12 C.F.R. Subpart B—Corporate Practices
Title 12 - Banks and Banking
(a) General. A national bank proposing to engage in a corporate governance procedure shall comply with applicable Federal banking statutes and regulations, and safe and sound banking practices. (b) Other sources of guidance. To the extent not inconsistent with applicable Federal banking statutes or regulations, or bank safety and soundness, a national bank may elect to follow the corporate governance procedures of the law of the state in which the main office of the bank is located, the law of the state in which the holding company of the bank is incorporated, the Delaware General Corporation Law, Del. Code Ann. tit. 8 (1991, as amended 1994, and as amended thereafter), or the Model Business Corporation Act (1984, as amended 1994, and as amended thereafter). A national bank shall designate in its bylaws the body of law selected for its corporate governance procedures. (c) No-objection procedures. The OCC also considers requests for its staff's position on the ability of a national bank to engage in a particular corporate governance procedure in accordance with the no-objection procedures set forth in Banking Circular 205 or any subsequently published agency procedures.2 2 Available upon request from the OCC Communications Division, 250 E Street, SW., Washington, DC 20219, (202) 874–4700.
Title 12: Banks and Banking
PART 7—BANK ACTIVITIES AND OPERATIONS
Subpart B—Corporate Practices
§ 7.2000 Corporate governance procedures.
§ 7.2001 Notice of shareholders' meetings.
A national bank must mail shareholders notice of the time, place, and purpose of all shareholders' meetings at least 10 days prior to the meeting by first class mail, unless the OCC determines that an emergency circumstance exists. Where a national bank is a wholly-owned subsidiary, the sole shareholder is permitted to waive notice of the shareholder's meeting. The articles of association, bylaws, or law applicable to a national bank may require a longer period of notice.
§ 7.2002 Director or attorney as proxy.
Any person or group of persons, except the bank's officers, clerks, tellers, or bookkeepers, may be designated to act as proxy. The bank's directors or attorneys may act as proxy if they are not also employed as an officer, clerk, teller or bookkeeper of the bank.
§ 7.2003 Annual meeting for election of directors.
When the day fixed for the regular annual meeting of the shareholders falls on a legal holiday in the state in which the bank is located, the shareholders' meeting shall be held, and the directors elected, on the next following banking day.
§ 7.2004 Honorary directors or advisory boards.
A national bank may appoint honorary or advisory members of a board of directors to act in advisory capacities without voting power or power of final decision in matters concerning the business of the bank. Any listing of honorary or advisory directors must distinguish between them and the bank's board of directors or indicate their advisory status.
§ 7.2005 Ownership of stock necessary to qualify as director.
(a) General. A national bank director must own a qualifying equity interest in a national bank or a company that has control of a national bank. The director must own the qualifying equity interest in his or her own right and meet a certain minimum threshold ownership.
(b) Qualifying equity interest—(1) Minimum required equity interest. For purposes of this section, a qualifying equity interest includes common or preferred stock of the bank or of a company that controls the bank that has not less than an aggregate par value of $1,000, an aggregate shareholders' equity of $1,000, or an aggregate fair market value of $1,000.
(i) The value of the common or preferred stock held by a national bank director is valued as of the date purchased or the date on which the individual became a director, whichever value is greater.
(ii) In the case of a company that owns more than one national bank, a director may use his or her equity interest in the controlling company to satisfy, in whole or in part, the equity interest requirement for any or all of the controlled national banks.
(iii) Upon request, the OCC may consider whether other interests in a company controlling a national bank constitute an interest equivalent to $1,000 par value of national bank stock.
(2) Joint ownership and tenancy in common. Shares held jointly or as a tenant in common are qualifying shares held by a director in his or her own right only to the extent of the aggregate value of the shares which the director would be entitled to receive on dissolution of the joint tenancy or tenancy in common.
(3) Shares in a living trust. Shares deposited by a person in a living trust (inter vivos trust) as to which the person is a trustee and retains an absolute power of revocation are shares owned by the person in his or her own right.
