Edgar Filing: REGIONS FINANCIAL CORP

Document

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, 2016



¨	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)		(I.R.S. 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 1,255,198,176 shares of common stock, par value $.01, outstanding as of August 3, 2016.

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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, 2016 and December 31, 2015	8
	Consolidated Statements of Income—Three and six months ended June 30, 2016 and 2015	9
	Consolidated Statements of Comprehensive Income—Three and six months ended June 30, 2016 and 2015	10
	Consolidated Statements of Changes in Stockholders’ Equity—Six months ended June 30, 2016 and 2015	11
	Consolidated Statements of Cash Flows—Six months ended June 30, 2016 and 2015	12
	Notes to Consolidated Financial Statements	13
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	60
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	95
Item 4.	Controls and Procedures	95

Part II. Other Information
Item 1.	Legal Proceedings	96
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	96
Item 6.	Exhibits	97

Signatures		98

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Glossary of Defined Terms

Agencies - collectively, FNMA, FHLMC and GNMA.

ALCO - Asset/Liability Management Committee.

AOCI - Accumulated other comprehensive income.

ATM - Automated teller machine.

Basel I - Basel Committee's 1988 Regulatory Capital Framework (First Accord).

Basel III - Basel Committee's 2010 Regulatory Capital Framework (Third Accord).

Basel III Rules - Final capital rules adopting the Basel III capital framework approved by U.S. federal

regulators in 2013.

Basel Committee - Basel Committee on Banking Supervision.

BHC - Bank Holding Company.

BITS - Technology arm of the Financial Services Roundtable.

Bank - Regions Bank.

Board - The Company’s Board of Directors.

CAP - Customer Assistance Program.

CCAR - Comprehensive Capital Analysis and Review.

CD - Certificate of deposit.

CEO - Chief Executive Officer.

CET1 - Common Equity Tier 1.

CFPB - Consumer Financial Protection Bureau.

Company - Regions Financial Corporation and its subsidiaries.

CPR - Constant (or Conditional) Prepayment Rate.

CRA - Community Reinvestment Act of 1977.

Dodd-Frank Act - The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

DPD - Days Past Due.

DUS - Fannie Mae Delegated Underwriting & Servicing.

FASB - Financial Accounting Standards Board.

FDIC - Federal Deposit Insurance Corporation.

Federal Reserve - Board of Governors of the Federal Reserve System.

FHA - Federal Housing Administration.

FHLB - Federal Home Loan Bank.

FHLMC - Federal Home Loan Mortgage Corporation, known as Freddie Mac.

FNMA - Federal National Mortgage Association, known as Fannie Mae.

FS-ISAC - Financial Services - Information Sharing & Analysis Center

FRB - Federal Reserve Bank.

GAAP - Generally Accepted Accounting Principles in the United States.

GCM - Guideline Public Company Method.

GNMA - Government National Mortgage Association.

GTM - Guideline Transaction Method.

HUD - U.S. Department of Housing and Urban Development.

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IP - Intellectual Property

IPO - Initial public offering.

LCR - Liquidity coverage ratio.

LIBOR - London InterBank Offered Rates.

LTIP - Long-term incentive plan.

LTV - Loan to value.

MBS - Mortgage-backed securities.

Morgan Keegan - Morgan Keegan & Company, Inc.

MSAs - Metropolitan Statistical Areas.

MSR - Mortgage servicing right.

NM - Not meaningful.

NPR - Notice of Proposed Rulemaking.

OAS - Option-Adjusted Spread.

OCC - Office of the Comptroller of the Currency.

OCI - Other comprehensive income.

OTTI - Other-than-temporary impairment.

Raymond James - Raymond James Financial, Inc.

RICO - Racketeer Influenced and Corrupt Organizations Act.

SEC - U.S. Securities and Exchange Commission.

SERP - Supplemental Executive Retirement Plan.

SSFA - Simplified Supervisory Formula Approach.

TDR - Troubled debt restructuring.

U.S. - United States.

U.S. Treasury - United States Department of the Treasury.

UTB - Unrecognized tax benefits.

VIE - Variable interest entity.

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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 us or on our behalf to analysts, investors, the media and others, 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 or where 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 current 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, and because they also relate to the future they are likewise subject to inherent uncertainties and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. Therefore, we caution you against relying on any of these forward-looking 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 reductions of economic growth, which may adversely affect our lending and other businesses and our financial results and conditions.


•	Possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations, which could have a material adverse effect on our earnings.


•	The effects of a possible downgrade in the U.S. government’s sovereign credit rating or outlook, which could result in risks to us and general economic conditions that we are not able to predict.


•	Possible changes in market interest rates or capital markets could adversely affect our revenue and expense, the value of assets and obligations, and the availability and cost of capital and liquidity.


•	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 where our allowance for loan losses may not be adequate to cover our eventual 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, which could increase our funding costs.


•	Our inability to develop and gain acceptance from current and prospective customers for new products and services in a timely manner could have a negative impact on our revenue.


•	The effects of any developments, changes or actions relating to any litigation or regulatory proceedings brought against us or any of our subsidiaries.

•

Changes in laws and regulations affecting our businesses, such as the Dodd-Frank Act and other legislation and regulations relating to bank products and services, as well as changes in the enforcement and interpretation of such laws and regulations by applicable governmental and self-regulatory agencies, which could require us to change certain business practices, increase compliance risk, reduce our revenue, impose additional costs on us, or otherwise negatively affect our businesses.

•

Our ability to obtain a regulatory non-objection (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 redeem preferred stock or other regulatory capital instruments, may impact our ability to return capital to stockholders and market perceptions of us.


•	Our ability to comply with stress testing and capital planning requirements (as part of the CCAR process or otherwise) may continue to require a significant investment of our managerial resources due to the importance and intensity of such tests and requirements.


•	Our ability to comply with applicable capital and liquidity requirements (including, among other things, the Basel III capital standards and the LCR rule), including our ability to generate capital internally or raise capital on favorable terms, and if we fail to meet requirements, our financial condition could be negatively impacted.

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•	The Basel III framework calls for additional risk-based capital surcharges for globally systemically important banks. Although we are not subject to such surcharges, it is possible that in the future we may become subject to similar surcharges.


•	The costs, including possibly incurring fines, penalties, or other negative 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, and which may adversely affect our results.


•	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.


•	Our ability to execute on our strategic and operational plans, including our ability to fully realize the financial and non-financial benefits relating to our strategic initiatives.


•	The success of our marketing efforts in attracting and retaining customers.


•	Possible changes in consumer and business spending and saving habits and the related effect on our ability to increase assets and to attract deposits, which could adversely affect our net income.


•	Our ability to recruit and retain talented and experienced personnel to assist in the development, management and operation of our products and services may be affected by changes in laws and regulations in effect from time to time.


•	Fraud or misconduct by our customers, employees or business partners.


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


•	The risks and uncertainties related to our acquisition and integration of other companies.


•	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, which could, among other things, result in a breach of operating or security systems as a result of a cyber attack or similar act.


•	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 and the potential impact, directly or indirectly, on our businesses.


•	The effects of man-made and natural disasters, including fires, floods, droughts, tornadoes, hurricanes, and environmental damage, which may negatively affect our operations and/or our loan portfolios and increase our cost of conducting business.

•

Changes in commodity market prices and conditions could adversely affect the cash flows of our borrowers operating in industries that are impacted by changes in commodity prices (including businesses indirectly impacted by commodities prices such as businesses that transport commodities or manufacture equipment used in the production of commodities), which could impair their ability to service any loans outstanding to them and/or reduce demand for loans in those industries.


•	Our inability to keep pace with technological changes could result in losing business to competitors.


•	Our ability to identify and address cyber-security risks such as data security breaches, “denial of service” attacks, “hacking” and identity theft, a failure of which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information; increased costs; losses; or adverse effects to our reputation.


•	Our ability to realize our efficiency ratio target as part of our expense management initiatives.


•	Significant disruption of, or loss of public confidence in, the Internet and services and devices used to access the Internet could affect the ability of our customers to access their accounts and conduct banking transactions.


•	Possible downgrades in our credit ratings or outlook could increase the costs of funding from capital markets.


•	The effects of problems encountered by other financial institutions that adversely affect us or the banking industry generally could require us to change certain business practices, reduce our revenue, impose additional costs on us, or otherwise negatively affect our businesses.


•	The effects of the failure of any component of our business infrastructure provided by a third party could disrupt our businesses; result in the disclosure of and/or misuse of confidential information or proprietary information; increase our costs; negatively affect our reputation; and cause losses.


•	Our ability to receive dividends from our subsidiaries could affect our liquidity and ability to pay dividends to stockholders.


•	Changes in accounting policies or procedures as may be required by the FASB or other regulatory agencies could materially affect how we report our financial results.


•	Other risks identified from time to time in reports that we file with the SEC.

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•	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. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible to predict all of them. We assume no obligation to update or revise any forward-looking statements that are made from time to time, either as a result of future developments, new information or otherwise, except as may be required by law.

See also the reports filed with the Securities and Exchange Commission, including the discussion under the “Risk Factors” section of Regions’ Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the Securities and Exchange Commission and available on its website at www.sec.gov.

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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



	June 30, 2016			December 31, 2015
	(In millions, except share data)
Assets
Cash and due from banks	$	1,867		$	1,382
Interest-bearing deposits in other banks	2,370			3,932
Trading account securities	117			143
Securities held to maturity (estimated fair value of $1,707 and $1,969, respectively)	1,646			1,946
Securities available for sale	23,494			22,710
Loans held for sale (includes $475 and $353 measured at fair value, respectively)	551			448
Loans, net of unearned income	81,702			81,162
Allowance for loan losses	(1,151		)	(1,106		)
Net loans	80,551			80,056
Other earning assets	1,516			1,652
Premises and equipment, net	2,091			2,152
Interest receivable	312			319
Goodwill	4,882			4,878
Residential mortgage servicing rights at fair value	216			252
Other identifiable intangible assets	240			259
Other assets	6,359			5,921
Total assets	$	126,212		$	126,050
Liabilities and Stockholders’ Equity
Deposits:
Non-interest-bearing	$	34,982		$	34,862
Interest-bearing	62,263			63,568
Total deposits	97,245			98,430
Borrowed funds:
Short-term borrowings:
Other short-term borrowings	2			10
Total short-term borrowings	2			10
Long-term borrowings	8,968			8,349
Total borrowed funds	8,970			8,359
Other liabilities	2,612			2,417
Total liabilities	108,827			109,206
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 shares	820			820
Common stock, authorized 3 billion shares, par value $.01 per share:
Issued including treasury stock—1,300,275,747 and 1,338,591,703 shares, respectively	13			13
Additional paid-in capital	17,539			17,883
Retained earnings (deficit)	242			(115		)
Treasury stock, at cost—41,261,041 and 41,261,018 shares, respectively	(1,377		)	(1,377		)
Accumulated other comprehensive income (loss), net	148			(380		)
Total stockholders’ equity	17,385			16,844
Total liabilities and stockholders’ equity	$	126,212		$	126,050

See notes to consolidated financial statements.

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME



	Three Months Ended June 30					Six Months Ended June 30
	2016		2015			2016		2015
	(In millions, except per share data)
Interest income, including other financing income on:
Loans, including fees	$	762	$	728		$	1,530	$	1,453
Securities - taxable	145		141			292		286
Loans held for sale	4		4			7		7
Trading account securities	1		1			4		4
Other earning assets	8		9			18		19
Operating lease assets	32		—			64		—
Total interest income, including other financing income	952		883			1,915		1,769
Interest expense on:
Deposits	28		27			55		55
Short-term borrowings	—		1			—		1
Long-term borrowings	50		35			97		78
Total interest expense	78		63			152		134
Depreciation expense on operating lease assets	26		—			53		—
Total interest expense and depreciation expense on operating lease assets	104		63			205		134
Net interest income and other financing income	848		820			1,710		1,635
Provision for loan losses	72		63			185		112
Net interest income and other financing income after provision for loan losses	776		757			1,525		1,523
Non-interest income:
Service charges on deposit accounts	166		168			325		329
Card and ATM fees	99		90			194		175
Mortgage income	46		46			84		86
Securities gains, net	6		6			1		11
Other	209		280			428		459
Total non-interest income	526		590			1,032		1,060
Non-interest expense:
Salaries and employee benefits	480		477			955		935
Net occupancy expense	86		89			172		180
Furniture and equipment expense	79		76			157		147
Other	270		292			500		577
Total non-interest expense	915		934			1,784		1,839
Income from continuing operations before income taxes	387		413			773		744
Income tax expense	115		124			228		219
Income from continuing operations	272		289			545		525
Discontinued operations:
Income (loss) from discontinued operations before income taxes	5		(6		)	5		(10		)
Income tax expense (benefit)	2		(2		)	2		(4		)
Income (loss) from discontinued operations, net of tax	3		(4		)	3		(6		)
Net income	$	275	$	285		$	548	$	519
Net income from continuing operations available to common shareholders	$	256	$	273		$	513	$	493
Net income available to common shareholders	$	259	$	269		$	516	$	487
Weighted-average number of shares outstanding:
Basic	1,265		1,335			1,275		1,340
Diluted	1,268		1,346			1,279		1,352
Earnings per common share from continuing operations:
Basic	$	0.20	$	0.20		$	0.40	$	0.37
Diluted	0.20		0.20			0.40		0.36
Earnings per common share:
Basic	$	0.20	$	0.20		$	0.40	$	0.36
Diluted	0.20		0.20			0.40		0.36
Cash dividends declared per common share	0.065		0.06			0.125		0.11

See notes to consolidated financial statements.

