Mr. PECORA. You are familiar with the fact, as a stockholder of the Detroit Bankers Co., that the certificates of stock issued by that company bore upon them Mr. MURFIN (interposing). Yes. I am very familiar with that. It was article 9. Mr. PECORA. Article 9 of the articles of association or incorporation of the company regarding the statutory liability Mr. MURFIN (interposing). I am very familiar with that. Mr. PECORA (Continuing). Of the stockholders of the Detroit Bankers Co. Mr. MURFIN. Yes; I am very familiar with that. Mr. PECORA. You are identified at the present time in a professional capacity, not as a party in interest, with litigation now pending in the courts of Michigan, in which the stockholders of the Detroit Bankers Co. are seeking to avoid the liability referred to on those certificates of stock. Mr. MURFIN. I have been asked by my associates in that litigation to try that case, and that is one reason I am anxious to get back home and complete my preparation of it. I know that case, I think, by heart now. And we are going to win it. Mr. PECORA. And you are going to win it? Mr. MURFIN. We are going to win it. Mr. PECORA. And by such victory deprive the depositors of those banks of the protection that the statute-at least it was thoughtgave them. Mr. MURFIN. Ninety odd percent of the depositors are stockholders, and they will be more benefited if I win my case than if I should lose it. Mr. PECORA. Ninety-two percent of the depositors are stockholders of the Detroit Bankers Co.? Mr. MURFIN. No, sir; of the First National Bank. This suit is not against the stockholders of the First National Bank. It is against the stockholders of the Detroit Bankers Co. Mr. PECORA. I know that. Mr. MURFIN. And you would not ask me to try my lawsuit with you here, would you? Mr. PECORA. I am neither asking you nor suggesting it, Judge Murfin. I merely wanted to show your interest. Mr. MURFIN. Í am very much interested. Yes; I am very much interested. Mr. PECORA. All right. Now, is there anything more you can tell this committee with regard to the investigation that you and Mr. Mills and Mr. Newberry and Mr. Butler and Mr. Pipper made of the allegations and criticisims contained in Mr. Verhelle's private and confidential memorandum? Mr. MURFIN. I have not. We tried to be as thorough as we could. We had the junior officers before us, and the records and a lot of papers, and we made a report that stated our conclusions. The CHAIRMAN. And you were all personal friends of those people? Mr. MURFIN. Yes, sir; personal friends or business friends is the better way to put it, Senator Fletcher. Here were men, esteemed at home, against whom nothing of any kind before had ever been said. These men had risen from the ranks, from the bottom up, and you cannot rise from the bottom up unless you are a pretty high-grade man. And these charges on their face, although they sounded very serious, yet on investigation were found to have no foundation in fact. Mr. PECORA. Judge Murfin, it will be necessary for you to appear again tomorrow, I am sorry to say. Mr. MURFIN. So am I. And I hope when we are through tomorrow we won't be sorry again. Mr. PECORA. I am only sorry because you have to appear again tomorrow. Mr. MURFIN. Very well. I will be here. Mr. PECORA. Because you wanted to get away today, and I should like to have accommodated you. Mr. MURFIN. I will be here. The CHAIRMAN. The subcommittee will now stand adjourned until 10:30 tomorrow morning. (Thereupon, at 4:50 p.m., Thursday, Feb. 1, 1934, the subcommittee adjourned until 10:30 the following morning.) COMMITTEE EXHIBIT NO. 130, FEBRUARY 1, 1934 EXHIBIT K-1,—ANNUAL REPORT DETROIT BANKERS COMPANY, DETROIT, DECEMBER 31, 1932 Combined statement of condition of the banking units at close of business, December 31, 1932 RESOURCES Cash on Hand and in Banks. United States Government Securities_. Other Bonds and Securities-- Stock in Federal Reserve Bank. Loans, Discounts and Advances_. Loans Secured by Mortgages__ Banking Offices and Real Estate------ Customers' Liability on Acceptances and Letters of Credit___ $80, 643, 226. 09 43, 044, 445. 27 40, 042, 561. 41 1,882, 500. 00 178, 851, 033. 13 172, 812, 455. 90 36, 807, 720, 50 4, 758, 284. 68 894, 576, 09 $559, 736, 802.98 $29, 910, 000. 00 29, 140, 000, 00 3, 329, 267. 03 2, 239, 730. 82 901, 065, 16 895, 232.00 8, 588, 140. 00 $192, 820, 109. 65 484, 733, 367. 97 559, 736, 802.98 JANUARY 9, 1933. To the Stockholders of the Detroit Bankers Company: The year 1932, just passed, is the third full year after the economic upset of 1929. In it, individuals and businesses generally have felt the accumulated effects of three years of depression. Your Company, as banker for many hun dred thousands of persons in the Detroit Metropolitan area, and over 95% of every type of business represented there, has necessarily been a focus point for individual and business problems. It has been organized and conducted so as to safely meet these problems from the standpoint of its customers and depositors, and has, as rapidly as possible, adjusted its own affairs and those of its unit organizations to face the requirements of the present general business situation. During the year there was only a minor change in the outstanding capital of the Detroit Bankers Company, represented by the issuance of $2,679.60 of par value of Detroit Bankers Company stock