CONTENTS
Introduction = 1
Chapter 1 Who Can Use This Handbook = 5
Summary of Key Interests of Bank Analysts = 6
Directors = 6
Depositors = 8
Borrowers = 10
Shareholders with Short－Term Interests = 11
Shareholders with Long－Term Interests = 13
Debt Holders = 14
Employees = 15
PART ONE GATHERING THE DATA = 17
Chapter 2 Sources of Information = 19
The Annual Report = 19
Shareholders' Letter : Discussion of the Year's Activities
Core Financial Statements
Management's Review of Financial Operations
Supplementary Financial Information
Directory of Key Personnel and Location of Offices
The Quarterly Report = 28
Form 10－K = 28
Form 10－Q = 34
Consolidated Report of Income = 36
Consolidated Report of Condition = 36
Form 8－K = 48
Prospectus = 54
Proxy = 56
Secondary Sources = 57
Chapter 3 A Tour Through One Bank's Financial Statements = 63
Consolidated Statement of Income－J. P. Morgan & Co., Incorporated = 68
Consolidated Statement of Condition－J. P. Morgan & Co., Incorporated = 87
Consolidated Statement of Condition－Morgan Guaranty Trust Company of New York = 100
Statement of Changes in Stockholders' Equity－J. P. Morgan & Co., Incoporated (Consolidated) and J. P. Morgan & Co., Incorporated (Parent) = 100
Consolidated Statement of Changes in Financial Position－J. P. Morgan & Co., Incorporated = 101
Financial Statements of Holding Company－J. P. Morgan & Co., Incorporated (Parent) = 102
Financial Statements of Nonbank Subsidiaries－J. P. Morgan & Co., Incorporated (Parent) = 103
Notes to Financial Statements = 103
Accountants' Opinion = 104
Chapter 4 Patterns of Data = 105
Trend = 105
Cycle = 109
Seasonal Variation = 111
Irregular Variation = 121
PART TWO PERCEIVING THE POLICIES OF A BANK = 123
Chapter 5 Liquidity Policy = 125
Importance = 125
How Liquidity Is Managed = 127
Self－Liquidating Asset Approach
Asset Saleability
New Funds
Borrowers' Earnings Flow
Federal Reserve Discount Window
Implications of Liquidity = 133
Implications for Earnings
Implications for Bank Analysts
Measuring Liquidity = 136
Average Maturity of Securities
Loan－Deposit Ratio
Volatile Domestic Liabilities Ratio
Measuring Other Approaches to Liquidity
Chapter 6 Credit Risk Policy = 145
Importance of Risk Taking = 145
How Credit Risk Is Managed = 147
Minimal Risk Approach
Price for Risk Approach
Diversity of Risk
Implications of Credit Risk Approaches = 152
Implications for Earnings
Implications for Liquidity
Implications for Shareholders
Implications for Depositors
Measuring Credit Risks = 154
Minimal Risk Policy
Risk Pricing Policy
Chapter 7 Interest Rate Policy = 163
Importance of Spread = 163
How Spread Is Managed = 164
Incremental Pricing
Interest Rate Sensitivities
Interest Rate Speculation
Implications of Interest Rate Policies = 166
Measuring Interest Rate Policy = 167
Interest Rate Spread
Comparing Maturities of Assets and Liabilities
Spread Elasticity
Chapter 8 Profitability Policy = 177
Importance = 177
How Profitability Is Managed = 178
Return on Assets
Return on Equity
Capital Ratio
Implications of Profitability = 182
Implications for Risk
Implications for Bank Analysts
Measuring Profitability = 184
Return on Average Total Assets
Components of Return on Average Total Assets
Factor Separation Analysis(FASAN)
Return on Average Interest Earning Assets
Chapter 9 Capital Policy = 197
Functions of Bank Capital = 197
Link to Financial Markets
A Cushion Against Temporary Losses
Protection in the Event of Liquidation
How Much Capital Is Enough?