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Three Months Ended June 30
	2016			2015
	(In millions)
Net income	$	275		$	285
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 zero tax effect, respectively)	—			—
Less: reclassification adjustments for amortization of unrealized losses on securities transferred to held to maturity (net of ($3) and ($2) tax effect, respectively)	(5		)	(2		)
Net change in unrealized losses on securities transferred to held to maturity, net of tax	5			2
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period (net of $62 and ($94) tax effect, respectively)	103			(152		)
Less: reclassification adjustments for securities gains (losses) realized in net income (net of $2 and $2 tax effect, respectively)	4			4
Net change in unrealized gains (losses) on securities available for sale, net of tax	99			(156		)
Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
Unrealized holding gains (losses) on derivatives arising during the period (net of $51 and ($3) tax effect, respectively)	84			(4		)
Less: reclassification adjustments for gains (losses) on derivative instruments realized in net income (net of $13 and $13 tax effect, respectively)	22			21
Net change in unrealized gains (losses) on derivative instruments, net of tax	62			(25		)
Defined benefit pension plans and other post employment benefits:
Net actuarial gains (losses) arising during the period (net of $1 and zero tax effect, respectively)	—			—
Less: reclassification adjustments for amortization of actuarial loss and prior service cost realized in net income (net of ($3) and ($5) tax effect, respectively)	(5		)	(7		)
Net change from defined benefit pension plans and other post employment benefits, net of tax	5			7
Other comprehensive income (loss), net of tax	171			(172		)
Comprehensive income	$	446		$	113

	Six Months Ended June 30
	2016			2015
	(In millions)
Net income	$	548		$	519
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 zero tax effect, respectively)	—			—
Less: reclassification adjustments for amortization of unrealized losses on securities transferred to held to maturity (net of ($4) and ($3) tax effect, respectively)	(7		)	(4		)
Net change in unrealized losses on securities transferred to held to maturity, net of tax	7			4
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period (net of $187 and ($45) tax effect, respectively)	308			(72		)
Less: reclassification adjustments for securities gains (losses) realized in net income (net of zero and $4 tax effect, respectively)	1			7
Net change in unrealized gains (losses) on securities available for sale, net of tax	307			(79		)
Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
Unrealized holding gains (losses) on derivatives arising during the period (net of $153 and $32 tax effect, respectively)	249			54
Less: reclassification adjustments for gains (losses) on derivative instruments realized in net income (net of $28 and $25 tax effect, respectively)	46			42
Net change in unrealized gains (losses) on derivative instruments, net of tax	203			12
Defined benefit pension plans and other post employment benefits:
Net actuarial gains (losses) arising during the period (net of $1 and zero tax effect, respectively)	—			(1		)
Less: reclassification adjustments for amortization of actuarial loss and prior service cost realized in net income (net of ($6) and ($9) tax effect, respectively)	(11		)	(15		)
Net change from defined benefit pension plans and other post employment benefits, net of tax	11			14
Other comprehensive income (loss), net of tax	528			(49		)
Comprehensive income	$	1,076		$	470

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 per share data)
BALANCE AT JANUARY 1, 2015	1	$	884		1,354		$	14	$	18,767		$	(1,177	)	$	(1,377	)	$	(238	)	$	16,873
Net income	—	—			—		—		—			519			—			—			519
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	—	—			—		—		—			—			—			(79		)	(79		)
Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment	—	—			—		—		—			—			—			12			12
Net change from employee benefit plans, net of tax	—	—			—		—		—			—			—			14			14
Cash dividends declared—$0.11 per share	—	—			—		—		(147		)	—			—			—			(147		)
Preferred stock dividends	—	(32		)	—		—		—			—			—			—			(32		)
Common stock transactions:
Impact of share repurchase	—	—			(28	)	—		(274		)	—			—			—			(274		)
Impact of stock transactions under compensation plans, net and other	—	—			5		—		9			—			—			—			9
BALANCE AT JUNE 30, 2015	1	$	852		1,331		$	14	$	18,355		$	(658	)	$	(1,377	)	$	(287	)	$	16,899

BALANCE AT JANUARY 1, 2016	1	$	820		1,297		$	13	$	17,883		$	(115	)	$	(1,377	)	$	(380	)	$	16,844
Net income	—	—			—		—		—			548			—			—			548
Amortization of unrealized losses on securities transferred to held to maturity, net of tax	—	—			—		—		—			—			—			7			7
Net change in unrealized gains and losses on securities available for sale, net of tax and reclassification adjustment	—	—			—		—		—			—			—			307			307
Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment	—	—			—		—		—			—			—			203			203
Net change from employee benefit plans, net of tax	—	—			—		—		—			—			—			11			11
Cash dividends declared—$0.125 per share	—	—			—		—		—			(159		)	—			—			(159		)
Preferred stock dividends	—	—			—		—		—			(32		)	—			—			(32		)
Common stock transactions:
Impact of share repurchase	—	—			(42	)	—		(354		)	—			—			—			(354		)
Impact of stock transactions under compensation plans, net and other	—	—			4		—		10			—			—			—			10
BALANCE AT JUNE 30, 2016	1	$	820		1,259		$	13	$	17,539		$	242		$	(1,377	)	$	148		$	17,385

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
	2016			2015
	(In millions)
Operating activities:
Net income	$	548		$	519
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses	185			112
Depreciation, amortization and accretion, net	267			252
Securities (gains) losses, net	(1		)	(11		)
Deferred income tax expense	10			40
Originations and purchases of loans held for sale	(1,837		)	(1,224		)
Proceeds from sales of loans held for sale	1,823			1,295
(Gain) loss on sale of loans, net	(59		)	(48		)
(Gain) loss on early extinguishment of debt	—			43
Net change in operating assets and liabilities:
Trading account securities	26			(4		)
Other earning assets	83			(81		)
Interest receivable and other assets	(126		)	91
Other liabilities	197			(347		)
Other	14			30
Net cash from operating activities	1,130			667
Investing activities:
Proceeds from maturities of securities held to maturity	305			109
Proceeds from sales of securities available for sale	1,527			801
Proceeds from maturities of securities available for sale	1,983			1,911
Purchases of securities available for sale	(4,092		)	(2,733		)
Proceeds from sales of loans	47			49
Purchases of loans	(579		)	(547		)
Purchases of mortgage servicing rights	(24		)	—
Net change in loans	(202		)	(2,565		)
Net purchases of other assets	(41		)	(74		)
Net cash from investing activities	(1,076		)	(3,049		)
Financing activities:
Net change in deposits	(1,185		)	2,875
Net change in short-term borrowings	(8		)	(407		)
Proceeds from long-term borrowings	1,607			1,248
Payments on long-term borrowings	(1,000		)	(1,142		)
Cash dividends on common stock	(154		)	(147		)
Cash dividends on preferred stock	(32		)	(32		)
Repurchase of common stock	(354		)	(274		)
Other	(5		)	12
Net cash from financing activities	(1,131		)	2,133
Net change in cash and cash equivalents	(1,077		)	(249		)
Cash and cash equivalents at beginning of year	5,314			4,004
Cash and cash equivalents at end of period	$	4,237		$	3,755

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, 2016 and 2015

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 across the South, Midwest and Texas. The Company competes with other financial institutions located in the states in which it operates, as well as other adjoining states. Regions is subject to the regulations of certain government agencies and undergoes periodic examinations by certain 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 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’ Annual Report on Form 10-K for the year ended December 31, 2015. 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 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, 2015.

During the fourth quarter of 2015, Regions reclassified its investments in FRB and FHLB stock from securities available for sale to other earning assets on its consolidated balance sheets. This reclassification has been made for all periods presented. Certain other prior period amounts have also 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 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. 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.

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



	Three Months Ended June 30						Six Months Ended June 30
	2016			2015			2016			2015
	(In millions, except per share data)
Non-interest expense:
Professional and legal expenses/(recoveries)	$	(5	)	$	5		$	(5	)	$	9
Other	—			1			—			1
Total non-interest expense	(5		)	6			(5		)	10
Income (loss) from discontinued operations before income taxes	5			(6		)	5			(10		)
Income tax expense (benefit)	2			(2		)	2			(4		)
Income (loss) from discontinued operations, net of tax	$	3		$	(4	)	$	3		$	(6	)
Earnings (loss) per common share from discontinued operations:
Basic	$	0.00		$	(0.00	)	$	0.00		$	(0.00	)
Diluted	$	0.00		$	(0.00	)	$	0.00		$	(0.00	)

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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, 2016
			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	150		—		(4		)	146		4		—		150
Mortgage-backed securities:
Residential agency	1,384		—		(57		)	1,327		55		—		1,382
Commercial agency	176		—		(4		)	172		2		—		174
	$	1,711	$	—	$	(65	)	$	1,646	$	61	$	—	$	1,707

Securities available for sale:
U.S. Treasury securities	$	235	$	5	$	—		$	240					$	240
Federal agency securities	213		3		—			216						216
Obligations of states and political subdivisions	1		—		—			1						1
Mortgage-backed securities:
Residential agency	16,602		342		(11		)	16,933						16,933
Residential non-agency	4		1		—			5						5
Commercial agency	3,150		93		—			3,243						3,243
Commercial non-agency	1,167		20		(4		)	1,183						1,183
Corporate and other debt securities	1,393		44		(22		)	1,415						1,415
Equity securities	249		10		(1		)	258						258
	$	23,014	$	518	$	(38	)	$	23,494					$	23,494

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	December 31, 2015
			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		—		(10		)	340		9		—			349
Mortgage-backed securities:
Residential agency	1,490		—		(61		)	1,429		18		(2		)	1,445
Commercial agency	181		—		(5		)	176		—		(2		)	174
	$	2,022	$	—	$	(76	)	$	1,946	$	27	$	(4	)	$	1,969

Securities available for sale:
U.S. Treasury securities	$	228	$	1	$	(1	)	$	228						$	228
Federal agency securities	219		—		(1		)	218							218
Obligations of states and political subdivisions	1		—		—			1							1
Mortgage-backed securities:
Residential agency	16,003		149		(90		)	16,062							16,062
Residential non-agency	5		—		—			5							5
Commercial agency	3,033		10		(25		)	3,018							3,018
Commercial non-agency	1,245		3		(17		)	1,231							1,231
Corporate and other debt securities	1,718		12		(63		)	1,667							1,667
Equity securities	272		10		(2		)	280							280
	$	22,724	$	185	$	(199	)	$	22,710						$	22,710

_________

(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.

Securities with carrying values of $11.3 billion and $11.9 billion at June 30, 2016 and December 31, 2015, respectively, were pledged to secure public funds, trust deposits and certain borrowing arrangements. Included within total pledged securities is approximately $51 million and $50 million of encumbered U.S. Treasury securities at June 30, 2016 and December 31, 2015, respectively.

The amortized cost and estimated fair value of securities available for sale and securities held to maturity at June 30, 2016, 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	$	1	$	1
Due after one year through five years	150		150
Mortgage-backed securities:
Residential agency	1,384		1,382
Commercial agency	176		174
	$	1,711	$	1,707
Securities available for sale:
Due in one year or less	$	50	$	50
Due after one year through five years	646		660
Due after five years through ten years	883		907
Due after ten years	263		255
Mortgage-backed securities:
Residential agency	16,602		16,933
Residential non-agency	4		5
Commercial agency	3,150		3,243
Commercial non-agency	1,167		1,183
Equity securities	249		258
	$	23,014	$	23,494

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, 2016 and December 31, 2015. 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 for twelve months or more.



	June 30, 2016
	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:
Mortgage-backed securities:
Residential agency	$	—	$	—		$	944	$	(5	)	$	944	$	(5	)
Commercial agency	—		—			174		(3		)	174		(3		)
	$	—	$	—		$	1,118	$	(8	)	$	1,118	$	(8	)

Securities available for sale:
U.S. Treasury securities	$	7	$	—		$	1	$	—		$	8	$	—
Federal agency securities	1		—			—		—			1		—
Mortgage-backed securities:
Residential agency	480		(3		)	805		(8		)	1,285		(11		)
Residential non-agency	4		—			—		—			4		—
Commercial agency	44		—			45		—			89		—
Commercial non-agency	77		(1		)	264		(3		)	341		(4		)
All other securities	41		(1		)	291		(22		)	332		(23		)
	$	654	$	(5	)	$	1,406	$	(33	)	$	2,060	$	(38	)

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	December 31, 2015
	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	$	198	$	(1	)	$	—	$	—		$	198	$	(1	)
Mortgage-backed securities:
Residential agency	322		(7		)	1,121		(38		)	1,443		(45		)
Commercial agency	—		—			174		(7		)	174		(7		)
	$	520	$	(8	)	$	1,295	$	(45	)	$	1,815	$	(53	)

Securities available for sale:
U.S. Treasury securities	$	59	$	(1	)	$	8	$	—		$	67	$	(1	)
Federal agency securities	74		—			7		—			81		—
Mortgage-backed securities:
Residential agency	8,037		(73		)	791		(17		)	8,828		(90		)
Residential non-agency	3		—			—		—			3		—
Commercial agency	1,695		(20		)	273		(5		)	1,968		(25		)
Commercial non-agency	684		(12		)	264		(6		)	948		(18		)
All other securities	805		(36		)	307		(29		)	1,112		(65		)
	$	11,357	$	(142	)	$	1,650	$	(57	)	$	13,007	$	(199	)

The number of individual positions in an unrealized loss position in the tables above decreased from 1,081 at December 31, 2015 to 407 at June 30, 2016. The decrease in the number of securities and the total amount of unrealized losses from year-end 2015 was primarily due to changes in interest rates. In instances where an unrealized loss existed, there was no indication of an adverse change in credit on the underlying positions in the tables above. As it relates to these positions, management believes no individual unrealized loss, other than those discussed below, 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 positions before the recovery of their amortized cost basis, which may be at maturity.

As part of the Company's normal process for evaluating other-than-temporary impairments, management did identify a limited number of positions where an other-than-temporary impairment was believed to exist as of June 30, 2016. Such impairments were related to available for sale equity securities with current market values below the highest traded price in the last six months. For the six months ended June 30, 2016, such impairments totaled $1 million, and have been reflected as a reduction of net securities gains (losses) on the consolidated statements of income.

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
	2016			2015			2016			2015
	(In millions)
Gross realized gains	$	13		$	9		$	29		$	14
Gross realized losses	(7		)	(3		)	(27		)	(3		)
OTTI	—			—			(1		)	—
Securities gains (losses), net	$	6		$	6		$	1		$	11

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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, 2016		December 31, 2015
	(In millions, net of unearned income)
Commercial and industrial	$	36,124	$	35,821
Commercial real estate mortgage—owner-occupied	7,193		7,538
Commercial real estate construction—owner-occupied	344		423
Total commercial	43,661		43,782
Commercial investor real estate mortgage	4,302		4,255
Commercial investor real estate construction	2,660		2,692
Total investor real estate	6,962		6,947
Residential first mortgage	13,164		12,811
Home equity	10,832		10,978
Indirect—vehicles	4,159		3,984
Indirect—other consumer	722		545
Consumer credit card	1,113		1,075
Other consumer	1,089		1,040
Total consumer	31,079		30,433
	$	81,702	$	81,162

During the three months ended June 30, 2016 and 2015, Regions purchased approximately $300 million and $291 million, respectively, in indirect-vehicles and indirect-other consumer loans from third parties. During the six months ended June 30, 2016 and 2015, the comparable loan purchase amounts were approximately $579 million and $547 million, respectively.

At June 30, 2016, $14.6 billion in securities and net eligible loans held by Regions were pledged to secure current and potential borrowings from the FHLB. At June 30, 2016, an additional $31.5 billion in net eligible loans held by Regions were pledged to the Federal Reserve Bank for potential borrowings.

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, 2015, 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, 2016 and 2015. The total allowance for loan losses and the related loan portfolio ending balances as of June 30, 2016 and 2015, are disaggregated to detail the amounts derived through individual evaluation and collective evaluation for impairment. The allowance for loan losses related to individually evaluated loans is attributable to reserves for non-accrual commercial and investor real estate loans and all TDRs. The allowance for loan losses and the loan portfolio ending balances related to collectively evaluated loans is attributable to the remainder of the portfolio.

