New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1912-12-31
BANK PROFITS SMALL
Greatly 0verestimated, Says
National City Circular.
AVERAGE ONLY 2 PER CENT
Annual Earnings of National
City Bank, on All Capital,
2.37 Per Cent.

Notwithstanding the popular belief that
many OF the banks Of New York City are
great money making institutions, hoard
ing large reserves and paying enormous
dividends each year TO their fortunate
stockholders. letter just issued by the
National City Bank tends to dispel this
notion by giving figures TO the contrary.
II is said that the average net earnings
OF twenty-four New York City national
banks I'm the five years from 1906 to 1910
inclusive were equivalent to only per
cent year on all the capital In the
hands Of the banks.
To arrive at this conclusion the annual
reports of the banks were used. and
careful analysis was made of the earn
ings and ret profits. II is also pointed
out that the average net earnings OF all
the national banks Of the United States
for the five years under consideration
were approximately 9.S per cent, caicu-
lated on capital and surplus. The average
annual earnings Of the National CITY BANK
on capital surplus, undivided prohts ana
net deposits were shown TO he only 100
pcr cent. The letter continues In part as
follows:
There are several ways Of figuring bank
profits one is TO base the calculations
upon the total working capital Delolislns
to the bank. which. OF course, lnCluuc'
the capital represented by the STOCK 10
gether with that carried In surplus anu
undivided profits Another is to base
them upon all of the funds handled by
the bank which includes with the iore
going the net deposits. Still another is
first TO deduct from the earnings an OF
binary and fair interest return upon tiIe
banks own working capital ana tneii W
compute the remainder as ptIceilla7o
of profit upon the net deposits. EVidehtiy
the amount OF deposits which bank
handles and for which 1t Is responsible
must be considered I'm making any proper
calculation of profits, for unless bank
can make a reasonable profit upon these
funds the shareholders had better put the
bank into liquidation and lend their own
capital without the risks and expenses at
tendant upon banking.
The factors entering into the calcula-
ton are given herewith:
AVERAGE PER BANK. FIVE YEARS.
Surplus and undivided profits ........ 5.45o.o'0
Total wording capital ..........-. 81 s so2 20;
Net deposits ....................... 20 $50. l3l
Nef anfual earnings .......... 936. 30l
Computing the profits upon the aver
age of all the capital In the hands OF the
hanks. treating capita and deposits
alike, we have the following;
AVERAGE PER BANK. FIVE YEARS.
Capital. surplus. undivided pronis -.
and net deposits .sf'' - 80,
Net annual earnings .........--....- 700, or
Percentage ....-. .---.-..t..--
That is TO say. these banks. rom an
nor
sources Of income nette9 - IDS
snnum upon the capital In their hahuS
Tor empIovment The average grand lotdl
i'm their hands was S.l24.2Ss; ~. . man IAN,
their earnings they were opIbtu " -, -
over their entire volume OF lo'''d. o,,,se
edlv within each year, always Oh CouiaI
With the risk OF loss. Moreover the No1-
,,rne nj deuosits was turned over SCORES
of times during each year. NJ -
for these particular banks are aVaiIa Wy
but they are among the most aCt'f' ~
the New York Clearing House. anu NV
total New York clearings during the year
1aIo was sixty-seven times the ueposlts o'
ali the Clearing House banks ana non
member clearing banks. In otheI WIZ
while the New YORK bahKs VIZ ,,'hjic
inc these deposits IN loans TO the puolC
Inc deposits were also being ntihzed AZ
tho rate of more than siNty-seVen Tines
their total volume In year IN eHec'Ie
the payments OF the country which lol
convenience. were cleared through Ne"
York.
Here it is pointed out that a better way
10 compute profits is first TO deduct i"ir
interest on the banks working capital
and TO treat the remainder a. compensa-
,ion for banking services. The letter con
tinues:
Interest at per cent upon the average
canital belonging TO these twenty-tOur
hanks amounts to 1896 40, and deducting
this from SAGE. 30l leaves SiiO.s4l and makes
the calculations stand thus:
AVERAGE PER BANK. FIVE yEAns;,
Net deposits 800 -; ..''. ,T'''''''
Net annual earnings, exclusive OF 5000,
interest on working capita. .....'. 44o.o4d
Percentage Of profit on net deposis. In
This is perhaps the most accurate and
ocientidc calculation that can be made OF
the net returns derived from all banking
services and from the point OF view OF
bank shareholders.
THE simplest and most common method
NJ calculating profits IL by basing them
oil upon the total OF the banks own capt
tai. which in this case gives the Following
results:
AVERAGE PER BANK FIVE YEARS.
Captal ACKNOWLEDGEMENTS. S4'f1b' To-
surplus and undivided profits. ....... 3.45O'O'o
Total working capita. ............ SSpg5'5O,
ISarcan,aSs observation-disclosures. 945