Regions Bank 2010 Annual Report Download - page 172

Stock price(a) ............................................................... $ 9.67
Exercise price(b) ............................................................ $10.88
Expected volatility(c) ......................................................... 45.22%
Risk-free rate(d) ............................................................. 4.25%
Dividend yield(e) ............................................................ 3.88%
Warrant term (in years)(b) ..................................................... 10
(a) Closing stock price of Regions as of the valuation date (November 14, 2008).
(b) As outlined in the Warrant to Purchase Agreement, dated November 14, 2008.
(c) Expected volatility based on Regions’ historical volatility, as of November 14, 2008, over a look-back
period of 10 years, commensurate with the terms of the warrant.
(d) The risk-free rate represents the yield on 10-year U.S. Treasury Strips as of November 14, 2008.
(e) The dividend yield assumption was calculated based on a weighting of 30% on management’s dividend
yield expectations for the next 3 years and a weighting of 70% on Regions’ average dividend yield over the
10 years prior to the valuation 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
Series A preferred shares reduced retained earnings by $175 million in both 2010 and 2009. The unamortized
discount on the preferred shares was $120 million and $157 million at December 31, 2010 and 2009,
respectively. Discount accretion on the preferred shares reduced retained earnings by $37 million during 2010
and $36 million in 2009. Both the preferred securities and the warrant are accounted for as components of
Regions’ regulatory Tier 1 capital.
On May 20, 2009 the Company issued 287,500 shares of mandatorily convertible preferred stock, Series B
(“Series B shares”), generating net proceeds of approximately $278 million. Accrued dividends on the Series B
shares reduced retained earnings by $12 million and $19 million during 2010 and 2009, respectively. In
November 2009, a single investor converted approximately 20,000 Series B shares to common shares as allowed
under the original transaction documents. On June 18, 2010, as allowed by the terms of the Series B shares,
Regions initiated an early conversion of all of the remaining outstanding Series B shares. Dividends accrued and
unpaid at the conversion date were settled through issuance of common shares in accordance with the original
document. No Series B shares were outstanding at December 31, 2010. Approximately 63 million common
shares were issued in the conversion and dividend settlement.
On May 20, 2009, the Company announced a public equity offering and issued 460 million shares of
common stock at $4 per share, generating proceeds of $1.8 billion, net of issuance costs.
In addition to the offerings mentioned above, the Company also exchanged approximately 33 million
common shares for $202 million of outstanding 6.625 percent trust preferred securities issued by Regions
Financing Trust II (“the Trust”) in the second quarter of 2009. The trust preferred securities were exchanged for
junior subordinated notes issued by the Company to the Trust. The Company recognized a pre-tax gain of
approximately $61 million on the extinguishment of the junior subordinated notes. The increase in shareholders’
equity related to the debt for common share exchange was approximately $135 million, net of issuance costs.
At December 31, 2010, there were 55,222,000 shares reserved for issuance under stock compensation plans.
Stock options outstanding represent 55,000,000 shares and 222,000 shares are reserved for issuance under
deferred compensation plans.
In 2010, Regions decreased its annual dividend to $0.04 per common share, compared to $0.13 in 2009 and
$0.96 in 2008. Regions does not expect to increase its quarterly dividend above the current $0.01 per common
share for the foreseeable future.
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