Edgar Filing: REGIONS FINANCIAL CORP

RF-2014.06.30 10-Q

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, 2014



¨	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 1,378,506,865 shares of common stock, par value $.01, outstanding as of August 1, 2014.

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REGIONS FINANCIAL CORPORATION

FORM 10-Q

INDEX



		Page
Part I. Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets—June 30, 2014 and December 31, 2013	5
	Consolidated Statements of Income—Three and six months ended June 30, 2014 and 2013	6
	Consolidated Statements of Comprehensive Income (Loss)—Three and six months ended June 30, 2014 and 2013	7
	Consolidated Statements of Changes in Stockholders’ Equity—Six months ended June 30, 2014 and 2013	8
	Consolidated Statements of Cash Flows—Six months ended June 30, 2014 and 2013	9
	Notes to Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	55
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	90
Item 4.	Controls and Procedures	90

Part II. Other Information
Item 1.	Legal Proceedings	91
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	91
Item 6.	Exhibits	92

Signatures		93

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Forward-Looking Statements

This Quarterly Report on Form 10-Q, other periodic reports filed by Regions Financial Corporation under the Securities Exchange Act of 1934, as amended, and any other written or oral statements made by or on behalf may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The terms “Regions,” the “Company,” “we,” “us” and “our” mean Regions Financial Corporation, a Delaware corporation, and its subsidiaries when appropriate. The words “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “targets,” “projects,” “outlook,” “forecast,” “will,” “may,” “could,” “should,” “can,” and similar expressions often signify forward-looking statements. 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:


•	Current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values, unemployment rates and potential reduction of economic growth.


•	Possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations.


•	The effects of a possible downgrade in the U.S. government’s sovereign credit rating or outlook.


•	Possible changes in market interest rates.


•	Any impairment of our goodwill or other intangibles, or any adjustment of valuation allowances on our deferred tax assets due to adverse changes in the economic environment, declining operations of the reporting unit, or other factors.


•	Possible changes in the creditworthiness of customers and the possible impairment of the collectability of loans.


•	Changes in the speed of loan prepayments, loan origination and sale volumes, charge-offs, loan loss provisions or actual loan losses.


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


•	Our ability to effectively compete with other financial services companies, some of whom possess greater financial resources than we do and are subject to different regulatory standards than we are.


•	Loss of customer checking and savings account deposits as customers pursue other, higher-yield investments.


•	Our ability to develop and gain acceptance from current and prospective customers for new products and services in a timely manner.


•	Changes in laws and regulations affecting our businesses, including changes in the enforcement and interpretation of such laws and regulations by applicable governmental and self-regulatory agencies.


•	Our ability to obtain regulatory approval (as part of the CCAR process or otherwise) 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.


•	Our ability to comply with applicable capital and liquidity requirements (including finalized Basel III capital standards), including our ability to generate capital internally or raise capital on favorable terms.


•	The costs and other effects (including reputational harm) of any adverse judicial, administrative, or arbitral rulings or proceedings, regulatory enforcement actions, or other legal actions to which we or any of our subsidiaries are a party.


•	Any adverse change to our ability to collect interchange fees in a profitable manner, whether such change is the result of regulation, litigation, legislation, or other governmental action.


•	Our 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 our business.


•	Possible changes in consumer and business spending and saving habits and the related effect on our ability to increase assets and to attract deposits.


•	Any inaccurate or incomplete information provided to us by our customers or counterparties.


•	Inability of our framework to manage risks associated with our business such as credit risk and operational risk, including third-party vendors and other service providers.


•	The inability of our internal disclosure controls and procedures to prevent, detect or mitigate any material errors or fraudulent acts.


•	The effects of geopolitical instability, including wars, conflicts and terrorist attacks.


•	The effects of man-made and natural disasters, including fires, floods, droughts, tornadoes, hurricanes and environmental damage.


•	Our ability to keep pace with technological changes.

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•	Our ability to identify and address cyber-security risks such as data security breaches, “denial of service” attacks, “hacking” and identity theft.


•	Possible downgrades in our credit ratings or outlook.


•	The effects of problems encountered by other financial institutions that adversely affect us or the banking industry generally.


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


•	Our ability to receive dividends from our subsidiaries.


•	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 our reputation resulting from developments related to any of the items identified above.

