Regions Bank 2011 Annual Report Download - page 39

any new line of business, except in accordance with an accepted capital restoration plan or with the approval of
the FDIC. Institutions that are significantly undercapitalized or undercapitalized and either fail to submit an
acceptable capital restoration plan or fail to implement an approved capital restoration plan may be subject to a
number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions failing to submit or implement an acceptable capital restoration
plan are subject to appointment of a receiver or conservator.
Payment of Dividends
Regions is a legal entity separate and distinct from its banking and other subsidiaries. The principal source
of cash flow to Regions, including cash flow to pay dividends to its stockholders and principal and interest on
any of its outstanding debt, is dividends from Regions Bank. There are statutory and regulatory limitations on the
payment of dividends by Regions Bank to Regions, as well as by Regions to its stockholders.
If, in the opinion of a federal bank regulatory agency, an institution under its jurisdiction is engaged in or is
about to engage in an unsafe or unsound practice (which, depending on the financial condition of the institution,
could include the payment of dividends), such agency may require, after notice and hearing, that such institution
cease and desist from such practice. The federal bank regulatory agencies have indicated that paying dividends
that deplete an institution’s capital base to an inadequate level would be an unsafe and unsound banking practice.
Under the FDIA, an insured institution may not pay a dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See “—Regulatory Remedies under the FDIA” above.
Moreover, the Federal Reserve and the FDIC have issued policy statements stating that bank holding companies
and insured banks should generally pay dividends only out of current operating earnings.
Payment of Dividends by Regions Bank. 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 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 Financial unless Regions Bank is able to satisfy the criteria discussed above. In addition to
dividend restrictions, Federal statutes also prohibit unsecured loans from banking subsidiaries to the parent
company, as discussed below under “—Transactions with Affiliates”.
Payment of Dividends by Regions. The payment of dividends by Regions and the dividend rate are subject
to management review and approval by Regions’ Board of Directors on a quarterly basis. Regions’ dividend
payments, as well as share repurchases, are also subject to the oversight of the Federal Reserve. Under a final
rule issued by the Federal Reserve in November 2011, the dividend policies and share repurchases of a large
bank holding company, such as Regions, will be reviewed by the Federal Reserve based on capital plans and
stress tests as submitted by the bank holding company, and will be assessed against, among other things, the bank
holding company’s ability to achieve the Basel III capital ratio requirements referred to above as they are phased
in by U.S. regulators. Specifically, financial institutions must maintain a Tier 1 common risk-based capital ratio
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