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Mr. Guyton and Mr. Cleveland, can you state without any reservation that there is no connection between those correspondent bank balances and the loans that were made to Mr. Lance?

Mr. Cleveland?

Mr. CLEVELAND. No, sir, I cannot make that statement. I wasn't present when those loans were arranged. I have no knowledge of the details of those loans.

Mr. DERRICK. How about you, Mr. Guyton?

Mr. GUYTON. I have no knowledge of the circumstances regarding the accounts or the loans. I have, however, asked each of the senior officers of the bank if they were aware of any relationship between the loans and the balances in these particular accounts, and they said they knew of none.

Mr. DERRICK. I think you all were ready for that question.

The thing that bothers meas I look at those charts I think that any reasonable person would at least have to ask that question. Can you sit there and tell me as far as you know there is no connection whatsoever? You were made president of the bank on May 1. I don't guess any of these loans were made since you have been president.

Mr. GUYTON. No, they have not been.

Mr. DERRICK. Is there anyone in the room who is qualified, who was the chief executive officer at that time, to answer that question?

Mr. CLEVELAND. I was the chief executive officer at that time, but I cannot answer the question because I do not know the details of those loan negotiations. I simply don't know.

Mr. DERRICK. Mr. Cleveland, is it a general practice in your bank to negotiate correspondent accounts of that size without the knowledge of the chief executive officer?

Mr. CLEVELAND. It has been negotiated up to certain levels before presenting it to me, yes. This is not

Mr. DERRICK. Is this common practice? Mr. CLEVELAND. Yes, it is, because what happens is the calling officers from other banks come in. They don't always come to my office first. They normally go to other officers of the bank, talk about special services they can provide, try to do a selling job at that level, and then try to get those senior officers to come to me, to do a selling job with them.

Most frequently negotiations or discussions or this type of thing take place at a lower level of management and work their way up. But I, as chief executive officer of my bank, usually made the recommendation to the board of directors to change correspondent bank accounts or to open new bank accounts.

Mr. DERRICK. Mr. Cleveland, I am sure, although I don't know you, that you are a reasonable man and apparently have been very successful in your profession. Can you look at those charts and tell me that it doesn't raise any question in your mind about there being some relationship between those loans and those bank balances?

Mr. CLEVELAND. I can only tell you that based on what Mr. Guyton has said and the information which we received, that in the case of the C. & S. bank correspondent bank arrangement, that that was done purely on a professional level based on the recommendations of independent consultants.

Mr. DERRICK. Mr. Cleveland, who in your bank could I ask that question of who would have made that decision, who could give me a yes or no answer?

Mr. CLEVELAND. That would have made the recommendation? Mr. DERRICK. That is right. Who handled the setting up-

Mr. CLEVELAND. Of the correspondent relationship with the C. & S.?

Mr. DERRICK. Not only with the C. & S. I am talking about the Continental Illinois and Manufacturers Hanover.

Mr. CLEVELAND. I can certainly respond to one of them.
Mr. DERRICK. I would be happy to hear it.

Mr. CLEVELAND. The Manufacturers Hanover I can respond to from personal knowledge.

Mr. DERRICK. All right.

Mr. CLEVELAND. I was present during the discussions and the negotiations to change that relationship to Manufacturers Hanover Bank, and it was based purely on the services that they could provide, that we had not been able to get in a satisfactory manner from other correspondent banks.

Mr. DERRICK. So what you are telling me—and I am not questioning you, but I want to make sure I understand it is that in April 1975 you had on deposit no dollars with Manufacturers Hanover?

Mr. CLEVELAND. That is right. Mr. DERRICK. And that in June of the same year there was $2,700,000 on deposit with that bank and on June 30 that bank made to Mr. Lance a loan of $2,600,000. There is no connection whatsoever.

Mr. CLEVELAND. I am not saying there is no connection whatsoever. I don't know that. But I know that the correspondent bank relationship with our bank was not opened on that basis.

Mr. DERRICK. Was there anything down the line that formed in the relationship there that you are aware of?

Mr. CLEVELAND. In relation to what?
Mr. DERRICK. The loan and the balance.

