percent during this period. The major gains are reflected in mortgage loans outstanding (up 20.9 percent), and cash on hand and in banks (up 27.2 percent).

Mortgage holdings represented 83.2 percent of total resources on December 31, 1940, as compared with 81.5 percent a year previous; real estate owned dropped from 5.7 percent to 4.1 percent of total assets and cash on hand increased as a ratio to total resources from 5.6 to 6.0 percent.

The liability side of the balance sheet shows a gain of 24.6 percent in private capital, while Government capital declined and reserves and undivided profits rose from $76,089,000 to $90,476,000. Because combined figures are somewhat distorted as a result of newly-chartered associations and mergers, selected balance-sheet items for a group of 1,394 identical Federal savings and loan associations, separated by new and converted institutions have been prepared to obtain a more accurate basis for comparison. This material will be found in Exhibit 44. Operating trends of the newly-organized Federal savings and loan associations vary significantly from those of older converted institutions. Thus, new associations show a more rapid growth in assets, private investments, and mortgage holdings. Property owned by both types of institutions showed a good decline with older associations showing the better percentage record. On the other hand, the ratio of owned property to total resources, as might be expected, is much lower in the case of new Federals.

Reserves and undivided profits have been accumulated at a more rapid rate by new institutions, but the ratio of reserves and undivided profits to total assets is considerably lower in new associations due to the shorter period of time in which they have been operating.

The consolidated statement of operations for Federal savings and loan associations during the calendar year 1940 (Exhibit 45) shows clearly the effect of increased lending activity on association income. Gross operating income of the 1,428 reporting Federal savings and loan associations during the calendar year 1940 amounted to $92,292,000 as compared with $78,255,000 for 1,384 reporting associations during 1939. Operating expenses aggregated $25,932,000 in 1940 as against $22,242,000 during the previous year. The ratio of operating expense to gross operating income shows a slight reduction from 28.4 percent during 1939 to 28.1 percent during 1940. Net income for the year 1940 (after interest and nonoperating items) aggregated $63,493,000 for reporting Federal associations as compared with $53,319,000 the year previous.

The increasing proportion of net income which is employed to strengthen the reserve position of Federal savings and loan associations is evidenced by the fact that 27.3 percent of 1940 net income was allocated to reserves and undivided profits as compared with 23.8 percent in 1939 and 22.1 percent in 1938. Dividend payments during 1940 took 72.7 percent of net income as compared with 76.2 percent in 1939.

The largest single operating expense of Federal savings and loan associations during 1940 was the cost of compensation to officers, directors, and employees. Expenditures for this item aggregated $12,088,000, or 13.1 percent of gross operating income. The next largest item in the list of operating expenses is advertising which aggregated $2,691,000 during 1940, or 2.9 percent of gross operating income. Increasing emphasis on business promotion activities resulted in an average advertising cost of $1,884 per association in 1940 as compared with $1,704 the year previous.2

Because operating ratios of Federal savings and loan associations vary considerably with the size of individual associations, a tabulation. of ratios on the basis of nine size groups is presented in Exhibit 46. This material may prove useful to individual association executives in comparing the operations of their own association with those of a number of institutions of comparable size.

The dividend rates paid by Federal savings and loan associations on invested share capital have been declining steadily for the last several years. During the calendar year 1940, the average rate for all associations, weighted by the amount of invested capital, was 3.25 percent as compared with 3.39 percent during 1939, and 3.49 percent in 1938. During the year 1940, each of the Federal Home Loan Bank Districts showed a reduction in the average dividend rate paid by Federal associations. A downward trend in a large majority of the States likewise supports the observation that a reduction in rates is general throughout the country. There is a wide variation in the rates paid by Federal associations in different localities, as indicated by the fact that during 1940, rates ranged from a low of 2.42 percent in New York to a high of 4.03 percent in New Mexico. Exhibit 47 shows the average annual dividend rates paid by Federal savings and loan associations in each of the Federal Home Loan Bank Districts and States during the calendar years 1939 and 1940

For a detailed analysis of business promotion expenditures of savings and loan associations, see Federal Home Loan Bank Review, May, June, August, and October 1941.

