10-Q
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 September 30, 2011

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 1,258,877,000 shares of common stock, par value $.01, outstanding as of October 25, 2011.

 

 

 


Table of Contents

REGIONS FINANCIAL CORPORATION

FORM 10-Q

INDEX

 

              Page  

Part I. Financial Information

  

  Item 1.   

Financial Statements (Unaudited)

  
    

Consolidated Balance Sheets—September 30, 2011 and December 31, 2010

     5   
    

Consolidated Statements of Operations—Three and nine months ended September 30, 2011 and 2010

     6   
    

Consolidated Statements of Changes in Stockholders’ Equity—Nine months ended September 30, 2011 and 2010

     7   
    

Consolidated Statements of Cash Flows—Nine months ended September 30, 2011 and 2010

     8   
    

Notes to Consolidated Financial Statements

     9   
  Item 2.   

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

     61   
  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. Proposed rules, including those that are part of the Basel III process, could 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.

 

   

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 and warrant issued under the TARP, including restrictions on Regions’ ability to attract and retain talented executives and associates.

 

   

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.

 

   

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 Regions’ business.

 

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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.

 

   

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, 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.

 

   

Potential dilution of holders of shares of Regions’ common stock resulting from the U.S. Treasury’s investment in TARP.

 

   

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, 2010 and the “Forward-Looking Statements” section of Regions’ Quarterly Reports on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011, 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

 

     September 30
2011
    December 31
2010
 
    

(In millions, except share

and per share data)

 
Assets     

Cash and due from banks

   $ 2,000      $ 1,643   

Interest-bearing deposits in other banks

     6,009        4,880   

Federal funds sold and securities purchased under agreements to resell

     254        396   

Trading account assets

     1,462        1,116   

Securities available for sale

     24,635        23,289   

Securities held to maturity

     18        24   

Loans held for sale (includes $647 and $1,174 measured at fair value, at September 30, 2011 and December 31, 2010, respectively)

     1,012        1,485   

Loans, net of unearned income

     79,447        82,864   

Allowance for loan losses

     (2,964     (3,185
  

 

 

   

 

 

 

Net loans

     76,483        79,679   

Other interest-earning assets

     1,081        1,219   

Premises and equipment, net

     2,399        2,569   

Interest receivable

     422        421   

Goodwill

     5,561        5,561   

Mortgage servicing rights

     182        267   

Other identifiable intangible assets

     478        385   

Other assets

     7,766        9,417   
  

 

 

   

 

 

 

Total assets

   $ 129,762      $ 132,351   
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Deposits:

    

Non-interest-bearing

   $ 28,296      $ 25,733   

Interest-bearing

     67,642        68,881   
  

 

 

   

 

 

 

Total deposits

     95,938        94,614   

Borrowed funds:

    

Short-term borrowings:

    

Federal funds purchased and securities sold under agreements to repurchase

     1,969        2,716   

Other short-term borrowings

     974        1,221   
  

 

 

   

 

 

 

Total short-term borrowings

     2,943        3,937   

Long-term borrowings

     10,140        13,190   
  

 

 

   

 

 

 

Total borrowed funds

     13,083        17,127   

Other liabilities

     3,478        3,876   
  

 

 

   

 

 

 

Total liabilities

     112,499        115,617   

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—3,500,000 shares

     3,409        3,380   

Common stock, par value $.01 per share:

    

Authorized 3 billion shares

    

Issued including treasury stock—1,301,329,413 and 1,299,000,755 shares, respectively

     13        13   

Additional paid-in capital

     19,059        19,050   

Retained earnings (deficit)

     (3,913     (4,047

Treasury stock, at cost—42,451,925 and 42,764,258 shares, respectively

     (1,397     (1,402

Accumulated other comprehensive income (loss), net

     92        (260
  

 

 

   

 

 

 

Total stockholders’ equity

     17,263        16,734   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 129,762      $ 132,351   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

     Three Months Ended
September 30
    Nine Months Ended
September 30
 
         2011             2010             2011             2010      
     (In millions, except per share data)  

Interest income on:

        

Loans, including fees

   $ 867      $ 919      $ 2,590      $ 2,794   

Securities:

        

Taxable

     177        214        592        680   

Tax-exempt

     —          —          —          1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total securities

     177        214        592        681   

Loans held for sale

     7        10        29        27   

Trading account assets

     6        8        19        29   

Other interest-earning assets

     7        7        20        22   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     1,064        1,158        3,250        3,553   

Interest expense on:

        

Deposits

     112        167        377        603   

Short-term borrowings

     1        3        6        8   

Long-term borrowings

     93        120        282        387   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     206        290        665        998   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     858        868        2,585        2,555   

Provision for loan losses

     355        760        1,235        2,181   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     503        108        1,350        374   

Non-interest income:

        

Service charges on deposit accounts

     310        294        905        884   

Brokerage, investment banking and capital markets

     217        257        732        747   

Mortgage income

     68        66        163        196   

Trust department income

     49        49        150        146   

Securities gains (losses), net

     (1     2        105        61   

Leveraged lease termination gains (losses), net

     (2     —          (2     19   

Other

     104        82        316        265   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest income

     745        750        2,369        2,318   

Non-interest expense:

        

Salaries and employee benefits

     529        582        1,684        1,717   

Net occupancy expense

     104        110        320        340   

Furniture and equipment expense

     77        75        233        228   

Regulatory charge

     —          —          —          200   

Other

     356        396        1,194        1,234   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest expense

