO. 253 GRATIOT AVE, *=66 M. B. O'CONNOR 400 PENOBSCOT BLDG. PLB. & HTG fSUCC. TO O'CONNOR BROS) 67 SCHWARTZ & SCHUPAH 244 WOODWARD AVE. -€Q SPRINGMAN PAPER PRODUCTS CO. 75 W. LARNBD ST. PAPER PROD. 69 B. A. TIPPMANN 2227 W. JEFFERSON AVE. JEWELER & WATCHMAKER 70 ISAAC WAX 1483 MICHIGAN AVE. D.G. & NOT. ILLINOIS •71 INDEPENDENT PNEUMATIC TOOL CO. CHICAGO PNEU. TOOLS (THOR BUILDING) INDIANA 72 RAY FRUIT CO. KOKOMO FRUIT MICHIGAN 73 N. J. LAiONDE ALPENA B. & S. *74 BATTLE CREEK ROOFING & MFG. CO. BATTLE CEF.F.K. ROOFING 75 ROLLA DEHART BUTTERNUT 76 B. H. MERRILL GRANT (21N. STORE 77 SOL & LEVIN GITTLEMAN LAKEVIEir GEN. STORE 78 BLYNN & WHITING PONTIAC GROC. OHIO 79 HARRY M. SLAUTER CLYDE CLOAKS & SUITS 80 KEATING ELECTRIC CO. (3249 MONROE ST, ) TOLEDO £LBC. PENNSYLVANIA •81 LKFi F. JONES ATHENS AUTO. Size of original 8% x 125<^ 49 I SUBSCRIBER'S REPLY TICKET Interchange Bureau DETROIT ASSOCIATION OF CRBDIT MEN 1031 Dime Bank Baildin^ Telephone Main 4778 Name No. Inquiry Sheet dated. 1 If first order, give amount $ ^ 2 How long sold v 3 Amount of unfilled orders $ 4 Highest credit within past year $.. ! Open Account $ (Open Account $. 6 Past Due ] Notes $ ~. (Notes $. MANNER OF PAYMENT AND COMMENTS Place X in front of answer D Discounts D C. O. D. or cash Q In attorney's hands D When Due D Secured D Collected by attorney D *Slow days D Makes unjust claims D Uncollectible Q Settles by note D Unsatisfactory Q Declined order *On slow accounts, state number of days. Make comments below, either by using the number on the card of comments furnished by the Bureau, or your own expressions. Comments: If a copy of tabulated report is desired, check Q Member : No, 51 « u < < 111 fr D m 111 o z < I o a. z 2 liJ 2 H Q ill q: i u Q 3 m ^ z z < m H 111 < z U Q m if) 0) 0) < fN H 0) ct H u O 3:'fi :h 2io 8>'- illlll.iiS ;5 2iSi3s;5o^ t^ 00 05 O — M fO »f (N M M CC M CQ CO P3 ^ . .2 1 -•&= = ..w p tS tfl «= ^ — ._.r c ^^ (U7-, 3 =5 E M >. O O; 03 <« *j •O-O rt i) en . 2 X o-.oo 0*0 ag «3 c 9 = >» . 3 >,.t % c SIS£5 m c >. a; E Q £ 4; 3 >4^ >>- £5 La 5 c c ^ ^ S Q 0) g<5 2 ■»-> <£ -M C bO II ^ tn^ h 4J ^ *j -co l|?>" MS^4J ^£ll u — 0) «£:-c c «- DO x &uO c 22 o_ j2 ^ ^c^. ~ I • c c/i 3 [ surplus. It is further mgrecd that said bank shall have a lien upon and may apply as an offset against- the undersigned's liability as aforesaid any balances which may be standing to the credit of the undersigned on the books of the bank- It is further agreed that these presents constitute a continuing agreement, applying to any and all future, a^ well as to existing trans- actions between the undersigned and said bank. ASSETS. LIABILITIES. CAooHuhJ. $ $ Promissory Notes to Banb for borrowed money. Cash in Bank o( Buffalo. FromisMry Notes to Individuals for borrowed money. CaAb olherSanb. > Accounts Payable, for borrowed money. Good Bills Receivable {S^n^^i^n^^^^i^l PromisBory Notes, for MercKandise. Good Open Account. i^'S^^iS^raSM^f Accounts Payable, for Merchandise, Not due. ^ j/-\_ A iMorethaalBoathtold. Not) Good Open Accounts 1 tnuufencd aor Mtsnsd. i Accounts Payable, for Merchandise, Past due. Stock in trade, at cost. Another liabilities (rive detaik) Total qtiick or current asKts (without Kens) Olbet Assets (give detaS.) ' Due from Odcers. '.' Paitnen or Enployeet, J 8:?ss.isrsu M..k;„«.n^R^e.. Real Estate as per Statement on oDDodte oaae. Mortgages as per Statement on oppoate jMse, Total Liabiiitie.. Net Worth. TOTAL _ TOTAU REMARKS: Size of original 8^ x 10^ STATEMENT OF REAL ESTATE OWNED BY (Actaefa Sclicdoli If > n^ LOCAnON AND DESCRIPTION OF PROPERTY OWNEirS VALUE OWNEIT* VALUE MORTGAGED OF LAND OF BUILDINGS FOR TOTAL, GENERAL INFORMATION. (PLEASE ANSWER ALL QUESTIONS; If oppoalte any question no figures are to be entered the word NONE ahould be written. ) Notes receivable of customers discounted or told and not Figures from annual Profit and Loss Sheet dated. included in assets enumerated in statement on c^posite page. Annual Sales, for fiscal year. liability on other paper as maker, endorser or guarantor. (Salaries and withdrawals of officen or Liability on contracts to purchase plant, machinery xx real estate. Charged Off. for Bad Debts. Have any long time leases been ngned ? _ Are you surety oa any bond or obligation ? Chtfiwd Offi f«ff Dgprwfftwffi. Dividends Paid. If a co-partnership — amount of liability of partners for individual debts. AD otlier expenses of conducting business. Do you anticipate or discount your bilk > Net Earnings carried to surplus or capital SScount, Estimated net worth of officers or partners outside of Total (Gross Profit for Year). Stock in trade. If a GMf^Att SBT please state CagialSt ioini owacrahip of Mock, by ofieaiv. dlrcetera or prioolpd atockholdar*. or othanriaa, w* ar« aSliatad wfah Suite pending againat uf i SINBSS OF PRINCIPAL BORROWERS: - - KL ESTATE AND BUILDINGS OWNED: Title !a la aami Aaacaacd at S • .•' ST FISCAL YEAR'S BUSINESS: Bad and doubtful loana an and were diatributcd (date] to undMdad pro6u S JITAL: Authorixad $ - s iaaued $ HER CORRESPONDENTS ABE: Market valae U $~... to$ All ehm-ied «ffP.. $ .•t paid ia: ia eaah I . tOCekl tUla ID be THER REAL ESTATE THEW ASSETS _rOT£j^ NOTES PAYABLE BfVEN FOR MERCHANDISE NOTES PAYABLE NEGOTIATED T O OWN BANKS NOTES PAYABLE NEGOTIATED THROUGH BROKERS ACCOUNTS PAYABLE FOR MERCHANDISE DEPOSITS OF MONEY WITH US LOANS BY OFFICERS. STOCKHOLDERS. EMPLOYES. ETC. ACCRUED LIABILITIES: iNT ON BONDED DEBT. WAGES. ETC 01VIOENDS DECLARED BUT NOT PAID ALL OTHER ACCOUNTS PAYABLE BONDED DEBT. DUE MORTGAGE OR LIEN DEBT. ON LAND AND BUILOINOS CHATTEL MORTGAGES ON ALL OTHER LIABILITIES SAPITA^ UWPIVIOED PROFITS RESEWVCf ilTEMIZEh TOTAL UASlLITieS TOTAL VHAT AMOUNT OF NOTES AND ACCOUNTS RECEIVABIE ARE EXTENDED OR RENEWEDt O NTINGENT LIABILITY: NOTES RECEIVABLE DISCOUNTED OR SOLO AND NOT INCLUDED IN THE ASSETS ABOVE AMOUNT TO LIABILITY ON ACCOMMODATlOli INDORSEMENTS. EXCHANGES OF NOTES OR CHECKS. GUARANTIES OR BONDS. OF BRANCHES AS WELL AS HEAD OFFICE. AMOUNTS TO ACCOUNTS RECEIVABLE ASSIGNED OR SOLD AMOUNT TO any suits pending or probable! amount involved any judgments against us? any cumulative or preferred dividends passed! amount ierchandise: a re values stated above based on actual inventory! are any pledged assigned or mortgagedi DO YOU DISCOUNT your BILLS' and: TITLE IS IN name of aUILPINCS: TITLE IS IN NAME OF AT MARKET VALUE IS MARKET VALUE IS >THER WEAL estate: TITLE IS IN NAME OF PEI*REClATION. CHARGED OFF THE LAST YEAR ON BUILDINGS CHARGED OFF IN PRIOR YEARS ON BUILDINGS insurance: KINO and amount OF INSURANCE ON ASSESSED AT ON MACHINERY ON MACHINERY MACHINERY HOWDiOl LOCATED IN ON FIXTURES AND OTHER ASSETS ON FIXTURES AND OTHER ASSETS MERCHANDISE THROUGH BROKERSt WHAT AMOUNT IS INCLUDED IN ABOVE STATEMENT! DUE RATE PATENTS. TRADEMARKS. ETC. IN PROPERTY BRANCHES. SELLING OFFICES. CONTROLLED OH 8UB8IPIAWV COMPANIES: ARE ANY OF THEIR TRADE ACCOUNTS AND NOTES RECEIVABLE AND PAYABLE INCLUDED THE ABOVE! IF 80. STATE AMOUNTS. AND ALSO STATE AMOUNTS OF "RECIPROCAL" ACCOUNTS AND NOTES SO INCLUDED NOTES PAYABLE. WHAT TIME OF YEAR DO YOU NORMALLY BORROW OF YOUR BANKS' DO YOUR SELLING OFFICES OR BRANCHES BORROW LOCALLY! BONDEO DtBTANP MORTGAGES: ON WHAT ASSETS A LIEN' ISSUED CAPITAL AUTHORIZED PAID IN: CASH RE ANY OF YOUR CRE DITCRS— OTHER THAN BOND OR MORTGAGE HOLDERS ABOVE INDICATED— SECURE D IN AN Y WAY? AVERAGE TERMS OF PURCHASE ARE OF SALE NOTES two ACCT8. OF CUSTOMERS STOCKS OF MERCHANDISE ARE U8041.L' «AX LIABILITIES ARE USUALIT i^aVE THE BOOKS BEEN AUDITED BY A CERTIFIED PUBLIC ACCOUNTANT! IF SO GIVE NAME OF FIRM AND DATE ANNUAL BALES FOR FISCAL YEAR ENDING GROSS PROFIT THEREON NET DOUBTFUL AND BAP DEBTS WERE PROFIT^ WERE DISTRIBUTED: omoCNOt ro SURPUA DOES THE ABOVE INCLUDE SALES OF OR TO SELLING OFfK;ES OR WERE OTHER INCOME ALL CHARGED OFF' BRAWCHE^t ?^Tvy6^f1 »NK ACCOUNTS WHERE KEPT NOW' FORMERLY WITH ISIONATUREl Size of original 8H x 10^ The broken dashes at right and left sides indicate the horizontal ruling n SEATTLE NATIONAL BANK of Seattle, Wash. The undersigned, for the purpose of procuring credit from time to time from you for the negotiable paper of the undersigned, or other- e, furnishes you with the following statement and information which fully and truly sets forth the financial condition of the undersigned the — day of , 19 , which you can consider as continuing to be full and accurate, unless ice of change is given you. The undersigned has no liabilities except those the description and amount of wkich are distinctly filled in ow, and agrees to notify you promptly of any change that materially reduces the pecuniary responsibility of the undersigned. In consideration of the granting of such credit, the undersigned agrees that if the undersigned at any time fails or becomes insolvent, or nmits an act of bankruptcy, or if any of the presentations made below prove to be untrue, or if the undersigned fails to notify you of / material change as herein agreed; then and in either such case all obligations of the undersigned held by you shall immediately become due i payable without demand or notice, and the same may be charged against the balance of any deposit account of the undersigned with you, ; undersigned hereby giving a continuing lien upon such balance of deposit account from time to time existing to secure all obligations of the dersigned held by you, either as borrower or guarantor. IVIOUAL IME rSINESS CITY REET ADDRESS BRANCHES, if any.. r MARRIED.. I OR SINGLE (In the Absence of Any Amount, Insert Ciphers in Statement Fokms. Answer All Questions on Following Pace. 'None" When They Will Answer the Questions Correctly. Sign at Bottom of Next Page.) Use the Words "Yks," No" ASSETS Dollars Cents Cash on hand Cash in. Bank Notes Receivable, Good, Due from Cus- tomers _ ~ Accounts Receivable, Good, Due from Customers Notes and Accounts Receivable, Good, Due from others not included above. Notes and Accounts Receivable, Poor or Doubtful, Due from Customers None of the above Notes and Accounts Receivable is Due from Controlled or Allied Interests or from Relatives, ex- cept the following Merchandise (How Valued) Real Estate in my Name (Description on Reverse Side) „. „ Machinery and Fixtures. _ ° S 1 Stocks and Bonds (List in Detail). Total LIABILITIES Cents Notes Payable for Merchandise.. Notes Payable to Banks Notes Payable for Paper Sold.... Other Notes Payable Open Accounts Due Open Accounts Not Due Money Borrowed or Received on Open Account not included above Taxes Due or Unpaid.. Chattel Mortgages Mortgages or Liens on Rea} Estate I have No Other Liabilities, except the following Total LiabilUiea.. Net Worth The undersigned has no contingent liabilities except as the amounts thereof are filled in below. UPON NOTES OF OTHERS ENDORSED BY ME AS GUARANTOR FOR ACCOUNTS AND NOTES OF OTHERS- UPON NOTES EXCHANGED WITH OTHERS AS BONDSMAN OR SURETY FOR OTHERS UPON LEASES _ „ - — OTHER THAN ABOVE SPEaFlED None of the above assets is mortgaged or pledged as collateral cept the following: None of the above liabilities is secured by collateral except the following: td my condition today is fully as good as set forth by the above figures. (OVER) Size of original 7'^^ x lOH 73 Date of last trial balance was Amount of business done last year was $... Gross Profit last year was $... Amount of exi>«--ses last year was .$... Net Profit last year was ^... Amount withdrawn from business last year was $... Amount of present annual rent is ^.., I have no sources of income 'other than that withdrawn from the business, except the following: _ ., and same proved. have no other banking connections of any kind, except with.. Insurance Carried on Merchandise $... Insurance Carried on Machinery and Fixtures.„3... Insurance Carried on Buildings ^... Insurance Carried on Life J$.., To whom Payable? Cash Surrender Value $.. In what Companies? To what date is premium paid.' DESCRIPTION OF REAL ESTATE VALUED ON REVERSE SIDE ADDITION OR PLAT LotorSeetioi Block or Townihip Division or Range Nature of Im- provementt Rent Rec'd Per IMonth i> Bulldln« Occupied Prewnt Value Amount of Encumbrance When Duo • :~ 1 It title to property described in your name?.. State exceptions The foregoing statements and details pertaining thereto, both printed and written, have been carefully read by me and I hereby solemnly - all;— declare an4 certify that the same is a full and correct exhibit of my financial condition and contains all information and explanation necessary for a full and clear understanding of my true condition. Rerbzitcu: (Please Sign Name Here) Date Signed... (OVER) Size of original 7j^ x lOj/^ 74 FREET ADDRESS AME USINESS XTTY .BRANCHES, vr xttx SEATTLE NATIONAL BANK of Seattle, Wa$h. The undersigned, for the purpose of procuring crfedit from time to time from you for the negotiable paper of the undersigned, or other- e, furnishes you with the following statement and information which fully and truly sets forth the financial condition of the Undersigned » ti>e - "day of ..._ , 19 , which you can consider as continuing to be full and adciirate, unless Itice of change is given you. The undersigned have no liabilities except those the description and amount of tohich are ditiinetly filled in lioto, and agree.... to notify you promptly of any change that materially reduces the pecuniary responsibility of tlie undersigned. In consideration of the granting of such credit, the undersigned agree.._ that If the imdersigned at any time fail or become insolvent or unit an act of bankniptcy, or if any of the representations made below prove to be untrue, or if the undersigned fail to notify you of Hf material change as herein agreed; then and in either such case all obligations of the undersigned held by you shall immediately become ae and payable without demand or notice, and the same may be charged against the balance of any deposit account of the undersigned 1th you, the undersigned hereby giving a continuing lien upon such balance of deposit account from time to time existing to secure all obli- •Uons of the undersigned held by you, either as borrower or guarantor. (In the Absence or Any Amount, Inseki Ciphers in Statement Forms. Answer All Questions on Following Page. Usr tbe W6»ds "Yis " "None" Whew They Will Answer the Qtjesticns Cokijectly. Sign at Bottom of Next Page.) 'No" Cents LIABILITIES Dollars Cents Cash on hand Cash in.. .Bank. Notes Receivable, Good, Due from Cus- tomers Accounts Receivable, Good, Due from Customers ■. ; .. Notes and Accounts Receivable, Poor or Doubtful, Due from Customers Notes and Accounts Receivable, Due from Partners and Employees None of the above Notes and Accounts Receivable is Due from Controlled or Allied Concerns, except the following... Merchandise Finished (How Valaed). Merchandise Unfinished (How Valued). Real Estate in firm name (Description on Reverse Side) Machinery and Fixtures. Stocks and Bonds (list In Detail). 1^ Notes Payable for Merchanidse.-^.. Notes Payable to Banks „.....»_ Notes Payable for Paper Sold.. Other Notes Payable Open Accounts Due ~-...^_>— » Open Accounts Not Due — Salaries and Wages Due to Date Money Borrowed or Received on Open Accotmts, not included above Taxes Due or Unpaid Chattel Mortgages Mortgages or Liens on Real Estate We have No Other Liabilities Except the Following: Total Liabilities • Net Worth TotaL.. The undersigned have no contingent liabilities except as the amounts thereof are filled in below. None of the above assets is mortgaged or pledged as collateral except the following: UPON RECEIVABLES DISCOUNTED OR PLEDGED , UPON ACCOMMODATION PAPER OR ENDORSEMENTS - , UPON NOTES EXCHANGED WITH OTHERS ITPON rtTSTOMERS' ACCOUNTS SOLD AND ASSIGNED AS GUARANTOR FOR OTHERS ON NOTES CONTRACTS KTC,..-, UPON poNDS OR TTWEiNTSHED roMTRACTS „ ,,„ UPON LEASES -„ .-^^ .- None of the above liabilities Is secured by collateral except following: Between the date of the above inventory and the present time the undersigned have had no terioos losses through bad debts or otbendse ^except) our condition today is fully as good as set forth by tfie above figures. (OVER) Size of original S% x 10^ IS. The Names in full of all General Partnert and th* respective vortk of each, ovt- tide of the businesg, are at followt: The Names H full of all Special Partners with oTtiounts eontribuied 6y each and until when, are at follows : Date of last trial balance was , and same proved. Amount of business done last year was 3 Gross Profit last year was $ Amount of expenses lost year was $ Net Profit last year was. .$. „ _ Total salary to partners last year was..- — |l.....,., — „ Amoubt withdrawn from business last year exclusive of salaries was J$t.;^..t\timJiJJiiJ..A?.k%ik^.... Do you m^ntain a daily or weekly record of costs and profits? The undersigned have no sources of revenue other than that deriv from the conduct of business except the following: Amount of present annual rent is J^... Amount Charged Off for Bad Debts last year wai ....; $... Insurance Carried on Merchandise „...J$. „ Insurance Carried on Machinery & FixtureS......$. Insurance Cupried on Buildings .$ Insurance Carried on Life for Benefit of Firm..$ _ We have no other banking connections of any kind, except wi DESCRIPTION OF REAL ESTATE IN FIRM NAME VALUED ON REVERSE SIDE ADOITIOM OR l»LAT LOT SECTIOH BLOCK OR TOWNSHIP DIVISION OR RANGE PRESENT VALUE AMOUNT OF ENCUMBRANCE wNia ou . _ " 1' "••- - — •-•■ » »L«UiilaU U .'.".",. "".'J J'U„ SileW/aW ' _,. '■ -TuvTrTurmrrrj The foregoing ctatemeots and details pertaiiung thereto, both printed and written, have been carefully read by the ondersigned, and I herel solemnly declare and certify that the same is a full and correct exhibit of our financial condition and contains aU infor- mation and explanation necessary for a full and complete understanding of our true position. (Please Sign Firm Name Here) Bf. Dede8igm0d^ JSU Sire of original 8^ x 10^ 76 "" p. MB SINBSS lEET ADDRESS , .CITY .BRANCHES, zr SEATTLE NATIONAL BA^K of Seattlt. Wath. The undersigned, for the purpose of procuring credit from time to time from you for the negotiable paper of the undersigned, or other- 1, furnishes you with the following statement and information which fuUy and truly sets forth the financial condition of the undersigned jhe. day of „ — „..^ 19 , which you can consider as continuing to be full and accurate, unless Ice. of change is given you. The undersigned corporation has no liabilitxet except thote the de$eriftion and amount of which are dutinctly I in belov), and agrees to notify you promptly of any change that materially reduces the 'pecuniary responsibility of the undersigned. In consideration of the granting of such credit, the undersigned agrees that If the undersigned .»t any time fails or becomes insolvent, or omits an act of bankruptcy, or if any of the representations made below prove to be untrue, or If the undersigned fails to notify you of r material change as herein agreed; then and in either such case all obligations of the undersigned held by yon shall immediately become due i payable without demand or notice, and the same may be charged against the balance of any depmit account of the imdersigned with you, ! undersigned hereby giving a continuing lien upon such balance at deposit account frmn time to tfane existing to secure all obligations of the dersigned held by you, either as borrower or guarantor. (iM TH« AauMCE or Amy Amoukt. Ihseit CirHKM m Stat«hii«t Fo«i»«. Anrim Au. Qdutioms ox Foluwino Paos. U« rat Wosds "Ym." No" "Nowe" Whkw Th«y Wiix Answer the QugsTiows Co»«tcTLY. Slew at BorroM or Nmt Pace.) ASSETS Dollars Cents Cash «o band... Cash in.. .Bank.. Notes Receivable, Good, Due from Cus- tomers , — Accounts Receivable, Good, Due from Customers Notes and Accounts Receivable, Poor or Doubtful, Due from Customers Notes and Accounts Receivable, Due from Stockholders, OflScers and Employees. None of the above Notes and Accounts Receivable is Due from Controlled or Allied Concerns, except the following. $ Merchandise Finished (How Valued).. Merchandise Unflolshed (How Valued). Raw Material (How Valued) Real Estate in Corporation^ Name (De- scription on Reverse Side).. Machinery cmd Fixtures- Stocks and Bonds (List in DetaU). LIABILITIES Cents Notes Payable for Merchandise... Notes Payable to Banks „ Total. Notes iPayable for Paper Sold Notes Payable to Officers, Directors or Stockholders .„.„ Other Notes Payable Open Accounts Due Open Accounts Not Due Salaries and Wages Due to Date. Bonded Debt (Due 19 ) Interest on Bonded Debt. Dividends Unpaid — „„ Chattel Mortgages _ Mortgages or Liens on Real Estate..... Money Borrowed or Held in Trust, not included above __ Taxes Due and Unpaid.. _ The Undersigned has no other Liabilities, except the following. _ Total LiabUUiet... Capital Stock Surplus The undersigned has no contingent liabilities except as th6 amounts thereof are filled in below. UPON RECEIVABLES DISCOUNTED OR PLEDGED _ _ _ — - UPON ACCOMMODATION PAPER OR ENDORSEMENTS - - UPON NOTES EXCHANGED WITH OTHERS _ __ .: ~ UPON CUSTOMERS' ACCOUNTS SOLD OR ASSIGNED... ~ ... ..*...._ AS GUARANTOR FOR OTHERS ON NOTES. CONTRACTS, ETC. - ,. UPON BONDS OR UNFINISHED CONTRACTS h— ~ - None of the above assets is mortgaged or pledged as collateral xcept the following: None of the above liabilities is secured by collateral except the folLowIng: except) wd our cmtdition today is fully «« good as set forth by the above figures. (OVER) Size of original 7j/ x lOj^ 77 AotEbrlzed Capital $ „„ ^Subscribed Capital $ '....^ ^ Held by Company as Treasury Stock , Ho* paid in: Cash 9 Other Propeity $.. Description of other property and how valued Capital Paid in $.. Incorporated in what State and under v>hat General Law or Special Act Date of Charter , Commenced Business Are Stockholders liable'beyond amount of slock subscribed? Amount of business done last year - - $.. Gross Profit last year was ----- $... Amount of expenses last year was - - $... Net Profit last year was ----- $... CflBcers' salaries last year ----- $... Amount charged off for bad debts last year was $ „ „ The undersigned has no other sources of revenue other than that derived from the conduct of business, except the following^ Insurance on Merchandise $ Life Insurance Carri for Corporation on life of $ Insurance on Machinery and Fixtures $ Insurance on Buildings $ and present salaries are same except as otherwise noted hereon, Amount of present annual rent is - - $ _ Dividends paid last year ----- $ Do you maintain a daily or weekly record ot costs and profits? _ Give basis of statement, whether actual inventory, by whom j taken and date, or if estimate, by whom made and date. (. _ _ Is allowance made for depreciation? „ „ Amount and basis of allowance for depreciation is as follows What amount, if any, of Acc't9 and Bills Rec. are past due, extended or renewed? - Date of last trial balance was , and same proved Regular dates of taking inventory „ _ _ _ -Regular dates of balancing books The undersigned has no other banking connections of any kind, except with: What are your usual terms of purchase?...- _ „ Do you discount? -Anticipate?.. Name s few coDcems from whom you purchase in large quantities: , — DESCRIPTION OF REAL ESTATE VALUED ON REVERSE SIDE ADDITION OR PLAT LOT OR SECTION BLOCK OR TOWNSHIP DIVISION OR RANGE PRESENT VALUE AMOUNT OF ENCUMBRANCE WHEN DU r "■■■ OFFICERS AND DIRECTORS (NA3IX IN rVU.) NVMBEB SHARES HELD ADDEES8 PTO. 1 COM. PRESIDENT VICE PRESIDENT - - SECRETARY ~- -• The foregoing statements and details pertaining thereto, both printed and written, have been carefully read by the undersigned, and I here solemnly declare and certify that same is a full and correct exhibit of the financial condition of tlie undersigned and contains all information and explanation necessary for a full and clear anderstanding of the true position of the undersigned. Referekces: (Please Sign Corporate Name Here) By.. Date Signed (OVER) Size of original 714 x 10^4 78 ) SMK (OfieUI x;pt9 H^tiAlvable from Cu^tAmers, Qood,. , Accounts Payable for Merchandise, not due__. Accounts Payable for Merchandise, past due - Cb «"''*"« _ r ASSETS^ rhi« on nonBlgned Cooda Sold ountB RfCPlvftble, p*Bt du^ or Blow , ._ Notes Payable to Relatives or Friends " es and AccounU Receivable from } EiDpio^te. er Notes and Accounts Receivable Deposits of Money by Employees or Others Other Liftbllitief D ASSBTS.- ika and Bonda Cost I Valued at " Mres Cost » Valued at :hinery ft Tools Cost | Valued at n>.»tt«l Mort^fl-ei. "' ses ft Wagons Cost % Valued at ~ omobUes Cost % Valued at ■ TiiTAB Md ABBftBfimanta Unpaid 1 Estftt^J — ^'Ift nn rftVBTBft Bide . _ ., Mortgages on Real Estate— List on reverse side TOTAt - ^ Net Worth TOTAL TOTAL " ITINGENT LIABILITY. Accommodation Endorsements ' <[otes and accounts receivable sold or assigned not !_ lnclu( 1«d In th« AhnvA OtttAr Contingent LJ&bllity - SSIGNMENTSt— Do any of the Asseto or LlabiUUes originate from Merchandise held on consignment or subject to any agency — HBr<»*Tn«*'»t» .LATERAL:— Specify any of the above Assets pledged as coll Atnrftl y Specify any of the above Liabilities secured by coUaten ».