Mr. CLEVELAND. Not that I am aware of. The balances that you see there are gross balances, not net, collected usable balances. That total amount of money shown on those balances is not necessarily available to Manufacturers Hanover.

Mr. DERRICK. I understand the duties of a correspondent bank, Mr. Cleveland. But you can tell me by looking at that chart that there is no relationship whatsoever between the two?

Mr. CLEVELAND. No, I cannot say that. I can say that it was not-it was not a condition to us opening that account with Manufacturers Hanover, and balances and loans in connection with opening that account were not discussed in that original meeting.

Mr. DERRICK. All right. If it wasn't a condition of opening the account, was there anything that happened after the account was opened that would have made that account a consideration for that loan that you are aware of?

Mr. CLEVELAND. That was not discussed with me at all.

Mr. DERRICK. Are you aware of anyone that it was discussed with?

Mr. CLEVELAND. No, I am not.

Mr. DERRICK. Do you have any further knowledge about it whatsoever?

Mr. CLEVELAND. No, I do not.

Mr. DERRICK. Who in your bank, if anyone, could give us a yes or no answer to that?

Mr. CLEVELAND. I don't know of anyone that could. To my knowledge, the relationship between the loan and the correspondent account was never discussed by anybody in our bank.

Mr. DERRICK. All right. So, what you are telling me is that it was just a coincidence that the funds jumped at about the same time the loan was made?

Mr. CLEVELAND. I just don't know, really. The relationship be tween the balances I do not believe have any bearing whatsoever to the making of the loan when it was made.

Mr. DERRICK. And there is no one in your bank that could furnish us with that information?

Mr. CLEVELAND. I wouldn't think so.

Mr. DERRICK. As far as you know and I address this question to you, Mr. Guyton, as well—there is no relationship whatsoever be tween the instigation of these accounts—when they were originally started, made correspondent banks—and anything that happened thereafter, that would connect the loans that were made to Mr. Lance with the balances that were on hand with your corresponding banks?

Mr. CLEVELAND. I can answer that from my standpoint. To the best of my knowledge there was none whatsoever.

Mr. DERRICK. Is the best of your knowledge absolute?

Mr. CLEVELAND. It would not be absolute. You have to recall there was an interim period of time in which I was not daily involved in the bank.

Mr. DERRICK. You don't know of your own knowledge of any relationship?

Mr. CLEVELAND. I have no knowledge of any relationship between those loans and the account.

Mr. DERRICK. Directly or indirectly?
Mr. CLEVELAND. Directly or indirectly.
Mr. DERRICK. How about you?
Mr. GUYTON. I know of none.
Mr. DERRICK. Directly or indirectly?
Mr. GUYTON. That is right.

Mr. DERRICK. Is there anyone in your bank-if this knowledge was available—that would be in a better position to give it to us than either one of you two gentlemen? I believe Mr. Lance resigned as the chief executive officer and, Mr. Cleveland, you took over, is that correct?

Mr. CLEVELAND. Yes, I did.
Mr. DERRICK. Is there anyone else in your bank?
Mr. GUYTON. I would not think so, no.
Mr. DERRICK. All right.
Mr. Davis and Mr. Henderson, how old is your bank in Calhoun?
Mr. HENDERSON. I believe, Mr. Derrick, it is 65 or 66 years old.

Mr. DERRICK. Mr. Davis, I take it you are related to Mrs. Lance. What is her maiden name?

Mr. Davis. Her name is David, and mine is Davis.
Mr. DERRICK. I am sorry.
Mr. Davis. I am not related at all, I assure you.

Mr. HENDERSON. Mr. Davis came to our bank in response to this agreement we have been talking about. Mr. DERRICK. That was an oversight on my part. I am sorry.

You say that this has been a pretty consistent practice of overdrafts by directors of your bank for a long time, is that correct?

Mr. HENDERSON. By some few-not all.
Mr. DERRICK. Were they generally in this amount?
Mr. HENDERSON. No, sir.
Mr. DERRICK. This was an unusual situation?
Mr. HENDERSON. Yes, it had gotten unusually high, yes.

Mr. DERRICK. Did you have any written agreement with any of the-I guess they would be referred to as overdraftees—did you have a bank note or anything that would-

Mr. HENDERSON. No, we did not.

