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 March 31, 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 1,412,429,000 shares of common stock, par value $.01, outstanding as of April 26, 2012.

 

 

 


Table of Contents

REGIONS FINANCIAL CORPORATION

FORM 10-Q

INDEX

 

              Page  

Part I. Financial Information

  

  Item 1.   

Financial Statements (Unaudited)

  
    

Consolidated Balance Sheets—March 31, 2012 and December 31, 2011

     5   
    

Consolidated Statements of Operations—Three months ended March 31, 2012 and 2011

     6   
    

Consolidated Statements of Comprehensive Income (Loss)—Three months ended March  31, 2012 and 2011

     7   
    

Consolidated Statements of Changes in Stockholders’ Equity—Three months ended March 31, 2012 and 2011

     8   
    

Consolidated Statements of Cash Flows—Three months ended March 31, 2012 and 2011

     9   
    

Notes to Consolidated Financial Statements

     10   
  Item 2.   

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

     59   
  Item 3.   

Quantitative and Qualitative Disclosures about Market Risk

     100   
  Item 4.    Controls and Procedures      100   

Part II. Other Information

  
  Item 1.   

Legal Proceedings

     101   
  Item 2.   

Unregistered Sales of Equity Securities and Use of Proceeds

     101   
  Item 6.   

Exhibits

     102   

Signatures

     103   

 

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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, 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.

 

   

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 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.

 

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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.

 

   

Possible changes in the speed of loan prepayments by Regions’ customers and loan origination or sales volumes.

 

   

Possible acceleration of prepayments on mortgage-backed securities due to low interest rates, and the related acceleration of premium amortization on those securities.

 

   

The effects of problems encountered by larger or similar financial institutions that adversely affect Regions or the banking industry generally.

 

   

Regions’ ability to receive dividends from its subsidiaries.

 

   

The effects of the failure of any component of Regions’ business infrastructure which is provided by a third party.

 

   

Changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies.

 

   

With regard to the sale of Morgan Keegan, the possibility of business disruption following the transaction, reputational risks and the reaction of customers and counterparties to the transaction; and occurrences which could cause post-closing adjustments to the purchase price.

 

   

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, 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

 

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

Cash and due from banks

   $ 2,036      $ 2,132   

Interest-bearing deposits in other banks

     5,270        4,913   

Federal funds sold and securities purchased under agreements to resell

     167        200   

Trading account assets

     1,127        1,266   

Securities available for sale

     27,177        24,471   

Securities held to maturity

     15        16   

Loans held for sale (includes $752 and $844 measured at fair value, respectively)

     1,054        1,193   

Loans, net of unearned income

     76,720        77,594   

Allowance for loan losses

     (2,530     (2,745
  

 

 

   

 

 

 

Net loans

     74,190        74,849   

Other interest-earning assets

     1,054        1,085   

Premises and equipment, net

     2,350        2,375   

Interest receivable

     397        361   

Goodwill

     4,816        4,816   

Mortgage servicing rights

     199        182   

Other identifiable intangible assets

     420        449   

Other assets

     8,010        8,742   
  

 

 

   

 

 

 

Total assets

   $ 128,282      $ 127,050   
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Deposits:

    

Non-interest-bearing

   $ 29,707      $ 28,266   

Interest-bearing

     67,431        67,361   
  

 

 

   

 

 

 

Total deposits

     97,138        95,627   

Borrowed funds:

    

Short-term borrowings:

    

Federal funds purchased and securities sold under agreements to repurchase

     2,287        2,333   

Other short-term borrowings

     621        734   
  

 

 

   

 

 

 

Total short-term borrowings

     2,908        3,067   

Long-term borrowings

     7,196        8,110   
  

 

 

   

 

 

 

Total borrowed funds

     10,104        11,177   

Other liabilities

     3,506        3,747   
  

 

 

   

 

 

 

Total liabilities

     110,748        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—3,500,000 shares

     3,429        3,419   

Common stock, par value $.01 per share:

    

Authorized 3 billion shares

    

Issued including treasury stock—1,454,644,205 and 1,301,230,838 shares, respectively

     15        13   

Additional paid-in capital

     19,939        19,060   

Retained earnings (deficit)

     (4,395     (4,527

Treasury stock, at cost—42,215,194 and 42,414,444 shares, respectively

     (1,394     (1,397

Accumulated other comprehensive income (loss), net

     (60     (69
  

 

 

   

 

 

 

Total stockholders’ equity

     17,534        16,499   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 128,282      $ 127,050   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    Three Months Ended
March 31
 
        2012             2011      
    (In millions, except per share data)  