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	Three Months Ended June 30, 2016
	Commercial			Investor Real Estate			Consumer			Total
	(In millions)
Allowance for loan losses, April 1, 2016	$	821		$	91		$	239		$	1,151
Provision (credit) for loan losses	38			(4		)	38			72
Loan losses:
Charge-offs	(42		)	(1		)	(55		)	(98		)
Recoveries	8			1			17			26
Net loan losses	(34		)	—			(38		)	(72		)
Allowance for loan losses, June 30, 2016	825			87			239			1,151
Reserve for unfunded credit commitments, April 1, 2016	48			5			—			53
Provision (credit) for unfunded credit losses	11			—			—			11
Reserve for unfunded credit commitments, June 30, 2016	59			5			—			64
Allowance for credit losses, June 30, 2016	$	884		$	92		$	239		$	1,215



	Three Months Ended June 30, 2015
	Commercial			Investor Real Estate			Consumer			Total
	(In millions)
Allowance for loan losses, April 1, 2015	$	696		$	125		$	277		$	1,098
Provision (credit) for loan losses	51			(3		)	15			63
Loan losses:
Charge-offs	(25		)	(4		)	(57		)	(86		)
Recoveries	18			5			17			40
Net loan losses	(7		)	1			(40		)	(46		)
Allowance for loan losses, June 30, 2015	740			123			252			1,115
Reserve for unfunded credit commitments, April 1, 2015	58			8			—			66
Provision (credit) for unfunded credit losses	1			(3		)	—			(2		)
Reserve for unfunded credit commitments, June 30, 2015	59			5			—			64
Allowance for credit losses, June 30, 2015	$	799		$	128		$	252		$	1,179



	Six Months Ended June 30, 2016
	Commercial			Investor Real Estate			Consumer			Total
	(In millions)
Allowance for loan losses, January 1, 2016	$	758		$	97		$	251		$	1,106
Provision (credit) for loan losses	123			(14		)	76			185
Loan losses:
Charge-offs	(71		)	(1		)	(122		)	(194		)
Recoveries	15			5			34			54
Net loan losses	(56		)	4			(88		)	(140		)
Allowance for loan losses, June 30, 2016	825			87			239			1,151
Reserve for unfunded credit commitments, January 1, 2016	47			5			—			52
Provision (credit) for unfunded credit losses	12			—			—			12
Reserve for unfunded credit commitments, June 30, 2016	59			5			—			64
Allowance for credit losses, June 30, 2016	$	884		$	92		$	239		$	1,215
Portion of ending allowance for loan losses:
Individually evaluated for impairment	$	264		$	20		$	65		$	349
Collectively evaluated for impairment	561			67			174			802
Total allowance for loan losses	$	825		$	87		$	239		$	1,151
Portion of loan portfolio ending balance:
Individually evaluated for impairment	$	1,046		$	156		$	815		$	2,017
Collectively evaluated for impairment	42,615			6,806			30,264			79,685
Total loans evaluated for impairment	$	43,661		$	6,962		$	31,079		$	81,702

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	Six Months Ended June 30, 2015
	Commercial			Investor Real Estate			Consumer			Total
	(In millions)
Allowance for loan losses, January 1, 2015	$	654		$	150		$	299		$	1,103
Provision (credit) for loan losses	110			(28		)	30			112
Loan losses:
Charge-offs	(59		)	(12		)	(116		)	(187		)
Recoveries	35			13			39			87
Net loan losses	(24		)	1			(77		)	(100		)
Allowance for loan losses, June 30, 2015	740			123			252			1,115
Reserve for unfunded credit commitments, January 1, 2015	57			8			—			65
Provision (credit) for unfunded credit losses	2			(3		)	—			(1		)
Reserve for unfunded credit commitments, June 30, 2015	59			5			—			64
Allowance for credit losses, June 30, 2015	$	799		$	128		$	252		$	1,179
Portion of ending allowance for loan losses:
Individually evaluated for impairment	$	189		$	42		$	69		$	300
Collectively evaluated for impairment	551			81			183			815
Total allowance for loan losses	$	740		$	123		$	252		$	1,115
Portion of loan portfolio ending balance:
Individually evaluated for impairment	$	722		$	264		$	845		$	1,831
Collectively evaluated for impairment	42,870			6,664			28,784			78,318
Total loans evaluated for impairment	$	43,592		$	6,928		$	29,629		$	80,149

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 mortgage 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 consists 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 the valuation of real estate.

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

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CREDIT QUALITY INDICATORS

The following tables present credit quality indicators for the loan portfolio segments and classes, excluding loans held for sale, as of June 30, 2016, and December 31, 2015. Commercial and investor real estate loan portfolio segments are detailed by categories related to underlying credit quality and probability of default. Regions assigns these categories at loan origination and reviews the relationship utilizing a risk-based approach on, at minimum, an annual basis or at any time management becomes aware of information affecting the borrowers' ability to fulfill their obligations. Both quantitative and qualitative factors are considered in this review process. 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 that presently jeopardizes debt repayment, even though they are currently performing. These obligations are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected;


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

Substandard accrual and non-accrual loans are often collectively referred to as “classified.” Special mention, substandard accrual, and non-accrual loans are often collectively referred to as “criticized and classified.” Classes in the consumer portfolio segment are disaggregated by accrual status.



	June 30, 2016
	Pass		Special Mention		Substandard Accrual		Non-accrual		Total
	(In millions)
Commercial and industrial	$	33,584	$	690	$	1,254	$	596	$	36,124
Commercial real estate mortgage—owner-occupied	6,492		270		191		240		7,193
Commercial real estate construction—owner-occupied	323		10		8		3		344
Total commercial	$	40,399	$	970	$	1,453	$	839	$	43,661
Commercial investor real estate mortgage	$	4,041	$	112	$	116	$	33	$	4,302
Commercial investor real estate construction	2,519		114		27		—		2,660
Total investor real estate	$	6,560	$	226	$	143	$	33	$	6,962

					Accrual		Non-accrual		Total
					(In millions)
Residential first mortgage					$	13,112	$	52	$	13,164
Home equity					10,731		101		10,832
Indirect—vehicles					4,159		—		4,159
Indirect—other consumer					722		—		722
Consumer credit card					1,113		—		1,113
Other consumer					1,089		—		1,089
Total consumer					$	30,926	$	153	$	31,079
									$	81,702

Table of Contents



	December 31, 2015
	Pass		Special Mention		Substandard Accrual		Non-accrual		Total
	(In millions)
Commercial and industrial	$	33,639	$	963	$	894	$	325	$	35,821
Commercial real estate mortgage—owner-occupied	6,750		306		214		268		7,538
Commercial real estate construction—owner-occupied	385		21		15		2		423
Total commercial	$	40,774	$	1,290	$	1,123	$	595	$	43,782
Commercial investor real estate mortgage	$	3,926	$	140	$	158	$	31	$	4,255
Commercial investor real estate construction	2,658		4		30		—		2,692
Total investor real estate	$	6,584	$	144	$	188	$	31	$	6,947

					Accrual		Non-accrual		Total
					(In millions)
Residential first mortgage					$	12,748	$	63	$	12,811
Home equity					10,885		93		10,978
Indirect—vehicles					3,984		—		3,984
Indirect—other consumer					545		—		545
Consumer credit card					1,075		—		1,075
Other consumer					1,040		—		1,040
Total consumer					$	30,277	$	156	$	30,433
									$	81,162

AGING ANALYSIS

The following tables include an aging analysis of days past due (DPD) for each portfolio segment and class as of June 30, 2016 and December 31, 2015:



	June 30, 2016
	Accrual Loans
	30-59 DPD		60-89 DPD		90+ DPD		Total 30+ DPD		Total Accrual		Non-accrual		Total
	(In millions)
Commercial and industrial	$	24	$	14	$	6	$	44	$	35,528	$	596	$	36,124
Commercial real estate mortgage—owner-occupied	20		7		3		30		6,953		240		7,193
Commercial real estate construction—owner-occupied	1		—		—		1		341		3		344
Total commercial	45		21		9		75		42,822		839		43,661
Commercial investor real estate mortgage	19		8		3		30		4,269		33		4,302
Commercial investor real estate construction	—		—		—		—		2,660		—		2,660
Total investor real estate	19		8		3		30		6,929		33		6,962
Residential first mortgage	90		58		199		347		13,112		52		13,164
Home equity	51		23		34		108		10,731		101		10,832
Indirect—vehicles	43		12		8		63		4,159		—		4,159
Indirect—other consumer	3		2		—		5		722		—		722
Consumer credit card	8		4		13		25		1,113		—		1,113
Other consumer	14		3		3		20		1,089		—		1,089
Total consumer	209		102		257		568		30,926		153		31,079
	$	273	$	131	$	269	$	673	$	80,677	$	1,025	$	81,702

Table of Contents



	December 31, 2015
	Accrual Loans
	30-59 DPD		60-89 DPD		90+ DPD		Total 30+ DPD		Total Accrual		Non-accrual		Total
	(In millions)
Commercial and industrial	$	11	$	6	$	9	$	26	$	35,496	$	325	$	35,821
Commercial real estate mortgage—owner-occupied	24		7		3		34		7,270		268		7,538
Commercial real estate construction—owner-occupied	—		1		—		1		421		2		423
Total commercial	35		14		12		61		43,187		595		43,782
Commercial investor real estate mortgage	14		13		4		31		4,224		31		4,255
Commercial investor real estate construction	2		—		—		2		2,692		—		2,692
Total investor real estate	16		13		4		33		6,916		31		6,947
Residential first mortgage	88		60		220		368		12,748		63		12,811
Home equity	58		26		59		143		10,885		93		10,978
Indirect—vehicles	49		14		9		72		3,984		—		3,984
Indirect—other consumer	2		1		—		3		545		—		545
Consumer credit card	7		5		12		24		1,075		—		1,075
Other consumer	11		4		4		19		1,040		—		1,040
Total consumer	215		110		304		629		30,277		156		30,433
	$	266	$	137	$	320	$	723	$	80,380	$	782	$	81,162

IMPAIRED LOANS

The following tables present details related to the Company’s impaired loans as of June 30, 2016 and December 31, 2015. Loans deemed to be impaired include all TDRs and all non-accrual commercial and investor real estate loans, excluding leases. Loans which have been fully charged-off do not appear in the tables below.



	Non-accrual Impaired Loans As of June 30, 2016
					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	$	644	$	57	$	587	$	121	$	466	$	162	34.0	%
Commercial real estate mortgage—owner-occupied	261		21		240		31		209		65		33.0
Commercial real estate construction—owner-occupied	3		—		3		—		3		2		66.7
Total commercial	908		78		830		152		678		229		33.8
Commercial investor real estate mortgage	38		5		33		11		22		8		34.2
Total investor real estate	38		5		33		11		22		8		34.2
Residential first mortgage	47		14		33		—		33		4		38.3
Home equity	13		—		13		—		13		—		—
Total consumer	60		14		46		—		46		4		30.0
	$	1,006	$	97	$	909	$	163	$	746	$	241	33.6	%

Table of Contents



	Accruing Impaired Loans As of June 30, 2016
	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	$	154	$	1	$	153	$	30	20.1	%
Commercial real estate mortgage—owner-occupied	65		3		62		5		12.3
Commercial real estate construction—owner-occupied	1		—		1		—		—
Total commercial	220		4		216		35		17.7
Commercial investor real estate mortgage	101		6		95		9		14.9
Commercial investor real estate construction	29		1		28		3		13.8
Total investor real estate	130		7		123		12		14.6
Residential first mortgage	456		12		444		55		14.7
Home equity	312		1		311		6		2.2
Consumer credit card	2		—		2		—		—
Other consumer	12		—		12		—		—
Total consumer	782		13		769		61		9.5
	$	1,132	$	24	$	1,108	$	108	11.7	%



	Total Impaired Loans As of June 30, 2016
					Book Value⁽³⁾
	Unpaid Principal Balance⁽¹⁾		Charge-offs and Payments Applied⁽²⁾		Total Impaired Loans		Impaired Loans with No Related Allowance		Impaired Loans with Related Allowance		Related Allowance for Loan Losses		Coverage %⁽⁴⁾
	(Dollars in millions)
Commercial and industrial	$	798	$	58	$	740	$	121	$	619	$	192	31.3	%
Commercial real estate mortgage—owner-occupied	326		24		302		31		271		70		28.8
Commercial real estate construction—owner-occupied	4		—		4		—		4		2		50.0
Total commercial	1,128		82		1,046		152		894		264		30.7
Commercial investor real estate mortgage	139		11		128		11		117		17		20.1
Commercial investor real estate construction	29		1		28		—		28		3		13.8
Total investor real estate	168		12		156		11		145		20		19.0
Residential first mortgage	503		26		477		—		477		59		16.9
Home equity	325		1		324		—		324		6		2.2
Consumer credit card	2		—		2		—		2		—		—
Other consumer	12		—		12		—		12		—		—
Total consumer	842		27		815		—		815		65		10.9
	$	2,138	$	121	$	2,017	$	163	$	1,854	$	349	22.0	%

Table of Contents



	Non-accrual Impaired Loans As of December 31, 2015
					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	$	363	$	41	$	322	$	26	$	296	$	98	38.3	%
Commercial real estate mortgage—owner-occupied	286		18		268		36		232		69		30.4
Commercial real estate construction—owner-occupied	2		—		2		—		2		1		50.0
Total commercial	651		59		592		62		530		168		34.9
Commercial investor real estate mortgage	36		5		31		13		18		8		36.1
Total investor real estate	36		5		31		13		18		8		36.1
Residential first mortgage	51		16		35		—		35		4		39.2
Home equity	14		1		13		—		13		—		7.1
Total consumer	65		17		48		—		48		4		32.3
	$	752	$	81	$	671	$	75	$	596	$	180	34.7	%



	Accruing Impaired Loans As of December 31, 2015
	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	$	68	$	1	$	67	$	13	20.6	%
Commercial real estate mortgage—owner-occupied	89		6		83		8		15.7
Commercial real estate construction—owner-occupied	1		—		1		—		—
Total commercial	158		7		151		21		17.7
Commercial investor real estate mortgage	141		8		133		13		14.9
Commercial investor real estate construction	27		—		27		5		18.5
Total investor real estate	168		8		160		18		15.5
Residential first mortgage	457		13		444		57		15.3
Home equity	328		—		328		7		2.1
Indirect—vehicles	1		—		1		—		—
Consumer credit card	2		—		2		—		—
Other consumer	12		—		12		—		—
Total consumer	800		13		787		64		9.6
	$	1,126	$	28	$	1,098	$	103	11.6	%

Table of Contents



	Total Impaired Loans As of December 31, 2015
					Book Value⁽³⁾
	Unpaid Principal Balance⁽¹⁾		Charge-offs and Payments Applied⁽²⁾		Total Impaired Loans		Impaired Loans with No Related Allowance		Impaired Loans with Related Allowance		Related Allowance for Loan Losses		Coverage %⁽⁴⁾
	(Dollars in millions)
Commercial and industrial	$	431	$	42	$	389	$	26	$	363	$	111	35.5	%
Commercial real estate mortgage—owner-occupied	375		24		351		36		315		77		26.9
Commercial real estate construction—owner-occupied	3		—		3		—		3		1		33.3
Total commercial	809		66		743		62		681		189		31.5
Commercial investor real estate mortgage	177		13		164		13		151		21		19.2
Commercial investor real estate construction	27		—		27		—		27		5		18.5
Total investor real estate	204		13		191		13		178		26		19.1
Residential first mortgage	508		29		479		—		479		61		17.7
Home equity	342		1		341		—		341		7		2.3
Indirect—vehicles	1		—		1		—		1		—		—
Consumer credit card	2		—		2		—		2		—		—
Other consumer	12		—		12		—		12		—		—
Total consumer	865		30		835		—		835		68		11.3
	$	1,878	$	109	$	1,769	$	75	$	1,694	$	283	20.9	%

________


(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.

Table of Contents

The following table presents the average balances of total impaired loans and interest income for the three and six months ended June 30, 2016 and 2015. Interest income recognized represents interest on accruing loans modified in a TDR. TDRs are considered impaired loans.