\ rI7RANCR;— On Merchandise, f niHliflnM. s FiTtnrAB. S Namfis of r.ompanles _ _ _ Life InauranM*, | |ii favor of "' Credit InanrancA, f <>n^pf nlaa GomnaniftB Siz eof orii ;inal 7'A x 10% 7^ . Debit PROFIT AND LOSS ACCOUNT FOR FISC At. YRA|l RNHTNA la C Ar.t.iiAl Expensefl fof Condiinting Bnslneaa Ornaa Pmfita from Salea Rail r>Aht8 Charged Off Interest and Dl^counta nAprAftii^tion nth«r Inminik Net Profita TOTAL , TOTAl - Grosa sales for same period, $ l8 this Statement based on actual Inventoir?. B7 whom was Inventory taken? Regular times tor taUng Inventory? Date of last audit . Do you discount? Average amount of Stock carried, I. If so, give date .19— By whoto verified?. . Regular times for closing books? .By whom audited?. Average terms: Buying. .SelUng. Time of year when notes and accounts receivable uncollected are at maximum. mlnimom. Time of year when notes and accounts payable unpaid are at maximum. Time of year when Merchandise is at a maxlmnm minimum. .minimum. Give last date when you were oat of debt to ihe Bank. References and Principal Creditors REAL ESTATE OWNED BT MB DBSCBIPnON Title in Name of Present Value Mortgage* Due • . B Valiw of property exempt from execntloa* I: Boildings used for busineu cost t H6me property cost I Valued at |_ at I. ' (PlaaiA sign ben) Pit* tfrft^ ^„ MMftSMMW. t$ttT* Size of original 75^ x lOK 80 (Official foim of Statement as adopted by the Spokane Clearing House Association following the suggestions of Federal Reserve Bank) MENT OF^ — A FIRM usinesp Address li. OLD NATIONAL BANK, Spokane, Washington : the purpose of procuring credit from time to time with you for our negotiable paper or otherwise, we furnish you with the ng as a true and accurate statement of our financial condition on , 19 , which you are to ■r as continuing to be full and accurate until we give you written notice of any material change, of which we undertake to you promptly. ansideration of your granting us any credit we agree to furnish you during the continuance of such credit as you may desire ents of our condition, and that in case of failure or insolvency or the commission of any act of bankruptcy on our part or part of any member of our firm, or in- the event of its appearing at any time that any of the following representations are or of our failure to notify you of any material change as above agreed, then and in any such event all and any of our obliga- either as borrower or guarantor, held by you, shall at your option immediately become due and payable without demand or and the same may be charged against the balance of our deposit account from time to time existing, to secure all such tions. -4 further agree that the exercise of, or ommlssion to exercise, the option aforesaid In any instance shall not waive or affect her or subsequent right to exercise the same. (IMPORTANT— Read this Form througrh carefully before fllling in amonntg. Write NONE where no amount Ib to appear.) ASSETS LL4B1LITIES ASSETS 1— on Hand. — in Your Bank_ in Other Banks Receivable from Customers, Good nts Receivable from Customers, Good landise ASSETS I— Receivable, past due or slow ints Receivable, past due or slow. and Accounts Receivable from Partners and Accounts Receivable from J EmpioV«! Notes and Accounts Receivable inery & Tools Cost ?. 23 & Wagons Cost |i_ mobiles Cost 5. s and Bonds Cost ?. Cost %. Valued at Valued at Valued at Valued at Valued at Estate — List on reverse side . Total Notes Payable to Your Bank Notes Payable to Other Banks. Notes Payable, Paper Sold Notes Payable for Merchandise, not due Notes Payable for Merchandise, past due Accounts Payable for Merchandise, not due _ Accounts Payable for Merchandise, past due. Due on Consigned Goods Sold Notes Payable to Relatives or Friends Deposits of Money by Employees or Others, Other Liabilities . Fixtures Bought on Contract, Balance Due Cha'ttel Mortgages Taxes and Assessments Unpaid Mortgages on «eal Estate — List on reverse side Total Liabilities. NET WORTH Total TINGENT LIABILITY, Accommodation Endorsements Notes and accounts sold or assigned not included in the above For bonds of guarantees Other Contingent Liability (Stock or other subscriptions) -. ^SIGNMENTS:— Do any of the Assets or Liabilities originate from Merchandise held on consignment or subject to any agency " agreement? XATERAL: — Specify any of the above Assets pledged as collateral. Specify any of the alwve Liabilities secured by collateral ^_ URANCE, On merchandise $ . Buildings $^ Names of Companies Life Insurance $ .. In favor of ., Fixtures J. .Companies Credit Insurance | Uability Insurance 9. Companies Companies Size of original 7^ x lOj^ 81 Dedit PEOFIT and LOSS ACCOU>''r- PTSflAT, YEAR ENDING in Cm ' Actual Expenses for Conducting Business — Gross Profits from Sales V.^^ nohtR riiftrgfirt Off Interest and Discounts - Other Income (With drawn In, ? ) "1 J — Npt Profits 1 Total __ _ Total 1 1 Gross Sales for same period I Is Statement based on actual inventory^ By whom was inventory taken? . Regular times for taking inventory? Date of last Audit JDo you discount? . Average amount of stock carried $ . If 80, give date -IQ 19 By whom audited Average terms: Buying .By whom verified? _ Regular times for closing books ? .Selling. Time of Year when Notes and Accounts Receivable uncollected are at maximum Time of year when notes and accounts payable unpaid are at maximum Time of year when merchandise is at a maximum? Give last date when you were out of debt to the Bank_^ References and Principal Creditors , .minimum. _mmmium. .minimum. GENERAL PARTNERS Name Address Amount Contributed Outside Net Worth Salary . 1 1 1 1 REAL ESTATE OWNED DESCRIPTION Title in Name of Present Value Mortgages Due Assessed Valu _ 1 I 1 1 1 Buildings used for business qpst $. Valued at $. (Sign firm name). By. Date Signed. Size of original 7^^ x lOj^ 82 (Ofllcial form of Statement as adopted by tbe Spokane OeartftiT Rouse Association fotlowiai tlie jugg^Hons ol ^cdcnit Rcatrre Bink) Cement of_ I of Business. A COEPORATION AddrosB Of HE OLD NATIONAL BANK, Spokane, Washington: i' tlie purpose of procuring credit from time to time with ybu for our negotiable paper or otherwise, we furnish you with the oiving as a true and accurate statement of our financial condition 6n , 19-,—, which you are to ,:a|der as continuing to be full and accurate until we give you written notice of any material change, of which we undertake to 'i«? you promptly. |consideratIon of youi> granting us any credit. We agree to furnish you during the continuance of such credit as you may dealre itJraents of our condlUOn, and that la case of failure or insolvency or the .commission of any act of bankruptcy on our part, or ale event of its appearing at any time that any of the following representations are untrue, or of our failure to notify you of iJnaterlal change as above agreed, then and In any such event all and any of our obligations, either sia borrower oi. guarantor, iji by you, shall at your option Immediately become due and payable without demand or notice, and the $9me tnay be charged .St the balance of our deposit account with you, we hereby giving a continuing lien upon such deposit account from time to time 2^°^' *° secure all such obligations. further agree that the exercise of,, or ommlssion to exercise, the option aforesaid In any instance shall not waive or affect jther or subsequent right to exercise the same. (IMPORTANT— Read this Form through carefully before filling In amounts. Write NONE where no amount Is to appear.) ASSETS LUBILITIES ASSETS:— on Hand In Your Bank„ in Other Banks. s Receivable from Customers, Good . unts Receivable from Customers. Good, handlae ASSETSi— s Receivable, past due or slow lunts Receivable, past due or slow !«'8 Receivable from Stockholders A )unt8 Receivable from Stockholders )i t>3 and Accounts Receivable from Employes iksaod Bonds Cost |. ures Cost f . hinery& Tools Cost I. lei ft Wagons Cost $. mobiles Cost I. .Valued at .Valued at .Valued at .Valued at .Valued at Estate — List on reverse side.. Notes Payable to Your Bank Ndtes Payable to Other Banks Notes Payable, Paper Sold Notes Payable for Merchandise, not due Notes Payable for Merchandise, pasjL due Accounts Payable for Merchandise, not due Accounts Payable for Merchandise, past due Due on Consigned Goods Sold Notes Payable to Relatives or Friends. Deposits of Money by Stockholders Deposits of Money by Employes or Others Other Liabilities Chattel Mortgages Fixtures Bought on Contract, Balance Due . Interest on Bonded Debt (Rate Bonded Debt (When due Taxes Unpaid Local Assessments Unpaid Mortgages on Real Estate — List on reverse side Capital Surplus Uhdlvliied Ih-ofiU ITDfOENT LIABILITY:— Accommodation EndorsemenU Notes and accounts receivable sold or assigned NOT included in above assets . For bonds or guarantees _««_««___«_ Other Contingent Liability (Stocks or other subscriptions) ^._^___^ _-.^ . NSI6NJIENTS: — Do any of tUe AsseU or Liabilities originate from Merchandise held on consignment or subiect to any agency agreement? , . , , , ■ — *— LLATERAL:— Specify any of the above Assets pledged as Collateral Specify any of the above Liabilities secured by collateral t, , , Oo what Assets are the Bonds of the Company a Hen? •ovsr) Size of original 7^^ x 10j4 83 IltSUBAXt'B, On Merchandise, $ Names ot Companies • Butldloss. %. Plxtures. % IJfe Insurance. S [n favor of ComDdnles Liability Insurance, $ Comnanies Debit PROFIT AND LOSS ACCOUNT, FISCAL y?.AR ENPTNfi 1» Cri 1 B OrrtRB PrnfltJunn Sales B Kad D^bta Charged Off Interest and Diaodubta (Paid in nividpndR S Net Prodts _ •^"mm I^MiM TOTAL TOTAL Gross Sales for same period, $ Is Statement based on actual inventory?. Dy whom was Inventory taken? Rvgular times for. taking Inventory? Date of last audit? Do you discount? Average amount of Sitock carried, % _ ■ ; If so; gire date. .19— .By whom verified? .Regular times for closing books?. .19- By whom audited. Average terms: Buying SelUng. Time of year when notes and accounts receivable uncollected are at maximum Time of yealP When faotes and accounts payable unpaid are at maximum, ____ Time of y6&r when stocks of merchandise are at maximum Give last date when you were out of debt to the Bank ■_ ._ References *nd Principal Creditors i , minimum . minimum REAL ESTATE OWNED BV CORPORATION DESCRIPTION Title in Name of Present Value Mortgages Wheu Due .'\sse8sed Valu • ' 1 __: I — Luildings used CAPITAL STOC Amount of ilued a ts Vj Subscribed. S Common Stock, i Paid In, $ Par value oer share, i Amount rjf Prp.f«rr«>d Stonk. S Or s sines pecial Act? . . _ Date of incorporatloh 19 Commenced bu s 19 OFFICERS Name in Fuil Address '"'"MHd""' | Salaries per Y President (i 1 ■ !•« Becretanr Treftaurer • 1 In whom is vested authority, by resolution of the Board of Directors to sign notes binding the Corporation? (Please ^ign here) By I3ate Bided-j Size of original 7j/2 x lOj/2 84 the Northwestern National .Bank, Minneapolis, Minn. For the purpose of procuring credit from time to time with the above named bank, .the following^ statement is furnished as a true and ! ite statement of condition of undersigned on ASSETS LIABILITIES on Hand and in Bank I Receivable— Secured— Good... Receivable — Unsecured — Good . „i Jnts Receivable — Good Mortgages 'Receivable td Mortgages Receivable r Real Estate (See Schedule) iture. Fixtures, Farm Machinery Products Stock Bills Payable to Bank. Other Bills Payable Accovmts Payable Mortgage on Homestead ,. Other Real Estate Mortgages (See Schedule) Chattel Mor^ages Other Liabilities I)cs and Bonds (See Schedule) . Total. Total Liabilities. Net Worth Total t Amount of Bills Receivable Discounted and Not Shown Above? Vi ingent Liability as Endorser. as Guarantor ingent Liability on Bonds on Leases t Amount of Assets are Pledged or Hypothecated in any way unt of Fire Insurance Life Insurance (and to whom payable) SCHEDULE OF REAL ESTATE DESCRIPTION OF REAL ESTATE OcKriplMa •! Mt|« TO WHOM PAYABLE SCHEDULE OF STOCKS AND BONDS PAR VALUE MARKET VALUE ets Secured by Collateral. !)ts Secured by Collateral . -te ^ (Sign here) Size of original 7^4 x 10 85 h ciAL STATEMENT CLEVELAND CLEARING HOUSE ASSOCIATION FORM iNOIVIOUAL ■MUFACTURIM OR MEBCMITiUE l«B LOCATION OF PLANT iE CLEVELAND NATI6NAL BANK, Cleveland, Ohio. FOR THE PURPOSE OF PROCURINQ CREDIT FROM TIME TO TIME WITH YOU, FOB MY NEGOTIABLE PAPER OR OTHERWISE, I FURNISH THE FOL- AS A TRUE AND CORRECT STATEMENT OF MY FINANCIAL CONDITION ON , 1 . AND HEREBY AGREE TO YOU IMMEDUTELY IN V7EITIN0. OP ANY MATERI\LLY UNFAVORABLE CHANGE IN MY FINANCIAL CONDITION. ' INTHEABSENCE OF SUCH NOTTCP LN^BELOW^'HE'Sm^^^^ ^ ^ CONTINUING 8TATEMENT?AND THAT MY PECUNLLRY REa^NSIBIUTYH^S (In thb Absencb or Am Amotot, Inssst Cipmas w Statbumt Fowb. AaswiB AiA QmaiioNa o:t Fooowwi Txaa. Uii m Wo«os "Yb." "No" or "Nomb" UT Woj, Akbwib thb Qdmttons Combctlt. S tan AT Borron or FOOB TH PlQS.) WIS ASSETS D0LUR3 CENTS UABIUTIES DOLLARS CENTS NOTES PAYABLE FOR MERCHANDISE IN BANK NOTES PAYABLE TO BANKS S RECEIVABLE OF CUSTOMERS- im WITHIN 90 DAYS NOTES PAYABLE FOR PAPER SOLD 3 RECEIVABLE OF CUSTOMERS- UE BEYOND 90 DAYS NOTES PAYABLE TO OTHERS UNT3 RECEIVABLE OF CUSTOMERS ACCOUNTS PAYABLE-NOT DUE niANDISE-FINISHED ACCOUNTS PAYABLE-PAST DUE :HANDISE-IN PROCESS-UNnNISHED DEPOSITS OF MONEY WITH ME :handise-raw material ANY OTHER CURRENT LIABILITIES- (lTElnZC0NPAGS4) m active ASSETS-aTwna on Paoii 3) TOTAL ACTIVE ASSETS TOTAL CURRENT LIABILITIES FROM onNTRnT.T.PnlrORMKKCUANDISE MORTGAGES OR LIENS ON REAL ESTATE ALLIED CONCERNS } (FOR ADVANCES CHATTEL MORTGAGES ;ks. bonds and ina^tments ANY OTHER LIABILITIES-Itkhize D .DINGS HINERY. EQUIPMENT AND FIXTURES SES. WAGONS AND AUTOMOBILES TOTAL LIABILITIES RESERVES— IiTMiza D WILL. PATENTS AND TRADE MARKS ER ASSETS-lT«rai NET WORTH .. TOTAL TOTAL CONTINGENT UABILHY OF ANY KINO N RECEIVABLES DISCOUNTED OR PLEDGED N ACCOMMODATION PAPER OR ENDORSEMENTS N NOTES EXCHANGED WITH OTHERS TOMERS' ACCOUNTS SOLD AND ASSIGNED 3UARANT0R FOR OTHERS ON NOTES. CONTRACTS. ETC. BONDS OR UNFINISHED CONTRACTS LEASES Siz eof origii 8 lal 7% X 105^ 7 I». EXPENSE INCOME COST OF MATERIAL OR MERCHANDISE CONSUMED NET SALES ACTUAL EXPENSE OF CONDUCTINC BUSINESS iHCLOTiNd RewT, Tatbb, Inbotancb, Etc. FROM INVESTMENTS 8.ALARY DRAWN BY MYSELF FROM DISCOUNTS ON PURCH-ASES INTEREST ON BORROWED MONEY FROM OTHER S0URCE&-Iteui2« BAD DEBTS CHARGED OFF DEPRECIATION CHARGED OFF NET PROFITS TOTAL TOTAL RECONCILEMENT OF NET WORTH NET WORTH AT CLOSE OP PREVIOUS FISCAL YEAR $. LESS CHARGES NOT APPUCABLE TO CURRENT YEAR $ »» ADD NET PROFITS AS ABOVE ^ LE&S-WITHDRAWALS. OTHER THAN SALARY AS ABOVK. , NET WORTH-(See firat p«7e) DETAILS REUTIVE TO ASSETS CASH-NAMES OF ALL BANKS WHERB ACCOUNTS ARB MAINTAINED. ARE ANY ACCOUNTS SUBJECT TO NOTICE BEFORE WITHDRAWALT AMOUNT $ DOES THE AMOUNT REPORTED AS CASH ON HAND CONTAIN ANYTHING OTHER THAN LEGAL MONEY?.... NOTES RECEIVABLE OF CUSTOMERS-WHAT AMOUNT DOES NOT REPRESENT MERCHANDISE SALESt ... REPRESENTS WHATT - WHAT AMOUNT REPRESENTS OPEN ACCOUNTS SETTLED BY NOTES? AMOUNT YOU PEOBABIY WILL NOT BE TO COLLECT? AMOUNT OVERDUE? AMOUNT RENEWED OR BJCTENDBDt ACCOUNTS RECEIVABLE OF CUSTOMERS-WHAT AMOUNT DOES NOT REPRESENT MERCHANDISE SALES? REPRESENTS WHAT? AMOUNT YOU PROBABLY WILL NOT BE ABLE TO COLLECT? AMOUNT OVSRDUB?. WHAT ABE YOUR AVERAGE TERMS OF SALE? «. GIVE NAMES OF A FEW CONCERNS TO WHICH YOU SELL IN URGE QUANTITIES: MERCHANDISE-LAST INVENTORY TAKEN BY WHOM? WHEN? VALUED AT COST, OH MARKET PRICE AT DATE OF INVENTORY. OR ON WHAT BASIS— FOR FINISHED? FOR UNFINISHED IN PilOCESS? FOR RAW MATERIAL? AMOUNT PLEDGED AS SECURITY? ANY RECENTLY RECEIVED AND INCLUDED IN YOUR ASSETS FOR WHICH THE INVOICES HAVE NOT YET BEEN ENTERED AS ACCOUNTS PAYABLE?. AMOUNT IN OUTSIDE WAREHOUSES? AMOUNT HELD UNDER TRUST RECEIPT? ; UNDER CONSIGNMENT? IS STOCK FRESH AND SALABLE THROUGHOUT? AVERAGE AMOUNT OF STOCK CARRIED?. WHAT AMOUNT HAS BEEN CHARGED TO DEPRECIATION DURING THE PAST YEAR ON THIS ITEM? STOCKS, BONDS AND INVESTMENTS-GIVE DESCRIPTION AND BOW VALUED: MACHINERY, EQUIPMENT AND HXTURES-ASSESSED VALUE t WHAT AMOUNT HAS BEEN CHARGED TO DEPRECIATION DURING THE LAST YEAR ON THIS ITEM? . Size of original 7j4 x 10^ 88 f tJSED TV BOSLNfSS t.A^..^.....^ NO BUIUMNGS:— i ?OTHER t DBSCRipnoN ANB Location TlTLS IN WHOSa Naub Appruseo V&LCX MOBTtUOSS RSNTAtS ElCXITXS Last Fiscal YcAB WHOM APPRAISEDT WHENT. 300K VALDE HAS DECREASED OR INCREASED DURING THE YEAR. ACCOUNT FOR SAME n YOU ANY LEASEHOLDS NOT MENTIONED IN Y0UR.ASSET8T.., GIVE DETAILS. ACTIVE ASSETS:-! lOM CONTROLLED OR ALUED CONCERNS:- Namb or CoNCBBif DETAILS REUTIVE TO LlABiUTICS PAYABLE-mME YOUR BANKS AND BROKERS AND LINB WITH EACH: lAT TIME OF THE YEAR DO YOU BORROW OF YOUR BANKSr THROUGH BR0KES8T. ATE MAXIMUM AMOUNT BORROWED FROM ALL SOURCES DURING FISCAL YEAR JUST CLOSED S » YOUR BRANCHES OR ALLIED CONCERNS BORROW LOCALLY? WHERBT , ► YOU BOBiROW CONTINUOUSLY IN OPEN MARKET?, FOR MERCHANDISE?-. AMOUNT OF YOUR NOTES PAYABLE SECURED BY COLLATERAL I ■8CR1BB THE COLLATERAL , _ INTS PAYABLE-WHAT ARE YOUR AVERAGE TERMS OF PURCHASE?.. ) YOUTMSCOUNT? _ ANTICIPATE?. mCHASE IN LARGE QUANTITIES: „ NAME A FEW CONCERNS FROM WHOM YOtf WT8 OF MONEY WITH MB-ON TIME OR DEMAND? ,>.,«».^ • lOM WHOM? ^.^ RATE PER CENT PAID?. TEL MORTQAQES-TO WHOM?^. DATE OP MORTGAGE? ^ TERMS OF PAYMENT? H WHAT ASSETS A LEEN? DOES ITREPRESENT A PARTTOF PUECHABB PRICE? OES IT REPRESENT BORROWED MONEY? , , • ES-ARB YOU LEABINa ANY PROPERTY? WHAT ARE THE TERMS OF THE LEASBS?....-*..««»aw*ii,s3v-v.i Size of original 7% x 10}^ 89 01 HER CURRENT UABIUTII MISCELLANEOUS )N8URANCE-0N MERCHANDISE ». ..;.;.-r;:i:?....:...r CREDIT S UABOmf $. LIFBI^ WHOISaBBBEOTFlCIARYT....... , ,»..^... HOW LONo'eNGAGED IN PRESENT BUSINESS? WHAT AMOUNT OP CAPITAL DID YOU START WITH AND OF WHAT DID IT CONSISTT WHAT AMOUNT OF CAPITAL HAVE TOO CONTRIBUTED 6INCET IS THERB ANY OTHER PERSON INTERESTED IN YOUR BUSINESS, EITBER AS SPECIAL OR UMITBD PARTNERt. ARE YOU A PARTNER IN ANY FIRMT ^ WHAT IN YOUR OPINION IS THE NET WORTH OP EACH ENDORSER ON YOUR NOTBST HAVE YOU ANY ASSETS, OTHER THAN REAL ESTATE. PLEDOTD OR HYPOTHECATED IN ANY WAYT, ANY INDIVIDUAL DEBTS NOT INCLUDED IN THE 8TATEMENTT .....i ANY INDIVIDUAL ASSETS NOT INCLUDED IN THE STATEMENT* .^ , ......s-. TIME OF YEAR RECEIVABLES GENERALLY MAXIMUM MINIMUM TIME OF YEAR MERCHANDISE GENERALLY MAXIMUM MINIMUM STATE GROSS H^LES FOR THE PAST THREE YBARS-W • »......• ».. •.•..... WHERE IS YOUR PRINCIPAL SALES TERRITORYt i,..ii...«r.i....i..... IF YOUR BOOKS HAVE BEEN AUDITED BY A CERTIFIED FUBUC ACCOUNTANT. GIVE NAME OF ACCOUNTANT AND DATE OF AUDIT. ARE THERE ANY JUlXlMENTS UNSATISFIED. OR SUIT&PENDING AGAINST YOU. AND FOR WHAT AMOUNTr . GIVE DATE YOD SBGULABLT TAKE INVENTORY AND CLOSE YOUR BOOKSl. The foreooino •tctMntnto and dtUlls psrUlnIno Uiarato. both printed and writtan. havt baan oarafully raad by tha undarslonad. and I hereby voli daolara and oartlfy that aama Is a full and oorraot axhibit af my finanoial oondltion. SIGN HERB... ..*....... DATE nONKD^....^........^^... ..If. NOTE: If you hava any difficulty In flllino In tha foraooino statamenta and quastlonary. tha Cradit Oapartmant of thia bank it praparad to axtanc aourtaout and Intallloent aarvtoat In fttat. wa aallolt your oo-operatlon and aoqualntanca with our oradit mathod*. Size of original 7J4 x lOj^ 90 iciAL STATEMENT CLEVELAND CLEARING HOUSE ASSOCIATION FORM : OP FIRM PARTNERSHIP i ss . >FnCE LOCATION OF PUNT , HE8 HE CLEVELAND NATIONAL BANK, Cleveland, Ohio. FOR THE PURPOSE OP PROCURING CREDIT FROM TIME TO TIME WITH YOU. FOR OUR NEOOTIABUB PAPER OR OTHER\ f> A9 A TRUE AND CORRECT STATEMENT OF OUR HNANCIAL CONDITION ON 10 VISE. WE FURNIfiH THE FOL. _. AND HEREBY AGREE TO 3 ABSENCE OF SUCH NOTICE 0N ACCOMMODATION PAPER OR ENDORSEMENTS "ON NOTES EXCHANGED WTTH OTHERS 1 f OTOMERS" ACCOUNTS SOLD AND ASSIGNED I OTJARANTOR for others on notes, CONTRACTS. ETC. )R BONDS OR unfinished CONTRACTS 1 )R LEASES 1 Siz e of < Drigir 9 lal 714 X 101/2 1 CONDENSED PROHT AND LOSS STATEMENT FOR FISCAL YEAR E NDINO la EXPENSE INCOME COST OF MATERIAL OR MERCHANDISE CONSUMED NET SALES i ACTUAL EXPENSE OF CONDUCTING BUSINESS IvcLUDiNfl Rent. Tatxs. Inboranci, Etc FROM INVESTMENTS n n SALARIES PAID TO PARTNERS FROM DISCOUNTS ON PURCHASES ! 1 INTEREST ON BORROWED MONEY FROM OTHER SOURCES-Itbhub BAD DEBTS CHARGED OFF DEPRECIATION CHARGED OFF NET PROFITS TOTAL TOTAL RECONCILEMENT OF N^ WORTH JQET WORTH AT CLOSE OF PREVIOUS nSCAL YEAR". t I LESS CHARGES NOT APPLICABLE TO CUREENT YEAR $ et.. ADD NET PROFITS AS ABOVE .x $^ LE&S-WITHDRAWALS BY PARTNERS. OTHER THAN SALARIES AS ABOVE ... NET WORTH— (See firnt paw) DETAILS REUTIVE TO ASSETS CASH-NAMES OF ALL BANKS WHERE ACCOUNTS ARE MAINTAINED ARE ANY ACCOUNTS SUBJECT TO NOTICE BEFORE WITHDRAWALT AMOUNT t DOES THE AMOUNT KBPORTBD AS CASH ON HAND CONTAIN ANYTHING OTHER THAN LEGAL MONEY?.... NOTES RECEIVABLE OF CUSTOMERS-WHAT AMOUNT DOES NOT REPRESENT MERCHANDISE 8ALE3T REPRESENTS WHATT , WHAT AMOUNT REPRESENTS OPEN ACCOUNTS SETTLED BY NOTEST AMOUNT YOU PROBABLY WILL NOT TO COLLECTT AMOUNT OVERDUE? AMOUNT RENEWED OR EXTENDEDT ACCOUNTS RECEIVABLE OF CUSTOMERS-WHAT AMOUNT DOES NOT REPRESENT MERCHANDISE SALES? REPRESENTS WHAT? AMOUNT YOU PROBABLY WILL NOT BE ABLE TO COLLECTT AMOUNT OVERDUE? WHAT ARE YOUR AVERAGE TERMS OF SALE? , GIVE NAMES OF A FEW CONCERNS TO WHICH YOU SELL IN LARGE QUANTITIES: , MERCHANOISE-LAST INVENTORY TAEEN BY WHOM? WHEN?..* VALUED AT COST. OR MIARKET PRICE AT DATE OF INVENTORY OR ON WH.AT BASIS— FOR FINISHED? FOR UNFINISHED IN PRbCESS? FOR RAW MATERIAL? AMOUNT PLEDGED AS SECURITY? ANY RECENTLY RECEIVED AND INCLUDED IN YOUR ASSETS FOR WHICH THE INVOICES HAV? NOT YET BEEN ENTERED AS ACCOUNTS PAYABLE?. AMOUNT IN OUTSIDE WAREHOUSES? AMOUNT HELD UNDER TRUST RECEIPTT : UNDER CONSIGNMENT? IS STOCK FRESH AND SALABLE THROUGHOUT? AVERAGE AMOUNT OF STOCK CARRIED?. WHAT AMOUNT HAS BEEN CHARGED TO DEPRECIATION DURING THE PAST YEAR ON THIS ITEMt JTOCKS. BONDS AND INVESTMENTS-GIVE DESCRIPTION AND HOW VALUED: (MACHINERY. EQUIPMENT AND FIXTURES- ASSESSED VALUE S. WHAT AMOUNT HAS BEEN CHARGED TO DBF»>SClATION DURING THE LAST YEAR ON THIS ITEMf , Size of original 7^ x 10j4 92 scBimoN AKB Location I BUILOINQS: ( USED IN BUSINESS t. OTHER!. Tnu w Waoai Sua Valui ArPBims Valob RiNTiLS REcairxo DmiNa HOM APPRAISED! ^ WHBNT, ^ OK VALUE HAS DECBKASED OB INCMBASED DUWNQ THE YBAB, ACJCOUNT FOR SAME you ANY LEASEHOLDS NOT MENTIONED IN YOUR AflSBTBT GIVE DEXAILB... mVE ASSETS;— Imaza. M CONTROLLED OR ALLIED CONCERNS:- Xaks or CoNCSBN Fob MEBCtUNDssa TsBia CEIVABLE-DUE FROM PARTNERS AND EMPLOYEES. Ton OB Demanv Dat« or Kvn lenk R>inwA>> Eiibsb at VaotM OB Dt FabtT S RECEIVABLE-DUE FROM PARTNERS AND EMPLOYEES. Is rr SacxniBDT AoOOUMT RlFRESBNTS WhATT DETAILS REUTIVE TO LiABIUTiES AYABLE-NAME YOUR BANES AND BROKERS AND LINE WITH EACH:. • TTIME OF THE YEAR DO Y0[? BORROW OF YOUR BANKST ; THROUGH BROKERSt. t MAXIMUM AMOUNT BORROWED FROM ALL SOURCES DURING FISCAL YEAR JUST CLOSED $ rOUR BRANCHES OR ALLIED CONCERNS BORROW LOCALLY? , WHEREt OU BORROW CONTINUOUSLY IN OPEN MARKET? FOR MBRCHANDISF? ■ ERWISET AMOUNT OF YOUR NOTES PAYABLE SECURED BY COLLATERAL t 3RIBETHE COLLATERAL , TS PAYABLE-WHAT ARE YOUR AVERAGE TERMS OF PURCHASBT.... , YOU DI8C0UNTT ANTICIPATEir NAME A JEW CONCERNS FROM WHOM YOU CHASE IN LARGE QUANTITIES: Size of original 7% x lOj^ 93 lOEPOSITS OF MOKEY WITH TBIS COMPANY BY PARTNERS OR OTHERS-ON TIME OR DEMANDr , FROM WHOMT RATE PER CENT PAIDt. CHATTEL MORTGAQES-TO WHOMr. DATE OF MORTGAGET TERMS OF PAYMENTT. ON WHAT ASSETS A LIENT...;.„ DOES IT REPRESENT A PART OF PURCHASE PRICE? DOES IT REPRESENT BORROWED MONEY? [LCASES-ARE YOU LEASING ANY PROPERTY? , WHAT ARE THE TERMS OF THE LEASES?. OTHER CURRENT LlAfilLITIES-iniazi: iNSURANCE-ON MERCHANDISE |. ENOORSERS-WHAT.m YOUR OPINION, MISCELLANEOUS CREDIT $ LIABILITY t , IS THE NET WORTH OF EACH ENDORSER OUTSIDE OF INTEREST IN ' Namss or OcNxaii. VAtmam. ASDREM. Amoott CcvnuBCTiD. OTOiMNtr Namcb or Spictti. Partjjirs. AMOcinpCojmuBtrBD. Uwtt CONNECTIONS OF EACH PARTNER IK OTHER BUSINESS. IF ANY. GIVE DATE OF ORGANIZATION OF PARTNERSHIP DATE OF EXPIRATION TIME OF YEAR RECEIVABLES GENERALLY MAXIMUM MINIMUM TIME OF YEAR MERCHANDISE GENERALLY MAXIMUM MINIMUM .-. STATE GROSS SALES FOR THE PAST THREE YEARS-19 % 19 t 19 1 WHERE IS YOUR PRINCIP^VL SALES TERRITORY? IF YOUR BOOKS HAVE BEEN AUDITED BY A CERTIFIED PUBLIC ACCOUNTANT. GIVE NAME OF ACCOUNTANT AND DATE OF AUDIT. ARE THERE ANY JUDGMENTS UNSATISFIED, OR SUITS PENDING AGAINST YOUR FIRM OR ANY MEMBER THEREOF. AND FOR WHAT AMOUNT?.. GIVE DATE YOU. REGULARLY TAKE INVENTORY AND CLOSE YOUR BOOKS. The foregoing ataUments and deUils pertaining thereto, both printed and written, have been carefully read by the underalgned. and I hereby declare and certify that eame Is a full and correct exhibit of our financial condition. DATE SIGNED »9 BY. (Mann or ma oivkn) NOTE: If you hav« any difficulty In filling In the foregoing statements and questlonary, the Credit Department of this bank Is prepared \.o exten Murteous and intelligent service: In fact, we solicit your oo-operatlon and acquaintance with our eredJt methods. Size of original 7% x 10^ 98 FiiiNCiAL STATEMENT CLEVELAND CLEARING HOUSE ASSOCIATION FORM INDIVIDUAL \IIESS T THE CLEVELAND NATIONAL BANK, Cieveland, Ohio. Fcn t:::: I'URKtefi of procuring credit from time to time with yoo. for my negotiablk Paper or otberwise. i furnish the fol- r vn A9 ^ TP^ » vn mppprr ktatf.MRKT Ol? MY FINANCIAL CONDITION ON' , 19 . AND HEREBY AGREE TO FY YOU IMMEDIATELY IN WRITING, OF ANY MATERIALLY UNFAVORABLE CHANGE IN MY FINANCIAL CONDITION. IN THE ABSENCE OF PUCH NOTICE NEW AN D I- ULL WRITTEN STATEMENT. THIS IS TO BE CONSIDERED AS A CONTINUING STATEMENT. AND THAT MY PECUNURY RESPONSIBILITY HAS FALLEN BELOW THE CONDITION HEREIN SET FORTH. ^ , „»....