Regions Bank 2008 Annual Report Download - page 73

STOCKHOLDERS’ EQUITY
Stockholders’ equity decreased to $16.8 billion at year-end 2008 versus $19.8 billion at year-end 2007,
primarily reflecting the Company’s $5.6 billion net loss due to the $6.0 billion goodwill impairment charge,
offset by $3.5 billion related to the issuance of preferred stock and a warrant for 48.3 million shares of Regions’
common stock at an initial per share price of $10.88 under the Capital Purchase Program (“CPP”). The warrant
expires ten years from the issuance date. Under the terms of the government’s investment in preferred stock of
the Company, Regions must pay an annual dividend of 5 percent, or $175 million annually, for the first five
years, and a 9 percent dividend thereafter, until the Company has redeemed the shares. In addition, as part of the
Company’s participation in the program, Regions cannot repurchase shares or increase the dividend payment
above the current rate of $0.10 per share without permission from the U.S. Treasury until November 14, 2011 or
until the U.S. Treasury no longer owns any of Regions’ Series A Preferred Stock. As stated above, the
government also received a 10-year warrant for common stock, which will give the U.S. Treasury the opportunity
to benefit from an increase in the price of the Company’s common stock. Accrued dividends on preferred shares
reduced retained earnings by $26.2 million in 2008.
Common dividends declared reduced stockholders’ equity by $669.0 million. In addition, the net change in
unrealized loss on securities available for sale and the net change from defined benefit pension plans decreased
stockholders’ equity by $414.6 million. Offsetting these items was a $190.1 million increase from the net change
in unrealized gains on derivative instruments. The internal capital generation rate (net income available to
common shareholders less dividends as a percentage of average stockholders’ equity) was negative 31.6 percent
in 2008 compared to 1.1 percent in 2007. Excluding the $6.0 billion non-cash goodwill impairment charge, the
2008 internal capital generation rate was negative 1.5 percent.
During 2007, Regions repurchased 40.8 million common shares at a total cost of $1.4 billion. There were no
treasury stock purchases in 2008. Although the Company has 23.1 million common shares available for
repurchase under its current share repurchase authorization, under the terms of the CPP, Regions is not eligible to
repurchase treasury shares without permission from the U.S. Treasury until November 14, 2011 or until the U.S.
Treasury no longer owns any of Regions’ Series A Preferred Stock.
Regions’ ratio of stockholders’ equity to total assets was 11.5 percent at December 31, 2008 compared to
14.1 percent at December 31, 2007. Regions’ ratio of tangible common stockholders’ equity (stockholders’
equity less goodwill and other identifiable intangibles) to total tangible assets was 5.23 percent at December 31,
2008 compared to 5.88 percent at December 31, 2007, mainly reflecting the reduced earnings and the increasing
balance sheet, reflecting proceeds from the $3.5 billion CPP and the $3.75 billion TLGP issuances.
Regions attempts to balance the return to stockholders through the payment of dividends with the need to
maintain strong capital levels for future growth opportunities. After careful consideration of the current
environment, Regions reduced its dividend in 2008. This decision will strengthen its capital ratios as the
Company navigates the current economic environment. Regions’ total dividends in 2008 were $669.0 million, or
$0.96 per share, a decrease of 34.2 percent from the $1.46 per share paid in 2007. Under the terms of the CPP,
Regions is unable to increase its common dividend above the current rate of $0.10 per share without approval
from the U.S. Treasury until November 14, 2011 or until the U.S. Treasury no longer owns any of Regions’
Series A Preferred Stock.
Regions is a legal entity separate and distinct from its banking subsidiary Regions Bank. Regions’ principal
source of cash flow, including cash flow to pay dividends to its stockholders, is dividends from Regions Bank.
There are statutory and regulatory limitations on the payment of dividends by Regions Bank to Regions.
Regulations of both the Federal Reserve and the State of Alabama affect the ability of Regions Bank to pay
dividends and other distributions to Regions. Given the loss at Regions Bank during 2008, under the Federal
Reserve’s rules, Regions Bank does not expect to be able to pay dividends to Regions in the near term without
first obtaining regulatory approval.
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