     1,066        1,163        3,431        3,719   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     182        (305     288        (1,027

Income tax expense (benefit)

     27        (150     (45     (399
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 155      $ (155   $ 333      $ (628
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common shareholders

   $ 101      $ (209   $ 173      $ (799
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of shares outstanding:

        

Basic

     1,259        1,257        1,258        1,217   

Diluted

     1,261        1,257        1,260        1,217   

Earnings (loss) per common share:

        

Basic

   $ 0.08      $ (0.17   $ 0.14      $ (0.66

Diluted

     0.08        (0.17     0.14        (0.66

Cash dividends declared per common share

     0.01        0.01        0.03        0.03   

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 per share data)              

BALANCE AT JANUARY 1, 2010

    4      $ 3,602        1,193      $ 12      $ 18,781      $ (3,235   $ (1,409   $ 130      $ 17,881   

Comprehensive income (loss):

                 

Net income (loss)

    —          —          —          —          —          (628     —          —          (628

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

    —          —          —          —          —          —          —          144        144   

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

    —          —          —          —          —          —          —          (83     (83

Net change from defined benefit pension plans, net of tax*

    —          —          —          —          —          —          —          17        17   
                 

 

 

 

Comprehensive income (loss)

                    (550

Cash dividends declared—$0.03 per share

    —          —          —          —          —          (36     —          —          (36

Preferred dividends

    —          —          —          —          3        (144     —          —          (141

Preferred stock transactions:

                 

Conversion of mandatorily convertible preferred stock into 63 million shares of common stock

    —          (259     63        1        258        —          —          —          —     

Discount accretion

    —          27        —          —          —          (27     —          —          —     

Common stock transactions:

                 

Impact of stock transactions under compensation plans, net

    —          —          —          —          5        —          4        —          9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT SEPTEMBER 30, 2010

    4      $ 3,370        1,256      $ 13      $ 19,047      $ (4,070   $ (1,405   $ 208      $ 17,163   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT JANUARY 1, 2011

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

Comprehensive income:

                 

Net income

    —          —          —          —          —          333        —          —          333   

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

    —          —          —          —          —          —          —          242        242   

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

    —          —          —          —          —          —          —          91        91   

Net change from defined benefit pension plans, net of tax*

    —          —          —          —          —          —          —          19        19   
                 

 

 

 

Comprehensive income

                    685   

Cash dividends declared—$0.03 per share

    —          —          —          —          —          (39     —          —          (39

Preferred dividends

    —          —          —          —          —          (131     —          —          (131

Preferred stock transactions:

                 

Discount accretion

    —          29        —          —          —          (29     —          —          —     

Common stock transactions:

                 

Impact of stock transactions under compensation plans, net

    —          —          3        —          9        —          5        —          14   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT SEPTEMBER 30, 2011

    4      $ 3,409        1,259      $ 13      $ 19,059      $ (3,913   $ (1,397   $ 92      $ 17,263   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to consolidated financial statements.

 

*

See disclosure of reclassification adjustment amount and tax effect, as applicable, in Note 6 to the consolidated financial statements.

 

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Nine Months  Ended
September 30
 
               2011                          2010             
     (In millions)  

Operating activities:

    

Net income (loss)

   $ 333      $ (628

Adjustments to reconcile net cash provided by operating activities:

    

Provision for loan losses

     1,235        2,181   

Depreciation and amortization of premises and equipment

     205        216   

Provision for losses on other real estate, net

     97        121   

Net amortization of securities

     144        151   

Net amortization of loans and other assets

     152        167   

Net amortization (accretion) of deposits and borrowings

     3        (4

Net securities gains

     (105     (61

Loss on early extinguishment of debt

     —          53   

Deferred income tax benefit

     (57     (216

Originations and purchases of loans held for sale

     (3,314     (3,744

Proceeds from sales of loans held for sale

     4,602        4,167   

Gain on sale of loans, net

     (69     (59

Valuation charges on loans held for sale

     8        24   

Branch consolidation and property and equipment charges

     77        —     

(Increase) decrease in trading account assets

     (346     1,459   

Decrease (increase) in other interest-earning assets

     138        (309

Increase in interest receivable

     (1     (44

Decrease in other assets

     1,931        51   

Decrease in other liabilities

     (379     (244

Other

     (38     53   
  

 

 

   

 

 

 

Net cash from operating activities

     4,616        3,334   

Investing activities:

    

Proceeds from sales of securities available for sale

     6,531        1,610   

Proceeds from maturities of securities available for sale

     3,630        5,617   

Proceeds from maturities of securities held to maturity

     7        4   

Purchases of securities available for sale

     (11,156     (6,572

Proceeds from sales of loans

     1,294        966   

Purchases of loans

     (1,718     —     

Net decrease in loans

     1,145        2,168   

Net purchases of premises and equipment

     (163     (118
  

 

 

   

 

 

 

Net cash from investing activities

     (430     3,675   

Financing activities:

    

Net increase (decrease) in deposits

     1,324        (3,702

Net decrease in short-term borrowings

     (994     (7

Proceeds from long-term borrowings

     1,001        743   

Payments on long-term borrowings

     (4,003     (4,990

Cash dividends on common stock

     (39     (36

Cash dividends on preferred stock

     (131     (141
  

 

 

   

 

 

 

Net cash from financing activities

     (2,842     (8,133
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     1,344        (1,124

Cash and cash equivalents at beginning of year

     6,919        8,011   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 8,263      $ 6,887   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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Table of Contents

REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Three and Nine Months Ended September 30, 2011 and 2010

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 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, 2010.