Interest income on:

   

Loans, including fees

  $ 812      $ 867   

Securities:

   

Taxable

    174        207   

Tax-exempt

    —          —     
 

 

 

   

 

 

 

Total securities

    174        207   

Loans held for sale

    7        13   

Trading account assets

    1        —     

Other interest-earning assets

    3        3   
 

 

 

   

 

 

 

Total interest income

    997        1,090   

Interest expense on:

   

Deposits

    88        139   

Short-term borrowings

    —          1   

Long-term borrowings

    82        95   
 

 

 

   

 

 

 

Total interest expense

    170        235   
 

 

 

   

 

 

 

Net interest income

    827        855   

Provision for loan losses

    117        482   
 

 

 

   

 

 

 

Net interest income after provision for loan losses

    710        373   

Non-interest income:

   

Service charges on deposit accounts

    254        287   

Capital markets and investment income

    28        31   

Mortgage income

    77        45   

Trust department income

    49        50   

Securities gains, net

    12        82   

Other

    104        85   
 

 

 

   

 

 

 

Total non-interest income

    524        580   

Non-interest expense:

   

Salaries and employee benefits

    442        428   

Net occupancy expense

    94        100   

Furniture and equipment expense

    64        70   

Other

    313        334   
 

 

 

   

 

 

 

Total non-interest expense

    913        932   
 

 

 

   

 

 

 

Income from continuing operations before income taxes

    321        21   

Income tax expense (benefit)

    82        (29
 

 

 

   

 

 

 

Income from continuing operations

  $ 239      $ 50   

Discontinued operations:

   

Income (loss) from discontinued operations before income taxes

    (65     36   

Income tax expense (benefit)

    (25     17   
 

 

 

   

 

 

 

Income (loss) from discontinued operations, net of tax

    (40     19   

Net income

  $ 199      $ 69   
 

 

 

   

 

 

 

Net income (loss) from continuing operations available to common shareholders

  $ 185      $ (2
 

 

 

   

 

 

 

Net income available to common shareholders

  $ 145      $ 17   
 

 

 

   

 

 

 

Weighted-average number of shares outstanding:

   

Basic

    1,282        1,257   

Diluted

    1,283        1,259   

Earnings (loss) per common share from continuing operations:

   

Basic

  $ 0.14      $ (0.00

Diluted

    0.14        (0.00

Earnings per common share:

   

Basic

  $ 0.11      $ 0.01   

Diluted

    0.11        0.01   

Cash dividends declared per common share

    0.01        0.01   

See notes to consolidated financial statements.

 

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

     Three Months Ended
March 31
 
           2012                 2011        
     (In millions)  

Net income

   $ 199      $ 69   

Other comprehensive income (loss), net of tax:*

    

Unrealized gains (losses) on securities available for sale:

    

Unrealized holding gains (losses) arising during the period (net of zero and $33 tax effect for the three months ended March 31, 2012 and 2011, respectively)

     2        (48

Less: reclassification adjustments for securities gains realized in net income (net of $4 and $29 tax effect for the three months ended March 31, 2012 and 2011, respectively)

     8        53   
  

 

 

   

 

 

 

Net change in unrealized gains (losses) on securities available for sale

     (6     (101

Unrealized gains (losses) on derivative instruments designated as cash flow hedges:

    

Unrealized holding gains (losses) on derivatives arising during the period (net of $6 and zero tax effect for the three months ended March 31, 2012 and 2011, respectively)

     10        1   

Less: reclassification adjustments for gains realized in net income (net of $6 and $19 tax effect for the three months ended March 31, 2012 and 2011, respectively)

     10        31   
  

 

 

   

 

 

 

Net change in unrealized gains (losses) on derivative instruments

     —          (30

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 $8 and $4 tax effect for the three months ended March 31, 2012 and 2011, respectively)

     15        4   
  

 

 

   

 

 

 

Net change from defined benefit pension plans

     15        4   
  

 

 

   

 

 

 

Other comprehensive income (loss), net of tax*

   $ 9      $ (127
  

 

 

   

 

 

 

Comprehensive income (loss)

   $ 208      $ (58
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

*

All other comprehensive amounts are shown net of tax.

