Distribution of loans originated by Federal savings and loan associations, by purpose of loan, fiscal-year periods A summary of loans made by reporting Federal savings and loan associations during the year ended June 30, 1940, classified by pur CHART XXXVI1 GROWTH OF THE MORTGAGE PORTFOLIO OF 1,405,0 1,136.3 943.8 474.6 186.0 (MILLIONS OF DOLLARS) 1935 1936 1937 1938 1939 1940 pose of loan, by Federal Home Loan Bank Districts and by States, is given in Exhibit 41. Because of the substantial mortgage holdings of Federal savings and loan associations, principal repayments on existing loans have an increasing tendency to offset the dollar volume of new loans made. For this reason, the balance of loans outstanding, although growing rapidly in recent years, does not fully reflect the increase in lending activity. STATEMENT OF CONDITION A combined statement of condition for all operating Federal savings and loan associations as of December 31, 1939, is presented in Exhibits 19 and 20. The principal changes outlined in the preceding pages are reDIVISION OF RESEARCH AND STATISTICS flected in an increase in private repurchasable capital from 65.9 percent of total resources at the end of 1938 to 70.8 percent at the close of 1939, in a decline in Treasury and HOLC investments from 16.6 to 13.2 percent, and in a growth of first-mortgage holdings from 79.8 to FEDERAL HOME LOAN BANK BOARD For actual figures, see Exhibit 42. 81.5 percent of total assets. The ratio of real estate owned to total assets fell from 7.5 to 5.7 percent, while the cash ratio increased.from 4.9 to 5.6 percent. To eliminate the effect of associations which were newly chartered or which merged during the year, selected balance-sheet items for a group of 1,344 identical Federal savings and loan associations, separated by new and converted associations, are summarized in Exhibit 43. As would be expected, the status of the newly organized, comparatively young associations varies significantly from that of the converted older associations. The newly organized associations experienced a greater proportional growth than the converted associations as to assets, private investments, and mortgage holdings. Property holdings of both types of associations were reduced, converted institutions showing the largest percentage decline. However, the ratio of real estate to total assets in new Federal associations is much lower than in the case of converted institutions. Reserves and undivided profits were accumulated by the new associations at a greater rate than by the converted institutions. On the other hand, the aggregate volume of reserves and undivided profits was proportionately less in new associations owing to the shorter period of operation. The consolidated statement of operations for the calendar year 1939, attached as Exhibit 44, reflects the effect of increased lending activity on income. Gross operating income of the 1,384 Federal savings and loan associations operating during the calendar year 1939 was $78,255,000 as compared with $66,666,000 for 1,355 reporting associations the year before. Operating expenses were $22,242,000, or 28.4 percent of total gross operating income, which was a slight reduction from the ratio of 28.6 percent for the preceding year. Net income (after interest and nonoperating items) totaled $53,319,000 as compared with $44,351,000 reported the year before. Of this net income, 23.8 percent was allocated to reserves and undivided profits. and 76.2 percent was distributed in dividends to shareholders. In 1938, these ratios had been 22.1 and 77.9 percent, respectively. Thus, an increasing proportion of net income was used by Federal savings and loan associations to strengthen their reserve position. The aggregate expenditure for compensation during the year 1939 was $10,405,000, or 13.3 percent of gross operating income. Advertising, the second largest item of expense, amounted to $2,358,000, or 3 percent of gross operating income. The average expenditure for advertising per association was $1,704 as compared with $1,540 for the preceding year. While all of the important expense items were higher in dollar amounts than the year before, their ratios to gross operating income show little change. Since operating ratios vary considerably according to the size of association, an analysis of such ratios grouped as to size of association is presented in Exhibit 45. These data may prove useful to local managers in evaluating and comparing operations with those of a number of associations of comparable size. Dividend rates paid by Federal savings and loan associations continued the downward trend observed over a number of years. For the calendar year 1939, the average annual dividend rate (weighted by the amount of invested capital) was 3.39 percent as compared with 3.49 percent for the calendar year 1938 and 3.69 percent in 1935. From 1938 to 1939, all of the twelve Federal Home Loan Bank Districts showed reductions in average dividend rates. Of the 46 States in which Federal associations operated throughout the two-year period, 36 indicated lower rates and 9 unchanged rates, and only one State reported slightly increased dividends. The lowering of dividend rates was thus fairly general throughout the country. The wide range of dividend rates is indicated by the average of 2.58 percent