Report of Superintendent of Banks state of Georgia on bank of Donalsonville Donalsonville, Ga. closed November 19, 1924, as called for by House Resolution No. 126 of the House of Representatives adopted on August 13, 1929 [1929]

GA 8100 R1
6 1929

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1 I-:-==~~~~~~~~~~l~1Iv::>q REPORT
-OF-
SUPERI TE DENT OF B KS
State of Georgia
BA K OF DO ALSO VILLE
Donalsonville, Ga.
losed ovember 19, 1924
s called for by House Resolution o. 126 of the House of Representatives adopted on August 13, 1929.
..

Atlanta, Georgia, August 17, 1929.
The Honorable Richard B. Ru sell, Jr., Speaker of the House of Representatives, Atlanta, Ga.
My dear Sir: In compliance with Hou e Re olution o. 126 by fr.
Alexander of DeKalb, requesting the Superintendent of Bank "to inform the House fully and as promptly a po sible in a printed report, in pamphlet form, the full facts in reference to the failure and liquidation of the Bank of Donal onville, giving all relevant facts that will throw light on the causes of the failure and the tati tical facts a to the liquidation of the property and the dispo ition of the as ets," I am pleased to submit the following:
That the answers to the specific questions contained in the re olution may be better under toOO, it seems desirable that a brief re ume of the history of thi bank and of the litigation incident to its liquidation hould be given. The fact are taken from the files and records of t~ Department. The bank closed on oyember 19, 1924, and a I ucceeded T. R. Bennett, Esquire, a uperintendent of Bank on January 1, 1927, my only knowledge of this bank has been gained from the records and from the liquidation which has been conducted under my direction since that date.
mSTORY The Bank of Donalsonville, located in Seminole COlmty, began business on February 2, 1903, with a capital stock of $25, 000.00. It grew steadily and satisfactorily and it busine s was profitable to its stockholder, who regularly received large dividends. On September 3, 1906 its stock wa increased to $50,000.00 and on November 25, 1911, to $100,000.00. It was a member of the Federal Reserve y tem and subject to regular and frequent examination by the examiners of the Federal Reserve Bank. It availed itself freely of the discount privileges

of that bank and when it finally closed the larger part of its indebtedness was to this bank and to the War Finance Corporation. It was at the height of its prosperity when the Banking Department, created under the Banking Act of 1919, began to function on January 1, 1920. At that time its capital was $100, 000.00, its surplus $50,000.00, and its undivided profits in excess of its surplus. On August 25, 1920, its deposits were $365, 981.03 and its rediscount only $30,000.00.
The bank served an agricultural community. During the war period it made loans to it customers based on the inflated values then existing. When deflation came in the fall of 1920 and 1921 the e values rapidly declined and Seminole County, as well a other agricultural countie , entered on the long period of depression, which has not yet been entirely overcome. The value of the bank's bill receivable decreased to an alarming extent. Many of its loans, believed to be perfectly good when made became incollectable. Depositors began to withdraw their funds. From August 25 to December 15, 1920, $89,915.03 wa withdrawn, decrea ing it depo its to that extent. To meet the e withdrawals the bank was obliged to borrow money. Its rediscounts increased during this period more than 80,000.00. Little improvement in its condition wa shown in 1922 and it grew wor e in 1923.
This story of the Bank of Donalsom"ille might well be written of many of the country banks in Georgia and the other agricultural states. It i familiar and painful history, too well known to the banker of Georgia. Alas, how many of the e banks met the same fate which overtook the Bank of Donalsonville.
The reports indicating that the condition of thi bank wa so serious, the Superintendent of Banks directed a special examination to be made in September, 1923. As are ult of thi examination the bank was required, as a condition of continuing in business, to raise $5.0,000.00 in cash to make good its resen e and to obtain from its depositors an agreement to accept certificates of deposit payable in one, two and three years for their open deposits. It was also required to secure an extension from its other creditors. The bank met these conditions. On December 28, 1923, its depo its subject to check had been reduced to $36, 133.70 but its time certificates of deposit on deferred payments
2

