RF-2013.6.30-10Q
Table of Contents


 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
Form 10-Q
 
ý
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended June 30, 2013
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: 001-34034
 
 
 
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)
(800) 734-4667
(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.    ý  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).    ý  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 ý 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    ý  No
The number of shares outstanding of each of the issuer’s classes of common stock was 1,395,843,017 shares of common stock, par value $.01, outstanding as of August 2, 2013.

Table of Contents


REGIONS FINANCIAL CORPORATION
FORM 10-Q
INDEX
 
 
 
 
 
Page
Part I. Financial Information
Item 1.
 
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
 
 
 
Part II. Other Information
 
 
Item 1.
 
 
Item 2.
 
 
Item 6.
 
 
 
 
 
 


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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 in July 2010, and a number of legislative, regulatory and tax proposals remain pending. Future and proposed rules may have significant effects on Regions and the financial services industry, the exact nature and extent of which cannot be determined at this time.
•
Current developments in recent litigation against the Board of Governors of the Federal Reserve System could result in possible reductions in the maximum permissible interchange fee that an issuer may receive for electronic debit transactions and/or the possible expansion of providing merchants with the choice of multiple unaffiliated payment networks for each transaction, each of which could negatively impact the income Regions currently receives with respect to those transactions.
•
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 could 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 adverse changes in general economic and business conditions in the United States in general and in the communities Regions serves in particular.
•
Possible changes in the creditworthiness of customers and the possible impairment of the collectability of loans.
•
Possible changes in trade, monetary and fiscal policies, laws and regulations and other activities of governments, agencies, and similar organizations, may have an adverse effect on business.
•
Possible regulations issued by the Consumer Financial Protection Bureau or other regulators which might adversely impact Regions’ business model or products and services.
•
Regions' ability to take certain capital actions, including paying dividends and any plans to increase common stock dividends, repurchase common stock under current or future programs, or issue or redeem preferred stock or other regulatory capital instruments, is subject to the review of such proposed actions by the Federal Reserve as part of Regions' comprehensive capital plan for applicable period in the connection with the regulators' Comprehensive Capital Analysis and Review (CCAR) process and to the acceptance of such capital plan and non-objection to such capital actions by the Federal Reserve.
•
Possible stresses in the financial and real estate markets, including possible deterioration in property values.
•
Regions’ ability to manage fluctuations in the value of assets and liabilities and off-balance sheet exposure so as to maintain sufficient capital and liquidity to support Regions’ business.
•
Regions’ ability to expand into new markets and to maintain profit margins in the face of competitive pressures.
•
Regions’ ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by Regions’ customers and potential customers.
•
Cyber-security risks, including "denial of service," "hacking" and "identity theft," that could adversely affect our business and financial performance, or our reputation.
•
Regions’ ability to keep pace with technological changes.
•
Regions’ ability to effectively identify and manage credit risk, interest rate risk, market risk, operational risk, legal risk, liquidity risk, reputational risk, counterparty risk, international risk, regulatory risk, 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.


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•
Regions' ability to identify and address data security breaches.
•
Possible changes in consumer and business spending and saving habits could affect Regions’ ability to increase assets and to attract deposits.
•
The effects of weather and natural disasters such as floods, droughts, wind, tornadoes and hurricanes, and the effects of man-made disasters.
•
Possible downgrades in ratings issued by rating agencies.
•
Possible changes in the speed of loan prepayments by Regions’ customers and loan origination or sales volumes.
•
Possible acceleration of prepayments on mortgage-backed securities due to low interest rates, and the related acceleration of premium amortization on those securities.
•
The effects of problems encountered by larger or similar financial institutions that adversely affect Regions or the banking industry generally.
•
Regions’ ability to receive dividends from its subsidiaries.
•
The effects of the failure of any component of Regions’ business infrastructure which is provided by a third party.
•
Changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies.
•
The effects of any damage to Regions’ reputation resulting from developments related to any of the items identified above.
The words “believe,” “expect,” “anticipate,” “project,” and similar expressions often signify forward-looking statements. You should not place undue reliance on any forward-looking statements, which speak only as of the date made. We assume no obligation to update or revise any forward-looking statements that are made from time to time.
See also the “Forward-Looking Statements” and “Risk Factors” sections of Regions’ Annual Report on Form 10-K for the year ended December 31, 2012 as filed with the Securities and Exchange Commission.