Regions has evaluated all subsequent events for potential recognition and disclosure through the filing date of this Form 10-Q.

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, total assets or stockholders’ equity.

 

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Table of Contents

NOTE 2—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:

 

     September 30, 2011  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 
     (In millions)  

Securities available for sale:

          

U.S. Treasury securities

   $ 99       $ 1       $ —        $ 100   

Federal agency securities

     616         2         —          618   

Obligations of states and political subdivisions

     24         8         —          32   

Mortgage-backed securities:

          

Residential agency

     21,527         503         (3     22,027   

Residential non-agency

     15         1         —          16   

Commercial agency

     230         7         —          237   

Commercial non-agency

     290         2         (2     290   

Other debt securities

     468         1         (7     462   

Equity securities

     856         1         (4     853   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 24,125       $ 526       $ (16   $ 24,635   
  

 

 

    

 

 

    

 

 

   

 

 

 

Securities held to maturity:

          

U.S. Treasury securities

   $ 5       $ —         $ —        $ 5   

Federal agency securities

     3         —           —          3   

Mortgage-backed securities:

          

Residential agency

     10         1         —          11   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 18       $ 1       $ —        $ 19   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     December 31, 2010  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 
     (In millions)  

Securities available for sale:

          

U.S. Treasury securities

   $ 85       $ 6       $ —        $ 91   

Federal agency securities

     16         —           —          16   

Obligations of states and political subdivisions

     23         7         —          30   

Mortgage-backed securities:

          

Residential agency

     21,735         265         (155     21,845   

Residential non-agency

     20         2         —          22   

Commercial agency

     113         2         (3     112   

Commercial non-agency

     103         —           (3     100   

Other debt securities

     27         —           (2     25   

Equity securities

     1,047         1         —          1,048   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 23,169       $ 283       $ (163   $ 23,289   
  

 

 

    

 

 

    

 

 

   

 

 

 

Securities held to maturity:

          

U.S. Treasury securities

   $ 5       $ 1       $ —        $ 6   

Federal agency securities

     5         —           —          5   

Mortgage-backed securities:

          

Residential agency

     12         1         —          13   

Other debt securities

     2         —           —          2   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 24       $ 2       $ —        $ 26   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

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.

 

     September 30
2011
     December 31
2010
 
     (In millions)  

Federal Reserve Bank

   $ 460       $ 471   

Federal Home Loan Bank

     282         419   

Securities with carrying values of $13.6 billion and $15.4 billion at September 30, 2011 and December 31, 2010, 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 September 30, 2011, 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.

 

     September 30, 2011  
     Amortized
Cost
     Estimated
Fair
Value
 
     (In millions)  

Securities available for sale:

     

Due in one year or less

   $ 71       $ 71   

Due after one year through five years

     760         761   

Due after five years through ten years

     305         302   

Due after ten years

     71         78   

Mortgage-backed securities:

     

Residential agency

     21,527         22,027   

Residential non-agency

     15         16   

Commercial agency

     230         237   

Commercial non-agency

     290         290   

Equity securities

     856         853   
  

 

 

    

 

 

 
   $ 24,125       $ 24,635   
  

 

 

    

 

 

 

Securities held to maturity:

     

Due in one year or less

   $ 3       $ 3   

Due after one year through five years

     5         5   

Due after five years through ten years

     —           —     

Due after ten years

     —           —     

Mortgage-backed securities:

     

Residential agency

     10         11   
  

 

 

    

 

 

 
   $ 18       $ 19   
  

 

 

    

 

 

 

 

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Table of Contents

The following tables present gross unrealized losses and estimated fair value of securities available for sale at September 30, 2011 and December 31, 2010. 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.

 

     Less Than Twelve
Months
    Twelve Months or
More
    Total  

September 30, 2011

   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

   $ 1,256       $ (3   $ —         $ —        $ 1,256       $ (3

Commercial non-agency

     120         (2     —           —          120         (2

All other securities

     353         (8     5         (3     358         (11
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
   $ 1,729       $ (13   $ 5       $ (3   $ 1,734       $ (16
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

     Less Than Twelve
Months
    Twelve Months or
More
    Total  

December 31, 2010

   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

   $ 11,023       $ (155   $ —         $ —        $ 11,023       $ (155

Commercial agency

     94         (3     —           —          94         (3

Commercial non-agency

     100         (3     —           —          100         (3

All other securities

     —           —          5         (2     5         (2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
   $ 11,217       $ (161   $ 5       $ (2   $ 11,222       $ (163
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

There was no gross unrealized loss on debt securities held to maturity at either September 30, 2011 or December 31, 2010.

For the securities included in the tables above, management does not believe any individual unrealized loss, which was comprised of 229 securities and 292 securities at September 30, 2011 and December 31, 2010, 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.

