01—Abstract
Summary
Summary of the 10-K filed February 22, 2010. Cited figures are marked; the original filing is the authoritative source.
Regions Financial Corporation, a financial holding company headquartered in Birmingham, Alabama, reported a net loss available to common shareholders of $1.3 billiona, or $1.27 per diluted share, for 2009, compared with a net loss of $5.6 billion in 2008, which included a $6.0 billion non-cash goodwill impairment charge.
The loss was driven primarily by credit deterioration: the provision for loan losses rose to $3.5 billionb from $2.1 billion, net charge-offs were $2.3 billion (2.38 percent of average loans), and non-performing assets reached $4.4 billion. Net interest income fell to $3.3 billion and the net interest margin declined to 2.67 percent from 3.23 percent. Non-interest income increased to $3.8 billion, helped by $587 million in leveraged lease termination gains (largely offset by related income tax expense) and mortgage income, which rose to $259 million.
Capital was strengthened in 2009 through a $1.8 billionc common stock offering, $278 million of mandatorily convertible preferred stock, and an exchange of common shares for trust preferred securities. At year-end, the Tier 1 capital ratio was 11.54 percent, the total capital ratio was 15.78 percent, and the Tier 1 common risk-based ratio was 7.15 percent. Regions Bank remained well capitalized.
The company reduced its quarterly dividend to $0.01d per share and does not expect to increase it for the foreseeable future. The filing also notes ongoing regulatory uncertainty, including proposed Financial Crisis Responsibility Fees, pending regulatory reform, and several litigation matters involving Morgan Keegan, including SEC and FINRA Wells notices and class actions tied to the Morgan Keegan Select Funds and auction rate securities.
02—Key points
Key Highlights
- Net loss available to common shareholders of $1.3 billion ($1.27 per diluted share) in 2009, versus a $5.6 billion loss in 2008 that included a $6.0 billion goodwill impairment charge.
- Provision for loan losses rose to $3.5 billion from $2.1 billion; net charge-offs were $2.3 billion, or 2.38 percent of average loans; non-performing assets were $4.4 billion.
- Net interest margin (taxable-equivalent) declined to 2.67 percent from 3.23 percent; net interest income fell to $3.3 billion from $3.8 billion.
- Non-interest income rose to $3.8 billion, including $587 million of leveraged lease termination gains (offset by $589 million of related income tax expense) and mortgage income of $259 million.
- Capital raised in 2009: approximately $1.8 billion net from a common stock offering of 460 million shares at $4 per share, $278 million from mandatorily convertible preferred stock, and a trust preferred exchange for 33 million common shares.
- Year-end capital ratios: Tier 1 capital 11.54 percent, total capital 15.78 percent, Tier 1 common risk-based 7.15 percent, leverage 8.90 percent; Regions Bank was well capitalized.
- Quarterly common dividend cut to $0.01 per share, with no increase expected for the foreseeable future; CPP restrictions limit dividends and share repurchases while Treasury preferred stock remains outstanding.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 22, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Operating Income | -$1.07B-$5.58B | +80.8% |
| Interest Expense | $1.98B$2.72B | −27.1% |
| Net Income | -$1.03B-$5.60B | +81.6% |
| EPS (Basic) | $-1.27$-8.09 | +84.3% |
| EPS (Diluted) | $-1.27$-8.09 | +84.3% |
| Shares Outstanding (Basic) | 989.00M695.00M | +42.3% |
| Shares Outstanding (Diluted) | 989.00M695.00M | +42.3% |
05—Questions
Frequently Asked Questions
Why did Regions report a net loss in 2009?
The loss was primarily driven by credit quality deterioration. The provision for loan losses increased to $3.5 billion from $2.1 billion, reflecting pressure in residential homebuilder, condominium, home equity, and income-producing commercial real estate portfolios. Net interest income also declined, with the net interest margin falling to 2.67 percent.
How did Regions strengthen its capital position in 2009?
During the second quarter of 2009, Regions completed a public offering of 460 million common shares at $4 per share (about $1.8 billion net), issued 287,500 shares of mandatorily convertible Series B preferred stock (about $278 million net), and exchanged approximately 33 million common shares for $202 million of 6.625% trust preferred securities. These actions were taken to satisfy the Supervisory Capital Assessment Program requirements.
What is the outlook for dividends and capital returns?
Regions reduced its quarterly common dividend to $0.01 per share and does not expect to increase it above that level for the foreseeable future. Under the U.S. Treasury Capital Purchase Program, the company's dividend increases and share repurchases are restricted until November 14, 2011, unless the Series A Preferred Stock is redeemed. Regions Bank also cannot pay dividends to the parent company without Federal Reserve approval in the near term.
What regulatory and legal risks does the filing highlight?
The filing discusses proposed regulatory reforms, including a Financial Crisis Responsibility Fee of approximately 0.15 percent that would apply to firms with over $50 billion in assets, a possible Tier 1 FHC designation with enhanced requirements, and proposed Basel capital changes. On the litigation side, Morgan Keegan received SEC and FINRA Wells notices related to the Morgan Keegan Select Funds, faces an SEC complaint regarding auction rate securities, and is subject to class actions and an Alabama Show Cause order. Management does not expect these to have a material effect on results, though it notes an adverse outcome could be material.
06—Continue