	Three Months Ended June 30								Six Months Ended June 30
	2016				2015				2016				2015
	Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized
	(In millions)
Commercial and industrial	$	719	$	2	$	398	$	2	$	597	$	3	$	378	$	3
Commercial real estate mortgage—owner-occupied	314		1		348		2		321		2		364		5
Commercial real estate construction—owner-occupied	3		—		4		—		3		—		4		—
Total commercial	1,036		3		750		4		921		5		746		8
Commercial investor real estate mortgage	126		1		257		3		134		3		294		6
Commercial investor real estate construction	28		—		32		—		28		—		32		1
Total investor real estate	154		1		289		3		162		3		326		7
Residential first mortgage	479		4		474		4		478		8		475		8
Home equity	328		4		358		4		332		9		360		9
Indirect—vehicles	—		—		1		—		1		—		1		—
Consumer credit card	2		—		2		—		2		—		2		—
Other consumer	12		—		15		—		12		—		15		—
Total consumer	821		8		850		8		825		17		853		17
Total impaired loans	$	2,011	$	12	$	1,889	$	15	$	1,908	$	25	$	1,925	$	32

TROUBLED DEBT RESTRUCTURINGS

Regions regularly modifies commercial and investor real estate loans in order to facilitate a workout strategy. Similarly, Regions works to meet the individual needs of consumer borrowers to stem foreclosure through its CAP program. Refer to Note 6 "Allowance For Credit Losses" in the 2015 Annual Report on Form 10-K for additional information regarding the Company's TDRs.

None of the modified consumer loans listed in the following TDR disclosures were collateral-dependent at the time of modification. At June 30, 2016, approximately $38 million in residential first mortgage TDRs were in excess of 180 days past due and were considered collateral-dependent. At June 30, 2016, approximately $4 million in home equity first lien TDRs were in excess of 180 days past due and approximately $5 million in home equity second lien TDRs were in excess of 120 days past due, both of which were considered collateral-dependent.

Further discussion related to TDRs, including their impact on the allowance for loan losses and designation of TDRs in periods subsequent to the modification is included in Note 1 "Summary of Significant Accounting Policies" in the 2015 Annual Report on Form 10-K.

Table of Contents

The following tables present the end of period balance for loans modified in a TDR during the periods presented by portfolio segment and class, and the financial impact of those modifications. The tables include modifications made to new TDRs, as well as renewals of existing TDRs. The end of period balance, for the period in which it was added, of total loans first reported as new TDRs totaled approximately $211 million and $154 million for the six months ended June 30, 2016 and 2015, respectively.



	Three Months Ended June 30, 2016
				Financial Impact of Modifications Considered TDRs
	Number of Obligors	Recorded Investment		Increase in Allowance at Modification
	(Dollars in millions)
Commercial and industrial	57	$	122	$	4
Commercial real estate mortgage—owner-occupied	46	21		1
Total commercial	103	143		5
Commercial investor real estate mortgage	24	17		—
Commercial investor real estate construction	3	10		—
Total investor real estate	27	27		—
Residential first mortgage	75	15		2
Home equity	89	5		—
Consumer credit card	27	—		—
Indirect—vehicles and other consumer	47	—		—
Total consumer	238	20		2
	368	$	190	$	7



	Three Months Ended June 30, 2015
				Financial Impact of Modifications Considered TDRs
	Number of Obligors	Recorded Investment		Increase in Allowance at Modification
	(Dollars in millions)
Commercial and industrial	62	$	45	$	1
Commercial real estate mortgage—owner-occupied	61	37		1
Total commercial	123	82		2
Commercial investor real estate mortgage	31	15		—
Commercial investor real estate construction	12	6		—
Total investor real estate	43	21		—
Residential first mortgage	96	20		3
Home equity	187	9		—
Consumer credit card	41	1		—
Indirect—vehicles and other consumer	109	1		—
Total consumer	433	31		3
	599	$	134	$	5

Table of Contents



	Six Months Ended June 30, 2016
				Financial Impact of Modifications Considered TDRs
	Number of Obligors	Recorded Investment		Increase in Allowance at Modification
	(Dollars in millions)
Commercial and industrial	95	$	181	$	6
Commercial real estate mortgage—owner-occupied	76	34		1
Total commercial	171	215		7
Commercial investor real estate mortgage	49	60		1
Commercial investor real estate construction	5	11		—
Total investor real estate	54	71		1
Residential first mortgage	138	29		4
Home equity	206	11		—
Consumer credit card	51	—		—
Indirect—vehicles and other consumer	101	1		—
Total consumer	496	41		4
	721	$	327	$	12



	Six Months Ended June 30, 2015
				Financial Impact of Modifications Considered TDRs
	Number of Obligors	Recorded Investment		Increase in Allowance at Modification
	(Dollars in millions)
Commercial and industrial	103	$	102	$	2
Commercial real estate mortgage—owner-occupied	103	62		2
Total commercial	206	164		4
Commercial investor real estate mortgage	60	39		1
Commercial investor real estate construction	13	7		—
Total investor real estate	73	46		1
Residential first mortgage	229	52		7
Home equity	312	15		—
Consumer credit card	73	1		—
Indirect—vehicles and other consumer	196	2		—
Total consumer	810	70		7
	1,089	$	280	$	12

Defaulted TDRs

The following table presents, by portfolio segment and class, TDRs that defaulted during the three and six months ended June 30, 2016 and 2015, and that were modified in the previous twelve months (i.e., the twelve months prior to the default). For purposes of this disclosure, default is defined as 90 days past due and still accruing for the consumer portfolio segment, and placement on non-accrual status for the commercial and investor real estate portfolio segments. Consideration of defaults in the calculation of the allowance for loan losses is described in detail in the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2015.

Table of Contents



	Three Months Ended June 30				Six Months Ended June 30
	2016		2015		2016		2015
	(In millions)
Defaulted During the Period, Where Modified in a TDR Twelve Months Prior to Default
Commercial and industrial	$	6	$	3	$	12	$	4
Commercial real estate mortgage—owner-occupied	—		2		1		3
Total commercial	6		5		13		7
Commercial investor real estate mortgage	—		—		1		1
Total investor real estate	—		—		1		1
Residential first mortgage	8		5		11		8
Home equity	1		1		1		1
Total consumer	9		6		12		9
	$	15	$	11	$	26	$	17

Commercial and investor real estate loans that were on non-accrual status at the time of the latest modification are not included in the default table above, as they are already considered to be in default at the time of the restructuring. At June 30, 2016, approximately $38 million of commercial and investor real estate loans modified in a TDR during the three months ended June 30, 2016 were on non-accrual status. Approximately 8.9 percent of this amount was 90 days past due.

At June 30, 2016, Regions had restructured binding unfunded commitments totaling $50 million where a concession was granted and the borrower was in financial difficulty.

NOTE 5. SERVICING OF FINANCIAL ASSETS

RESIDENTIAL MORTGAGE BANKING ACTIVITIES

The fair value of residential MSRs is calculated using various assumptions including future cash flows, market discount rates, expected prepayment rates, servicing costs and other factors. A significant change in prepayments of mortgages in the servicing portfolio could result in significant changes in the valuation adjustments, thus creating potential volatility in the carrying amount of residential MSRs. The Company compares fair value estimates and assumptions to observable market data where available, and also considers recent market activity and actual portfolio experience.

The table below presents an analysis of residential MSRs under the fair value measurement method:



	Three Months Ended June 30						Six Months Ended June 30
	2016			2015			2016			2015
	(In millions)
Carrying value, beginning of period	$	239		$	239		$	252		$	257
Additions	8			12			39			19
Increase (decrease) in fair value⁽¹⁾:
Due to change in valuation inputs or assumptions	(22		)	28			(58		)	11
Economic amortization associated with borrower repayments	(9		)	(11		)	(17		)	(19		)
Carrying value, end of period	$	216		$	268		$	216		$	268

________

(1) "Economic amortization associated with borrower repayments" includes both total loan payoffs as well as partial paydowns.

On February 29, 2016, the Company completed a transaction to purchase the rights to service approximately $2.6 billion in residential mortgage loans. The residential MSRs asset was increased by the purchase price of approximately $24 million.

Table of Contents

Data and assumptions used in the fair value calculation, as well as the valuation’s sensitivity to rate fluctuations, related to residential MSRs (excluding related derivative instruments) are as follows:



	June 30
	2016			2015
	(Dollars in millions)
Unpaid principal balance	$	27,360		$	26,637
Weighted-average prepayment speed (CPR; percentage)	16.5		%	10.0		%
Estimated impact on fair value of a 10% increase	$	(12	)	$	(15	)
Estimated impact on fair value of a 20% increase	$	(24	)	$	(27	)
Option-adjusted spread (basis points)	999			998
Estimated impact on fair value of a 10% increase	$	(8	)	$	(11	)
Estimated impact on fair value of a 20% increase	$	(15	)	$	(21	)
Weighted-average coupon interest rate	4.3		%	4.4		%
Weighted-average remaining maturity (months)	279			279
Weighted-average servicing fee (basis points)	27.8			27.8

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of an adverse variation in a particular assumption on the fair value of residential MSRs is calculated without changing any other assumption, while in reality changes in one factor may result in changes in another, which may either magnify or counteract the effect of the change. The derivative instruments utilized by Regions would serve to reduce the estimated impacts to fair value included in the table above.

The following table presents servicing related fees, which includes contractually specified servicing fees, late fees and other ancillary income resulting from the servicing of residential mortgage loans:



	Three Months Ended June 30				Six Months Ended June 30
	2016		2015		2016		2015
	(In millions)
Servicing related fees and other ancillary income	$	22	$	20	$	42	$	41

Residential mortgage loans are sold in the secondary market with standard representations and warranties regarding certain characteristics such as the quality of the loan, the absence of fraud, the eligibility of the loan for sale and the future servicing associated with the loan. Regions may be required to repurchase these loans at par, or make-whole or indemnify the purchasers for losses incurred when representations and warranties are breached.

Regions maintains an immaterial repurchase liability related to residential mortgage loans sold with representations and warranty provisions. This repurchase liability is reported in other liabilities on the consolidated balance sheets and reflects management’s estimate of losses based on historical repurchase and loss trends, as well as other factors that may result in anticipated losses different from historical loss trends. Adjustments to this reserve are recorded in other non-interest expense on the consolidated statements of income.

COMMERCIAL MORTGAGE BANKING ACTIVITIES

On July 18, 2014, Regions was approved as a Fannie Mae DUS lender and acquired a DUS servicing portfolio totaling approximately $1.0 billion. The Fannie Mae DUS program provides liquidity to the multi-family housing market. As part of the transaction, Regions recorded $12 million in commercial MSRs and $15 million in intangible assets associated with the DUS license purchased. Regions also assumed a loss share guarantee associated with the purchased portfolio and any future originations. Regions estimated the fair value of the loss share guarantee to be approximately $4 million. See Note 1 "Summary of Significant Accounting Policies" in the 2015 Annual Report on Form 10-K for additional information. Also see Note 14 for additional information related to the guarantee.

As of June 30, 2016 and December 31, 2015, the DUS servicing portfolio was approximately $1.6 billion and $1.2 billion, respectively. The related commercial MSRs were valued at approximately $26 million and $16 million at June 30, 2016 and December 31, 2015, respectively. The loss share guarantee was valued at approximately $3 million at both June 30, 2016 and December 31, 2015.

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NOTE 6. GOODWILL

Goodwill allocated to each reportable segment (each a reporting unit) is presented as follows:



	June 30, 2016		December 31, 2015
	(In millions)
Corporate Bank	$	2,452	$	2,305
Consumer Bank	1,978		2,095
Wealth Management	452		478
	$	4,882	$	4,878

Regions evaluates each reporting unit’s goodwill for impairment on an annual basis in the fourth quarter, or more often if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. A detailed description of the Company’s methodology and valuation approaches used to determine the estimated fair value of each reporting unit is included in the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2015. Adverse changes in the economic environment, declining operations, or other factors could result in a decline in the implied fair value of goodwill.

During the second quarter of 2016, Regions assessed events and circumstances for all three reporting units as of June 30, 2016, and through the date of the filing of this Quarterly Report on Form 10-Q that could potentially indicate goodwill impairment. The indicators assessed included:


•	Recent operating performance,


•	Changes in market capitalization,


•	Regulatory actions and assessments,


•	Changes in the business climate (including legislation, legal factors, and competition),


•	Company-specific factors (including changes in key personnel, asset impairments, and business dispositions), and


•	Trends in the banking industry.

During the first quarter of 2016, Regions reorganized its internal management structure and, accordingly, its segment reporting structure. Due to the organizational realignment, Regions determined that quantitative testing of goodwill was required for all reporting units, and goodwill was reallocated to each reporting unit using a relative fair value approach. Results of the first quarter 2016 goodwill test indicated that the estimated fair value of each reporting unit exceeded its carrying amounts as of the test date. Additionally, after assessing the indicators noted above, Regions determined that it was not more likely than not that the fair value of each of its reporting units had declined below their carrying value as of June 30, 2016. Therefore, Regions determined that a test of goodwill impairment was not required for each of Regions’ reporting units for the June 30, 2016 interim period.

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NOTE 7. STOCKHOLDERS’ EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

PREFERRED STOCK

The following table presents a summary of the non-cumulative perpetual preferred stock:



								June 30, 2016		December 31, 2015
	Issuance Date	Earliest Redemption Date	Dividend Rate			Liquidation Amount		Carrying Amount		Carrying Amount
	(Dollars in millions)
Series A	11/1/2012	12/15/2017	6.375	%		$	500	$	387	$	387
Series B	4/29/2014	9/15/2024	6.375	%	⁽¹⁾	500		433		433
						$	1,000	$	820	$	820

_________

(1) Dividends, if declared, will be paid quarterly at an annual rate equal to (i) for each period beginning prior to September 15, 2024, 6.375%, and (ii) for each period beginning on or after September 15, 2024, three-month LIBOR plus 3.536%.

For each preferred stock issuance listed above, Regions issued depositary shares, each representing a 1/40th ownership interest in a share of the Company's preferred stock, with a liquidation preference of $1,000.00 per share of preferred stock (equivalent to $25.00 per depositary share). Dividends on the preferred stock, if declared, accrue and are payable quarterly in arrears. The preferred stock has no stated maturity and redemption is solely at Regions' option, subject to regulatory approval, in whole, or in part, after the earliest redemption date or in whole, but not in part, within 90 days following a regulatory capital treatment event for the Series A preferred stock or at any time following a regulatory capital treatment event for the Series B preferred stock.

The Board of Directors declared $8 million in cash dividends on Series A Preferred Stock during the first and second quarters of both 2016 and 2015. Series B Preferred Stock dividends were $8 million for the first and second quarters of both 2016 and 2015. Prior to the first quarter of 2016, the Company was in a retained deficit position and preferred dividends were recorded as a reduction of preferred stock, including related surplus. During the first quarter of 2016, the Company achieved positive retained earnings and preferred dividends were recorded as a reduction of retained earnings.

COMMON STOCK

On June 29, 2016, Regions received no objection from the Federal Reserve to its 2016 capital plan that was submitted as part of the CCAR process. In addition to continuing the $0.065 quarterly common stock dividend, actions that Regions may undertake as outlined in its capital plan include the repurchase of up to $640 million in common shares. The capital plan also provides the potential for a dividend increase beginning in the second quarter of 2017, which is expected to be considered by the Board in early 2017. On July 14, 2016, Regions' Board authorized a new $640 million common stock repurchase plan, permitting repurchases from the beginning of the third quarter of 2016 through the second quarter of 2017. The Company began to repurchase shares under this plan in the third quarter of 2016, and as of August 4, 2016, Regions had repurchased approximately 9.4 million shares of common stock at a total cost of approximately $85.0 million. These shares were immediately retired and therefore are not included in treasury stock.