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, 2013 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, 2014			December 31, 2013
	(In millions, except share data)
Assets
Cash and due from banks	$	2,094		$	1,661
Interest-bearing deposits in other banks	2,705			3,612
Federal funds sold and securities purchased under agreements to resell	20			—
Trading account securities	100			111
Securities held to maturity (estimated fair value of $2,292 and $2,307, respectively)	2,275			2,353
Securities available for sale	21,963			21,485
Loans held for sale (includes $488 and $429 measured at fair value, respectively)	514			1,055
Loans, net of unearned income	76,513			74,609
Allowance for loan losses	(1,229		)	(1,341		)
Net loans	75,284			73,268
Other interest-earning assets	65			86
Premises and equipment, net	2,194			2,216
Interest receivable	308			313
Goodwill	4,816			4,816
Residential mortgage servicing rights at fair value	276			297
Other identifiable intangible assets	281			295
Other assets	5,824			5,828
Total assets	$	118,719		$	117,396
Liabilities and Stockholders’ Equity
Deposits:
Non-interest-bearing	$	31,277		$	30,083
Interest-bearing	62,545			62,370
Total deposits	93,822			92,453
Borrowed funds:
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase	1,818			2,182
Long-term borrowings	3,824			4,830
Total borrowed funds	5,642			7,012
Other liabilities	2,226			2,163
Total liabilities	101,690			101,628
Stockholders’ equity:
Preferred stock, authorized 10 million shares, par value $1.00 per share
Non-cumulative perpetual, liquidation preference $1,000.00 per share, including related surplus, net of issuance costs; issued—1,000,000 and 500,000 shares, respectively	920			450
Common stock, authorized 3 billion shares, par value $.01 per share:
Issued including treasury stock—1,419,534,377 and 1,419,006,360 shares, respectively	14			14
Additional paid-in capital	19,121			19,216
Retained earnings (deficit)	(1,597		)	(2,216		)
Treasury stock, at cost—41,264,271 and 41,285,676 shares, respectively	(1,377		)	(1,377		)
Accumulated other comprehensive income (loss), net	(52		)	(319		)
Total stockholders’ equity	17,029			15,768
Total liabilities and stockholders’ equity	$	118,719		$	117,396

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
	2014		2013			2014		2013
	(In millions, except per share data)
Interest income on:
Loans, including fees	$	737	$	746		$	1,469	$	1,489
Securities - taxable	156		152			310		308
Loans held for sale	4		8			12		17
Trading account securities	—		—			2		1
Other interest-earning assets	2		1			4		3
Total interest income	899		907			1,797		1,818
Interest expense on:
Deposits	25		33			52		75
Short-term borrowings	1		1			1		1
Long-term borrowings	51		65			106		136
Total interest expense	77		99			159		212
Net interest income	822		808			1,638		1,606
Provision for loan losses	35		31			37		41
Net interest income after provision for loan losses	787		777			1,601		1,565
Non-interest income:
Service charges on deposit accounts	174		175			347		359
Card and ATM fees	84		81			163		157
Mortgage income	43		69			83		141
Securities gains (losses), net	6		8			8		23
Other	150		164			294		318
Total non-interest income	457		497			895		998
Non-interest expense:
Salaries and employee benefits	443		452			898		899
Net occupancy expense	90		92			183		182
Furniture and equipment expense	70		69			140		138
Other	217		271			416		507
Total non-interest expense	820		884			1,637		1,726
Income from continuing operations before income taxes	424		390			859		837
Income tax expense	125		122			253		236
Income from continuing operations	299		268			606		601
Discontinued operations:
Income (loss) from discontinued operations before income taxes	2		(2		)	21		2
Income tax expense (benefit)	1		(1		)	8		1
Income (loss) from discontinued operations, net of tax	1		(1		)	13		1
Net income	$	300	$	267		$	619	$	602
Net income from continuing operations available to common shareholders	$	291	$	260		$	590	$	585
Net income available to common shareholders	$	292	$	259		$	603	$	586
Weighted-average number of shares outstanding:
Basic	1,378		1,401			1,378		1,407
Diluted	1,390		1,418			1,390		1,421
Earnings per common share from continuing operations:
Basic	$	0.21	$	0.19		$	0.43	$	0.42
Diluted	0.21		0.18			0.42		0.41
Earnings per common share:
Basic	$	0.21	$	0.18		$	0.44	$	0.42
Diluted	0.21		0.18			0.43		0.41
Cash dividends declared per common share	0.05		0.03			0.08		0.04

