The OCC issued an interpretation (OCC Interpretive Letter #1112, “Letter #1112”) confirming that a national bank (the “Bank”) may issue common stock at an issue price lower than par value and that the assessment provisions of the National Bank Act (the “NBA”) do not apply to stock so issued. Prior to Letter #1112, it was not clear from the language of the NBA or from the OCC’s regulations that national banks were permitted to issue stock with an issue price below par value; in fact, the OCC’s Licensing Manual provides that “Banks should consult with the OCC prior to considering a sale of common stock at a price below par value”.
Letter #1112 permits the Bank to issue stock below par value provided that the Bank maintains adequate capital. More specifically, adequate capital must be maintained by the transfer of funds from the Bank’s capital surplus account to its capital stock account in an amount sufficient to ensure that the capital stock account is funded as if all common stock has been issued at par value. For example, where a bank issues 1,000,000 shares of common stock at $4.00 per share, and the par value of such common stock is $5.00, the bank must transfer $1,000,000 to its capital stock account. The bank must also maintain adequate capital under the OCC’s other capital regulations and comply with all applicable laws and regulations in connection with the issuance of common stock. Letter #1112 also confirms that to the extent that the Bank “trues-up” its capital stock account from its capital surplus account in the manner described above, the issuance of stock below par value would not be subject to assessment for impairment or deficiency pursuant to the NBA. The relevant transaction described in the OCC’s interpretive guidance is a private sale of stock; however, the OCC does not describe the non-public nature of the sale of stock as an important factor in its decision to permit the transaction.Letter #1112 also makes the more general statement that matters related to the pricing of stock are “corporate governance procedure[s]” and therefore, the Bank is permitted to price its stock in accordance with the corporate governance procedures that the Bank has selected in its corporate documents, so long as such pricing is not inconsistent with the Bank’s safety and soundness.