V

Federal Savings and Loan Insurance
Corporation

S

TEADY progress was made during the fiscal year 1941 by the Federal Savings and Loan Insurance Corporation and the savings and loan associations whose investors' accounts it insures. At the close of the reporting period, there were 2,310 insured associations with assets of $3,158,251,000, giving 2,974,500 private investors the benefits of insurance. A year previous, the number of insured institutions totaled 2,235, gross assets amounted to $2,708,529,000, and insured investors numbered 2,591,600.

In addition to the gains measured by these figures, the consolidated balance sheet for insured associations shows considerable improvement in each of the more important items. Thus, mortgage holdings increased by 20 percent to $2,554,274,200. Real estate owned declined from $162,934,700 to $130,334,600, and now represents but 4 percent of gross assets. On the liability side, private repurchasable capital increased by 20 percent to $2,433,512,500, Government share capital declined from 9 to 7 percent of total resources, and the position of reserves and undivided profits was strengthened.

Despite an increased work load, the Corporation itself was again able to operate throughout the fiscal-year period on interest earnings from invested reserves. This meant that the Corporation was able to increase its aggregate resources from $124,917,101 to $130,920,146. Surplus and reserves were built up from $23,620,811 to $29,388,884, or by 24 percent.

The degree of recovery in the savings and loan business from the depression of the early Thirties can be measured in part at least by the fact that since the establishment of the Federal Savings and Loan Insurance Corporation in 1934, only 28 insured institutions have experienced difficulties so serious that corrective action by the Corporation was necessary. In handling 16 of these cases, the Federal Savings and Loan Insurance Corporation made net cash disbursements of $1,463,667 in order to prevent default. Recoveries received through June 30, 1941, in the amount of $20,202, have been deducted from gross disbursements to arrive at the foregoing figure. At the

close of the reporting period, contingent commitments to insured institutions in difficulty totaled $291,374.

Three of the savings and loan associations so far assisted by the Corporation have been merged with other insured institutions, ten have continued operations as independent units, and three have liquidated voluntarily, paying all investors in cash. After an exhaustive study of the condition of two other associations, it was found that no financial assistance was needed from the Corporation. These institutions thereupon continued operation under approved plans. Operation of each of the associations is, of course, followed closely to prevent a recurrence of former trouble.

In addition, four institutions have been declared in default and placed in liquidation. Two of these associations are being liquidated by the Insurance Corporation, one jointly by the Corporation and the Kansas Building and Loan Department, and one by the Ohio Building and Loan Department. By June 30, 1941, insured shareholders in three of these associations had been issued new accounts in other insured institutions amounting to $508,988. This represents 87.3 percent of the number of insured claims to be settled, and 96.5 percent of the dollar amount involved. Payment of insurance to insured shareholders in the fourth association, which was placed in liquidation in June 1941, was pending final arrangements by the Insurance Corporation at the end of the reporting period. As the liquidation of these associations proceeds, it is probable that a substantial percentage of the funds issued to purchase new accounts will be recovered by the Corporation. At the close of the 1941 fiscal year, the Insurance Corporation was studying six cases in which some form of corrective action will probably have to be taken.

Operations of Insured Institutions

The number of savings and loan associations benefiting from insurance protection increased from 2,235 to 2,310 during the 1941 reporting period. Of this number, 1,450 were Federal savings and loan associations, and the remaining 860 were institutions operating under State charter.

During the fiscal year 1941, insurance certificates were granted to 22 Federal savings and loan associations and to 62 State institutions. During the same period, certificates of 5 associations were canceled because of mergers with or sale of assets to other insured associations and 4 associations which went into liquidation were removed from the list of insured associations. On June 30, 1941, 236 applications for