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
	2014			2013
	(In millions)
Net income	$	300		$	267
Other comprehensive income (loss), net of tax:
Unrealized losses on securities transferred to held to maturity:
Unrealized losses on securities transferred to held to maturity during the period (net of zero and ($43) tax effect, respectively)	—			(68		)
Less: reclassification adjustments for amortization of unrealized losses on securities transferred to held to maturity (net of ($2) and zero tax effect, respectively)	(2		)	—
Net change in unrealized losses on securities transferred to held to maturity, net of tax	2			(68		)
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period (net of $91 and ($215) tax effect, respectively)	151			(353		)
Less: reclassification adjustments for securities gains (losses) realized in net income (net of $2 and $3 tax effect, respectively)	4			5
Net change in unrealized gains (losses) on securities available for sale, net of tax	147			(358		)
Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
Unrealized holding gains (losses) on derivatives arising during the period (net of $26 and ($25) tax effect, respectively)	41			(39		)
Less: reclassification adjustments for gains (losses) realized in net income (net of $11 and $6 tax effect, respectively)	18			11
Net change in unrealized gains (losses) on derivative instruments, net of tax	23			(50		)
Defined benefit pension plans and other post employment benefits:
Net actuarial gains (losses) arising during the period (net of $2 and zero tax effect, respectively)	1			(1		)
Less: reclassification adjustments for amortization of actuarial loss and prior service cost realized in net income, and other (net of ($2) and ($6) tax effect, respectively)	(4		)	(11		)
Net change from defined benefit pension plans, net of tax	5			10
Other comprehensive income (loss), net of tax	177			(466		)
Comprehensive income (loss)	$	477		$	(199	)

	Six Months Ended June 30
	2014			2013
	(In millions)
Net income	$	619		$	602
Other comprehensive income (loss), net of tax:
Unrealized losses on securities transferred to held to maturity:
Unrealized losses on securities transferred to held to maturity during the period (net of zero and ($43) tax effect, respectively)	—			(68		)
Less: reclassification adjustments for amortization of unrealized losses on securities transferred to held to maturity (net of ($3) and zero tax effect, respectively)	(4		)	—
Net change in unrealized losses on securities transferred to held to maturity, net of tax	4			(68		)
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period (net of $140 and ($258) tax effect, respectively)	230			(421		)
Less: reclassification adjustments for securities gains (losses) realized in net income (net of $3 and $8 tax effect, respectively)	5			15
Net change in unrealized gains (losses) on securities available for sale, net of tax	225			(436		)
Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
Unrealized holding gains (losses) on derivatives arising during the period (net of $40 and ($24) tax effect, respectively)	64			(38		)
Less: reclassification adjustments for gains (losses) realized in net income (net of $22 and $12 tax effect, respectively)	35			20
Net change in unrealized gains (losses) on derivative instruments, net of tax	29			(58		)
Defined benefit pension plans and other post employment benefits:
Net actuarial gains (losses) arising during the period (net of $2 and zero tax effect, respectively)	1			(2		)
Less: reclassification adjustments for amortization of actuarial loss and prior service cost realized in net income, and other (net of ($4) and $(12) tax effect, respectively)	(8		)	(21		)
Net change from defined benefit pension plans, net of tax	9			19
Other comprehensive income (loss), net of tax	267			(543		)
Comprehensive income (loss)	$	886		$	59

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			Additional Paid-In Capital			Retained Earnings (Deficit)			Treasury Stock, At Cost			Accumulated Other Comprehensive Income (Loss), Net			Total
	(In millions, except share and per share data)
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, net of tax	—	—			—		—			—			—			—			(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		)
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

BALANCE AT JANUARY 1, 2014	1	$	450		1,378		$	14		$	19,216		$	(2,216	)	$	(1,377	)	$	(319	)	$	15,768
Net income	—	—			—		—			—			619			—			—			619
Amortization of unrealized losses on securities transferred to held to maturity, net of tax	—	—			—		—			—			—			—			4			4
Net change in unrealized gains and losses on securities available for sale, net of tax and reclassification adjustment	—	—			—		—			—			—			—			225			225
Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment	—	—			—		—			—			—			—			29			29
Net change from defined benefit pension plans, net of tax	—	—			—		—			—			—			—			9			9
Cash dividends declared—$0.08 per share	—	—			—		—			(111		)	—			—			—			(111		)
Preferred stock dividends	—	(16		)	—		—			—			—			—			—			(16		)
Preferred stock transactions:
Net proceeds from issuance of 500 thousand shares of Series B, fixed to floating rate, non-cumulative perpetual preferred stock, including related surplus	—	486			—		—			—			—			—			—			486
Common stock transactions:
Impact of share repurchase	—	—			(1	)	—			(8		)	—			—			—			(8		)
Impact of stock transactions under compensation plans, net	—	—			1		—			24			—			—			—			24
BALANCE AT JUNE 30, 2014	1	$	920		1,378		$	14		$	19,121		$	(1,597	)	$	(1,377	)	$	(52	)	$	17,029