Proceeds from sale, gross gains and gross losses 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
September 30
     Nine Months Ended
September 30
 
         2011             2010              2011              2010      
    

(In millions)

 

Proceeds

   $ 52      $ 149       $ 6,531       $ 1,610   

Gross securities gains

     —          2         105         61   

Gross securities losses

     (1     —           —           —     
  

 

 

   

 

 

    

 

 

    

 

 

 

Net securities gains (losses)

   $ (1   $ 2       $ 105       $ 61   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

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Table of Contents

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

 

     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2011     2010      2011     2010  
    

(In millions)

 

Total net gains (losses)

   $ (21   $ 18       $ 10      $ 27   

Unrealized portion

     (35     6         (21     10   

NOTE 3—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:

 

     September 30
2011
     December 31
2010
     September 30
2010
 
     (In millions, net of unearned income)  

Commercial and industrial

   $ 24,273       $ 22,540       $ 21,501   

Commercial real estate mortgage—owner occupied

     11,537         12,046         11,850   

Commercial real estate construction—owner occupied

     356         470         522   
  

 

 

    

 

 

    

 

 

 

Total commercial

     36,166         35,056         33,873   

Commercial investor real estate mortgage

     10,696         13,621         14,489   

Commercial investor real estate construction

     1,188         2,287         2,975   
  

 

 

    

 

 

    

 

 

 

Total investor real estate

     11,884         15,908         17,464   

Residential first mortgage

     14,083         14,898         15,723   

Home equity

     13,316         14,226         14,534   

Indirect

     1,774         1,592         1,657   

Consumer credit card

     1,024         —           —     

Other consumer

     1,200         1,184         1,169   
  

 

 

    

 

 

    

 

 

 

Total consumer

     31,397         31,900         33,083   
  

 

 

    

 

 

    

 

 

 
   $ 79,447       $ 82,864       $ 84,420   
  

 

 

    

 

 

    

 

 

 

In June 2011, Regions completed the purchase of approximately $1.2 billion of Regions-branded credit card accounts from FIA Card Services. The purchase included approximately $1.1 billion in consumer credit card accounts and approximately $0.1 billion in small business credit card accounts, which are included in the commercial and industrial portfolio class. During the third quarter of 2011, the allocation to the purchased credit card relationship intangibles was adjusted to approximately $170 million. Approximately $84 million was allocated to the allowance for loan losses.

During the three and nine months ended September 30, 2011, Regions purchased approximately $173 million and $509 million, respectively, in indirect loans from a third party.

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 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.

 

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Table of Contents

Prior to 2011, the allowance for accruing commercial and investor real estate loans, as well as non-accrual loans in those portfolio segments below $2.5 million, was determined using categories of pools of loans with similar risk characteristics (i.e., pass, special mention, substandard accrual, and non-accrual, as defined below). These categories were utilized to develop the associated allowance for loan losses using historical losses adjusted for current economic conditions. Beginning in 2011, these pools of loans were compiled at a more granular level. A probability of default and a loss given default were statistically calculated for each pool. These parameters, in combination with other account data and assumptions, were used to calculate the estimate of incurred loss. The Company made the change to provide enhanced segmentation, process controls, transparency, governance and information technology controls. Additionally, beginning in the third quarter of 2011, for accruing impaired commercial and investor real estate loans (i.e., troubled debt restructurings, or “TDRs”, which carry an accruing risk rating) and for non-accrual commercial and investor real estate loans less than $2.5 million, Regions based the allowance for loan losses on a discounted cash flow analysis performed at the note level, where projected cash flows reflect credit losses based on statistical information derived from loans with similar risk characteristics (e.g., risk rating and product type). The changes did not have a material impact on the overall allowance for credit losses. The credit quality indicators for commercial and investor real estate loans disclosed in the tables below provide additional information regarding the underlying credit quality of Regions’ portfolio segments and classes, and the corresponding impact on the allowance for credit losses.

The components of the calculation of the allowance for credit losses related to non-accrual commercial and investor real estate loans equal to or greater than $2.5 million, unfunded commitments, and all consumer loans were calculated in 2011 in the same manner as before. For non-accrual commercial and investor real estate loans equal to or greater than $2.5 million, the allowance for loan losses is based on a specific evaluation, considering the facts and circumstances specific to each obligation.

Except for the changes to the calculation of the allowance for loan losses for commercial and investor real estate loans as described above, there were no changes to Regions’ allowance process or accounting policies related to the allowance for credit losses from those described in the Annual Report on Form 10-K for the year ended December 31, 2010.

Management considers the current level of allowance for credit losses appropriate to absorb losses inherent in the loan portfolio and unfunded commitments. Management’s determination of the appropriateness of the allowance for credit losses, which is based on the factors and risk identification procedures previously discussed, requires the use of judgments and estimations that may change in the future. Changes in the factors used by management to determine the appropriateness of the allowance or the availability of new information could cause the allowance for credit losses to be adjusted in future periods.

 

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Table of Contents

ROLLFORWARD OF ALLOWANCE FOR CREDIT LOSSES

The following tables present an analysis of the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2011. The total allowance for credit losses is then disaggregated to show 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 loan portfolio.

 

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

Allowance for loan losses, July 1, 2011

  $ 1,127      $ 1,153      $ 840      $ 3,120   

Provision for loan losses

    41        206        108        355   

Loan losses:

       

Charge-offs

    (149     (229     (169     (547

Recoveries

    13        10        13        36   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loan losses

    (136     (219     (156     (511

Allowance for loan losses, September 30, 2011

    1,032        1,140        792        2,964   
 

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded credit commitments, July 1, 2011

    32        28        24        84   

Provision for unfunded credit commitments

    3        1        (2     2   
 

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded credit commitments, September 30, 2011

    35        29        22        86   
 

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for credit losses, September 30, 2011

  $ 1,067      $ 1,169      $ 814      $ 3,050   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

    Nine Months Ended September 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

    338        466        431        1,235   

Loan losses:

       

