Regions Bank 2009 Annual Report Download - page 59

which are non-GAAP. Merger and goodwill impairment charges are included in financial results presented in
accordance with generally accepted accounting principles (“GAAP”). Regions believes the exclusion of merger
and goodwill impairment charges in expressing earnings and certain other financial measures, including
“earnings per common share, excluding merger and goodwill impairment charges” and “return on average
tangible common stockholders’ equity, excluding merger and goodwill impairment charges” provides a
meaningful base for period-to-period and company-to-company comparisons, which management believes will
assist investors in analyzing the operating results of the Company and predicting future performance. These
non-GAAP financial measures are also used by management to assess the performance of Regions’ business,
because management does not consider merger charges to be relevant to ongoing operating results. Management
and the Board of Directors utilize these non-GAAP financial measures as follows:
• Preparation of Regions’ operating budgets
• Calculation of performance-based annual incentive bonuses for certain executives
• Calculation of performance-based multi-year incentive bonuses for certain executives
• Monthly financial performance reporting, including segment reporting
• Monthly close-out “flash” reporting of consolidated results (management only)
• Presentations to investors of Company performance
Regions believes that presenting these non-GAAP financial measures will permit investors to assess the
performance of the Company on the same basis as that applied by management and the Board of Directors. The
third quarter of 2008 was the final quarter for merger charges related to the AmSouth Bancorporation acquisition.
Tangible common stockholders’ equity ratios have become a focus of some investors and management
believes they may assist investors in analyzing the capital position of the Company absent the effects of
intangible assets and preferred stock. Traditionally, the Federal Reserve and other banking regulators have
assessed a bank’s capital adequacy based on Tier 1 capital, the calculation of which is codified in federal banking
regulations. In connection with the SCAP, these regulators began supplementing their assessment of the capital
adequacy of a bank based on a variation of Tier 1 capital, known as Tier 1 common equity. While not codified,
analysts and banking regulators have assessed Regions’ capital adequacy using the tangible common
stockholders’ equity and/or the Tier 1 common equity measure. Because tangible common stockholders’ equity
and Tier 1 common equity are not formally defined by GAAP or codified in the federal banking regulations,
these measures are considered to be non-GAAP financial measures and other entities may calculate them
differently than Regions’ disclosed calculations. Since analysts and banking regulators may assess Regions’
capital adequacy using tangible common stockholders’ equity and Tier 1 common equity, Regions believes that it
is useful to provide investors the ability to assess Regions’ capital adequacy on these same bases.
Tier 1 common equity is often expressed as a percentage of risk-weighted assets. Under the risk-based
capital framework, a bank’s balance sheet assets and credit equivalent amounts of off-balance sheet items are
assigned to one of four broad risk categories. The aggregated dollar amount in each category is then multiplied
by the risk weighting assigned to that category. The resulting weighted values from each of the four categories
are added together and this sum is the risk-weighted assets total that, as adjusted, comprises the denominator of
certain risk-based capital ratios. Tier 1 capital is then divided by this denominator (risk-weighted assets) to
determine the Tier 1 capital ratio. Adjustments are made to Tier 1 capital to arrive at Tier 1 common equity. Tier
1 common equity is also divided by the risk-weighted assets to determine the Tier 1 common equity ratio. The
amounts disclosed as risk-weighted assets are calculated consistent with banking regulatory requirements.
Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are
not audited. To mitigate these limitations, Regions has policies in place to address expenses that qualify as
merger and goodwill impairment charges and procedures in place to approve and segregate merger and goodwill
impairment charges from other normal operating expenses to ensure that these measures are calculated using the
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