On April 23, 2015, Regions' Board approved an increase of its quarterly common stock dividend to $0.06 per share effective with the quarterly dividend paid in July 2015. The Board also authorized a $875 million common stock repurchase plan, permitting repurchases from the beginning of the second quarter of 2015 through the end of the second quarter of 2016. Through June 30, 2016, Regions repurchased approximately 94.1 million shares of common stock at a total cost of approximately $875 million under this plan. The Company closed out this repurchase plan in the second quarter of 2016. These shares were immediately retired and therefore are not included in treasury stock.

The Board declared a $0.065 per share cash dividend on common stock for the second quarter of 2016, and a $0.06 per share cash dividend for the first quarter of 2016, totaling $0.125 per share cash dividend for the first six months of 2016. The Board declared a $0.06 per share cash dividend on common stock for the second quarter of 2015, and a $0.05 per share cash dividend for the first quarter of 2015, totaling $0.11 per share cash dividend for the first six months of 2015. Prior to the first quarter of 2016, the Company was in a retained deficit position and common stock dividends were recorded as a reduction of additional paid-in capital. During the first quarter of 2016, the Company achieved positive retained earnings and common stock dividends were recorded as a reduction of retained earnings.

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Activity within the balances in accumulated other comprehensive income (loss) is shown in the following tables:



	Three Months Ended June 30, 2016
	Unrealized losses on securities transferred to held to maturity			Unrealized gains (losses) on securities available for sale		Unrealized gains (losses) on derivative instruments designated as cash flow hedges		Defined benefit pension plans and other post employment benefits			Accumulated other comprehensive income (loss), net of tax
	(In millions)
Beginning of period	$	(45	)	$	198	$	216	$	(392	)	$	(23	)
Net change	5			99		62		5			171
End of period	$	(40	)	$	297	$	278	$	(387	)	$	148



	Three Months Ended June 30, 2015
	Unrealized losses on securities transferred to held to maturity			Unrealized gains (losses) on securities available for sale			Unrealized gains (losses) on derivative instruments designated as cash flow hedges			Defined benefit pension plans and other post employment benefits			Accumulated other comprehensive income (loss), net of tax
	(In millions)
Beginning of period	$	(53	)	$	252		$	70		$	(384	)	$	(115	)
Net change	2			(156		)	(25		)	7			(172		)
End of period	$	(51	)	$	96		$	45		$	(377	)	$	(287	)



	Six Months Ended June 30, 2016
	Unrealized losses on securities transferred to held to maturity			Unrealized gains (losses) on securities available for sale			Unrealized gains (losses) on derivative instruments designated as cash flow hedges		Defined benefit pension plans and other post employment benefits			Accumulated other comprehensive income (loss), net of tax
	(In millions)
Beginning of period	$	(47	)	$	(10	)	$	75	$	(398	)	$	(380	)
Net change	7			307			203		11			528
End of period	$	(40	)	$	297		$	278	$	(387	)	$	148



	Six Months Ended June 30, 2015
	Unrealized losses on securities transferred to held to maturity			Unrealized gains (losses) on securities available for sale			Unrealized gains (losses) on derivative instruments designated as cash flow hedges		Defined benefit pension plans and other post employment benefits			Accumulated other comprehensive income (loss), net of tax
	(In millions)
Beginning of period	$	(55	)	$	175		$	33	$	(391	)	$	(238	)
Net change	4			(79		)	12		14			(49		)
End of period	$	(51	)	$	96		$	45	$	(377	)	$	(287	)

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The following tables present amounts reclassified out of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2016 and 2015:



	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015
Details about Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)⁽¹⁾			Amount Reclassified from Accumulated Other Comprehensive Income (Loss)⁽¹⁾			Affected Line Item in the Consolidated Statements of Income
	(In millions)
Unrealized losses on securities transferred to held to maturity:
	$	(8	)	$	(4	)	Net interest income and other financing income
	3			2			Tax (expense) or benefit
	$	(5	)	$	(2	)	Net of tax
Unrealized gains and (losses) on available for sale securities:
	$	6		$	6		Securities gains (losses), net
	(2		)	(2		)	Tax (expense) or benefit
	$	4		$	4		Net of tax

Gains and (losses) on cash flow hedges:
Interest rate contracts	$	35		$	34		Net interest income and other financing income
	(13		)	(13		)	Tax (expense) or benefit
	$	22		$	21		Net of tax

Amortization of defined benefit pension plans and other post employment benefits:
Prior-service cost	$	—		$	—		⁽²⁾
Actuarial gains (losses)	(8		)	(12		)	⁽²⁾
	(8		)	(12		)	Total before tax
	3			5			Tax (expense) or benefit
	$	(5	)	$	(7	)	Net of tax

Total reclassifications for the period	$	16		$	16		Net of tax

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	Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Details about Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)⁽¹⁾			Amount Reclassified from Accumulated Other Comprehensive Income (Loss)⁽¹⁾			Affected Line Item in the Consolidated Statements of Income
	(In millions)
Unrealized losses on securities transferred to held to maturity:
	$	(11	)	$	(7	)	Net interest income and other financing income
	4			3			Tax (expense) or benefit
	$	(7	)	$	(4	)	Net of tax
Unrealized gains and (losses) on available for sale securities:
	$	1		$	11		Securities gains (losses), net
	—			(4		)	Tax (expense) or benefit
	$	1		$	7		Net of tax

Gains and (losses) on cash flow hedges:
Interest rate contracts	$	74		$	67		Net interest income and other financing income
	(28		)	(25		)	Tax (expense) or benefit
	$	46		$	42		Net of tax

Amortization of defined benefit pension plans and other post employment benefits:
Prior-service cost	$	—		$	—		⁽²⁾
Actuarial gains (losses)	(17		)	(24		)	⁽²⁾
	(17		)	(24		)	Total before tax
	6			9			Tax (expense) or benefit
	$	(11	)	$	(15	)	Net of tax

Total reclassifications for the period	$	29		$	30		Net of tax

________

(1) Amounts in parentheses indicate reductions to net income.

(2) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension cost and are included in salaries and employee benefits on the consolidated statements of income (see Note 10 for additional details).

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NOTE 8. EARNINGS (LOSS) PER COMMON SHARE

The following table sets forth the computation of basic earnings (loss) per common share and diluted earnings (loss) per common share:



	Three Months Ended June 30						Six Months Ended June 30
	2016			2015			2016			2015
	(In millions, except per share amounts)
Numerator:
Income from continuing operations	$	272		$	289		$	545		$	525
Preferred stock dividends	(16		)	(16		)	(32		)	(32		)
Income from continuing operations available to common shareholders	256			273			513			493
Income (loss) from discontinued operations, net of tax	3			(4		)	3			(6		)
Net income available to common shareholders	$	259		$	269		$	516		$	487
Denominator:
Weighted-average common shares outstanding—basic	1,265			1,335			1,275			1,340
Potential common shares	3			11			4			12
Weighted-average common shares outstanding—diluted	1,268			1,346			1,279			1,352
Earnings per common share from continuing operations available to common shareholders⁽¹⁾:
Basic	$	0.20		$	0.20		$	0.40		$	0.37
Diluted	0.20			0.20			0.40			0.36
Earnings (loss) per common share from discontinued operations⁽¹⁾:
Basic	0.00			(0.00		)	0.00			(0.00		)
Diluted	0.00			(0.00		)	0.00			(0.00		)
Earnings per common share⁽¹⁾:
Basic	0.20			0.20			0.40			0.36
Diluted	0.20			0.20			0.40			0.36

________


(1)	Certain per share amounts may not appear to reconcile due to rounding.

For earnings (loss) per common share from discontinued operations, basic and diluted weighted-average common shares outstanding are the same for the three and six months ended June 30, 2015 due to a net loss.

The effect from the assumed exercise of 30 million stock options for both the three and six months ended June 30, 2016 was not included in the above computations of diluted earnings per common share because such amounts would have had an antidilutive effect on earnings per common share. The effect from the assumed exercise of 30 million and 29 million stock options for the three and six months ended June 30, 2015, respectively, was not included in the above computations of diluted earnings per common share because such amounts would have had an antidilutive effect on earnings per common share.

NOTE 9. SHARE-BASED PAYMENTS

Regions administers long-term incentive compensation plans that permit the granting of incentive awards in the form of stock options, restricted stock awards, performance awards and stock appreciation rights. While Regions has the ability to issue stock appreciation rights, none have been issued to date. The terms of all awards issued under these plans are determined by the Compensation Committee of the Board of Directors; however, no awards may be granted after the tenth anniversary from the date the plans were initially approved by stockholders. Incentive awards usually vest based on employee service, generally within three years from the date of the grant. The contractual lives of options granted under these plans are typically ten years from the date of the grant.

On April 23, 2015, the stockholders of the Company approved the Regions Financial Corporation 2015 LTIP , which permits the Company to grant to employees and directors various forms of incentive compensation. These forms of incentive compensation are similar to the types of compensation approved in prior plans. The 2015 LTIP authorizes 60 million common share equivalents

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available for grant, where grants of options and grants of full value awards (e.g., shares of restricted stock, restricted stock units and performance stock units) count as one share equivalent. Unless otherwise determined by the Compensation Committee of the Board, grants of restricted stock, restricted stock units, and performance stock units accrue dividends, or their notional equivalent, as they are declared by the Board, and are paid upon vesting of the award. Upon adoption of the 2015 LTIP, Regions closed the prior long-term incentive plan to new grants, and, accordingly, prospective grants must be made under the 2015 LTIP or a successor plan. All existing grants under prior long-term incentive plans are unaffected by adoption of the 2015 LTIP. The number of remaining share equivalents available for future issuance under the 2015 LTIP was approximately 48 million at June 30, 2016.

STOCK OPTIONS

The following table summarizes the activity related to stock options:



	Six Months Ended June 30
	2016				2015
	Number of Options		Weighted-Average Exercise Price		Number of Options		Weighted-Average Exercise Price
Outstanding at beginning of period	19,350,157		$	21.06	25,316,676		$	23.07
Exercised	(227,492	)	6.91		(291,460	)	6.96
Forfeited or expired	(3,819,783	)	34.72		(5,301,942	)	31.95
Outstanding at end of period	15,302,882		$	17.86	19,723,274		$	20.92
Exercisable at end of period	15,302,882		$	17.86	19,723,274		$	20.92

RESTRICTED STOCK AWARDS AND PERFORMANCE STOCK AWARDS

Regions periodically grants restricted stock awards that vest upon service conditions. Regions also periodically grants restricted stock awards and performance stock awards that vest based upon service conditions and performance conditions. Incremental shares earned above the performance target associated with previous performance stock awards are included when and if performance targets are achieved. Dividend payments during the vesting period are deferred to the end of the vesting term. The fair value of these restricted shares, restricted stock units and performance stock units was estimated based upon the fair value of the underlying shares on the date of the grant. The valuation was not adjusted for the deferral of dividends.

The following table summarizes the activity related to restricted stock awards and performance stock awards:



	Six Months Ended June 30
	2016				2015
	Number of Shares		Weighted-Average Grant Date Fair Value		Number of Shares		Weighted-Average Grant Date Fair Value
Non-vested at beginning of period	16,374,242		$	9.51	18,427,409		$	8.07
Granted	6,820,768		7.92		6,603,342		9.90
Vested	(5,600,419	)	8.21		(7,968,049	)	6.01
Forfeited	(690,623	)	9.19		(371,998	)	8.18
Non-vested at end of period	16,903,968		$	9.31	16,690,704		$	9.50

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NOTE 10. PENSION AND OTHER POSTRETIREMENT BENEFITS

Regions has a defined benefit pension plan qualified under the Internal Revenue Code covering only certain employees as the pension plan is closed to new entrants. The Company also sponsors a SERP, which is a non-qualified pension plan that provides certain senior executive officers defined benefits in relation to their compensation.

Net periodic pension cost, which is recorded in salaries and employee benefits on the consolidated statements of income, included the following components:



	Qualified Plan						Non-qualified Plans				Total
	Three Months Ended June 30
	2016			2015			2016		2015		2016			2015
	(In millions)
Service cost	$	8		$	10		$	1	$	2	$	9		$	12
Interest cost	18			21			2		2		20			23
Expected return on plan assets	(36		)	(38		)	—		—		(36		)	(38		)
Amortization of actuarial loss	8			11			—		1		8			12
Amortization of prior service cost	—			—			—		—		—			—
Net periodic pension cost (credit)	$	(2	)	$	4		$	3	$	5	$	1		$	9



	Qualified Plan						Non-qualified Plans				Total
	Six Months Ended June 30
	2016			2015			2016		2015		2016			2015
	(In millions)
Service cost	$	17		$	20		$	2	$	3	$	19		$	23
Interest cost	36			42			3		3		39			45
Expected return on plan assets	(72		)	(74		)	—		—		(72		)	(74		)
Amortization of actuarial loss	16			22			1		2		17			24
Amortization of prior service cost	—			—			—		—		—			—
Net periodic pension cost (credit)	$	(3	)	$	10		$	6	$	8	$	3		$	18

On December 31, 2015, Regions changed the basis for determining the assumption used to estimate the service and interest components of net periodic pension costs for pension and other postretirement benefits. This change provides a more precise measurement of service and interest costs and resulted in an immaterial impact to the pension benefit obligation as of December 31, 2015. Additionally, Regions separated the Regions Financial Corporation Retirement Plan into two plans, effective January 1, 2016, creating a new plan primarily for participants who remained actively employed as of that date. The corresponding assets and liabilities of these participants will be transferred to the new plan in 2016. All other participants will remain in the existing plan. See Note 18 "Employee Benefit Plans" of the Annual Report on Form 10-K for the year ended December 31, 2015 for further discussion.

Regions' policy for funding the qualified pension plan is to contribute annually at least the amount required by the IRS minimum funding standards. Regions made no contribution to the plan during the first six months of 2016.

Regions also provides other postretirement benefits such as defined benefit health care plans and life insurance plans that cover certain retired employees. There was no material impact from other postretirement benefits on the consolidated financial statements for the six months ended June 30, 2016 or 2015.

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NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

The following tables present the notional amount and estimated fair value of derivative instruments on a gross basis as of June 30, 2016 and December 31, 2015.



	June 30, 2016						December 31, 2015
	Notional Amount		Estimated Fair Value				Notional Amount		Estimated Fair Value
	Notional Amount		Gain⁽¹⁾		Loss⁽¹⁾		Notional Amount		Gain⁽¹⁾		Loss⁽¹⁾
	(In millions)
Derivatives in fair value hedging relationships:
Interest rate swaps	$	3,021	$	34	$	60	$	2,450	$	5	$	27
Derivatives in cash flow hedging relationships:
Interest rate swaps	9,800		331		—		9,800		109		9
Total derivatives designated as hedging instruments	$	12,821	$	365	$	60	$	12,250	$	114	$	36
Derivatives not designated as hedging instruments:
Interest rate swaps	$	40,920	$	753	$	764	$	40,612	$	496	$	528
Interest rate options	3,975		20		1		3,441		11		1
Interest rate futures and forward commitments	21,846		11		17		17,288		5		6
Other contracts	5,085		121		103		4,367		200		187
Total derivatives not designated as hedging instruments	$	71,826	$	905	$	885	$	65,708	$	712	$	722
Total derivatives	$	84,647	$	1,270	$	945	$	77,958	$	826	$	758

_________


(1)	Derivatives in a gain position are recorded as other assets and derivatives in a loss position are recorded as other liabilities on the consolidated balance sheets.

