Regions Financial (NYSE:RF) today announced that it has
commenced an underwritten public offering of approximately $900
million of its common stock (the “Offering”) as part of its plan to
repurchase the $3.5 billion of Series A Preferred Stock issued to
the U.S. Treasury Department under the Troubled Asset Relief
Program’s (TARP) Capital Purchase Program (CPP).
This action is included in Regions’ capital plan, which was
submitted to the Federal Reserve on January 9, 2012. The Federal
Reserve has completed its review of the plan under the
Comprehensive Capital Analysis and Review (“CCAR”) and informed
Regions that it had no objections to the capital actions set forth
in the plan.
“We are pleased with the outcome of the capital plan review and
believe it demonstrates the strength of our company. Our capital
position will be strengthened even further with these actions,
which will enable us to continue growing profitable customer
relationships,” said Grayson Hall, Regions’ president and chief
executive officer. “We appreciate the U.S. Treasury’s investment in
Regions during the financial crisis and are proud that these steps
will result in the full return of the taxpayers’ $3.5 billion
preferred investment as well as the previous payment of $593
million in dividends.”
The repurchase of the Series A Preferred Stock will be
contingent on approval by the Federal Reserve and Treasury
Department and is expected to follow the closing of the sale of
Morgan Keegan & Co. Inc. and related affiliates, which is
anticipated in early April. Regions intends to use the proceeds
from the Offering and the sale of Morgan Keegan along with other
available funds to repurchase the Series A Preferred Stock.
Goldman, Sachs & Co. is serving as Global Coordinator and
joint book-running manager of the Offering, J.P. Morgan Securities
LLC is serving as Capital Advisor related to our CCAR plan and
joint book-running manager of the Offering, and Barclays Capital
Inc. and Deutsche Bank Securities Inc. are serving as joint
book-running managers of the Offering. Morgan Keegan is serving as
lead manager.
Following completion of the Offering (assuming (i) net proceeds
of $875 million, (ii) consummation of our transaction to sell
Morgan Keegan & Co. Inc. and related affiliates and (iii)
repurchase of our Series A Preferred Stock,), we expect that our
pro forma Tier 1 capital and Tier 1 common risk-based (non-GAAP)
ratios would be approximately 10.55% and 9.51%, based on the
December 31, 2011, ratios of 13.28% and 8.51%, respectively. (See
“GAAP to non-GAAP reconciliation” below.)
The Federal Reserve also issued its estimates of revenues and
losses under its supervisory stress scenario, as well as pro forma,
post-stress capital ratios for each of the 19 bank holding
companies that participated in CCAR in 2011. Regions exceeded the
minimum required capital level over the entire the review period.
The projections released by the Federal Reserve in connection with
the CCAR are based on a hypothetical, severely adverse
macroeconomic and financial market scenario developed by the
Federal Reserve, featuring a deep recession in the United States,
significant declines in asset prices and increases in risk premia,
and a slowdown in global economic activity, including a peak
unemployment rate of 13%, a 50% drop in equity prices, and a 21%
decline in housing prices. The supervisory stress scenario is not
the Federal Reserve's forecast for the economy, but was designed to
represent an unlikely outcome that may occur if the U.S. economy
were to experience a deep recession at the same time that economic
activity in other major economies contracted significantly. The
projections should not be interpreted as expected or likely
outcomes for Regions, but rather as possible results under
hypothetical, highly adverse conditions. The projections
incorporate a number of conservative modeling assumptions, which
differ from assumptions Regions uses in its capital planning.
The Federal Reserve also calculated stressed capital ratios for
the review period excluding proposed capital actions. Because of
the nature and timing of the capital actions Regions is taking, the
Federal Reserve’s estimate of the company’s minimum Tier 1 Common
ratio assuming no capital actions has no bearing on the company’s
strength. Unlike a dividend raise or share repurchase that may
continue during the nine-quarter review period, the capital actions
Regions has proposed are currently being executed and we expect
will be completed in a matter of weeks. As a result, the most
relevant minimum stressed ratio for Regions during the period
ending in the fourth quarter of 2013 is the ratio that includes all
proposed capital actions, which is in the top quartile of the 19
banks in the CCAR review.. However, even absent the current capital
actions, Regions’ results still exceed the minimum required capital
levels throughout the review period.
