Regions Bank 2009 Annual Report Download - page 94

The risk-based capital standards are designed to make regulatory capital requirements more sensitive to
differences in credit risk profiles among banks and bank holding companies, to account for off-balance sheet
exposure and interest rate risk, and to minimize disincentives for holding liquid assets. Assets and off-balance
sheet items are assigned to broad risk categories, each with specified risk-weighting factors. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. Banking
organizations that are considered to have excessive interest rate risk exposure are required to maintain higher
levels of capital.
The minimum standard for the ratio of total capital to risk-weighted assets is 8%. At least 50% of that
capital level must consist of common equity, undivided profits and non-cumulative perpetual preferred stock, less
goodwill and certain other intangibles (“Tier 1 Capital”). The remainder (“Tier 2 Capital”) may consist of a
limited amount of other preferred stock, mandatorily convertible securities, subordinated debt, and a limited
amount of the allowance for loan losses. The sum of Tier 1 Capital and Tier 2 Capital is “total risk-based capital”
or total capital.
The banking regulatory agencies also have adopted regulations that supplement the risk-based guidelines to
include a minimum ratio of 3% of Tier 1 Capital to average assets less goodwill and disallowed deferred tax
assets (the “Leverage ratio”). Depending upon the risk profile of the institution and other factors, the regulatory
agencies may require a Leverage ratio of 1% to 2% above the minimum 3% level.
In connection with the SCAP, banking 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 (see Table 2 “GAAP to Non-GAAP Reconciliation” for further
details).
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