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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
 
June 30, 2013
 
December 31, 2012
 
 
(In millions, except share data)
Assets
 
 
 
 
Cash and due from banks
 
$
2,112

 
$
1,979

Interest-bearing deposits in other banks
 
2,168

 
3,510

Trading account securities
 
102

 
116

Securities held to maturity (estimated fair value of $2,425 and $11, respectively)
 
2,425

 
10

Securities available for sale
 
22,001

 
27,244

Loans held for sale (includes $752 and $1,282 measured at fair value, respectively)
 
839

 
1,383

Loans, net of unearned income
 
74,990

 
73,995

Allowance for loan losses
 
(1,636
)
 
(1,919
)
Net loans
 
73,354

 
72,076

Other interest-earning assets
 
135

 
900

Premises and equipment, net
 
2,228

 
2,279

Interest receivable
 
326

 
344

Goodwill
 
4,816

 
4,816

Mortgage servicing rights at fair value
 
276

 
191

Other identifiable intangible assets
 
318

 
345

Other assets
 
7,607

 
6,154

Total assets
 
$
118,707

 
$
121,347

Liabilities and Stockholders’ Equity
 
 
 
 
Deposits:
 
 
 
 
Non-interest-bearing
 
$
29,464

 
$
29,963

Interest-bearing
 
62,990

 
65,511

Total deposits
 
92,454

 
95,474

Borrowed funds:
 
 
 
 
Short-term borrowings:
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
 
2,877

 
1,449

Other short-term borrowings
 
1,000

 
125

Total short-term borrowings
 
3,877

 
1,574

Long-term borrowings
 
4,856

 
5,861

Total borrowed funds
 
8,733

 
7,435

Other liabilities
 
2,191

 
2,939

Total liabilities
 
103,378

 
105,848

Stockholders’ equity:
 
 
 
 
Preferred stock, authorized 10 million shares:
 
 
 
 
Series A, non-cumulative perpetual, par value $1.00 (liquidation preference $1,000.00) per share, including related surplus, net of discount;
Issued—500,000 shares
 
466

 
482

Common stock, par value $.01 per share:
 
 
 
 
Authorized 3 billion shares
 
 
 
 
Issued including treasury stock—1,436,521,088 and 1,454,626,952 shares, respectively
 
14

 
15

Additional paid-in capital
 
19,440

 
19,652

Retained earnings (deficit)
 
(2,736
)
 
(3,338
)
Treasury stock, at cost—41,287,282 and 41,287,460 shares, respectively
 
(1,377
)
 
(1,377
)
Accumulated other comprehensive income (loss), net
 
(478
)
 
65

Total stockholders’ equity
 
15,329

 
15,499

Total liabilities and stockholders’ equity
 
$
118,707

 
$
121,347


See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2013
 
2012
 
2013
 
2012
 
(In millions, except per share data)
Interest income on:
 
 
 
 
 
 
 
Loans, including fees
$
746

 
$
806

 
$
1,489

 
$
1,618

Securities - taxable
152

 
179

 
308

 
353

Loans held for sale
8

 
7

 
17

 
14

Trading account securities
—

 
—

 
1

 
1

Other interest-earning assets
1

 
2

 
3

 
5

Total interest income
907

 
994

 
1,818

 
1,991

Interest expense on:
 
 
 
 
 
 
 
Deposits
33

 
76

 
75

 
164

Short-term borrowings
1

 
—

 
1

 
—

Long-term borrowings
65

 
80

 
136

 
162

Total interest expense
99

 
156

 
212

 
326

Net interest income
808

 
838

 
1,606

 
1,665

Provision for loan losses
31

 
26

 
41

 
143

Net interest income after provision for loan losses
777

 
812

 
1,565

 
1,522

Non-interest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
237

 
233

 
479

 
487

Investment fee income
29

 
17

 
56

 
45

Mortgage income
69

 
90

 
141

 
167

Trust department income
49

 
50

 
98

 
99

Securities gains, net
8

 
12

 
23

 
24

Other
105

 
105

 
201

 
209

Total non-interest income
497

 
507

 
998

 
1,031

Non-interest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
452

 
434

 
899

 
876

Net occupancy expense
92

 
92

 
182

 
186

Furniture and equipment expense
69

 
67

 
138

 
131

Other
271

 
249

 
507

 
562

Total non-interest expense
884

 
842

 
1,726

 
1,755

Income from continuing operations before income taxes
390

 
477

 
837

 
798

Income tax expense
122

 
126

 
236

 
208

Income from continuing operations
268

 
351

 
601

 
590

Discontinued operations:
 