Charge-offs

    (407     (716     (515     (1,638

Recoveries

    36        20        42        98   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loan losses

    (371     (696     (473     (1,540
       

Allowance for loan losses, September 30, 2011

    1,032        1,140        792        2,964   
 

 

 

   

 

 

   

 

 

   

 

 

 
       

Reserve for unfunded credit commitments, January 1, 2011

    32        16        23        71   

Provision for unfunded credit commitments

    3        13        (1     15   
 

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded credit commitments, September 30, 2011

    35        29        22        86   
 

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for credit losses, September 30, 2011

  $ 1,067      $ 1,169      $ 814      $ 3,050   
 

 

 

   

 

 

   

 

 

   

 

 

 

Portion of allowance ending balance:

       

Individually evaluated for impairment

  $ 124      $ 227      $ 3      $ 354   

Collectively evaluated for impairment

    943        942        811        2,696   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance evaluated for impairment

  $ 1,067      $ 1,169      $ 814      $ 3,050   
 

 

 

   

 

 

   

 

 

   

 

 

 

Portion of loan portfolio ending balance:

       

Individually evaluated for impairment

  $ 562      $ 772      $ 13      $ 1,347   

Collectively evaluated for impairment

    35,604        11,112        31,384        78,100   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total loans evaluated for impairment

  $ 36,166      $ 11,884      $ 31,397      $ 79,447   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

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 educational 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 September 30, 2011, December 31, 2010 and September 30, 2010. 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;

 

   

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.

 

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Table of Contents

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.

 

     September 30, 2011  
     Pass      Special Mention      Substandard
Accrual
     Non-accrual      Total  
     (In millions)  

Commercial and industrial

   $ 22,671       $ 477       $ 627       $ 498       $ 24,273   

Commercial real estate mortgage—owner occupied

     10,053         259         557         668         11,537   

Commercial real estate construction—owner occupied

     303         18         8         27         356   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

   $ 33,027       $ 754       $ 1,192       $ 1,193       $ 36,166   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial investor real estate mortgage

     7,188         1,011         1,668         829         10,696   

Commercial investor real estate construction

     530         132         230         296         1,188   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investor real estate

   $ 7,718       $ 1,143       $ 1,898       $ 1,125       $ 11,884   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                   Accrual      Non-accrual      Total  
                   (In millions)  

Residential first mortgage

         $ 13,822       $ 261       $ 14,083   

Home equity

           13,185         131         13,316   

Indirect

           1,774         —           1,774   

Consumer credit card

           1,024         —           1,024   

Other consumer

           1,200         —           1,200   
        

 

 

    

 

 

    

 

 

 

Total consumer

         $ 31,005       $ 392       $ 31,397   
        

 

 

    

 

 

    

 

 

 
               $ 79,447   
              

 

 

 

 

     December 31, 2010  
     Pass      Special Mention      Substandard
Accrual
     Non-accrual      Total  
     (In millions)  

Commercial and industrial

   $ 20,764       $ 517       $ 792       $ 467       $ 22,540   

Commercial real estate mortgage—owner occupied

     10,344         283         813         606         12,046   

Commercial real estate construction—owner occupied

     393         25         23         29         470   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

   $ 31,501       $ 825       $ 1,628       $ 1,102       $ 35,056   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commerical investor real estate mortgage

     8,755         1,300         2,301         1,265         13,621   

Commercial investor real estate construction

     904         342         589         452         2,287   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investor real estate

   $ 9,659       $ 1,642       $ 2,890       $ 1,717       $ 15,908   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                   Accrual      Non-accrual      Total  
                   (In millions)  

Residential first mortgage

         $ 14,613       $ 285       $ 14,898   

Home equity

           14,170         56         14,226   

Indirect

           1,592         —           1,592   

Other consumer

           1,184         —           1,184   
        

 

 

    

 

 

    

 

 

 

Total consumer

         $ 31,559       $ 341       $ 31,900   
        

 

 

    

 

 

    

 

 

 
               $ 82,864   
              

 

 

 

 

17


Table of Contents
     September 30, 2010  
     Pass      Special Mention      Substandard
Accrual
     Non-accrual      Total  
     (In millions)  

Commercial and industrial

   $ 19,626       $ 463       $ 910       $ 502       $ 21,501   

Commercial real estate mortgage—owner occupied

     10,152         327         755         616         11,850   

Commercial real estate construction—owner occupied

     434         28         25         35         522   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

   $ 30,212       $ 818       $ 1,690       $ 1,153       $ 33,873   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial investor real estate mortgage

     9,255         1,469         2,418         1,347         14,489   

Commercial investor real estate construction

     1,277         377         760         561         2,975   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investor real estate

   $ 10,532       $ 1,846       $ 3,178       $ 1,908       $ 17,464   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                   Accrual      Non-accrual      Total  
                   (In millions)  

Residential first mortgage

         $ 15,456       $ 267       $ 15,723   

Home equity

           14,490         44         14,534   

Indirect

           1,657         —           1,657   

Other consumer

           1,169         —           1,169   
        

 

 

    

 

 

    

 

 

 

Total consumer

         $ 32,772       $ 311       $ 33,083   
        

 

 

    

 

 

    

 

 

 
               $ 84,420   
              

 

 

 

AGING ANALYSIS

The following tables include an aging analysis of days past due (DPD) for each portfolio class as of September 30, 2011, December 31, 2010 and September 30, 2010:

 