in exchange for outstanding and unexchanged shares of the First National Bank-Detroit. There are at present outstanding 1,775,598 shares of $20.00 par value. In February, 1932, the Detroit Bankers Company established the First National Bank at Pontiac, contributing $500,000.00 of Capital and $250,000.00 of initial Surplus. This was a newly incorporated National Banking Institution for the purpose of taking over the deposits and liquidating the assets of the First National Bank & Trust Company of Pontiac. The general result of operations for the year 1932 is best shown by a comparison of the total Capital, Surplus and Undivided Profits of all the banking units as of December 31, 1931, and December 31, 1932, as follows: Capital, Surplus and Undivided Profits 12/31/31. Capital Stock $500,000.00, Surplus $250,000.00 of new First Add: Total_____ $68, 459, 912. 03 750,000.00 $69, 209, 912. 03 5, 740, 348. 29 $74, 950, 260. 32 $2,813, 500.00 12, 570, 993. 29 Net Earnings after depreciation and all other charges but before Dividends____ Total---- Deduct: Dividends Paid... Transfers to Reserves_. Total Capital, Surplus and Undivided Profits 12/31/32_- $62, 379, 267. 03 Provision was made for reductions in asset values by transfers to Reserves of nearly $10,000,000.00, in addition to nearly $3,000,000.00 of Reserves already provided for during the year out of current earnings and other sources. The banking units of your Company have, in the past three years of its existence, endeavored to meet the present economic conditions by setting up provisions for losses and contingencies in excess of $37,000,000.00. The combined statement of all banking units shows a decrease in total Income for the year, of $4,776.911.95, over 1931, slightly less than 14 per cent, due mostly to loss of Income as a result of liquidation of earning assets. The close control of operating and other expenses throughout the Group is evidenced by the fact that total Expenses in the same period were reduced $3,061,657.20, leaving a reduction of Net Operating Income of $1,715,254.75. Net earnings, after all charges but before Dividends for 1932, were $5,740,348.29, as compared with $7,475,293.47 for the year 1931 preceding-a decrease of $1,734,945.18. Dividends have been substantially reduced in greater proportion than the decline in Net Earnings. A total of $2,813,500.00 was paid in 1932 as against $6,051,400.00 in the year 1931. This dividend reduction of $3,237,900.00 exceeds the reduction in Net Earnings by $1,502,954.82, the capital investment being thereby strengthened by this latter amount. The First National Bank-Detroit, Board of Directors has had the large number of seventy-six members. It was determined, in December, 1932, to reduce the number of the Board of Directors of the Bank to thirty-eight, five to be Bank Officers and three Trust Company Officers, all of the present Directors of the Bank being made Directors of the Detroit Bankers Company at the annual meeting in January. The general activities of the Detroit Bankers Company, operating as a Holding Company, are rapidly being reduced to the simplest possible form. It will act almost solely as a holder of the stock of its constituent units, its every other function having been eliminated but that of joint Tax, Auditing and Insurance Departments for all units. Every effort has been put forth by your Management in the interests of economy and to reduce the burden of expense of the Holding Company to the affiliated units. The operating expenses of the Detroit Bankers Company itself, have been reduced from an average of approximately $46,000.00 per month at the first of the year of 1932, to an average estimated amount not to exceed $18,000.00 per month for the beginning of 1933. This reduction is at the rate of $336,000.00 a year. Further economies will be made in 1933, during which time the full benefit of this year's changes will be felt. Official salaries of the Detroit Bankers Company for the month of December, 1931, were $12,075.30; in December, 1932, $3,633.30, and in March, 1933, will be further reduced to $1,633.30. This alone is a reduction of $10,400.00, or at the rate of $124,800.00 a year. All other salaries were $21,973.30 for the month of December, 1931, and are estimated for the month of January, 1933, at $7,000.00 a monthly reduction of nearly $15,000.00 or at the annual rate of $180,000.00. The following are reports of various corporations owned by your Company: FIRST NATIONAL BANK DETROIT On December 31, 1931, the First National Bank in Detroit and the Peoples Wayne County Bank were consolidated into the First Wayne National Bank, thus combining in one institution, under a National Charter, all of the Detroit city banking business of this Company. This has made possible substantial economies in corporate expenses and operating organization. On October 10, 1932, the name was changed from First Wayne National Bank to First National Bank-Detroit, perpetuating the name of the oldest member of the banking units, originally established in 1863. The total Operating and Other Income for the First National Bank-Detroit was reduced $3,645,068.95 in the year 1932 from the year 1931. This was largely represented by loss of Interest Income resulting from liquidation of loans and other assets and the reduced rates of interest obtainable on investments made in the year 1932. This reduction