View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Federal Home Loan Banks

Annual Report
of the

HOME LOAN BANK BOARD
Washington, D. C.
as of
December 31, 1948

*

Reprint of the Report of the Home Loan Bank Board
covering operations of the
FEDERAL HOME LOAN BANK SYSTEM

Everett Smith, Fiscal Agent
31 Nassau Street
New York 5, N. Y.

FEDERAL HOME LOAN BANK SYSTEM
The Federal Home Loan Banks were created by act of Congress approved July 22, 1932, to serve as a
permanent reservoir of credit for thrift and home financing institutions. The Banks assist both borrowers
and investors in such institutions through the supply of money to maintain liquidity or to provide for
mortgage lending when local funds are insufficient. With the establishment of the Federal Home Loan
Banks, a basic weakness of the American home financing structure-the lack of any credit reserve facili
ties-has been eliminated. The principal function of the Federal Home Loan Banks is to supply, primarily
on first mortgage collateral, funds required by member institutions in order to enable them to meet the
home financing needs in their communities as well as the withdrawal demands of savers and investors.
Through the Federal Home Loan Bank System, thrift and home mortgage finance have been better pro
tected against local and Nation-wide economic fluctuations, home ownership has been placed on a more
secure basis, and the construction of new homes as well as the improvement of housing conditions has been
encouraged. The establishment of the Federal Home Loan Bank System has afforded member home
financing institutions not only a larger volume of potential credit, but cheaper money and a type of credit
adapted to their special needs.
Membership of the Bank System
Membership in the System is open to building and loan associations, savings and loan associations,
cooperative banks, homestead associations, insurance companies, and savings banks. On December 31, 1948,
the membership of the Federal Home Loan Bank System comprised 3,769, consisting of 3,733 savings and
loan associations, 26 savings banks and 10 insurance companies. This total membership represented a net
increase of 64 members during the year, resulting from the admission of 74 State-chartered savings and
loan associations, 7 new Federal savings and loan associations, 4 cooperative banks, and 2 savings banks,
and the cancellation of 23 memberships through withdrawals. Eight of the withdrawals represented volun
tary liquidations, 1 reincorporation, and 9 consolidations; 4 were due to members' requests, and 1 resulted
from removal by action of the Home Loan Bank Board. As of December 31, 1948, 51 applications for mem
bership were pending.
Advances to members
From October 15, 1932, when the 12 Federal Home Loan Banks (now 11 Federal Home Loan Banks) first
opened for business, to December 31, 1948, advances to home financing institutions totaled $2,687,049,028.65,
of which $2,172,032,939.46 has been repaid, resulting in a balance of $515,016,089.19 outstanding on the latter
date. This indicates the extent to which the Federal Home Loan Bank System has been called upon to serve
as a national credit reservoir.
Advances made by the Federal Home Loan Banks during the year ended December 31, 1948, totaled
$359,612,776.74. Repayments of advances aggregated $280,168,873.35, and the balance outstanding at the
close of 1948, as stated above, aggregated $515,016,089.19.
Number of borrowing members
On December 31, 1948, there were 1,993 member borrowers from the Banks, representing 52.9 percent
of the total membership, as compared with 1,804 member borrowers and 48.7 per cent of the membership
on December 31, 1947. During the year 1948 the average number of borrowers was 1,863, which repre
sented an increase of 24.5 percent over the average of 1,496 borrowers during the preceding calendar year.
There have been no nonmember borrowers from the Federal Home Loan Banks since August 1939.
The 1,993 borrowing members as of December 31, 1948, consisted of 868 Federal savings and loan asso
ciations, the outstanding advances to which aggregated $308,100,000, which represented 5.9 percent of the
share accounts in this type of association; 632 insured State-chartered members, the indebtedness of which
to the Banks totaled $145,500,000, or 4.9 percent of the savings held by this type of institutional member;
and 491 noninsured State-chartered associations with advances of $55,800,000, which amount approximated
3.3 percent of the total savings held by all members of this type. One insurance company and one savings
bank member held advances outstanding to the Federal Home Loan Banks aggregating $5,400,000 and
$300,000, respectively.




The following tabulation presents comparative figures on the number and percent of borrowing mem
bers as of December 31, 1948, and December 31, 1947:
Dec. 31, 1948

Dec. 31, 1947

Percent ofNumber

Borrowing members:
Federals ..............
Insured State ..........
Noninsured State .......