„, flu THE Absf.ncs or Atrt Amount. Insebt CiraBRS in 5T.iTniB!rr FoRiis. ANSwra All Qomtioot ok FoLLowwa Paois. U«» tm WoBoa "Ym, "No ob "Nojei Tatr Will AsawBa thb Qcsstions CoaaEOTLT. Sias at Bottoh or Second Paob.) ASSETS DOLLARS CENTS UABILITIES DOLLARS CENTS Sn ON HAND AND IN BANK- NOTES OWED BY MB-WITHOUT SECURITY COUNTS DUE ME-GOOD NOTES OWED BY ME-WITH SECURITY OTHER THAN REAL ESTATE (SECURED LOANS DUE ME-GOOD NOTES OR MORTGAGES OWED BY ME-WITH REAL ESTATE AS SECURITY CURED LOANS DUE ME NOTES OWED BY ME-WITH CHATTEL MORTGAGE AS SECURITY JRTOAGE LOANS DUE ME ACCOUNTS OWED BY ME RM ^ODUCTS ON HAND ANY OTHER INDEBTEDNESS-ITEMIZE V-E STOCK ON HA'ND ND 1LDINGS RM IMPLEMENTS AND MACHINERY ;Y OTHER PROPERTY OR INVESTMENTS- TOTAL LIABILITIES NET WORTH TOTAL CONTINGENT LIABIUTY OF ANY KIND I NOTES OF OTHERS ENDORSED BY ME ' oi;arantor for accounts and notes of others ; NOTES exchanged with others : BONDSMAN OR SURETY FOR OTHERS »li LEASES ^HER THAN ABOVE SPECIFIED TOTAL __^ DETAILS RELATIVE TO ASSETS AND UABIUTIES -Al AND BUILOINGS:- DlSCRIPTlOM AMD LoCATIOtI TnuiuiWiioraNAia Apfbaisbd Valox MnBTOAOU lUBTOAllCl RsnALS RcCBtVKD DoUlM LawFocalYbak $ $ s $ $ »Y WHOM APPRAISEOr ,« VHENt „„..........~...... :AXS8 PAUO TO WBAT DATBt < 5ize of orig inal7j4xl( 99 )yz ANT OTHER PSRSON INTBRJESTED IN YOUR B0SINS8B JOTBXB AS 6PBCIAL OR UMITED PARTN£31T. IBS TW A- PABTIOR IN ANT FIRMT. ARK THSRB ANY JUDGMENTS UNSATISFIED. OR SUITS PENDINO AQAINST YOU. AND FOR WHAT AMOUNT? . 18 TOUR LIFE INSUREDT AMOUNT? WHO 13 THE BENEFICIARY? HAVE YOU ANY LEASEHOLDS NOT MENTIONED IN YOUR ASSETS? QIVB DETAILS WHAT IN YOUR OPINION 13 THE NET WORTH OF EACH ENDORSER ON YOUR NOTES?. ARE ANT OP TOUR ASSETS. OTHER THAN REAL ESTATE, PLEDGED OR HYPOraECATED IN ANY WAY?. NOTES OWED BY ME:- Amoojtt iNTEaSST RlTB To Whom Givm Dat« Wbbn Dub. X ACCOUNTS OWED BY ME:- To Whom kuoxnn Wbxn Dut Fob Wait % UVE STOCK ON HAND FARM PRODUCTS ON HAND Nmon or Ebm> VAwm DtacxmtoN DHOvmoN QniSTITT Valu. f = 1 HEREBY SOLEMNLY DECLARB AND CERTIFY THIS TO BE A TRUE AND CORRECT STATEMENT OF MY FINANCIAL CONDITION AT TUB CUj 09 ByMN^^ ^f ■! ■ ■■ _ J ■■_.i....«........p.....^^«...r (SKUf BKB8>... ,M^ .«Mb««MW*dlhfwiohlb*aM4widClMriiitH«iiMAMMMM,BU)CliM*frafCamMfMi Ptkmamtmm* Siza of original 7^ x 10 J^ 100. The Fletcher American National Bank, Indianapolis, Ind OFFICE OF - n» of Bank or Ftrm\ ••* '\ atlnn) Below pleaae find statement of financial condition as shown bt? our books on i 91 Iblllty '* famished in confidence for sour use alone, and as a guide should the question of our standing and respons mt itself in the course of our affairs with your bank. Respectfully. (Stan omctallBi ASSETS 1 LIABILITIES w and Discounts Capital . Bonds Surplus . _ Individual Deposits ^ f nn HnnH from Banki^ om Fletcher American National Bank, Indianapolis 'om.. . .. .... ._ — mm Demand Certificates Time Certificates Bills Payable (see below) Other TAnhiHtie/t ~~ rom mm —. t K.ttnttt . - _ er Assets _. - Total Total ■4>/o nf Rill.-, PnpnMi>- -~ inmll tf helm nf in dlaidunl mam/u>rM n, in addition to above: marks: Size of original 7^4 x 10 101 standard Form American Bankers' Association The Fletcher American National Bank of Indianapolis : undersigned, for the purpose of procuring credit from time to time from you for the negotiable paper of the undersigned or otherwise, furnish yam with the foUomng statement, which fully and truly sets forth the financial condition of the undersigned on the dayt^- ; JL9 _, which statement you can consider as continuing to be full and accurate unless notice of change is given you. The undersigned agree to notify you promptly of any change that materially reduces the pecuniary responsibility of the undersigned onsideration of the granting of such credit, the undersigned agree that if the undersigned at any time fail or become insolvent, or commit an Act of Bankruptcy, or if any of the representations made below prove to be untrue, or if the undersigned fail to notify you of any material change as before agreed; then and in either such case all obligations of the undersigned held by you shall immediately become due and payable without demand or notice, and the same may be charged against the balance of any deposit account of the undersigned with you, the undersigned hereby giving a con- tinuing lien upon such balance of deposit account from time to time existing to secure all obligations of the undersigned held by you. ASSETS LIABILITIES on hand^ f Receivable, good, owing by Customers dunts Receivable, good, owingby Customers- xkandise, (How Vcdued ^) / Estate ■ 'Jtinery and Fixtures JBank. Total Bills Payable for Merchandise. Bills Payable to Bank Open Accounts Mortgages or Liens on Real Estate. Il Total Liabilities Net Worth Total Accommodation Endorsements. iHngent Liability. -^ ( Endorsed Bills Receivable Outstandings ^fy any ef above assets or liabilities pledged as, or secured by collateral, and state collateral. Tolume of business for last fiscal year tfit, ftam1ngf<. (Stgned), Size of original 7j/$ x 9^ 103 J) The Fletcher American National Bank of Indianapolis: ninaaa the express purpose of procuring credit from time to time from vou, the undersigned herebu make to vou the following statement of the condition of the under- signed on the dap of J91 .- and the undersigned herebg agree and guarantee that said statement is in all respects true and correct; and vou may consider said statement as to the pecuniary responsibilUg of the undersigned as continuing to be true and correct until written notice of a change is given to you by Che undersigned. undersigned agree to notify you forthwith, in writing, in t/ie event of any change that reduces the pecuniary responsibility of the undersigned below that herein set forth. If at any time the undersigned fail to notify you, in writing, of any such change, or if at any time the undersigned, or any of them, stop payment, or become insolvent, or fail, or commit an act of bankruptcy, or if any one of the .statements herein contained is found by you to be untrue or Incorrect, or if any change in the financial respcfnsibility of the undersigned occurs by reason of which, in your Judgment (and of this you shall be the sole Judge), the under- signed are not entitled to a continuance of the credit extended by reason of this statement, then, and in any of said events, any and all debts, liabilities and obligations of every kind, whether direct or contingent, from the undersigned to you, shall at your election forthwith become due and payable, without demand or notice, and you are hereby authorized to apply on account of any or all of such debts, liabilities and obligations of the undersigned, w/ielher direct or contingent, all property, real and personal, of every kind and description of the undersigned, and of each and every of them, including balances, credits, collections, moneos. drafts, checks, notes, bills and accounts, whether in your possession or in transit to or from you, and you are hereby expressly given a continuing lien upon all of said property from time to time to secure any and all of the debts, liabilities and obligations of every kind, whether direct or contingent, from the undersigned to you. Fill all blanks, writing "NO" or "NONE" where necessary to complete information. ASSETS LIABILITIES Bills Papable (Notes) for Merchandise Bills Payable for borrowed money— to own banks Bills Payable for borrowed money— for paper sold . i . sh In Bank - Us Receivable, all good, owing from customers ^counts Receivable, all good, owing fl'om customers •counts Receivable, owing from Partners (see page 3) erchandise. finished, at actual present cash value erchandise. unfinished, at actual present cash value aw Material ; Open Accounts past due . Owing to Foreign Banks and Bankers... Deposits and other Trust Funds....: ; ' tocks Bonds and Investments (sea page 3) Bonds (Dus....- ...J I tal Estate (see page 3) * 1 ceounts and bills receivable owing fl-om officers ^ t: \ OTHE BILI ' iij 3( Total I.tahilltlM NET WORTH ; Total Total Dr. PROFIT AND LOSS ACCOUNT, FISCAL YEAR ENDING -..- - —.191 Cr. GROSS PROFITS Bad debts charged off . $ From Merchandise . 9 Withdrawals by Partners X Net Profits S. From Investments S- 7-0/0/ S Total X 'Signature).. Date and Place Signed...... NOTE: Please fUmlsh tn detail the Information /*/ on foUowino pages. C«. IS2 (Obv) Size of original 7]^ x 10J4 105 Ail of the following information and data shall be considered and taken as part of the foregoing signed statement: Aoerage amount of stock carried _-__ S Total salea for last fiscal vear $ Are oil bad and doubtful assets excluded from abooe statement? Specif]) an\) of pour assets pledged as securitg for loans, advances, or other liabilities . What amount of Bills and Accounts Receivable Is past due, or extended? S- Spectfo ang of gour liabilities secured bg collateral, and state collateral .' „ : I On Buildings and Plant „ S.. Insurance < On Merchandise S.. ' On Accounts Receivable - S- Give nqmes of all banks where accounts are kept Names of Bankers or Brokers handling our notes Upon Redlscounted Bills Receivable ~.S.. Upon accommodation paper or endorsements S. Upon notes exchanged with others X. For Guarantees _ $.. For Bonds _ S.. Regular times of taking Inventorg - General Partners Date of Partnership agreement. Names <^ Special Partners When does It expire?.... Amount of special capital, bg whom contributed, and until what date. — STATEMENT OF REAL ESTATE OWNED BY FIRM Oloe loeatlon and present market value o/ each piece, and amount of encumbrance. If ang. If leasehold, state if have privilege of purchase: Size of original 7]^ x 10^ 106 S'CKS. BONDS AND INVESTMENTS OF FIRM. Gloe deacrtptton and cash market value REAL ESTATE OWNED BY INDIVIDUAL PARTNERS included in statement of firm real estate; glue location. In whose name held, cash market value of each piece and encumbrance. U anp. If leasehold, state It have privilege purchase: STOCKS. BONDS AND OTHER INVESTMENTS OF INDIVIDUAL PARTNERS i description. In whose name held and cash market value; In Bills Receivable are the following amounts owing t^om Indlotduala (Officers, Directors, Stockholders, or others). Firms or Corporations, aeUng in tht rapacity of agents for this corporation. X. X.. I.. founts Receivable Include the following amounts owing ftom Individuals (Officers, Directors, Stockholders, or others). Firms or Corporations, acting in the capacltv of agents for this corporation. Owing from S Please explain connection of above agents with this corporation, and state in what manner Bills and Accounts Receivable were contracted bg thtiK it» and Place Signed. , (Signature)- Bg. Size of original 7^ x 10^4 107 nThe Fletcher American National Bank of Indianapolis: Ifte (corporate atgle under charter) „ v. ^..* — ... (Corporatton) Htness.. .Location... othe expnss purpose of procuring credit from time to time ftom ifou, the undersigned herebp nuxkes to poo the following statement of the condition of the undersigned on the dap of........ ._. ..-/P/ ; and the undersigned herebp agrees and guarantees that said statement is in all respects true and correct; a/fpf Ifou map consider said statement as to the pecuniarp responsibilitp of the undersigned, as continuing to be true and correct until written notice of a change is given to pou bp the undersigned Fill all blanks, writing "SO" or "NONE" where necessary to complete iafomiiation ' ' . H oa'/i hand and In bank ilL'eceloaN:ttttgood,oalniif^wneuatom»rs m^ecetoable, owing flvm Dlraetors or Stock/ioidera xnts Recttvable, all good, owing /hom customers}/^.. «e nis Racatvabla. owing fiom Dtreetort or., Jtoc/cfioldtrt (see pagaS) — -..- n andlae, finished, at actaaiprtatnt cash value. 'uandlae, unfinished, at aetuid present cash value atHatertai Total Quick AsatU.! - tot. Bonds and Inoestmenta (see fiage 3) Aanerv and Fixtures Ut'istate (see page 3) ioints and bllln receivable owing ftwn officers and emplopees. LIABIUTIES Bills Papable (Notts) for Merchandtoe. •- Bills Pagable for borrowed monep -io'own banks Bills Pagable for borrowed monep-for paper sold Bills Papable to Directors or Stockholdera. Open Accounts not due ^ .,« Open Accounts past dttt... Accounts owing Directors or StodduMars _ Labor, Salaries, etc. _ „. Deposits and other Trust Funds Mortgages and Liens on P. B. (Du« _ Bond* — - — (Due Chattel Mortgoffe*....: _ u «...«- i Total Uablliaea Capital Stock Issued. — Surplus. Including undtolded profits . Total Dr. PROFIT AND LOSS ACCOUNT. FISCAL YEAR ENDING 191- Cfr- Aial Expense of coHduetlng4nislnes3 . 9— 0. dtuts charged off S— Vi s^d off" for depreciation S— OJcruisPatd X.. i\it Profits S^ Total J... GROSS PROFITS From Merchandise X./. From Interest and Discounts .... t— From Inoestments X-.< From other sources S;^ Total S- ts and Accounts Receivable discounted or sold S- - - | Net Sales during pear ommodoUon Endorsements t. ;. «t Insurance carrledon Merchandise » fontinaent Liabilities . • „• , • ^ , ,, , ^ \ Insurance carried on Bulldln<^s and Eouip (Signature) _ _ .»..«..- — . • '* and Place Signed. „7W Bp...... >. -.. —.-»£«. NOTE: Please fiimlah in detail the infbrmtttlon ctHled for on following pages. Size of original 7^ x 10^4 109 Alt of the following htformaHonwid data shfttf be considered and taken as part of the foregoing signed statement; Awttoe amount of lock carried An all bad and doubtful assets exelitded from abooe stattmant?.„< BUla and Accounts Reeatoable Hated on Statement, en which pou expect to realise within 90 dope. S. Ml UablllUes (.exelaaloe of Contingend due and papable within 90 daps S What amount of Bills or Accounts Receivable has Seen on the books more than six months? ,....„ ^ - ^.^ /.. What amount of Bills or Accounts Jfeceipable is past due. extended or renewed?. _ f.. EsUmated realizable oalaa of slow Bias Keceioabte and Accounts Reeeioable.^ ~.., - S. If anp Bills or Accounts PapaNs art secured bp eoUateral, endorsement, guarantee or bond, gloe amountsand howaecured. What was Maximum amount short-term loans during past pear, arui date? f... What was Minimum amount short-term loans during past pear, and date? , «.^.., Anticipated Maximum amount short-term loans during the coming pear? „.,..._^^ „„.»» ...$■■ Is statement based'on actual Inoentorp? , ...^....u «^ mm - - How is valuation arrived at. • On Raw Material? — ^.., -. >». -^ ^...- ^-,m,„.,~.,— « .^^ If coat price exceeds market pries, what, provision Is made for shrinkage? -.,.i^„„....„ _.. „«>..,.,.^ , Has anp merchandise listed in t/Ua statement been on pour handa ooer one pear? If ae, amount /n what month is Inoentorp highest? ., «...^...— «..«^.— In ...->..-^..-.. whet month is inoentorp lowest?.. NAME IN FVU, Number Shares ffeld Prealdent yiee-Preaident.. Treasurer ADDRESS NAME IN FULL DIRECTORS Number Shares Held ADDRESS In what state Incorporated — Paid in. S OTHER PROPERTY..^ Date of tncontoration... Oeld as Treaearp Stock, f CepUa Stock aatkorieei. X- Hour paid In: CASH.S- Size of original 7]/i x 10^ no % STATBMENT OP USAL BSTATE UoceiUon and pnami market odtu of tach pltet, and amount of theumbrance. if anp. If leaathold. taU if hava prtoUeo* of purchase: CKS. BONDS AND INVESTMENTS, Ctoa dtaertptton andeaah market oalue. he Items Bills and Accounts Recaioable from Directors and Stockholders represent actual sale of goods? I part represents cash adoanced?. -r.r.- .••—•. _......— ..— ..~ S « he items Bills and Accounts Papable to Dlreetor^ and Stockholders represent actual purchase of goods?-, .^ . _ at part represent cash adoanced? — — « — ..^ „ _ ;.„ X « pou anp AffiUated or Allied Co. 's. and do thep borrow indlplduallp, or are thep financed bp the Parent Corporation, or both? '... and Accounts Receivable Include the followlnp amounts owing from Individuals. {Officers. Directors, Stockholders, or others). Firms o, Corporations acting In t capacltp of agents for this corporation. Owing firom ....—- — —■- ~>.~— •••»•>.>•- — • ....-.■>.•. — -^ . » i....... ■. — ^..Mw~.-ww.y„ Please explain connection of above agents with this corporation, and state In what manner Bills and Accounts Receivable loere contracted bf them: e names of all banks where accounts are kept, and lines of Credit with each. mest>f Bankers or Brokers handling our notes - - / herebv certl/b that, to the best of mp knowtedge and bdtef. the figures and informaUon given are. In eperp respect, true, and in accordance with the facta, te and Place Signed ^...^,..-....^....~... — ,>»„.,,,......-w..^ (.Signature) . — — ~— — — ~.— Size of original 7}4 x I0j4 111 c National |tank of f omiq^rce of detroh i Pnthftf - i.M.:,:.;;....;;^™......,.. CORPORATlOft Rr^^^k.. • - Thit form of Statement approved by the Federal Reserve Bank of Chicane. ASSETS LIABILITIES . hand and in bank 1 • Note* Payable, for Merchandise ■ Receivable, from Customer*, good t« Receivable, from Cu»tomer*. good- ■ 1 Acc'tt Rec'able from Officers. Director!, etc. : Accu Recable. from Affiled or Allied Cos U and Nolei Receivable, doubtful ndise. finiihed -- • Note* Payable, to Bank ar Banks . Note. Payable, for Paper Sold j Note. Payable." to Other*...- ]i NotcandlAec't. Payable, to Officer.. Duectbt..etc .j! Note* and Acc-t.Pa7able. to Affiliated or AlliedCo'i - ... ndi.e. unfinished laterial ndise on Consignment en Is; Bonds and Stock*. "Listed" = page 2) ents; Bonds and Stock*. "Unlisted" ' Pag* 2) ents: Bonds. Slock*, etc.. ACfilialed or ed CoV .... .... . Open Account*, not due-...- Open Account*, past due -.— t .... .... .... .... .... .... 1 Ubor. Salaries, etc .,...., _ i Deposit, of Money with U». .... .... . When due . Mortgage or Lien on Plimt or Equipment ' When due ... .... .... ..._... 1 1 Chattel Mortgage or other Lien*. i Bonded Debt, due - -.... Insurance, etc - Deferred Charges ....... Vill and Palcnl* « Assets and of what composed .j Interest. Taxes, etc.. due and aecmed ' Dividends Payable .... .... ... ! ^ i ...., 1 i .... .... ... Total Liabilitie* ! Reserve for Bad Debto .... ... Capital Stock. Preferred Capital Slock Common ; Surplus, including Undivided Profit* - .... TOTAL 1 TOTAL *Unlesa otherwiM noted, Merchandise Inventory and Raw Material have been figured at coat. PROFIT AND LOSS ACCOUNT. FISCAL YEAR ENDING.-- - - - 19 Cr. II 5 A. _. GROSS PROFIT d off for depreciation $ From Mercjiandite ..- nds Paid $ over Dividends 4 From Inv««fm«n(« *. . ...... A. -^ ..^ .4. TOTAL $. TOTAL. $.- ~ " or Account* Receivable di*counled or *old $ Net Sale* durinir vear .... 4. ..—.-... modation Endorsement* •• ^ Inniranre rarried on Merchandise A ».*— Contingent Liabilitiea. ^ 4. Any other Insurance— -..'...fM.-^^ rial 7}i X 1054 a s iz e of rigi Specify aay of llie Avf€ Miel* or liabilities ple<)gerporaKon, or do your Officers, ever endorse paper for the accofflmcdalion of any person, firm ot corporation? - Do endorser* or guarantors of your paper endorse or guarantee any other paper or account? Present amount, $ Are there any suits pending against your Corporation, and, if so, for what amount? , ■$• Does die item Notes and Account* Receivable from Affiliated or Allied Companies represent actual sale of goods? ..—• What part represents cash advanced? — - ~ ~ — •« ■$■ Does the item Notes and Accounts Payable to Affiliated or Allied Companies r^re*enl actual purcha*e of good*? - What part represents cash advanced?- - - -.. ~~.— . -~ $.... — . Do Affiliated or Allied Companies borrow individually, or are they financed by the Parent Corpwation, or both?. What was Maximum amount short-term loans during past year, and dale? • ».»__..» What was Minimum amount short-term loans during past year, and dale?—- •• — , — - Anticipated Maximum amount short-term loans durmg the coming year? ~ .>„_^^«......^..........~ Slocks, Bond* and Inve*hnenl* — give description and cash market value: .4... 4.- 4. $ 4 -$ 4....-™ What provi*ioo* have been made for the retirement of bonded or mortgage debt? -~ - ■• — »-— — - Do your plan* for your fiical year contemplate anything in the way of building <^eratiott*, plant exteiuion or investment in other fixed asseU? If *late amount to be *o inve*led? ~...™ — . ...^_«„.~^..„ „ .-- .,.„.., — „..4. ~~w... What is your relationship with Affiliated or i^Ilied Companies? Please furnish full particulars . ■,....«■»., .^^ — , PrcMdeai NAME IN FULL OFFICERS Nonber Share, held ADDRESS Vicm.Pf,M^ S««Ury - - ■ • NAME IN FtJLL , $- CAPITAL: Audiorized. $ Paid in cash. $ - Stock Dividends, $... Held by die Company as Trea*ury Stock. $ .- DIRECTORS Nudber Share* held ADDRESS Preferred. $ Sub*cribed, $... Patent*. $...._ ~-... Since*..-.-— i. Par Value, $... OAei A**els. $~. Incorporated in what State and under what General Law or Special Acl> Dale of Charier ~^... To wdwl «xlcat are Slo«kboldcra liaUt b^ood amount of Stock subscribed.. .Commenced Businc**~ Size of original 7}i x 10^ 114 M. Estate Location (Give legal de>criprionr and nunibcr and name of •trcct) : vture: -Cost taSCompmy, „ ~ Auened Value, $ ihe lille in name of corporation? If not in who«: name?— ■ as any porlion acquired through bad deki$? ■•..- How much? '. - ; e dividend lasl five years, $ When was last dividend paid •• Rate imount of Accounts or Notes receivable, in this j !«»» iHa" 30 davs, $ .between 30 and 60 days, $.. Statement, not charged off is past due? ) .i ^in . * .i i .i * ' "^ . t. more Inan 60 days, $ more than o months, 5.. auch of this it collectable. $ What amount of merchandise is mo.-c than one year old, $ o you treat doubtful accounts? / on machinery, $ ~ : ....on buildings, $• — 1* charged off a, depreciation for year ) ^^ j^^^j,^^^ ^j j^,^^^ ^ _ ^ p,,^,^ ^ ^ _ dmg with date of this slalemeni: i \ on .-; ; $ s the dale of patent rights carried as asseU ■ AX^en do these rights expire Original cost, $ ames and location of banks where the accounts of this Corporation are kept, stating credit line given by each bank. DEPOSIT BALANCE BANK CREDIT LINE ON STATEMENT DATE it time of the year are your liabilities the heaviest - the lightest .i It time of the year is your inventory the liighesi - -. — the lowest terms of sales is How often do you lake accoimt of stock was the last inventory taken Is this statement based on an actual inventory. )y whom was it taken If not upon what basis is itatement made •. does your fiscal year end Do you sell your notes through broker*...- — Who...... rate of interest do you pay on money deposited with the Corporation - per cent foregoing statement and report been personally verified by some officer of the Corporation For the purpose ot procuring credit from rime to time, the undersigned hereby makes to you the foregoing statement of die condition of die undersigned „ day 19. ; and the undersigned hereby maintains and guar- that said statement it in ail respects true and correct; and you may consider taid ttalemeni at to the pecuniary responsibility of the undersigned as ling to be true and correct until written notice of a change is given to you by die undersigned. In consideration of the granting of such credit, we agree that if we at any time stop payment or become insolvent, or comnit an «! of bankruptcy. my of the representations made herein prove to be untrue, or if we fail to notify you of any material change as before agreed; d»en and m eiUier tucK 11 our obligations held by you shall immediately become due and payable witfiout demand or notice, and the same may be charged agamsl the balance ' deposit account kept by us widi you. we hereby giving a continuing lien upon such balance of deposit account from time to time existing to secure all ligations held by you. (Sign Corporation Name here) 5!«»*^ -•- ®'- ^) THE PEOPLE OF THE STATE OF MICHIGAN, ENACT: action 1. Whoever wilfully and knowingly makes any false statement m writing of his or her properly valuation, real or personal, or to*' <>' f.^* : indebtedness, for the purpose of obtaining credit from any person, company, co-partnership, association or corporation, shall b« deemed guilty «» • »«"^ non conviction thereof mav be imDrisoned in the state prison for a period of not exceeding one year and fined any sum not ezeeedtiis one thowmd dollar*. Size of original 7^ x 10^ pon conviction thereof may be imprisoned in the slate prison for a period >ved May 13. 1909. 115 STATEMENT FORMS FOR BORROWERS 117 After securing the statement, then comes the important task of dissecting or analyzing it. When statements first came into vogue they were considered a sort of temporary memoranda to be read and filed away and forgotten. This, however, was a phase of short duration, and l^efore long the bank credit man realized that a real analysis of the statement paid big returns, and so analysis of a kind began. Now nearly every bank that keeps any sort of credit files makes some sort of an analysis. Sys- tem has been introduced where chaos reigned, and credit files have doubled and trebled in value. The first thing that suggested itself to the credit man was com- parison between statements of different dates, and so compara- tive analysis forms sprang into existence. These forms are, for the most part, columnar in form, having a separate column for the figures of each year and one column, generally at the left of the sheet, in which is printed the main- items appearing on a balance sheet. In general the assets are at the top of the sheet and the liabilities below. The sheets are from five to twenty columns wide, as best suits the whims or fancy of the credit man. The writer prefers the sheet with five or six columns, as beyond that width it sometimes becomes difficult to follow the lines easily and with accuracy. Some who prefer the long sheet and rec- ognize this trouble overcome it by numbering or lettering the lines and injecting a small column at intervals, of say four col- umns in width, on which are printed the numbers or letters of the line. This makes'it decidedly easier to run the eye- along a long line and keep accurate track of the items. 