amounted to $135,000.00. It will be seen that from August, 1920 to December, 1923, its depositors were paid nearly $200, 000.00. But in order to pay these depositors $150,000.00 had been borrowed.
Having complied with the requirements of the Department, the bank was permitted to continue in operation, though with certain restrictions as to the acceptance of new deposits. It paid two installments aggregating 20% on the time certificates, but on ovember 19, 1924, the directors, finding that they could no longer continue the struggle, surrendered the bank to the Superintendent of Banks for liquidation.
When the Superintendent took charge of the bank it owed $255,914.33 for borrowed money, to secure which it had pledged with the Federal Reserve Bank, and other lending banks, collateral of the nominal value of $492,743.27. Its banking house, furniture and fixtures had also been mortgaged to secure borrowed money. The appraised value of its unpledged bills receivable was only $8,827.38, and the total unpJedged assets which came into the possesion of the Superintendent was a little over $9,000.00. The bank owed its depositors $99,837.25 and to the State, to Seminole County, and to the City of Donalsonville the aggregate sum of $12,877.00. It was, therefore, apparent that the only asset available for depositors was the assessment against the stockholders.
Under the law as it then stood (happily changed by subsequent amendment) debts due the State, the counties and municipalities were entitled to priority of payment over depositors, and even over the necessary expenses of liquidation. As the value of the assets turned over to the Superintendent was considerably less than the amount of the preferred claims, the Superintendent had no funds with which to pay a liquidating agent's salary, or other expenses, and the liquidation of these assets was of necessity for the benefit only of the preferred creditors. In this situation the Superintendent found it necessary to file a bill in the Superior Court of Seminole County for the appointment of a receiver to take charge of and liquidate the assets for the benefit of the preferred creditors. As the result of this action an agreement was made with the City of Donalsonville by which the expenses were to be paid out of the assets, which
3

under the law were to be liquidated for its benefit. The City Attorney, Hon. H. G. Rawls, now a member of the Senate, was appointed at the instance of the City as attorney for the bank and Mr. J. F. Bwwn, Liquidating Agent, the salary of the Liquidating Agent being fixed by the mayor and council. The bill was then dismi sed and the liquidation proceeded.
On December IS, 1924, within a month after the bank suspended business, the Superintendent for the benefit of depositors levied an as essment on the stockholders of 100% of the par value of their stock. Then ensued the unusual and protracted litigation, now to be summarized.
LITIGATIO
1.
Before the Superintendent was authorized under the law to issue the execution again t the stockholders to collect the assessments, twenty-five of the stockholder, owning more than 60% of the stock, filed suit in Fulton uperior Court and obtained a re training order prohibiting the Superintendent from issuing the execution not only against them but again t the other stockholders of the bank as well.
At that time the constitutionality of the section of the Banking Act authorizing the Superintendent to i sue executions for the collection of tock a e ments was in doubt, the Justices of the Supreme Court being equally divided on the question. On account of this doubt the Superintendent filed a cro s-bill praying j udgmeat again t the tockholders for the amount of the assessments, in the event the executions should be declared invalid. This cro s-bill was allowed by Judge George L. Bell. When the case came on for hearing before Judge Edgar E. Pomeroy, the section of the Act under which the executions were issued wa upheld a being con titutional and the injunction was di solved. The Superintendent immediately i sued executions against all the stockholders.
2.
In March, 1925, the Superintendent entered suit in the Superior Court of Seminole County against W. H. 'anLandingham.
4