 

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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

    —          —          —          —          —          69        —          —          69   

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

    —          —          —          —          —          —          —          (101     (101

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

    —          —          —          —          —          —          —          (30     (30

Net change from defined benefit pension plans, net of tax

    —          —          —          —          —          —          —          4        4   

Cash dividends declared—$0.01 per share

    —          —          —          —          —          (13     —          —          (13

Preferred dividends

    —          —          —          —            (43     —          —          (43

Preferred stock transactions:

                 

Discount accretion

    —          9        —          —          —          (9     —          —          —     

Common stock transactions:

                 

Impact of stock transactions under compensation plans, net

    —          —          —          —          (3     —          2        —          (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT MARCH 31, 2011

    4      $ 3,389        1,256      $ 13      $ 19,047      $ (4,043   $ (1,400   $ (387   $ 16,619   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT JANUARY 1, 2012

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

Net income

    —          —          —          —          —          199        —          —          199   

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

    —          —          —          —          —          —          —          (6     (6

Net change from defined benefit pension plans, net of tax

    —          —          —          —          —          —          —          15        15   

Cash dividends declared—$0.01 per share

    —          —          —          —          —          (13     —          —          (13

Preferred dividends

    —          —          —          —          —          (44     —          —          (44

Preferred stock transactions:

                 

Discount accretion

    —          10        —          —          —          (10     —          —          —     

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

    —          —          —          —          6        —          3        —          9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT MARCH 31, 2012

    4      $ 3,429        1,412      $ 15      $ 19,939      $ (4,395   $ (1,394   $ (60   $ 17,534   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    Three Months Ended
March  31
 
              2012                          2011             
    (In millions)  

Operating activities:

   

Net income

  $ 199      $ 69   

Adjustments to reconcile net cash provided by operating activities:

   

Provision for loan losses

    117        482   

Depreciation and amortization of premises and equipment

    62        68   

Provision for losses on other real estate, net

    15        30   

Net amortization of securities

    68        50   

Net amortization of loans and other assets

    40        47   

Net amortization of borrowings

    1        —     

Net securities gains

    (12     (82

Deferred income tax expense (benefit)

    55        (14

Originations and purchases of loans held for sale

    (1,029     (1,450

Proceeds from sales of loans held for sale

    1,313        1,591   

Gain on sale of loans, net

    (38     (20

Valuation charges on loans held for sale

    1        2   

Decrease (increase) in trading account assets

    139        (168

Decrease in other interest-earning assets

    31        5   

Increase in interest receivable

    (36     (20

Decrease in other assets

    48        1,272   

Decrease in other liabilities

    (218     (483

Other

    (1     (47
 

 

 

   

 

 

 

Net cash from operating activities

    755        1,332   

Investing activities:

   

Proceeds from sales of securities available for sale

    1,398        2,419   

Proceeds from maturities of securities available for sale

    1,594        1,363   

Proceeds from maturities of securities held to maturity

    1        2   

Purchases of securities available for sale

    (5,075     (5,323

Proceeds from sales of loans

    159        602   

Purchases of loans

    (174     (162

Net decrease in loans

    337        202   

Net purchases of premises and equipment

    (37     (28
 

 

 

   

 

 

 

Net cash from investing activities

    (1,797     (925

Financing activities:

   

Net increase in deposits

    1,511        1,755   

Net decrease in short-term borrowings

    (159     (755

Proceeds from long-term borrowings

    —          601   

Payments on long-term borrowings

    (900     (1,551

Cash dividends on common stock

    (13     (13

Cash dividends on preferred stock

    (44     (43

Net proceeds from issuance of common stock

    875        —     
 

 

 

   

 

 

 

Net cash from financing activities

    1,270        (6
 

 

 

   

 

 

 

Increase in cash and cash equivalents

    228        401   

Cash and cash equivalents at beginning of year

    7,245        6,919   
 

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ 7,473      $ 7,320   
 

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Three Months Ended March 31, 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. See Note 16.

Beginning with first quarter 2012 financial reporting, as required by new accounting literature, Regions began presenting a separate consolidated statement 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, Note 14 and Note 16 for further details. Results of operations for the entities being sold are presented separately as discontinued operations for all periods presented on the consolidated statements of operations because the pending sale met all of the criteria for reporting as discontinued operations at March 31, 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.

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

 

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were not included in the sale. In connection with the closing, the Company and Raymond James agreed that in lieu of the $250 million pre-closing dividend from Morgan Keegan to the Company as contemplated in the original agreement, the parties would increase the purchase price by the same amount. The total purchase price received by the Company was approximately $1.2 billion.

The transaction purchase price is subject to post-closing adjustment based on the closing tangible book value of the entities being sold and retention of Morgan Keegan associates as of 90 days post-closing. Regions believes any adjustments to the sales price will not have a material impact to the consolidated financial statements. Regions has agreed to indemnify Raymond James for all litigation matters related to pre-closing activities. See Note 14 and Note 16 for related disclosure.