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
	2014			2013
	(In millions)
Operating activities:
Net income	$	619		$	602
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses	37			41
Depreciation, amortization and accretion, net	248			342
Provision for losses on other real estate, net	8			10
Securities (gains) losses, net	(8		)	(23		)
Deferred income tax expense	167			216
Originations and purchases of loans held for sale	(1,204		)	(2,423		)
Proceeds from sales of loans held for sale	1,201			3,027
Gain on TDRs held for sale, net	(35		)	—
(Gain) loss on sale of loans, net	(20		)	(77		)
(Gain) loss on early extinguishment of debt	—			56
Net change in operating assets and liabilities:
Trading account securities	11			14
Other interest-earning assets	21			765
Interest receivable	5			18
Other assets	(367		)	343
Other liabilities	60			(720		)
Other	—			(24		)
Net cash from operating activities	743			2,167
Investing activities:
Proceeds from maturities of securities held to maturity	79			3
Proceeds from sales of securities available for sale	1,004			1,372
Proceeds from maturities of securities available for sale	1,481			3,377
Purchases of securities available for sale	(2,452		)	(4,654		)
Proceeds from sales of loans	635			107
Purchases of loans	(518		)	(456		)
Purchases of servicing rights	—			(28		)
Net change in loans	(1,686		)	(1,115		)
Net purchases of premises and equipment	(95		)	(71		)
Net cash from investing activities	(1,552		)	(1,465		)
Financing activities:
Net change in deposits	1,369			(3,020		)
Net change in short-term borrowings	(364		)	2,303
Proceeds from long-term borrowings	—			750
Payments on long-term borrowings	(1,001		)	(1,698		)
Cash dividends on common stock	(111		)	(56		)
Cash dividends on preferred stock	(16		)	(16		)
Repurchase of common stock	(8		)	(173		)
Net proceeds from issuance of preferred stock	486			—
Other	—			(1		)
Net cash from financing activities	355			(1,911		)
Net change in cash and cash equivalents	(454		)	(1,209		)
Cash and cash equivalents at beginning of year	5,273			5,489
Cash and cash equivalents at end of period	$	4,819		$	4,280

See notes to consolidated financial statements.

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Three and Six Months Ended June 30, 2014 and 2013

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 certain of 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, 2013. 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 14 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. This presentation is consistent with the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2013.

Certain amounts in prior period financial statements have been reclassified to conform to the current period presentation. For example, the "card and ATM fees" line item on the consolidated statements of income represents the combined amounts of credit card/bank card income and debit card and ATM related revenue. Debit card and ATM related revenue was previously included in the "service charges on deposit accounts" line item. Credit card/bank card income was previously included in the "other" non-interest income line item. 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 14 for related disclosure.

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The following table represents the condensed results of operations for discontinued operations:



	Three Months Ended June 30						Six Months Ended June 30
	2014			2013			2014			2013
	(In millions, except per share data)
Non-interest expense:
Professional and legal expenses	$	(3	)	$	1		$	(22	)	$	(4	)
Other	1			1			1			2
Total non-interest expense	(2		)	2			(21		)	(2		)
Income (loss) from discontinued operations before income taxes	2			(2		)	21			2
Income tax expense (benefit)	1			(1		)	8			1
Income (loss) from discontinued operations, net of tax	$	1		$	(1	)	$	13		$	1
Earnings (loss) per common share from discontinued operations:
Basic	$	0.00		$	(0.00	)	$	0.01		$	0.00
Diluted	$	0.00		$	(0.00	)	$	0.01		$	0.00

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, 2014
			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	$	1	$	—	$	—		$	1	$	—	$	—		$	1
Federal agency securities	350		—		(14		)	336		7		—			343
Mortgage-backed securities:
Residential agency	1,798		—		(76		)	1,722		18		(3		)	1,737
Commercial agency	223		—		(7		)	216		—		(5		)	211
	$	2,372	$	—	$	(97	)	$	2,275	$	25	$	(8	)	$	2,292

Securities available for sale:
U.S. Treasury securities	$	56	$	1	$	—		$	57						$	57
Federal agency securities	76		—		—			76							76
Obligations of states and political subdivisions	4		—		—			4							4
Mortgage-backed securities:
Residential agency	15,763		302		(48		)	16,017							16,017
Residential non-agency	8		1		—			9							9
Commercial agency	1,427		15		(6		)	1,436							1,436
Commercial non-agency	1,318		16		(11		)	1,323							1,323
Corporate and other debt securities	2,366		62		(17		)	2,411							2,411
Equity securities	619		11		—			630							630
	$	21,637	$	408	$	(82	)	$	21,963						$	21,963

________

(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.