(4) Other arrangements—(i) Shares held through retirement plans and similar arrangements. A director may hold his or her qualifying interest through a profit-sharing plan, individual retirement account, retirement plan, or similar arrangement, if the director retains beneficial ownership and legal control over the shares.
(ii) Shares held subject to buyback agreements. A director may acquire and hold his or her qualifying interest pursuant to a stock repurchase or buyback agreement with a transferring shareholder under which the director purchases the qualifying shares subject to an agreement that the transferring shareholder will repurchase the shares when, for any reason, the director ceases to serve in that capacity. The agreement may give the transferring shareholder a right of first refusal to repurchase the qualifying shares if the director seeks to transfer ownership of the shares to a third person.
(iii) Assignment of right to dividends or distributions. A director may assign the right to receive all dividends or distributions on his or her qualifying shares to another, including a transferring shareholder, if the director retains beneficial ownership and legal control over the shares.
(iv) Execution of proxy. A director may execute a revocable or irrevocable proxy authorizing another, including a transferring shareholder, to vote his or her qualifying shares, provided the director retains beneficial ownership and legal control over the shares.
(c) Non-qualifying ownership. The following are not shares held by a director in his or her own right:
(1) Shares pledged by the holder to secure a loan. However, all or part of the funds used to purchase the required qualifying equity interest may be borrowed from any party, including the bank or its affiliates;
(2) Shares purchased subject to an absolute option vested in the seller to repurchase the shares within a specified period; and
(3) Shares deposited in a voting trust where the depositor surrenders:
(i) Legal ownership (depositor ceases to be registered owner of the stock);
(ii) Power to vote the stock or to direct how it shall be voted; or
(iii) Power to transfer legal title to the stock.
[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60099, Nov. 4, 1999]
§ 7.2006 Cumulative voting in election of directors.
When electing directors, a shareholder shall have as many votes as the number of directors to be elected multiplied by the number of the shareholder's shares. The shareholder may cast all these votes for one candidate, or distribute the votes among as many candidates as the shareholder chooses. If, after the first ballot, subsequent ballots are necessary to elect directors, a shareholder may not vote shares that he or she has already fully cumulated and voted in favor of a successful candidate.
§ 7.2007 Filling vacancies and increasing board of directors other than by shareholder action.
(a) Increasing board of directors. If authorized by the bank's articles of association, between shareholder meetings a majority of the board of directors may increase the number of the bank's directors within the limits specified in 12 U.S.C. 71a. The board of directors may increase the number of directors only by up to two directors, when the number of directors last elected by shareholders was 15 or fewer, and by up to four directors, when the number of directors last elected by shareholders was 16 or more.
(b) Vacancies. If a vacancy occurs on the board of directors, including a vacancy resulting from an increase in the number of directors, the vacancy may be filled by the shareholders, a majority of the board of directors remaining in office, or, if the directors remaining in office constitute fewer than a quorum, by an affirmative vote of a majority of all the directors remaining in office.
§ 7.2008 Oath of directors.
(a) Administration of the oath. A notary public, including one who is a director but not an officer of the national bank, may administer the oath of directors. Any person, other than an officer of the bank, having an official seal and authorized by the state to administer oaths, may also administer the oath.
(b) Execution of the oath. Each director attending the organization meeting shall execute either a joint or individual oath. A director not attending the organization meeting (the first meeting after the election of the directors) shall execute the individual oath. A director shall take another oath upon re-election, notwithstanding uninterupted service. Appropriate sample oaths are located in the “Comptroller's Corporate Manual”.
(c) Filing and recordkeeping. A national bank must file the original executed oaths of directors with the OCC and retain a copy in the bank's records in accordance with the Comptroller's Corporate Manual filing and recordkeeping instructions for executed oaths of directors.
[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60099, Nov. 4, 1999]
§ 7.2009 Quorum of the board of directors; proxies not permissible.
A national bank shall provide in its articles of association or bylaws that for the transaction of business, a quorum of the board of directors is at least a majority of the entire board then in office. A national bank director may not vote by proxy.