118 THE BANKER'S CREDIT MANUAL THE COMPARATIVE ANALYSIS SHEET Preceding a discussion of the use of these analysis sheets it may S be well to show what they are like so that the reader may more J easily understand their use. They are all based on the same idea, namely, setting side by side the figures from a consecutive number of statements so that their relation to one another may become perfectly clear. c:i B Receivable Ats Ainces Gn Wchandise, finished i(chandise unfinished R Material - Total Quick Asset. Sksand Bonds kf-iberships Eators and Warehouses N hinery, Fixtures and Eqpt. llEsUte andBuildjngs (Plant) I Estate (Other) ems, Patents, Goodwill, Etc. from Stockholders , Ins. and Expenses Prepaid cdlaneous - Total Slow Assets TOTAL LIABILITIES - s and Undivided Profits ' and Contingent Accts. - Working Capital ;. Payable _ro'jnts Payable iiosits of Money •ockholders " ..led Debt (Due ) on Plant and Real Estate - Total Liabilities TOTAL ♦ tal Sales DBS Profit tual Expense of business |d Debts Charged off l^preciation 'vidends ofits to Surplus The brok en c las] be s a Si trig ze c jht< f or mdl igin eft 11 al8 side 9 Hxl s indi cate t he ho rij jon tal n ilir ig - - f COMPARISON OF STATEMENTS OF RESOURCES 1 " Stock in Trade, _ Good Bills Receivable, Good Open Accounts, less than months old, Good Open Accounts, more than months old. Cash on Hand and in Bank, ~ Machinery and Fixtures, ~ Real Estate, - Total, LIABILITIES « >. ( Promissory Notes to Banks^ 2 o Promissory Notes to Individuals, OQ Accounts Payable, - Promissory Notes for Merchandise, Accounts Payable for Merchandise, _ 61 1 - Mortgages, ~ TOTAL LIABILITIES, , NET j^j^ Capital Paid In WORTH J Surplus and Profits. - Total. 1 Total Quick Assets. LIABILITIES Excess Quick Indirect ) 0" Customers Paper Discounted, Liabilities 1 o^ q^^^^ p^p^^ Sales, Average Balance, - Size of original 8 x lOj^ The broken dashes at right and left sides indicate horizontal rules 121 ACCOUNT OPENED BUSINESS INTRODUCED BY ASSETS CASH ACCOUNTS RECEIVABLE NOTES RECEIVABLE MERCHANDISE OTHER QUICK ASSETS REAL ESTATE MACHINERY & FIXTURES OTHER FIXED ASSETS - - ACCOUNTS PAYABLE BILLS PAYABLE J^EPOSITS * MORTGAGES OTHER LIABILITIES ' NET WORTH - _ QUICK ASSETS CURRENT LIABILITIES NET QUICK ASSETS im - - LINE REMARKS • Size of original 8^ x 10^ The broken dashes at right and left sides indicate horizontal rules 123 1 1 ) i Analysis Of THE THIRD NATIONAL.BANK . SCRANTON, PA. ASSETS Datel 1 aih Idso. ceh-llec. ills Roe. - Quick Jissets leal Estate laobinery iitures niestmanfs iundnr - Oead Assets freasury Stock ioodwili-Pafents - Total Assets LIABILITIES leiasPa}. (Buks) lotesPay. (Mdte.) Icela. Pay. leposits }oe Stockholders ]iTidend • • • - Quick Debt Cap. Stk. Prof. Cap. Stk. Con. Sorplit UfldiT. Profits Bonds-Mtgs. Resena -1 -1 Total Liabilities i NET WORTH ^ Ratio '■ OiTidond (Paid) Depreciation Tearly let Profit Maiinun Debt Miainua Dabt Inc. in Capital Dsc. in Capital Cain or drop in net Owa nore than net Salu Sta. tron Oireet Letter Iflsvraoce 1 1 Size of original 8]E^ x lOf^ The broken dashes at right and left sides indicate horizontal rules 125 r AME ACCOUNT OI*ENeO ntpATION USINESS INTRODUCED BY ASSETS _ASH CCOUNTS RECEIVABLE _3T6S RECEIVABLE _ERCMANDISE TMER QUICK ASSETS - _ CAL ESTATE _,ACHINERY & FIXTURES _TMER FIXED ASSETS - LIABILITSES . CCOUNTS PAYABLE .ILLS PAYABLE ^.EPOSITS ; I _10nds oh mortgages _:apital _1URPLUS JESERVE - .auiCK assets CURRENT LIABILITIES - .^ATIO Q. a. to LIABILITIES ^ANNUAL SALES .INOORSERS OUTSIDE WORTH - LINE REMARKS Size of original 8j^ x 10 The broken dashes at right and left sides indicate horizontal rules 127 COMPARISON OF STATEMENTS ASSETS 1 1 1 1 ■" (h on Hand and in Bank, lis Receivable, all good, on hand, ""lis and Acct'8. Rec. due from Officers or Stockholders, **. ounts Receivable, all good, due from customers, ' ndise, finished. :idise, unfinished, ' uerlal, I " - ^^B TOTAL QUICK ASSETS. ■Rtate, ^Mlngs, jchinery.and Tools, 2]rniture and Fixtures, ^I'paid Insurance, I ~ TOTAL NON-CURRENT ASSETS, TOTAL, LIABILITIES 1 1 1 1 layable for Merchandise, I'ayable negotiated to Banks, :, Payable otherwise disposed of; _ Is and Accounts Payable due Ofllcers or Stockholders. _ n Accounts, not due, _ en Accounts, past due, ^ posits of Money, _ < rest Accrued, :oll and Salaries Accrued, (d for Taxes, - TOTAL QUICK LIABILITIES, ins or Mortgages on Real Estate, ndcd Debt, j 1 i TOTAL LIABILITIES, •serves, ! ».pital, ^rplus, including undivided profits, - t Worth, ^ TOTAL. -)tai Quick Assets, -)tal Quick' Liabilities. - .etter or worse by certain social and economic changes. Crop failures affect different sec- tions of the country. Tariff changes may break or make various lines of business. Because of these things sound judgment de- mands a close and continued study of underlying conditions. But in all these things the decision rests almost entirely and con- clusively upon judgment. THE LAW OF AVERAGE There lias been no yardstick designed to measure business conditions or developments. There is, however, a law that is 154 THE BANKER'S CREDIT MANUAL so accurate in its economic workings that it controls the use of vast sums of money. It is the law of average. Without this insurance would be a matter of guesswork. But because of the fact that, given enough known instances, an average result can be foretold, with an accuracy approaching so fine a decimal as to be almost assured, it has been possible to establish uniform rates for insurance and to make of this business almost an exact science. It is not to be supposed this kind of analysis or stand- ardization can be made for the business of credit, with the same degree of certainty and accuracy as in the insurance field. But the existence of the law of averages, demonstrated beyond argu- ment, suggests that a somewhat similar method, at least, might be applied to business management and credit work. The adoption of the law of averages in the analysis of the con- dition of any company leads to the form of analysis that may be called "Type Analysis." If we take just one of the analytical ratios we have discussed and consider it from this vantage point we shall immediately recognize the absolute necessity for type analysis. The current ratio, being the most generally used and better known, will best serve our purpose for this study. A current ratio of two hundred per cent., or two for one, is al- ready pretty generally acknowledged as a starting point in state- ment analysis. Variations above and below this are demanded or allowed in exact proportion to the inspirational psychology of the person reading the statement. There are plenty of bank men who, when reading a statement with the idea of buying the note of the firm making the statement, are hidebound on this one feature. The first thing they do is to cast up this ratio and if it falls short of two hundred per cent, they set aside the name as a » Current Ratio • Rec.—Mdse. ■ - Worth — Fixed Assets Sales — Rec. Sales — Mdse. Sales— Worth • Debt-Worth 155 I TYPE ANALYSIS 157 risk not up to standard. To them two hundred per cent, at least rules, and if two hundred per cent, is evinced by the figures they go their way in fancied security, all else being secondary. Being of a curious turn of mind, the writer, some years ago, decided upon a group test of this one thing. The current assets and current liabilities of some two hundred statements were added and a ratio struck from the totals. The statements used were a mixture of all kinds of business and the ratio arrived at was about two hundred ten per cent. This gave a certain amount of color to the popular demands for a current ratio of tw^o hun- dred per cent. But during tJie course of this experiment certain very definite opinions were formed, due to the existence of in- disputable discrepancies between the individual figures. Here was a set of figures with a high ratio, there a set of figures with a low ratio ; so this question arose quite logically : Why not *separate this study into types of business? It seemed more rational in order to measure the current ratio of an individual dry goods statement, to establish a total current ratio from a large number of wholesale dry goods companies, rather than to use a mixed group, and against this a current ratio for dry goods. It seemed manifestly sensible and fair to take type and measure it against type rather than against a vague standard composed of one-half prejudice, one-quarter inspiration and one-quarter fact. The ra- tio of two hundred per cent., taken as a universal standard, is so certainly unfair that type studies should be readily accepted as a substitute. TYPES AN INTERESTING STUDY With this in mind the writer undertook to make a study of sev- eral types of industry in an attempt to discover whether there was really such a thing as type. The kinds of business taken as ex- 158 THE BANKER'S CREDIT MANUAL amples were wholesale grocery, wholesale dry goods and whole- sale hardware companies. A special card was designed to carry on its face the necessary columns for entering the items of cur- rent assets, current liabilities, total debt, non-current assets, re- ceivables, merchandise, net worth and sales. Through the co- operation of a number of men, who were interested in this study and to whom the writer acknowledges his debt, it was possible to secure a large number of reports. There may be some unjust loading in the totals used as a basis for figuring, as the writer did not ask for the names of the companies, in order that there could be no possible breach of confidence, and on this account also there may be some few unavoidable repetitions. When the figures were all in, the seven ratios suggested for internal analysis were struck from the total figures of the various items. The ratios taken from these total figures are as follows : Number of names 189 " 101 33 Grocers Dry Goods Hardware Type • Per Cent. Per Cent. Per Cent. Current ratio 244.45 211.89 277.78 Receivables to merchandise . . 84.59 107.38 82.80 Worth to non-current assets . 3\7.36 354.51 445.89 Sales to receivables 658.88 396.67 481.28 Sales to merchandise 577.38 425.91 302.28 Sales to net worth 348.69 302.16 233.07 Total debt to net worth 52.57 78.70 53.65 The figures at the top of the type column show the number of statements used in securing the totals and the percentage shows the proportion existing toween the various total figures for each type. This is secured by dividing the first figure by the second. To make this operation perfectly clear we might, to good advantage, express these ratios in algebraic forms. Taken this wav the current ratio would read as follows : TYPE ANALYSIS 159 Current assets Current liabilities Receivables = Current ratio Merchandise = Receivable merchandise ratio It is unnecessary to express all the ratios in this manner, as these two are indicative of the others. When comparing the ratios of the two types, grocers and dry goods, it becomes evident at once that there is a very distinct dif- ference between these two types of business in several of the ratios. Before making any analysis of the use of these per- centages the question arises, are these ratios really true to type or are they bastard figures with no true tyf>e characteristics. For- tunately we can, to a degree, answer this question by the presen- tation of a sectional table for the wholesale grocer and wholesale dry goods merchant. At several different points in the compila- tion, sub- footings were made and ratios struck. These sub- foot- ing ratios wxre as follows : WHOLESALE GROCERS No. of Names Current Ratio Record Mdse. Worth Fixed Sales Record Sales Mdse. Sales Worth Debt Worth Per Cent. Per Cent. Per Cent. Per Cent. Per Cent. Per Cent. Per Cent. 42 261.66 91.54 379.71 614.43 562.48 354.34 50.76 66 260.87 92.06 399.64 610.57 562.13 356.61 51.31 89 274.52 93.76 389.46 613.49 575.26 359.48 51.60 115 248.45 89.17 376.47 606.10 540.49 347.23 54.61 137 246.50 84.59 320.37 • 649.51 549.43 350.24 53.14 189 244.45 84.59 317.36 658.88 557.38 348.69 52.57 WHOLESALE DRY GOODS 33 228.21 117.00 409.82 377.90 442.13 298.32 72.18 50 222.65 113.40 408.08 396.78 449.98 306.06 78.56 101 211.89 107.38 354.51 396.67 425.91 302.16 78.70 Even a most cursory examination of these tables will indicate that such a thing as tyiDe does exist. There are some large varia- tions between ratios within either group, but there is little or no 160 THE BANKER'S CREDIT MANUAL direct connection between groups. A table study of the groups will show clearly the divergence that exists between them and the margin of type that exists. By taking the highest and lowest points reached during the study for each type and comparing them we get a most interesting analysis of the type question. CURRENT RATIO Highest Lowest Grocers 274.52 244.45 Dry goods 228.21 211.89 RECEIVABLES TO MERCHANDISE, RATIO Highest Lowest Grocers 93.76 84.59 Dry goods 117.00 107.38 WORTH TO NON-CURRENT OR FIXED ASSETS Highest Lowest Grocers 399.64 317.36 Dry goods 409.82 354.51 SALES TO RECEIVABLES, RATIO Highest Lowest Grocers 658.88 606.10 Dry goods 396.78 ' 377.90 SALES TO MERCHANDISE^ RATIO Highest Lowest Grocers 575.26 540.49 Dry goods 449.98 425.91 SALES TO WORTH^ RATIO Highest Lowest Grocers 359.48 348.69 Dry goods 306.06 298.32 DEBT TO WORTH, RATIO Highest Lowest Grocers 54.61 50.76 Dry goods 78.70 72.18 TYPE ANALYSIS 161 In only one ratio do the types overlap at any stage of the de- velopment and in all others there is a substantial margin between the types. In the ratio between net worth and non-current or fixed assets there is an overlapping between the low figures for dry goods and the high figure for grocers. From the standpoint of pure logical reasoning there can be very little doubt but that type does exist and exists in a very clear and concise way. The type ratios are a much more certain thing to measure the individ- ual statement against than any inspirational idea or inherited ])e- lief. The old measure of current assets of two hundred per cent., or two for one, goes glimmering as a standard when we see how far from this ratio these two types alone vary. TYPES DIVERGE FROM TWO FOR ONE The divergence in the type figures from the two for one theory is very clearly shown by a little thought applied to the ratios as we have them here. The highest point reached for the current ratio in dry goods was 228.21 per cent. This was based on total figures from thirty-three statements. This is well above the two for one current ratio and would be used, by any one accepting the tw^o for one standard, as a very good margin. But likew^ise any one using the two for one standard and finding a grocer statement of 228.21 per cent, would consider that it also was good, with a fair margin, where, as a matter of fact, it would be 16.24 points below the low^est figure secured for the grocer trade. There is another interesting comparison between these types when we compare the receivables to merchandise ratios. The lowest point in the dry goods is 107.38, representing the ratio for one hundred and one statements. Even this low figure is 162 THE BANKER'S CREDIT MANUAL 13.62 points higher than the highest figure f(^r the grocers. This indicates that the current ratio for the dry goods iDUsiness has in its make-Up a considerably greater amount of profits. These two conditions suggest a comparison of the status of the receivables and their liquidity. When we take the ratio test of sales to receivables, we find the high points for dry goods at 396.78 per cent., representing totals from fifty statements compared with 606.10 per cent., the lowest point for grocers taken from totals of one hundred and fifteen statenients. The variation here is 209.32 points, which would seem to indicate a state of much less liquidness in the receivables for dry goods. This may not be a fundamental weakness, but is perhaps based on more seasonable trade and different sales terms. But even so, we can easily see that this type is of very certain existence. An analysis of the del)t ratio bears out the sales to receivables ratio because it indicates very clearly that it is customary to transact the dry goods business in a far greater proportion on borrowed money. The lowest debt ratio for dry goods is 72.18 per cent., which is 17.57 ix)ints higher than the highest grocery ratio. What would appear like an extraordinary debt for a gro- cery concern becomes a normal debt for a dry goods company. A detailed comparison of hardware names with the other two sets of ratios can not be carried out here, but it is no less in- teresting. In the study as far as it has gone no consideration has been given to profits, overhead and the many other items that go to make up the. profit and loss sheet. These would constitute most interesting material to study and codify, but, unfortu- nately for the analyst, they are often not forthcoming. The American business man is more interested in making handsome profits and keeping as large a portion of them in the nature of concealed assets or profits as he can, than he is in having them TYPE ANALYSIS 163 known even to his own banker. This condition makes any analy- sis based on pubhshed net profits subject to too great variations of an uneconomic order. However, the withholding of these figures may be only a passing phase, and so any computations or group plan of analysis based on or including them is left for a future time when more candor makes itself evident in our busi- ness life. SECURING SALES RECORDS MOST IMPORTANT The writer, however, can not leave this part of the subject without commenting on the lack of information that exists in re- gard to sales of companies. The scope of the figures in this book would probably have been one hundred per cent, greater but for the fact that in nearly fifty per cent, of the reports returned the item of sales was missing. This is, of course, due to either one of two things. First, the merchant in publishing his figures firmly declines to give the sales, or, second, the extender of credit does not appreciate the value of the sales item from an analytical standpoint and therefore, does not ask for or insist on getting it. But how can we gauge the liquidness of the receivables if we do not know what part "of the gross sales they represent and so know something about actual and not just the claimed sales terms? From another standpoint sales are also most important. How are we to judge whether a statement shows too much or not enough merchandise inventory if we know nothing of the marketing record of the company? Or how can we decide if there is or is not enough money invested? An inventory may be a good thing or a menace in proportion as to whether it is a good live salable commodity or a horse in the stable eating its head off" in overhead and carrying charges. By all means bank credit men should be firm and demand sales statistics. 164 THE BANKER'S CREDIT MANUAL We have considered three kinds of statement analysis — com- parative, internal and type. The latter is a combination of com- parative and internal, ])eing a comparison of the seven ratios for an individual statement with the ratios for that type of business as determined by a basic study in ^\•hich the essential factors of a total type are brought into percentage relationship. Pure com- parative analysis in which mere volume is compared may pass over conditions that a percentage analysis of the internal char- acter will disclose. For this reason internal analvsis s^oes into the credit condition much more minutely than comparative analysis. When this is carried on into type analysis we can tell whether the name under discussion averages up to the standard set for that kind of business. To make this type study more accurate there should be a further division within types into economic zones so that conditions in different parts of the country would be thrown into relief in the national study of any one kind of business. The general establishment of standards, or, rather, averages such as this, as a universal thing ready for use, has not yet been accomplished because of the lack of a central place for such work. It could be done by the government through, the Federal Re- serve System, or it might be done under the auspices of some large organization such as the National Association of Credit Men or the American Bankers' Association. Or, finally, it might be done by private enterprise. As yet, however, it has not been done publicly, as far as the writer knows, except in his own ex- periments. Until some national agency takes up the compilation of gauges based on averages and is in a position to furnish them to bank credit men they must supply themselves, and the time and labor in doing so is well spent. CHAPTER VII Discount Committee Organization The stockholders of a bank are the owners of the business. They elect a board of directors, which in turn elects or appoints a group of officers. The actual daily running of the bank is the duty of the officers. It is their work to undertake the routine manage- ment of the bank, meet the public and carry out the details of policies. It is right, however, that these policies should be de- cided upon by the directors. In addition to appointing the offi- cers the board of directors often delegates part of its power to a sub-committee known as the discount committee. As its name implies this committee is entrusted with certain powers in con- nection with the loaning of funds. It is to this committee that the officers are primarily responsible for the making of loans, and this committee itself is responsible in turn to the directors. iVnd most interesting of all to the credit man and his department is the fact that a majority of the decisions made are based upon the facts and analyses supplied by the credit department. ROTATION OF MEMBERS The character and composition of the discount committee, be- mg as it is a division of the board of directors, naturally depends in a great degree upon the type of the directorate itself. It should, however, be so handled that it will bring the directorate as close as may be possible to a 1)oard that is one hundred per 165 166 THE BANKER'S CREDIT MANUAL cent, efficient in the actual directing of and knowledge about the bank's affairs. It sometimes happens that the various discount committees become more or less fixtures, and with long tenure of office usurp to a very great extent the powers of the board of directors. To avoid this ingrowing condition a certain percentage of the discount committee should rotate in office so that within a reasonably short time the rotation will bring into active contact with the discounting feature of the bank each and every bank director. The length of service should 1)e great enough so that every borrowing name in the bank will come under observation several times. In this connection it might be well to rememl^er that demand loans are not of fixed maturity and on that account may easily rest dormant in the files. To avoid this and to bring the matter before the discount committee's scrutiny it is wise to make the replacement of all demand notes by fresh pai)er at least once in six months, and, if practicable, once in four months, a definite and fixed policy of the bank. At these periods the renewal, re- duction or payment of important loans should be a matter of dis- cussion by the discount committee. Abuses of demand loans are common. It is often a scheme of the borrower, outside of the few-large centers, to get his obligations into a class of paper that is not actively watched, with the intent and purpose of getting carried for longer periods without the suggestion of payment that is usual with time paper. It also becomes the duty of the credit department to watch and stir up at times these demand loans, so as to prevent them really becoming almost a capital investment in w^hich the bank is economically a stockholder or partner in the business. DISCOUNT COMMITTEE ORGANIZATION 167 FORMAL TYPE OF ORGANIZATION . The actual composition of the discount committee is important, as upon its organization will depend a large part of its effect- iveness. The president of the bank, being the executive head of the corporation, should l)e the chairman of the discount commit- tee. He is primarily responsible to the stockholders for the proper conduct of the bank from the standpoint of earnings and is also directly responsible, in a moral way, to the depositors for the fundamental strength and safety of the bank and the security of their funds. The responsibility of a president of a bank is no- where more positive than in his leadership of the discount com- mittee. The senior vice-president should act as vice-chairman of this committee. It is wise to have the cashier serve as secretary and he should keep regular minutes of each meeting. This is the formal organization or skeleton on which the discount committee is built. All the other bank officials who are directly loaning officers should be permanent members of the discount committee. In only exceptional cases should they let anything interfere with their attendance at the meetings of the committee. In addition to the loaning officers, the manager of the credit department, whether he is an officer of the bank or not, should attend regu- larly the meetings. His department is responsible for the proper accumulation and analysis of facts and figures and it is a pretty safe policy to have every loan pass through his laboratory for credit analysis l^efore going before the discount committee. In most instances new-business prospects w^ill set forth their credit necessities, and for this reason the new-business manager should 168 THE BANKER'S CREDIT MANUAL have free access to the discount committee meetings, so that he may discuss with the committee such names as he may be expect- ing to sohcit for accounts and receive a certain amount of assur- ance that the credit accommodations will l)e allowed if the subject in question is in a receptive