be provided in the charter or by-laws of the individual association. It is required that the guaranteed dividends on paid-up stock shall be less than the association is earning, though authority is given to make provisions in the by-laws for this stock to have the right to share in the earnings between the guaranteed and the earned per centum.

Under the serial plan as in general practice in this State, a savings share holder obligates himself to make periodic payments of an agreed amount each week or month, and whenever the total of these payments, added to his pro rata share of the earnings of the association, amount to the par value of stock subscribed, the series matures and the funds are returned to the shareholders, automatically retiring and cancelling the stock. Associations issue new series quarterly, semiannually or annually and a subscriber wishing to become a member after the beginning of any given series must pay in a lump sum, such dues, interest, entrance fees, etc., as may be necessary to place him on an equal footing with those who subscribed at the beginning of the series. A borrowing shareholder starts in the same manner as an investor and when a loan is secured he must pay in addition to his weekly or monthly dues interest on the whole sum borrowed this interest being placed in a profit account in which he shares pro rata with all other shareholders. It must be borne in mind that under this plan all payments made except interest fines and entrance fees are credited on stock subscription and not on loan until the stock has matured at which time the matured value of the stock is used in liquidation of the loan. It will be noted in the opinion of the supreme court quoted above it was suggested that it was within the spirit of the law that the associations might be so organized that instead of a member in all cases waiting to pay in by littles and take out in bulk he could at the beginning of his connection with the associations take out in bulk and pay back by littles." This quotation well illustrates the justification for what is known as full paid or paid up stock. Without this source of supply in the serial associations applicants for home loans must of necessity wait for a long time before sufficient funds are in hand to meet their needs. Within reasonable limitations and with a wide distribution this class of stock is not objectionable for the reason that it provides funds from which the association may respond more promptly to loan demands; thus more efficiently accomplishing the purpose of its existence-the building of homes. Applicants for this class of stock should be selected with care and its issuance should be only for the purpose of caring for demands for desirable loans.

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A suggested form of full paid stock certificate is submitted herewith and marked "Exhibit 1."

Prepaid stock is desirable for those investors who have no need for cash income and prefer to have their earnings accumulate. It is usually sold at a price the simple interest or pro rata share of earnings on which when added to the principal payment will increase the value of same to par within an estimated number of weeks or months.

Running shares are issued at any time, and payments are made in such amounts and at such times as may suit the convenience or pleasure of the shareholder. This class of stock is more generally known as the Ohio plan or Dayton plan, and is by far the most modern of all the plans in use at this time. Its flexibility and clearness, as well as its simplicity of operation, will appeal both to the secretaries and shareholders, and for this reason we have given considerable study to its practical operation, with a view to recommending its general adoption by the associations in North Carolina.

We are submitting a plan based on the Ohio plan, making a few changes to meet North Carolina laws and practices.

Before attempting to put this plan in operation, the by-laws of the association should be amended in such manner that proper authority is granted for the issuance of this class of stock. A suggested amendment is submitted herewith and marked "Exhibit 2." When this amendment is adopted, your by-laws should be further amended to provide for a reasonable reserve fund to care for possible losses or other unforeseen contingencies. This amendment should be in substantially the form submitted herewith and marked "Exhibit 3." All shareholders should sign applications for stock and agree to be bound by the requirements of the by-laws. Form of application for running shares is submitted and marked "Exhibit 4."

When application has been accepted, stock certificate and pass-book should be issued to member. Stock certificate form is submitted and marked "Exhibit 5." Pass-book form is submitted and marked "Exhibit 6." It is suggested that stock certificate be printed in back of passbook. This process applies to the

savings member. The same process will apply to the borrowing member except that he should be issued an additional pass-book like the form submitted and marked "Exhibit 7." When the total credits of a savings members, including both principal payments and dividends, reach the par value of stock subscribed, he should apply for permission to increase his subscription to take care of further payments. Form for this purpose is submitted and marked "Exhibit 8." When payments are made by either borrowing or saving members, the payments should be entered on a cash receipts ticket similar to the one submitted and marked "Exhibit 9." All charges on accounts should be entered on a debit memo similar to the one submitted and marked "Exhibit 10." The cash receipts ticket should be initialed by the officer or clerk receiving the funds, and debit memo should be signed by party to whom funds are paid.