the former Cashier of the bank, and his wife, seeking to set aside transfers of property which the bank had made to the Mer-
a chants & Farmers Bank of Donalsonville, a private bank owned
by Van Landingham and his wife. This suit was settled by reconveyance to the Superintendent of Banks of the property held by the Merchants & Farmers Bank. At the same time, and as a part of the same settlement, the stock execution against VanLandingham was settled by the payment of $1,000.00 in cash. The settlement at this figure was accepted because of the insolvency of VanLandingham. This settlement was approved by Judge M. J. Yeomans, of the Pautaula Circuit, in which the bank was located, as were all of the settlements and compromises made in the course of liquidation. Mrs. VanLandingham paid her assessment in full.
3.
On July 4, 1925, the American Bank & Trust Company of Cordele brought suit in Crisp Superior Court to enjoin the Superintendent from collecting an execution issued against it as a stockholder, upon the ground that the section of the Act under which the execution wa issued was unconstitutional and that it was not liable for the amount because the. stock had been acquired in payment of a debt and stood on the books in the name of the bank as pledgee. The injunction was granted by Judge.
D. A. R. Crum who sustained both contentions of the bank.
Judge Crum also held that the certificates of deposits issued for deferred payments were mere loans and not entitled to share in the stock assessments. On appeal to the Supreme Court the case was reversed on all points and the stock execution was collected in full. Bennett v. American Bank & Trust Company, 162 Ga. 718.
4.
Gordon Chason and R. F. Whea,t not being content with the judgment of Fulton Superior Court denying the injunction sought to prevent the collection of the stock assessments, filed a bill in the Superior Court of Decatur County praying an injunction to prevent the collection of the executions issued against them. On a hearing Judge W. V. Custer refused to grant an injunction and dismissed the bill. The executions proceeded against these stockholders and their assessments were collected.
5

5.
In ovember, 1925, Mrs. Rebecca Latimer Felton filed suit against the Superintendent in the Superior Court of Fulton County to enjoin the collection of the execution issued against her as a stockholder of the bank in the sum of $1,500.00. In her petition which was filed by the distinguished constitutional lawyer, who introduced the resolution calling for this report, she attacked almost every section of the Banking Law as being in conflict with the State and Federal Constitutions. This was the most serious attack which has been made on the Banking Act since its passage in 1919. The suit was given wide publicity and had the effect of well nigh paralyzing the efforts of the Department to collect stock assessments, not only in this bank but in all others. The case was heard by Judge John D. Humphries of the Atlanta Circuit, who denied the injunction and dismissed the bill. On appeal to the Supreme Court Judge Humphries' decision was sustained and the constitutionality of the Banking Act wa fully established. Felton V. Bennett, 163, Ga. 849. The execution again t Mrs. Felton was collected in full, principal and interest.
6.
On June 17, 1926, the Superintendent filed suit against the directors of the bank in the Superior Court of Fulton County, in which county one of the directors resided, to recover losses sustained on account of their negligence and their mismanagement of the affairs of the bank. This suit was settled, the directors surrendering claims as depositors for more than $25,000.00 which were cancelled and the bank relieved of this much of its depo it liability. They also released all intere t which they had in certain collaterals held by the Federal Reserve Bank for their benefit. This settlement was recommended by depositors and stockholders of the bank, certain stockholders offering to pay their assessments in full if the settlement was agreed to. Mter a full hearing settlement was approved by Judge Yeomans.
7.
More than six months before the failure of the bank a prominent banker in another section of the State had transferred ten
6

shares of its stock and had given the bank notice of the transfer. The Superintendent attacked this transfer as having been made to an irresponsible transferee with a view of avoiding liability as a stockholder, on the authority of the case of ewton V. Bennett, 159 Ga. 626, and the assessment was paid in full.
In addition to the litigation above referred to, other suits were necessary in order to collect bills receivable of the bank and to convert into cash its other assets. This litigation, however, was of a minor character. From the above summary it will be seen that most of the litigation was instituted by stockholders in an effort to defeat the collection of their assessments. The litigation was persistent, hard fought, and continued over a period of years. It was necessarily expensive. This expense must be charged to the stockholders whose refusal to pay the liability imposed on them by law occasioned it. It is surprising that the criticism of this expense has come not from depositors but from these stockholders themselves.
On August 25, 1920, the bank owed its depositors $365,981.03. The amount now due them is $61,587.52. The bank has, there-
fore, paid to depositors 83.+ % of their deposits. As already
stated, most of this was paid before the bank finally closed out of money borrowed on the security of assets pledged. The liquidation has been unusually expensive and greatly protracted because of the stubborn litigation instituted by stockholders to avoid paying their a sessments. All attorneys' fees paid and every other expense incurred in the liquidation of this bank has been approved by Judge Yeomans after a full hearing, of which notice wa given, and at which parties interested appeared and interposed their objections. Under the law all expenses incurred by the Superintendent of Banks mu t be so approved by the Judge of the Circuit in which the bank is located.
QUESTIO S PROPOUNDED IN THE RESOLUTIO
The Resolution requests of the Superintendent, "particularly uch information as will enlighten the Rou e on the following questions:"
1. Q. The date on which the bank failed. A. ovember 19, 1924.
7

