XNYS:RF Regions Financial Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

 

x

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2012

or

 

¨

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                     to                     

Commission File Number: 000-50831

 

 

Regions Financial Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   63-0589368

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

1900 Fifth Avenue North

Birmingham, Alabama

  35203
(Address of principal executive offices)   (Zip Code)

(205) 944-1300

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

The number of shares outstanding of each of the issuer’s classes of common stock was 1,413,343,477 shares of common stock, par value $.01, outstanding as of July 25, 2012.

 

 

 


Table of Contents

REGIONS FINANCIAL CORPORATION

FORM 10-Q

INDEX

 

              Page  

Part I. Financial Information

  

  Item 1.   

Financial Statements (Unaudited)

  
    

Consolidated Balance Sheets—June 30, 2012 and December 31, 2011

     5   
    

Consolidated Statements of Income—Three and six months ended June 30, 2012 and 2011

     6   
    

Consolidated Statements of Comprehensive Income—Three and six months ended June  30, 2012 and 2011

     7   
    

Consolidated Statements of Changes in Stockholders’ Equity—Six months ended
June 30, 2012 and 2011

     8   
    

Consolidated Statements of Cash Flows—Six months ended June 30, 2012 and 2011

     9   
    

Notes to Consolidated Financial Statements

     10   
  Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     65   
  Item 3.   

Quantitative and Qualitative Disclosures about Market Risk

     106   
  Item 4.    Controls and Procedures      106   

Part II. Other Information

  
  Item 1.   

Legal Proceedings

     107   
  Item 2.   

Unregistered Sales of Equity Securities and Use of Proceeds

     107   
  Item 6.   

Exhibits

     108   

Signatures

     109   

 

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Forward-Looking Statements

This Quarterly Report on Form 10-Q, other periodic reports filed by Regions Financial Corporation (“Regions”) under the Securities Exchange Act of 1934, as amended, and any other written or oral statements made by or on behalf of Regions may include forward-looking statements. The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a “safe harbor” for forward-looking statements which 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, regulatory and tax proposals remain pending. Additionally, the U.S. Treasury 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. Future and proposed rules, including those that are part of the Basel III process, are expected to require banking institutions to increase levels of capital. All of the foregoing may have significant effects on Regions and the financial services industry, the exact nature and extent of which cannot be determined at this time.

 

   

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 business.

 

   

Possible regulations issued by the Consumer Financial Protection Bureau or other regulators which might adversely impact Regions’ business model or products and services.

 

   

Possible 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 Regions’ business.

 

   

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 Regions’ customers and potential customers.

 

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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 Regions’ 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.

 

   

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.

See also the “Forward-Looking Statements” and “Risk Factors” sections of Regions’ Annual Report on Form 10-K for the year ended December 31, 2011 and the “Forward-Looking Statements” section of Regions’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, as filed with the Securities and Exchange Commission.

 

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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

     June 30
    2012    
    December 31
2011
 
     (In millions, except share data)  
Assets     

Cash and due from banks

   $ 2,000      $ 2,132   

Interest-bearing deposits in other banks

     1,766        4,913   

Federal funds sold and securities purchased under agreements to resell

     —          200   

Trading account assets

     110        1,266   

Securities available for sale

     27,232        24,471   

Securities held to maturity

     13        16   

Loans held for sale (includes $950 and $844 measured at fair value, respectively)

     1,187        1,193   

Loans, net of unearned income

     76,202        77,594   

Allowance for loan losses

     (2,291     (2,745
  

 

 

   

 

 

 

Net loans

     73,911        74,849   

Other interest-earning assets

     901        1,085   

Premises and equipment, net

     2,300        2,375   

Interest receivable

     341        361   

Goodwill

     4,816        4,816   

Mortgage servicing rights

     179        182   

Other identifiable intangible assets

     391        449   

Other assets

     7,198        8,742   
  

 

 

   

 

 

 

Total assets

   $ 122,345      $ 127,050   
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Deposits:

    

Non-interest-bearing

   $ 29,694      $ 28,266   

Interest-bearing

     65,404        67,361   
  

 

 

   

 

 

 

Total deposits

     95,098        95,627   

Borrowed funds:

    

Short-term borrowings:

    

Federal funds purchased and securities sold under agreements to repurchase

     2,746        2,333   

Other short-term borrowings

     560        734   
  

 

 

   

 

 

 

Total short-term borrowings

     3,306        3,067   

Long-term borrowings

     6,230        8,110   
  

 

 

   

 

 

 

Total borrowed funds

     9,536        11,177   

Other liabilities

     3,256        3,747   
  

 

 

   

 

 

 

Total liabilities

     107,890        110,551   

Stockholders’ equity:

    

Preferred stock, authorized 10 million shares

    

Series A, cumulative perpetual participating, par value $1.00 (liquidation preference $1,000.00) per share, net of discount;
Issued—0 and 3,500,000 shares, respectively

     —          3,419   

Common stock, par value $.01 per share:

    

Authorized 3 billion shares

    

Issued including treasury stock—1,454,542,017 and 1,301,230,838 shares, respectively

     15        13   

Additional paid-in capital

     19,898        19,060   

Retained earnings (deficit)

     (4,136     (4,527

Treasury stock, at cost—41,198,540 and 42,414,444 shares, respectively

     (1,376     (1,397

Accumulated other comprehensive income (loss), net

     54        (69
  

 

 

   

 

 

 

Total stockholders’ equity

     14,455        16,499   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 122,345      $ 127,050   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 

    Three Months Ended
June 30
    Six Months Ended
June 30
 
        2012             2011             2012             2011      
    (In millions, except per share data)  

Interest income on:

       

Loans, including fees

  $ 806      $ 856      $ 1,618      $ 1,723   

Securities:

       

Taxable

    179        208        353        415   

Tax-exempt

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total securities

    179        208        353        415   

Loans held for sale

    7        9        14        22   

Trading account assets

    —          —          1        —     

Other interest-earning assets

    2        3        5        6   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

    994        1,076        1,991        2,166   

Interest expense on:

       

Deposits

    76        126        164        265   

Short-term borrowings

    —          —          —          1   

Long-term borrowings

    80        94        162        189   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

    156        220        326        455   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    838        856        1,665        1,711   

Provision for loan losses

    26        398        143        880   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

    812        458        1,522        831   

Non-interest income:

       