How Capital Policy Is Managed = 203
Change in Assets
Change in Dividend Payout
New Offering
Change in Profitability
Recapitalization
Employee Stock Ownership Plans
Implications for Bank Analysts = 206
Implications for Depositors
Implications for Loan Customers
Implications for Shareholders
Measuring Capital Adequacy = 208
Shareholders' Equity to Assets
Federal Reserve－Equity Capital Method
Federal Reserve－Gross Capital Method
Federal Reserve－Loans to Cross Capital Method
Comptroller of the Currency―Capital to Assets Method
FDIC－Total Ratio Method
Comparison of Methods = 213
PART THREE THE IMPACT OF ENVIRONMENT = 217
Chapter 10 Banking Comparisons = 219
Structure of U. S. Banking = 219
Guidelines for Comparisons = 220
National Comparisons
Comparisons with Similar－Sized Banks
Comparisons with Banks in Similar Geographic Areas
Sources of Information for Domestic Comparisons = 223
Primary Sources
Secondary Sources
Sample Domestic Comparisons = 228
Deposit Market Share
Performance Measures
Measures of Market Share
International Comparisons = 239
Sources of Information
Sample Comparisons
Chapter 11 Economic Influences = 244
Deposit and Loan Market Size = 245
Local Market
National Market
International Market
Securities Markets = 254
The Economy and Stock Prices
Cost of Capital
Cost of Capital and Return on Existing Capital
Changes in Capital and Assets
Chapter 12 Regulatory Pressures = 263
Methods of Control = 263
Competition Among the Regulators = 264
Dislike of Strong Regulators
Attempt of Regulators to Gain Preeminent Power
Techniques of Control = 268
Examination ＝ Persuasion, and Censure
Response to a Request for a Change in Franchise
News Leaks
Regulatory Issues = 273
Effectiveness of Audits and Examinations
Role of Nonbank Subsidiaries
Regulatory Disclosure
Treatment of Foreign Banks in the United States
Control of U. S. Banking Abroad
Regulation of Electronic Banking
Additional Banking Powers for Near－Banks
Changed Accounting Rules
Response to Regulators = 279
Acquiescence
Challenge to Regulators
Exploitation of Regulatory Loopholes
PART FOUR VIEWING THE MANAGEMENT OF A BANK = 283
Chapter 13 Banking Strategies = 285
Importance = 285
Strategies of Self－Determination = 286
Proprietary Skills Strategy
Oligopolistic Strategy
Strategies of Drift = 292
Outflank Strategy
Serendipity Strategy
Strategies of Retardation = 294
Archaistic Strategy
Purge Strategy
Militant Strategy
Contraction Strategy
Speculative Strategy
Futuristic Strategy
Regeneration = 299
Chapter 14 Management Controls = 300
Methods of Management Control = 301
External Controls
Internal Controls
Integration of Controls
Two Examples = 309
Overvaluation of Bonds at Chase
Retail and Wholesale Banking at Marine Midland
PART FIVE PREPARING AN EVALUATION = 311
Chapter 15 Forecasts = 313
Development of Forecasting = 313
Structure of Forecasts = 314
Selection of Series
Assumptions
Elements of Change
Forecast of Series
Forecasting Methods = 319
Interpretation of Comments by Management
Judgmental Forecasts
Endogenous Forecasting Model
Exogenous Forecasting Model
Integrated Forecasting Model
Accuracy of Forecasts = 331
Range of Accuracy
Alternative Forecasts
Record of the Forecaster
Chapter 16 Market Valuation = 334
Importance = 334
Perception = 335
Securities = 335
Equity Measures
Multiple of Market Value to Book Value
Rates Paid for large Certificates of Deposit
Rating Services = 341
Chapter 17 Composite Valuation = 345
Organization of Composite Valuations = 345
Structural Elements
Ranking the Bank
Bank Analysts
First National Bancshares = 347
Review of Peer Group Rankings
Overall Review of the Ten Policies and Issues
Summary of Valuations = 370
Index = 373