for the State of New York, on the one hand, and the average of 4.08 percent for North Carolina, on the other. Exhibit 46 shows the average annual dividend rates paid by Federal savings and loan associations, by Federal Home Loan Bank Districts and by States, for the calendar years 1938 and 1939. LEGISLATION At the beginning of the fiscal year, 42 States and one Territory had laws specifically permitting conversion of locally chartered member associations of the Federal Home Loan Bank System into Federal savings and loan associations. During the year, the State of Missouri has been added to this list. By virtue of a provision of the Social Security Act Amendments of 1939, approved August 10, 1939, Federal savings and loan associations are now subject to the Federal Social Security taxes. For details concerning the business promotion expenditures of savings and loan associations, see Federal Home Loan Bank Review, April, May and June 1940. IV Federal Savings and Loan THE SUMMARY HE Federal Savings and Loan Insurance Corporation's sixth year of operaton was marked by continuing progress. The number of individual investors in insured savings and loan associations increased from 2,236,000 to 2,591,600, and the amount of private capital invested in such associations rose from $1,657,859,000 to $2,019,808,000. Insured institutions made new mortgage loans of $662,689,000 during the fiscal year 1940-an increase of 41 percent over the preceding year. This growth in the volume of savings entrusted to insured associations and in the volume of money loaned by them to finance home ownership testifies to the value of Federal insurance of accounts. Title IV of the National Housing Act, by which the Federal Savings and Loan Insurance Corporation was created, had two basic objectives; to safeguard small savings in order to restore and maintain public confidence in thrift and home-financing institutions, and to facilitate recovery of home mortgage lending by reviving the flow of private money into savings and loan associations. The degree to which these objectives have been attained is apparent from the few data given above and will be more evident from the following pages. From the beginning of operations through June 30, 1940, only 16 associations have encountered serious difficulties necessitating corrective action by the Corporation. Compared with a total of 2,235 insured associations on June 30, 1940, this is not a substantial figure. In 12 of these cases, the Corporation made cash contributions to restore the impaired capital of insured associations, in the aggregate amount of $917,198.94 (after deduction of recoveries to June 30, 1940). With the assistance and cooperation of the Corporation, one association was enabled to continue normal operations without the payment of a contribution by the Corporation. Three insured institutions were placed in default with the Corporation acting as receiver for two and the Superintendent of Building and Loan Associations of the State of Ohio in charge of the third. Insured shareholders in two of these institutions were issued new share accounts amounting to $192,260.73 in other insured associations prior to the close of the fiscal year. The ultimate net loss to the Corporation in these cases cannot be determined until final liquidation of the associations' assets has been completed, inasmuch as the Corporation will share in any recovery. During the fiscal year 1940, resources of the Corporation increased from $119,400,262 to $124,917,101. The balance sheet as of the end of the reporting period showed $23,620,811 in surplus and reserves in addition to the Corporation's capital stock of $100,000,000. There was an increase of $5,337,467 in the surplus and reserve accounts during the fiscal year. Further progress was made in the execution of community rehabilitation programs developed jointly by the Insurance Corporation and State supervisory authorities. Such programs, which include as the final step the insurance of eligible associations by the Corporation, promise an effective aid in solving the problems confronting the homefinancing industry in many areas where the savings and loan structure has been weakened by adverse local conditions. 1 EXTENSION OF INSURANCE PROTECTION During the fiscal year 1940, the number of insured savings and loan associations increased from 2,170 to 2,235. Of the latter number, 1,421 are Federal savings and loan associations, which are required by law to qualify for insurance of accounts, and 814 are State-chartered savings and loan associations, which are eligible for insurance upon application and approval by the Corporation. During the fiscal year, 84 associations received insurance certificates. At the same time, insurance certificates were cancelled for 14 associations which merged with other insured institutions, and for 5 associations which went into liquidation. On June 30, 1940, there were 205 applications for insurance pending. Changes in number of insured associations, fiscal year 1940 1 The difference between the 1,421 Federal savings and loan associations reported as insured and the 1,429 Federal savings and loan associations reported as chartered is due to the lapse of time between the issuance or withdrawal of Federal charters and the issuance or withdrawal of insurance certificates. |