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	December 31, 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	$	1	$	—	$	—		$	1	$	—	$	—		$	1
Federal agency securities	351		—		(15		)	336		—		(3		)	333
Mortgage-backed securities:
Residential agency	1,878		—		(81		)	1,797		—		(37		)	1,760
Commercial agency	227		—		(8		)	219		—		(6		)	213
	$	2,457	$	—	$	(104	)	$	2,353	$	—	$	(46	)	$	2,307

Securities available for sale:
U.S. Treasury securities	$	56	$	—	$	—		$	56						$	56
Federal agency securities	88		1		—			89							89
Obligations of states and political subdivisions	5		—		—			5							5
Mortgage-backed securities:
Residential agency	15,664		183		(170		)	15,677							15,677
Residential non-agency	8		1		—			9							9
Commercial agency	947		4		(16		)	935							935
Commercial non-agency	1,232		12		(33		)	1,211							1,211
Corporate and other debt securities	2,855		44		(72		)	2,827							2,827
Equity securities	664		12		—			676							676
	$	21,519	$	257	$	(291	)	$	21,485						$	21,485

_________

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, 2014		December 31, 2013
	(In millions)
Federal Reserve Bank	$	477	$	472
Federal Home Loan Bank	16		67

Securities with carrying values of $12.7 billion and $12.5 billion at June 30, 2014 and December 31, 2013, 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, 2014, 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.

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	Amortized Cost		Estimated Fair Value
	(In millions)
Securities held to maturity:
Due in one year or less	$	—	$	—
Due after one year through five years	1		1
Due after five years through ten years	350		343
Mortgage-backed securities:
Residential agency	1,798		1,737
Commercial agency	223		211
	$	2,372	$	2,292
Securities available for sale:
Due in one year or less	$	65	$	65
Due after one year through five years	938		961
Due after five years through ten years	1,111		1,117
Due after ten years	388		405
Mortgage-backed securities:
Residential agency	15,763		16,017
Residential non-agency	8		9
Commercial agency	1,427		1,436
Commercial non-agency	1,318		1,323
Equity securities	619		630
	$	21,637	$	21,963

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, 2014 and December 31, 2013. For securities transferred to held to 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.



	June 30, 2014
	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	$	—	$	—		$	343	$	(7	)	$	343	$	(7	)
Mortgage-backed securities:
Residential agency	190		(9		)	1,544		(52		)	1,734		(61		)
Commercial agency	—		—			211		(12		)	211		(12		)
	$	190	$	(9	)	$	2,098	$	(71	)	$	2,288	$	(80	)

Securities available for sale:
U.S. Treasury securities	$	9	$	—		$	4	$	—		$	13	$	—
Federal agency securities	—		—			8		—			8		—
Mortgage-backed securities:
Residential agency	1,217		(7		)	2,622		(41		)	3,839		(48		)
Commercial agency	181		—			326		(6		)	507		(6		)
Commercial non-agency	18		—			646		(11		)	664		(11		)
All other securities	107		(1		)	593		(16		)	700		(17		)
	$	1,532	$	(8	)	$	4,199	$	(74	)	$	5,731	$	(82	)

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	December 31, 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	$	190	$	(9	)	$	142	$	(8	)	$	332	$	(17	)
Mortgage-backed securities:
Residential agency	1,236		(77		)	521		(41		)	1,757		(118		)
Commercial agency	212		(15		)	—		—			212		(15		)
	$	1,638	$	(101	)	$	663	$	(49	)	$	2,301	$	(150	)

Securities available for sale:
U.S. Treasury securities	$	15	$	—		$	1	$	—		$	16	$	—
Federal agency securities	3		—			9		—			12		—
Mortgage-backed securities:
Residential agency	6,153		(161		)	270		(9		)	6,423		(170		)
Commercial agency	610		(17		)	—		—			610		(17		)
Commercial non-agency	711		(30		)	62		(3		)	773		(33		)
All other securities	1,422		(58		)	209		(13		)	1,631		(71		)
	$	8,914	$	(266	)	$	551	$	(25	)	$	9,465	$	(291	)

The number of individual securities in an unrealized loss position in the tables above decreased from 1,052 at December 31, 2013 to 615 at June 30, 2014. The decrease in the number of securities and the total amount of unrealized losses from year-end 2013 was primarily due to changes in interest rates. In instances where an unrealized loss did occur, there was no indication of an adverse change in credit on any of the underlying securities in the tables above. Except as described below, management believes no individual unrealized loss represented an other-than-temporary impairment as of those dates. Other than the securities described below, 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.

