Regions Bank 2008 Annual Report Download - page 136

Regions Bank is required to maintain reserve balances with the Federal Reserve Bank. The average amount
of the reserve balances maintained for the years ended December 31, 2008 and 2007, was approximately $73.1
million and $28.2 million, respectively.
Substantially all net assets are owned by subsidiaries. The primary source of operating cash available to
Regions is provided by dividends from subsidiaries. Statutory limits are placed on the amount of dividends the
subsidiary bank can pay without prior regulatory approval. In addition, regulatory authorities require the
maintenance of minimum capital-to-asset ratios at banking subsidiaries. Under the Federal Reserve’s Regulation
H, Regions Bank may not, without approval of the Federal Reserve, declare or pay a dividend to Regions if the
total of all dividends declared in a calendar year exceeds the total of (a) Regions Bank’s net income for that year
and (b) its retained net income for the preceding two calendar years, less any required transfers to additional
paid-in capital or to a fund for the retirement of preferred stock. As a result of the loss incurred by Regions Bank
in 2008, Regions Bank cannot, without approval from the Federal Reserve, declare or pay a dividend to Regions
until such time as Regions Bank is able to satisfy the criteria discussed in the preceding sentence. Given the loss
in 2008, Regions Bank does not expect to be able to pay dividends to Regions in the near term without obtaining
regulatory approval. In addition to dividend restrictions, Federal statutes also prohibit unsecured loans from
banking subsidiaries to the parent company. Because of these limitations, substantially all of the net assets of
Regions’ subsidiaries are restricted.
In addition, Regions must adhere to various U.S. Department of Housing and Urban Development (“HUD”)
regulatory guidelines including required minimum capital to maintain their Federal Housing Administration
approved status. Failure to comply with the HUD guidelines could result in withdrawal of this certification. As of
December 31, 2008, Regions was in compliance with HUD guidelines. Regions is also subject to various capital
requirements by secondary market investors.
NOTE 16. STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
On November 14, 2008, Regions completed the sale of 3.5 million shares of its Fixed Rate Cumulative
Perpetual Preferred Stock, Series A, par value $1.00 and liquidation preference $1,000.00 per share (and $3.5
billion liquidation preference in the aggregate) to the U.S. Treasury as part of the Capital Purchase Program
(“CPP”). The U.S. Treasury’s investment in Regions is part of the government’s program to provide capital to
the healthy financial institutions that are the core of the nation’s economy in order to increase the flow of credit
to consumers and businesses and provide additional assistance to distressed homeowners facing foreclosure.
Regions will pay the U.S. Treasury on a quarterly basis a 5% dividend, or $175 million annually, for each of the
first five years of the investment, and 9% thereafter unless Regions redeems the shares. As part of its purchase of
the preferred securities, the U.S. Treasury also received a warrant to purchase 48.3 million shares of Regions’
common stock at an exercise price of $10.88 per share, subject to certain anti-dilution and other adjustments. The
warrant expires ten years from the issuance date. The fair value allocation of the $3.5 billion between the
preferred shares and the warrant resulted in $3.304 billion allocated to the preferred shares and $196 million
allocated to the warrant. Accrued dividends on the preferred shares reduced retained earnings by $26.2 million
during 2008. The unamortized discount on the preferred shares at December 31, 2008 was $192.6 million. Both
the preferred securities and the warrant will be accounted for as components of Regions’ regulatory Tier 1
Capital.
On January 18, 2007, Regions’ Board of Directors approved the repurchase of 50 million shares of the
Company’s outstanding common stock. The common shares may be repurchased in the open market or in
privately negotiated transactions and will be taken into treasury. This authorization was in addition to the
13.8 million shares available for repurchase under previous authorizations. There were no treasury stock
purchases through open market transactions during 2008. The Company, like many other financial institutions, is
in a capital conservation mode and does not expect to repurchase shares in the near term. Regions’ ability to
repurchase shares is limited under the terms of the CPP. Under that agreement, Regions cannot repurchase its
shares without the approval of the U. S. Treasury until November 14, 2011 or until the U. S. Treasury no longer
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