12 C.F.R. Subpart E—Payment of Dividends
Title 12 - Banks and Banking
(a) Authority. 12 U.S.C. 56, 60, and 93a. (b) Scope. Except as otherwise provided, the restrictions in this subpart apply to the declaration and payment of all dividends by a national bank, including dividends paid in property. However, the provisions contained in §5.64 do not apply to dividends paid in stock of the bank. (c) Exceptions to the rules of general applicability. Sections 5.8, 5.10, and 5.11 do not apply to this subpart. For the purposes of subpart E, the following definitions apply: (a) Capital stock, capital surplus, and permanent capital have the same meaning as set forth in §5.46. (b) Retained net income means the net income of a specified period less the total amount of all dividends declared in that period. A national bank shall use the date a dividend is declared for the purposes of determining compliance with this subpart. (a) General limitation. Except as provided by 12 U.S.C. 59 and §5.46, a national bank may not withdraw, or permit to be withdrawn, either in the form of a dividend or otherwise, any portion of its permanent capital. Further, a national bank may not declare a dividend in excess of undivided profits. (b) Preferred stock. The provisions of 12 U.S.C. 56 do not apply to dividends on preferred stock. However, if the undivided profits of the national bank are not sufficient to cover a proposed dividend on preferred stock, the proposed dividend constitutes a reduction in capital subject to 12 U.S.C. 59 and §5.46. (a) Transfers to capital surplus. Subject to the restrictions in 12 U.S.C. 56 and this subpart, the directors of a national bank may declare and pay dividends as frequently and of such amount of undivided profits as they judge prudent. However, a national bank may not declare a dividend unless capital surplus equals or exceeds the capital stock of the bank, except: (1) In the case of an annual dividend, the bank may declare a dividend if the bank transfers 10 percent of its net income for the preceding four quarters to capital surplus; or (2) In the case of a quarterly or semiannual dividend, or any other special dividend, the bank may declare a dividend if the bank transfers 10 percent of its net income for the preceding two quarters to capital surplus. (b) Earnings limitation. For purposes of 12 U.S.C. 60, a national bank may not declare a dividend if the total amount of all dividends (common and preferred), including the proposed dividend, declared by the national bank in any calendar year exceeds the total of the national bank's retained net income of that year to date, combined with its retained net income of the preceding two years, unless the dividend is approved by the OCC. A national bank shall submit a request for OCC approval of a dividend under 12 U.S.C. 60 to the appropriate supervisory office. (c) Surplus surplus. Any amount in capital surplus in excess of capital stock required by 12 U.S.C. 60(a) (referred to as “surplus surplus”) may be transferred to undivided profits and available as dividends, provided: (1) The bank can demonstrate that the surplus came from earnings of prior periods, excluding the effect of any stock dividend; and (2) The board of directors of the bank approves the transfer of the surplus surplus from capital surplus to undivided profits. [61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999] Notwithstanding any other provision in this subpart, a national bank may not declare or pay any dividend if, after making the dividend, the national bank would be “undercapitalized” as defined in 12 CFR part 6. In addition to cash dividends, directors of a national bank may declare dividends payable in property, with the approval of the OCC. Even though the property distributed has been previously charged down or written off entirely, the dividend is equivalent to a cash dividend in an amount equal to the actual current value of the property. Before the dividend is declared, the bank should show the excess of the actual value over book value on the books of the national bank as a recovery, and the dividend should then be declared in the amount of the full book value (equivalent to the actual current value) of the property being distributed. To avoid complicated recordkeeping in connection with fractional shares, a national bank issuing additional stock by stock dividend, upon consolidation or merger, or otherwise, may adopt arrangements such as the following to preclude the issuance of fractional shares. The bank may: (a) Issue scripts or warrants for trading; (b) Make reasonable arrangements to provide those to whom fractional shares would otherwise be issued an opportunity to realize at a fair price upon the fraction not being issued through its sale, or the purchase of the additional fraction required for a full share, if there is an established and active market in the national bank's stock; (c) Remit the cash equivalent of the fraction not being issued to those to whom fractional shares would otherwise be issued. The cash equivalent is based on the market value of the stock, if there is an established and active market in the national bank's stock. In the absence of such a market, the cash equivalent is based on a reliable and disinterested determination as to the fair market value of the stock if such stock is available; or (d) Sell full shares representing all the fractions at public auction, or to the highest bidder after having solicited and received sealed bids from at least three licensed stock brokers. The national bank shall distribute the proceeds of the sale pro rata to shareholders who otherwise would be entitled to the fractional shares.
Title 12: Banks and Banking
PART 5—RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES
Subpart E—Payment of Dividends
§ 5.60 Authority, scope, and exceptions to rules of general applicability.
§ 5.61 Definitions.
§ 5.62 Date of declaration of dividend.
§ 5.63 Capital limitation under 12 U.S.C. 56.
§ 5.64 Earnings limitation under 12 U.S.C. 60.
§ 5.65 Restrictions on undercapitalized institutions.
§ 5.66 Dividends payable in property other than cash.
§ 5.67 Fractional shares.