     September 30, 2011  
     Accrual Loans                
     30-59 DPD      60-89 DPD      90+ DPD      Total
30+ DPD
     Total
Accrual
     Non-accrual      Total  
     (In millions)  

Commercial and industrial

   $ 61       $ 26       $ 10       $ 97       $ 23,775       $ 498       $ 24,273   

Commercial real estate mortgage—owner occupied

     56         31         6         93         10,869         668         11,537   

Commercial real estate construction—owner occupied

     —           1         —           1         329         27         356   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     117         58         16         191         34,973         1,193         36,166   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial investor real estate mortgage

     54         72         9         135         9,867         829         10,696   

Commercial investor real estate construction

     15         2         —           17         892         296         1,188   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investor real estate

     69         74         9         152         10,759         1,125         11,884   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Residential first mortgage

     168         101         291         560         13,822         261         14,083   

Home equity

     110         70         81         261         13,185         131         13,316   

Indirect

     24         6         1         31         1,774         —           1,774   

Consumer credit card

     9         4         11         24         1,024         —           1,024   

Other consumer

     20         5         3         28         1,200         —           1,200   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     331         186         387         904         31,005         392         31,397   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 517       $ 318       $ 412       $ 1,247       $ 76,737       $ 2,710       $ 79,447   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

18


Table of Contents
     December 31, 2010  
     Accrual Loans                       
     30-59 DPD      60-89 DPD      90+ DPD      Total
30+ DPD
     Total
Accrual
     Non-accrual      Total  
     (In millions)  

Commercial and industrial

   $ 60       $ 43       $ 9       $ 112       $ 22,073       $ 467       $ 22,540   

Commercial real estate mortgage—owner occupied

     47         54         6         107         11,440         606         12,046   

Commercial real estate construction—owner occupied

     3         —           1         4         441         29         470   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     110         97         16         223         33,954         1,102         35,056   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial investor real estate mortgage

     120         91         5         216         12,356         1,265         13,621   

Commercial investor real estate construction

     30         12         1         43         1,835         452         2,287   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investor real estate

     150         103         6         259         14,191         1,717         15,908   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Residential first mortgage

     185         118         359         662         14,613         285         14,898   

Home equity

     146         78         198         422         14,170         56         14,226   

Indirect

     29         8         2         39         1,592         —           1,592   

Other consumer

     22         6         4         32         1,184         —           1,184   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     382         210         563         1,155         31,559         341         31,900   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 642       $ 410       $ 585       $ 1,637       $ 79,704       $ 3,160       $ 82,864   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     September 30, 2010  
     Accrual Loans                       
     30-59 DPD      60-89 DPD      90+ DPD      Total
30+ DPD
     Total
Accrual
     Non-accrual      Total  
     (In millions)  

Commercial and industrial

   $ 88       $ 41       $ 5       $ 134       $ 20,999       $ 502       $ 21,501   

Commercial real estate mortgage—owner occupied

     67         39         6         112         11,234         616         11,850   

Commercial real estate construction—owner occupied

     1         1         —           2         487         35         522   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     156         81         11         248         32,720         1,153         33,873   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial investor real estate mortgage

     178         94         6         278         13,142         1,347         14,489   

Commercial investor real estate construction

     35         12         2         49         2,414         561         2,975   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investor real estate

     213         106         8         327         15,556         1,908         17,464   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Residential first mortgage

     212         117         369         698         15,456         267         15,723   

Home equity

     136         86         198         420         14,490         44         14,534   

Indirect

     27         7         2         36         1,657         —           1,657   

Other consumer

     22         5         5         32         1,169         —           1,169   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     397         215         574         1,186         32,772         311         33,083   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 766       $ 402       $ 593       $ 1,761       $ 81,048       $ 3,372       $ 84,420   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

19


Table of Contents

IMPAIRED LOANS

The following tables present details related to the Company’s impaired loans as of September 30, 2011 and December 31, 2010. Loans deemed to be impaired include non-accrual commercial and investor real estate loans, excluding leasing, 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. The related allowance represents the following components which correspond to impaired loans:

 

   

Individually evaluated impaired loans (non-accrual commercial and investor real estate loans equal to or greater than $2.5 million): the allowance for loan losses is based on a specific evaluation, considering the facts and circumstances specific to each obligation,

 

   

Accruing impaired commercial and investor real estate loans (i.e., TDRs which carry an accrual risk rating) and non-accrual loans less than $2.5 million: the allowance for loan losses is based on a discounted cash flow analysis performed at the note level, where projected cash flows reflect credit losses based on statistical information derived from loans with similar risk characteristics (e.g., risk rating and product type),

 

   

Consumer TDRs: the allowance for loan losses for residential first mortgage TDRs is calculated based on a discounted cash flow analysis on pools of homogeneous loans. Cash flows are projected using the restructured terms and then discounted at the original note rate. The projected cash flows assume a default rate, which is based on historical performance of residential first mortgage TDRs. For home equity TDRs, a historical loss model is used to determine the allowance for loan losses. The default rate for all types of consumer TDRs is a measure of delinquency, which is considered in both the allowance for loan loss calculation related to consumer TDRs and in the accrual status decisions of TDRs after the modification, for which it is a key determinant along with collateral valuation.