The following table represents the condensed results of operations for discontinued operations for the three months ended March 31:

 

     Three Months Ended
March  31
 
     2012     2011  
     (In millions, except per share data)  

Interest income

   $ 8      $ 10   

Interest expense

     1        2   
  

 

 

   

 

 

 

Net interest income

     7        8   

Non-interest income:

    

Brokerage, investment banking and capital markets

     233        236   

Other

     7        27   
  

 

 

   

 

 

 

Total non-interest income

     240        263   

Non-interest expense:

    

Salaries and employee benefits

     171        166   

Net occupancy expense

     9        9   

Furniture and equipment expense

     8        7   

Professional and legal expenses

     96        25   

Other

     28        28   
  

 

 

   

 

 

 

Total non-interest expense

     312        235   
  

 

 

   

 

 

 

Income (loss) from discontinued operations before income taxes

     (65     36   

Income tax expense (benefit)

     (25     17   
  

 

 

   

 

 

 

Income (loss) from discontinued operations, net of tax

   $ (40   $ 19   
  

 

 

   

 

 

 

Earnings (loss) per common share from discontinued operations:

    

Basic

   $ (0.03   $ 0.01   

Diluted

   $ (0.03   $ 0.01   

 

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A summary of the major categories of assets and liabilities (including related deferred taxes) related to the entities being sold as of March 31, 2012 and December 31, 2011 is as follows:

 

     March 31, 2012      December 31, 2011  
     (In millions)  

Assets:

     

Cash and due from banks

   $ 165       $ 232   

Securities purchased under agreements to resell

     167         200   

Trading account assets

     963         1,088   

Other interest-earning assets

     373         340   

Other assets

     1,016         944   
  

 

 

    

 

 

 

Total assets

   $ 2,684       $ 2,804   
  

 

 

    

 

 

 

Liabilities:

     

Securities sold under agreements to repurchase

   $ 369       $ 253   

Other short-term borrowings

     560         678   

Other liabilities

     836         914   
  

 

 

    

 

 

 

Total liabilities

   $ 1,765       $ 1,845   
  

 

 

    

 

 

 

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:

 

     March 31, 2012  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 
     (In millions)  

Securities available for sale:

          

U.S. Treasury securities

   $ 44       $ 3       $ —        $ 47   

Federal agency securities

     336         3         —          339   

Obligations of states and political subdivisions

     21         10         —          31   

Mortgage-backed securities:

          

Residential agency

     22,992         489         (25     23,456   

Residential non-agency

     14         1         —          15   

Commercial agency

     427         9         (1     435   

Commercial non-agency

     479         13         (1     491   

Corporate and other debt securities

     1,538         17         (12     1,543   

Equity securities

     818         3         (1     820   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 26,669       $ 548       $ (40   $ 27,177   
  

 

 

    

 

 

    

 

 

   

 

 

 

Securities held to maturity:

          

U.S. Treasury securities

   $ 4       $ —         $ —        $ 4   

Federal agency securities

     3         —           —          3   

Mortgage-backed securities:

          

Residential agency

     8         1         —          9   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 15       $ 1       $ —        $ 16   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents
     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   
  

 

 

    

 

 

    

 

 

   

 

 

 

Entities included with the sale of Morgan Keegan and related affiliates had approximately $7 million and $2 million in securities available for sale at March 31, 2012 and December 31, 2011, respectively, which are included in the tables above. Morgan Keegan and related affiliates had no securities held to maturity at March 31, 2012 or December 31, 2011.

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.

 

     March 31
2012
     December 31
2011
 
     (In millions)  

Federal Reserve Bank

   $ 481       $ 481   

Federal Home Loan Bank

     219         219   

Securities with carrying values of $14.4 billion and $14.3 billion at March 31, 2012 and December 31, 2011, respectively, were pledged to secure public funds, trust deposits and certain borrowing arrangements.

 

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The amortized cost and estimated fair value of securities available for sale and securities held to maturity at March 31, 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

   $ 15       $ 15   

Due after one year through five years

     762         769   

Due after five years through ten years

     938         946   

Due after ten years

     224         230   

Mortgage-backed securities:

     

Residential agency

     22,992         23,456   

Residential non-agency

     14         15   

Commercial agency

     427         435   

Commercial non-agency

     479         491   

Equity securities

     818         820   
  

 

 

    

 

 

 
   $ 26,669       $ 27,177   
  

 

 

    

 

 

 

Securities held to maturity:

     

Due in one year or less

   $ 4       $ 4   

Due after one year through five years

     3         3   

Due after five years through ten years

     —           —     

Due after ten years

     —           —     

Mortgage-backed securities:

     

Residential agency

     8         9   
  

 

 

    

 

 

 
   $ 15       $ 16   
  

 

 

    

 

 

 

The following tables present gross unrealized losses and estimated fair value of securities available for sale at March 31, 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.