 
 
 
 
 
 
Income (loss) from discontinued operations before income taxes
(2
)
 
4

 
2

 
(61
)
Income tax expense (benefit)
(1
)
 
—

 
1

 
(25
)
Income (loss) from discontinued operations, net of tax
(1
)
 
4

 
1

 
(36
)
Net income
$
267

 
$
355

 
$
602

 
$
554

Net income from continuing operations available to common shareholders
$
260

 
$
280

 
$
585

 
$
465

Net income available to common shareholders
$
259

 
$
284

 
$
586

 
$
429

Weighted-average number of shares outstanding:
 
 
 
 
 
 
 
Basic
1,401

 
1,414

 
1,407

 
1,348

Diluted
1,418

 
1,418

 
1,421

 
1,350

Earnings per common share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.19

 
$
0.20

 
$
0.42

 
$
0.34

Diluted
0.18

 
0.20

 
0.41

 
0.34

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.18

 
$
0.20

 
$
0.42

 
$
0.32

Diluted
0.18

 
0.20

 
0.41

 
0.32

Cash dividends declared per common share
0.03

 
0.01

 
0.04

 
0.02

See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
Three Months Ended June 30
 
2013
 
2012
 
(In millions)
Net income
$
267

 
$
355

Other comprehensive income (loss), net of tax:*
 
 
 
Unrealized losses on securities transferred to held to maturity during the period (net of $(43) and zero tax effect for the three months ended June 30, 2013 and 2012, respectively)
(68
)
 
—

Unrealized gains (losses) on securities available for sale:
 
 
 
Unrealized holding gains (losses) arising during the period (net of $(215) and $52 tax effect for the three months ended June 30, 2013 and 2012, respectively)
(353
)
 
86

Less: reclassification adjustments for securities gains realized in net income (net of $3 and $4 tax effect for the three months ended June 30, 2013 and 2012, respectively)
5

 
8

Net change in unrealized gains (losses) on securities available for sale, net of tax
(358
)
 
78

Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
 
 
 
Unrealized holding gains (losses) on derivatives arising during the period (net of $(25) and $22 tax effect for the three months ended June 30, 2013 and 2012, respectively)
(39
)
 
37

Less: reclassification adjustments for gains realized in net income (net of $6 and $6 tax effect for the three months ended June 30, 2013 and 2012, respectively)
11

 
11

Net change in unrealized gains (losses) on derivative instruments, net of tax
(50
)
 
26

Defined benefit pension plans and other post employment benefits:
 
 
 
Net actuarial gains (losses) arising during the period (net of zero and $1 tax effect for the three months ended June 30, 2013 and 2012, respectively)
(1
)
 
(2
)
Less: reclassification adjustments for amortization of actuarial loss and prior service cost realized in net income, and other (net of $(6) and $(6) tax effect for the three months ended June 30, 2013 and 2012, respectively)
(11
)
 
(12
)
Net change from defined benefit pension plans, net of tax
10

 
10

Other comprehensive income (loss), net of tax*
$
(466
)
 
$
114

Comprehensive income (loss)
$
(199
)
 
$
469

 
 
 
 
 
Six Months Ended June 30
 
2013
 
2012
 
(In millions)
Net income
$
602

 
$
554

Other comprehensive income (loss), net of tax:*
 
 
 
Unrealized losses on securities transferred to held to maturity during the period (net of $(43) and zero tax effect for the six months ended June 30, 2013 and 2012, respectively)
(68
)
 
—

Unrealized gains (losses) on securities available for sale:
 
 
 
Unrealized holding gains (losses) arising during the period (net of $(258) and $52 tax effect for the six months ended June 30, 2013 and 2012, respectively)
(421
)
 
88

Less: reclassification adjustments for securities gains realized in net income (net of $8 and $8 tax effect for the six months ended June 30, 2013 and 2012, respectively)
15

 
16

Net change in unrealized gains (losses) on securities available for sale
(436
)
 
72

Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
 
 
 
Unrealized holding gains (losses) on derivatives arising during the period (net of $(24) and $29 tax effect for the six months ended June 30, 2013 and 2012 respectively)
(38
)
 
47

Less: reclassification adjustments for gains realized in net income (net of $12 and $13 tax effect for the six months ended June 30, 2012 and 2011, respectively)
20

 
21

Net change in unrealized gains (losses) on derivative instruments
(58
)
 
