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$ 16.8 Filing of registration statement

and use of offering circular. (a) No securities of a new national bank shall be sold by, for, or on behalf of any new national bank unless at the time of, or prior to such sale, the purchaser of such security has received an offering circular which forms part of a registration statement declared effective by the Comptroller of the Currency.

§ 16.9

Advertisements. (a) Any written advertisement (or other written communication, if not accompanied by an offering circular) or any film, radio or television broadcast, which refers to a present or proposed offering of securities, by a new national bank may be published, distributed or broadcast, provided that it contains no more than the following information: (1) The name and address of the issuer of the security; (2) the title of the security, the dollar amount and number of securities being offered, and the per-unit offering price to the public; and (3) where a copy of the offering circular may be obtained.

[Instruction: This section is not intended to prohibit the solicitation of tentative subscriptions without the use of an offering circular provided that no subscriber will be legally bound to pay the subscription price until after such subscriber has been furnished an effective offering circular.)

(b) The offering circular shall be used in accordance with this part until the completion of the distribution of the registered securities. If the distribution is not completed within 12 months from the effective date of the registration statement, an amended registration statement shall be filed and a revised offering circular shall be used in accordance with this part as for an original offering circular. In no event shall an offering circular be used which is false or misleading in light of the circumstances then existing. In cases of dispute, the final determination of whether any statement is false or misleading shall be made only by the Comptroller of the Currency after such investigation and proceedings as he shall deem necessary in the circumstances.

(c) Filings shall be made in quadruplicate and may be pr ed, lithographed, typewritten, or prepared by similar process resulting in clearly legible permanent copies.


Effective date of registration statement. Registration statements of new and existing national banks shall become effective when so declared by the Comptroller of the Currency in his discretion upon written request therefor. § 16.11 Sanctions.

(a) The failure to comply with any requirement of this part may result in the withholding of the approval of the Comptroller of the Currency to issue the securities, the withholding of effectiveness of the registration statement, or the taking of such other action appropriate in the circumstances.

(b) The enforcement of this part shall be the function solely of the Comptroller of the Currency.

(c) No provision of this part is intended to confer any private right of action on any stockholder or other person against a national bank. Questions as to the applicability of this part or any interpretation thereunder shall be resolved by the Comptroller of the Currency.

[31 F.R. 6955, May 12, 1966, as amended at 33 F.R. 2381, Jan. 31, 1968]



Amendment of articles of association or bylaws. Any national bank may provide in its articles of association or bylaws, or both, for a requirement that any shareholder who intends to nominate or to cause to have nominated any candidate for election to the board of directors (other than any candidate proposed by the bank's present management) shall notify the bank and the Comptroller of the Currency. Such bylaw or amendment may provide that the notification shall be made in writing and delivered or mailed to the President of the bank and to the Comptroller of the Currency not less than 14 days nor more than 50 days prior to any meeting of stockholders called for the election of directors, provided however, that if less than 21 days' notice of the meeting is given to shareholders, such nomination shall be delivered or mailed to the President of the bank and to the Comptroller not later than the close of the seventh day following the day on which the notice of meeting was mailed. Such notification shall contain the following information to the extent known to the notifying shareholders:

(a) The names and addresses of the proposed nominee;

(b) The principal occupation of each proposed nominee;

(c) The total number of shares that to the knowledge of the notifying shareholders will be voted for each of the proposed nominees;

(d) The name and residence address of the notifying shareholder; and

(e) The number of shares owned by the notifying shareholder. If a national bank duly adopts the foregoing notice requirements, any nomination for director not made in accordance therewith, may be disregarded by the chairman of the meeting and votes cast for each such nominee may be disregarded by the vote tellers. In the event the same person is nominated by more than one shareholder, the nomination shall be honored and all shares shall be counted if at least one nomination for that person complies with this part. (R.S. 324 et seq., as amended; 12 U.S.C. 1 et seq.) (30 F.R. 7275, June 2, 1965)


formula should be separately disclosed FINANCIAL STATEMENTS

and may be considered valuation re

serves; where reported as a liability, Sec.

these reserves should not be included in 18.1 Scope and application.

the capital accounts. 18.2 Definition of terms.