 

    March 31, 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

  $ 3,797      $ (25   $ —        $ —        $ 3,797      $ (25

Commercial agency

    67        (1     —          —          67        (1

Commercial non-agency

    134        (1     —          —          134        (1

All other securities

    733        (11     5        (2     738        (13
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 4,731      $ (38   $ 5      $ (2   $ 4,736      $ (40
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
    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 March 31, 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 537 securities and 524 securities at March 31, 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.

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.

 

     For the Three Months Ended
March 31
 
         2012              2011      
     (In millions)  

Proceeds

   $ 1,398       $ 2,419   

Gross realized gains

     12         82   

Gross realized losses

     —           —     
  

 

 

    

 

 

 

Net securities gains (losses)

   $ 12       $ 82   
  

 

 

    

 

 

 

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

 

     Three Months Ended
March 31
 
     2012      2011  
     (In millions)  

Total net gains (losses)

   $ 30       $ 21   

Unrealized portion

     25         14   

Included in the table above are amounts related to activities of Morgan Keegan of approximately $25 million and $15 million of total net gains for the three months ended March 31, 2012 and 2011, respectively. These amounts are included with results from discontinued operations.

 

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Table of Contents

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:

 

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

Commercial and industrial

   $ 25,098       $ 24,522   

Commercial real estate mortgage—owner occupied

     10,931         11,166   

Commercial real estate construction—owner occupied

     281         337   
  

 

 

    

 

 

 

Total commercial

     36,310         36,025   

Commercial investor real estate mortgage

     9,156         9,702   

Commercial investor real estate construction

     955         1,025   
  

 

 

    

 

 

 

Total investor real estate

     10,111         10,727   

Residential first mortgage

     13,611         13,784   

Home equity

     12,642         13,021   

Indirect

     1,938         1,848   

Consumer credit card

     939         987   

Other consumer

     1,169         1,202   
  

 

 

    

 

 

 

Total consumer

     30,299         30,842   
  

 

 

    

 

 

 
   $ 76,720       $ 77,594   
  

 

 

    

 

 

 

During the three months ended March 31, 2012 and 2011, Regions purchased approximately $174 million and $162 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.

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.

Except for the enhancement to home equity segmentation described above, during the first quarter 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 months ended March 31, 2012 and 2011. The total allowance for credit losses as of March 31, 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 March 31, 2012  
     Commercial     Investor Real
Estate
    Consumer     Total  
     (In millions)  

Allowance for loan losses, January 1, 2012

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

Provision for loan losses

     61        (10     66        117   

Loan losses:

        

Charge-offs

     (125     (95     (156     (376

Recoveries

     16        12        16        44   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loan losses

     (109     (83     (140     (332
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan losses, March 31, 2012

     982        898        650        2,530   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded credit commitments, January 1, 2012

   $ 30      $ 26      $ 22      $ 78   

Provision (credit) for unfunded credit commitments

     14        —          (1     13   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded credit commitments, March 31, 2012

     44        26        21        91   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for credit losses, March 31, 2012

   $ 1,026      $ 924      $ 671      $ 2,621   
  

 

 

   

 

 

   

 

 

   

 

 

 

Portion of ending allowance for credit losses:

        

Individually evaluated for impairment

   $ 105      $ 146      $ 2      $ 253   

Collectively evaluated for impairment

     921        778        669        2,368   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

   $ 1,026      $ 924      $ 671      $ 2,621   
  

 

 

   

 

 

   

 

 

   

 

 

 

Portion of loan portfolio ending balance:

        

Individually evaluated for impairment

   $ 475      $ 532      $ 7      $ 1,014   

Collectively evaluated for impairment

     35,835        9,579        30,292        75,706   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total loans evaluated for impairment

   $ 36,310      $ 10,111      $ 30,299      $ 76,720   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     Three Months Ended March 31, 2011  
     Commercial     Investor Real
Estate
    Consumer     Total  
     (In millions)  

Allowance for loan losses, January 1, 2011

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

Provision for loan losses

     225        89        168        482   

Loan losses:

        

Charge-offs

     (151     (181     (180     (512

Recoveries

     9        7        15        31   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loan losses

     (142     (174     (165     (481

Allowance for loan losses, March 31, 2011

     1,138        1,285        763        3,186   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded credit commitments, January 1, 2011