Service charges on deposit accounts

    233        308        487        595   

Capital markets and investment income

    17        19        45        50   

Mortgage income

    90        50        167        95   

Trust department income

    50        51        99        101   

Securities gains, net

    12        24        24        106   

Other

    105        91        209        176   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest income

    507        543        1,031        1,123   

Non-interest expense:

       

Salaries and employee benefits

    434        401        876        829   

Net occupancy expense

    92        98        186        198   

Furniture and equipment expense

    67        72        131        142   

Other

    249        385        562        719   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest expense

    842        956        1,755        1,888   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    477        45        798        66   

Income tax expense (benefit)

    126        (34     208        (63
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

  $ 351      $ 79      $ 590      $ 129   

Discontinued operations:

       

Income (loss) from discontinued operations before income taxes

    4        4        (61     40   

Income tax benefit

    —          (26     (25     (9
 

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations, net of tax

    4        30        (36     49   

Net income

  $ 355      $ 109      $ 554      $ 178   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations available to common shareholders

  $ 280      $ 25      $ 465      $ 23   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common shareholders

  $ 284      $ 55      $ 429      $ 72   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of shares outstanding:

       

Basic

    1,414        1,258        1,348        1,257   

Diluted

    1,418        1,260        1,350        1,259   

Earnings per common share from continuing operations:

       

Basic

  $ 0.20      $ 0.02      $ 0.34      $ 0.02   

Diluted

    0.20        0.02        0.34        0.02   

Earnings per common share:

       

Basic

  $ 0.20      $ 0.04      $ 0.32      $ 0.06   

Diluted

    0.20        0.04        0.32        0.06   

Cash dividends declared per common share

    0.01        0.01        0.02        0.02   

See notes to consolidated financial statements.

 

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

     Three Months Ended
June  30
 
           2012                  2011        
     (In millions)  

Net income

   $ 355       $ 109   

Other comprehensive income, net of tax:*

     

Unrealized gains on securities available for sale:

     

Unrealized holding gains arising during the period (net of $52 and $114 tax effect for the three months ended June 30, 2012 and 2011, respectively)

     86         192   

Less: reclassification adjustments for securities gains realized in net income (net of $4 and $8 tax effect for the three months ended June 30, 2012 and 2011, respectively)

     8         16   
  

 

 

    

 

 

 

Net change in unrealized gains on securities available for sale

     78         176   

Unrealized gains on derivative instruments designated as cash flow hedges:

     

Unrealized holding gains on derivatives arising during the period (net of $23 and $35 tax effect for the three months ended June 30, 2012 and 2011, respectively)

     37         55   

Less: reclassification adjustments for gains realized in net income (net of $7 and $18 tax effect for the three months ended June 30, 2012 and 2011, respectively)

     11         29   
  

 

 

    

 

 

 

Net change in unrealized gains on derivative instruments

     26         26   

Defined benefit pension plans and other post employment benefits:

     

Amortization of actuarial loss and prior service cost realized in net income, and other (net of $7 and $4 tax effect for the three months ended June 30, 2012 and 2011, respectively)

     10         8   
  

 

 

    

 

 

 

Net change from defined benefit pension plans

     10         8   
  

 

 

    

 

 

 

Other comprehensive income, net of tax*

   $ 114       $ 210   
  

 

 

    

 

 

 

Comprehensive income

   $ 469       $ 319   
  

 

 

    

 

 

 

 

     Six Months Ended
June  30
 
           2012                  2011        
     (In millions)  

Net income

   $ 554       $ 178   

Other comprehensive income, net of tax:*

     

Unrealized gains on securities available for sale:

     

Unrealized holding gains arising during the period (net of $52 and $81 tax effect for the six months ended June 30, 2012 and 2011, respectively)

     88         144   

Less: reclassification adjustments for securities gains realized in net income (net of $8 and $37 tax effect for the six months ended June 30, 2012 and 2011, respectively)

     16         69   
  

 

 

    

 

 

 

Net change in unrealized gains on securities available for sale

     72         75   

Unrealized gains on derivative instruments designated as cash flow hedges:

     

Unrealized holding gains on derivatives arising during the period (net of $29 and $35 tax effect for the six months ended June 30, 2012 and 2011, respectively)

     47         56   

Less: reclassification adjustments for gains realized in net income (net of $13 and $37 tax effect for the six months ended June 30, 2012 and 2011, respectively)

     21         60   
  

 

 

    

 

 

 

Net change in unrealized gains (losses) on derivative instruments

     26         (4

Defined benefit pension plans and other post employment benefits:

     

Amortization of actuarial loss and prior service cost realized in net income, and other (net of $15 and $8 tax effect for the six months ended June 30, 2012 and 2011, respectively)

     25         12   
  

 

 

    

 

 

 

Net change from defined benefit pension plans

     25         12   
  

 

 

    

 

 

 

Other comprehensive income, net of tax*

   $ 123       $ 83   
  

 

 

    

 

 

 

Comprehensive income

   $ 677       $ 261   
  

 

 

    

 

 

 

 

*

All other comprehensive amounts are shown net of tax.

See notes to consolidated financial statements.

 

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

    Preferred Stock     Common Stock     Additional
Paid-In
Capital
    Retained
Earnings
(Deficit)
    Treasury
Stock,
At Cost
    Accumulated
Other

Comprehensive
Income (Loss)
    Total  
             
    Shares     Amount     Shares     Amount            
    (In millions, except share and per share data)  

BALANCE AT JANUARY 1, 2011

    4      $ 3,380        1,256      $ 13      $ 19,050      $ (4,047   $ (1,402   $ (260   $ 16,734   

Net income

    —          —          —          —          —          178        —          —          178   

Net change in unrealized gains and losses on securities available for sale, net of tax and reclassification adjustment

    —          —          —          —          —          —          —          75        75   

Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment

    —          —          —          —          —          —          —          (4     (4

Net change from defined benefit pension plans, net of tax

    —          —          —          —          —          —          —          12        12   

Cash dividends declared—$0.02 per share

    —          —          —          —          —          (25     —          —          (25

Preferred dividends

    —          —          —          —          —          (87     —          —          (87

Preferred stock transactions:

                 

Discount accretion

    —          19        —          —          —          (19     —          —          —     

Common stock transactions:

                 

Impact of stock transactions under compensation plans, net

    —          —          3        —          2        —          3        —          5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT JUNE 30, 2011