2.

Q. A statement of its assets and liabilities on the date of fail-

ure.

A. A statement of the bank as shown by the audit was as fol-

lows:

ASSETS

Face Value Appraised

Value

otes unpledged

. $26,516.41

$8,827.38

otes pledged

. 492,743.27

192,261.77

Fi Fas unpledged

.

987.92

987.92

Fi Fas pledged directors

.

2,181.01

1,681.01

Federal Reserve Bank

.

4,443.61

4,443.61

Merchants & Farmers Bank, Don-

alsonville

.

6.89

6.89

Fourth ational Bank, Atlanta .

15.80

15.80

Cash and Cash Items

.

56.98

56.98

County Warrants

.

125.16

125.16

J. M. Shingler, Trustee

.

1,192.71

1,192.71

Stocks and Bonds

.

46.50

46.50

Banking House, pledged

. 5,710.49

4,000.00

Furniture and Fixtures pledged . 5,105.65

2,552.83

Other real estate pledged

. 9,903.04

10,222.99

$ 553,853.35 $ 231,025.05

LIABILITIES

Debts due the State of Georgia, City of Donalson-

sonville, and County of Seminole

$

Debts due depositors

.

War Finance Corporation

.

Federal Reserve Bank

.

Bills Payable

.

Accounts Payable

.

12,877.00 99,837.25 117,292.46 74,101.52 64,520.35
2,241.42

$ 370,890.00

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3.

Q. What amounts, if any, were at that time due to the bank

by each officer and director, the form of the several items of in-

debtedness so due, and when and how much has been paid there-

on?

A. ame

1. R. Aultman,

Asst. Cashier

_

Thos. V. Chason, V. P. _

T. G. Harvey

._

Maker
4,472.26 9,751.60

Endorser
11,418.34 Un.50

T. J. Shingler .. _. .. . .. G. B. Shingler._ ._..._._._._. ._. _

1,000.00

6,740.61 153.15

W. H. VanLandingham _ 1,394.35

600.00

The following directors were not indebted to the bank in any sum whatever, either as maker or as endorser:

Gordon Chason, J. F. Roberts, W. Strickland, E. D. Spooner and J. J. Spooner.

All notes signed by officers and directors, or endorsed by them, had been pledged to creditor banks and these banks undertook their own collections through their own attorneys. Detailed reports have not been made of these collections and the Superintendent, therefore, cannot say what amount has been collected on these notes. There were two notes endorsed by Thos. V. Chason, which were not pledged, one signed by F. M. Lynn for $56.50 and one signed by Mrs. Julia Reynolds for $531.10 The F. M. Lynn note was not paid on account of insolvency of maker and endorser. The note of Mrs. Julia Reynolds was paid in full.

4.
Q. A list of all stockholders at the time of the failure, showing in tabulated form how much was assessed against each and how much has been paid by each, letting the table show by italic letters which of these were officers or directors.

