as compared with $8,104,324 for the preceding year. The nonoperating income for 1949 aggregated $366,331 compared with the total of $99,971 for 1948, and nonoperating charges for 1949 amounted to $17,875 while such charges for the preceding calendar year aggregated $52,925. The net income of the Federal Home Loan Banks for the calendar year 1949 aggregated $4,757,983 compared with $4,626,764 for the preceding calendar year.

While the 1949 net income of the Banks exceeded that for 1948 by $131,200, a comparison, item by item, of the income and expenses for the 2 years reveals that several factors were involved in arriving at this net result. Interest earned on advances declined $1,276,000 due to the fact that the average amount of advances outstanding during 1949 was $370,400,000 compared to an average of $440,500,000 during 1948. This decrease in interest on advances was, however, more than offset by the increase in interest on investments purchased with funds received on account of repayment of advances and from deposits of members. Interest paid on such deposits reflected an increase of $1,815,000 over 1948 while the cost of money from issuance of consolidated obligations was $1,055,000 less than the previous year by reason of a $73,500,000 smaller average amount outstanding at slightly higher interest rates.

The average weekly balance of members' deposits during 1949 aggregated $217,206,150 and represented an annual cost of 1.17 percent. Funds derived by the Federal Home Loan Banks from the sale of Federal Home Loan Bank obligations and outstanding during 1949 averaged $274,738,000, the annual cost of which was 1.73 percent compared with the 1948 average of $347,200,000 and an annual cost of 1.67 percent.

The total net income of the Federal Home Loan Banks for the calendar year 1949, which, as indicated above, amounted to $4,758,000, was distributed (in round figures) as follows:

1 Represents supplements! contributions to increase retirement benefits of employees computed on services through June 30, 1949.

The net income of the Federal Home Loan Banks from the beginning of their operations in October 1932 through December 31, 1949, aggregated $65,288,670 which was distributed (in round figures) as follows:

■ Represents contributions applicable to periods prior to date such contributions were made by individual Banks.

Distribution of Dividends

Dividend declarations by the Federal Home Loan Banks resulted in the distribution of $3,143,000 for the year 1949, which amount was $14,800 less than that applicable to the preceding year. The dividend rates ranged from 1 percent to 2% percent per annum. Of the amount of dividends distributed for the year 1949, the United States Government received $1,260,300 and member institutions received $1,882,700. The total amount of dividends received by the United States Government and member institutions on their stock investments in the Federal Home Loan Banks from October 15, 1932, through December 31, 1949, aggregated $25,157,700 and $12,496,400, respectively.

The following tabulation reflects the total dividend distribution by the Federal Home Loan Banks from the beginning of their operations through December 31, 1949:

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 estimated expenses to be incurred by it. The dividend declarations by the local boards of directors of the Federal Home Loan Banks are likewise subject to the approval of the Home Loan Bank Board, as

are also the maximum rates of interest on advances, members' deposits or interbank deposits.

With the exception of the purchase and sale of United States. Treasury bills, United States certificates of indebtedness, and United States Treasury notes commonly traded in on the market in the same manner as United States Treasury certificates of indebtedness, with respect to which transactions the Board has given its blanket approval in advance, all transactions of the Banks in United States Government obligations and in other investment securities are subject to the prior approval of the Home Loan Bank Board. As provided in the Government Corporation Control Act of December 6, 1945, all Government security transactions of the Federal Home Loan Banks in excess of $100,000 are first cleared with the United States Treasury Department through an official of the Federal Reserve Bank of New York, designated by the Treasury Department for that purpose. All officers and counsel appointed by the local boards of directors of the Federal Home Loan Banks and their annual salaries are subject to the approval of the Home Loan Bank Board. Under the Federal Home Loan Bank Act, as amended, 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 of directors are held under the auspices of the Home Loan Bank Board pursuant to its regulations governing the election of directors. Exhibit 5 of this report contains a list of the directors and officers of each Federal Home Loan Bank as of December 31, 1949, and shows the designation or representation of each director.

Audits and Reports

The Federal Home Loan Banks are audited semiannually pursuant to law by examiners attached to the staff of the Office of the Auditor of the Home Loan Bank Board. In addition thereto, the Federal Home Loan Banks as well as the internal operations of the Home Loan Bank Board are subject to an annual audit by representatives of the General Accounting Office pursuant to the provisions of the Government Corporation Control Act of December 6, 1945. However, the representatives of the General Accounting Office at present are confining their activities in this respect largely to periodic surveys of the operations of the Federal Home Loan Banks and an analysis of reports of examinations and audits thereof made by the examiners attached to the staff of the Board's Auditor, thereby giving full recognition to the requirements of the Government Corporation Control Act to the effect that the General Accounting Office use to the fullest extent deemed practical reports of examinations of Government corporations made by a supervisory agency pursuant to law. This is likewise true

to a large extent with respect to the audit of the internal fiscal operations of the Home Loan Bank Board whereby the effectiveness of the internal audits and the use thereof warrant the omission of certain detail auditing procedures that otherwise the Corporation Audits Division should have deemed necessary. This arrangement affords the Home Loan Bank Board and the Federal Home Loan Banks a comprehensive audit and an analysis of operations at a minimum of expense and effort.

The United States Treasury Department is furnished a copy of the Home Loan Bank Board's annual report to the Congress as well as with monthly reports reflecting all security transactions of the Federal Home Loan Banks and with special quarterly and annual reports pertaining to the operations of the Federal Home Loan Banks as required by Budget-Treasury Regulation No. 3.

FEDERAL SAVINGS AND LOAN ASSOCIATIONS

Creation and Purposes

The Federal Savings and Loan System had its inception in the Home Owners' Loan Act of 1933, section 5 of which provided for the chartering of Federal savings and loan associations either by the granting of new charters to local organizing groups or by the conversion of existing institutions of the savings and loan type from State to Federal charter. The underlying purpose of this legislation was to provide for adequate thrift and home financing facilities by creating local institutions throughout the country that would operate on a uniform plan incorporating the best practices and operating principles of savings institutions specializing in the financing of homes.

Federal savings and loan associations are mutual institutions the capital of which is represented entirely by the savings accounts of members, who are the sole owners. All savings accounts participate equally in the earnings of the association, on a pro rata basis, earnings being paid semiannually at a rate determined by the directors on the basis of net profits. As contrasted with commercial banks, the funds of which are mainly derived from demand deposits and which make short-term loans principally for commercial purposes, the funds received by Federal savings and loan associations are primarily of a savings or investment nature. Such associations make their loans principally on a monthly, long-term, amortization basis on the security of homes owned by citizens of the community.

Federal associations are not permitted to accept deposits or to issue certificates of indebtedness except for such borrowed money as is authorized by regulations made by the Home Loan Bank Board. Their shares are nonassessable. All Federal savings and loan associations must be members of the Federal Home Loan Bank System and must qualify for insurance of their accounts by the Federal Savings and Loan Insurance Corporation. Also, they are examined regularly and supervised by the Board, and are subject to its regulations. Granting of Charters and Branches

In accordance with the provisions of the Act, applications for permission to organize new Federal associations are considered on the basis of all facts available with respect to the character and responsibility of the organization group, the need for such an institution in the community to be served, the prospects for its usefulness and success, and the question whether the association could be established without undue injury to properly conducted, existing local thrift and home financing institutions. In no case is an application approved without