Mr. PATTERSON. I think the examiner has drawn a picture just about as I see it. Mr. PECORA. In other words, he was fairly accurate? Mr. PATTERSON. I think he was. Mr. PECORA. Do you know when the Guardian National Bank of Commerce declared its first dividened in the year 1932? Mr. PATTERSON. No, Mr. Pecora; I do not recall. Mr. PECORA. Do you recall that the National Bank of Commerce declared a dividend amounting to $200,000 for the first quarter of the year 1932? Mr. PATTERSON. Yes; I think I do. Mr. PECORA. Do you know the circumstances under which that dividend was declared? Mr. PATTERSON. Well, it was for the purpose of paying a dividend on the Group stock, together with dividends received from other units of the Group. Mr. PECORA. Was it done in order to help the group out? Mr. PATTERSON. I do not think so. You mean, to pay interest? Mr. PECORA. In order to help the group out by putting it in possession of funds with which to meet its own obligations? Mr. PATTERSON. No. My recollection is that it was paid to group stockholders as a dividend. Those funds which you spoke of, $200,000, together with other funds from the other units of the group, were used to pay a dividend. Mr. PECORA. Do you recall the last dividend that was declared and paid by the group on its stock? Mr. PATTERSON. I think it was the first quarter of 1932. Mr. PECORA. It then paid a dividend amounting to $386,022 for that first quarter of the year 1932? Mr. PATTERSON. That is about 25 cents a share. Mr. PECORA. Yes; exactly 25 cents a share. Of that dividend of $386,000-odd, $200,000 was obtained from a dividend of that amount paid by the Guardian National Bank of Commerce, was it not? Mr. PATTERSON. Yes, sir. Mr. PECORA. Do you know the circumstances under which the Guardian National Bank of Commerce declared that dividend for the first quarter of 1932? Mr. PATTERSON. I do not know what you mean by "circumstances." Their profit account probably was sufficient for them to declare that amount into the group company. Mr. PECORA. Why do you say that the profit account was probably sufficient? Mr. PATTERSON. Well, I do not know what the figures are now. Mr. PECORA. Have you any consciousness or recollection of the fact that the condition of the bank in its earnings did not justify the payment of such a dividend by the bank? Mr. PATTERSON. No, I do not. My recollection is that they did have sufficient earnings to pay that dividend. Mr. PECORA. Do you know whether or not the dividend was actually paid out of current earnings or was it paid in part out of earnings and in part out of surplus funds? Mr. PATTERSON. I cannot remember the figures now. Mr. PECORA. You know that the national bank examiner in his report of the condition of the Guardian National Bank of Commerce on May 16, 1932, stated that the dividend which was declared for the first quarter of 1932 was illegal? Mr. PATTERSON. No; I did not know that he stated that. Mr. PECORA. And that the reason it was illegal was because there was not a quorum of the board of directors in attendance? Mr. PATTERSON. No; I did not know that, Mr. Pecora. Mr. PECORA. Did you know that in his report of condition as of May 16, 1932, the national bank examiner stated that the condition of the assets of the bank did not warrant the declaration of any dividend at the end of the current dividend period, which would be for the second quarter? Mr. PATTERSON. No; I did not know that it was in the report. Mr. PECORA. Apparently the bank did not declare a dividend for the second quarter of 1932. Do you recall that fact? Mr. PATTERSON. Yes, sir. Mr. PECORA. Did it declare a dividend at any subsequent time during the year 1932? say. Mr. PATTERSON. I have not the dividend record here; I could not Mr. PECORA. Well, according to the dividend record which I have, the bank declared a dividend for the final quarter amounting to $150,000. Do you know whether the payment or the declaration of that dividend was justified by the earnings and by all the other circumstances of the bank? Mr. PATTERSON. I would say that it was justified at the time. It seems to me that there were earnings sufficient then to declare that amount. Mr. PECORA. Were you a member of the board of this bank? Mr. PECORA. But as the executive vice president of the group whose special function it was to inquire from time to time into the condition of the bank units of the group, did you not know the condition of the bank? Mr. PATTERSON. Approximately; not intimately. Mr. PECORA. According to the report of the National Bank