26

Defined benefit pension plans and other post employment benefits:
 
 
 
Net actuarial gains (losses) arising during the period (net of zero and $2 tax effect for the six months ended June 30, 2013 and 2012, respectively)
(2
)
 
2

Less: reclassification adjustments for amortization of actuarial loss and prior service cost realized in net income, and other (net of $(12) and $(13) tax effect for the six months ended June 30, 2013 and 2012, respectively)
(21
)
 
(23
)
Net change from defined benefit pension plans
19

 
25

Other comprehensive income (loss), net of tax*
$
(543
)
 
$
123

Comprehensive income
$
59

 
$
677

______
* All other comprehensive amounts are shown net of tax.
See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
 
 
Preferred Stock
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
(Deficit)
 
Treasury
Stock,
At Cost
 
Accumulated
Other
Comprehensive
Income (Loss), Net
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
(In millions, except share and per share data)
BALANCE AT JANUARY 1, 2012(1)
4

 
$
3,419

 
1,259

 
$
13

 
$
18,855

 
$
(4,322
)
 
$
(1,397
)
 
$
(69
)
 
$
16,499

Net income
—

 
—

 
—

 
—

 
—

 
554

 
—

 
—

 
554

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

 
—

 
—

 
—

 
—

 
—

 
—

 
72

 
72

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

 
—

 
—

 
—

 
—

 
—

 
—

 
26

 
26

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

 
—

 
—

 
—

 
—

 
—

 
—

 
25

 
25

Cash dividends declared—$0.02 per share(1)
—

 
—

 
—

 
—

 
(27
)
 
—

 
—

 
—

 
(27
)
Preferred dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury preferred stock dividends
—

 
—

 
—

 
—

 
—

 
(44
)
 
—

 
—

 
(44
)
Preferred stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Discount accretion
—

 
10

 
—

 
—

 
—

 
(10
)
 
—

 
—

 
—

Repurchase of Series A preferred stock issued to the U.S. Treasury and associated accelerated accretion
(4
)
 
(3,429
)
 
—

 
—

 
—

 
(71
)
 
—

 
—

 
(3,500
)
Repurchase of warrant from the U.S. Treasury
—

 
—

 
—

 
—

 
(45
)
 
—

 
—

 
—

 
(45
)
Common stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net proceeds from issuance of 153 million shares of common stock
—

 
—

 
153

 
2

 
873

 
—

 
—

 
—

 
875

Impact of stock transactions under compensation plans, net
—

 
—

 
1

 
—

 
10

 
(11
)
 
21

 
—

 
20

BALANCE AT JUNE 30, 2012(1)
—

 
$
—

 
1,413

 
$
15

 
$
19,666

 
$
(3,904
)
 
$
(1,376
)
 
$
54

 
$
14,455

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT JANUARY 1, 2013
1

 
$
482

 
1,413

 
$
15

 
$
19,652

 
$
(3,338
)
 
$
(1,377
)
 
$
65

 
$
15,499

Net income
—

 
—

 
—

 
—

 
—

 
602

 
—

 
—

 
602

Unrealized losses on securities transferred to held to maturity(2)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(68
)
 
(68
)
Net change in unrealized gains and losses on securities available for sale, net of tax and reclassification adjustment
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(436
)
 
(436
)
Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(58
)
 
(58
)
Net change from defined benefit pension plans, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
—

 
19

 
19

Cash dividends declared—$0.04 per share
—

 
—

 
—

 
—

 
(56
)
 
—

 
—

 
—

 
(56
)
Series A preferred stock dividends
—

 
(16
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(16
)
Common stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact of share repurchase
—

 
—

 
(18
)
 
—

 
(173
)
 
—

 
—

 
—

 
(173
)
Impact of stock transactions under compensation plans, net
—

 
—

 
—

 
(1
)
 
17

 
—

 
—

 
—

 
16

BALANCE AT JUNE 30, 2013
1

 
$
466

 
1,395

 
$
14

 
$
19,440

 
$
(2,736
)
 
$
(1,377
)
 
$
(478
)
 
$
15,329

_________
(1)
Prior period cash dividends declared on common stock have been reclassified from retained earnings (deficit) to additional paid-in capital to correct an error in classification. Refer to Note 14 "Stockholder's Equity and Accumulated Other Comprehensive Income (Loss)" in Regions' Annual Report on Form 10-K for the year ended December 31, 2012 for further discussion.
(2)
Represents unrealized losses on certain securities previously classified as available for sale securities that were transferred to held to maturity classification. Refer to Note 3 "Securities" for further details.