9

A. LIST OF STOCKHOLDERS WHO WIlU ASSESSED AND THE AMOUNTS COLLECTED FROM EACH.

Name

Amount Assessed

Amount Collected

American Bank & Tr. Co., Cordele, Ga. $

Emma Lena Bivings

_

C. K. Bivings

_

A. R. Benton

_

J. R. Caldwell, Jr.

_

"Thomas Chason

_

D. W. Cherry

_

H. C. Cherry

_

**Gordon Chason

_

Callahan Grocery Company

_

Continental Trust Company

_

R. L. Cox

_

Estate of A. Fort

_

S. E. Fiveash

_

W. H. Flowers

_

Mrs. W. H. Felton

_

**T. G. Harvey

_

John QUitman Harvey

_

Mrs. Callie Howard

_

G. W. HagaIL

_

R. A. Hudson

_

Robert M. Hudson

_

Mrs. L. S. Hancock

_

Mrs. W. B. King

_

Albert Jackson

_

Mille; B. Lane

_

J. M. Laing

_

E. C. Mosley



_

M. M. MinteL

_

Mrs. M. M. Minter

_

A. H. Mosley

_

James B..Mosley

_

Mrs. E. E. Mosley

_

John R. McClendon

_

E. E. PowelL

_

**J. F. Roberts

_

C. L. Reynolds

_

Balance set-off againSt court costs due

C. L. Reynolds.

J. B. Reynolds

_

**J. J. Spooner

_

P. S. Spooner

_

**G. P. Shingler

_

A. T. ShingleL

_

**Will Strickland

_

F. S. Shingler

_

G. P. Shingler, Jr.

_

P. E. Shingler

_

F. S. Shingler, Jr.

_

Sidney Harris Shingler

_

3,600.00 $ 1,000.00 2,500.00 1,000.00 1,000.00 2,500.00
100.00 100.00 6,000.00 400.00 4,000.00 500.00 900.00 300.00 2,500.00 1,500.00 1,500.00 100 ..00 200.00 800.00 200.00 1,200.00 4,100.00 500.00 3,000.00 1,000.00 500.00 2,000.00 1,100.00 1,000.00 500.00 200.00 200.00 500.00 3,600.00 500.00 700.00
1,300.00 1,800.00 2,000.00 3,000.00 2,400.00
500.00 500.00 200.00 100.00 100.00 100.00

3,600.00 None None None None None None 100.00
6,000.00 400.00
4,000.00 None None None 2,500.00 1,500.00 1,500.00
100.00 None None None None None
500.00 None 1,000.00
500.00 None None None None
200.00 200.00 None None 500.00 396.06
616.00 None
768.00 None None
500.00 50.00 None None None None

10

LIST 01' STOCKHOLDERS .WHO ORE ASSESSED AND TBB AMOUNTS COLLECTED FROM EACH

Name

Amount

--------------- Assessed

E. D. Spooner
Ruth Shingler Spooner. Mrs. Ida Strickland.. Susan M. Spooner Mrs. Hattie B. Shingler T. J. Shingler

_ _

$

_

_

_

_

1,000.00
300.00 3,300.00
900.00 5,400.00
2,900.00

Mrs. Lucy Bell Vanlandingham W. H. Vanlandingham

_ _

500.00 16,200.00

Also some real estate turned over in

FransketWtlehmisennat.nt R. F. Wheat Berry W1lIiams Mrs. Gartrelle WolL

_ _ _ _

200.00 2,000.00
3,600.00
400.00

INETXEERCEUSTTIOCNOSLLECTED ON STOCK _ 1,380.25

Amount Collected
$ 1,000.00 None None None 1,000.00 None 500.00 1,000.00
None 2,000.00 None None

Officers and directors of the Bank of Donalsonv1l1e.

5.
Q. If any of such officers or directors have failed to pay such assessment let the report state as to each one so failing, what efforts have been made to collect, and what is the reason in each case for failure to collect?
A. The efforts made by the Superintendent to collect the assessments against the stockholders and the determined resistence to these efforts is perhaps sufficiently shown in the references already made to the resulting litigation. In the first suit filed by stockholders in Fulton Superior Court to enjoin the collection of these assessments all of the officers and directors were parties plaintiff except J. T. Roberts, who owned five (5) shares and whose as essment has been paid in full. The reason why the other assessments of officers and directors have not all been collected is due to their insolvency and the fact that no property has been found upon which to levy the executions.