Examiner, who in this instance was Mr. W. A. Reagan, on the condition of the Guardian National Bank of Commerce as of November 9, 1932, he then reported slow loans aggregating $5,388,682.52, doubtful loans $18,692,876.22, and loss of $546,942.07. Does that accord with your recollection of the condition of the bank? Mr. PATTERSON. I do not remember ever seeing Mr. Reagan's report. I believe that that report was not delivered to the bank until some time after the 1st of January, although I am a little bit hazy on that point, and by that time we were working very hard at other matters. Mr. PECORA. Did you know that the doubtful loans alone, independently of the slow loans, that were reported by the National Bank Examiner as of November 9, 1932, actually exceeded the entire capital funds of the bank at that time, which aggregated $17,945,433.93? Mr. PATTERSON. Yes; apparently they did. Senator COUZENS. Did you know it at that time? Mr. PATTERSON. No, sir. Mr. PECORA. Do you think that under those circumstances any dividend should have been declared for the final quarter of the year 1932? Mr. PATTERSON. In view of the necessity to take care of some of the indebtedness of the Group Corporation, I would say, yes. Mr. PECORA. Of the Group Corporation? Mr. PATTERSON. Yes. Mr. PECORA. Then the interests of depositors were being sacrificed to take care of the interests of the stockholders of the group? Mr. PATTERSON. No. Mr. PECORA. Is not that so? Mr. PATTERSON. No. Mr. PECORA. Does not that necessarily follow from the answer you have given? Mr. PATTERSON. No; I believe not. Mr. PECORA. Have you not said in words here or in substance. just now, that you justify the declaration of the dividend because of the necessity for taking care of the group? Mr. PATTERSON. The declaration of a dividend by the Guardian National Bank of Commerce would come out of the profit account of that bank, and the assets were to take care of the depositors' interests, and they have, pretty largely, so far. Mr. PECORA. Are not the depositors' interests supposed to be protected also by the capital funds of the bank? Mr. PATTERSON. That is true; but $150,000 would not Mr. PECORA. Would not pay them in full, of course. We know that. Mr. PATTERSON. Would not jeopardize the depositors' interests. Mr. PECORA. It would to that extent, would it not? Mr. PATTERSON. Yes. Mr. PECORA. It would jeopardize them to the amount of dollars and cents involved in the dividend. Mr. PATTERSON. That is right. Mr. PECORA. Do you think, under those circumstances, that the officers did their full duty to the depositors in declaring that dividend, with the bank in that condition? Mr. PATTERSON. Viewing it strictly as a bank operation, you are right. Mr. PECORA. Do you know why the dividend was declared by the bank? Mr. PATTERSON. Only, as I said before, it was used to pay some of the current indebtedness of the Group Corporation. Mr. PECORA. What interest did the depositors of the bank have in taking care of the Group Corporation? Mr. PATTERSON. Well, the Group Corporation was the stockholder of bank stock, and, I believe, had a right to declare earnings out of that bank. Mr. PECORA. Even though the earnings of the bank itself, considering the bank as a separate entity, were not sufficient to make the declaration of a dividend advisable? Mr. PATTERSON. I do not believe there was any legal objection to declaring dividends, even though the profit account is used or some of the surplus. Mr. PECORA. I am not talking about a legal objection; I am talking about the practical consideration of principles of sound banking. Mr. PATTERSON. As a practical consideration it was wrong. Mr. PECORA. It was wrong? Mr. PATTERSON. Yes, sir. Mr. PECORA. Do you know at whose instance this wrong thing was done? Mr. PATTERSON. No, sir; I do not. Mr. PECORA. Can't you guess? Mr. PATTERSON. I suppose it was the directors of the bank who declared the dividend. Mr. PECORA. Do you think the directors of the bank did it upon their own initiative, or do you think they acted in response to a suggestion, if you please, from the group? Mr. PATTERSON. I don't know, sir. Mr. PECORA. Do you know anybody that would know that? Mr. PECORA. Mr. Lord told us, when he was on the stand that suggestions only were made to the unit banks by the group on the subject of declaration of dividends. You heard that testimony, did you not, week before last? Mr. PATTERSON. Yes, sir. Mr. PECORA. Didn't it appear to you that those suggestions were regarded as commands? Mr. PATTERSON. Oh, no, sir; not at