was partially offset by an increase of miscellaneous income due to the specific efforts of the Management to establish suitable charges for services that have heretofore been unprofitable. To meet the reduction of Income, expenses of all kinds have been carefully surveyed and controlled. The expense reduction for the year 1932 as compared to 1931 was $2,753,240.79. Net Operating Income, before recoveries and charges, for 1931 was $8,103,945.07; for 1932, $7,212,116.91, a reduction of $891,828.16, or approximately 11 per cent. Dividends paid by the First National Bank-Detroit, to the Detroit Bankers Company during the year were $2,295,000.00 less than in 1931. This reduction in dividend payments recovered for the Bank the loss in Net Operating Income of $891,828.16, and retained $1,403,171.84 of operating profits. Provision was made for depreciation and more than $11,000,000.00 set aside for other Reserves. Beginning the year 1933 the total annual payroll will be approximately $1,000,000.00 less than at the beginning of the year 1932, as a result of general equalizations and salary reductions of Officers and Employees and some necessary eliminations. In keeping with the prevailing trend of interest rates on investments and the policies already established by large banks throughout the Country, interest rates paid on commercial accounts were reduced during the year. In addition, a regulation was recently passed by the Detroit Clearing House Association whereby, effective January 1, 1933, the maximum interest rate to be paid on Savings deposits will be 2% per annum instead of 3% as heretofore. These changes will be reflected in the year 1933 by a substantial reduction in interest expense. During the year 34 branches with over-lapping territories were consolidated and substantial operating economies obtained with very little loss of deposits due to these changes. This policy of consolidating competing branches will be continued. Resources, deposits and number of customers of First National Bank-Detroit, are greater than the total of all other Detroit banks combined. DETROIT TRUST COMPANY In last year's annual report to the Stockholders, attention was called to the fact that the Detroit Trust Company had transferred to the Detroit Bankers Company its ownership of the First Detroit Company, which transacted the bond and investment business of the Company, and that it would thereafter devote its attention to activities of a purely corporate and fiduciary nature. The net earnings of the Company of 1932 were $782,614.39, which is about 10% upon the average of its Capital, Surplus and Undivided Profits for the year. During the year the Company has charged out of its Undivided Profits account and paid on account of its participation in the guaranty of deposits of the American State Bank and other banks, the sum of $390,506.00. It has transferred to reserves from Undivided Profits and current earnings, after payment of dividends, the sum of $955,114.39. Its Capital, Surplus and Undivided Profits of December 31, 1932, were $7,273,008.18. In spite of existing business and financial conditions, a large volume of new trust business has been placed upon the books of the Company during the year. AFFILIATED BANKS Peoples Wayne County Bank of Dearborn First National Bank of Pontiac During the year just passed the Detroit Bankers Company caused a new bank to be organized in Pontiac, namely, the First National Bank at Pontiac. The present eight outlying units are the result of the merging and consolidating of fifteen affiliated or independent institutions. This completes our chain of eight wholly owned unit banks operating eighteen banking offices which serve suburban districts of Metropolitan Detroit and the city of Pontiac. These units have a combined invested capital of $3,347,647.35 and are used as depositaries for upward of 70,000 customers. Deposits in these eight suburban institutions total in excess of $23,000,000.00. Net Operating Income for these banks in the year 1932 amounted to $155,450.49. During the year provision for reduction in asset values were set-up, amounting to $543,350.28. A comparison of the operations of these banks for the year 1931 and 1932 is difficult, owing to the acquisition, during the latter year, of the First National Bank of Pontiac. If, and when, the Glass Bill passes, with its provision for State-wide branch banking, it is contemplated that all these banks, with the possible exception of the First National Bank at Pontiac, will become branches of First National Bank-Detroit. FIRST NATIONAL BANK BUILDING COMPANY AND GARAGE The operations of this company are absorbed in the First National BankDetroit. Net income before depreciation, but after taxes, in 1932 was $349,447.57, as compared with $364,747.98 on the same basis for 1931, a decrease of only $15,300.41. In 1932 as compared with 1931, building rental income was down $54,892, or 4.3%; operating expense was down $50,838, or 14.2%; construction expense was up $4,325, or 8.1%; fixed expense was down $36,262, or 6.8%. Including the garage, the year closed with a net loss of $1,552, as compared to a net profit of $13,748 in the previous year. The garage loss in 1932 was greater by $20,197 than it was in 1931. (The garage paid the building $42,000 rent). It is seen, therefore, that except for the garage, earnings were better in 1932 than in 1931. |