HEDGING DERIVATIVES

Derivatives entered into to manage interest rate risk and facilitate asset/liability management strategies are designated as hedging derivatives. Derivative financial instruments that qualify in a hedging relationship are classified, based on the exposure being hedged, as either fair value hedges or cash flow hedges. See Note 1 "Summary of Significant Accounting Policies" of the Annual Report on Form 10-K for the year ended December 31, 2015, for additional information regarding accounting policies for derivatives.

FAIR VALUE HEDGES

Fair value hedge relationships mitigate exposure to the change in fair value of an asset, liability or firm commitment.

Regions enters into interest rate swap agreements to manage interest rate exposure on the Company’s fixed-rate borrowings, which includes long-term debt and certificates of deposit. These agreements involve the receipt of fixed-rate amounts in exchange for floating-rate interest payments over the life of the agreements. Regions enters into interest rate swap agreements to manage interest rate exposure on certain of the Company's fixed-rate available for sale debt securities. These agreements involve the payment of fixed-rate amounts in exchange for floating-rate interest receipts.

CASH FLOW HEDGES

Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions.

Regions enters into interest rate swap agreements to manage overall cash flow changes related to interest rate risk exposure on LIBOR-based loans. The agreements effectively modify the Company’s exposure to interest rate risk by utilizing receive fixed/pay LIBOR interest rate swaps.

Regions issues long-term fixed-rate debt for various funding needs. Regions may enter into receive LIBOR/pay fixed forward starting swaps to hedge risks of changes in the projected quarterly interest payments attributable to changes in the benchmark interest rate (LIBOR) during the time leading up to the probable issuance date of the new long-term fixed-rate debt.

Regions recognized an unrealized after-tax gain of $77 million and $18 million in accumulated other comprehensive income (loss) at June 30, 2016 and 2015, respectively, related to terminated cash flow hedges of loan instruments, which will be amortized

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into earnings in conjunction with the recognition of interest payments through 2025. Regions recognized pre-tax income of $12 million and $11 million during the three months ended June 30, 2016 and 2015, respectively, and pre-tax income of $24 million and $22 million during the six months ended June 30, 2016 and 2015, respectively, related to the amortization of cash flow hedges of loan instruments.

Regions expects to reclassify out of accumulated other comprehensive income (loss) and into earnings approximately $132 million in pre-tax income due to the receipt or payment of interest payments on all cash flow hedges within the next twelve months. Included in this amount is $36 million in pre-tax net gains related to the amortization of discontinued cash flow hedges. The maximum length of time over which Regions is hedging its exposure to the variability in future cash flows for forecasted transactions is approximately nine years as of June 30, 2016.

The following tables present the effect of hedging derivative instruments on the consolidated statements of income:



	Gain or (Loss) Recognized in Income on Derivatives						Location of Amounts Recognized in Income on Derivatives and Related Hedged Item	Gain or (Loss) Recognized in Income on Related Hedged Item
	Three Months Ended June 30							Three Months Ended June 30
	2016			2015				2016			2015
	(In millions)							(In millions)
Fair Value Hedges:
Interest rate swaps on:
Debt/CDs	$	4		$	4		Interest expense	$	(1	)	$	2
Debt/CDs	12			(3		)	Other non-interest expense	(12		)	3
Securities available for sale	(2		)	(4		)	Interest income	—			—
Securities available for sale	(12		)	25			Other non-interest expense	12			(25		)
Total	$	2		$	22			$	(1	)	$	(20	)



	Effective Portion⁽³⁾
	Gain or (Loss) Recognized in AOCI⁽¹⁾					Location of Amounts Reclassified from AOCI into Income	Gain or (Loss) Reclassified from AOCI into Income⁽²⁾
	Three Months Ended June 30						Three Months Ended June 30
	2016		2015				2016		2015
	(In millions)						(In millions)
Cash Flow Hedges:
Interest rate swaps	$	62	$	(25	)	Interest income on loans	$	35	$	34
Total	$	62	$	(25	)		$	35	$	34



	Gain or (Loss) Recognized in Income on Derivatives						Location of Amounts Recognized in Income on Derivatives and Related Hedged Item	Gain or (Loss) Recognized in Income on Related Hedged Item
	Six Months Ended June 30							Six Months Ended June 30
	2016			2015				2016			2015
	(In millions)							(In millions)
Fair Value Hedges:
Interest rate swaps on:
Debt/CDs	$	8		$	8		Interest expense	$	(2	)	$	6
Debt/CDs	27			4			Other non-interest expense	(27		)	(4		)
Securities available for sale	(5		)	(8		)	Interest income	—			—
Securities available for sale	(38		)	5			Other non-interest expense	37			(6		)
Total	$	(8	)	$	9			$	8		$	(4	)

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	Effective Portion⁽³⁾
	Gain or (Loss) Recognized in AOCI⁽¹⁾				Location of Amounts Reclassified from AOCI into Income	Gain or (Loss) Reclassified from AOCI into Income⁽²⁾
	Six Months Ended June 30					Six Months Ended June 30
	2016		2015			2016		2015
	(In millions)					(In millions)
Cash Flow Hedges:
Interest rate swaps	$	203	$	12	Interest income on loans	$	74	$	67
Total	$	203	$	12		$	74	$	67

______

(1) After-tax

(2) Pre-tax

(3) All cash flow hedges were highly effective for all periods presented, and the change in fair value attributed to hedge ineffectiveness was not material.

DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS

The Company holds a portfolio of interest rate swaps, option contracts, and futures and forward commitments that result from transactions with its commercial customers in which they manage their risks by entering into a derivative with Regions. The Company monitors and manages the net risk in this customer portfolio and enters into separate derivative contracts in order to reduce the overall exposure to pre-defined limits. For both derivatives with its end customers and derivatives Regions enters into to mitigate the risk in this portfolio, the Company is subject to market risk and the risk that the counterparty will default. The contracts in this portfolio are not designated as accounting hedges and are marked-to market through earnings (in capital markets fee income and other) and included in other assets and other liabilities, as appropriate.

Regions enters into interest rate lock commitments, which are commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. At June 30, 2016 and December 31, 2015, Regions had $464 million and $322 million, respectively, in total notional amount of interest rate lock commitments. Regions manages market risk on interest rate lock commitments and mortgage loans held for sale with corresponding forward sale commitments. Residential mortgage loans held for sale are recorded at fair value with changes in fair value recorded in mortgage income. Commercial mortgage loans held for sale are recorded at either the lower of cost or market or at fair value based on management's election. At June 30, 2016 and December 31, 2015, Regions had $802 million and $666 million, respectively, in total notional amounts related to these forward sale commitments. Changes in mark-to-market from both interest rate lock commitments and corresponding forward sale commitments related to residential mortgage loans are included in mortgage income. Changes in mark-to-market from both interest rate lock commitments and corresponding forward sale commitments related to commercial mortgage loans are included in capital markets fee income and other.

Regions has elected to account for residential MSRs at fair market value with any changes to fair value being recorded within mortgage income. Concurrent with the election to use the fair value measurement method, Regions began using various derivative instruments, in the form of forward rate commitments, futures contracts, swaps and swaptions to mitigate the effect of changes in the fair value of its residential MSRs on its consolidated statements of income. As of June 30, 2016 and December 31, 2015, the total notional amount related to these contracts was $5.3 billion and $3.6 billion, respectively.

The following table presents the location and amount of gain or (loss) recognized in income on derivatives not designated as hedging instruments in the consolidated statements of income for the three and six months ended June 30, 2016 and 2015:

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	Three Months Ended June 30						Six Months Ended June 30
Derivatives Not Designated as Hedging Instruments	2016			2015			2016		2015
	(In millions)
Capital markets fee income and other⁽¹⁾:
Interest rate swaps	$	(1	)	$	4		$	3	$	8
Interest rate options	4			4			14		4
Interest rate futures and forward commitments	2			—			3		(1		)
Other contracts	14			(11		)	2		(7		)
Total capital markets fee income and other	19			(3		)	22		4
Mortgage income:
Interest rate swaps	19			(16		)	48		(3		)
Interest rate options	3			(3		)	8		4
Interest rate futures and forward commitments	(1		)	3			1		7
Total mortgage income	21			(16		)	57		8
	$	40		$	(19	)	$	79	$	12

______

(1) Capital markets fee income and other is included in Other income on the consolidated statements of income.

Credit risk, defined as all positive exposures not collateralized with cash or other assets or reserved for, at June 30, 2016 and December 31, 2015, totaled approximately $728 million and $406 million, respectively. These amounts represent the net credit risk on all trading and other derivative positions held by Regions.

CREDIT DERIVATIVES

Regions has both bought and sold credit protection in the form of participations on interest rate swaps (swap participations). These swap participations, which meet the definition of credit derivatives, were entered into in the ordinary course of business to serve the credit needs of customers. Credit derivatives, whereby Regions has purchased credit protection, entitle Regions to receive a payment from the counterparty if the customer fails to make payment on any amounts due to Regions upon early termination of the swap transaction and have maturities between 2016 and 2023. Credit derivatives whereby Regions has sold credit protection have maturities between 2016 and 2025. For contracts where Regions sold credit protection, Regions would be required to make payment to the counterparty if the customer fails to make payment on any amounts due to the counterparty upon early termination of the swap transaction. Regions bases the current status of the prepayment/performance risk on bought and sold credit derivatives on recently issued internal risk ratings consistent with the risk management practices of unfunded commitments.

Regions’ maximum potential amount of future payments under these contracts as of June 30, 2016 was approximately $137 million. This scenario would only occur if variable interest rates were at zero percent and all counterparties defaulted with zero recovery. The fair value of sold protection at June 30, 2016 and 2015 was immaterial. In transactions where Regions has sold credit protection, recourse to collateral associated with the original swap transaction is available to offset some or all of Regions’ obligation.

Regions has bought credit protection in the form of credit default indices. These indices, which meet the definition of credit derivatives, were entered into in the ordinary course of business to economically hedge credit risk in commercial mortgage loans held for sale whereby the fair value option has been elected. Credit derivatives, whereby Regions has purchased credit protection, entitle Regions to receive a payment from the counterparty if losses on the underlying index exceed a certain threshold, dependent upon the tranche rating of the capital structure.

CONTINGENT FEATURES

Certain of Regions’ derivative instrument contracts with broker-dealers contain credit-related termination provisions and/or credit-related provisions regarding the posting of collateral, allowing those broker-dealers to terminate the contracts in the event that Regions’ and/or Regions Bank’s credit ratings falls below specified ratings from certain major credit rating agencies. The aggregate fair values of all derivative instruments with any credit-risk-related contingent features that were in a liability position on June 30, 2016 and December 31, 2015, were $199 million and $180 million, respectively, for which Regions had posted collateral of $201 million and $180 million, respectively, in the normal course of business.

OFFSETTING

Regions engages in derivatives transactions with dealers and customers. These derivatives transactions are subject to enforceable master netting agreements, which include a right of setoff by the non-defaulting or non-affected party upon early termination of the derivatives transaction. The following table presents the Company's gross derivative positions, including collateral posted or received, as of June 30, 2016 and December 31, 2015.

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	Offsetting Derivative Assets				Offsetting Derivative Liabilities
	June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015
	(In millions)
Gross amounts subject to offsetting	$	955	$	718	$	727	$	677
Gross amounts not subject to offsetting	315		108		218		81
Gross amounts recognized	1,270		826		945		758
Gross amounts offset in the consolidated balance sheets⁽¹⁾	536		409		658		558
Net amounts presented in the consolidated balance sheets	734		417		287		200
Gross amounts not offset in the consolidated balance sheets:
Financial instruments	4		5		51		50
Cash collateral received/posted	2		6		7		52
Net amounts	$	728	$	406	$	229	$	98

________

(1)

At June 30, 2016, gross amounts of derivative assets and liabilities offset in the consolidated balance sheets presented above include cash collateral received of $149 million and cash collateral posted of $270 million. At December 31, 2015, gross amounts of derivative assets and liabilities offset in the consolidated balance sheets presented above include cash collateral received of $108 million and cash collateral posted of $256 million.

Gross amounts of derivatives not subject to offsetting primarily consist of derivatives cleared through a Central Counterparty Clearing House and interest rate lock commitments to originate mortgage loans.

NOTE 12. FAIR VALUE MEASUREMENTS

See Note 1 “Summary of Significant Accounting Policies” to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2015 for a description of valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis. Assets and liabilities measured at fair value rarely transfer between Level 1 and Level 2 measurements. There were no such transfers during the six month periods ended June 30, 2016 and 2015. Trading account securities and securities available for sale may be periodically transferred to or from Level 3 valuation based on management’s conclusion regarding the observability of inputs used in valuing the securities. Such transfers are accounted for as if they occur at the beginning of a reporting period.

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The following table presents assets and liabilities measured at estimated fair value on a recurring basis and non-recurring basis as of June 30, 2016 and December 31, 2015:



	June 30, 2016								December 31, 2015
	Level 1		Level 2		Level 3		Total Estimated Fair Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(In millions)
Recurring fair value measurements
Trading account securities	$	117	$	—	$	—	$	117	$	110	$	—	$	33	$	143
Securities available for sale:
U.S. Treasury securities	$	240	$	—	$	—	$	240	$	228	$	—	$	—	$	228
Federal agency securities	—		216		—		216		—		218		—		218
Obligations of states and political subdivisions	—		1		—		1		—		1		—		1
Mortgage-backed securities (MBS):
Residential agency	—		16,933		—		16,933		—		16,062		—		16,062
Residential non-agency	—		—		5		5		—		—		5		5
Commercial agency	—		3,243		—		3,243		—		3,018		—		3,018
Commercial non-agency	—		1,183		—		1,183		—		1,231		—		1,231
Corporate and other debt securities	—		1,412		3		1,415		—		1,664		3		1,667
Equity securities	258		—		—		258		280		—		—		280
Total securities available for sale	$	498	$	22,988	$	8	$	23,494	$	508	$	22,194	$	8	$	22,710
Mortgage loans held for sale	$	—	$	445	$	30	$	475	$	—	$	353	$	—	$	353
Residential mortgage servicing rights	$	—	$	—	$	216	$	216	$	—	$	—	$	252	$	252
Derivative assets:
Interest rate swaps	$	—	$	1,118	$	—	$	1,118	$	—	$	610	$	—	$	610
Interest rate options	—		3		17		20		—		1		10		11
Interest rate futures and forward commitments	—		11		—		11		—		5		—		5
Other contracts	2		119		—		121		—		200		—		200
Total derivative assets	$	2	$	1,251	$	17	$	1,270	$	—	$	816	$	10	$	826
Derivative liabilities:
Interest rate swaps	$	—	$	824	$	—	$	824	$	—	$	564	$	—	$	564
Interest rate options	—		1		—		1		—		1		—		1
Interest rate futures and forward commitments	—		17		—		17		—		6		—		6
Other contracts	—		103		—		103		—		187		—		187
Total derivative liabilities	$	—	$	945	$	—	$	945	$	—	$	758	$	—	$	758
Non-recurring fair value measurements
Loans held for sale	$	—	$	—	$	38	$	38	$	—	$	—	$	36	$	36
Foreclosed property and other real estate	—		28		23		51		—		30		8		38

Assets and liabilities in all levels could result in volatile and material price fluctuations. Realized and unrealized gains and losses on Level 3 assets represent only a portion of the risk to market fluctuations in Regions’ consolidated balance sheets. Further, derivatives included in Levels 2 and 3 are used by the Asset and Liability Management Committee of the Company in a holistic approach to managing price fluctuation risks.