Regions has filed a registration statement (including a
prospectus and prospectus supplement) with the Securities and
Exchange Commission related to the Offering. Before you invest, you
should read the prospectus and prospectus supplement in the
registration statement and other documents Regions has filed with
the SEC for more complete information about the company and the
Offering. You may obtain these documents for free by visiting EDGAR
on the SEC Web site at www.sec.gov. Alternatively, the prospectus
and prospectus supplement may be obtained upon request by
contacting:
- Regions Investor Relations,
205-581-7890;
- Goldman, Sachs & Co., at 200 West
Street, New York, NY 10282, toll free (866) 471-2526, Attention:
Registration Department;
- J.P. Morgan Securities LLC, c/o
Broadridge Financial Solutions, at 1155 Long Island Avenue,
Edgewood, NY 11717, Attention: Prospectus Department, or by calling
866-803-9204;
- Barclays Capital Inc., at 745 Seventh
Avenue, New York, NY 10019, facsimile number (646) 834-8133,
Attention: Syndicate Registration; and
- Deutsche Bank Securities Inc., 60 Wall
Street, New York, NY 10005, facsimile (212) 797-9344, Attention:
Equity Capital Markets Syndicate Desk.
This press release is for informational purposes only and is not
an offer to buy or the solicitation of an offer to sell, any
securities. The solicitation of offers to purchase our common
shares will be made only pursuant to the company’s prospectus,
dated February 24, 2010, as supplemented by its prospectus
supplement dated March 13, 2012, and related documents that the
company has filed or will file with the SEC.
About Regions Financial Corporation
Regions Financial Corporation, with $127 billion in assets, is a
member of the S&P 500 Index and is one of the nation’s largest
full-service providers of consumer and commercial banking, wealth
management, trust, mortgage and insurance products and services.
Regions serves customers in 16 states across the South, Midwest and
Texas, and through its subsidiary, Regions Bank, operates
approximately 1,700 banking offices and more than 2,000 ATMs. Its
investment and securities brokerage trust and asset management
division, Morgan Keegan & Company Inc., provides services from
over 90 offices. Additional information about Regions and its full
line of products and services can be found at www.regions.com.
Forward-looking statements
This press release may include forward-looking statements which
reflect Regions’ current views with respect to future events and
financial performance. The Private Securities Litigation Reform Act
of 1995 (the “Act”) provides a safe harbor for forward-looking
statements that are identified as such and are accompanied by the
identification of important factors that could cause actual results
to differ materially from the forward-looking statements. For these
statements, we, together with our subsidiaries, unless the context
implies otherwise, claim the protection afforded by the safe harbor
in the Act. Forward-looking statements are not based on historical
information, but rather are related to future operations,
strategies, financial results or other developments.
Forward-looking statements are based on management’s expectations
as well as certain assumptions and estimates made by, and
information available to, management at the time the statements are
made. Those statements are based on general assumptions and are
subject to various risks, uncertainties and other factors that may
cause actual results to differ materially from the views, beliefs
and projections expressed in such statements. These risks,
uncertainties and other factors include, but are not limited to,
those described below:
- The Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Dodd-Frank Act”) became law on July
21, 2010, and a number of legislative and regulatory proposals
remain pending. Additionally, the Treasury Department and federal
banking regulators continue to implement, but are also beginning to
wind down, a number of programs to address capital and liquidity in
the banking system. Proposed rules, including those that are
related to the various regulatory capital and liquidity proposals
and standards, referred to as “Basel III” adopted by the Basel
Committee on Banking Supervision, could require banking
institutions to increase levels of capital and to satisfy liquidity
requirements. All of the foregoing may have significant effects on
Regions and the financial services industry, the exact nature and
extent of which cannot be fully determined at this time.
