§ 1132 Bank Shareholder Distribution Limits

This law says a bank (and its main subsidiaries) can only give money to shareholders up to the smaller of two amounts: what the bank has saved (retained earnings) or what it earned in the last three years after subtracting any money already paid out.

Key Takeaways

•A bank can’t give shareholders more than its saved profits.
•It also can’t give more than its earnings from the past three years after subtracting any payouts already made.
•The actual limit is the lower of those two numbers.
•The rule applies to the bank itself and any subsidiary it mostly owns.

Example

Bank A wants to pay a $20 million dividend to its owners.

Bank A looks at its saved profits (retained earnings) and its earnings over the past three years minus any past payouts. It can only pay the lower of those two numbers, so if its saved profits are $30 million but its net earnings after past payouts are $15 million, the dividend can’t be more than $15 million.

How to Calculate

Distribution Limit = min( Retained Earnings , ( Net Income_last3years – Prior Distributions ) )

Find the bank’s retained earnings (the profit it has kept).
Add up the net income for each of the last three fiscal years.
Subtract any distributions already made to shareholders during those three years.
Compare the two numbers from Step 1 and Step 3 and pick the smaller one. That’s the most the bank can give out now.

Bank B wants to know how much it can pay out now.

Result: Distribution Limit = min( $50 M , ( $30 M – $5 M ) ) = min( $50 M , $25 M ) = $25 million

Neither a bank nor any majority-owned subsidiary of a bank shall make any distribution to the shareholders of such bank in an amount which exceeds the lesser of: (a) The retained earnings of the bank; or (b) The net income of the bank for its last three fiscal years, less the amount of any distributions made by the bank or by any majority-owned subsidiary of the bank to the shareholders of the bank during such period. (Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.)

Key Takeaways

•A bank can’t give shareholders more than its saved profits.
•It also can’t give more than its earnings from the past three years after subtracting any payouts already made.
•The actual limit is the lower of those two numbers.
•The rule applies to the bank itself and any subsidiary it mostly owns.

Example

Bank A wants to pay a $20 million dividend to its owners.

How to Calculate

Distribution Limit = min( Retained Earnings , ( Net Income_last3years – Prior Distributions ) )

Find the bank’s retained earnings (the profit it has kept).
Add up the net income for each of the last three fiscal years.
Subtract any distributions already made to shareholders during those three years.
Compare the two numbers from Step 1 and Step 3 and pick the smaller one. That’s the most the bank can give out now.

Bank B wants to know how much it can pay out now.

Result: Distribution Limit = min( $50 M , ( $30 M – $5 M ) ) = min( $50 M , $25 M ) = $25 million

Key Takeaways

Example

How to Calculate

Key Terms

References

§ 1132 Bank Shareholder Distribution Limits

Key Takeaways

Example

How to Calculate

Key Terms

References

Key Takeaways

Example

How to Calculate

Key Terms

Related Statutes

References

Key Takeaways

Example

How to Calculate

Key Terms

Related Statutes

References