Regions Bank 2011 Annual Report Download - page 204

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. Under Alabama law, Regions Bank may not pay
a dividend to Regions in excess of 90 percent of its net earnings until the bank’s surplus is equal to at least 20
percent of capital. Regions Bank is also required by Alabama law to seek the approval of the Alabama
Superintendent of Banking prior to the payment of dividends if the total of all dividends declared by Regions
Bank in any calendar year will exceed the total of (a) Regions Bank’s net earnings for that year, plus (b) its
retained net earnings for the preceding two years, less any required transfers to surplus. The statute defines net
earnings as “the remainder of all earnings from current operations plus actual recoveries on loans and
investments and other assets, after deducting from the total thereof all current operating expenses, actual losses,
accrued dividends on preferred stock, if any, and all federal, state and local taxes.” Regions Bank cannot, without
approval from the Federal Reserve and the Alabama Superintendent of Banking, declare or pay a dividend to
Regions unless Regions Bank is able to satisfy the criteria discussed in the preceding sentences. In addition to
dividend restrictions, Federal statutes also prohibit unsecured loans from banking subsidiaries to the parent
company.
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, 2011, Regions was in compliance with HUD guidelines. Regions is also subject to various capital
requirements by secondary market investors.
NOTE 14. 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, to the U.S. Treasury as part of the Capital Purchase Program (“CPP”).
Regions will pay the U.S. Treasury on a quarterly basis a 5 percent dividend, or $175 million annually, for each
of the first five years of the investment, and 9 percent 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 anti-dilution and other adjustments.
The warrant expires ten years from the issuance date. Regions received $3.5 billion from issuance of the Series A
preferred shares and the warrant; the warrant is recorded in additional paid-in capital. 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 2011, 2010 and 2009. The unamortized discount on the preferred shares was
$81 million and $120 million at December 31, 2011 and 2010, respectively. Discount accretion on the preferred
shares reduced retained earnings by $39 million during 2011, $37 million in 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. Approximately 63 million common shares were issued in the conversion and dividend settlement. No
Series B shares were outstanding at December 31, 2011 or 2010.
180