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6.
Q. What was the date of the last examination of the bank prior to failure, and what report was made thereon? A. Th~ last examination was made on October 27, 1924 by Examiner J. E. Cagle. The original report was used as evidence in some of the numerous cases already referred to and has not been returned to the files of the Department. The criticism of the bank made by Mr. Cagle was as follows:

Mr. T. R. Bennett, Superintendent of Banks, Atlanta, Ga.

ovember 11, 1924.

Dear Mr. Bennett:
Following your instructions I have made examination of the Bank of Donalsonville, Ga., and enclose herewith my report, which is based on the records of the bank and information, believed to be correct, furnished by officers of the institution under review.
1. Director T. J. Shingler has attended only one meeting of the last ten held. Also, Gordon Chason has attended only one meeting.
2. H. L. Harrell, bookkeeper, who is really in charge of the actuul assets of the bank is not bonded.
3. Merchants & Farmers Bank (Not Inc.) said to be owned by Mrs. W. H. Vanlandingham, wife of the Ca hier of the bank under review, is paid a "salary" of $1,800.00 per year, said to be "for good will and convenience." In addition of this salary the bank is using, without rent the quarters formerly used by the Bank of Donalsom ille.
4. Loans in schedules 3 and 4 marked H were hypothecated and information, as to collateral was furnished by Mr. Vanlandingham.
5. Of the most important losses as estimated by Mr. Vanlandingham, your attention is requested in the following estima.tes:
12

MAKER

AMOUNT %

DUE

A. J. W. Brinson

$ 13,117.02 50

G. D. Cowart.......................... 31,317.62 75

G. Darbyshire & Firm.......... 27,575.54 75

J. W. Drake............................ 12,655.43 50

W. W. Gibson........................ 16,293.73 50

A. G. Hagan.......................... 16,185.00 50

Estate of G. W. Hagan... .... 11,766.97 75

Hagan Grocery Co................. 9,131.05 88

Jos. P. Howard...................... 18,772.65 2-3

M. M. Minter........................ 13,161.78 75

J. B. Reynolds........................ 15,663.00 50

TOTAL LOSS IN ABOVE UNES

,$

Additional losses estimated

..

TOTAL ESTIMATED LOSSES

.

LOSS
6,558.51 23,488.11 20,680.65
6,327.71 8,146.86 8,092.50 8,825.23 8,035.32 12,515.10 9,871.33 7,831.50 120,372.82 4,628.18 125,000.00

Mr. Vanlandingham insists that $125,000.00 will cover total losses however, it is the opinion of your examiner that $4,628.18 is not sufficient to cover losses on all loans other than those listed above. Dr. Chason stated that he thought $75,000.00 would cover the losses, this was before Mr. Vanlandingham made the above estimate, which was after supper of the last night I was in Donalsonville, and I could not get in touch with Dr. Chason for a revised estimate frOID him.

6. By referring to the inside of the last page of the enclosed report you will find a recapitulation of loans, which will indicate that all loans are hypothecated, except $19,624.73, which appear to be of little, if any, value.

7. Request was made of Mr. W. H. Vanlandingham for permission to examine the Merchants & Farmers Bank, (Not Inc.), my request being refused, stating that he did not for any act to indicate a connection with the Bank of Donalsonville, after discussing various reasons for my requesting such permission, he stated that he would give me information on any account that I might designate, but that he did not care for the private bank to be examined. This is an additional indication that some connection, in some way, exists between the two institutions, and I think deserves serious consideration.

13

8. Other real estate as shown in Schedule 13, is of little, if any net value to the bank on account of existing liens which are ahead of the bank.

General: It is the opinion of your examiner that this bank

is in an insolvent condition, and that should demands' be made

for the deposits that are now due, the bank would be unable to

make payment. $16,164.13 of Certicates and $1,444.49 who

did not accept the agreement for certicates are now payable

on demand.

Respectfully,

(Signed)

J. E. Cagle,

Examiner

7.

Q. Whether it is true that the bank was then reported to be in good condition and to have $668,000.00 of good assets. If so, the uperintendent is directed to advise clearly whether the report was true. If it was not true, was the examination completely made, and what reason was there for the filing of an inaccurate report, and who was at fault?