§ 7.2010 Directors' responsibilities.
The business and affairs of the bank shall be managed by or under the direction of the board of directors. The board of directors should refer to OCC published guidance for additional information regarding responsibilities of directors.
§ 7.2011 Compensation plans.
Consistent with safe and sound banking practices and the compensation provisions of 12 CFR part 30, a national bank may adopt compensation plans, including, among others, the following:
(a) Bonus and profit-sharing plans. A national bank may adopt a bonus or profit-sharing plan designed to ensure adequate remuneration of bank officers and employees.
(b) Pension plans. A national bank may provide employee pension plans and make reasonable contributions to the cost of the pension plan.
(c) Employee stock option and stock purchase plans. A national bank may provide employee stock option and stock purchase plans.
§ 7.2012 President as director; chief executive officer.
Pursuant to 12 U.S.C. 76, the president of a national bank must be a member of the board of directors, but a director other than the president may be elected chairman of the board. A person other than the president may serve as chief executive officer, and this person is not required to be a director of the bank.
§ 7.2013 Fidelity bonds covering officers and employees.
(a) Adequate coverage. All officers and employees of a national bank must have adequate fidelity coverage. The failure of directors to require bonds with adequate sureties and in sufficient amount may make the directors liable for any losses that the bank sustains because of the absence of such bonds. Directors should not serve as sureties on such bonds.
(b) Factors. The board of directors should determine the amount of such coverage, premised upon a consideration of factors, including:
(1) Internal auditing safeguards employed;
(2) Number of employees;
(3) Amount of deposit liabilities; and
(4) Amount of cash and securities normally held by the bank.
§ 7.2014 Indemnification of institution-affiliated parties.
(a) Administrative proceedings or civil actions initiated by Federal banking agencies. A national bank may only make or agree to make indemnification payments to an institution-affiliated party with respect to an administrative proceeding or civil action initiated by any Federal banking agency, that are reasonable and consistent with the requirements of 12 U.S.C. 1828(k) and the implementing regulations thereunder. The term “institution-affiliated party” has the same meaning as set forth at 12 U.S.C. 1813(u).
(b) Administrative proceeding or civil actions not initiated by a Federal banking agency—(1) General. In cases involving an administrative proceeding or civil action not initiated by a Federal banking agency, a national bank may indemnify an institution-affiliated party for damages and expenses, including the advancement of expenses and legal fees, in accordance with the law of the state in which the main office of the bank is located, the law of the state in which the bank's holding company is incorporated, or the relevant provisions of the Model Business Corporation Act (1984, as amended 1994, and as amended thereafter), or Delaware General Corporation Law, Del. Code Ann. tit. 8 (1991, as amended 1994, and as amended thereafter), provided such payments are consistent with safe and sound banking practices. A national bank shall designate in its bylaws the body of law selected for making indemnification payments under this paragraph.
(2) Insurance premiums. A national bank may provide for the payment of reasonable premiums for insurance covering the expenses, legal fees, and liability of institution-affiliated parties to the extent that the expenses, fees, or liability could be indemnified under paragraph (b)(1) of this section.
§ 7.2015 Cashier.
A national bank's bylaws, board of directors, or a duly designated officer may assign some or all of the duties previously performed by the bank's cashier to its president, chief executive officer, or any other officer.
§ 7.2016 Restricting transfer of stock and record dates.
(a) Conditions for stock transfer. Under 12 U.S.C. 52, a national bank may impose conditions upon the transfer of its stock reasonably calculated to simplify the work of the bank with respect to stock transfers, voting at shareholders' meetings, and related matters and to protect it against fraudulent transfers.
(b) Record dates. A national bank may close its stock records for a reasonable period to ascertain shareholders for voting purposes. The board of directors may fix a record date for determining the shareholders entitled to notice of, and to vote at, any meeting of shareholders. The record date should be in reasonable proximity to the date that notice is given to the shareholders of the meeting.