868
632
493

Total borrowers ....
Nonborrowing members ......

1,993
1,776

Total .............

3,769

Percent of
Number

Type

58.5
56.1
42.6
52.91
47.11
100.0

Total

43.6
31.7
24.7

849
549
406

100.0
.....

1,804
1,901

.....

3,705

Type

Total

57.4
52.1
34.6

47.1
30.4
22.5

48.71
51.31

100.0

100.0

1 Percentage of total membership.

Secured and unsecured advances
The growth in the volume of secured advances outstanding to a peak of $400,800,000 on December 31,
1948, represented the borrowings of 1,461 members. More than one-half of such advances were for terms
in excess of 1 year. A total of 146,237 home mortgages having unpaid balances aggregating $684,300,000
together with $93,600,000 face amount of United States Treasury obligations and 16 insured home mort
gages having a principal amount of $3,100,000, collateralized these advances. The face value of all collateral,
exclusive of Federal Home Loan Bank stock, was $780,900,000, or 194.8 percent of the secured advances,
while the collateral value assigned by the Banks was $556,500,000. A continued increase in the average
unpaid balance of individual home mortgages is noted from the amounts of $4,680 on December 31, 1948,
$4,426 on June 30, 1948, and $4,207 on December 31, 1947. The prewar average approximated $2,300.
Unsecured advances of $114,200,000 represented 22.2 percent of total advances outstanding to 770
members. The Federal Home Loan Banks held a statutory lien on $68,500,000 paid-in stock as further
security to both types of advances outstanding on December 31, 1948.
Interest on advances
The changes in interest rates charged members on advances by the Federal Home Loan Banks followed
the general firmness of the money markets during the year. One Federal Home Loan Bank increased its
rate on all types of advances to members from 2 percent to 2.25 percent, while two Banks discontinued their
2 percent rates on short-term advances and placed all advances on a 2.5 percent basis. Since the organiza
tion of the Federal Home Loan Banks, interest rates charged on their advances to members have been sub
stantially reduced. In 1932, at the inception of the Federal Home Loan Bank System, when money was still
scarce and costly, interest rates on Federal Home Loan Bank advances ranged from 4 percent to 5 percent.
On December 31, 1948, however, as here reported, such rates ranged from 2 percent to 2.5 percent.
Source of funds
The Federal Home Loan Banks obtain their funds from their capital stock, the proceeds from the sale
of consolidated Federal Home Loan Bank obligations to the public, and deposits received from member
institutions. From these sources the Federal Home Loan Banks are able to advance funds to their member
institutions on long terms, up to 10 years, in line with the essential long-term character of the mortgage
loans made by these institutions.
The capital stock of the Federal Home Loan Banks is made up by subscription of member institutions
and of the United States Government. In order to assist in the organization of the Federal Home Loan.
Bank System, the Congress authorized the Secretary of the Treasury, in behalf of the United States Gov
ernment, to invest up to $125,000,000 in the capital stock of the Federal Home Loan Banks. The amount
originally invested by the Government aggregated $124,741,000. Initial investments of members were small.
Each is required to invest an amount equal to 1 percent of the aggregate of the unpaid principal of its
home mprtgage loans, but in no event less than $500. With the growth in number and assets of member
institutions, the proportion of Federal Home Loan Bank stock owned by the United States Government to
the total capital stock of the Banks has decreased during 1948 to a point where, for the first time, the mem
bers owned a majority of the stock.




Retirement of Government stock
Pursuant to the provisions of the Federal Home Loan Bank Act, whereby the Government-owned cap
ital stock in the Federal Home Loan Banks must be retired to the extent of 50 percent of all payments on
capital stock made by members subsequent to such time as the amount of member-owned stock equals that
owned by the Government, four of the Federal Home Loan Banks made further statutory retirements of
Government-owned stock during the year to the extent of $2,881,000.
Within the 12 months ended December 31, 1948, the paid-in capital stock of the Banks held by mem
bers increased $18,159,900, to a total paid in by members of $121,237,475, which amount is 50.3 percent of
the total stock subscriptions on that date. During the same period, the United States Government-owned
stock was reduced to $119,791,200, resulting in a net increase in paid-in capital stock of $15,278,900. On
December 31, 1948, the total outstanding capital stock of the Banks was $241,028,675, of which $119,791,200
was owned by the Government and $121,237,475 was owned by the members. At that time the Government
owned 49.7 percent of the outstanding total, whereas the members owned 50.3 percent. The following table
reflects the capital structure of the Federal Home Loan Banks as of December 31, 1948, and December 31,
1947:
Dec. 31, 1948

Dec. 31, 1947

$119,791,200

$122,672,200

121,249,300
11,825
121,237,475

103,083,400
5,825
103,077,575

$241,028,675

$225,749,775

$ 12,232,449
4,283,027
9,001,282

$ 11,307,097
4,291,612
8,524,750

Total surplus .....................