humor when he calls. By handling the matter this way the bank can save its new-business depart- ment much embarrassment. In addition to the officers mentioned, who should be regularly on the committee, the other officers of the bank should be invited to attend from time to time, as names with which they may be personally acquainted come up for con- sideration. Even if there are no instances of this kind it is a good thing to have them in attendance occasionally so as to keep them in the proper attitude toward the bank's discount policies-. SIZE OF COMMITTEE The number of directors, outside such officers as may be di- rectors, who shall l3e assigned to the discount committee, is largely a matter of personal opinion. It should, however, range from ten to twenty per cent, of the board membership. If there are twenty directors on the full board, then from two to four non-officer directors should be serving at all times on the discount committee. The- other members should, of course, have the right to attend at any time, and if any special matter is to be considered about which any particular director is supposed to l>e well in- formed, a special request for his attendance at that meeting should be made. In this case it becomes the duty of the director to be present and give to the committee the best judgment his special knowledge may make possible. Such directors as are assigned to duty on the discount committee should allow a suffi- cient time so that these meetings will not be hurried, and they DISCOUNT COMMITTEE ORGANIZATION 169 should receive pay for their time. The amount of this remunei-a- tion, of course, is a matter of judgment, but it should be al)out the same as is paid for attendance at directors' meetings. . FREQUENCY OF MEETINGS The frequency with which discount committee meetings should be held depends entirely upon the amount of business that the bank has on its books. If it is a small bank w^ith a rather limited number of requests for loans, it is possil^le that one or two meet- ings a week will be enough to satisfy the demand. On the other hand, as the business of the bank increases it 1)ecomes more and more necessary to have discount meetings daily, which is, of course, the best way to transact business, as it does not delay loan decisions beyond twenty- four hours and therefore gives the bor- rower better service. It also keeps the discount committee di- rectors more in touch with the workings of the bank and creates a board of directors that more nearly directs. In such cases as when a committee does not meet daily, or where the volume of work is so great that it can not be trans- acted before the committee, it is customary to put into the hands of the officers the power of making loans up to a certain limit. In this they are using delegated powers of the discount committee and generally submit their actions to the committee at its next meeting for ratification. ORDER OF BUSINESS The writer believes that systematic routine, properly designed and with sufficient elasticity, makes it possible to cover much more ground in a given time and to better effect than could be covered by any scheme of unguided activity. It makes for speed 170 THE BANKER'S CREDIT MANUAL in that it follows regular channels, and it makes for thoroughness because things are taken up in regular order and nothing is lost sight of or overlooked. With this in mind it seems a good thing to establish an order of business for the discount committee to follow. For the sake of discussion let us assume that the commit- tee is to meet every day at a regular hour. The first order of business, after the reading of the minutes of previous meetings, should l^e a brief survey of the loans and dis- counts made or extended the day before. This serves two pur- poses. First, it gives the discount committee an opportunity of knowing whether its actions granting loans or asking for re- ductions of loans was followed. To get at this accurately the vice-chairman of the committee should have at hand the notejs of the day before and should read the names and amounts. It is very good business to have the discount journal at these meet- ings and let some one, preferably a director, check each item as it is called. This provides a sort of daily audit and check, of the discounts, by the board of directors and makes for a much better knowledge by the board of the bank's true condition. The second order of business should be the reading of a list of the loans paid on the preceding day. This, together with the first order of business, will disclose accurately whether or not loans have been reduced as asked. The third order of business may well be the announcement of the total loans made on the preceding day and the payments made, indicating the increase or decrease in the outstanding loans and discounts. This keeps the committee informed as to expansion or contraction of loans. The fourth order of business may be the consideration of re- quests for credit. These should be presented by one of the loan- » [ ^ 1 ^ ^ 1-t 05 II »-< f- •< 1 (^ 1 ^ b3 k3 ff •< >i -< a, Q H S g s s «» «^ o ^ ^ e^ :^ § S § CO ^ ^ ^ fe 5 o « fc § o ?^ ^ : n i «< J- i h i C ! 1 u 5 c 8 « 9- •«! ft? ft h4 o ^ ? ■< fc, O U i C5 Q h fH « r'^ o ^ ^ o ■t (^ i^ 3 Oi ^ z § S 2 ■< •< << 171 I DISCOUNT Application Amount Wanted %- Time A^ked Days Renewal Collateral 9» . Present Line: One Name Two Name?5 Collateral Rate % Total. $ Maximum Had Balance 191 $ Average Balance ^last six mos ) 173 DISCOUNT COMMITTEE ORGANIZATION 175 ing officers or the manager of the credit department and it may be a wise thing to have them made on a special sHp so that at all times they will be in the same form and also that the slip may be filed in the credit records for possible future reference. The in- sertions are good examples of such forms. The manager of the credit department may read the request for credit and the reason for its being a^ked. He should follow this by reading the statement, giving the analysis of the figures according to his method of analysis, and should lay before the committee as full a picture of the true conditions surrounding the risk, as he may be able. This should l3e followed by such in- formation as any loaning officer or director may have concern- ing the risk. After this presentation and discussion the matter should be voted on by the committee and the loan allowed or dis- allowed, as such vote might direct. Any member not expressing a negative vote should be deemed in the affirmative, and a record of the vote should l)e kept so that at any future time there can be no doubt or shifting of responsibility. There being no nega- tive vote, all should be equally responsible for the results of the loan. The fifth order of business should be the discussion of any prospective business which the new-business department may have to offer for consideration. The final order of business should be anything that the officers might want' to bring to the attention of the committee or any in- formation that the directors may think of interest to the offi- cers. There should be a few minutes of round table discussion devoted to the development of the bank along sound and pro- gressive lines. 176 THE BANKER'S CREDIT MANUAL USE OF CREDIT DEPARTMENT LOAN CARDS In connection with the reading of loans made, loans paid or reduced and lines of credit coming up for consideration, the card form, indicated in Chapter II, makes it possible for each member of the committee to get a bird's-eye view of the history of the ac- count. To do this requires little or no time and always keeps the account fresh in the minds of the committee. The following- formal way is suggested as a means of reaching this end : Let the chairman of the committee sit on one side of the dis- count table near the head. Let the vice-chairman sit opposite him. Let the manager of the credit department sit on one side of the chairman and on the other side the two directors, and beyond them the other members of the committee. The vice-chairman has on one side of him the bank officer who takes the record of the meeting, and on the other the discount journal, which one mem- ber of the committee checks. With the notes in front of him the vice-chairman begins reading the loans made, and as he starts, the manager of the credit department hands the card to the chairman. This is passed down the line and the cards are stacked one by one as they reach the last man. The vice-chairman does not wait until the first card reaches the end of the line before presenting the second name, but goes ahead reading at a moderate rate. When any member of the committee, either by the reading or from the card, sees anything that appears to him worthy of note he stops the proceedings and asks for discussion. It may seem a detailed method, and one that would cause delay, but operating under this system it is possible to pass over a hundred namesand transact the other matters as scheduled in thirty or forty min- utes, except where conditions surrounding any one name make I DISCOUNT COMMITTEE ORGANIZATION 177 it desirable to devote considerable attention and discussion to that name. When such a condition develops, the extra time called for is not a burden but a duty and also an opportunity for the members of the discount committee to exercise their functions properly and give to the bank the benefit of their experience. This is really why they are directors and officers, and with the honor and salary that come from the position comes also r-esponsibility to stockholders, depositors and business in general. This duty should not be shirked, even if it can be, and the hurrying of a discount committee meeting or the slighting of its investigations should not be tolerated by the president, who as the executive head is primarily responsible. USING THE GENERAL KNOWLEDGE OF THE BOARD The board of directors, if wisely chosen, represents many lines of business. These will be represented in turn on the discount committee and each director, as he serves on this board, should cooperate to the fullest of his ability in giving to the officers the closest information that he has on business conditions in his own or related lines. If any director has made a special statistical study that demonstrates an unsound state in that tyjDe of business in which he is engaged he should bring this information to the discount meeting as a guide to the men who are held directly re- sponsible for the bank loans. CHAPTER VIII Cost and Profit of a Checking Account There is an element in making loans quite apart from the actual risk involved in the loan itself. A loan already made may be perfectly safe and yet it may be to the decided advantage of the bank to have the loan paid or at least to deny an increase. At a different place we spoke of the never-ending circle that runs between deposits and loans and the very close relationship that exists between them. It is this close relationship that brings the question of deposits to the front when considering credit line extensions. MARGIN OF PROFIT ON BANK SALES LOW In ordinary commercial life there is a fairly large margin of profit in sales. These will run from five ptr cent, of the sales up to fifteen or twenty per cent, without startling any one. On the other hand, the margin of profit on loans is small, as time money rates, except in the far west or south, will on the average seldom equal and rarely exceed six per cent. As this rate covers the to- tal returns to a purely commercial bank, aside from the earnings of special departments such as bond departments or the like, the cost of doing business must be deducted and when this is done a very small margin is left with which to pay earnings. This may perhaps be best illustrated by taking a unit example and comparing the returns in banking with the returns in com- 178 A CHECKING ACCOUNT 179 mercial life. Let us take one hundred .dollars as such a unit. In commercial life this sum would, or could, easily be used in such a business as would make ten per cent, on sales, and where the turn- over would be at the rate of three times a year. By doing this the hundred dollars would show sales of three hundred dollars and the profit, on a ten per cent, basis, would be thirty dollars. In the banking business, if this one hundred dollars were continuously loaned for a year the return would approximate six dollars. It is easy to see that the great difference makes quite a large dis- crepancy in favor of commercial life. There is, of course, com- pensation in that a bank loans not only its own money but the funds of its depositors, and on this account gets a much greater volume in proportion to its own invested funds. In fact, loans or discounts will at any time run perhaps from ten to twelve times the capital of the bank, giving it volume on its business and hence earning capacity. A bank, as has been said, making loans is rarely called upon to give up funds at once, but generally accommodates the bor- rower by giving him a credit against which he may draw. Banks are compelled to carry a reserve of ten per cent, against these deposits, whether created by loans or by real deposits. As a mat- ter of fact, they carry approximately tw^enty-five to thirty per cent, real reserve in the nature of accounts with other banks, generally called cash means. This represents the available funds against which they may draw on demand for the settling of claims on them through the deposits of their customers. This makes necessary a very great development of a certain amount of free money, on deposit, over and above the legal requirements so as to have it available for use as reserves for further loans, and for exchange. 180 THE BANKER'S CREDIT MANUAL * THE BORROWINGS OF A CUSTOMER SECONDARY PROFIT It is a mistaken idea that a customer is doing a l>ank a favor if he borrows all the money he can and leaves no balance to speak of on deposit. The openness of the money market and the fluidity of credit disproves and sets aside this contention, because banks can always find investment for any excess credit they may have at their disposal, by turning to the open market and by the pur- chase of commercial paper. The customer that does the bank a favor is the one that deposits and does not borrow, thereby cre- ating excess credit to be marketed by the bank and through which the bank can secure further connections because of its ability to extend credit. For this reason the value of a deposit account must stand on its own merits and its value to the bank is dependent upon the cost of handling it and the loanable funds it creates, entirely sep- arate and distinct from any borrowings that may be directly con- nected with it. As a bank sells its credit accommodation and gets in return the market rate and a balance, the value of the account is a most interesting and potent factor, not in the safety of the loan but in the desirability of the connection at all. Therefore, it is advisable to have some way of figuring the profit on an account to see whether it is of sufficient benefit to make the con- nection worth while. Exchange paid and received and the length of time items have been in transit without the bank having use of the funds, interest and the like have, for the most part, been the factors that have been used in trying to determine the cost of running a checking account. It is very true that all of these items do enter into the consideration of the question, but there is a more reasonable and A CHECKING ACCOUNT 181 better cost accounting method than that which Hmits itself to the mere figuring back and forth of these items. COST OF OPERATING CAUSED BY PHYSICAL VOLUME If you ask a logical question as to what makes necessary the large number of receiving tellers, the many bookkeepers, etc., that are part of the main expense of a bank you will begin to get nearer the true reason for the cost in running an account. It is the volume of work that is being transacted. In its organization a bank equips itself for a certain volume of work, both in fur- niture, fixtures, office space and clerical force. After a time, as the volume of business increases, more clerks will be needed, more fixtures bought and the possibility of enlarged quarters begins to make itself felt. And by the volume we can not mean the volume in dollars and cents but must mean the volume in physical units or items going through the bank. There is no more work in handling a hun- dred dollar check than in handling one for ten dollars. A ten thousand dollar check lists as quickly on an adding machine as does one for ten dollars. A teller can check up or prove up a de- posit of fifty thousand dollars made up of ten checks more quickly than he can a deposit of fifty dollars made up of twenty checks. The amount of physical work to be done is what determines the expense for fixtures, machines, clerk hire and the like. As the physical work increases the costs go up because the payroll is larger. Furthermore, this physical unit also controls, to a very great extent, the size office that is needed, the number of officers required and therefore much of the overhead. This has been seen and understood by many who have made 182 THE BANKER'S CREDIT AlANUAL a study of bank cost accounting. They have grasped this prin- ciple and have counted the number of checks going through the bank in any given time and have divided the estimated daily expense of running the bank by the average number of checks handled daily to establish the cost of handling one check. By this they have attempted to estimate the expense connected with running a checking account and have, in a small degree, ap- proached the true theory of cost accounting from the banking standpoint. What makes the volume of checks passing through a bank a good basis of measure is the fact that their handling requires both clerks and space. But neither the space nor the quality or char- acter of the clerks is uniform, for some operations need more space and the varying salaries makes it more costly in some hand- lings than in others. The variation in space, however, is too ir- regular to allow of any very great application to costs, but the variation of salaries is not as irregular and, after all, is more essential, as increasing volume of business necessitates increased clerical force far more quickly and directly than it does increased office space. For this reason, and because it has been found sim- ple, the clerk, with a unit scale gradation, has been used to good efifect as a means of apportioning cost. It is easy to see that, with a number of oi^erations taking about the same time, it actu- ally costs the bank twice as much if handled by a one-hundred- doUar-a-month clerk than if handled l)y a fifty-dollar-a-month clerk. COST IN PROPORTION TO SALARY HANDLINGS It is, of course, possible to carry this scaling down to a minute scale, but from the standpoint of practical efficiency it is not A CHECKING ACCOUNT 183 needed. Too much detail would be red tape and red tape often costs much more than the results would warrant, so that the sys- tem adds, in itself, so heavily to the cost as to be exorbitantly expensive. With this in mind the following scale of salaries is suggested as being a reasonable one and at the same time pre- senting sufficient variation to cover closely enough the difference in costs as between types or classes of clerks. As a matter of phraseology the word ''count" is used in this discussion to de- note the unit basis apportioned according to the scale. COUNT SCALE One handling by clerk, salary to $25 per month — 1 count One hanclHng by clerk, salary $25 to $50 per month — 2 counts One hanclhng by clerk, salary 50 to 75 per month — 3 counts One handling by clerk, salary 75 to 100 per month — 4 counts One handling by clerk, salary 100 to 125 per month — 5 counts One handling l)y clerk, salary 125 to 150 per montli — 6 counts One handling l)y clerk, salary 150 to 175 per month — 7 counts One handling by clerk, salary 175 to 200 per month — 8 counts One liandling on basis of salary 200 to 250 per month — 9 counts One handling on basis of salary 250 to 300 per month — 10 counts One handling on basis of salary 300 to 400 per month — 11 counts One handhng on basis of salary 400 to 500 per month — 12 counts One handling on basis of salary 500 to 1000 per month — 13 counts One handling on basis of salary over $1,000 — 14 counts The next problem is to route the various classes of checks from the time tliey come in by mail or are deposited by the cus- tomer, until they have passed through the bank and are no longer a cause of expense through operation. At each step or handling a notation must be made of the count class in which the clerk handling that step is placed. This determines the counts which the operation consumes. An addition of these counts will tell the total number of counts for each kind of check. This process can be continued for all classes of checks and the record can be 184 THE BANKER'S CREDIT MANUAL arranged to cover every kind of operation in the bank's activity. It is a simple matter to chart this condition, and the diagram on the opposite page is suggested as at least one manner of doing this in a concise and accurate manner. The phraseolog}^ may differ in different banks, but the theory remains the same and the wording can be changed to agree with the items handled or the clerks or departments handling them. This in no ^vay affects the results, as the system is thoroughly elastic and can be molded to fit any method of routing. THE COUNT SYSTEM An explanation of the chart will help to give a clearer under- standing of how it may be worked out so as to get a fairly accurate cost for each kind of item handled in the routine of bank work. Across the top of the chart, each with a separate column, are the names of the types of clerks that make up the bank staff. Down the left hand side of the chart are the various items that go through a bank. Either of these may be increased or decreased in number as the character of the bank and its busi- ness demand. It will be noted that each square formed by the clerk and check type column is divided by a diagonal line. The upper half of the square is to be used to denote the actual num- ber of times a check is physically handled individually by any clerk from the time it enters the 1)ank until it leaves. The lower half of the square is to record the number of counts those handlings represent. First, a study must be made of the normal course of a check through the bank because we must base our figuring on the presumption that checks will take a normal course most of the time. If there are a number of each kind of clerks any of whom may handle the items, then their average salary 185 A CHECKING ACCOUNT 187 should be used to determine the number of counts such handling will generate. After the routes through the bank have been de- termined, the number of handlings by the various clerks should be entered in the upper half of the squares. Then, in conjunction with ''The Count Scale" and the average salary list, the number of counts for each clerk for each type of check should be entered in the lower half of the proper square. These counts, totaled, should then be entered in the column designated for that purpose. Arrangements should then be made to make an actual count of each kind of item handled by the bank for a week or for two weeks at a normal time of the month. If the first and last weeks of the month are taken they would in most instances come close to normal. A daily average for each kind of check should be struck and entered in the column reserved for that purpose. Then the average total counts for the bank's daily operation is secured by multiplying the counts per type of item by the average daily number of items in each case and adding the column. It then becomes possible by dividing the total of the cost of one day's operation by the total number of counts to determine the cost of operation per count. This cost per count multiplied by the number of counts for any item will give the operating cost per kind of item. This system differs from the one of dividing the daily total cost of doing business by the total number of items in that it loads an extra cost on items handled more frequently or by more expensive clerks. It takes into consideration both the nec- essary extra work of double handlings and the wage scale, and so comes nearer to the actual costs. The normal routing of cheeks and the consequent handlings is a thing that, once traced, need not l3e retraced as long as the 188 THE BANKER'S CREDIT MANUAL system within the bank for handling its work remains constantly the same. A considerable revamping of salaries makes it neces- sary to check over the counts assigned to any handling. But, as this salary element is a matter of averages, it is a question whether this element is subject to any very sudden or radical changes, and the cost figures once established can generally be used with a very fair degree of accuracy for at least a year. It may be well to make a recheck on the number of items handled by taking an actual count for a day or two at bimonthly periods and so obtain an average number of items handled. This does not present a difficult problem, as in most banks there are lists in the various departments that can be counted very rapidly and with sufficient accuracy, by using a measure. To do this, make a list from one to one hundred on the adding machine used in that particular department, and by measuring this against the lists a total can be ascertained very quickly. There may be some departments that create expense but which are not directly connected with the checking part of the bank, such as the lx)nd department, for example. This makes necessary a division rating of expense so as to get the daily costs. First, all direct exi:)ense should be charged against the departments under examination and then the overhead items of rent, taxes, light, officers' salaries, etc., should be equitably divided among the de- partments. This may be done in several ways. Either according to the space occupied by departments, the proportion of the direct expenses charged against departments or some such prorating plan. From such an analysis the daily cost is figured. After the cost of handling any item has been determined we have come to a point where we can figure the profit on an account. It is necessary to count the various types of items, find how many ANALYSIS OF THE ACCOUNT i : owmo its valiiff P-, ralculated for the Month of 190 tme Balance No. Own No. Checks Clearincs Amount k No. OJd Itenit 1 OJtIS Exchansrc ReceivcJ Amount N. Y. Items No. Cliicatfo Ue:iis Chicago Amount Cajh NO. Crc.lits 1 1 ■ ' _ I > _ ■ • _ ■ > _ 1 - ■ ' _ ■: - — " - — '2 1 _ _ t3 14 15 - _ 16 _ 17 - _ IS _ _ '9 ^ _ 20 -. _ 21 _ _ 22 _ _ 23 «. _ 24 „ _ 25 _ _ 26 ■_ _ 27 _ _ 28 ' _ _ 29 _ _ 30 _ 31 Cica Bil. (o. 2 :,. Foi driJi. Bo'l - N.ID.). Kb.. estimated Value for Year based on ttiis C Iculation Exlfniion. of Balance Own Ctiecks Net Average Balance for Year Clearing House Interest @ Jt per month v iD»ei:mtni / Odd Items z - ExchaiiRe Received for Month Charge for Banking Privilege P„te. New York Itemi Chicago Items ~ _ Average Gross Worth of Account for Month Cash Deposit _ Cost of Handling Credits _ _ Exchange Cost Extensions _ Interest Paid on Account _ Total Items Drafts Bought Vloutli 1 Cost of Handling Items Net Average Balance Odd Items out 2 days Interest @ % per month I. imenintnt ^ Exchange Received _ Charge for Banking Privilege Gross Worth of Account for Month Cost of Handling Items Exchange Cost I I Less Total Cost and Interest Losses Interest Paid on Account fo Net Worth of Account for Month Net Loss on Account for Month Total Cost _ _ — - 1 Size of original 8% x 13 The broken dashes at right and lefi sides indicate the horizontal ruling 189 ■ REMARKS: ill B'xi'JSgk 'Sir.