§ 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.

[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 printed, lithographed, typewritten, or prepared by similar process resulting in clearly legible permanent copies.

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

§ 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. EFFECTIVE DATE AND 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.

18.5

18.6

Reporting of securities transactions. Reconciliation of capital accounts and valuation reserves.

18.7 Rules of general application. Appendix A-Balance Sheet.

Appendix B-Statement of Earnings. Appendix C-Reconcilement of Capital Accounts.

Appendix D-Reconcilement of Valuation and Contingency Reserves.

AUTHORITY: The provisions of this Part 18 issued under R.S. 324 et seq., as amended, secs. 12, 13, 48 Stat. 892, 894, as amended; 12 U.S.C. 1 et seq., 15 U.S.C. 781, 78m.

SOURCE: The provisions of this Part 18 appear at 32 F.R. 7070, May 10, 1967, unless otherwise noted.

§ 18.1 Scope and application.

(a) This part (unless otherwise noted) together with any subsequent interpretive statements specifies the form and minimum content of all financial statements required by regulation of this Office to be distributed to stockholders for fiscal years ending after June 30, 1967.

(b) The term "financial statements" as used in this part should be deemed to include all supporting schedules, instructions, and related forms.

(c) This part incorporates by reference all instructions and interpretations of this Office relating to financial reporting to stockholders which are presently outstanding and as may be amended hereafter.

(d) Certain instructions which assume a basis of full accrual accounting apply only to those banks within the scope of § 18.3 (a), (b), and (c).

§ 18.2 Definition of terms.

Unless the context otherwise requires, the following terms shall have the meaning indicated in this section:

(a) Valuation Reserve. A "valuation reserve" is an account established through an appropriate charge representing management's judgment as to possible loss or value depreciation in a specific class of assets, such as loans or investment securities. Loan loss reserves established pursuant to the Treasury tax

formula should be separately disclosed and may be considered valuation reserves; where reported as a liability, these reserves should not be included in the capital accounts.

(b) Reserve for Contingencies. A “reserve for contingencies" is an account which represents capital reserves set aside for possible or unforeseen decreases or shrinkages in book values of assets or for other unforeseen or indeterminate liabilities, not otherwise reflected on the bank's books. Reserves for possible security losses, reserves for possible loan losses, and other contingency reserves that are established as precautionary measures only shall be included in the capital accounts, as they represent segregations of undivided profits.

(c) Significant Subsidiary. The term "significant subsidiary" means a subsidiary meeting either of the following conditions:

(1) The investments and advances in the subsidiary by its parent plus the parent's proportion of investment and advances in such subsidiary by the parent's other subsidiaries, if any, exceed 5 percent of the equity capital accounts of the parent (bank); or

(2) The parent's proportion of the gross operating revenues of the subsidiary exceeds 5 percent of the gross operating revenue of the parent (bank).

(d) Material. The term "material" when used to modify any item of assets or liabilities means an item exceeding 3 percent of total assets; when used to modify any income or expense item, it means an item exceeding 5 percent of gross operating revenue.

(e) Significant. The term "significant" refers to information which would be considered necessary to evaluate the condition and operations of a bank.

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 classifications. In the earnings statement coupon interest should then be reported with interest on securities and other income with other operating in

come.

(d) Securities profits and losses. Securities profits and losses should be reported after applicable income taxes as a nonoperating addition in the case of a net profit and nonoperating deductions in the event of a net loss.

§ 18.6 Reconciliation of capital accounts and valuation reserves.

(a) Banks shall report a comparative reconciliation of capital accounts for the latest fiscal year and the preceding fiscal year, in the format illustrated in Appendix C.

(b) Banks shall report a comparative reconciliation of valuation reserves and contingency reserves for the latest fiscal year and the preceding fiscal year in the format illustrated in Appendix D.

§ 18.7

Rules of general application.

(a) Earnings. All banks subject to the jurisdiction of the Office of the Comptroller of the Currency shall be required to report: (1) Net operating earnings, total and per share, after deductions for income taxes applicable to operating earnings; (2) net amount, after nonoperating additions and deductions and applicable income taxes, which was transferred to capital accounts.

(b) Additional information. The information required with respect to any financial statement shall be furnished as a minimum requirement to which shall be added such further material information as is necessary to make the required statements not misleading. For example, information on nonsubsidiary organizations or trusteeships operated for the benefit of bank stockholders should be

disclosed. The reporting bank may add any additional information it deems desirable.

(c) Changes in accounting principles and practices and retroactive adjustments initiated by the bank. (1) Any changes in accounting principles or practices or in the method of applying any accounting principles or practices, made during any period for which financial statements are filed which affects comparability of such financial statements with those of prior or future annual periods, and the effect thereof upon the net operating earnings for each period for which financial statements are filed, should be disclosed in a note to the appropriate financial statement where

significant.

(2) Any significant retroactive adjustment made during any period for which financial statements are filed, and the effect thereof upon net operating earnings and nonoperating additions and deductions of prior periods shall be disclosed in a note to the appropriate financial statement.

(d) Balance sheet and statement of earnings. (1) Banks shall report a balance sheet and a statement of earnings. The format illustrated in Appendices A and B represents the minimum disclosure consistent with this part. However, banks with resources of less than $5 million, may, in lieu of Appendix B, report their statement of earnings in the format of the Report of Income and Dividends prepared for the Office of the Comptroller of the Currency. The earnings statement of banks choosing this option should be identical to Items 1 through 8 of said Report.

(2) If a cash basis of accounting has been used, it should be so stated.

(3) All fixed assets acquired subsequent to June 30, 1967, shall be stated at cost less accumulated depreciation or amortization.