 

    Non-accrual Impaired Loans As of September 30, 2011  
IMPAIRED LOANS ON
NON-ACCRUAL STATUS
              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

  $ 519      $ 86      $ 433      $ 73      $ 360      $ 139        43.4

Commercial real estate mortgage—owner occupied

    774        106        668        44        624        190        38.2   

Commercial real estate construction—owner occupied

    41        14        27        2        25        8        53.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    1,334        206        1,128        119        1,009        337        40.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    999        170        829        105        724        271        44.1   

Commercial investor real estate construction

    407        111        296        43        253        87        48.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

    1,406        281        1,125        148        977        358        45.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential first mortgage

    145        51        94        —          94        14        44.8   

Home equity

    27        10        17        —          17        2        46.5   

Indirect

    —          —          —          —          —          —          —     

Other consumer

    —          —          —          —          —          —          1.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

    172        61        111        —          111        16        45.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 2,912      $ 548      $ 2,364      $ 267      $ 2,097      $ 711        43.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents
    Accruing Impaired Loans As of September 30, 2011  
IMPAIRED LOANS ON ACCRUAL STATUS   Unpaid
Principal
Balance (1)
    Charge-offs
and Payments
Applied (2)
    Book
Value (3)
    Related
Allowance for
Loan Losses
    Coverage % (4)  
    (Dollars in millions)  

Commercial and industrial

  $ 293      $ —        $ 293      $ 58        19.8

Commercial real estate mortgage—owner occupied

    186        2        184        26        14.9   

Commercial real estate construction—owner occupied

    2        1        1        —          100.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    481        3        478        84        18.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    848        2        846        168        20.0   

Commercial investor real estate construction

    145        —          145        84        58.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

    993        2        991        252        25.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential first mortgage

    1,023        15        1,008        144        15.5   

Home equity

    420        4        416        59        14.9   

Indirect

    2        —          2        —          0.9   

Other consumer

    59        —          59        1        1.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

    1,504        19        1,485        204        14.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 2,978      $ 24      $ 2,954      $ 540        18.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

A significant majority of the accruing loans in the table above are considered impaired due to their status as a TDR. Approximately 93 percent of consumer TDRs were accruing at September 30, 2011.

 

21


Table of Contents
    Total Impaired Loans As of September 30, 2011  
TOTAL IMPAIRED
LOANS
              Book Value (3)                 Three Months Ended
September 30, 2011
    Nine Months Ended
September 30, 2011
 
  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)     Average
Balance
    Interest
Income
Recognized (5)
    Average
Balance
    Interest
Income

Recognized (5)
 
                            (Dollars in millions)                                

Commercial and industrial

  $ 812      $ 86      $ 726      $ 73      $ 653      $ 197        34.8   $ 649      $ 3      $ 512      $ 3   

Commercial real estate mortgage—owner occupied

    960        108        852        44        808        216        33.7        813        —          736        2   

Commercial real estate construction—owner occupied

    43        15        28        2        26        8        54.2        30        —          31        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    1,815        209        1,606        119        1,487        421        34.7        1,492        3        1,279        5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    1,847        172        1,675        105        1,570        439        33.1        1,498        7        1,366        12   

Commercial investor real estate construction

    552        111        441        43        398        171        51.2        460        2        466        2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

    2,399        283        2,116        148        1,968        610        37.3        1,958        9        1,832        14   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential first mortgage

    1,168        66        1,102        —          1,102        158        19.1        1,097        11        1,080        31   

Home equity

    447        14        433        —          433        61        16.8        423        5        401        15   

Indirect

    2        —          2        —          2        —          0.9        2        —          2        —     

Other consumer

    59        —          59        —          59        1        1.4        60        1        62        3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

    1,676        80        1,596        —          1,596        220        17.9        1,582        17        1,545        49   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

  $ 5,890      $ 572      $ 5,318      $ 267      $ 5,051      $ 1,251        30.9   $ 5,032      $ 29      $ 4,656      $ 68   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Unpaid principal balance represents the contractual obligation due from the customer and includes the net book value plus charge-offs and payments applied.

(2)

Charge-offs and payments applied represents cumulative partial charge-offs taken, as well as interest payments received that have been applied against the outstanding principal balance.

(3)

Book value represents the unpaid principal balance less charge-offs and payments applied; it is shown before any allowance for loan losses.

(4)

Coverage % represents charge-offs and payments applied plus the related allowance as a percent of the unpaid principal balance.

(5)

Interest income recognized represents interest income on loans modified in a TDR, and are therefore considered impaired, which are on accruing status.

 

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    Impaired Loans As of December 31, 2010  
    Unpaid
Principal
Balance (1)
    Charge-
offs  and
Payments
Applied (2)
    Book
Value (3)
    Related
Allowance

for Loan
Losses
    Coverage % (4)  
    (Dollars in millions)  

Commercial and industrial

  $ 545      $ 124      $ 421      $ 102        41.5

Commercial real estate mortgage—owner occupied

    746        96        650        167        35.3   

Commercial real estate construction—owner occupied

    47        16        31        10        55.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    1,338        236        1,102        279        38.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    1,693        273        1,420        319        35.0   

Commercial investor real estate construction

    638        150        488        154        47.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

    2,331        423        1,908        473        38.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential first mortgage

    1,113        60        1,053        126        16.7   

Home equity

    378        13        365        46        15.6   

Indirect

    2        —          2        —          —     

Other consumer

    65        —          65        1        1.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

    1,558        73        1,485        173        15.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

  $ 5,227      $ 732      $ 4,495      $ 925        31.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Unpaid principal balance represents the contractual obligation due from the customer and includes the net book value plus charge-offs and payments applied.

(2)

Charge-offs and payments applied represents cumulative partial charge-offs taken, as well as interest payments received that have been applied against the outstanding principal balance.

