(a) Definitions. For the purposes of this section:
(1) Capital surplus means the total
of surplus as reportable in the bank’s Reports of Condition and Income
and surplus on perpetual preferred stock.
(2) Permanent capital means the
total of the bank’s perpetual preferred stock and related surplus,
common stock and surplus, and minority interest in consolidated subsidiaries,
as reportable in the Reports of Condition and Income.
(b) Limitations. The
limitations in this section on the payment of dividends and withdrawal
of capital apply to all cash and property dividends or distributions
on common or preferred stock. The limitations do not apply to dividends
paid in the form of common stock.
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(c) Earnings limitations on payment of dividends.
(1) A member bank may not declare
or pay a dividend if the total of all dividends declared during the
calendar year, including the proposed dividend, exceeds the sum of
the bank’s net income (as reportable in its Reports of Condition and
Income) during the current calendar year and the retained net income
of the prior two calendar years, unless the dividend has been approved
by the Board.
(2) “Retained
net income” in a calendar year is equal to the bank’s net income (as
reported in its Report of Condition and Income for such year), less
any dividends declared during such year.
3 The bank’s net
income during the current year and its retained
net income from the prior two calendar years is reduced by any net
losses incurred in the current or prior two years and any required
transfers to surplus or to a fund for the retirement of preferred
stock.
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(d) Limitation on withdrawal of capital by dividend
or otherwise.
(1) A member bank may not declare or pay
a dividend if the dividend would exceed the bank’s undivided profits
as reportable on its Reports of Condition and Income, unless the bank
has received the prior approval of the Board and of at least two-thirds
of the shareholders of each class of stock outstanding.
(2) A member bank may not
permit any portion of its permanent capital to be withdrawn unless
the withdrawal has been approved by the Board and by at least two-thirds
of the shareholders of each class of stock outstanding.
(3) If a member bank has capital
surplus in excess of that required by law, the excess amount may be
transferred to the bank’s undivided-profits account and be available
for the payment of dividends if—
(i) the amount transferred
came from the earnings of prior periods, excluding earnings transferred
as a result of stock dividends;
(ii) the bank’s board of directors approves
the transfer of funds; and
(iii) the transfer has been approved
by the Board.
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(e) Payment of capital distributions. All member
banks also are subject to the restrictions on payment of capital distributions
contained in section 208.45 of subpart D of this part implementing
section 38 of the FDI Act (12 U.S.C. 1831o).
(f) Compliance. A member bank shall use the
date a dividend is declared to determine compliance with this section.