$ 25,516,758

$ 24,123,459

Total capital .....................

$266,545,433

$249,873,234

Capital Stock:
U. S. Government .....................
Members:
Stock subscribed ..................
Less unpaid subscriptions ..........
Total member .....................
Total paid-in capital ...........
Surplus:
Legal reserve .........................
Reserve for contingencies ..............
Undivided profits .....................

Sale of consolidated obligations
Consolidated obligations as a supplementary source of funds of the Federal Home Loan Banks have
been marketed for the past 12 years. The first public sale of $24,700,000 was made May 10, 1937. Up to
January 1, 1948, total obligations of $1,152,200,000 had been issued, of which $890,500,000 had been retired,
leaving $261,700,000 outstanding at the beginning-of the year. During 1948, four public offerings were
made aggregating $416,500,000 and one private sale of $40,000,000 was made. This financing represented
$247,000,000 of new funds, $209,500,000 of refunding, and the paying off of $92,200,000, resulting in a
balance of $416,500,000 of consolidated Federal Home Loan Bank obligations outstanding on December 31,
1948. These mature on the dates and in the amounts indicated below:
Due

Jan. 20, 1949 . .'....................
Apr. 15, 1949 ......................
July 22, 1949 ......................
Sept. 15, 1949 ....................
Total........................

Amount

$ 97,000,000
84,500,000
115,000,000
120,000,000
$416,500,000

Interbank deposits
Interbank deposits, i. e., deposits made by a Federal Home Loan Bank in another Federal Home Loan
Bank, continued to play an important part in the operations of the Banks during the year. At the beginning of the year, $11,500,000 of interbank deposits were outstanding. Such deposits were made to the extent
of $62,250,000 during the year; repayments aggregated $67,500,000, resulting in a balance outstanding on




December 31, 1948, of $6,250,000, of which $2,000,000 were payable on demand and $4,250,000 on a time
basis.
Members' deposits
As previously indicated, deposits of member institutions represent one of the sources of funds of the
Federal Home Loan Banks. During the year 1948 there was a substantial increase in such deposits, the
total amount of which as of December 31, 1948, aggregated $133,355,226, consisting of $24,554,177 on a
demand and $108,801,049 on a time basis. While no interest is paid on the demand deposits of members,
interest at the rate of from 1 percent to 1 percent per annum is paid on members' time deposits remain
ing for 30 days or more.
As already indicated, the Federal Home Loan Banks obtain their funds (exclusive of interbank deposit
transactions) from three sources, i. e., subscriptions to their capital stock, the sale of their consolidated
obligations, and deposits of member institutions. During the year ending December 31, 1948, the net accre
tions to the funds of the Banks from these sources were as follows:
Paid in on capital stock .............
Sale of consolidated obligations ......
Members' deposits ....
............

$ 15,278,900
154,800,000
45,520,100
$215,599,000

Liquidity and reserves
Section 16 of the Federal Home Loan Bank Act, as amended, provides that each Federal Home Loan
Bank shall carry to a reserve account semiannually 20 percent of its net earnings until such reserve account
shall show a credit balance equal to 100 percent of the paid-in capital of the Bank, after which time 5 per
cent of the Bank's net earnings shall be added thereto semiannually. As already indicated, this reserve
aggregated $12,232,449.37 as of December 31, 1948, in addition to which there was a reserve for contingencies
amounting to $4,283,027.01, making total surplus reserves of $16,515,476.38. As of the same date, undivided
profits of the Banks totaled $9,001,281.70, resulting in a total earned surplus of $25,516,758.08.
In order to enhance potential ability of the Banks to meet the demands of their member institutions, a
liquidity reserve of $100,000,000 over and above the statutory reserve referred to in the preceding para
graph was established during the year 1948, to consist of 50 percent in 2 percent special series United States
Treasury notes, 15 percent in 1 percent special series United States Treasury notes, and 35 percent in
cash, United States Treasury bills, United States certificates of indebtedness and/or United States Treasury
notes commonly traded in on the market on the same basis as United States certificates of indebtedness.
Status of liquidity reserve
On December 31, 1948, the special liquidity reserve of $100,000,000 consisted of
In cash, U. S. Treasury bills, certificates of indebtedness and/or notes. . $ 35,000,000
2 percent special series U. S. Treasury notes. ........................
50,000,000
11/ percent U. S. Treasury notes ...........
.................
15,000,000
Total..................