   $ 32      $ 16      $ 23      $ 71   

Provision for unfunded credit commitments

     5        1        1        7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded credit commitments, March 31, 2011

     37        17        24        78   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for credit losses, March 31, 2011

   $ 1,175      $ 1,302      $ 787      $ 3,264   
  

 

 

   

 

 

   

 

 

   

 

 

 

Portion of ending allowance for credit losses:

        

Individually evaluated for impairment

   $ 113      $ 340      $ 3      $ 456   

Collectively evaluated for impairment

     1,062        962        784        2,808   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

   $ 1,175      $ 1,302      $ 787      $ 3,264   
  

 

 

   

 

 

   

 

 

   

 

 

 

Portion of loan portfolio ending balance:

        

Individually evaluated for impairment

   $ 469      $ 1,248      $ 19      $ 1,736   

Collectively evaluated for impairment

     34,999        13,579        31,057        79,635   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total loans evaluated for impairment

   $ 35,468      $ 14,827      $ 31,076      $ 81,371   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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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 March 31, 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;

 

   

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.”

 

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Table of Contents

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.

 

    March 31, 2012  
    Pass     Special Mention     Substandard
Accrual
    Non-accrual     Total  
    (In millions)  

Commercial and industrial

  $ 23,417      $ 636      $ 606      $ 439      $ 25,098   

Commercial real estate mortgage—owner occupied

    9,613        215        558        545        10,931   

Commercial real estate construction—owner occupied

    229        14        15        23        281   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

  $ 33,259      $ 865      $ 1,179      $ 1,007      $ 36,310   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    6,627        693        1,196        640        9,156   

Commercial investor real estate construction

    556        94        178        127        955   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

  $ 7,183      $ 787      $ 1,374      $ 767      $ 10,111   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                Accrual     Non-accrual     Total  
                (In millions)  

Residential first mortgage

      $ 13,370      $ 241      $ 13,611   

Home equity

        12,506        136        12,642   

Indirect

        1,938        —          1,938   

Consumer credit card

        939        —          939   

Other consumer

        1,169        —          1,169   
     

 

 

   

 

 

   

 

 

 

Total consumer

      $ 29,922      $ 377      $ 30,299   
     

 

 

   

 

 

   

 

 

 
          $ 76,720   
         

 

 

 
    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   
         

 

 

 

 

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Table of Contents

AGING ANALYSIS

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

 

    March 31, 2012  
    Accrual Loans                    
    30-59 DPD     60-89 DPD     90+ DPD     Total
30+  DPD
    Total
Accrual
    Non-accrual     Total  
    (In millions)  

Commercial and industrial

  $ 25      $ 18      $ 9      $ 52      $ 24,659      $ 439      $ 25,098   

Commercial real estate
mortgage—owner occupied

    40        28        9        77        10,386        545        10,931   

Commercial real estate construction—owner occupied

    1        —          —          1        258        23        281   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    66        46        18        130        35,303        1,007        36,310   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    69        53        2        124        8,516        640        9,156   

Commercial investor real estate construction

    1        2        —          3        828        127        955   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

    70        55        2        127        9,344        767        10,111   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential first mortgage

    158        100        300        558        13,370        241        13,611   

Home equity

    96        62        87        245        12,506        136        12,642   

Indirect

    19        6        2        27        1,938        —          1,938   

Consumer credit card

    7        5        14        26        939        —          939   

Other consumer

    14        4        4        22        1,169        —          1,169   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

    294        177        407        878        29,922        377        30,299   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 430      $ 278      $ 427      $ 1,135      $ 74,569      $ 2,151      $ 76,720   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    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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Table of Contents

IMPAIRED LOANS

The following tables present details related to the Company’s impaired loans as of March 31, 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 March 31, 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

  $ 516      $ 89      $ 427      $ 104      $ 323      $ 130        42.4

Commercial real estate mortgage—owner occupied

    632        88        544        37        507        187        43.5   

Commercial real estate construction—owner occupied

    35        12        23        1        22        10        62.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    1,183        189        994        142        852        327        43.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    774        134        640        59        581        201        43.3   

Commercial investor real estate construction

    172        46        126        9        117        44        52.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

    946        180        766        68        698        245        44.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential first mortgage

    149        52        97        —          97        15        45.0   

Home equity

    29        10        19        —          19        2        41.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

    178        62        116        —          116        17        44.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 2,307      $ 431      $ 1,876      $ 210      $ 1,666      $ 589        44.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     Accruing Impaired Loans As of March 31, 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

   $ 268       $ 2       $ 266       $ 56         21.6

Commercial real estate mortgage—owner occupied

     223         2         221         34         16.1   

Commercial real estate construction—owner occupied

     4         —           4         1         25.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     495         4         491         91         19.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial investor real estate mortgage