See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended June 30
 
2013
 
2012
 
(In millions)
Operating activities:
 
 
 
Net income
$
602

 
$
554

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Provision for loan losses
41

 
143

Depreciation, amortization and accretion, net
342

 
348

Provision for losses on other real estate, net
10

 
18

Securities (gains) losses, net
(23
)
 
(24
)
Gain on disposition of business
—

 
(15
)
Deferred income tax expense
216

 
201

Originations and purchases of loans held for sale
(2,423
)
 
(2,834
)
Proceeds from sales of loans held for sale
3,027

 
2,732

(Gain) loss on sale of loans, net
(77
)
 
(62
)
Valuation charges on loans held for sale
1

 
8

(Gain) loss on early extinguishment of debt
56

 
—

Net change in operating assets and liabilities:
 
 
 
Trading account assets
14

 
193

Other interest-earning assets
765

 
(182
)
Interest receivable
18

 
17

Other assets
343

 
(102
)
Other liabilities
(720
)
 
39

Other
(25
)
 
3

Net cash from operating activities
2,167

 
1,037

Investing activities:
 
 
 
Proceeds from sales of securities available for sale
1,372

 
1,670

Proceeds from maturities of securities available for sale
3,377

 
3,209

Proceeds from maturities of securities held to maturity
3

 
3

Purchases of securities available for sale
(4,654
)
 
(6,970
)
Proceeds from sales of loans
107

 
411

Purchases of loans
(456
)
 
(407
)
Purchases of servicing rights
(28
)
 
—

Net change in loans
(1,115
)
 
746

Net purchases of premises and equipment
(71
)
 
(79
)
Proceeds from disposition of business, net of cash transferred
—

 
855

Net cash from investing activities
(1,465
)
 
(562
)
Financing activities:
 
 
 
Net change in deposits
(3,020
)
 
(529
)
Net change in short-term borrowings
2,303

 
1,168

Proceeds from long-term borrowings
750

 
—

Payments on long-term borrowings
(1,698
)
 
(1,853
)
Cash dividends on common stock
(56
)
 
(27
)
Cash dividends on Series A preferred stock issued to the U.S. Treasury
—

 
(44
)
Cash dividends on Series A preferred stock
(16
)
 
—

Net proceeds from issuance of common stock
—

 
875

Repurchase of common stock
(173
)
 
—

Repurchase of Series A preferred stock issued to the U.S. Treasury
—

 
(3,500
)
Repurchase of warrant
—

 
(45
)
Other
(1
)
 
1

Net cash from financing activities
(1,911
)
 
(3,954
)
Net change in cash and cash equivalents
(1,209
)
 
(3,479
)
Cash and cash equivalents at beginning of year
5,489

 
7,245

Cash and cash equivalents at end of period
$
4,280

 
$
3,766


See notes to consolidated financial statements.


9
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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three and Six Months Ended June 30, 2013 and 2012
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, 2012. Regions has evaluated all subsequent events for potential recognition and disclosure through the filing date of this Form 10-Q.
On January 11, 2012, Regions entered into an agreement to sell Morgan Keegan & Company, Inc. (“Morgan Keegan”) and related affiliates. The transaction closed on April 2, 2012. See Note 2 and Note 15 for further details. Results of operations for the entities sold are presented separately as discontinued operations for all periods presented on the consolidated statements of income. Other expenses related to the transaction are also included in discontinued operations. This presentation is consistent with the consolidated financial statements included in the 2012 Form 10-K.
Certain amounts in prior period financial statements have been reclassified to conform to the current period presentation, except as otherwise noted. These reclassifications are immaterial and have no effect on net income, comprehensive income, total assets or total stockholders’ equity as previously reported.
NOTE 2. DISCONTINUED OPERATIONS

On January 11, 2012, Regions entered into a stock purchase agreement to sell Morgan Keegan and related affiliates to Raymond James Financial, Inc. (“Raymond James”). The transaction closed on April 2, 2012. Regions Investment Management, Inc. (formerly known as Morgan Asset Management, Inc.) and Regions Trust were not included in the sale. In connection with the closing of the sale, Regions agreed to indemnify Raymond James for all litigation matters related to pre-closing activities. See Note 15 for related disclosure.