A. It is not true that the bank was reported, on the examination referred to, to be in good condition and to have $668,000.00 of good assets. On the contrary, its condition was shown to be so precarious that Superintendent Bennett immediately wrote the bank as follows:

ovember 13, 1924. President, Cashier and Director, Bank of Donal onville, (Member Federal Reserve), Donal onvi-lle, Ga.

Dear ir:
A preliminary analy is of data furnished us by Examiner Cagle, showing condition of your bank at close of busine s October 27, indicate such an unsati factory condition that we regard it in order that you put notice on door, signed by a majority of your Directors, in accordance with Section 2 of Article 7 and wire us.
I regret this, but it occurs to me that complications are accumulating that will make it impos ible for your Bank to re-
14

cover from its back-set, unless your Directors can put into it a voluntary assessment immediately of around your now capital.

Yours very truly, SUPERINTENDE T OF BANKS.
As soon as the report could be pxamined in detail he again wrote the bank on ovember 18, 1924 as follows:

President, Cashier and Directors, Bank of Donalsonville, (Member Federal Reserve), Donalson ville, Ga.

ovember, 18, 1924.

Dear Sirs:
Data furnished this Department by Examiner Cagle, showing condition of your bank at close of business October 27th, indicates to us that your bank is operating in an unsatisfactory manner:
A. Loans and discounts amounting to more than $530,000.00 were reduced approximately $2,400.00 during the month of Augu t; $22,000.00 during month of September; $6,500.00 during month of October; in fact, from the period of June 30th to October 27th your loans and discounts were reduced $33,050.73, which indicate to us that your paper i extremely unde irable or that your active officers and directors have not been aggres ive in the collection of it.
B. Messrs. T. J. Shingler and Gordon Chason have attended only one meeting of the last ten held. Section 4 of Article 19 provides that directors shall meet monthly.
C. It appears that H. L. Harrell, bookkeeper, is in charge of the assets of the bank and not bonded. This is in violation of the law and he should be under bond of not less than $25,000.00. See Section 10 of Article 19.
D. one of your large lines of credit appear to be secured, as provided for in Section 13 of Article 19.
E. It appears that a private bank is operating in the same building with your bank under the name of Merchants and
15