    4      $ 3,399        1,259      $ 13      $ 19,052      $ (4,000   $ (1,399   $ (177   $ 16,888   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT JANUARY 1, 2012

    4      $ 3,419        1,259      $ 13      $ 19,060      $ (4,527   $ (1,397   $ (69   $ 16,499   

Net income

    —          —          —          —          —          554        —          —          554   

Net change in unrealized gains and losses on securities available for sale, net of tax and reclassification adjustment

    —          —          —          —          —          —          —          72        72   

Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment

    —          —          —          —          —          —          —          26        26   

Net change from defined benefit pension plans, net of tax

    —          —          —          —          —          —          —          25        25   

Cash dividends declared—$0.02 per share

    —          —          —          —          —          (27     —          —          (27

Preferred dividends

    —          —          —          —          —          (44     —          —          (44

Preferred stock transactions:

                 

Discount accretion

    —          10        —          —          —          (10     —          —          —     

Repurchase of Series A preferred stock issued to the U.S. Treasury and associated accelerated accretion

    (4     (3,429     —          —          —          (71     —          —          (3,500

Repurchase of warrant from the U.S. Treasury

    —          —          —          —          (45     —          —          —          (45

Common stock transactions:

                 

Net proceeds from issuance of 153 million shares of common stock

    —          —          153        2        873        —          —          —          875   

Impact of stock transactions under compensation plans, net

    —          —          1        —          10        (11     21        —          20   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT JUNE 30, 2012

    —        $ —          1,413      $ 15      $ 19,898      $ (4,136   $ (1,376   $ 54      $ 14,455   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Six Months Ended
June 30
 
               2012                          2011             
     (In millions)  

Operating activities:

    

Net income

   $ 554      $ 178   

Adjustments to reconcile net cash provided by operating activities:

    

Provision for loan losses

     143        880   

Depreciation and amortization of premises and equipment

     125        138   

Provision for losses on other real estate, net

     18        58   

Net amortization of securities

     144        92   

Net amortization of loans and other assets

     77        98   

Net amortization of borrowings

     2        1   

Net securities gains

     (24     (106

Gain on disposition of business

     (15     —     

Deferred income tax expense (benefit)

     201        (81

Excess tax benefits from share-based payments

     (1     —     

Originations and purchases of loans held for sale

     (2,834     (2,624

Proceeds from sales of loans held for sale

     2,732        3,525   

Gain on sale of loans, net

     (62     (37

Valuation charges on loans held for sale

     8        6   

Branch consolidation and property and equipment charges

     —          77   

Decrease (increase) in trading account assets

     193        (107

(Increase) decrease in other interest-earning assets

     (182     12   

Decrease in interest receivable

     17        67   

(Increase) decrease in other assets

     (102     1,246   

Increase (decrease) in other liabilities

     39        (543

Other

     4        (38
  

 

 

   

 

 

 

Net cash from operating activities

     1,037        2,842   

Investing activities:

    

Proceeds from sales of securities available for sale

     1,670        6,479   

Proceeds from maturities of securities available for sale

     3,209        2,291   

Proceeds from maturities of securities held to maturity

     3        4   

Purchases of securities available for sale

     (6,970     (9,178

Proceeds from sales of loans

     411        816   

Purchases of loans

     (407     (1,545

Net decrease in loans

     746        585   

Net purchases of premises and equipment

     (79     (128

Proceeds from disposition of business, net of cash transferred

     855        —     
  

 

 

   

 

 

 

Net cash from investing activities

     (562     (676

Financing activities:

    

Net (decrease) increase in deposits

     (529     1,717   

Net increase (decrease) in short-term borrowings

     1,168        (1,215

Proceeds from long-term borrowings

     —          1,001   

Payments on long-term borrowings

     (1,853     (2,502

Cash dividends on common stock

     (27     (25

Cash dividends on preferred stock

     (44     (87

Net proceeds from issuance of common stock

     875        —     

Repurchase of Series A preferred stock

     (3,500     —     

Repurchase of warrant

     (45     —     

Excess tax benefits from share-based payments

     1        —     
  

 

 

   

 

 

 

Net cash from financing activities

     (3,954     (1,111
  

 

 

   

 

 

 

(Decrease) increase in cash and cash equivalents

     (3,479     1,055   

Cash and cash equivalents at beginning of year

     7,245        6,919   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 3,766      $ 7,974   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Three and Six Months Ended June 30, 2012 and 2011

NOTE 1—Basis of Presentation

Regions Financial Corporation (“Regions” or the “Company”) provides a full range of banking and bank-related services to individual and corporate customers through its subsidiaries and branch offices located primarily in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia. The Company is subject to competition from other financial institutions, is subject to the regulations of certain government agencies and undergoes periodic examinations by those regulatory authorities.

The accounting and reporting policies of Regions and the methods of applying those policies that materially affect the consolidated financial statements conform with accounting principles generally accepted in the United States (“GAAP”) and with general financial services industry practices. The accompanying interim financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and notes to the consolidated financial statements necessary for a complete presentation of financial position, results of operations, comprehensive income and cash flows in conformity with GAAP. In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the consolidated financial statements have been included. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in Regions’ Form 10-K for the year ended December 31, 2011. Regions has evaluated all subsequent events for potential recognition and disclosure through the filing date of this Form 10-Q.

Beginning with first quarter 2012 financial reporting, as required by new accounting literature, Regions began presenting separate consolidated statements of comprehensive income. Comprehensive income (loss) is the total of net income and all other non-owner changes in equity. Items are recognized as components of comprehensive income (loss) and are displayed net of tax in the consolidated statements of comprehensive income (loss). In the calculation of comprehensive income (loss), certain reclassification adjustments are made to avoid double-counting items that are displayed as part of net income (loss) for a period that also had been displayed as part of other comprehensive income (loss) in that period or earlier periods. The prior period is also shown for comparability.

On January 11, 2012, Regions entered into an agreement to sell Morgan Keegan & Company, Inc. (“Morgan Keegan”) and related affiliates. The transaction closed on April 2, 2012. See Note 2 and Note 15 for further details. Results of operations for the entities sold are presented separately as discontinued operations for all periods presented on the consolidated statements of income because the sale met all of the criteria for reporting as discontinued operations at June 30, 2012. Other expenses related to the transaction are also included in discontinued operations. This presentation is consistent with the consolidated financial statements included in the 2011 Form 10-K.