10
Table of Contents


The following table represents the condensed results of operations for discontinued operations for the three and six months ended June 30:
 
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2013
 
2012
 
2013
 
2012
 
(In millions, except per share data)
Interest income
$
—

 
$
—

 
$
—

 
$
8

Interest expense
—

 
—

 
—

 
1

Net interest income
—

 
—

 
—

 
7

Non-interest income:
 
 
 
 
 
 
 
Brokerage, investment banking and capital markets
—

 
—

 
—

 
233

Gain on sale
—

 
15

 
—

 
15

Other
—

 
—

 
—

 
7

Total non-interest income
—

 
15

 
—

 
255

Non-interest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
—

 
—

 
—

 
171

Net occupancy expense
—

 
—

 
—

 
9

Furniture and equipment expense
—

 
—

 
—

 
8

Professional and legal expenses
1

 
10

 
(4
)
 
106

Other
1

 
1

 
2

 
29

Total non-interest expense
2

 
11

 
(2
)
 
323

Income (loss) from discontinued operations before income taxes
(2
)
 
4

 
2

 
(61
)
Income tax expense (benefit)
(1
)
 
—

 
1

 
(25
)
Income (loss) from discontinued operations, net of tax
$
(1
)
 
$
4

 
$
1

 
$
(36
)
Earnings (loss) per common share from discontinued operations:
 
 
 
 
 
 
 
Basic
$
(0.00
)
 
$
0.00

 
$
0.00

 
$
(0.03
)
Diluted
$
(0.00
)
 
$
0.00

 
$
0.00

 
$
(0.03
)



11
Table of Contents


NOTE 3. SECURITIES
The amortized cost, gross unrealized gains and losses, and estimated fair value of securities held to maturity and securities available for sale are as follows:

 
June 30, 2013
 
 
 
Recognized in OCI (1)
 
 
 
Not recognized in OCI
 
 
 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Carrying Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
(In millions)
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
2

 
$
—

 
$
—

 
$
2

 
$
—

 
$
—

 
$
2

Federal agency securities
351

 
—

 
(16
)
 
335

 
1

 
—

 
336

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
1,953

 
—

 
(85
)
 
1,868

 
1

 
(1
)
 
1,868

Commercial agency
230

 
—

 
(10
)
 
220

 
—

 
(1
)
 
219

 
$
2,536

 
$
—

 
$
(111
)
 
$
2,425

 
$
2

 
$
(2
)
 
$
2,425

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
51

 
$
1

 
$
—

 
$
52

 
 
 
 
 
$
52

Federal agency securities
117

 
1

 
—

 
118

 
 
 
 
 
118

Obligations of states and political subdivisions
7

 
—

 
—

 
7

 
 
 
 
 
7

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
16,332

 
204

 
(117
)
 
16,419

 
 
 
 
 
16,419

Residential non-agency
10

 
1

 
—

 
11

 
 
 
 
 
11

Commercial agency
758

 
5

 
(14
)
 
749

 
 
 
 
 
749

Commercial non-agency
1,136

 
12

 
(38
)
 
1,110

 
 
 
 
 
1,110

Corporate and other debt securities
2,875

 
26

 
(91
)
 
2,810

 
 
 
 
 
2,810

Equity securities
716

 
9

 
—

 
725

 
 
 
 
 
725

 
$
22,002

 
$
259

 
$
(260
)
 
$
22,001

 
 
 
 
 
$
22,001

_________
(1) The gross unrealized losses recognized in other comprehensive income (OCI) on held to maturity securities resulted from a transfer of available for sale securities to held to maturity in the second quarter of 2013.
    

 
 
 
 
 
 
 
 
 
 
 
 



12
Table of Contents


 
 
December 31, 2012
 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated
Fair
Value
 
(In millions)
Securities held to maturity:
 
 
 
 
 
 
 
U.S. Treasury securities
$
2

 
$
—

 
$
—

 
$
2

Federal agency securities
2

 
—

 
—

 
2

Mortgage-backed securities:
 
 
 
 
 
 
 
Residential agency
6

 
1

 
—

 
7

 
$
10

 
$
1

 
$
—

 
$
11

 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$
50

 
$
2

 
$
—

 
$
52

Federal agency securities
550

 
4

 
(1
)
 
553

Obligations of states and political subdivisions
9

 
—

 
—

 
9

Mortgage-backed securities:
 
 
 
 
 
 
 
Residential agency
20,721

 
574

 
(18
)
 