All debit and credit memos should be posted on cash journal, and same should be properly balanced. Items should then be posted to proper accounts in running stock and loan ledgers, carrying out balance in each entry. Balances on running stock ledger should at all times agree with running stock account on cash book. Semiannually the net profits for the period should be apportioned and credited to each account on running stock ledger, charging total amount so credited to dividends paid, and crediting same amount to running stock account on cash book. Form of running stock ledger sheet suggested is submitted herewith and marked "Exhibit 11."

When loans are made based on running shares, the payments each month should be credited to shareholder's account in running stock ledger. To this account should also be credited his pro rata share of earnings before closing out account into mortgage loan ledger. The balance of this account should then be charged through cash journal to running stock and credited to mortgage loans account. See Exhibit 12.

Mortgage loan ledger form submitted and marked "Exhibit 13."

Based on an earning rate of 5 per cent per annum, this loan will be repaid in 111⁄2 years, with a net cost to borrower of 0.033 per cent. See Exhibit 14. All estimates and calculations illustrated are based on equal minimum payments made regularly each month. An advantage in this plan is that a borrower has the privilege of making larger payments at any time, thus accelerating maturity of loans and reducing interest cost. He knows at all times the amount of balance due and may pay same in full and retire loan at any time without loss of profits. The forms submitted are for hand posting and will serve the purposes of the average association. In the larger associations, where posting machines are used, the same forms may be used with certain minor changes to suit the machine in use.

A form of deed of trust is submitted and marked "Exhibit 15."

A suggested form of loan application is submitted herewith and marked "Exhibit 16."

With close application and proper supervision on the part of each member of the board of directors, keeping in mind at all times the strict mutuality of the organization, and the responsibility of the directors to the shareholders, the success of this plan is assured, and the building and loan associations will achieve more promptly and efficiently the object for which they were createdthe encouragement of thrift and the building of homes.

In making loans based on running shares the association should be cautious and conservative on appraisals and keep loan values within reasonable limitations, keeping in mind the fact that depreciation over the long maturity period on this class of stock is greater than over the shorter period on serial stock.

EXHIBIT 1

FULL PAID STOCK CERTIFICATE FORM RECOMMENDED BY INSURANCE DEPARTMENT

This is to certify that

is the owner of

N. C., and has paid therefor

$100 each of the full paid-dividend bearing stock of the and loan association of ---

shares of building -- dollars

This certificate is issued, subject to the by-laws, and by virtue of a resolution of the board of directors of the building and loan association, and on which will be paid its pro rata share of the profits of the association up to but not exceeding 5 per cent per annum on the par value hereof, semi

annually on the last days of June and December of each year; provided, however, if it is withdrawn by owner within 60 days of issuance, no amount of profits shall be paid hereon.

This certificate, with any dividends due hereon, may be withdrawn after giving 90 days' notice in writing to the secretary; provided, however, such withdrawals of full paid and all other classes of stock are to be paid out of the cash receipts of the association, and if at any time the applications for withdrawals should exceed the said receipts, then the withdrawal notices shall be filed in the order received, and shares withdrawn accordingly as funds are available.

The association reserves the right to cancel this certificate at any time by giving 60 days' notice, and when so canceled will pay the profits due hereon only to date named in said notice of cancellation.

Transferable only upon the books of the association.

EXHIBIT 2A

SUGGESTED AMENDMENT TO BY-LAWS RELATING TO RUNNING SHARES

meeting of the

At a association held adopted on motion of

the following amendment to the by-laws was --, duly seconded by

Amend by adding a new section to be known and designated as section and reading as follows:

Authority is hereby granted for the issuance of a class of stock to be known as running shares, on which no stated or periodic payments shall be required, but on which the subscriber may make payments at such times and in such amounts as may suit his pleasure or convenience. Dividends on this class of stock shall be declared by the directors and credited to the accounts of the shareholders semiannually on the last days of June and December of each year, said dividends to be based on the shareholder's pro rata share of the undivided profits plus net earnings for the semiannual period, after deducting from the gross earnings all expenses paid or incurred, and such sums as may be required to be set aside as a reserve fund. Such dividends as the directors may declare shall be divided pro rata among the owners of running shares in proportion to the amount of money credited to the account of each and the length of time same has been to the credit of the account of the member, less such withdrawals as authorized herein.