     930         6         924         186         20.6   

Commercial investor real estate construction

     133         —           133         79         59.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investor real estate

     1,063         6         1,057         265         25.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Residential first mortgage

     1,054         13         1,041         146         15.1   

Home equity

     429         4         425         42         10.7   

Indirect

     2         —           2         —           —     

Other consumer

     51         —           51         1         2.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     1,536         17         1,519         189         13.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,094       $ 27       $ 3,067       $ 545         18.5
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
    Total Impaired Loans As of March 31, 2012     Three Months Ended
March  31, 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)     Average
Balance
    Interest
Income
Recognized (5)
 
                            (Dollars in millions)                    

Commercial and industrial

  $ 784      $ 91      $ 693      $ 104      $ 589      $ 186        35.3   $ 730      $ 4   

Commercial real estate mortgage—owner occupied

    855        90        765        37        728        221        36.4        785        3   

Commercial real estate construction—owner occupied

    39        12        27        1        26        11        59.0        28        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    1,678        193        1,485        142        1,343        418        36.4        1,543        7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    1,704        140        1,564        59        1,505        387        30.9        1,636        10   

Commercial investor real estate construction

    305        46        259        9        250        123        55.4        294        2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

    2,009        186        1,823        68        1,755        510        34.6        1,930        12   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential first mortgage

    1,203        65        1,138        —          1,138        161        18.8        1,131        10   

Home equity

    458        14        444        —          444        44        12.7        444        5   

Indirect

    2        —          2        —          2        —          —          1        —     

Other consumer

    51        —          51        —          51        1        2.0        52        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

    1,714        79        1,635        —          1,635        206        16.6        1,628        15   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

  $ 5,401      $ 458      $ 4,943      $ 210      $ 4,733      $ 1,134        29.5   $ 5,101      $ 34   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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.

 

24


Table of Contents
    Non-accrual Impaired Loans As of December 31, 2011  
                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

  $ 468      $ 88      $ 380      $ 61      $ 319      $ 129        46.4

Commercial real estate mortgage—owner occupied

    679        88        591        34        557        192        41.2   

Commercial real estate construction—owner occupied

    37        12        25        1        24        10        59.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    1,184        188        996        96        900        331        43.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    870        136        734        63        671        223        41.3   

Commercial investor real estate construction

    236        56        180        23        157        62        50.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

    1,106        192        914        86        828        285        43.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential first mortgage

    146        49        97        —          97        15        43.8   

Home equity

    26        10        16        —          16        2        46.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

    172        59        113        —          113        17        44.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 2,462      $ 439      $ 2,023      $ 182      $ 1,841      $ 633        43.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Accruing Impaired Loans As of December 31, 2011  
    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

  $ 290      $ 1      $ 289      $ 60        21.0

Commercial real estate mortgage—owner occupied

    205        3        202        30        16.1   

Commercial real estate construction—owner occupied

    2        —          2        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    497        4        493        90        18.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    862        7        855        174        21.0   

Commercial investor real estate construction

    140        —          140        81        57.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

    1,002        7        995        255        26.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential first mortgage

    1,025        12        1,013        148        15.6   

Home equity

    428        4        424        60        15.0   

Indirect

    1        —          1        —          —     

Other consumer

    55        —          55        1        1.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

    1,509        16        1,493        209        14.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 3,008      $ 27      $ 2,981      $ 554        19.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
    Total Impaired Loans As of December 31, 2011     Three Months Ended
March 31, 2011
 
                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)     Average
Balance
    Interest
Income
Recognized (5)
 
                            (Dollars in millions)                    

Commercial and industrial

  $ 758      $ 89      $ 669      $ 61      $ 608      $ 189        36.7   $ 436      $ —     

Commercial real estate mortgage—owner occupied

    884        91        793        34        759        222        35.4        705        1   

Commercial real estate construction—owner occupied

    39        12        27        1        26        10        56.4        32        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    1,681        192        1,489        96        1,393        421        36.5        1,173        1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial investor real estate mortgage

    1,732        143        1,589        63        1,526        397        31.2        1,367        2   

Commercial investor real estate construction

    376        56        320        23        297        143        52.9        496        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investor real estate

    2,108        199        1,909        86        1,823        540        35.1        1,863        2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential first mortgage

    1,171        61        1,110        —          1,110        163        19.1        1,061        9   

Home equity

    454        14        440        —          440        62        16.7        379        5   

Indirect

    1        —          1        —          1        —          —          2        —     

Other consumer

    55        —          55        —          55        1        1.8        63        1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

    1,681        75        1,606        —          1,606        226        17.9        1,505        15   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

  $ 5,470      $ 466      $ 5,004      $ 182      $ 4,822      $ 1,187        30.2   $ 4,541      $ 18   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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.