.. ...........

. .............

. $100,000,000

In addition to the $100,000,000 liquidity reserve, the Banks held the following highly liquid resources:
U. S. Treasury bills and notes ....................................
$43,150,000
1 percent special series U. S. Treasury notes............. .........
21,200,000
Cash .............
..............................
.....
34,911,490
Total ...............................................

$99,261,490

As of December 31, 1948, the Banks also held $92,702,523 par value of other United States Govern
ment obligations in excess of the statutory requirements.
Government securities
During the year, United States Government obligations were purchased by the Federal Home Loan
Banks to the extent of $546,084,000 face amount. Government securities having a face amount of
$410,794,000 were matured or sold, and $271,893,000 face amount of such securities were held by the Banks
on December 31, 1948.




Income and expense
The total gross operating income of the Banks for the calendar year 1948 was $12,684,042.72, as com
pared with $8,673,487.26 for the preceding calendar year. This represents an increase in gross operating
income of 46.4 percent over that for 1947, which resulted primarily from increased interest on advances
and interest on investments which reflected gains of 53.3 percent and 32 percent, respectively. The total
operating expenses for the calendar year 1948 amounted to $8,104,323.98, as compared with $4,221,890.67
for the preceding year. Nonoperating income for the calendar year 1948 aggregated $99,970.61, as com
pared with a total of $376,086.64 for the preceding year. Nonoperating charges for 1948 amounted to
$52,925.43, while such charges for the preceding calendar year aggregated $28,932.81. Net income of the
Banks for the calendar year 1948 aggregated $4,626,763.92, as compared with $4,569,044.50 for the calen
dar year 1947. The increase in the cost of borrowed money and members' deposits, together with other
operating expense increases, was sufficient to hold the net income of the Banks for the calendar year 1948
to the figure indicated, which is only 1.3 percent greater than that for the preceding calendar year.
While there was an increase of 46.9 percent in the average balance of Federal Home Loan Bank
advances outstanding in 1948 over 1947, the Banks' return was 2.02 percent or only 0.09 percent in excess
of the 1.93 percent for the calendar year 1947. However, a yield of 1.67 percent on an average investment
balance of $228,000,000 was slightly lower than the yield of 1.73 percent on the average investment balance
in the calendar year 1947. The average weekly balance of members' deposits during 1948 aggregated
$91,000,000 and represented an annual cost of 0.79 percent. Funds derived by the Federal Home Loan
Banks from consolidated Federal Home Loan Bank obligations issued and outstanding during 1948 averaged
$347,200,000, the annual cost of which was 1.67 percent as compared with the 1947 average of $171,500,000,
and an annual cost of 1.42 percent.
The total net income of the Banks for the calendar year 1948, which, as indicated above, amounted to
$4,626,763.92, was distributed (in round figures) as follows:
Percent

$3,157,820
1,567,989
1,589,831
75,645
925,352
(8,585)
476,532

Total..................................

68.3
33.9
34.4
1.6
20.0
(.2)
10.3

$4,626,764

Dividends paid ...................................
U. S. Government .............................
M embers .....................................
Retirement fund prior service .......................
Legal reserve .....................................
Contingent reserve ................................
Undivided profits .................................

100.0

The net income of the Banks from the beginning of their operations through December 31, 1948, aggre
gated $60,530,687.75 and was distributed (in round figures) as follows:
Percent

D ividends paid ...............................
U. S. Government .........................
.........

M embers ........................

Retirement fund prior service. ..................
Legal reserve .................................
Contingent reserve ............................
Undivided profits ..... ......................
T otal....... ..

..

...................

.