^U cSf^'rj^^^rTiis i EXCHANGE 11 EXCHANGE CHARGED COST NO or ITEM* TOTAL TRANSIT ITEMS 26 27 28 29 30 31 1 2 3 4 5 6 10 11 12 13 14 15 ■ 26 27 28 29 30 31 1 2 3 4 5 6 8' 9 10 11 12 13 14 15 - 16 17 18 19 25 16 17 18 19 20 21 22 23 2i 25 - TOTAL — DAILY AVERAGE - COST INCOME Average Amount in Tran.il. Exchange. — Le5, 10 On Reserve. Interest Paid at . % Interest on Loanable Funds i( Loaned at Tf - Loanable F«.d., No. Item, Handled, _ Co.t of Handling, pe. lie m, _ Total Co« Cost Handling Items. ~~ 1 Net Worth o( Account. Net Loss of Account - Size of original 8j4 x 13 The broken dashes at right and left sides indicate the horizontal ruling 191 A CHECKING ACCOUNT 193 are handled in a given time and determine the average balance the account has maintained so as to get at the amount of loan- able funds which may be income producing and from which the bank gets its earnings. This information can best be accumu- lated by use of a proper assembly sheet, of which the insertions are samples, being, however, reduced materially in size. By accumulating the balance records, deductions for float and the like on this kind of sheet and using the lower part of the form, it is possible to figure the profit or loss on an account quite distinct from the loans made to it, and thereby form an intelligent judg- ment as to the value of the account and the desirability of extend- ing credit to hold it in the bank. This, of course, is subsequent to and contingent on determining whether the loan would be safe from a credit standpoint. Variations from this plan are, of course, possible, but it is offered as an aid to those who have that cus- tomer to combat who thinks borrowing is all that is necessary to the bank's health. CHAPTER IX Commercial Paper different in character from depositor borrowings Some of the mistakes made in buying commercial paper are, without question, clue to a lack of a full understanding of what commercial paper is and some of the basic economic laws that apply to its issue and the necessity of its being.' Commercial paper is born into another family from the straight note that is dis- counted by l)anks of deposit, and in no way can it l^e treated as the same kind of risk. This does not mean that such a note is any less desirable or any more dangerous, but refers to the difference in caution that must be used in taking into the bank's portfolio a note about which the credit man can rarely have the personal contact knowledge that he has with a customer. The personal equation is nil, and more reliance must be placed on analysis and less upon the process so commonly known as sizing up. Personality almost ceases to exist in this type of investment. Before an intelligent consideration of any question can be undertaken it is necessary to establish a premise, so we shall devote some space to a discussion of the character of commercial paper before taking up the more technical question of buying it for bank investment. CHARACTER OF COMMERCIAL PAPER At the very outset we are confronted with the fact that the term commercial paper is somewhat of a misnomer. In its 194 COMMERCIAL PAPER 195 strictest definition the word commercial means ''pertaining ' to trade or commerce ; mercantile." By this definition commercial paper should mean the paper of trade or commerce, or the paper of merchants. Such paper would be the notes, drafts, acceptances and business paper of merchants issued for the purpose of meet- ing commercial debts or of settling mercantile transactions. For many years and until very recently the volume of such paper is- sued by houses in good standing has been limited, at least for domestic transactions. In the place of acceptances and such forms of true commercial paper as have been used in Europe, this country has developed a system of selling on open book account, as between merchants, and bank credit, on straight paper borrowing, at banks of deposit as the credit medium. This has been accompanied by the creation of cash discount terms, designed to further prompt payment, and thereby increasing lx)rrowings at banks of deposit in or- der to raise the necessary funds to take advantage of the dis- count. This system allows for the payment of the whole bill with a fairly liberal discount, if payment is made within a short time, generally ten days, or the payment of the face of the or- der at the expiration of thirty or sixty days. Any merchant who is in good standing with his banker borrows direct and takes full advantage of the discount. The merchant who has used up his bank credit .line buys on net thirty or sixty day terms and loses the discount. The merchant further down the credit scale, with a limited capital and a tight credit condition, lets the ac- count run to maturity and then may pay part in cash and offer notes for the balance. So generally is this issuing of notes so based that to the active credit mind notes receivable in a state- ment, lacking a close explanation, are more generally than not 196 THE BANKER'S CREDIT MANUAL looked upon as being more than likely the evidence of slow or past due accounts. Likewise notes payable for merchandise in a statement create at least a mild belief that the subject is stand- ing off his creditors beyond the usual sales terms by issuing notes for matured accounts which he is not able to pay entirely at the time of maturity. This development has brought about tw^o conditions of interest. First, the commercial note has largely fallen into disrepute; and second, banks of deix)sit (of the buyer) have been called upon to finance on direct paper a very much larger percentage of credit operations than would be the case if a real commercial paper relationship existed between seller and buyer. In this case the banker of the seller would be asked to extend credit on the com- mercial paper of the buyer endorsed by the seller and credit would be based on the two-name paper of both buyer and seller, a paper that could rightly float in an open market. This latter condition is alx)ut what has prevailed in Europe with the addition of central discount markets where this paper becomes the mer- chandise that is sold by banks needing funds for further customer accommodation and is bought by banks having surplus funds for investment. The European method based on real commercial pa- per floats credit from the congested or overloaned sections of the country to such parts as have surplus funds, business in these sec- tions being temporarily well supplied. Under these conditions the shifting of credit may not be in a geographical movement at all. It is quite possible for a bank to be a specialist on one or two lines of trade where credit requirements may be seasonal, leaving the bank with surplus funds at some times and very tight at others. With the liquidness of credit that is possible through an open market for the sale of commercial paper it becomes sim- COMMERCIAL PAPER 197 pie to adjust loans so as to have paper maturing at a time the home demand springs up. This, in economic theory, is the ad- vantage of the use of commercial paper and its substitution for an open account carrying system. ABSENCE OF GENERAL OPEN CREDIT MARKET There, has been no open market for the purchase and sale of commercial paper in this, country probably due, from an economic standpoint, to- the fact that no real commercial paper has existed. There has been, however, the shifting demands for credit accom- modation and the usual spotted condition of the credit supply. Here a locality with banks loaned up to the legal limit ; there a place in which banks had money to loan or credit to extend. This condition demanded some basic economic remedy and that rem- edy has been found in the so-called commercial paper broker and that type of paper which we are in the habit of calling commer- cial paper. Direct banking connections, connected with credit extensions, are based on the soundness of the name and the maintenance of commensurate balances. It at once becomes obvious that there is an artificial restriction against companies finding the easy money market on the basis of maintaining banking relations at all times. It would be a practical impossibility for the deposit accounts to be so scattered that loans could be transferred from congested to free or easy markets through banks of deposit. It would require too many accounts and too much money tied up in idle balances. This difference in money markets has led to the existence of the brokers referred to, and in a large way they are like clear- ing houses for the credit of the country, taking notes from one 198 THE BANKER'S CREDIT MANUAL section and selling them in another. The portfolios of the lead- ing brokers are a substitute, after a fashion, for the open mar- ket of Europe, and Hke that market, have a tendency to equalize and stabilize credit between the business communities of the country. METHOD OF ISSUE We have, at some length, discussed the reason for the existence of the commercial paper broker and found that the type of paper he handles comes from a real economic need and is based upon sound business necessities. The next step is to understand the method under which this paper is issued. In the beginning of this kind of business the note broker was far from the high type we know him to be to-day. He was a man who took few risks ; sold on a very liberal discount basis, wherever he could find a market, and in many cases did not have any interest in the note until it was sold. He did business on a wide margin of commis- sion and at no time took any risk, as the maker of the note was not paid until the broker had placed the paper. It was much more like a note-shaving proposition than a strictly clean-cut business deal. During the past ten or twelve years, however, these transactions have been reduced to a very small percentage when compared to the whole amount of paper so floated. Now, generally, the broker actually buys the paper, paying his customer at once and carrying the paper himself until sold to some bank or possibly some commercial investor. The relations between the best brokers and their clients are in many ways very similar to the relations between the banker and his customer except for the deposit requirement or custom. This condition leads to a greater conservatism on the part of the broker in buying and COMMERCIAL PAPER 199 should put the broker's own credit department more closely be- hind the risk, thereby making for better paper. Indeed, it is a good rule not to deal through houses that do not actually own the paper they are selling. CHARACTER OF COMMERCIAL PAPER SELLER IMPORTANT There is another reason why the character of the'house selling the paper plays an important part in the soundness of the paper sold. When a company makes a connection with a brokerage house it is extended a line of credit by that broker, which, under certain sound regulations, the 1)roker will float for the company. If the broker is one who shops for rates or is likely to be too easily frightened in troublesome times his customers are apt to be suddenly out of funds l^y unreasonable withdrawal of lines of credit. The fair weather banker has broken many companies that could have been pulled through, and a broker with a chicken heart can wreak havoc on a business that needs a little temporary assistance in times of stress. This is not an argument for the broker to take on the accounts of companies that are already in rough water but is directed against such brokers as refuse to aid clients w^hen the going is a bit bad or who rush out weak paper upon the ill-informed banker only that they may l)e rid of it themselves and ignore even a moral risk. There are some brokers of such high ethical stand- ards that they would rather take a loss themselves than know- ingly pass sick paper on to their buying bank customers. There are also houses that, when one of their clients turns sick or pos- sibly looks bad, will stand by and keep their lines open, without, however, putting the name on the market. Such brokers are 200 THE BANKER'S CREDIT MANUAL clean productive builders of business, and the first thing to be considered, by the house that wishes a commercial paper broker connection for the enlargement of its credit, as well as by the bank that buys such paper, is whether or not the broker is of the right stamp. While the honesty of the house and its standing as a broker will not stop losses, it is safe to assert that the better the broker, the higher his standing, the better the paper sold by him will average. Therefore, when buying paper, the very first consideration is the broker himself and his record for strength, fairness and business honesty and ability. Having established in his own mind the character of the various brokers and having selected such as he may care to do business with, it next devolves on the bank credit man to judge the risks involved in the various names offered to him by the broker. Too many credit men go by the rule of two for one and never get beyond a small circle surrounding their credit desks. The commercial paper risk is at once differentiated from the custo- mer risk because in most instances the personal element is almost entirely lacking. With the customer the credit man can size up the personal element, the plant and other physical aspects of the risk. In the commercial paper field he has to rely on analysis and such second-hand impressions as he can get by correspondence. This adds to the difficulty of the task, for it requires closer analysis and deeper thought. DIFFERENTIATION OF TYPES OF PAPER Roughly speaking, there are four main classes of business, manufacturer, wholesaler, jobber and retailer. As a general proposition the nearer inventory is to the absolute raw ma- COMMERCIAL PAPER 201 terial, of standard size and fineness, the more liquid it is and hence the more advantageous as an asset. As the manufac- turer deals first with the raw material it might seem that he would l3e the more favored risk. His receivables are more generally limited to a comparatively few customers, generally quite re- sponsible wholesalers, and on that account should be very liquid. He is generally, however, burdened with a heavy plant invest- ment. The wholesaler also sells to a comparatively limited number of customers, thereby keeping his receivables in a good state of liquidness, but he is a step removed from the raw material. The jobber begins to branch out and carries a greater variety of lines of merchandise and a larger number of smaller accounts. He is also two steps from raw material. The retailer carries a very wide line of merchandise, far removed from the raw material, and in the modern development of cash business has relatively only a limited amount of receivables, which, as a rule, liquidate with the highest ratio of return in case of failure. His stock is also likely to accumulate a larger proportion of out season ma- terial. In the process of grading types the retailer would, by the nature of his business, be placed at the foot of the credit scale, the jobber next above him, the manufacturer, whose in- ventory shows a large proportion of semi-manufactured stock and little raw material, just ahead of the jobber, the wholesaler ahead of this kind of manufacturer and the manufacturer with a small list of customers and a short bridge between raw material and sales at the top of the list. It may be that others will disagree with this general grading, and it is certain that it is but a crude attempt. It is, however, a valuable thought to keep in mind, particularly if the proportion 202 THE BANKER'S CREDIT MANUAL of manufactured or in process merchandise gets too large, when taken in ratio analysis with the other current assets. One fairly good rule or measure is to compare the total of the cash and receivables to the total current debt. If it is equal in amount and the merchandise is left free and clear for liquidating shrink- age and if merchandise is largely raw material then the name begins to approach the best proportions. UNDER OPTION The commercial paper broker calls on the bank with a list of offerings and presents the figures of the last statement for consideration. A cursory reading of the statement, bearing in mind such things as debt percentage and current ratio averages as discussed in the chapter on type analysis, will make it possible for the bank credit man to determine whether or not the name is at all possible or whether it is entirely out of the class of paper he desires to buy. Having decided that the name has possibilities the credit man may take under option an amount regulated by the policy of his bank. If the name is new, or is one that his bank has not considered for some years, then he should ask for the statements for the past two years, or in some instances three years. He should get all the supplemental information the broker may have and should insist on the sales for both years of the statements under consideration. These sales are of the utmost importance, even more so in commercial paj^er than in customer paper, because more reliance has to be placed on analysis and because a knowledge of sales volume is absolutely necessary for a true understanding of any statement. The bank credit man is in a stronger position to demand information from a commer- COMMERCIAL PAPER 203 cial paper name than he is from a customer name because there is no possible loss of deposits connected with a refusal to buy the paper of a commercial paper name. Therefore he can pick and choose more carefully, buying such names as he can get the necessary information about and optioning such as he feels do not quite come through clean, CREDIT DEPARTMENT RECORD OF PURCHASES The statements should be subjected to a searching compara- tive, internal and type analysis and the records spread on such a form as will make it possible to compare at a glance the rela- tive changes from year to year. This record should be so de- signed as to carry all the necessary information concerning the amount of the purchase, the date of the purchase, the rate, the maturity, a synopsis of opinions obtained and any security, en- dorsement or guaranty that supports the goodness of the note. Then, if more than one officer has to pass upon the paper, space should be left for initialing the purchase so that at any future time there can be no doubt as to the responsibility for the pur- chase. The form on page 205, used as a card file, indicates how^ this may be done easily and compactly. INQUIRY LETTERS The analysis of the statement being made, the credit man should address himself to the task of securing the indirect in- formation concerning the moral risk and general condition of the name. For this he must rely upon the opinions of his brother credit men, who are located within observation distance of the plant, who may know the management or who have an account 204 THE BANKER'S CREDIT MANUAL that brings them in close touch with the situation. In this, ac- quaintance and friendship play a large part, and the credit man who makes a recluse of himself loses power. The character of a letter has a marked effect upon the recipient and on that account a good letter should be designed. It is a rather common custom to use a form letter, and as bank credit men are fairly liberal- minded with each other, a form letter is accepted as a labor- and time-saving device. The following are several specimens of let- ters that have been used with success : "We have purchased, under the usual option of the broker, some of the paper of ., and, as we understand an ac- count is maintained with your good selves, we would very much appreciate an expression of your opinion as to the desirability of the risk for an outside bank at this time, together with some in- formation as to your experience with the business, relative to the nature and extent of accommodation at the disposal of the concern through your facilities and the manner in which obliga- tions are cared for. ''Some idea as to the conditions under which the business is op- erating at present will also be of value. Thanking you for your courtesy in the matter, I am, "Very truly yours," "We shall greatly appreciate your confidential opinion as to the financial responsibility, general standing, and character of man- agement of , with particular reference to the desira- bility of the company's paper as a safe and attractive outside in- vestment. If endorsements are furnished, such information as you may have at hand covering the outside means of the en- dorsers or guarantors will be of value. "Thanking you for your courtesy in the matter, and assuring you of our willingness to reciprocate at any time, I am, "Very truly yours," "We have to-day purchased, under the usual option, paper of the above concerns, and would appreciate receiving the benefit of what information you may have in your files relative to their I I ' i M ' I T r I I I I I I! H U ^ u ^ I M I a u o u 5 i > X o < o: frrt h. o z 1 !SS ?JS "f ^ I I I t * J 2 Z i I I I ,1 I I I I I I I I I I I I J L I t I I 205 m COMMERCIAL PAPER 207 fpresent financial responsibility and method of meeting their obli- gations. We would also be glad to have you advise us if, in your opinion, they are under capal)le management, and whether or not you would consider their paper a first-class banking risk. ''Assuring you that your kindness in this matter w^ill be greatly appreciated, and trusting that you will not hesitate to call upon us when occasion arises, we are, *A^ery truly yours," "Will you kindly favor us in confidence- with your opinion of the present financial condition, management and business pros- pects of ? Would you consider a reasonable line of their paper a safe and desirable investment? ''Thanking you in anticipation, and desiring to reciprocate whenever opportunity offers. Very truly yours," "Will you kindly favor us wnth your opinion regarding the character, standing and financial responsibility of ? "Would you regard a line of their paper for $ to $ a desirable investment ? "If, to your knowledge, they borrow on collateral, endorse- ments or guarantee, please advise us. "Assuring you that any information you may give us along the lines indicated above will be much appreciated and used dis- creetly, we are, Yours very truly," These are actual letters and are good. The writer has only one thing to offer as an addition, and that is the insertion of a foot-note to the effect that if the bank inquired of contemplates at any time the purchase of the same name that the inquiring bank will be glad to give the benefit of its investigation and the result of its analysis. When a name has at any time been purchased and is being considered again the following, that have been in actual use, are submitted as good types of letters : "We are revising our files on the above concern, and would appreciate receiving as full information as you may have relative 208 THE BANKER'S CREDIT MANUAL to its financial and business standing. We would also be pleased to have you state whether or not its bills are discounted, and if, in your opinion, it is making satisfactory progress. "Thanking you in anticipation of your courtesy, and assuring you of our willingness to reciprocate, we are, **Very truly yours," ''We are revising our files and would appreciate your advising us if you have had occasion to change your opinion of as expressed in your favor to us under date of . "Thanking you in anticipation, and assuring you of our will- ingness to reciprocate whenever opportunity