Section 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.(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. 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.(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of each class of stock outstanding.(2) A member bank may not permit any portion of its permanent capital to be withdrawn unless the withdrawal has been approved by the Board and by at least two-thirds of the shareholders of each class of stock outstanding.(3) If a member bank has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 § 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.63 FR 37637, July 13, 1998, as amended by Reg. H, 78 FR 62282 , Oct. 11, 2013; 80 FR 70672 , Nov. 16, 2015