all. Mr. PECORA. They were not regarded as commands by those officers of the bank who, when they first received the suggestion, reported back that the earnings of their bank did not justify the declaration of the dividend suggested by the group? Mr. PATTERSON. No, sir; and I can positively state that so far as any apparent domination is concerned, that did not exist in my experience with the Guardian Group. Mr. PECORA. And you say that, despite the documentary as well as oral evidence that was introduced week before last before this committee? Mr. PATTERSON. I am speaking in a perfectly practical manner, now, about day-to-day operations; and any suggestion Mr. PECORA. I am not talking about day-to-day operations; I am talking about operations based upon general policy. Mr. PATTERSON. I do not believe there was any domination by the group officers of any of the units. Mr. PECORA. Was it customary when you were chief national bank examiner for you to notify a bank that it was to be examined and the date when the examination would commence? Mr. PATTERSON. No, sir. Mr. PECORA. As a matter of fact, do you know whether or not any of the officers, either of the group or of the unit banks of the group, received at any time any information concerning the time of the examination of any one of those banks or that an examination was to be made by the national bank examiners? Mr. PATTERSON. Yes; I know of one instance. Mr. PECORA. When was that instance? Mr. PATTERSON. I believe it was Examiner Walker's examination of the Guardian Bank in May of 1932, when he and one of his assist ants came to me and made preliminary arrangements to conduct an examination. The bank was quite a large one, Mr. Pecora Mr. PECORA. Which bank are you referring to? Mr. PATTERSON. The Guardian National Bank of Commerce, of Detroit, Mich. The bank had 28 branches, and part of its operations were conducted in what we call the Union Guardian Trust Building, and a part of its operations were conducted in the Penobscot Building. It was his first examination of the bank, and he came to see me to learn what the physical layout of the institution was, to determine where the branches were located, where the loans and discounts were handled, and with regard to the large office in the Boulevard District, in the General Motors Building. Mr. PECORA. Is that the only instance that you recall? Mr. PATTERSON. I do not remember any other. I believe we participated with the national bank examiners-I am referring now to the examiners of the Group corporation-I believe we participated with the national bank examiners in an examination of the Grand Rapids National Bank at one time. Mr. PECORA. Under what circumstances was that done? Mr. PATTERSON. After the national bank examiners had taken charge of the bank for examination we were notified and sent men over there to participate with them rather than to discommode the bank with two examinations. Mr. PECORA. Do you recall receiving a letter dated December 17. 1931, from Mr. Leyburn, then chief national bank examiner, a photostatic copy of which I now show you? Mr. PATTERSON. Yes; I recall this letter. Mr. PECORA. That was another instance, was it not, where you received notice in advance that an examination was going to be made of the bank on a certain date? Mr. PATTERSON. Yes, apparently; although it does not state that an examination is to be made. Mr. PECORA. What does it state? Suppose you read the letter, yourself, into the record while you have it before you. Mr. PATTERSON. It is addressed to me. [Reading:] Hopkins will be in Detroit Saturday morning with Norsen and McLean to line the work up and start it off. He will have to be away Monday and then he will return and he will have some more help. Mr. PECORA. What did you think these examiners were coming there for? Mr. PATTERSON. I would think now it was for the purpose of some examination; but I do not just recall what this particular instance was. Mr. PECORA. Will you look at this document which I now show you and which purports to be a photostatic reproduction of an intraGroup memorandum addressed by you to Messrs. Lord, Kanzler, Covington, and Walsh, under date of December 18, 1931, and tell me if you recognize it to be a correct copy of such a memorandum prepared and sent by you to the gentlemen to whom it is addressed? Mr. PATTERSON. Yes; I recall it. Mr. PECORA. I want to offer that memorandum in evidence. (Photostatic copy of memorandum dated Dec. 18, 1931, addressed by Mr. Patterson to Messrs. Lord, Kanzler, Covington, and |