Any or all amounts credited to the accounts of members owning running shares, not subject to a lien in favor of the association, may be withdrawn by giving 30 days' notice and presenting the pass book for proper entry; provided, such notice may be waived by the board of directors, and, provided further, that if at any time the applications to withdraw exceed the amount of money in the treasury, not otherwise appropriated or allotted, such applications shall be filed and paid in their consecutive and numerical order as fast as 50 per cent of the monthly receipts of the association will pay them. No person shall receive more than $1,000 in withdrawals during any 30-day period while other unpaid withdrawal applications are on file, and the board of directors may fix a sum not to exceed $100, which may be paid to any person in any 30 days while unpaid withdrawal applications are pending. The withdrawing member shall be entitled to receive all or any part of sums paid in on account of stock subscribed and all dividends declared thereon prior to the filing of the application to withdraw, but all right to future dividends on the sum to be withrawn shall cease with the filing of such application, and no part of the earnings subsequent to the last dividend shall be paid to such withdrawing member on the amount withdrawn.

EXHIBIT 2B

All loans made on the basis of running shares shall be on such terms and conditions as shall be set forth in the obligations given and executed by the borrowed for the repayment of same, but on all such loans the rate of payment on stock shall be not less than $1 per month on each $100 borrowed. The association may at its option, semiannually on the 1st days of January and July, of each year, apply the net credit on member's stock account to the payment of the loan, said credits to be applied:

First: To the payment of interest on said indebtedness, to be computed at the rate of 6 per cent per annum, payable semiannually in advance.

Second: To the repayment of any sums advanced by the association for insurance, taxes and/or other proper charges on the property conveyed, together with interest at the same rate and computed in the same manner as charged on principal indebtedness.

Third: The remainder of said credits shall be credited on the principal amount due, and the amount due at and after each such settlement shall bear interest at the same rate and in the same manner as specified hereinabove.

EXHIBIT 3

SUGGESTED AMENDMENT TO BY-LAWS RELATING TO RESERVE FUND

meeting of the

At a Loan Association held adopted, on motion of

the following amendments to the by-laws was duly seconded by

Amend by adding a new section to be known and designated as section and reading as follows:

"Before apportioning profits or fixing the dividend rate or paying dividends on stock, the directors are authorized and directed to semiannually on the last business days of June and December of each year cause to be set aside one-twentieth of the net earnings for the previous six months into a fund to be known as a reserve fund, until said reserve fund shall total not less than one-twentieth of the total amount paid in as dues or principal on all classes of shares outstanding at the time. Thereafter the said reserve fund shall be maintained at not less than one-twentieth of the amount paid in as dues or principal on all classes of shares outstanding, by the use of the same method by which said reserve fund is created.

The reserve fund herein and hereby created shall be used only by authority expressed in a resolution adopted by a majority of the entire board of directors and duly recorded in the minutes of a regular or special meeting, and then only for the purpose of caring for losses actually sustained, or such other similar contingencies as in the judgment of the directors may be wise and proper in order to protect the interests of all shareholders."

EXHIBIT 4

Building and Loan Association,

N. C.

I hereby subscribe for

---

shares of the running stock of the Building and Loan Association of --, N. C., of the par value of $-. I per share. Said stock to be issued in accordance with the provisions of the by-laws of said association. I hereby subscribe to and agree to be bound by the by-laws of said association now in force or as may be hereafter amended or changed.

EXHIBIT 5

Building and Loan Association

of

North Carolina

No.-

.__of_

is a member of

Shares Building and

This certifies that_-_. Loan Association and has subscribed for shares of the running stock of said association of the par value of $-- per share. Actual value of this stock may be determined at any time by reference to the books of the association. Said shares are subject to regulation and control by the constitution and by-laws of said association, and may be transferred only at the office of the association, and provided same is not subject to any lien for indebtedness to the association. Dated at------, N. C., this__day of‒‒‒‒‒‒, 19__.

The above certificate is this day increased to__shares on same terms and conditions as original issue. Date, 19_-.

Secretary.

For value received, I hereby sell, assign, and transfer all my right, title, and interest in and to the within certificate No.-_for__shares, to of______and authorize the secretary of said association to transfer same upon the books thereof.

Received of______Building and Loan Association the sum of ($_-)-dollars in full settlement for all amounts due me by reason of ownership of the within certificate and the payments made thereunder.

Building and Loan Association. I now request permission to increase this subscription to shares on the same terms and conditions as apply

to the original subscription.