offers, "Very truly yours," FILE REVISION ABUSES Before leaving the matter of file revision the writer can not help but expostulate against unnecessary revision. There are some bank credit men whose sole object in life seems to be to build up a huge file, based on endless and frequently recurring inquiries, without reference to the name being actively in the market. Bringing a file up to date should only accompany an honestly expected purchase. Keeping files up to date on names that are not in the market or on those one has no intention of buying, simply gets a man rated as a public nuisance and ends in his letters receiving scant courtesy, thus practically closing a most excellent source of information, perhaps at a time when it is really needed. Revise when you are actually contemplating purchase, and do not write every bank in the city in which the name is located. The most practical method is to pick out a small number of banks that, for some reason or other, are believed to have knowl- edge of a name and write to them. It is a wise thing to state that COMMERCIAL PAPER 209 you are writing other banks in the same city, if this is the case. The recipient bank will give letters more attention if it knows that its efforts are being relied upon. TERRITORIAL ECONOMIC CONDITION The statement, the inquiry and the broker's information give the greatest amount of direct information. There is, however, another very important consideration and this is the economic condition of the section of the country in which the name origi- nates. There are at times broad stretches of territory that suffer from crop failure, labor troubles or some economic disturbance that upsets business within that territory. Eor this reason the bank credit man, who buys commercial paper, must study eco- nomic geography and know to a certainty the conditions that prevail in various parts of the country. If any section in which the buying public is largely rural is affected with a serious crop failure it is a certainty that the sales of merchandise in that com- munity are going to fall off. This loss of sales is reflected in the financial conditions of the merchants and if the unfavorable con- dition is long protracted it is assured that the paper coming from that section will not be as desirable as paper originating in some more prosperous part of the country. As has been said, crop conditions or some other local cause may turn a whole geographic section into a questionable commercial paper risk. It is also true that unsettled conditions may prevail in one line of industry on account of raw material shortages or some such cause. This makes it necessary for the credit man to watch closely his type studies so that he may check from year to year on the condition of an entire industry. Trade journals help in this connection and a free interchange between credit men is 210 THE BANKER'S CREDIT MANUAL another aid in finding out the true condition of affairs. This is not always easy, however, to determine, and the credit man should always look most carefully for traces of territorial or trade depressions or undue expansion with consequent weaknesses. Eternal watchfulness is the only guardian against these troubles. COOPERATION HOW TO GET IT In commercial paper buying the bank credit man is more de- pendent upon indirect information than in his direct loans. This makes the cooperative good will of his brother credit men of the utmost value. To secure this there are two prime rules. The first is to display a spirit of willingness to cooi:>erate oneself. Do not turn credit inquiries, real credit inquiries, aside with a stereotyped letter. The second is to eliminate the dragnet inquiry method from your system. Remember, other credit men are often busy, even if you are not, and the quality of your credit file is more important than its size. Inquire when you have need to inquire, but do not inquire just to give your stenographer something to do and to increase the size of an already unused credit file. Send inquiries to those only who you believe, for some good reason, have the real information you need. If you must write to every bank in the section, at least have the courtesy to add a note to your inquiry stating that you are writing to other banks and that information on file will be sufficient without further effort on the part of the bank inquired from. This spirit of thought fulness and courtesy will breed cooperation, the greatest department asset any bank credit man can secure. CHAPTER X The Interview and Visit to Plant THE fraudulent STATEMENT In considering the sources of credit information the statement, if properly and thoroughly analyzed, was given first place. This was done because it is supposed to show an actual picture of the real condition of the subject's business. Another reason is be- cause, if incorrectly given with an intent to defraud, and credit extended because of it, it becomes an instrument through which the fraudulent debtor may be prosecuted and sent to jail. In this latter connection it may be well to note that where the false state- ment act of any state may be weak and ineffective, action can be had under federal law if it can be proved that the statement was sent through the mail, thereby using the mails for the purpose of perpetrating fraud. There are a number of statement forms so designed that when proi3erly folded they make a mailable form. In this manner they retain the stamp, cancellation marks, address and such evidence that will prove beyond question that they have passed through the mails. In many instances, how- ever, this form of statement is not adaptable to the system in use and so can not very easily be adopted. Office custom, however, can be made a substitute if well designed and strictly adhered to. One method that is inexpensive and not too cumbersome' is to have the return envelopes distinctly marked so that they will only l:>e opened by some one in the credit department. When 211 212 THE BANKER'S CREDIT MANUAL opening the envelope it should be slit across the top and down both ends so that it can be spread out flat. A notation should then be made immediately upon it to the effect that it had been received in the credit department on a certain date, that it con- tained the statement of the subject dated as per the statement date, and the notation should be signed or initialed by the person actually performing the act of opening and registering the state- ment. The envelope so marked should then be permanently pasted to the statement so that they become in fact one instru- ment. If, in addition to this, the statement is registered on one of the statement tickler cards, formerly mentioned, and the fact of such registration is noted on the margin of the statement, the record is so complete as to be good evidence in court that the statement was actually received through the mail by the bank and used in the credit department as a basis for credit standing. If made a regular order of department routine this is not a bur- densome matter and makes a very distinct claim of evidence. The form on the opposite page shows the type of envelope that can be used, so marked that any clerk in the mail department can tell at a glance that the contents are of more than ordinary importance and that the envelope is to go to the credit department in the shape and condition in which it is received by the bank. The notation referring the envelope to the credit department is printed on both back and front and is in either heavy red or green to make it more noticeable. It also serves to assure the customer that the information given is to be safeguarded by the credit de- partment and that the envelope is not likely to be opened by any other department of the bank or by more or less irresponsible boys in a general mailing room. m 214 THE BANKER'S CREDIT MANUAL QUESTIONS SUPPLEMENT ASSET AND LIABILITY STATEMENT Statement forms, as has already been seen, contain a very large number of questions in addition to the actual balance sheet. In some cases these questions are answered in good form, but in many they are only carelessly answered or the answers may often be omitted entirely. In such a case an interview may rightfully l)e insisted upon and in any event an interview is of great benefit, as it brings the borrower and the credit man of the bank much more closely in touch and often makes clear many things that otherwise might be only imperfectly understood. Some credit men possess most excellent memories and rely upon them to a very great extent to retain the results of these interviews. Some- times they later transcribe their impressions in record files, bur, too often, the credit man who rehes upon memory does not transcribe and so creates a credit file in his head to which he only has access and which the bank will lose in the event of his death or resignation. It is also true that time will dim even the best memory and that facts may become confused with impres- sions and a false mental record grow up which will lead to mis- takes and misunderstanding. To obviate this condition it is a simple matter to construct a questionnaire or record sheet that can be handled during the interview and notations made thereon which the stenographer can later condense into a terse report for filing purposes. The original of the record may itself be filed in the information folder if that is deemed best, but as many of the notations on the interview sheet and the statement form are the same, valuable space may l>e saved by transcription of the notations in report form and the filing of the questionnaire THE INTERVIEW AND VISIT TO PLANT 215 in transfer files under a numeral system that can be packed much more tightly than the files in daily use. While the actual questions to be asked will necessarily vary, with the varying demands of different departments of different banks, it is still possible to consider the use of a certain number of more or less standard points of information that the credit man should have access to and should receive. Some of these will be duplicates of the questions on the statements. These can be checked before the interview to indicate whether they have been fully answered or whether more explanation is needed. With such a questionnaire on his desk, prepared in advance, the credit man is not likely to overlook any important matter that was not clear upon the statement and can conduct the interview in less time and in a more orderly manner than by the hit and miss method of general conversation. It also tends to calm a nervous or touchy customer. This questionnaire may be printed or a special form may be made for each case by the stenographer. If made the latter way the questions that have been satisfactorily answered may be omitted and the form shortened. INTERVIEW QUESTIONNAIRE The following is offered as suggestive material for such a questionnaire : QUESTIONNAIRE Name Date interviewed Representative Statement of Date Sales Profits Dividends Contingent liability Where incorporated 216 THE BANKER'S CREDIT MANUAL Have we on file a resolution stating who must sign notes ?...... \\'hat are outside means of endorsers or guarantors? What is amount or extent of insurance ? Fire $ Accident $ Use and occupancy $ Credit $ Explosion $ Bomb $ Life $ payable -to subject company Bad debts charged off $ Accounts past due more than six months $ Depreciation, machinery, $ Buildings $ Reserve for bad debts $ . . Reserve for possible merchandise depreciation $ Repossession loss reserve $ Mortgage delDt or bonds when due $ Due Is mortgage or bond debt a l)lanket liability ? Is the statement the result of a certified audit? Is paper sold by brokers ? Who ? What line is extended by brokers ? Was this completely retired during year ? When ? How long have officers or partners been in this line? Is there some provision made for filling their places in case of death or resignation ? What are sales terms ? Do- you insist on customers living up to their terms? What percentage of sales has to be repossessed? ! Have any accounts or notes receivable been pledged, sold or re- discounted ? What percentage of notes receivable represent matured accounts extended by note payment ? Was inventory taken by accountants or verified by them? Is any part of the merchandise on consignment? What offsetting debit appears against such condition? What does money deposited with company represent? Is it a demand liability ? What interest is paid thereon? Is any part of capital stock represented by notes or accounts re- ceivable ? THE INTERVIEW AND VISIT TO PLANT 217 How was paid in capital paid for ? ' Cash $ Real estate $ Machinery $ Patents $ Buildings $ Promotion $ Otherwise by $ What does receivables due from officers or partners represent? Is any part of the receivables owing from subsidiary or allied companies ? What other bank accounts are there ? Are any of these secured in any way when making loans? Is the company obligated in any way for debts of subsidiary or allied companies ? How are sales running as compared to last year? Are collections good or do slow accounts run in greater propor- tions than last year as compared to sales ? What additions are contemplated this year? If selling nationally, are there any bad collection spots? General remarks and memoranda : COMMERCIAL PAPER QUESTIONNAIRE When buying commercial paper there are also many points that can be covered in a questionnaire, of which the following is an example : Date To Gentlemen : In connection with the purchase from you, under option, of note of we would ask you to furnish us the following information applying to the company's state- ment as of 218 THE BANKER'S CREDIT MANUAL (1) a. Are any quick assets (merchandise, accounts receivable) pledged ? b. li accounts receivaljle and notes receivable are not sep- arate, what is the amount of each, and how much of each item represents actual merchandise sales, how much due from allied companies and what is due from officers, employees, etc. ? Accounts receivable $ Due from customers $ Due from allied companies ...... $ Due from officers, employees, etc. . $ Notes receivable $ Due from customers $ Due from allied companies $. . . Due from officers, employees, etc. . $ (2) State amount and nature of contingent liability at date of said statement (3) a. Were any obligations secured otherwise than as pro- vided in question No. 1 ? b. Financial worth, outside of this business, of endorsers, as follows : Name $ Name $ Name . $ Name $ (4) Life and other insurance carried payable to the business?. . . - . Bad Debts ( ) Year Annual Sales Net Profits Dividend Paid Charged Off Three Years Three Years Three Years Three Years $ $ $ $ $ $ $ $ $ $ $ $ $ $ ;. $........ $ (6) Amount of bills and accounts receivable ninety days over- due on said statement (7) a. Minimum liabilities during past twelve months as on. . . . ...: $ b. Maximum liabilities during past twelve months as on ... . $ THE INTKRVIEW AND VISIT TO PLANT 219 ( 8 ) With what other businesses are officers connected ? (9) a. Names of all bank accounts with amount of each line of credit estabhshed : $ $ $...• $ $ $ b. What brokers handle paper ? (10) What amount was borrowed at statement time from banks ? From brokers? (11) If statement was audited, was it an actual itemized audit of books or merely a verification of balance sheet? . . Name of accountants? This form calls for many bits of information that are not al- ways given. Much of this is not the fault of the broker, l^ecause if he is the proper kind of broker, actually buying the paper and owning it, he too has had to assume a credit risk and is quite c'ls interested in knowing the true status as is the bank itself. Some companies that borrow through commercial paper channels are not as frank as they should be and it is only by continued insistence that brokers and banks can get the full information they are entitled to. * In this connection bank men would get further by cooperating with brokers than by antagonizing them, and by writing such in- quiries to the brokers as they may show to their clients for the purpose of getting more information. VISITING THE PLANT With the completion of the statement analysis and the inter- view the credit man has passed through two-thirds of the direct information process. The last step is really most important. m 220 THE BANKER'S CREDIT MANUAL This is a visit to the plant itself and an actual examination of the fixed or capital assets. The value of this sort of inspection is getting better and better known and more appreciated every day. In the older methods of credit investigation the statement was analyzed along the lines of current assets and liabilities arid no thought, or at the l^est very little consideration, was given to plant investment. Enough current assets were demanded to pay out all debts, by the books at least, and leave a one hundred per cent, margin for shrinkage. The machinery, buildings, fixtures, etc., were considered almost as junk in spite of the fact that, in a manufacturing plant at least, they form the productive ele- ment in the whole scheme and without them the current assets would be of shortlived nature. Of late, however, the plant, pro- vided it be in sound condition and of a productive efficiency, is considered from a credit standpoint as of mighty good value. Nothing in the nature of explanation can begin to approach an actual inspection of the -plant in operation. Therefore it is well worth the time and effort in order to determine whether its productive condition is up to such a standard of efficiency as will make it possible for the credit man to pass it as a good, live, if not a quick or liquid asset. THINGS TO CONSIDER AT THE PLANT p In visiting a plant a credit man has three things to consider, namely, the records, the plant as a productive force, and the morale of the organization. The order in which these should be taken up and examined is to a very large extent a matter of opin- ion. It seems, however, that the examination of the books may ^ more rightly be classed as an accounting proposition. If the THE INTERVIEW AND VISIT TO PLANT 221 ^ statement has l^een an audited statement compiled by a certified accountant then the figures can be taken as authentic and analyzed for their value as the best interest of the bank may appear. The verification of the books, however, is only to make sure that the records, upon which the analysis structure is reared, is con- sistent and honest and that the analysis is being made on a sound premise. It is in truth an accounting proposition to prepare fori credit, and such an examination should be conducted by the ac- countant for the bank, perhaps acting under the direction of the credit man. It is not the business of a visit but rather a protracted J stay. The things to do are simple enough in as they afifect credit. The honesty of the statement should be proved and the quickness and nature of the current assets should be assured. Old accounts should be segregated. Old bills receivable should be set apart, as should those that seem to have been given in settlement of ac-. counts that have reached maturity. The testing of the inventory is a long and arduous task, but if a proper material cost record is kept, and if the credit man takes a trial balance and uses it in con- junction with the last statement, some very interesting sidelights can l3e found that will in a measure help to check profits and losses and will aid in forming an opinion of the present condition. In the matter of trial balances that are sometimes given between -i statements the credit man should insist on getting the material cost of sales for the period, as without this item an intelligent reading of a trial balance is an almost impossible task. For this reason one of the most valuable things the credit man can do in his oflfice investigation at a plant is to ascertain something con- cerning the method of cost accounting the company may have in- stalled. If it shows clearly this material cost of sales item, the 222 THE BANKER'S CREDIT MANUAL credit man may feel assured that the head of the plant has some chance of knowing between inventories whether he is making any L real headway. THE ROUTE THROUGH THE PLANT The element of plant efficiency is a most important matter and one that the credit man should take time to investigate. There are many different angles from which to view a plant. But a little thought will demonstrate that there is one best and most natural way. While a haphazard trip through the plant, such as is offered to sightseers, would be interesting and perhaps instruc- tive, it gives little real chance to understand processes or produc- r-tion systems. And though there may be many sightseeing routes, there is, in the mind of the writer at least, only one inspection route that covers the ground thoroughly, gets a real bird's-eye view and makes it possible for the inspector to carry away a true and concise opinion of the efficiency of the production manage- ment. This route enters the plant over the receiving platform and leaves through the shipping room. Between these two points the route should cover exactly that that the raw material covers in its transformation into the finished product. By following this plan and sticking to the main product — if there be by-products — until the point where the main product is complete, even a tyro can tell whether the advance has been log- ical and direct. If the examiner follows the material he can easily see whether the route is a direct one or whether it is full of ! back currents and eddies. If the material goes back and forth or up and down and is not handled progressively so that every stage brings it nearer the end of its journey, there can not help but be unnecessary steps on the part of labor. This creates a large THE INTERVIEW AND VISIT TO PLANT 223--^ unproductive percentage in what may be called, on the cost sheets, productive labor. The most efficient office and production man- agers often spend hours and days over the floor plans of their fac- tories with cardboard cut-outs of machinery reduced to scale, placing them and moving them so that the material will be han- dled, when in production, with the least back-draft or production drag. In antithesis to this there are many plants in which new machinery is placed in any vacant spot quite irrespective of whether that spot is near the line of march. These men oi^erate under the plan of having the mountain come to Mohammed and do not care for the expense of inefficient or superfluous handling. GENERAL PLANT EFFICIENCY 1 Efficiency in plant operation is also cut down immensely by ' poor lighting. The credit man who is interested in the efficiency of his risk can well remember this and note both lighting and general cleanliness. If a plant is dark and full of litter, piles of junk and scrap material, it is a pretty safe thing to decide that the management is not keen to the results that can be achieved by efficiency. Of a similar nature are the precautions that may be taken '^ against accident. Open moving machinery is a menace and should be avoided whenever possible. The installation of safety devices is not an expense but an investment that pays handsome returns. Whenever a factory is found that is fully protected against acci- dent by the latest protective devices, one may be reasonably sure that the management is in conservative and intelligent hands, i During the trip through the plant it is well to note the fire pre- ^ vention arrangements, the location of fire hose stations, etc. If j there is a sprinkler system the danger from loss by fire is very ^224 THE BANKER'S CREDIT MANUAL greatly lessened, and as the likelihood of continuous operation is increased, the credit risk becomes a better one. Fire drills may or may not be a part of the routine. If they are they further re- duce the fire risk. ^ One very important item in the success of any manufacturing plant is the spirit of the organization. A look at the payroll or employment record will do something to determine the average length of employment and the steadiness of the company's labor. But it is not a difficult matter to start a conversation here or there on the way through the plant, with this foreman or that j_ and get his view of the management. Many little sidelights may be thus secured that in the aggregate make for a very clear gen- eral impression. USE FOR A KODAK The general impression can often be fixed for future reference if the credit man will carry a small pocket camera, of good lens quality, and take frequent pictures. These, when mounted in the credit file, will recall to the credit man much detail that might otherwise escape his memory. It is a simple way of recording physical facts for the benefit of boards of directors or discount committees. Very often the photograph of a well-arranged plant properly housed, will make ix)ssible the extension of a credit, through committee action, that could not possibly have been han- dled in any other manner, as it is practically impossible to have the committee see the plant. CHAPTER XI Depreciation and Generalities There seems at times to be a misunderstanding of the term de- preciation, and the place it fills, both in the productive world and the credit field. We too often hear of instances where, companies having made a very handsome profit, the directors charge off liberally for depreciation. Again, where profits are scant, de- preciation is sidetracked or materially reduced. Managements that work along such a line have lost track of a most important fact, in that depreciation is in no wise an offspring or aftermath of profits to be written big when profits are