21,277

Residential non-agency
12

 
1

 
—

 
13

Commercial agency
705

 
20

 
—

 
725

Commercial non-agency
1,055

 
43

 
—

 
1,098

Corporate and other debt securities
2,762

 
81

 
(8
)
 
2,835

Equity securities
679

 
4

 
(1
)
 
682

 
$
26,543

 
$
729

 
$
(28
)
 
$
27,244


During the second quarter of 2013, Regions transferred securities with a fair value of $2.4 billion from available for sale to held to maturity. Management determined it has both the positive intent and ability to hold these securities to maturity. The securities were reclassified at fair value at the time of transfer and represented a non-cash transaction. Accumulated other comprehensive income included net pre-tax unrealized losses of $111 million on the securities at the date of transfer. These unrealized losses and the offsetting OCI components are being amortized into net interest income over the remaining life of the related securities as a yield adjustment, resulting in no impact on future net income.
Equity securities in the tables above included the following amortized cost related to Federal Reserve Bank stock and Federal Home Loan Bank (“FHLB”) stock. Shares in the Federal Reserve Bank and FHLB are accounted for at amortized cost, which approximates fair value.
 
 
June 30, 2013
 
December 31, 2012
 
 
(In millions)
Federal Reserve Bank
 
$
495

 
$
484

Federal Home Loan Bank
 
112

 
73

Securities with carrying values of $14.3 billion and $11.8 billion at June 30, 2013 and December 31, 2012, respectively, were pledged to secure public funds, trust deposits and certain borrowing arrangements.
The amortized cost and estimated fair value of securities available for sale and securities held to maturity at June 30, 2013, 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.
 


13
Table of Contents


 
 
Amortized
Cost
 
Estimated
Fair Value
 
 
(In millions)
Securities held to maturity:
 
 
 
 
Due in one year or less
 
$
1

 
$
1

Due after one year through five years
 
2

 
2

Due after five years through ten years
 
350

 
335

Mortgage-backed securities:
 
 
 
 
Residential agency
 
1,953

 
1,868

Commercial agency
 
230

 
219

 
 
$
2,536

 
$
2,425

Securities available for sale:
 
 
 
 
Due in one year or less
 
$
50

 
$
51

Due after one year through five years
 
1,029

 
1,033

Due after five years through ten years
 
1,578

 
1,521

Due after ten years
 
393

 
382

Mortgage-backed securities:
 
 
 
 
Residential agency
 
16,332

 
16,419

Residential non-agency
 
10

 
11

Commercial agency
 
758

 
749

Commercial non-agency
 
1,136

 
1,110

Equity securities
 
716

 
725

 
 
$
22,002

 
$
22,001


The following tables present gross unrealized losses and the related estimated fair value of securities available for sale and held to maturity at June 30, 2013 and for securities available for sale at December 31, 2012. There were no gross unrealized losses on debt securities held to maturity at December 31, 2012. For securities transferred to held for maturity from available for sale, the analysis in the tables below is comparing the securities' original amortized cost to its current estimated fair value. 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.
 


14
Table of Contents


 
 
June 30, 2013
 
 
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)
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
Federal agency securities
 
$
334

 
$
(15
)
 
$
—

 
$
—

 
$
334

 
$
(15
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
 
1,864

 
(85
)
 
—

 
—

 
1,864

 
(85
)
Commercial agency
 
220

 
(11
)
 
—

 
—

 
220

 
(11
)
 
 
$
2,418

 
$
(111
)
 
$
—

 
$
—

 
$
2,418

 
$
(111
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
11

 
$
—

 
$
1

 
$
—

 
$
12

 
$
—

Federal agency securities
 
1

 
—

 
9

 
—

 
10

 
—

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
 
5,272

 
(111
)
 
272

 
(6
)
 
5,544

 
(117
)
Commercial agency
 
444

 
(13
)
 
—

 
—

 
444

 
(13
)
Commercial non-agency
 
726

 
(38
)
 
—

 
—

 
726

 
(38
)
All other securities
 
1,944

 
(90
)
 
18

 
(2
)
 
1,962

 
(92
)
 
 
$
8,398

 
$
(252
)
 
$
300

 
$
(8
)
 
$
8,698

 
$
(260
)
 
 
 
December 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)
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
Federal agency securities
 
$
350

 
$
(1
)
 
$
—

 
$
—

 
$
350

 
$
(1
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
 
1,777

 
(16
)
 
157

 
(2
)
 
1,934

 
(18
)
All other securities
 
884

 
(9
)
 
—

 
—

 
884

 
(9
)
 