Farmers Bank, not incorporated, and instead of collecting a reasonable rent from this private bank you are paying Mrs. W. H. Vanlandingham a salary of $1,800.00 per annum. Such payments a have been made on this should be put back into the a set of the bank promptly, and we do not regard it advi able for the private bank to operate in this building just now.
F. In appraisal of your loans and discounts it appears that director Vanlandingham admits as worthle s $120,372.82, which, added to other 10 se , indicated, $4,628.18, makes a total of $125,000.00, and as you have only $80,437.47 surplus and profits, this leaves your capital impaired 44,562.53, to cover which you should immediately call a meeting of your Board of Director for the purpose of reaching a conclu ion a to actual amount required and call meeting of stockholders for the purpose of levying asses ment payable in cash. See Article 6 of the Banking Act.
G. After a thorough analy is of your affairs it occurs to us that it would be wise for you to immediately surrender posse ion of your bank to thi Department in accordance with Section 2 of Article 7.
Yours very truly, T. R. BE ET'f, Superintendent of Banks.
In obedience to the e suggestions from the Superintendent the Directors posted the notice on the door of the bank in accordance with the Banking ct and turned the bank over ,to the Superintendent for liquidation.
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Q. If, in the opinion of the Superintendent, there was inaccuracy in the report, is there or is there not any way to prevent the recurrence of such errors in future; if there is, what is it; if there is not, i it worth while to continue the system?
A. In my opinion the report of the examination of the bank heretofore referred to was not inaccurate. The accuracy of the report was shown by the audit made by a certified public accountant and has been further verified by the results obtained in the liquidation of the bank.
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Q. How much cash was realized from the assets, outside of the stockholders' assessments, and what was done with the money?
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Let this part of the report indicate how much of these assets went to attorneys and how much to other expenses and how much to secured creditors.
A. Only $2,767.45 was realized from the unpledged assets of the bank. For the collection of these unpledged assets attorneys' fees of $250.00 were paid. The balance was applied on the claim of the City of Donalsonville, which, under the law, was entitled to priority of payment. How much the creditor banks realized out of the collateral held by them I am unable to state, as these banks made their own collections through their own attorneys. I am informed, however, that there is still a considerable amount due to these banks. More than nine-tenths (9-10) of the assets of the bank were pledged. 0 detailed report of the collections of the pledged assets ha been requested for the reason that it was apparent from the beginning that these assets were not sufficient to pay the debts for which they were pledged, the appraised value of the assets being $192,261.77 and the indebtedness secured being $255,914.33.
Q. Whether it is true, in the opinion of the Superintendent of Banks, that in practically all cases of failed banks the assets are all, or nearly all, absorbed by the secured creditors, and whether the expense of collecting for these creditors is paid out of the general funds. If these facts are true, of what benefit is this Department to the general creditors or the general public?
A. It is not true that "in practically all cases of failed banks the assets are all, or nearly all, absorbed by the secured creditors", and it is not true that "the expense of collecting for these creditors is paid out of the general funds." In fact, general funds are never applied to the expenses of collecting pledged assets.
Banks cannot operate without the power to borrow money. They cannot borrow without pledging their assets to secure the loans. It may be a pertinent question for the General Assembly to determine what proportion of a bank's assets it should be permitted to pledge. Such limitations have been fixed in some states. It should be remembered, however, that creditors are not obliged to lend either to banks or to individuals unless the loans are secured in a manner satisfactory to themselves.
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:
f
As the law stood at the time the Bank of Donalsonville closed the State, the counties, and municipalities, and other political sub-divisions of the State were entitled to priority of payment out of the assets of a bank in liquidation. In many instances these preferred deposits were large and it sometimes happened that the unpledged assets were not sufficient to pay these pre-
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ferred claims. The General Assembly, in 1927, amended the Banking Law so as to place all depositors on an equal basis and made them first in order of payment. Since this amendment the .1 results of liquidation have been very much more satisfactory to depositors.
The intimation in this question that the assets of insolvent banks are absorbed by secured creditors and practically consumed by expenses and attorneys' fees is not in accordance with facts.
At the 1927 session of the General Assembly, in obedience to a resolution of the Senate I submitted a detailed statement of the liquidation of every bank which had closed since the organization of the Banking Department on January 1, 1920. This report showed every item of expense, the attorneys' fees paid, and to whom they were paid.
At the present session, on July 8, 1929, in compliance with a resolution introduced in the House by the Honorable J. H. Kirby of Forsyth, I again submitted a report, giving detailed information as to all banks which had closed since I became Superintendent of Banks on January 1,1927. The attention of the Hou e is respectfully called to these two reports. They demon trate that banks are not being liquidated for the benefit of secured creditors and that their a sets are not consumed in expenses and attorneys' fee. The results of the liquidation accomplished as shown by these reports and the ratio of expenses to assets administered will, I believe, compare favorably with liquidation through the courts, State or Federal, and with the liquidation of
ational banks by receivers appointed by the Comptroller of the Currency, and the liquidation of banks in other states. It is a matter of some regret to me that after a good deal of labor and considerable expense no attention whatever appears to have been paid to these reports.
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IN CONCLUSION It is asked "of what benefit is this Department to the general creditors 01' the general public?" This question I shall leave to be answered by the banks and others who are familiar with the operations of the Department and who are in position to know whether it has justified its existence. They know, and are in position to appreciate, the conditions which have existed since the Department was created. They appreciate that no amount of supervision or examination could have prevented the failure of the great majority of banks which have closed. They know that neither laws nor supervision can make worthless assets good or prevent depositors from withdrawing their deposits. They know that a bank cannot succeed unless it makes money and that a bank cannot make money when most of its customers become bankrupt.
Respectfully submitted, A. B. MOBLEY,
Superintendent of Banks.
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