he "net profits" on hand after deducting therefrom losses and
bad debts, and as it has been shown above that the surplus fund cannot
be considered "net profits," available for dividends within the meaning
of the law, it follows that in order to determine the amount of net
earnings available for dividends the losses must first be deducted from
the earnings other than surplus.

It is to be observed also that section 5204 specifies that if losses
have at any time been sustained by a bank equal to or exceeding its
"_undivided_ profits" on hand no dividends shall be made.

Now the surplus fund is not undivided profits, except in so far as it is
earnings not divided among the shareholders. It is made upon a division
of the profits--so much to the stockholders and so much to the surplus
fund. If the law had intended that losses might be charged to surplus
fund in order to leave the other earnings available for dividends it is
to be presumed that care would not have been taken to use the words
"undivided profits," in the connection in which they are used, as stated
above.

Furthermore, if losses may be charged to surplus when at the same time
the other earnings are used for dividends to shareholders, a bank may go
on declaring dividends, and never accumulate any surplus fund whatever
if losses be sustained, as they are in the history of nearly every bank.
A construction of the law which would render inoperative the requirement
for the creation of a surplus cannot be sound; and as the only way to
insure that a surplus shall be accumulated and maintained is to charge
losses against other earnings as far as may be before trenching upon the
surplus; it must be that the law intended that the "undivided profits"
which are not in the surplus fund shall first be used to meet losses.

To a full understanding of the subject it is proper to say that after
using all other earnings on hand at the usual time for declaring a
dividend to meet losses the whole or any part of the surplus may be used
if the losses exceed the amount of the earnings other than surplus, and
then at the end of another six months a dividend may be made if the
earnings will admit of it, one-tenth of the earnings being first carried
to surplus and the re-accumulation of the fund thus begun.

This is because the law has been complied with by charging the losses
against the "undivided profits," as far as they will go, and it is
impossible to do more, or require more t