 
$
3,011

 
$
(26
)
 
$
157

 
$
(2
)
 
$
3,168

 
$
(28
)

The number of individual securities in an unrealized loss position in the tables above increased from 378 at December 31, 2012 to 943 at June 30, 2013. The increase in the number of securities and the total amount of unrealized losses from year-end 2012 was primarily due to changes in interest rates. Widening of spreads also contributed to some degradation; however, there was no indication of an adverse change in credit on any of the underlying securities in the tables above. Management believes no individual unrealized loss represented an other-than-temporary impairment as of those dates. The Company does not intend to sell, and it is not more likely than not that the Company will be required to sell, the securities before the recovery of their amortized cost basis, which may be at maturity.
Credit-related impairment charges were immaterial for the three and six months ended June 30, 2013. For the three and six months ended June 30, 2012, Regions recorded a credit-related impairment charge of approximately $2 million.


15
Table of Contents


Gross realized gains and gross realized 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 June 30
 
Six Months Ended June 30
 
 
2013
 
2012
 
2013
 
2012
 
 
(In millions)
Gross realized gains
 
$
29

 
$
12

 
$
45

 
$
24

Gross realized losses
 
(21
)
 
—

 
(22
)
 
—

Securities gains, net
 
$
8

 
$
12

 
$
23

 
$
24

    
NOTE 4. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

LOANS
The following table presents the distribution of Regions' loan portfolio by segment and class, net of unearned income:
 
 
 
June 30, 2013
 
December 31, 2012
 
 
(In millions, net of unearned income)
Commercial and industrial
 
$
28,954

 
$
26,674

Commercial real estate mortgage—owner-occupied
 
9,731

 
10,095

Commercial real estate construction—owner-occupied
 
345

 
302

Total commercial
 
39,030

 
37,071

Commercial investor real estate mortgage
 
5,806

 
6,808

Commercial investor real estate construction
 
1,208

 
914

Total investor real estate
 
7,014

 
7,722

Residential first mortgage
 
12,839

 
12,963

Home equity
 
11,410

 
11,800

Indirect
 
2,693

 
2,336

Consumer credit card
 
866

 
906

Other consumer
 
1,138

 
1,197

Total consumer
 
28,946

 
29,202

 
 
$
74,990

 
$
73,995

During the three months ended June 30, 2013 and 2012, Regions purchased approximately $236 million and $233 million, respectively, in indirect loans from a third party. During the six months ended June 30, 2013 and 2012, the comparable loan purchase amounts were approximately $456 million and $407 million, respectively.
At June 30, 2013, $11.4 billion in loans held by Regions were pledged to secure borrowings from the FHLB. At June 30, 2013, an additional $26.4 billion of loans held by Regions were pledged to the Federal Reserve Bank.

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.


16
Table of Contents


ROLLFORWARD OF ALLOWANCE FOR CREDIT LOSSES
The following tables present analyses of the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2013 and 2012. The total allowance for loan losses and the related loan portfolio ending balances as of June 30, 2013 and 2012 are disaggregated to detail the amounts derived through individual evaluation and collective evaluation for impairment. Prior to the second quarter of 2013, loans and their related allowance that were individually measured with a specific evaluation (i.e. those non-accrual commercial and investor real-estate loans equal to or greater than $2.5 million) were the only loans reported as individually evaluated in the tables below. Regions also individually evaluates all troubled debt restructurings (“TDRs”) for impairment, as described in Note 1 to the Annual Report on Form 10-K for the year ended December 31, 2012. Beginning in the second quarter of 2013, Regions revised its presentation in the tables below to reflect all non-accrual commercial and investor real-estate loans equal to or greater than $2.5 million and all TDRs as individually evaluated for impairment. The allowance for loan losses and the loan portfolio ending balances related to collectively evaluated loans include the remainder of the portfolio. Prior period amounts have been reclassified to conform to this presentation.

 
 
Three Months Ended June 30, 2013
 
 
Commercial
 
Investor Real
Estate
 
Consumer
 
Total
 
 
(In millions)
Allowance for loan losses, April 1, 2013
 
$
782

 
$
424

 
$
543

 
$
1,749

Provision (credit) for loan losses
 
40

 
(68
)
 
59

 
31

Loan losses:
 
 
 
 
 
 
 
 
Charge-offs
 
(77
)
 
(23
)
 
(90
)
 
(190
)
Recoveries
 
19

 
9

 
18

 
46

Net loan losses