(b) Reserve for Contingencies. A “re18.3 Accrual accounting.

serve for contingencies" is an account 18.4 Consolidated statements. 18.5 Reporting of securities transactions.

which represents capital reserves set 18.6 Reconciliation of capital accounts and

aside for possible or unforeseen decreases valuation reserves.

or shrinkages in book values of assets or 18.7 Rules of general application.

for other unforeseen or indeterminate Appendix A-Balance Sheet.

liabilities, not otherwise reflected on the Appendix B Statement of Earnings.

bank's books. Reserves for possible seAppendix C—Reconcilement of Capital Ac- curity losses, reserves for possible loan counts.

losses, and other contingency reserves Appendix D_Reconcilement of Valuation that are established as precautionary and Contingency Reserves.

measures only shall be included in the AUTHORITY: The provisions of this Part 18

capital accounts, as they represent segreissued under R.S. 324 et seq., as amended, gations of undivided profits. secs. 12, 13, 48 Stat. 892, 894, as amended; (c) Significant Subsidiary. The term 12 U.S.C. 1 et seq., 15 U.S.C. 781, 78m.

"significant subsidiary” means a subSOURCE: The provisions of this Part 18 ap

sidiary meeting either of the following pear at 32 F.R. 7070, May 10, 1967, unless conditions: otherwise noted.

(1) The investments and advances in

the subsidiary by its parent plus the § 18.1 Scope and application.

parent's proportion of investment and (a) This part (unless otherwise noted) advances in such subsidiary by the together with any subsequent interpre- parent's other subsidiaries, if any, exceed tive statements specifies the form and 5 percent of the equity capital accounts minimum content of all financial state- of the parent (bank); or ments required by regulation of this (2) The parent's proportion of the Office to be distributed to stockholders gross operating revenues of the subfor fiscal years ending after June 30, 1967. sidiary exceeds 5 percent of the gross

(b) The term "financial statements” operating revenue of the parent (bank). as used in this part should be deemed to (d) Material. The term “material" include all supporting schedules, instruc- when used to modify any item of assets tions, and related forms.

or liabilities means an item exceeding (c) This part incorporates by refer- 3 percent of total assets; when used to ence all instructions and interpretations modify any income or expense item, it of this Office relating to financial report- means an item exceeding 5 percent of ing to stockholders which are presently gross operating revenue. outstanding and as may be amended (e) Significant. The term "significant” hereafter.

refers to information which would be (d) Certain instructions which assume considered necessary to evaluate the cona basis of full accrual accounting apply dition and operations of a bank. only to those banks within the scope of

§ 18.3 Accrual accounting. § 18.3 (a), (b), and (c).

(a) For all fiscal years beginning after § 18.2 Definition of terms.

December 31, 1967, any bank subject to Unless the context otherwise requires, the jurisdiction of this Office, with total the following terms shall have the mean- resources of $100 million or more shall ing indicated in this section:

prepare all its financial statements sub(a) Valuation Reserve. A "valuation ject to his part on the basis of accrual reserve" is an account established accounting. Where the results would be through an appropriate charge repre- only insignificantly different for particusenting management's judgment as to lar accounts, a cash basis of reporting possible loss or value depreciation in a may be used. specific class of assets, such as loans or (b) For all fiscal years beginning after investment securities. Loan loss reserves December 31, 1968, any bank subject to established pursuant to the Treasury tax the jurisdiction of this Office, with total

resources of $50 million or more shall prepare all its financial statements subject to this regulation on the basis of accrual accounting. Where the results would be only insignificantly different for particular accounts, a cash basis of reporting may be used.

(c) For all fiscal years beginning after December 31, 1969, any bank subject to the jurisdiction of this Office, with total resources of $25 million or more shall prepare all its financial statements subject to this regulation on the basis of accrual accounting. Where the results would be only insignificantly different for particular accounts, a cash basis of reporting may be used.

(d) For all fiscal years beginning after December 31, 1967, any bank subject to the jurisdiction of this Office and not subject to the reporting requirements of paragraphs (a), (b), or (c) of this section, shall prepare all of its financial statements subject to this regulation so that its installment loan function and related tax provisions are on the basis of accrual accounting, or alternatively, such bank, as a footnote to the balance sheet, must disclose the amount of unearned income on installment loans carried in the undivided profits or other capital accounts.

(e) Notwithstanding the foregoing paragraphs (a), (b), and (c) of this section, income items of trust department functions may be reported on a cash basis. § 18.4 Consolidated statements.

(a) All majority-owned significant subsidiaries shall be consolidated with the parent.

(b) All majority-owned bank premises subsidiaries—whether or not significant subsidiaries shall be consolidated with the parent.

(c) Any lien on bank premises owned by the bank or its majority-owned bank premises subsidiary, which has not been assumed by the bank or its subsidiary, should be reported in a parenthetical item, “(Bank premises owned are subject to $_

_liens not assumed by bank or its subsidiaries)”, immediately following the “bank premises and equipment” account in the Balance Sheet, Appendix A.