Certain amounts in prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications are immaterial and have no effect on net income, comprehensive income, total assets or stockholders’ equity as previously reported.

NOTE 2—Discontinued Operations

On January 11, 2012, Regions entered into a stock purchase agreement to sell Morgan Keegan and related affiliates to Raymond James Financial, Inc. (“Raymond James”). The transaction closed on April 2, 2012. Regions Investment Management, Inc. (formerly known as Morgan Asset Management, Inc.) and Regions Trust

 

10


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were not included in the sale. The total purchase price received by the Company was $1.2 billion. An estimated $15 million pre-tax gain on sale, which includes a $256 million adjustment of liabilities to record the legal indemnification at fair value as discussed in the next paragraph, was recorded in the second quarter of 2012 as a component of discontinued operations. In order to estimate the gain on sale, Regions made assumptions regarding the finalization of elections for income tax purposes to be made by Raymond James and Regions. Any adjustment to the gain, if needed, will be presented within discontinued operations on the consolidated statements of income and would have no impact on results from continuing operations. Regions does not expect any adjustment to the gain on sale to have a material impact on the Company’s financial position or regulatory capital.

In connection with the closing of the sale, Regions agreed to indemnify Raymond James for all litigation matters related to pre-closing activities. See Note 15 for related disclosure. Losses under the indemnification include legal and other expenses, such as costs for defense, judgments, settlements and awards associated with the resolution of litigation related to pre-closing activities. Regions increased existing liabilities on the consolidated balance sheet by approximately $256 million, such that the resulting amount of $385 million reflected the fair value of the indemnification at the close of the transaction.

The following table represents the condensed results of operations for discontinued operations for the three and six months ended June 30:

 

     Three Months Ended
June 30
    Six Months Ended
June 30
 
         2012              2011             2012             2011      
     (In millions, except per share data)  

Interest income

   $ —         $ 10      $ 8      $ 20   

Interest expense

     —           2        1        4   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net interest income

     —           8        7        16   

Non-interest income:

         

Brokerage, investment banking and capital markets

     —           229        233        465   

Gain on sale

     15         —          15        —     

Other

     —           9        7        36   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total non-interest income

     15         238        255        501   

Non-interest expense:

         

Salaries and employee benefits

     —           160        171        326   

Net occupancy expense

     —           9        9        18   

Furniture and equipment expense

     —           7        8        14   

Professional and legal expenses

     10         23        106        48   

Other

     1         43        29        71   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total non-interest expense

     11         242        323        477   
  

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations before income taxes

     4         4        (61     40   

Income tax benefit

     —           (26     (25     (9
  

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations, net of tax

   $ 4       $ 30      $ (36   $ 49   
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings (loss) per common share from discontinued operations:

         

Basic

   $ 0.00       $ 0.02      $ (0.03   $ 0.04   

Diluted

   $ 0.00       $ 0.02      $ (0.03   $ 0.04   

 

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NOTE 3—Securities

The amortized cost, gross unrealized gains and losses, and estimated fair value of securities available for sale and securities held to maturity are as follows:

 

     June 30, 2012  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 
     (In millions)  

Securities available for sale:

          

U.S. Treasury securities

   $ 48       $ 3       $ —        $ 51   

Federal agency securities

     232         3         —          235   

Obligations of states and political subdivisions

     14         —           —          14   

Mortgage-backed securities:

          

Residential agency

     22,923         578         (7     23,494   

Residential non-agency

     13         1         —          14   

Commercial agency

     499         15         —          514   

Commercial non-agency

     619         18         —          637   

Corporate and other debt securities

     1,527         29         (5     1,551   

Equity securities

     722         2         (2     722   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 26,597       $ 649       $ (14   $ 27,232   
  

 

 

    

 

 

    

 

 

   

 

 

 

Securities held to maturity:

          

U.S. Treasury securities

   $ 2       $ 1       $ —        $ 3   

Federal agency securities

     3         —           —          3   

Mortgage-backed securities:

          

Residential agency

     8         —           —          8   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 13       $ 1       $ —        $ 14   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     December 31, 2011  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 
     (In millions)  

Securities available for sale:

          

U.S. Treasury securities

   $ 95       $ 3       $ —        $ 98   

Federal agency securities

     147         —           —          147   

Obligations of states and political subdivisions

     24         12         —          36   

Mortgage-backed securities:

          

Residential agency

     21,688         494         (7     22,175   

Residential non-agency

     15         1         —          16   

Commercial agency

     318         8         —          326   

Commercial non-agency

     314         7         —          321   

Corporate and other debt securities

     539         5         (7     537   

Equity securities

     817         2         (4     815   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 23,957       $ 532       $ (18   $ 24,471   
  

 

 

    

 

 

    

 

 

   

 

 

 

Securities held to maturity:

          

U.S. Treasury securities

   $ 4       $ —         $ —        $ 4   

Federal agency securities

     3         —           —          3   

Mortgage-backed securities:

          

Residential agency

     9         1         —          10   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 16       $ 1       $ —        $ 17   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

Entities included with the sale of Morgan Keegan and related affiliates had approximately $2 million in securities available for sale at December 31, 2011, which are included in the table above. There were no such securities at June 30, 2012 as these entities were sold during the second quarter as discussed in Note 2.

Equity securities in the tables above included the following amortized cost related to Federal Reserve Bank stock and Federal Home Loan Bank (“FHLB”) stock. Shares in the Federal Reserve Bank and FHLB are accounted for at amortized cost, which approximates fair value.

 

     June 30
2012
     December 31
2011
 
     (In millions)  

Federal Reserve Bank

   $ 480       $ 481   

Federal Home Loan Bank

     135         219   

Securities with carrying values of $14.0 billion and $14.3 billion at June 30, 2012 and December 31, 2011, respectively, were pledged to secure public funds, trust deposits and certain borrowing arrangements.