Mr. DERRICK. But you did have a firm understanding with them, I am sure, that

Mr. HENDERSON. Of the circumstances, and at no time did I think we were going to lose any money, which we did not.

Mr. DERRICK. I was going to ask you that question. How long has Mr. Lance done business with your bank?

Mr. HENDERSON. Mr. Derrick, I have been working there 24 years, and he beat me there by 2 years. So he has been there-

Mr. DERRICK. Have you ever lost a dime on any one of those loans?

Mr. HENDERSON. No, sir.

Mr. DERRICK. Was he capable, in your judgment, of paying back his overdrafts without question.

Mr. HENDERSON. Yes, sir.

Mr. DERRICK. Were the other members of his wife's family capable of paying back the overdrafts?

Mr. HENDERSON. They not only were, they did.
Mr. DERRICK. I understand that, but there was no question in

your mind?

Mr. HENDERSON. No, sir.
Mr. DERRICK. I assume they are very prominent people--

Mr. HENDERSON. I told you this morning I do not approve of it. But at the same time I did not think we would lose any money, and we did not.

Mr. DERRICK. I have got along with Mr. Mattox with these kinds of Southern banking practices. Overdrafts are not usual things. But there is one thing I would like to get back to, and then I will turn it over

What I cannot understand and Mr. LaFalce asked about this-I can understand that Mr. Lance was connected with the bank, and a member of the family, and he was running for Governor, and that you would let him overdraft with the understanding he would pay it up with interest.

I really cannot understand how you let the rest of these accounts go for so long without charging any interest on them. That is the one thing that I find-

Mr. HENDERSON. Mr. Derrick, we did not charge any customer any interest up until June 1974. At that time we started on everybody alike.

Mr. DERRICK. Whether they were stockholders or --
Mr. HENDERSON. It didn't matter.

Mr. DERRICK. You didn't carry overdrafts for 6 or 8 months for everyone, though?

Mr. HENDERSON. No, no.

Mr. DERRICK. And this was just a practice of the bank, not to charge interest on long-term overdrafts?

Mr. HENDERSON. Yes.

Mr. DERRICK. I think I will relinquish the rest of my time. I thank the gentleman very much. I wish you a safe trip back home.

Chairman ST GERMAIN. Mr. Mattox?

Mr. Matrox. Mr. Henderson, I was not here at the beginning of your testimony. Have you been associated with other banks besides the Calhoun bank?

Mr. HENDERSON. No, sir, this is the only bank I have ever worked in.

Mr. MATTOX. Could you give me some idea of the size of the overdrafts that might relate to someone other than the ones we have heard testimony about-the ones related to Bert Lance or his family?

Do you have any idea as to the size or duration of other overdraft type accounts?

Mr. HENDERSON. Mr. Mattox, if you will divide the number of family members into the total and get it down to that, we quite frequently have people that might be overdrawn, but not for the constancy of these accounts.

Mr. Mattox. You had some with very sizable overdrafts.
Mr. HENDERSON. Yes.

Mr. MATTOX. Was that a type situation where you knew the family? How big is Calhoun, Ga.

Mr. HENDERSON. About 5,000 people.
Mr. MATTOX. You know about half the people in town?
Mr. HENDERSON. I know about all of them.

Mr. Mattox. You know which ones will pay you and which ones won't?

Mr. HENDERSON. Yes, sir.
Mr. Mattox. Probably from long experience.
Mr. HENDERSON. Yes, sir.

Mr. MATTOX. I have been related at times to some of these smaller banks in Texas, and I know overdrafting is a very common practice, particularly as it relates to the elderly. The elderly frequently overdraft their accounts, and the bank may pick it up sometime later, when they get their social security check in later.

Is that the way you would do it?
Mr. HENDERSON. Yes.
Mr. MATTox. And that has been a common practice?
Mr. HENDERSON. Ever since I have been there, yes.
Mr. MATTOX. Are there any other banks in Calhoun, Ga.?
Mr. HENDERSON. One smaller bank.
Mr. MATTox. Do they follow a similar practice, do you know?
Mr. HENDERSON. I can't answer that.

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