In addition to the impaired loans detailed in the tables above, there were approximately $249 million in non-performing loans classified as held for sale at March 31, 2012, compared to $328 million at December 31, 2011. 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 March 31, 2012, approximately $93 million in non-performing loans were transferred to held for sale; this amount is net of charge-offs of $53 million recorded upon transfer. During the three months ended March 31, 2011, approximately $188 million in non-performing loans were transferred to held for sale; this amount is net of charge-offs of $105 million recorded upon transfer. At March 31, 2012 and December 31, 2011, non-accrual loans including loans held for sale totaled $2.4 billion and $2.7 billion, respectively.

 

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Table of Contents

TROUBLED DEBT RESTRUCTURINGS (TDRs)

Modification Activity: Commercial and Investor Real Estate Portfolio Segments

Regions regularly modifies commercial and investor real estate loans in order to facilitate a workout strategy. Typical modifications include workout accommodations, such as renewals and forbearances. 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). However, these modifications are refutably considered by Regions to be concessions 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. Additionally, as another workout alternative, Regions periodically uses A/B note restructurings when the underlying assets (primarily investor real estate) have a stabilized level of cash flow. An appropriately underwritten A-note will allow for upgraded risk rating, with ultimate return to accrual status upon charge-off of the B-note, and a satisfactory period of performance of the A-note (generally, six months). Regions continues to report A-notes as TDRs, even if upgraded to accrual status. Also, for smaller-dollar commercial customers, Regions may periodically grant interest rate and other term concessions, similar to those under the Customer Assistance Program (“CAP”) program as described below.

Modification Activity: Consumer Portfolio Segment

Regions continues to work to meet the individual needs of consumer borrowers to stem foreclosure through the CAP. Regions designed the program to allow for customer-tailored modifications with the goal of keeping customers in their homes and avoiding foreclosure where possible. Modification may be offered to any borrower experiencing financial hardship—regardless of the borrower’s payment status. 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. For loans restructured under the CAP, Regions expects to collect the original contractually due principal. The gross original contractual interest may be collectible, depending on the terms modified. The length of the CAP modifications ranges from temporary payment deferrals of three months to term extensions for the life of the loan. All such modifications are considered TDRs regardless of the term if there is a concession to a borrower experiencing financial difficulty. Modified loans are subject to policies governing accrual/non-accrual evaluation consistent with all other loans of the same product type. Consumer loans are subject to objective accrual/non-accrual decisions. Under these policies, loans subject to the CAP are charged down to estimated value on or before the month in which the loan becomes 180 days past due. Beginning in the third quarter of 2011, home equity second liens are charged down to estimated value by the end of the month in which the loan becomes 120 days past due. If a partial charge-off is necessary as a result of this evaluation, the loan is placed on non-accrual at that time. Because the program was designed to evaluate potential CAP participants as early as possible in the life cycle of the troubled loan, many of the modifications are finalized without the borrower ever reaching 180 days past due, and with the loans having never been placed on non-accrual. Accordingly, given the positive impact of the restructuring on the likelihood of recovery of cash flows due under the modified terms, accrual status continues to be appropriate for these loans. None of the modified consumer loans listed in the following TDR disclosures were collateral-dependent at the time of modification. At March 31, 2012, approximately $134 million in residential first mortgage TDRs were in excess of 180 days past due and are considered collateral-dependent. At March 31, 2012, approximately $11 million in home equity first lien TDRs were in excess of 180 days past due and $9 million in home equity second lien TDRs were in excess of 120 days past due and are considered collateral dependent.

Further discussion related to TDRs, including the impact of recently issued accounting literature, impact on allowance for loan losses, and designation of TDRs in periods subsequent to the modification is included in the Annual Report on Form 10-K for the year ended December 31, 2011.

 

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Table of Contents

Modifications Considered TDRs and Financial Impact

The majority of Regions’ 2012 commercial and investor real estate TDRs are the result of renewals where the only concession is that the interest rate at renewal is not considered to be a market rate. Consumer TDRs generally involve an interest rate concession. Accordingly, the financial impact of the modifications is best illustrated by the impact to the allowance calculation at the loan or pool level as a result of the loans being considered impaired due to their status as a TDR.

The following table presents loans by class modified in a TDR, and the financial impact of those modifications, for the period presented.