The amortized cost and estimated fair value of securities available for sale and securities held to maturity at June 30, 2012, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

     Amortized
Cost
     Estimated
Fair Value
 
     (In millions)  

Securities available for sale:

     

Due in one year or less

   $ 27       $ 27   

Due after one year through five years

     636         641   

Due after five years through ten years

     910         928   

Due after ten years

     248         255   

Mortgage-backed securities:

     

Residential agency

     22,923         23,494   

Residential non-agency

     13         14   

Commercial agency

     499         514   

Commercial non-agency

     619         637   

Equity securities

     722         722   
  

 

 

    

 

 

 
   $ 26,597       $ 27,232   
  

 

 

    

 

 

 

Securities held to maturity:

     

Due in one year or less

   $ 3       $ 3   

Due after one year through five years

     2         3   

Due after five years through ten years

     —           —     

Due after ten years

     —           —     

Mortgage-backed securities:

     

Residential agency

     8         8   
  

 

 

    

 

 

 
   $ 13       $ 14   
  

 

 

    

 

 

 

 

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Table of Contents

The following tables present gross unrealized losses and estimated fair value of securities available for sale at June 30, 2012 and December 31, 2011. These securities are segregated between investments that have been in a continuous unrealized loss position for less than twelve months and twelve months or more.

 

    June 30, 2012  
    Less Than Twelve
Months
    Twelve Months or
More
    Total  
    Estimated
Fair
Value
    Gross
Unrealized
Losses
    Estimated
Fair
Value
    Gross
Unrealized
Losses
    Estimated
Fair
Value
    Gross
Unrealized
Losses
 
    (In millions)  

Mortgage-backed securities:

           

Residential agency

  $ 950      $ (8   $ —        $ —        $ 950      $ (8

Commercial agency

    —          —          —          —          —          —     

Commercial non-agency

    —          —          —          —          —          —     

All other securities

    413        (5     18        (1     431        (6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 1,363      $ (13   $ 18      $ (1   $ 1,381      $ (14
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    December 31, 2011  
    Less Than Twelve
Months
    Twelve Months or
More
    Total  
    Estimated
Fair
Value
    Gross
Unrealized
Losses
    Estimated
Fair
Value
    Gross
Unrealized
Losses
    Estimated
Fair
Value
    Gross
Unrealized
Losses
 
    (In millions)  

Mortgage-backed securities:

           

Residential agency

  $ 1,778      $ (7   $ —        $ —        $ 1,778      $ (7

All other securities

    291        (9     5        (2     296        (11
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 2,069      $ (16   $ 5      $ (2   $ 2,074      $ (18
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

There was no gross unrealized loss on debt securities held to maturity at either June 30, 2012 or December 31, 2011.

For the securities included in the tables above, management does not believe any individual unrealized loss, which was comprised of 410 securities and 524 securities at June 30, 2012 and December 31, 2011, respectively, represented an other-than-temporary impairment as of those dates. The Company does not intend to sell, and it is not likely that the Company will be required to sell, the securities before the recovery of their amortized cost basis, which may be at maturity.

For both the three and six months ended June 30, 2012, Regions recorded a credit-related impairment charge of approximately $2 million. Regions did not record any credit-related impairment charges during the three or six months ended June 30, 2011.

Proceeds from sale, gross realized gains and gross realized losses from continuing operations on sales of securities available for sale are shown in the table below. The cost of securities sold is based on the specific identification method.

 

     Three Months Ended
June 30
     Six Months Ended
June 30
 
         2012              2011              2012              2011      
     (In millions)  

Proceeds

   $ 272       $ 4,060       $ 1,670       $ 6,479   

Gross realized gains

     12         24         24         106   

Gross realized losses

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net securities gains

   $ 12       $ 24       $ 24       $ 106   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The following table details net gains (losses) for trading account securities:

 

     Three Months Ended
June 30
    Six Months Ended
June 30
 
         2012             2011             2012              2011      
     (in millions)     (in millions)  

Total net gains (losses)

   $ (1   $ 10      $ 29       $ 31   

Unrealized portion

     (1     (1     24         13   

Included in the table above are amounts related to activities of Morgan Keegan. The totals include net gains related to Morgan Keegan of zero for the three months ended June 30, 2012 and approximately $10 million for the three months ended June 30, 2011. There were approximately $25 million of total net gains for both the six months ended June 30, 2012 and 2011 related to Morgan Keegan activities. These amounts are included within results from discontinued operations.

NOTE 4—Loans and the Allowance for Credit Losses

LOANS

The following table presents the distribution by loan segment and class of Regions’ loan portfolio, net of unearned income:

 

     June 30
         2012        
     December 31
         2011        
 
     (In millions, net of unearned income)  

Commercial and industrial

   $ 25,990       $ 24,522   

Commercial real estate mortgage—owner-occupied

     10,626         11,166   

Commercial real estate construction—owner-occupied

     261         337   
  

 

 

    

 

 

 

Total commercial

     36,877         36,025   

Commercial investor real estate mortgage

     8,598         9,702   

Commercial investor real estate construction

     849         1,025   
  

 

 

    

 

 

 

Total investor real estate

     9,447         10,727   

Residential first mortgage

     13,394         13,784   

Home equity

     12,321         13,021   

Indirect

     2,060         1,848   

Consumer credit card

     922         987   

Other consumer

     1,181         1,202   
  

 

 

    

 

 

 

Total consumer

     29,878         30,842   
  

 

 

    

 

 

 
   $ 76,202       $ 77,594   
  

 

 

    

 

 

 

During the three months ended June 30, 2012 and 2011, Regions purchased approximately $233 million and $174 million, respectively, in indirect loans from a third party. During the six months ended June 30, 2012 and 2011, the comparable loan purchase amounts were approximately $407 million and $336 million, respectively. Additionally, during the second quarter of 2011, Regions purchased approximately $1.1 billion of Regions-branded credit card amounts from FIA Card Services. The purchase included approximately $1.0 billion in consumer credit card accounts with the remainder in small business credit card accounts, which are included in the commercial and industrial portfolio class.

ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses represents management’s estimate of credit losses inherent in the loan and credit commitment portfolios as of period-end. The allowance for credit losses consists of two components: the allowance for loan and lease losses and the reserve for unfunded credit commitments. Management’s assessment

 

15


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of the appropriateness of the allowance for credit losses is based on a combination of both of these components. Regions determines its allowance for credit losses in accordance with applicable accounting literature as well as regulatory guidance related to receivables and contingencies. Binding unfunded credit commitments include items such as letters of credit, financial guarantees and binding unfunded loan commitments.

