SHAREHOLDERS (See "Organization," pages 24-30; “Changes in Capital," pages 45-48; "Liquidation," pages 49-50; "Corporate Existence," page 54, etc.) Meetings-The annual meeting to elect directors is held “on such day in January of each year" as is specified in the Articles of Association. The law makes no provision as to notice of the annual meeting, but unless the time is definitely fixed in the Articles or By-laws of the bank, it seems that owners of the stock are entitled to the usual 30 days' notice. For all special meetings, notice should be given as provided for in the Articles, or, in the absence of such provision, 30 days in advance. Votes-Each shareholder is entitled to one vote on each share of stock. No shareholder whose liability for stock subscription is unpaid and past due is allowed to vote. Cumulative voting is not allowed. For example, if 5 directors are to be elected, the owner of 20 shares could not cast 100 votes in favor of one person, but is at liberty only to cast 20 votes for each of the 5 candidates. The minutes of the annual meeting of shareholders of a national bank should show that sufficient stock was represented at the meeting, in person and by proxy, to constitute a legal quorum under the laws of the state in which the association is located. At meetings where the bank's Articles of Association are to be amended, a majority vote of all the stock of the bank must be cast, except where a larger proportion is required by law. A resolution providing for change in capital, consolidation, liquidation, or change in name or location, requires the affirmative vote of two-thirds of the stock of the bank. Proxy Shareholders may vote by proxy, duly authorized in writing, but no "officer, clerk, teller, or bookkeeper" of the bank can act as proxy. Supported by court decisions, the Comp troller holds that a national bank director is an "officer within every sense and meaning of the word." The proxy cannot vote when the owner of the stock is present and votes. Even when by its terms it is made "irrevocable," a proxy is always revocable. An ordinary proxy, being intended for election only, does not empower the proxy to vote for increased capitalization, consolidation or liquidation unless specific power so to do is given. Liability-National bank stockholders are subjected to an extra liability ("for all contracts, debts and engagements" of the bank) equal to the amount of stock held. Who may (a) Guardian-May subscribe if he shows proper authority. (d) State, county, township or municipality-Subscriptions should not (e) Order, lodge, association, etc.-Evidence must be produced to show the organization is authorized by its rules to buy stock, and that it is legally and financially responsible for an assessment on this stock were one necessary under the National Bank Act. Lists-Every national bank must at all times keep an up-todate list of the names and residences of all shareholders, and a copy of this list, as of the first Monday of July of each year, verified by oath by the president or cashier, must be forwarded to the Comptroller. T DIVIDENDS HE National Bank Act provides that directors of any national bank "may, semi-annually, declare a dividend of so much of the net profit of the association as they shall judge expedient." Although the word "semi-annually" occurs in the language of the act, there appears to be no prohibition against declaration of more frequent dividends, when the bank's directors deem such a course advisable. Within ten days after a dividend has been declared the president or cashier of the bank must attest to the Comptroller under oath the amount of the dividend, and the amount of net earnings in excess of such dividends. Circumstances in which dividends may not be declared are: (a) If the bank's surplus fund is not equal to 20 per cent. of its capital stock, and one-tenth of the net profits for the preceding half year is not carried to surplus. (b) When the bank's balance at the Federal Reserve Bank is below the amount required by law. (c) If losses have at any time been sustained equal to or exceeding the bank's undivided profits then on hand. (d) No dividend shall be made, while a bank continues its operation, to an amount greater than the net profits on hand, minus the bank's losses and bad debts. "Bad debts" within the meaning of the National Bank Act are those debts on which interest is past due and unpaid for a period of six months, unless such debts are well secured, and in process of collection. A national bank cannot lawfully declare a stock dividend. (Opinion of the Attorney General, October 26, 1920.) Neither the surplus fund nor the undivided profits can be used, except by the declaration of a dividend, in which event the shareholders (if they so desire) may use the dividend checks in payment of their subscriptions to additional capital. LOANS A.-GRANTED BY A NATIONAL BANK 1. On Improved Farm Land or Other Real Estate—Until the passage of the Federal Reserve Act it was not lawful for a national bank to loan money on real estate. The Reserve Act, however, provided that any national bank not situated in a central reserve city (i.e., New York, Chicago, or St. Louis) could make loans secured by improved and unencumbered farm land situated: Within its Federal Reserve District; Within one hundred miles of the place in which the bank is located, irrespective of district lines; and that it could also make loans secured by improved and unencumbered real estate situated: Within one hundred miles of the place in which the bank is located, irrespective of district lines. In all such loans, certain conditions and restrictions must be observed, viz.: (a) There must be no prior lien upon the land. (b) The amount of the loan must not exceed 50% of the actual value of the property offered as security. (c) The aggregate amount of loans on farm land and other real estate is limited by the law to an amount not in excess of one-third of the bank's time deposits1 at the time of the making of the loan, or one-fourth of the capital and surplus. (d) The right of a national bank to "make loans" under this section of the Act includes the right to purchase or discount loans already made. (e) No loan made upon the security of farm lands shall be for longer than five years, and no loan made upon the security of other real estate shall be for longer than one year. (f) Although this time limit must be rigidly observed, nevertheless, at the expiration of the legal period (five years for farm land and 1 For definition of "time deposits" see "Reserve Requirements," page 75. one year for other real estate) the bank may properly make a new loan upon the same security for a similar period. The maturing note must be cancelled and a new note taken in its place, but if the original mortgage or deed of trust has been drawn in the first instance so as to cover possible future renewals, a new one need not be made. Under no circumstances must the bank obligate itself in advance to make renewals of such a loan. (g) In order that real estate loans held by a bank may be readily classified, a statement signed by the officers making the loan and having knowledge of the facts upon which it is based, should be attached to each note secured by a first mortgage on the land by which the loan is secured, certifying in detail as of the date of the loan that all the requirements of law have been duly observed. 2. To Bank Examiners-It is unlawful for a national bank or any of its officers, directors, or employees to make any loan or grant any gratuity to a bank examiner. 3. Limitation to one Person, Company, etc.-The total loans of a national bank to any person, company, corporation, or firm (or to the several members of a company or firm) shall not at any time exceed 10% of the amount of the capital stock of the bank, actually paid in and unimpaired, and 10% of its unimpaired surplus funds. In the following cases, however, the transaction is NOT considered a loan within the meaning of the Act: (a) Discount of bills of exchange drawn in good faith against actual existing values including: Drafts and bills of exchange secured by shipping documents conveying or securing title to goods shipped. Demand obligations when secured by documents covering commodities in actual process of shipment. Bankers' acceptances of the kind described in Section 13 of the Federal Reserve Act (see "Bankers' Acceptances," pages 70, 73). (b) Discount of commercial or business paper actually owned by the person, company, corporation, or firm negotiating such paper. (c) Discount of notes secured by shipping documents, warehouse receipts or other such documents conveying or securing title covering readily marketable, non-perishable staples, including live stock, When the actual market value of the property securing the obligation is not at any time less than 115% of the face amount of the notes secured by such document; When such property is fully covered by insurance. |