§ 7.2017 Facsimile signatures on bank stock certificates.
The president and cashier, or other officers authorized by the bank's bylaws, shall sign each national bank stock certificate. The signatures may be manual or facsimile, including electronic means of signature. Each certificate must be sealed with the seal of the association.
§ 7.2018 Lost stock certificates.
If a national bank does not provide for replacing lost, stolen, or destroyed stock certificates in its articles of association or bylaws, the bank may adopt procedures in accordance with §7.2000.
§ 7.2019 Loans secured by a bank's own shares.
(a) Permitted agreements, relating to bank shares. A national bank may require a borrower holding shares of the bank to execute agreements:
(1) Not to pledge, give away, transfer, or otherwise assign such shares;
(2) To pledge such shares at the request of the bank when necessary to prevent loss; and
(3) To leave such shares in the bank's custody.
(b) Use of capital notes and debentures. A national bank may not make loans secured by a pledge of the bank's own capital notes and debentures. Such notes and debentures must be subordinated to the claims of depositors and other creditors of the issuing bank, and are, therefore, capital instruments within the purview of 12 U.S.C. 83.
§ 7.2020 Acquisition and holding of shares as treasury stock.
(a) Acquisition of outstanding shares. Pursuant to 12 U.S.C. 59, including the requirements for prior approval by the bank's shareholders and the OCC imposed by that statute, a national bank may acquire its outstanding shares and hold them as treasury stock, if the acquisition and retention of the shares is, and continues to be, for a legitimate corporate purpose.
(b) Legitimate corporate purpose. Examples of legitimate corporate purposes include the acquisition and holding of treasury stock to:
(1) Have shares available for use in connection with employee stock option, bonus, purchase, or similar plans;
(2) Sell to a director for the purpose of acquiring qualifying shares;
(3) Purchase a director's qualifying shares upon the cessation of the director's service in that capacity if there is no ready market for the shares;
(4) Reduce the number of shareholders in order to qualify as a Subchapter S corporation; and
(5) Reduce costs associated with shareholder communications and meetings.
(c) Prohibition. It is not a legitimate corporate purpose to acquire or hold treasury stock on speculation about changes in its value.
[64 FR 60099, Nov. 4, 1999]
§ 7.2021 Preemptive rights.
A national bank in its articles of association must grant or deny preemptive rights to the bank's shareholders. Any amendment to a national bank's articles of association which modifies such preemptive rights must be approved by a vote of the holders of two-thirds of the bank's outstanding voting shares.
§ 7.2022 Voting trusts.
The shareholders of a national bank may establish a voting trust under the applicable law of a state selected by the participants and designated in the trust agreement, provided the implementation of the trust is consistent with safe and sound banking practices.
§ 7.2023 Reverse stock splits.
(a) Authority to engage in reverse stock splits. A national bank may engage in a reverse stock split if the transaction serves a legitimate corporate purpose and provides adequate dissenting shareholders' rights.
(b) Legitimate corporate purpose. Examples of legitimate corporate purposes include a reverse stock split to:
(1) Reduce the number of shareholders in order to qualify as a Subchapter S corporation; and
(2) Reduce costs associated with shareholder communications and meetings.
[64 FR 60099, Nov. 4, 1999]
§ 7.2024 Staggered terms for national bank directors and size of bank board.
(a) Staggered terms. Any national bank may adopt bylaws that provide for staggering the terms of its directors. National banks shall provide the OCC with copies of any bylaws so amended.
(b) Maximum term. Any national bank director may hold office for a term that does not exceed three years.
(c) Number of directors. A national bank's board of directors shall consist of no fewer than 5 and no more than 25 members. A national bank may, after notice to the OCC, increase the size of its board of directors above the 25 member limit. A national bank seeking to increase the number of its directors must notify the OCC any time the proposed size would exceed 25 directors. The bank's notice shall specify the reason(s) for the increase in the size of the board of directors beyond the statutory limit.
[68 FR 70131, Dec. 17, 2003]
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