$34,511,144
23,897,392
10,613,752
502,786
12,232,449
4,283,027
9,001,282

57.0
39.5
17.5
.8
20.2
7.1
14.9

$60,530,688

100.0

Dividend payments
Dividend declarations by the Banks resulted in the distribution of $3,157,819 for the year 1948, which
amount was $216,562 greater than that applicable to the preceding year. Of the amount of dividends dis
tributed for the year 1948, the United States Government received $1,567,989 and member institutions
received $1,589,830. The total amount of dividends received by the United States Government and member
'institutions on their stock investment in the Federal Home Loan Banks from October 15, 1932, through
December 31, 1948, aggregates $23,897,392 and $10,613,752, respectively.




The following tabulation reflects the total dividend distribution, by Banks, from the beginning of
operations through December 31, 1948:
Dividend distribution Oct. 15, 1932, to Dec. 31, 1948
United States
Government

Total

775,704.74
1,008,053.91
747,706.30
1,030,479.57
2,141,926.39
, 1,178,281.57
1,357,395.74
752,911.73
414,185.32
344,712.88
862,393.94

$ 1,905,204.61
3,297,356.75
2,227,398.89
1,641,355.79
3,128,548.08
1,523,465.34
3,468,859.70
1,649,669.09
1,538,199.62
1,083,280.56
2,434,053.74

$ 2,680,909.35
4,305,410.66
2,975,105.19
2,671,835.36
5,270,474.47
2,701,746.91
4,826,255.44
2,402,580.82
1,952,384.94
1,427,993.44
3,296,447.68

$10,613,752.09

$23,897,392.17

$34,511,144.26

Federal Home Loan Bank:

Federal Home Loan Bank:
Boston .............
New York ............
Pittsburgh .........
Winston-Salem ......
Cincinnati ...........
Indianapolis ..........
Chicago ..............
Des Moines ...........
Little Rock ............
Topeka ..............
San Francisco ........
Total ............

Members

$

Supervision of the Federal Home Loan Banks
In supervising the operations of the Federal Home Loan Banks pursuant to the provisions of the
Federal Home Loan Bank Act, as amended, the Home Loan Bank Board requires each Federal Home
Loan Bank to submit to it for approval an annual budget covering the expenses to be incurred by it. The
semiannual and/or annual (the latter in the case of two of the Federal Home Loan Banks) dividend
declarations authorized by the local boards of directors of the Federal Home Loan Banks are likewise sub
ject to the approval of the Home Loan Bank Board, as are also any changes in the rates of interest on
advances, members' deposits, and interbank deposits which are not within the rate ceilings prescribed by
the Board.
With the exception of the purchase and/or sale of United States Treasury bills, United States certifi
cates of indebtedness, and United States Treasury notes commonly traded in on the market in the same
manner as United States Treasury certificates of indebtedness, all transactions of the Banks in United States
Government obligations are subject to the approval of the Home Loan Bank Board.
All officers and counsel appointed by the local Boards of Directors of the Federal Home Loan Banks and
their salaries are subject to the approval of the Home Loan Bank Board. The management of each Federal
Home Loan Bank is vested in a local Board of 12 directors, 4 of whom are appointed by the Home Loan
Bank Board and 8 of whom are elected by the members. Annual elections are held under the auspices of
the Home Loan Bank Board pursuant to its rules and regulations on the subject.
Examinations and reports
The Federal Home Loan Banks are subject to a semiannual examination by examiners attached to the
staff of the auditor of the Home Loan Bank Board. In addition to such examination, the Banks as well as
the internal fiscal operations of the Home Loan Bank Board are now audited annually by representatives
of the Division of Corporation Audits of the General Accounting Office pursuant to the provisions of the
Government Corporation Control Act of December 6, 1945. As provided in the same act, all Government
security transactions of the Federal Home Loan Banks in excess of $100,000, as well as all issues by the
Home Loan Bank Board of consolidated Federal Home Loan Bank obligations (which are the joint and sev
eral obligations of all the Federal Home Loan Banks) are cleared with the United States Treasury Depart
ment. Moreover, the Treasury is supplied not only with a copy of the Board's annual report to the Con
gress, but also with monthly reports reflecting all security transactions of the Federal Home Loan Banks
and with special quarterly and annual reports required by Budget-Treasury Regulation No. 3.




NOTE: References in the text to exhibits have been deleted as the Consolidated Statements of
the Federal Home Loan Banks as of December 31, 1948 were mailed February 3, 1949 to
members of the Dealer Selling Group and others.