- Regions’ ability to mitigate the impact
of the Dodd-Frank Act on debit interchange fees through revenue
enhancements and other revenue measures, which will depend on
various factors, including the acceptance by customers of modified
fee structures for Regions’ products and services.
- The impact of compensation and other
restrictions imposed under the Troubled Asset Relief Program
(“TARP”) until Regions repays the outstanding preferred stock
issued under TARP, including restrictions on Regions’ ability to
attract and retain talented executives and associates.
- Regions’ ability to complete the
contemplated repurchase of our Series A Preferred Stock issued to
the Treasury Department under the CPP.
- Regions’ ability to complete the
contemplated repurchase of our Series A Preferred Stock issued to
the U.S. Treasury under the CPP.
- Possible additional loan losses,
impairment of goodwill and other intangibles, and adjustment of
valuation allowances on deferred tax assets and the impact on
earnings and capital.
- Possible changes in interest rates may
increase funding costs and reduce earning asset yields, thus
reducing margins. Increases in benchmark interest rates would also
increase debt service requirements for customers whose terms
include a variable interest rate, which may negatively impact the
ability of borrowers to pay as contractually obligated.
- Possible changes in general economic
and business conditions in the United States in general and in the
communities Regions serves in particular, including any prolonging
or worsening of the current unfavorable economic conditions,
including unemployment levels.
- Possible changes in the
creditworthiness of customers and the possible impairment of the
collectability of loans.
- Possible changes in trade, monetary and
fiscal policies, laws and regulations, and other activities of
governments, agencies, and similar organizations, may have an
adverse effect on our business.
- The current stresses in the financial
and real estate markets, including possible continued deterioration
in property values.
- Regions’ ability to manage fluctuations
in the value of assets and liabilities and off-balance sheet
exposure so as to maintain sufficient capital and liquidity to
support our business.
- Regions’ ability to achieve the
earnings expectations related to businesses that have been acquired
or that may be acquired in the future.
- Regions’ ability to expand into new
markets and to maintain profit margins in the face of competitive
pressures.
- Regions’ ability to develop competitive
new products and services in a timely manner and the acceptance of
such products and services by our customers and potential
customers.
- Regions’ ability to keep pace with
technological changes.
- Regions’ ability to effectively manage
credit risk, interest rate risk, market risk, operational risk,
legal risk, liquidity risk, reputational risk and regulatory and
compliance risk.
- Regions’ ability to ensure adequate
capitalization which is impacted by inherent uncertainties in
forecasting credit losses.
- The cost and other effects of material
contingencies, including litigation contingencies, and any adverse
judicial, administrative, or arbitral rulings or proceedings.
- The effects of increased competition
from both banks and non-banks.
- The effects of geopolitical instability
and risks such as terrorist attacks.
- Possible changes in consumer and
business spending and saving habits could affect our ability to
increase assets and to attract deposits.
- The effects of weather and natural
disasters such as floods, droughts, wind, tornadoes and hurricanes,
and the effects of man-made disasters.
- Possible downgrades in ratings issued
by rating agencies.
- Possible changes in the speed of loan
prepayments by Regions’ customers and loan origination or sales
volumes.
- Possible acceleration of prepayments on
mortgage-backed securities due to low interest rates, and the
related acceleration of premium amortization on those
securities.
- The effects of problems encountered by
larger or similar financial institutions that adversely affect
Regions or the banking industry generally.
- Regions’ ability to receive dividends
from its subsidiaries.
- The effects of the failure of any
component of Regions’ business infrastructure which is provided by
a third party.
- Changes in accounting policies or
procedures as may be required by the Financial Accounting Standards
Board or other regulatory agencies.