(d) Nonsignificant subsidiaries may also be consolidated.

(e) Minority interests in the net assets of consolidated subsidiaries shall be

shown in each consolidated balance sheet as a liability. The aggregate amount of profit and loss accruing to minority interests may be stated separately in the consolidated profit or loss statement. Alternatively, net income (less minority interest) may be reported in “other income".

(1) Income from foreign subsidiaries and foreign branches shall be reported only when remittable to the parent bank; such income shall be reported under Item 1(f), Appendix B.

(f) In general, intercompany items and transactions shall be eliminated. If significant items are not eliminated, a statement of the reasons and methods of treatment shall be made. § 18.5

Reporting of securities transactions. (a) Amortization of securities. When an investment security is purchased at a price exceeding par or face value, the bank shall provide for the amortization of the premiums paid by a charge to operating income so that such premium shall be entirely extinguished at or before maturity of the security.

(b) Accretion of bond discount. The accretion of bond discount is at the option of the bank. When discount is accreted and amounts to 5 percent or more of the annual bond income, appropriate notation should be made in statements of net operating income indicating the amount of net operating income after taxes resulting from the accretion of discount. If accretion is followed, discount on bonds acquired should be accreted from date of purchase to maturity, and a provision for applicable deferred income taxes should be made.

(c) Trading account securities. Banks that are dealers in securities should report their trading account securities at the lower of cost or market value. If either the reporting value of securities or income therefrom meet the test of materiality, the trading account and trading account income should be reported separately. The income account should include coupon interest, profit and losses, revaluation adjustments and any other incidental revenue or expenses related to the purchase and sale of such securities, but salaries, commissions and other expenses should be excluded. If materiality is not met, unless management wishes to report separately, trading account securities should be included

with portfolio securities in the respective disclosed. The reporting bank may add classifications. In the earnings state- any additional information it deems ment coupon interest should then be re- desirable. ported with interest on securities and (c) Changes in accounting principles other income with other operating in- and practices and retroactive adjustcome.

ments initiated by the bank. (1) Any (d) Securities profits and losses. Se- changes in accounting principles or praccurities profits and losses should be re- tices or in the method of applying any ported after applicable income taxes as accounting principles or practices, made a nonoperating addition in the case of a during any period for which financial net profit and nonoperating deductions statements are filed which affects comin the event of a net loss.

parability of such financial statements $ 18.6 Reconciliation of capital ac

with those of prior or future annual pecounts and valuation reserves.

riods, and the effect thereof upon the

net operating earnings for each period (a) Banks shall report a comparative for which financial statements are filed, reconciliation of capital accounts for the

should be disclosed in a note to the aplatest fiscal year and the preceding fiscal

propriate financial statement where year, in the format illustrated in Ap- significant. pendix C.

(2) Any significant retroactive adjust(b) Banks shall report a comparative ment made during any period for which reconciliation of valuation reserves and

financial statements are filed, and the contingency reserves for the latest fiscal

effect thereof upon net operating earnyear and the preceding fiscal year in the

ings and nonoperating additions and deformat illustrated in Appendix D.

ductions of prior periods shall be disclosed in a note to the appropriate fi

nancial statement. § 18.7 Rules of general application.

(d) Balance sheet and statement of (a) Earnings. All banks subject to the earnings. (1) Banks shall report a baljurisdiction of the Office of the Comp- ance sheet and a statement of earnings. troller of the Currency shall be required The format illustrated in Appendices A to report: (1) Net operating earnings, and B represents the minimum disclosure total and per share, after deductions for consistent with this part. However, banks income taxes applicable to operating with resources of less than $5 million, earnings; (2) net amount, after nonop- may, in lieu of Appendix B, report their erating additions and deductions and ap- statement of earnings in the format of plicable income taxes, which was trans- the Report of Income and Dividends preferred to capital accounts.

pared for the Office of the Comptroller of (b) Additional information. The in- the Currency. The earnings statement of formation required with respect to any banks choosing this option should be financial statement shall be furnished as identical to Items 1 through 8 of said a minimum requirement to which shall Report. be added such further material informa- (2) If a cash basis of accounting has tion as is necessary to make the required been used, it should be so stated. statements not misleading. For example, (3) All fixed assets acquired subseinformation on nonsubsidiary organiza- quent to June 30, 1967, shall be stated at tions or trusteeships operated for the cost less accumulated depreciation or benefit of bank stockholders should be amortization.

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