[Code of Federal Regulations]
[Title 12, Volume 2, Parts 200 to 219]
[Revised as of January 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR208.5]

[Page 165-166]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM (REGULATION H)--Table of Contents
 
        Subpart A--General Membership and Branching Requirements
 
Sec. 208.5  Dividends and other distributions.

    (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.

[[Page 166]]

    (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.
    (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.\4\
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    \3\ In the case of dividends in excess of net income for the year, a 
bank generally is not required to carry forward negative amounts 
resulting from such excess. Instead, the bank may attribute the excess 
to the prior two years, attributing the excess first to the earlier year 
and then to the immediately preceding year. If the excess is greater 
than the bank's previously undistributed net income for the preceding 
two years, prior Board approval of the dividend is required and a 
negative amount would be carried forward in future dividend 
calculations. However, in determining any such request for approval, the 
Board could consider any request for different treatment of such 
negative amount, including advance waivers for future periods. This 
applies only to earnings deficits that result from dividends declared in 
excess of net income for the year and does not apply to other types of 
current earnings deficits.
    \4\ State member banks are required to comply with state law 
provisions concerning the maintenance of surplus funds in addition to 
common capital. Where the surplus of a State member bank is less than 
what applicable state law requires the bank to maintain relative to its 
capital stock account, the bank may be required to transfer amounts from 
its undivided profits account to surplus.
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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.
    (e) Payment of capital distributions. All member banks also are 
subject to the restrictions on payment of capital distributions 
contained in Sec. 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.