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The following tables illustrate rollforwards for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2016 and 2015. The tables do not reflect the change in fair value attributable to any related economic hedges the Company used to mitigate the interest rate risk associated with these assets and liabilities. The net changes in realized gains (losses) included in earnings related to Level 3 assets and liabilities held at June 30, 2016 and 2015 are not material.



	Three Months Ended June 30, 2016

	Opening Balance April 1, 2016		Total Realized / Unrealized Gains or Losses				Purchases	Sales	Issuances	Settlements		Transfers into Level 3	Transfers out of Level 3	Closing Balance June 30, 2016
	Opening Balance April 1, 2016		Included in Earnings			Included in Other Compre- hensive Income (Loss)	Purchases	Sales	Issuances	Settlements		Transfers into Level 3	Transfers out of Level 3	Closing Balance June 30, 2016
	(In millions)
Level 3 Instruments Only
Securities available for sale:
Residential non-agency MBS	$	5	—			—	—	—	—	—		—	—	$	5
Corporate and other debt securities	3		—			—	—	—	—	—		—	—	3
Total securities available for sale	$	8	—			—	—	—	—	—		—	—	$	8
Commercial mortgage loans held for sale	$	—	—			—	—	—	30	—		—	—	$	30
Residential mortgage servicing rights	$	239	(31	)	⁽¹⁾	—	8	—	—	—		—	—	$	216
Total derivatives, net	$	21	35		⁽²⁾	—	—	—	—	(39	)	—	—	$	17



	Three Months Ended June 30, 2015

	Opening Balance April 1, 2015		Total Realized / Unrealized Gains or Losses			Purchases	Sales	Issuances	Settlements		Transfers into Level 3	Transfers out of Level 3	Closing Balance June 30, 2015
	Opening Balance April 1, 2015		Included in Earnings		Included in Other Compre- hensive Income (Loss)	Purchases	Sales	Issuances	Settlements		Transfers into Level 3	Transfers out of Level 3	Closing Balance June 30, 2015
	(In millions)
Level 3 Instruments Only
Securities available for sale:
Residential non-agency MBS	$	7	—		—	—	—	—	(1	)	—	—	$	6
Corporate and other debt securities	3		—		—	—	—	—	—		—	—	3
Total securities available for sale	$	10	—		—	—	—	—	(1	)	—	—	$	9
Residential mortgage servicing rights	$	239	17	⁽¹⁾	—	12	—	—	—		—	—	$	268
Total derivatives, net	$	14	25	⁽³⁾	—	—	—	—	(26	)	—	—	$	13

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	Six Months Ended June 30, 2016

	Opening Balance January 1, 2016		Total Realized / Unrealized Gains or Losses				Purchases	Sales		Issuances	Settlements		Transfers into Level 3	Transfers out of Level 3	Closing Balance June 30, 2016
	Opening Balance January 1, 2016		Included in Earnings			Included in Other Compre- hensive Income (Loss)	Purchases	Sales		Issuances	Settlements		Transfers into Level 3	Transfers out of Level 3	Closing Balance June 30, 2016
	(In millions)
Level 3 Instruments Only
Trading account securities	$	33	(2	)	⁽⁴⁾	—	—	(31	)	—	—		—	—	$	—
Securities available for sale:
Residential non-agency MBS	$	5	—			—	—	—		—	—		—	—	$	5
Corporate and other debt securities	3		—			—	—	—		—	—		—	—	3
Total securities available for sale	$	8	—			—	—	—		—	—		—	—	$	8
Commercial mortgage loans held for sale	$	—	—			—	—	—		30	—		—	—	$	30
Residential mortgage servicing rights	$	252	(75	)	⁽¹⁾	—	39	—		—	—		—	—	$	216
Total derivatives, net	$	10	73		⁽⁵⁾	—	—	—		—	(66	)	—	—	$	17



	Six Months Ended June 30, 2015

	Opening Balance January 1, 2015		Total Realized / Unrealized Gains or Losses				Purchases	Sales	Issuances	Settlements		Transfers into Level 3	Transfers out of Level 3	Closing Balance June 30, 2015
	Opening Balance January 1, 2015		Included in Earnings			Included in Other Compre- hensive Income (Loss)	Purchases	Sales	Issuances	Settlements		Transfers into Level 3	Transfers out of Level 3	Closing Balance June 30, 2015
	(In millions)
Level 3 Instruments Only
Securities available for sale:
Residential non-agency MBS	$	8	—			—	—	—	—	(2	)	—	—	$	6
Corporate and other debt securities	3		—			—	—	—	—	—		—	—	3
Total securities available for sale	$	11	—			—	—	—	—	(2	)	—	—	$	9
Residential mortgage servicing rights	$	257	(8	)	⁽¹⁾	—	19	—	—	—		—	—	$	268
Total derivatives, net	$	8	53		⁽⁶⁾	—	—	—	—	(48	)	—	—	$	13

_________

(1) Included in mortgage income.

(2) Approximately $4 million was included in capital markets fee income and other and $31 million was included in mortgage income.

(3) Approximately $4 million was included in capital markets fee income and other and $21 million was included in mortgage income.

(4) Included in capital markets fee income and other.

(5) Approximately $13 million was included in capital markets fee income and other and $60 million was included in mortgage income.

(6) Approximately $4 million was included in capital markets fee income and other and $49 million was included in mortgage income.

The following table presents the fair value adjustments related to non-recurring fair value measurements:



	Three Months Ended June 30						Six Months Ended June 30
	2016			2015			2016			2015
	(In millions)
Loans held for sale	$	(18	)	$	(4	)	$	(22	)	$	(11	)
Foreclosed property and other real estate	(20		)	(40		)	(27		)	(47		)

The following tables present detailed information regarding assets and liabilities measured at fair value using significant unobservable inputs (Level 3) as of June 30, 2016, and December 31, 2015. The tables include the valuation techniques and the significant unobservable inputs utilized. The range of each significant unobservable input as well as the weighted-average within the range utilized at June 30, 2016, and December 31, 2015, are included. Following the tables are a description of the valuation technique and the sensitivity of the technique to changes in the significant unobservable input.

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	June 30, 2016
	Level 3 Estimated Fair Value at June 30, 2016	Valuation Technique	Unobservable Input(s)	Quantitative Range of Unobservable Inputs and (Weighted-Average)
	(Dollars in millions)
Recurring fair value measurements:
Securities available for sale:
Residential non-agency MBS	$5	Discounted cash flow	Spread to LIBOR	5.5% - 70.0% (23.0%)
			Weighted-average prepayment speed (CPR; percentage)	4.3% - 28.5% (11.8%)
			Probability of default	3.9%
			Loss severity	60.6%
Corporate and other debt securities	$3	Market comparable	Evaluated quote on same issuer/comparable bond	100.3%
Commercial mortgage loans held for sale	$30	Market comparable	Credit spreads for bonds in the commercial MBS	0.5% - 6.85% (2.02%)
Residential mortgage servicing rights⁽¹⁾	$216	Discounted cash flow	Weighted-average prepayment speed (CPR; percentage)	13.1% - 23.5% (16.5%)
			OAS (percentage)	8.7% - 13.5% (10.0%)
Derivative assets:
Interest rate options	$16	Interest rate lock commitments on the residential mortgage loans are valued using discounted cash flows	Weighted-average prepayment speed (CPR; percentage)	13.1% - 23.5% (16.5%)
			OAS (percentage)	8.7% - 13.5% (10.0%)
			Pull-through	31.7% - 99.1% (79.6%)
	$1	Interest rate lock commitments on the commercial mortgage loans are valued using discounted cash flows	Internal rate of return	7.0% - 17.0% (12.0%)
Nonrecurring fair value measurements:
Loans held for sale	$38	Commercial loans held for sale are valued based on multiple data points, including discount to appraised value of collateral based on recent market activity for sales of similar loans	Appraisal comparability adjustment (discount)	5.0% - 95.4% (67.8%)
Foreclosed property and other real estate	$6	Property in foreclosure is valued by discount to appraised value of property based on recent market activity for sales of similar properties	Appraisal comparability adjustment (discount)	25.0% - 82.2% (52.2%)
	$17	Bank owned property valuations are based on comparable sales and local broker network estimates provided by a third-party real estate services provider	Estimated third-party valuations utilizing available sales data for similar transactions (discount)	2.1% - 78.7% (45.6%)

_________

(1) See Note 5 for additional disclosures related to assumptions used in the fair value calculation for residential mortgage servicing rights.

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	December 31, 2015
	Level 3 Estimated Fair Value at December 31, 2015	Valuation Technique	Unobservable Input(s)	Quantitative Range of Unobservable Inputs and (Weighted-Average)
	(Dollars in millions)
Recurring fair value measurements:
Trading account securities	$33	Market comparable	Spread from US High Yield B Effective Yield Index	4.7%
Securities available for sale:
Residential non-agency MBS	$5	Discounted cash flow	Spread to LIBOR	5.5% - 70.1% (23.0%)
			Weighted-average prepayment speed (CPR; percentage)	5.6% - 11.9% (9.9%)
			Probability of default	2.2%
			Loss severity	74.3%
Corporate and other debt securities	$3	Market comparable	Evaluated quote on same issuer/comparable bond	100.2%
Residential mortgage servicing rights⁽¹⁾	$252	Discounted cash flow	Weighted-average prepayment speed (CPR; percentage)	10.5% - 11.5% (10.9%)
			OAS (percentage)	8.7% - 13.3% (10.0%)
Derivative assets:
Interest rate options	$9	Interest rate lock commitments on the residential loans are valued using discounted cash flows	Weighted-average prepayment speed (CPR; percentage)	10.5% - 11.5% (10.9%)
			OAS (percentage)	8.7% - 13.3% (10.0%)
			Pull-through	18.9% - 99.4% (80.7%)
	$1	Interest rate lock commitments on the commercial mortgage loans are valued using discounted cash flows	Internal rate of return	12.0%
Nonrecurring fair value measurements:
Loans held for sale	$36	Commercial loans held for sale are valued based on multiple data points, including discount to appraised value of collateral based on recent market activity for sales of similar loans	Appraisal comparability adjustment (discount)	11.1% - 85.7% (69.0%)
Foreclosed property and other real estate	$5	Property in foreclosure is valued by discount to appraised value of property based on recent market activity for sales of similar properties	Appraisal comparability adjustment (discount)	25.0% - 44.0% (30.3%)
	$3	Bank owned property valuations are based on comparable sales and local broker network estimates provided by a third-party real estate services provider	Estimated third-party valuations utilizing available sales data for similar transactions (discount)	3.0% - 58.8% (39.2%)

_________

(1) See Note 7 to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2015 for additional disclosures related to assumptions used in the fair value calculation for residential mortgage servicing rights.

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RECURRING FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS

Trading account securities

The fair value in this category relates to high yield corporate securities. Significant unobservable inputs include the spread to High Yield Index. A significant increase in this input would result in a significantly lower fair value measurement.

Securities available for sale

Mortgage-backed securities: residential non-agency—The fair value reported in this category relates to retained interests in legacy securitizations. Significant unobservable inputs include the spread to LIBOR, CPR, probability of default, and loss severity in the event of default. Significant increases in spread to LIBOR, probability of default and loss given default in isolation would result in significantly lower fair value. A significant increase in CPR in isolation would result in an increase to fair value.

Corporate and other debt securities—Significant unobservable inputs include evaluated quotes on comparable bonds for the same issuer and management-determined comparability adjustments. Changes in the evaluated quote on comparable bonds would result in a directionally similar change in the fair value of the corporate and other debt securities.

Commercial mortgage loans held for sale

Commercial mortgage loans held for sale are based on traded market prices for comparable commercial mortgage backed securitizations, into which the loans will be placed, adjusted for movements of interest rates and credit spreads. Significant unobservable inputs include credit spreads for bonds in the commercial mortgage backed securitizations.

Residential mortgage servicing rights

The significant unobservable inputs used in the fair value measurement of residential MSRs are OAS and prepayment speed. This valuation requires generating cash flow projections over multiple interest rate scenarios and discounting those cash flows at a risk adjusted rate. Additionally, the impact of prepayments and changes in the OAS are based on a variety of underlying inputs such as servicing costs. Increases or decreases to the underlying cash flow inputs will have a corresponding impact on the value of the MSR asset. The net change in unrealized gains (losses) included in earnings related to MSRs held at period end are disclosed as the changes in valuation inputs or assumptions included in the MSR rollforward table in Note 5. See Note 5 for these amounts and additional disclosures related to assumptions used in the fair value calculation for MSRs.

Derivative assets

Residential mortgage interest rate options—These instruments are interest rate lock agreements made in the normal course of originating residential mortgage loans. Significant unobservable inputs in the fair value measurement are OAS, prepayment speeds, and pull-through. The impact of OAS and prepayment speed inputs in the valuation of these derivative instruments are consistent with the MSR discussion above. Pull-through is an estimate of the number of interest rate lock commitments that will ultimately become funded loans. Increases or decreases in the pull-through assumption will have a corresponding impact on the value of these derivative assets.

Commercial mortgage interest rate options—These instruments are interest rate lock agreements made in the normal course of originating commercial mortgage loans. The significant unobservable input in the fair value measurement using discounted cash flows is the internal rate of return. The Company's internal rates of return are compared against those of market competitors, and should those rates change the Company's rates would also change in a similar direction.

NON-RECURRING FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS

Loans held for sale

Commercial loans held for sale are valued based on multiple data points indicating the fair value for each loan. The primary data point for loans held for sale is a discount to the appraised value of the underlying collateral, which considers the return required by potential buyers of the loans. Management establishes this discount or comparability adjustment based on recent sales of loans secured by similar property types. As liquidity in the market increases or decreases, the comparability adjustment and the resulting asset valuation are impacted. These non-recurring fair value measurements are typically recorded on the date an updated appraisal is received.

Foreclosed property and other real estate

Property in foreclosure is valued based on offered quotes as available. If no sales contract is pending for a specific property, management establishes a comparability adjustment to the appraised value based on historical activity considering proceeds for properties sold versus the corresponding appraised value. Increases or decreases in realization for properties sold impact the comparability adjustment for similar assets remaining on the balance sheet. These non-recurring fair value measurements are typically recorded on the date an updated offered quote or appraisal is received.

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Bank owned property available for sale is valued based on estimated third-party valuations utilizing recent sales data from similar transactions. A broker's opinion of value is obtained to further support the asset valuations. Updated valuations along with actual sales results of similar properties can further impact these values. These non-recurring fair value measurements are typically recorded on the date an updated third-party valuation is received.

FAIR VALUE OPTION

Regions has elected the fair value option for all FNMA and FHLMC eligible residential mortgage loans and certain commercial mortgage loans originated with the intent to sell. These elections allow for a more effective offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting. Regions has not elected the fair value option for other loans held for sale primarily because they are not economically hedged using derivative instruments. Fair values of residential mortgage loans held for sale are based on traded market prices of similar assets where available and/or discounted cash flows at market interest rates, adjusted for securitization activities that include servicing values and market conditions, and are recorded in loans held for sale in the consolidated balance sheets. Fair values of commercial mortgage loans held for sale are based on traded market prices for comparable commercial mortgage backed securitizations, into which the loans will be placed, adjusted for movements of interest rates and credit spreads.