CALCULATION OF ALLOWANCE FOR CREDIT LOSSES

As part of the Company’s ongoing efforts to enhance the allowance calculation, and in response to regulatory guidance issued during the first quarter of 2012, the home equity portfolio was segmented at a more granular level. Loss rates for home equity products are now developed based on lien position, status as a troubled debt restructuring (“TDR”), geography, past due status, and refreshed FICO scores for non-past due loans. The enhancement had the impact of reducing the component of the allowance for loan losses related to home equity loans by an estimate of approximately $30 million.

In addition to the home equity enhancement, in the second quarter of 2012, the Company refined the methodology for estimation of the reserve for unfunded credit commitments. Before the change, the Company based the reserve for unfunded credit commitments on an analysis of the overall probability of funding and historical losses. Beginning with the second quarter of 2012, the reserve is based on an exposure at default (“EAD”) multiplied by a probability of default (“PD”) multiplied by a loss-given default (“LGD”). The EAD is estimated based on an analysis of historical funding patterns for defaulted loans in various categories. The PD and LGD align with the statistically-calculated parameters used to calculate the allowance for loan losses for various pools, which are based on credit quality indicators and product type. The methodology applies to commercial and investor real estate credit commitments and standby letters of credit. The Company made this change to enhance portfolio segmentation within the calculation of the reserve for unfunded credit commitments and to improve overall consistency within the calculation of the allowance for credit losses. The change did not have a material impact on the allowance for credit losses or the provision for unfunded credit commitments.

Except for the enhancements to home equity segmentation and to the reserve for unfunded credit commitments described above, during the first six months of 2012 there were no changes in methodology for the calculation of the allowance for credit losses or policies for identification of non-accrual or for charge-offs. A detailed description of the Company’s methodology is included in the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011.

 

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Table of Contents

ROLLFORWARD OF ALLOWANCE FOR CREDIT LOSSES

The following tables present analyses of the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2012 and 2011. The total allowance for credit losses as of June 30, 2012 and 2011 is then disaggregated to detail the amounts derived through individual evaluation and the amounts calculated through collective evaluation. The allowance for credit losses related to individually evaluated loans includes reserves for non-accrual loans and leases equal to or greater than $2.5 million. The allowance for credit losses related to collectively evaluated loans includes the remainder of the portfolio.

 

     Three Months Ended June 30, 2012  
     Commercial     Investor Real
Estate
    Consumer     Total  
     (In millions)  

Allowance for loan losses, April 1, 2012

   $ 982      $ 898      $ 650      $ 2,530   

Provision (credit) for loan losses

     (16     (80     122        26   

Loan losses:

        

Charge-offs

     (107     (62     (146     (315

Recoveries

     25        10        15        50   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loan losses

     (82     (52     (131     (265
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan losses, June 30, 2012

     884        766        641        2,291   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded credit commitments, April 1, 2012

   $ 44      $ 26      $ 21      $ 91   

Provision (credit) for unfunded credit commitments

     17        —          (17     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded credit commitments, June 30, 2012

     61        26        4        91   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for credit losses, June 30, 2012

   $ 945      $ 792      $ 645      $ 2,382   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Three Months Ended June 30, 2011  
     Commercial     Investor Real
Estate
    Consumer     Total  
     (In millions)  

Allowance for loan losses, April 1, 2011

   $ 1,138      $ 1,285      $ 763      $ 3,186   

Allowance allocated to purchased loans

     10        —          74        84   

Provision for loan losses

     72        171        155        398   

Loan losses:

        

Charge-offs

     (107     (306     (166     (579

Recoveries

     14        3        14        31   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loan losses

     (93     (303     (152     (548
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan losses, June 30, 2011

     1,127        1,153        840        3,120   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded credit commitments, April 1, 2011

   $ 37      $ 17      $ 24      $ 78   

Provision (credit) for unfunded credit commitments

     (5     11        —          6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded credit commitments, June 30, 2011

     32        28        24        84   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for credit losses, June 30, 2011

   $ 1,159      $ 1,181      $ 864      $ 3,204   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
    Six Months Ended June 30, 2012  
    Commercial     Investor Real
Estate
    Consumer     Total  
    (In millions)  

Allowance for loan losses, January 1, 2012

  $ 1,030      $ 991      $ 724      $ 2,745   

Provision (credit) for loan losses

    45        (90     188        143   

Loan losses:

       

Charge-offs

    (232     (157     (302     (691

Recoveries

    41        22        31        94   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loan losses

    (191     (135     (271     (597
 

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan losses, June 30, 2012

    884        766        641        2,291   
 

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded credit commitments, January 1, 2012

  $ 30      $ 26      $ 22      $ 78   

Provision (credit) for unfunded credit commitments

    31        —          (18     13   
 

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded credit commitments, June 30, 2012

    61        26        4        91   
 

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for credit losses, June 30, 2012

  $ 945      $ 792      $ 645      $ 2,382   
 

 

 

   

 

 

   

 

 

   

 

 

 

Portion of ending allowance for credit losses:

       

Individually evaluated for impairment

  $ 93      $ 117      $ —        $ 210   

Collectively evaluated for impairment

    852        675        645        2,172   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

  $ 945      $ 792      $ 645      $ 2,382   
 

 

 

   

 

 

   

 

 

   

 

 

 

Portion of loan portfolio ending balance:

       

Individually evaluated for impairment

  $ 428      $ 483      $ —        $ 911   

Collectively evaluated for impairment

    36,449        8,964        29,878        75,291   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total loans evaluated for impairment

  $ 36,877      $ 9,447      $ 29,878      $ 76,202   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

    Six Months Ended June 30, 2011  
    Commercial     Investor Real
Estate
    Consumer     Total  
    (In millions)  

Allowance for loan losses, January 1, 2011

  $ 1,055      $ 1,370      $ 760      $ 3,185   

Allowance allocated to purchased loans

    10        —          74        84   

Provision for loan losses

    297        260        323        880   

Loan losses:

       

Charge-offs

    (258     (487     (346     (1,091

Recoveries

    23        10        29        62   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loan losses

    (235     (477     (317     (1,029
 

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan losses, June 30, 2011

    1,127        1,153        840        3,120   
 

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded credit commitments, January 1, 2011

  $ 32      $ 16      $ 23      $ 71   

Provision (credit) for unfunded credit commitments

    —          12        1        13   
 

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded credit commitments, June 30, 2011

    32        28        24        84   
 

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for credit losses, June 30, 2011

  $ 1,159      $ 1,181      $ 864      $ 3,204   
 

 

 