- With regard to the sale of Morgan
Keegan (“Morgan Keegan Sale”):
- the possibility that regulatory and
other approvals and conditions to the transaction are not received
on a timely basis or at all; the possibility that modifications to
the terms of the transaction may be required in order to obtain or
satisfy such approvals or conditions; changes in the anticipated
timing for closing the transaction; business disruption during the
pendency of or following the transaction; diversion of management
time on transaction-related issues; reputational risks; any
downward purchase price adjustment; potential post-closing
indemnification expenses; and the reaction of customers and
counterparties to the transaction; and
- the effect that a delay in the
consummation of the Morgan Keegan Sale or our inability to
consummate the Morgan Keegan Sale will have on our ability to
repurchase the Series A Preferred Stock.
- The effects of any damage to Regions’
reputation resulting from developments related to any of the items
identified above.
The words “believe,” “expect,” “anticipate,” “project” and
similar expressions often signify forward-looking statements. You
should not place undue reliance on any forward-looking statements,
which speak only as of the date made. We assume no obligation to
update or revise any forward-looking statements that are made from
time to time.
GAAP to non-GAAP reconciliation
The following table provides a reconciliation of stockholders’
equity (GAAP) to Tier 1 capital (regulatory) and to Tier 1 common
equity (non-GAAP). Traditionally, the Federal Reserve and other
banking regulatory bodies 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 CCAR, 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 Tier 1
common equity measure. Because Tier 1 common equity is not formally
defined by GAAP or codified in the federal banking regulations,
this measure is considered to be a non-GAAP financial measure and
other entities may calculate it differently than Regions’ disclosed
calculation. Since analysts and banking regulators may assess
Regions’ capital adequacy using Tier 1 common equity, we believe
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
company’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-weighted 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 risk-based ratio. The amounts disclosed as risk-weighted
assets are calculated consistent with banking regulatory
requirements.
As of December 31, 2011 ($ amounts in
millions)
Actual
Common Stock
Offering
As Adjusted
Other Capital
Activities
As Further
Adjusted on a
Pro Forma Basis
(Unaudited) Stockholders’ equity (GAAP) 16,499
875
(1)
17,374 (3,457
)(2)(3)
13,917 Accumulated other comprehensive loss 69 - 69 - 69
Non-qualifying goodwill and intangibles (4,900 ) - (4,900 ) -
(4,900 ) Disallowed deferred tax assets (432 ) - (432 ) (6 )(4)
(438 ) Disallowed servicing assets (35 ) - (35 ) - (35 ) Qualifying
non-controlling interests 92 - 92 - 92 Qualifying trust preferred
securities 846 - 846 - 846 Tier
1 capital (regulatory) 12,139 875 13,014 (3,463 ) 9,551 Qualifying
non-controlling interests (92 ) - (92 ) - (92 ) Qualifying trust
preferred securities (846 ) - (846 ) - (846 ) Preferred stock
(3,419 ) - (3,419 )
3,419
(2)
- Tier 1 common equity (non-GAAP) A 7,782 875
8,657 (44 ) 8,613
Risk-weighted assets (regulatory) B 91,449 - 91,449 (920 ) 90,529
Tier 1 common risk- based (non-GAAP) ratio
A/B
8.51 % 9.47 %(5) 9.51 %(5)
(1) Assumes $875 million of net proceeds
from this offering.
(2) Repurchase of Series A Preferred Stock
at par of $3.5 billion for Tier 1 capital purposes and at book
value of $3.419 billion for Tier 1 common purposes.
(3) After tax increase to retained
earnings of $43 million, assuming the Morgan Keegan Sale was closed
on December 31, 2011. The estimated after-tax gain assumes an
election is made for income tax purposes by Raymond James and
Regions, subsequent to the closing of the transaction. If the
election is not made, the effect of the sale on retained earnings
would be impacted.
(4) Estimated net impact of the Morgan
Keegan Sale on regulatory disallowance of deferred tax assets.
(5) The 4 basis point difference in the
Tier 1 common risk-based ratio is comprised of a decrease of 9
basis points related to the accretion of the unamortized discount
related to the anticipated repurchase of our Series A Preferred
Stock and an increase of 13 basis points related to the Morgan
Keegan Sale.
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