During the second quarter of 2014, the Company made the decision to sell certain other securities available for sale. At June 30, 2014, approximately $328 million of these securities remained on the Company's balance sheet. As the Company intends to sell these securities, each security reflecting an unrealized loss was considered to have an other-than-temporary impairment. The table below reflects total other-than-temporary impairment losses recorded during the second quarter of 2014.

Gross realized gains and gross realized losses on sales of securities available for sale, as well as other-than-temporary impairment losses 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
	2014			2013			2014			2013
	(In millions)
Gross realized gains	$	13		$	29		$	16		$	45
Gross realized losses	(5		)	(21		)	(6		)	(22		)
Other-than-temporary-impairment ("OTTI")	(2		)	—			(2		)	—
Securities gains, net	$	6		$	8		$	8		$	23

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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, 2014		December 31, 2013
	(In millions, net of unearned income)
Commercial and industrial	$	31,354	$	29,413
Commercial real estate mortgage—owner-occupied	9,024		9,495
Commercial real estate construction—owner-occupied	366		310
Total commercial	40,744		39,218
Commercial investor real estate mortgage	5,193		5,318
Commercial investor real estate construction	1,780		1,432
Total investor real estate	6,973		6,750
Residential first mortgage	12,187		12,163
Home equity	11,064		11,294
Indirect	3,422		3,075
Consumer credit card	945		948
Other consumer	1,178		1,161
Total consumer	28,796		28,641
	$	76,513	$	74,609

During the three months ended June 30, 2014 and 2013, Regions purchased approximately $272 million and $236 million, respectively, in indirect loans from a third party. During the six months ended June 30, 2014 and 2013, the comparable loan purchase amounts were approximately $518 million and $456 million, respectively.

At June 30, 2014, $13.3 billion in loans held by Regions were pledged to secure borrowings from the FHLB. At June 30, 2014, an additional $29.6 billion of loans held by Regions were pledged to the Federal Reserve Bank.

ALLOWANCE FOR CREDIT LOSSES

Regions determines the appropriate level of the allowance on at least a quarterly basis. Refer to Note 1 “Summary of Significant Accounting Policies” to the consolidated financial statements to the Annual Report on Form 10-K for the year ended December 31, 2013, for a description of the methodology.

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, 2014 and 2013. The total allowance for loan losses and the related loan portfolio ending balances as of June 30, 2014 and 2013 are disaggregated to detail the amounts derived through individual evaluation and collective evaluation for impairment. Prior to the second quarter of 2013, only impaired loans with the amount of impairment measured at a note-level (i.e. non-accrual commercial and investor real-estate loans greater than or equal to $2.5 million) were reported as individually evaluated in the tables below. In the second quarter of 2013, Regions revised its presentation to also reflect all troubled debt restructurings ("TDRs") as individually evaluated for impairment. The allowance for loan losses and the loan portfolio ending balances related to collectively evaluated loans included the remainder of the portfolio.

Beginning in the third quarter of 2013, Regions revised its estimation process for non-accrual commercial and investor real-estate loans less than $2.5 million to utilize the same discounted cash flow analysis used for accruing and non-accruing TDRs less than $2.5 million described in Note 1 “Summary of Significant Accounting Policies” to the Annual Report on Form 10-K for the year ended December 31, 2013. This change in the estimation process did not have a material impact to the overall level of the allowance for loan losses or the provision for loan losses. As a result, the June 30, 2014 allowance for loan losses and the loan portfolio ending balances for loans individually evaluated for impairment reflect this revision in the tables below.

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	Three Months Ended June 30, 2014
	Commercial			Investor Real Estate			Consumer			Total
	(In millions)
Allowance for loan losses, April 1, 2014	$	692		$	208		$	361		$	1,261
Provision (credit) for loan losses	39			(18		)	14			35
Loan losses:
Charge-offs	(40		)	(7		)	(63		)	(110		)
Recoveries	14			7			22