big, and to be written, small or not at all when profits are small. Depreciation is abso- lutely a constant condition and a steady average charge in the transacting of business. No business can be conducted without depreciation of some kind any more than it can be conducted without the payment of wages. It is absolutely one of the pen- alties or costs of doing business and must be figured as such by the honest and conservative business manager. The nature of depreciation accounts is to set aside a reserve from profits to take care of the reduction in the value of certain assets through wear and tear of manufacture or otherwise ; the idea behind the crea- tion of the reserve being to achieve a present value for the item under consideration. No matter how careful a business man may be it is certain that in selling his product he will sell to a certain number of names 225 226 THE BANKER'S CREDIT MANUAL from whom he will receive no pay. In fact, as has been said be- fore, a normal loss is better than no loss, as an indication of pros- perity. SALES AND LOSSES But even though knowing some sales will result in loss, the exact amount can not be foretold. It should be then the custom to set up a reserve for depreciation of accounts and bills re- ceivable based upon a certain percentage of sales that has, by ex- perimentation, been found to be the normal loss in that particular line of business. From a business standpoint this is good judg- ment. From the standpoint of the extender of credit the lack of provision for this depreciation is a display of ignorance of one of the first costs of doing business and shows an unwillingness to protect the creditor against bad judgment in credit granting by the management. Whenever no such reserve is present the bank credit man can be sure that in a liquidation the current ratio would be bound to suffer through a material shrinkage in receivables. There is a strong probability that, lacking a reserve, this shrink- age would be more" than normal because the poor accounts have probably not been charged off regularly. The selling loss is as much a part of the cost of doing business as the salesman's com- mission, and the wise business man will treat it as such, setting aside from each month's business a definite percentage of profits or sales as a reserve for bad debts or a depreciation on receiv- ables. REPOSSESSION LOSS Houses selling on the installment time-payment plan have an- other condition to face. Of all the goods sold on time it is cer- tain that some will be repossessed because of non-payment of de- DEPRECIATION AND GENERALITIES 227 f erred claims. The percentage of such goods that will have to be taken back, refinished and sold again, with the selling and reno- vating as an added cost, can be reduced to an absolute average percentage by experimentation and a proper analysis. In some lines this repossession loss and expense may be high or it may be low, but it can l)e determined and the house that has its account- ing system arranged to handle this correctly makes the better credit risk. It is a question about which the bank credit man should have a thorough understanding. MERCHANDISE AT COST The next item among the assets that is subject to a serious re- duction in value is the merchandise account. Merchandise is almost always called for at cost or less than cost if the present market is below cost. It seems that any reduction in value of this item is not one that can easily be averaged or foreseen. It is more a matter of market conditions and fluctuations in values and therefore not a very good subject for a reserve account but rather is connected more directly with the profit and loss account. But the question should be asked and a comprehensive answer should be demanded as to whether old and out-of -season mer- chandise has been disposed of either through forced sale or charge-off so that the inventory really represents a fair value. PLANT DEPRECIATION ' The next asset that comes in for consideration under the de- preciation program consists of the plant and its equipment. : In these items we may make two main distinctions. First, there are 228 THE BANKER'S CREDIT MANUAL the buildings which, if of good construction, are subject to a slow decay and hence a low depreciation charge; second, the machinery, fixtures, tools, etc., that are of rapid consumption, as compared to buildings, and hence should be subjected to a more liberal depreciation reserve charge. Of course, the thing to do is to figure the life expectancy in these items in numbers of years of service and charge them with a depreciation each year so that at the end of that expectancy there will have been created a re- serve sufficiently large to wipe them off the books. If we take a typical example we may more readily see the argument. Sup- pose the case of a large press for handling sheet metal. The ex- pectancy is that this press will last, as a productive unit, for ten years. Then each year ten per cent, of its cost should be taken from profits and set aside as a depreciation reserve, so that at the end of ten years the whole cost of the press will be accumulated in the reserve account and the press can be removed from the assets, without affecting the expressed net worth of the company's state- ment. It is not a proposition of arbitrarily setting a yearly lump sum aside that bears any relation to the profits, because the profits have no resultant connection w^ith the w^earing down of the press. This wear is the result of handling the product and fabricating it and there can be no real profits until this loss of value has been replaced just as absolutely as it has l^een necessary to pay for fuel that has been used in running the plant. They vary only in degree of speed in consumption, both being destroyed in their present form to produce wealth. The depreciation is a thing that can not be dodged and no risk is a good one that is not taking this abso- lute cost or penalty of doing business into its calculations and providing for it. DEPRECIATION AND GENERALITIES 229 DEPRECIATION DUE TO OBSOLESCENCE There is another condition that presents itself and against which reserves are sorhetimes attempted. This is depreciation in value due to obsolescence. The life of a machine may not yet have run out the normal course of its existence from wear, and still it may be desirable not to keep it in service because of im- proved machines that would do the work cheaper and faster while not lowering the quality. Let us suppose a machine that cost originally ten thousand dollars, with an expectancy of ten years, and has actually run seven years, against which a seventy per cent, depreciation reserve has been created and which has become obsolete. The value still stands on the books, basically, at three thousand dollars. A new machine is to be substituted at a cost of ten thou- sand dollars. The question arises : what is to be done with the three thousand dollars not accounted for by depreciation? First of all, the old machine will be sold for something, and to make the example as bad as possible we will suppose that it brings only six hundred dollars as junk. This leaves a margin of twenty-four hundred dollars to be taken care of in some way. Should this amount be charged at once to profit and loss or can some other way be devised of handling it? The first and most patent thing seems to be that the cost of the new machine is really going to be twelve thousand four hundred dollars. Supposing the life of the new machine is estimated at ten years, would it be fair to assume the cost twelve thousand four hundred dollars and create a reserve of ten per cent, of this each year. This is an action that would find support from many good accountants. But there is another consideration which is at least worthy of mention. The new ma- 230 THE BANKER'S CREDIT MANUAL chine is substituted in the hope of greater gain through better production. It would seem, therefore, that in the face of greater hope for profits a greater reserve could be carried. The old ma- chine would have been completely charged off in another three years. Would it not therefore be a proper thing to put into effect a depreciation charge of one-third of the remnant of the old value, or eight hundred dollars, and one-tenth of the market cost of the new machine, or one thousand dollars, thereby creating a yearly depreciation charge of eighteen hundred dollars? At the end of three years the old machine would be entirely wiped out in accordance with the original expectancy and the reserve charge could then be reduced to the regular ten per cent. This method would allow the plant to enter the new machine at market cost plus obsolescence loss not provided for by normal reserve. At the end of three years the reserv^e account and the machine account could be adjusted and thereafter the machine carried at market cost and depreciation run accordingly. This would load an extra depreciation charge on the ex^^ected in- creased earnings while the new machine was most productive and before there was any material danger of it becoming obsolete itself. At any rate it is an angle on depreciation that the credit man can well discuss with his borrowers and which will help him to determine the degree of their conservatism and their willing- ness to carry plant at proper depreciated values. APPRAISALS In connection with plant assets an appraised value must some- times be considered. Appraisals are most excellent things to have but sometimes an appraisal seems to the management to offer an I DEPRECIATION AND GENERALITIES 231 ^ opportunity to show an increase in net worth because the ap- praised value may l3e in excess of the book value of the plant as- sets. In a period of rising prices for materials of all kinds, it is quite possible for the present reproduction value to exceed cost value less depreciation, if the appraisal to establish this reproduc^ tion value is based on the present cost of materials. This may be a most excellent matter to have for insurance purposes, but if this valuation is in excess of cost it should not be presented on the property statement, that is, used for a basis of credit, because merchants and manufacturers are not in business to make a'profit or loss from the fluctuations in the value of their plant. Such errors may have crept into the figures and the credit man should apply about the same rule as in the case of merchandise. Let the plant be carried at cost or appraised value if that be less than cost, and insist that proper depreciation accounts be set up against the cost and run l)ack to cover the life of the plant to date. PATENTS AS ASSETS Some companies carry a rather heavy item in the assets to cover patents. If these have been put into the statement at actual 7 purchase price it may l3e fair to allow them as an asset. They are, however, sharply subject to depreciation according to the length of time the patent has yet to run, and a reserve or an actual charge-off should be made in accord with the legal life of the patent. At the expiration of the legal life of the patent there is no further patent monopoly. There may still be a value due to monopoly of the market, and the establishment of a sale for the goods. This is, however, in the nature of good will and of ques- tionable value as a liquidating proposition. Here and there the-^ fact that patents are being carried as assets is concealed by organ- 2Z2 THE BANKER'S CREDIT MANUAL izing a holding company whose sole asset is the patent right. The stock of this company may be held under stocks and investments and so be passed as a non-depreciating, fixed, or, in some cases even as a current, asset. Possibilities such as this make neces- sary an accurate detailed statement of the securities held as assets and this being properly examined may disclose some very inter- esting information. COLLATERAL LOANS Collateral loans are not primarily in the same class as com- mercial loans and are often handled in an entirely separate de- partment. There are, however, several points that are worthy of note in the matter of recording collateral that can well be kept within the credit department for reference and study in con- nection with the bank loans. First and foremost is a record of the collateral that exists as a security on any one loan. This is often a mixed lot and a proper record must be made to indicate the number of shares that are pledged and the present market value. At the time of surrendering the collateral it is also well to secure a receipt for its return. This can be accomplished easily by the use of a card file, of which the form on the opposite page is a reduced reproduction. On such a card or a number of cards can be kept the total col- lateral back of any loan. There is, however, a further record that should be kept. Any one kind of stock or bonds may be pledged for the loans of many different people. Untoward fluctuation of any securities may therefore affect the collateral value on many different names. This makes necessary the estab- lishment of a proper cro^s-record of the kinds of collateral which t — 1 ^ < I 3 ( 9 ■ S 1 , > 2 @ ^n "■ a| g : 3 ? 3 s 1 ( I « " M s ^ S I 3 § ^ II ^l : ^ ^ 233 i ' 1 •a 'i « •1 > j u Q a> "■■• c M V ^ c5 1$ j= C/5 .i='^ Q:t= k. V c 1 ■ •a a> 1 1 l5 ° to Si c« c ^ Sii 1 < u. t: ^ •a "—• a 1 to a> — E V c a 2 SI 15 •5. x: 1 3 C ^ "O rt rt a; 3 < o u Z CQ S a| II 235 1 \i 1 > 1 o > 2 1 1 ■ 1 > 1 , a i s 1 . 236 DEPRECIATION AND GENERALITIES 237 the bank may have in its files and the names of the borrowers who will be affected by market fluctuations. This can be accom- plished readily by keeping a record card and the form on pages 235 and 236 is submitted as one method by which such a record may be kept. There is another form of loan on a* collateral that is different in some vital respects from the loan on stock market collat- eral. This is the loan made to receivers of grain. In the first stage of this loan the security is generally based upon a bill of lading representing the shipment of a definite number of pounds of grain of a certain kind. When the grain reaches the re- ceiving city it may have to be switched to the elevator from the regular railroad tracks, and before this is done the railroad gen- erally demands the surrender of the bill of lading and issues in its place an interim switching order. This order binds the rail- road to make delivery of the car and the grain designated to the elevator tracks. The form on page 239 is similar to those in gen- eral use. In the larger grain centers the boards of trade generally keep a record of car movements, etc., that makes it possible to consider these switching orders good interim collateral. Outside the main grain centers, however, they are subject to some possible manip- ulation. The railroad does not hold itself bound to insist upon the return of the switching order when making delivery of the car. This makes it possible for the elevator to accept a weigh and reload order and allows the possible forwarding of the grain, the securing of a new bill of lading and the actual hypothecation of the grain without disturbing the switching order in the col- lateral files of the bank. To overcome this possibility the writer has followed the policy of demanding that the elevator acknowl- 2Z^ THE BANKER'S CREDIT MANUAL edge the switching order by stamping the following phrase on its face and having it signed by some official of the elevator com- pany: 'The Blank Elevator Company will receive but will not weigh and reload, or forward, or ship, the grain covered by this switching order without the return to them of this original order. The Blank Elevator Company, by , Secretary." This allows the elevator company to receive the grain but binds it not to forward the grain except upon the surrender of the receipt. It makes the switching order very closely approxi- mate an interim elevator receipt. The forms on pages 241 and 243 are filled out as a collateral record to indicate the grain pledged and are so self-evident that they need no detailed explanation. ACCEPTANCES Until quite recently most business has been transacted in this country by means of the open-book account. The trade accept- ance, while not by any means a new form of commercial instru- ment, IS a new force in the business of this country. Its principal feature is to make it possible for the merchant or manufacturer to have the credits for his sales in such shape that he can raise money, to finance the business, by hypothecating them promptly. The trade acceptance is being advocated to make the receivables liquid and do away with the necessity of the merchant perform- ing a banking function. It expands the credit field and liquifies what has been a so-called "frozen asset." A great many articles have been written about the trade acceptance and it has been so widely advertised and extolled that one may almost believe it a panacea for all business ills. It may not be beseeming to criticize this trade acceptance, for its proper use is undoubtedly going to 5 1 >> 03 2 % &] H < 1 5 1 i ^ _Railroad Agent o ^ Q 4> U3 be :s "i ^ >i o o o o MH bA Vh e o *o HH If bo .s •2 Z 3 «S S 'Z ^ o .2 o i. u If «s 2 •^4 :s M 2 S 1 C 11 Is 11 H (A X 5 -c 1 « 2 So 1 i • 11 I 1 1 i 09 § us '2 S ^ •« IS ft St be mi btify." structio: trict. ^ 1 s II < 1 1 ui 03 1 2 been received o e original order riginal Receipt. rders on this bla not to "Order" be used only Detroit switchi < t 1- 1 « 1 a> «4-l a: Z G •2 CO nstructions have mpliance with th( rrender of this O A.-Disposition o] arty named and B.-This blank to points within the CQ c faC < Z •^ 5 ^ <*- < Said! In coi out the su Note to the p Note cars to ] 239 ^" n s^e lU D -J < > 1 1 »- bl < 2 1 2 ti ti I Q < Z < ! bJ I tf) D m J < ill > ^ > c VO 'a C/J ^ o «» ^ Q 241 • DATE ORIGIN RY. ELEVATOR INITIALS NUMBER POUNDS BUSHELS KIND • "^""^^^ — ^-O L^^^_^_ *-J ' — Size of original 8x 11 GRAIN COLLATERAL ADJUSTMENT SHEET This sheet indicates additions to, withdrawals from or switches in grain collateral pledged with THE NATIONAL BANK OF COMMERCE as reported on Value represents market less 10% for margins. By DATE INT NO. KIND PRICE LBS. BU. IN OUT Collateral value previous sheet Size of original 8J/2 x 5j^ 243 DEPRECIATION AND GENERALITIES 245 accomplish much toward rendering credit more liquid and mak- ing for a better relation between buyer and seller. It is to be presumed that a merchant will make the effort to get his receivables into the shape of acceptances because he plans to use this more liquid form of debt, for if he did not so intend, one most potent reason for forcing the change of form w^ould cease to exist. For the ordinary merchants who have one or perhaps a few banks of deposit and who confine their borrowings to these banks this may be all right. But we are faced with a dif- ferent problem when we consider names that are offered in the open market as commercial paper. Here it is considered a very bad credit sign and in truth prevents. the sale of the paper, if the maker of the note sells or hypothecates his receivables. The reason for this is basic, sound, and thoroughly in accord with good business procedure. The buyer of the notes in the open market, lacking the personal connection of the bank of de- posit, insists on the best paper that the maker of the note in any way issues. The hypothecation of accounts weakens the assets by giving a prior lien against them. It is giving to some one a secured or two-name paper as against a single-name paper and when this happens the name must vanish from the open market. Few bank men buying commercial paper will for a moment con- sider the notes of any name if that name borrows in any other market offering better security, and the two-name rediscounted acceptance would very probably be classed as such. Therefore, if a company, using the open one-name market for commercial pa- per, wishes to arrange for its borrowing by substituting the method of rediscounting acceptances in place of floating its one-name note, it must have in its possession a sufficient quantity of accept- ances to cover the peak load of its borrowings. If it has not 246 THE BANKER'S CREDIT MANUAL enough such acceptances and it can not float two kinds of paper it is, ipso facto, compelled to retain that form which can be floated in sufficient amount to secure the funds necessary to its demands, or, in other words, the straight note of to-day. It is perhaps a good thing to urge merchants to get their re- ceivables into the shape of acceptances because of the more gen- eral reasons advanced so ardently by the advocates of the accept- ance plan, but the waser credit man will caution his client against the indiscriminate use of these acceptances unless they are avail- able in sufficient quantity so as not to cut off necessary avenues of credit by their use. It is possible that single-name paper and the negotiated ac- ceptances, accumulated by the same company, may appear in the market side by side, the buying banks differentiating between the strength of the one- and two-name paper by the establishing of different rates of interest. In this kind of a market the credit man should use every effort to ascertain the amount of accept- ances rediscounted, so as to know what part of the receivables' have been hypothecated, and also what the contingent liability is on this type of financing. As a matter of sound economics, it is probable that the registration of acceptances sold might be de- veloped to good advantages 1x)th for the name selling the paper, and for the bank buying it. If this type of registration could be developed, the enlargement of the commercial paper market on a sound basis would be assured, and the criticism now existing against the sale of acceptances would be largely vitiated. There is in some fields a well-defined movement to have the bank of deposit of the customer wishing to sell his acceptances establish trust funds with these acceptances as security, and issue against the same participating certificates, which could be sold DEPRl^:CIATION AND GENERALITIES 247 by the bank or through l3rokers. The estabhshment of such funds would make it possible for the buyers of the straight paper, or the discounted acceptances, to ascertain the volume of such dis- counted acceptances, and would be thoroughly economic. It seems to need only a word in passing to point out that such matters as require legal knowledge should be* left to the bank's attorneys. No matter how well versed a credit man may be in law, the lawyer is still the specialist, and legal matters or legal papers should always be approved by him. Supposed sound contracts, securities or guarantees have not held water and loss has resulted that might have been averted by a proper legal opinion. THE ROBERT MORRIS CLUB AND A CODE OF CREDIT DEPARTMENT ETHICS There is an organization of bank credit men, banded together under the name 'The Rol^ert Morris Club, of the National As- sociation of Credit Men," with the purpose of bettering credit department ethics, system and knowledge. In February, 1916, this body adopted a set of resolutions embodying a code of ethics that every bank man should study and become thoroughly famil- iar with. By strict adherence to this code much misunderstand- ing will be avoided and far better cooperation gained. It would also materially benefit credit methods if the commercial credit men could become well versed in this ethical code. Credit Department Ethics RESOLVED : The first and cardinal principle of credit investiga- tion is the sacredness of the replies, and any violation of this princi- ple places the violator beyond the pale of consideration of the honest credit man. RESOLVED : Every letter of inquiry should indicate in some def- inite and conspicuous manner the object of that inquiry. RESOLVED: When more than one inquiry on the same subject is simultaneously sent to the banks in the same city, the fact should be plainly set forth in the inquiries. RESOLVED : Individual consideration by the recipient of a credit inquiry of the distinguishing marks therein will increase the eflficiency of credit investigation. RESOLVED: Indiscriminate revision of files regardless of the presence of the note in the market is unnecessary, wasteful and un- desirable. RESOLVED : That it is the sense of this conference that the con- tinued observance of high ethical principles in the conduct of the credit departments of banks and banking institutions insures the best results and cooperation in safeguarding banking credits. RESOLVED : It is not permissible nor the part of good faith in soliciting accounts from a competitor to seek in formation from tHe competitor without frankly stating the object of the inquiry. RESOLVED : That it is the sense of this meeting that in answer- ing inquiries the source of the information should not be disclosed without permission and that letters written in answer to inquiries should be held inviolable by the recipients. RESOLVED : That in seeking information the name of the in- quirer in whose behalf the reference is made should not be disclosed without permission. RESOLVED : That in answering inquiries it is advisable to dis- close all material facts bearing on the credit of the borrower to the end that the paper offered in the open market be of the same descrip- tion as that held by the borrower's own bank. Adopted February, 1916, by The Robert Morris Club of the National Association of Credit Aen n ^^'-L '^'CRE^sp ^ °^^E due: J ° "eturn ^^^ AND TO J° ^° ^^NTS OM J^"^ ^^NalTY JAN 261933 , ^/ PEB 11 1933 i/f//V .IBRARY USE "OV .6 1934^ CT 9 1951 20Jur6lMX 2S '935 JUL 1 igsi YC 23998 UNIVERSITY OF CALIFORNIA LIBRARY i;i. t ; X 'r .ij i, jr 1