   

 

 

   

 

 

   

 

 

 

Portion of ending allowance for credit losses:

       

Individually evaluated for impairment

  $ 128      $ 163      $ 4      $ 295   

Collectively evaluated for impairment

    1,031        1,018        860        2,909   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

  $ 1,159      $ 1,181      $ 864      $ 3,204   
 

 

 

   

 

 

   

 

 

   

 

 

 

Portion of loan portfolio ending balance:

       

Individually evaluated for impairment

  $ 599      $ 989      $ 18      $ 1,606   

Collectively evaluated for impairment

    35,219        12,442        31,909        79,570   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total loans evaluated for impairment

  $ 35,818      $ 13,431      $ 31,927      $ 81,176   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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During the second quarter of 2011, Regions purchased a credit card portfolio for approximately $1.1 billion and recorded an allowance for loan losses and related premium of approximately $84 million. Upon finalization of the purchase price in the fourth quarter of 2011, Regions reclassified the $84 million allowance and premium. The impact of these reclassification entries was not material to the financial results of any of the quarters of 2011.

PORTFOLIO SEGMENT RISK FACTORS

The following describe the risk characteristics relevant to each of the portfolio segments.

Commercial—The commercial loan portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Commercial also includes owner-occupied commercial real estate loans to operating businesses, which are loans for long-term financing of land and buildings, and are repaid by cash flow generated by business operations. Owner-occupied construction loans are made to commercial businesses for the development of land or construction of a building where the repayment is derived from revenues generated from the business of the borrower. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers’ business operations.

Investor Real Estate—Loans for real estate development are repaid through cash flow related to the operation, sale or refinance of the property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of real estate or income generated from the real estate collateral. A portion of Regions’ investor real estate portfolio segment is comprised of loans secured by residential product types (land, single-family and condominium loans) within Regions’ markets. Additionally, these loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers. Loans in this portfolio segment are particularly sensitive to valuation of real estate.

Consumer—The consumer loan portfolio segment includes residential first mortgage, home equity, indirect, consumer credit card, and other consumer loans. Residential first mortgage loans represent loans to consumers to finance a residence. These loans are typically financed over a 15 to 30 year term and, in most cases, are extended to borrowers to finance their primary residence. Home equity lending includes both home equity loans and lines of credit. This type of lending, which is secured by a first or second mortgage on the borrower’s residence, allows customers to borrow against the equity in their home. Real estate market values as of the time the loan or line is secured directly affect the amount of credit extended and, in addition, changes in these values impact the depth of potential losses. Indirect lending, which is lending initiated through third-party business partners, is largely comprised of loans made through automotive dealerships. Consumer credit card includes approximately 500,000 Regions branded consumer credit card accounts purchased late in the second quarter of 2011 from FIA Card Services. Other consumer loans include direct consumer installment loans, overdrafts and other revolving loans. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.

CREDIT QUALITY INDICATORS

The following tables present credit quality indicators for the loan portfolio segments and classes, excluding loans held for sale, as of June 30, 2012 and December 31, 2011. Commercial and investor real estate loan classes are detailed by categories related to underlying credit quality and probability of default. These categories are utilized to develop the associated allowance for credit losses.

 

   

Pass—includes obligations where the probability of default is considered low;

 

   

Special Mention—includes obligations that have potential weakness which may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date. Obligations in this category may also be subject to economic or market conditions which may, in the future, have an adverse effect on debt service ability;

 

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Substandard Accrual—includes obligations that exhibit a well-defined weakness which presently jeopardizes debt repayment, even though they are currently performing. These obligations are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected;

 

   

Non-accrual—includes obligations where management has determined that full payment of principal and interest is in doubt.

Substandard accrual and non-accrual loans are often collectively referred to as “classified.” Special mention, substandard accrual, and non-accrual loans are often collectively referred to as “criticized and classified.”

Classes in the consumer portfolio segment are disaggregated by accrual status. The associated allowance for credit losses is generally based on historical losses of the various classes adjusted for current economic conditions. For home equity products, loss rates are based on lien position, TDR status, geography, past due status, and refreshed FICO scores for current loans.

 

    June 30, 2012  
    Pass     Special Mention     Substandard
Accrual
    Non-accrual     Total  
    (In millions)  

Commercial and industrial

  $ 24,433      $ 590        $601      $ 366      $ 25,990   

Commercial real estate mortgage—owner-occupied

    9,346        262        514        504        10,626   

Commercial real estate construction—owner-occupied

    211        18        12        20        261   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

  $ 33,990      $ 870        $1,127      $ 890      $ 36,877   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    6,304        567        1,128        599        8,598   

Commercial investor real estate construction

    594        111        70        74        849   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

  $ 6,898      $ 678        $1,198      $ 673      $ 9,447   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                Accrual     Non-accrual     Total  
                (In millions)  

Residential first mortgage

      $ 13,165      $ 229      $ 13,394   

Home equity

        12,198        123        12,321   

Indirect

        2,060        —          2,060   

Consumer credit card

        922        —          922   

Other consumer

        1,181        —          1,181   
     

 

 

   

 

 

   

 

 

 

Total consumer

      $ 29,526      $ 352      $ 29,878   
     

 

 

   

 

 

   

 

 

 
          $ 76,202   
         

 

 

 

 

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Table of Contents
    December 31, 2011  
    Pass     Special Mention     Substandard
Accrual
    Non-accrual     Total  
    (In millions)  

Commercial and industrial

  $ 22,952      $ 479        $634      $ 457      $ 24,522   

Commercial real estate mortgage—owner-occupied

    9,773        262        541        590        11,166   

Commercial real estate construction—owner-occupied

    275        27        10        25        337   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

  $ 33,000      $ 768        $1,185      $ 1,072      $ 36,025   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    6,851        756        1,361        734        9,702   

Commercial investor real estate construction

    531        113        201        180        1,025   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

  $ 7,382      $ 869        $1,562      $ 914      $ 10,727   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                Accrual     Non-accrual     Total  
                (In millions)  

Residential first mortgage

      $ 13,534      $ 250      $ 13,784   

Home equity

        12,885        136        13,021   

Indirect

        1,848        —          1,848   

Consumer credit card

        987        —          987   

Other consumer

        1,202        —          1,202   
     

 

 

   

 

 

   

 

 

 

Total consumer

      $ 30,456      $ 386      $ 30,842   
     

 