(3)

Book value represents the unpaid principal balance less charge-offs and payments applied; it is shown before any allowance for loan losses.

(4)

Coverage % represents charge-offs and payments applied plus the related allowance as a percent of the unpaid principal balance.

In addition to the impaired loans detailed in the tables above, there were approximately $344 million in non-performing loans classified as held for sale at September 30, 2011, compared to $304 million at December 31, 2010. These loans are larger balance credits, primarily investor real estate, where management does not have the intent to hold the loans for the foreseeable future. The loans are carried at an amount approximating a price which will be recoverable through the loan sale market. During the three months ended September 30, 2011, approximately $206 million in non-performing loans were transferred to held for sale; this amount is net of charge-offs of $156 million recorded upon transfer. During the nine months ended September 30, 2011, approximately $570 million in non-performing loans were transferred to held for sale; this amount is net of charge-offs of $375 million recorded upon transfer. At September 30, 2011 and December 31, 2010, non-accrual loans including loans held for sale totaled $3.1 billion and $3.5 billion, respectively.

TROUBLED DEBT RESTRUCTURINGS (TDRs)

Clarified Accounting Literature

In January 2011, the FASB issued accounting guidance temporarily deferring the effective date for public-entity creditors to provide new disclosures, which were addressed in previously issued guidance regarding receivables, for TDRs. The deferred effective date coincided with the effective date for clarified guidance about what constitutes a TDR for creditors, which was issued in April 2011 by the FASB. Regions applied the clarified definition beginning with third quarter financial reporting to all loans modified after January 1, 2011 (see Note 14 to the consolidated financial statements).

 

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For consumer loans, as described below, Regions already considered loans modified under the Customer Assistance Program (“CAP”) to be TDRs. Under the CAP, Regions may offer a short-term deferral, a term extension, an interest rate reduction, a new loan product, or a combination of these options. Because such modifications clearly are concessionary in nature, and because the customer documents a hardship in order to participate in the program, Regions concluded that these loans met the TDR definition before the clarified guidance was issued. Accordingly, the guidance did not have a material impact on TDR balances for the consumer portfolio segment.

For Regions, the focus of the evaluation of the clarified TDR definition was on workout accommodations, such as renewals and forbearances, for criticized and classified commercial and investor real estate loans. Regions’ business strategy to keep loan maturities short, particularly in the investor real estate portfolio segment, in order to maintain leverage in negotiating with customers drove the renewal activity. Regions often increases or at least maintains the same interest rate, and often receives consideration in exchange for such modifications (e.g., principal paydowns, additional collateral, or additional guarantor support). Therefore, under pre-existing accounting guidance, such modifications were not considered by Regions to be concessionary, and were not considered TDRs. However, the new clarification places more emphasis on whether the terms of the modified loan are at a market rate in order to determine if a concession has been made. Under the clarified guidance, a modification is refutably considered by Regions to be a concession if the borrower could not access similar financing at market terms, even if Regions concludes that the borrower will ultimately pay all contractual amounts owed. Therefore, the amount of accruing TDRs increased as a result of the new clarification. As noted above, the original maturities of the notes being modified are relatively short (for example 2-3 years), and the renewed term is typically comparable to the original maturity. Accordingly, Regions considers these modifications to be significant delays in payment. Therefore, extensions must be considered for the TDR determination because the renewed term is significant to the term of the original note.

As a result of the TDR designation, all loans modified in a TDR are considered to be impaired, even if they carry an accruing risk rating. Beginning in the third quarter of 2011, for accruing commercial and investor real estate TDRs (as well as for non-accrual commercial and investor real estate loans less than $2.5 million), Regions based the allowance for loan losses on a discounted cash flow analysis performed at the note level, where projected cash flows reflect credit losses based on statistical information derived from loans with similar risk characteristics (e.g., risk rating and product type). For all commercial and investor real estate non-accrual loans equal to or greater than $2.5 million, consistent with historical practice, the allowance for loan losses is based on a specific evaluation, considering the facts and circumstances specific to each obligation. Because Regions’ past practice was to base the allowance for losses for commercial and investor real estate loans on loss content based on risk rating and product type, either through specific evaluation of larger loans, or groups of smaller loans with similar risk characteristics, the adoption of the clarification and the corresponding increase in commercial and investor real estate TDRs did not materially impact the overall level of the allowance for loan losses. As noted above, the clarification did not materially impact the level of TDRs in the consumer portfolio segment, or the related allowance for loan losses.

 

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Table of Contents

The following table presents modified commercial and investor real estate loans which are now considered TDRs as a result of the clarified definition as of September 30, 2011, as well as the associated allowance for loan losses. These loans were modified during 2011, largely due to the renewal process discussed above. Comparative June 30, 2011 data is included for reference, and further indicates the categories where the new guidance impacted TDR identification. The allowance for loan losses associated with the TDRs newly identified under the clarification represents the end of period allowance for these loans. Because the majority of these loans already carried a criticized or classified risk rating, the inherent losses were incorporated in the calculation of the allowance for loan losses in prior periods.

 

     September 30, 2011  
     Pass      Special Mention      Substandard
Accrual
     Non-accrual      Total  
                   (In millions)                

Commercial

              

TDRs newly identified under policy change

   $ 5       $ 52       $ 333       $ 220       $ 610   

TDRs under previously existing policy

     11         6         71         151         239   

All other (not TDRs)

     33,011         696