 

   

 

 

   

 

 

 
          $ 77,594   
         

 

 

 

AGING ANALYSIS

The following tables include an aging analysis of days past due (DPD) for each portfolio class as of June 30, 2012 and December 31, 2011:

 

    June 30, 2012  
    Accrual Loans                    
    30-59 DPD     60-89 DPD     90+ DPD     Total
30+ DPD
    Total
Accrual
    Non-accrual     Total  
    (In millions)  

Commercial and industrial

  $ 39      $ 25      $ 5      $ 69      $ 25,624      $ 366      $ 25,990   

Commercial real estate
mortgage—owner-occupied

    60        30        9        99        10,122        504        10,626   

Commercial real estate construction—owner-occupied

    1        1        —          2        241        20        261   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    100        56        14        170        35,987        890        36,877   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    70        33        16        119        7,999        599        8,598   

Commercial investor real estate construction

    2        1        —          3        775        74        849   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

    72        34        16        122        8,774        673        9,447   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential first mortgage

    138        83        281        502        13,165        229        13,394   

Home equity

    99        54        74        227        12,198        123        12,321   

Indirect

    22        5        2        29        2,060        —          2,060   

Consumer credit card

    7        5        13        25        922        —          922   

Other consumer

    17        6        3        26        1,181        —          1,181   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

    283        153        373        809        29,526        352        29,878   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 455      $ 243      $ 403      $ 1,101      $ 74,287      $ 1,915      $ 76,202   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
    December 31, 2011  
    Accrual Loans                    
    30-59 DPD     60-89 DPD     90+ DPD     Total
30+ DPD
    Total
Accrual
    Non-accrual     Total  
    (In millions)  

Commercial and industrial

  $ 38      $ 23      $ 28      $ 89      $ 24,065      $ 457      $ 24,522   

Commercial real estate mortgage—owner-occupied

    47        23        9        79        10,576        590        11,166   

Commercial real estate construction—owner-occupied

    3        1        —          4        312        25        337   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    88        47        37        172        34,953        1,072        36,025   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    34        42        13        89        8,968        734        9,702   

Commercial investor real estate construction

    23        5        —          28        845        180        1,025   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

    57        47        13        117        9,813        914        10,727   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential first mortgage

    187        100        284        571        13,534        250        13,784   

Home equity

    121        77        93        291        12,885        136        13,021   

Indirect

    26        7        2        35        1,848        —          1,848   

Consumer credit card

    8        5        14        27        987        —          987   

Other consumer

    20        6        4        30        1,202        —          1,202   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

    362        195        397        954        30,456        386        30,842   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 507      $ 289      $ 447      $ 1,243      $ 75,222      $ 2,372      $ 77,594   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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IMPAIRED LOANS

The following tables present details related to the Company’s impaired loans as of June 30, 2012 and December 31, 2011. Loans deemed to be impaired include non-accrual commercial and investor real estate loans, excluding leases, and all TDRs (including accruing commercial, investor real estate, and consumer TDRs). Loans which have been fully charged-off do not appear in the tables below.

 

    Non-accrual Impaired Loans As of June 30, 2012  
                Book Value (3)              
    Unpaid
Principal
Balance (1)
    Charge-offs
and Payments
Applied (2)
    Total
Impaired
Loans on
Non-accrual
Status
    Impaired
Loans on
Non-accrual
Status with
No Related
Allowance
    Impaired
Loans on
Non-accrual
Status with
Related
Allowance
    Related
Allowance
for Loan
Losses
    Coverage % (4)  
    (Dollars in millions)  

Commercial and industrial

  $ 437      $ 80      $ 357      $ 51      $ 306      $ 109        43.2

Commercial real estate mortgage—owner-
occupied

    587        82        505        48        457        162        41.6   

Commercial real estate construction—owner-occupied

    33        14        19        3        16        6        60.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    1,057        176        881        102        779        277        42.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    740        141        599        79        520        177        43.0   

Commercial investor real estate construction

    88        14        74        12        62        18        36.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

    828        155        673        91        582        195        42.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential first mortgage

    141        51        90        —          90        13        45.4   

Home equity

    27        9        18        —          18        2        40.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

    168        60        108        —          108        15        44.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 2,053      $ 391      $ 1,662      $ 193      $ 1,469      $ 487        42.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Accruing Impaired Loans As of June 30, 2012  
    Unpaid
Principal
Balance (1)
    Charge-offs
and Payments
Applied (2)
    Book
Value
    Related
Allowance for
Loan Losses
    Coverage % (4)  
    (Dollars in millions)  

Commercial and industrial

  $ 318      $ 7      $ 311      $ 51        18.2

Commercial real estate mortgage—owner-occupied

    212        4        208        28        15.1   

Commercial real estate construction—owner-occupied

    3        —          3        1        33.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    533        11        522        80        17.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    928        8        920        175        19.7   

Commercial investor real estate construction

    120        1        119        55        46.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

    1,048        9        1,039        230        22.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential first mortgage

    1,079        13        1,066        158        15.8   

Home equity

    430        5        425        39        10.2   

Indirect

    2        —          2        —          —     

Other consumer

    48        —          48        1        2.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

    1,559        18        1,541        198        13.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 3,140      $ 38      $ 3,102      $ 508        17.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents
    Total Impaired Loans As of June 30, 2012  
                Book Value (3)              
  Unpaid
Principal
Balance (1)
    Charge-offs
and Payments
Applied (2)
    Total
Impaired
Loans
    Impaired
Loans with No
Related
Allowance
    Impaired
Loans with
Related
Allowance
    Related
Allowance
for Loan
Losses
    Coverage % (4)  
    (Dollars in millions)  

Commercial and industrial

  $ 755      $ 87      $ 668      $ 51      $ 617      $ 160        32.7

Commercial real estate mortgage—owner-
occupied

    799        86        713        48        665        190        34.5   

Commercial real estate construction—owner-
occupied

    36        14        22        3        19        7        58.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    1,590        187        1,403        102        1,301        357        34.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    1,668        149        1,519        79        1,440        352        30.0   

Commercial investor real estate construction

    208        15        193        12        181        73        42.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

    1,876        164        1,712        91        1,621        425        31.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential first mortgage

    1,220        64        1,156        —          1,156        171        19.3   

Home equity

    457        14        443        —          443        41        12.0   

Indirect