The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for mortgage loans held for sale measured at fair value:



	June 30, 2016						December 31, 2015
	Aggregate Fair Value		Aggregate Unpaid Principal		Aggregate Fair Value Less Aggregate Unpaid Principal		Aggregate Fair Value		Aggregate Unpaid Principal		Aggregate Fair Value Less Aggregate Unpaid Principal
	(In millions)
Mortgage loans held for sale, at fair value	$	475	$	454	$	21	$	353	$	341	$	12

Interest income on mortgage loans held for sale is recognized based on contractual rates and is reflected in interest income on loans held for sale in the consolidated statements of income. The following table details net gains resulting from changes in fair value of these loans, which were recorded in mortgage income in the consolidated statements of income during the three and six months ended June 30, 2016 and 2015. These changes in fair value are mostly offset by economic hedging activities. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.



	Mortgage loans held for sale, at fair value
	Three Months Ended June 30					Six Months Ended June 30
	2016		2015			2016		2015
	(In millions)
Net gains (losses) resulting from changes in fair value	$	7	$	(4	)	$	9	$	(8	)

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The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company’s financial instruments as of June 30, 2016 are as follows:



	June 30, 2016
	Carrying Amount		Estimated Fair Value⁽¹⁾		Level 1		Level 2		Level 3
	(In millions)
Financial assets:
Cash and cash equivalents	$	4,237	$	4,237	$	4,237	$	—	$	—
Trading account securities	117		117		117		—		—
Securities held to maturity	1,646		1,707		1		1,706		—
Securities available for sale	23,494		23,494		498		22,988		8
Loans held for sale	551		551		—		445		106
Loans (excluding leases), net of unearned income and allowance for loan losses⁽²⁾⁽³⁾	79,608		75,322		—		—		75,322
Other earning assets⁽⁴⁾	744		744		—		744		—
Derivative assets	1,270		1,270		2		1,251		17
Financial liabilities:
Derivative liabilities	945		945		—		945		—
Deposits	97,245		97,335		—		97,335		—
Short-term borrowings	2		2		—		2		—
Long-term borrowings	8,968		9,258		—		5,828		3,430
Loan commitments and letters of credit	98		515		—		—		515
Indemnification obligation	61		54		—		—		54

_________


(1)	Estimated fair values are consistent with an exit price concept. The assumptions used to estimate the fair values are intended to approximate those that a market participant would use in a hypothetical orderly transaction. In estimating fair value, the Company makes adjustments for interest rates, market liquidity and credit spreads as appropriate.

(2)

The estimated fair value of portfolio loans assumes sale of the loans to a third-party financial investor. Accordingly, the value to the Company if the loans were held to maturity is not reflected in the fair value estimate. In the current whole loan market, financial investors are generally requiring a higher rate of return than the return inherent in loans if held to maturity. The fair value discount at June 30, 2016 was $4.3 billion or 5.4 percent.


(3)	Excluded from this table is the capital lease carrying amount of $943 million at June 30, 2016.


(4)	Excluded from this table is the operating lease carrying amount of $772 million at June 30, 2016.

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The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company's financial instruments as of December 31, 2015 are as follows:



	December 31, 2015
	Carrying Amount		Estimated Fair Value⁽¹⁾		Level 1		Level 2		Level 3
	(In millions)
Financial assets:
Cash and cash equivalents	$	5,314	$	5,314	$	5,314	$	—	$	—
Trading account securities	143		143		110		—		33
Securities held to maturity	1,946		1,969		1		1,968		—
Securities available for sale	22,710		22,710		508		22,194		8
Loans held for sale	448		448		—		353		95
Loans (excluding leases), net of unearned income and allowance for loan losses⁽²⁾⁽³⁾	79,140		75,399		—		—		75,399
Other earning assets⁽⁴⁾	818		818		—		818		—
Derivative assets	826		826		—		816		10
Financial liabilities:
Derivative liabilities	758		758		—		758		—
Deposits	98,430		98,464		—		98,464		—
Short-term borrowings	10		10		—		10		—
Long-term borrowings	8,349		8,615		—		5,775		2,840
Loan commitments and letters of credit	85		495		—		—		495
Indemnification obligation	77		67		—		—		67

_________


(1)	Estimated fair values are consistent with an exit price concept. The assumptions used to estimate the fair values are intended to approximate those that a market participant would use in a hypothetical orderly transaction. In estimating fair value, the Company makes adjustments for interest rates, market liquidity and credit spreads as appropriate.

(2)


(3)	Excluded from this table is the capital lease carrying amount of $916 million at December 31, 2015.


(4)	Excluded from this table is the operating lease carrying amount of $834 million at December 31, 2015.

NOTE 13. BUSINESS SEGMENT INFORMATION

Each of Regions’ reportable segments is a strategic business unit that serves specific needs of Regions’ customers based on the products and services provided. The segments are based on the manner in which management views the financial performance of the business. The Company has three reportable segments: Corporate Bank, Consumer Bank, and Wealth Management, with the remainder split between Discontinued Operations and Other. During the first quarter of 2016, Regions reorganized its internal management structure and, accordingly, its segment reporting structure. Under the organizational realignment, Regions will continue to operate with the same three reporting units with the Relationship Management component of Business Banking moving to the Corporate Bank and the Branch Small Business component of Business Banking remaining part of the Consumer Bank. Previously, all of Business Banking was included within the Consumer Bank. The Wealth Management segment remained unchanged during the organizational realignment. Additionally, in prior years the provision for loan losses was allocated to each segment based on actual net charge-offs that had been recognized by the segment. During the first quarter of 2016, Regions began allocating the provision for loan losses to each segment using an estimated loss methodology with the difference between the consolidated provision for loan losses and the segments’ estimated loss reflected in Other. Lastly, allocations of operational and overhead cost pools among the segments were modified during the first quarter of 2016 to better align the total costs to support each segment in accordance with the reorganized management structure. Segment results for all periods presented have been recast to reflect this organizational realignment, as well as the provision for loan losses methodology change and the cost allocation modifications. Additional information about the Company's reportable segments is included in Regions' Annual Report on Form 10-K for the year ended December 31, 2015.

The application and development of management reporting methodologies is a dynamic process and is subject to periodic enhancements. As these enhancements are made, financial results presented by each reportable segment may be periodically revised.

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The following tables present financial information for each reportable segment for the period indicated.



	Three Months Ended June 30, 2016
	Corporate Bank		Consumer Bank		Wealth Management		Other			Continuing Operations		Discontinued Operations			Consolidated
	(In millions)
Net interest income and other financing income (loss)	$	360	$	510	$	43	$	(65	)	$	848	$	—		$	848
Provision (credit) for loan losses	72		70		5		(75		)	72		—			72
Non-interest income	118		282		105		21			526		—			526
Non-interest expense	213		511		119		72			915		(5		)	910
Income (loss) before income taxes	193		211		24		(41		)	387		5			392
Income tax expense (benefit)	73		80		10		(48		)	115		2			117
Net income (loss)	$	120	$	131	$	14	$	7		$	272	$	3		$	275
Average assets	$	54,747	$	34,331	$	3,241	$	33,093		$	125,412	$	—		$	125,412



	Three Months Ended June 30, 2015
	Corporate Bank		Consumer Bank		Wealth Management		Other			Continuing Operations		Discontinued Operations			Consolidated
	(In millions)
Net interest income and other financing income (loss)	$	381	$	498	$	41	$	(100	)	$	820	$	—		$	820
Provision (credit) for loan losses	75		68		5		(85		)	63		—			63
Non-interest income	108		278		99		105			590		—			590
Non-interest expense	211		521		110		92			934		6			940
Income (loss) before income taxes	203		187		25		(2		)	413		(6		)	407
Income tax expense (benefit)	77		72		9		(34		)	124		(2		)	122
Net income (loss)	$	126	$	115	$	16	$	32		$	289	$	(4	)	$	285
Average assets	$	52,971	$	33,201	$	3,134	$	31,569		$	120,875	$	—		$	120,875



	Six Months Ended June 30, 2016
	Corporate Bank		Consumer Bank		Wealth Management		Other			Continuing Operations		Discontinued Operations			Consolidated
	(In millions)
Net interest income and other financing income (loss)	$	734	$	1,015	$	88	$	(127	)	$	1,710	$	—		$	1,710
Provision (credit) for loan losses	144		141		11		(111		)	185		—			185
Non-interest income	249		540		213		30			1,032		—			1,032
Non-interest expense	423		1,022		230		109			1,784		(5		)	1,779
Income (loss) before income taxes	416		392		60		(95		)	773		5			778
Income tax expense (benefit)	158		149		23		(102		)	228		2			230
Net income (loss)	$	258	$	243	$	37	$	7		$	545	$	3		$	548
Average assets	$	54,733	$	34,136	$	3,237	$	33,580		$	125,686	$	—		$	125,686

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	Six Months Ended June 30, 2015
	Corporate Bank		Consumer Bank		Wealth Management		Other			Continuing Operations		Discontinued Operations			Consolidated
	(In millions)
Net interest income and other financing income (loss)	$	756	$	1,003	$	84	$	(208	)	$	1,635	$	—		$	1,635
Provision (credit) for loan losses	148		136		11		(183		)	112		—			112
Non-interest income	207		534		199		120			1,060		—			1,060
Non-interest expense	423		1,029		219		168			1,839		10			1,849
Income (loss) before income taxes	392		372		53		(73		)	744		(10		)	734
Income tax expense (benefit)	149		142		20		(92		)	219		(4		)	215
Net income (loss)	$	243	$	230	$	33	$	19		$	525	$	(6	)	$	519
Average assets	$	52,695	$	33,073	$	3,144	$	31,810		$	120,722	$	—		$	120,722

NOTE 14. COMMITMENTS, CONTINGENCIES AND GUARANTEES

COMMERCIAL COMMITMENTS

Regions issues off-balance sheet financial instruments in connection with lending activities. The credit risk associated with these instruments is essentially the same as that involved in extending loans to customers and is subject to Regions’ normal credit approval policies and procedures. Regions measures inherent risk associated with these instruments by recording a reserve for unfunded commitments based on an assessment of the likelihood that the guarantee will be funded and the creditworthiness of the customer or counterparty. Collateral is obtained based on management’s assessment of the creditworthiness of the customer.

Credit risk associated with these instruments is represented by the contractual amounts indicated in the following table:



	June 30, 2016		December 31, 2015
	(In millions)
Unused commitments to extend credit	$	44,906	$	45,516
Standby letters of credit	1,429		1,477
Commercial letters of credit	44		63
Liabilities associated with standby letters of credit	33		32
Assets associated with standby letters of credit	33		33
Reserve for unfunded credit commitments	64		52

Unused commitments to extend credit—To accommodate the financial needs of its customers, Regions makes commitments under various terms to lend funds to consumers, businesses and other entities. These commitments include (among others) credit card and other revolving credit agreements, term loan commitments and short-term borrowing agreements. Many of these loan commitments have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of these commitments are expected to expire without being funded, the total commitment amounts do not necessarily represent future liquidity requirements.

Standby letters of credit—Standby letters of credit are also issued to customers, which commit Regions to make payments on behalf of customers if certain specified future events occur. Regions has recourse against the customer for any amount required to be paid to a third party under a standby letter of credit. Historically, a large percentage of standby letters of credit expire without being funded. The contractual amount of standby letters of credit represents the maximum potential amount of future payments Regions could be required to make and represents Regions’ maximum credit risk.

Commercial letters of credit—Commercial letters of credit are issued to facilitate foreign or domestic trade transactions for customers. As a general rule, drafts will be drawn when the goods underlying the transaction are in transit.

LEGAL CONTINGENCIES

Regions, its affiliates and subsidiaries, and current and former officers, directors and employees, are sometimes collectively referred to as Regions and certain Related Persons. Regions and its subsidiaries are subject to loss contingencies related to litigation, claims, investigations and legal and administrative cases and proceedings arising in the ordinary course of business. Regions evaluates these contingencies based on information currently available, including advice of counsel. Regions establishes accruals for those matters when a loss contingency is considered probable and the related amount is reasonably estimable. Any accruals

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are periodically reviewed and may be adjusted as circumstances change. Some of Regions' exposure with respect to loss contingencies may be offset by applicable insurance coverage. In determining the amounts of any accruals or estimates of possible loss contingencies however, Regions does not take into account the availability of insurance coverage. To the extent that Regions has an insurance recovery, the proceeds are recorded in the period the recovery is received.

In addition, as previously discussed, Regions has agreed to indemnify Raymond James for all legal matters resulting from pre-closing activities in conjunction with the sale of Morgan Keegan and recorded an indemnification obligation at fair value in the second quarter of 2012. The indemnification obligation had a carrying amount of approximately $61 million and an estimated fair value of approximately $54 million as of June 30, 2016 (see Note 12).

When it is practicable, Regions estimates possible loss contingencies, whether or not there is an accrued probable loss. When Regions is able to estimate such possible losses, and when it is reasonably possible Regions could incur losses in excess of amounts accrued, Regions discloses the aggregate estimation of such possible losses. Regions currently estimates that any such losses in excess of amounts accrued, including legal contingencies that are subject to the indemnification agreement with Raymond James, would be immaterial to Regions' financial statements as a whole. However, as available information changes, the matters for which Regions is able to estimate, as well as the estimates themselves will be adjusted accordingly.

Assessments of litigation and claims exposure are difficult because they involve inherently unpredictable factors including, but not limited to, the following: whether the proceeding is in the early stages; whether damages are unspecified, unsupported, or uncertain; whether there is a potential for punitive or other pecuniary damages; whether the matter involves legal uncertainties, including novel issues of law; whether the matter involves multiple parties and/or jurisdictions; whether discovery has begun or is not complete; whether meaningful settlement discussions have commenced; and whether the lawsuit involves class allegations. Assessments of class action litigation, which is generally more complex than other types of litigation, are particularly difficult, especially in the early stages of the proceeding when it is not known whether a class will be certified or how a potential class, if certified, will be defined. As a result, Regions may be unable to estimate reasonably possible losses with respect to some of the matters disclosed below, and the aggregated estimated amount discussed above may not include an estimate for every matter disclosed below.

Beginning in December 2007, Regions and certain of its affiliates were named in class-action lawsuits filed in federal and state courts on behalf of investors who purchased shares of certain Regions Morgan Keegan Select Funds (the “Funds”) and stockholders of Regions. These class-action lawsuits have all been resolved among the parties. Court approvals for settlements in the open-end Funds class action and for the investors represented by the Trustee Ad Litem are being sought. Certain of the shareholders in these Funds and other interested parties have entered into arbitration proceedings and individual civil claims, in lieu of participating in the class actions. These lawsuits and proceedings are subject to the indemnification agreement with Raymond James discussed above.

In July 2006, Morgan Keegan and a former Morgan Keegan analyst were named as defendants in a lawsuit filed by a Canadian insurance and financial services company and its American subsidiary in the Circuit Court of Morris County, New Jersey. Plaintiffs alleged civil claims under the RICO Act and claims for commercial disparagement, tortious interference with contractual relationships, tortious interference with prospective economic advantage and common law conspiracy. Plaintiffs allege that defendants engaged in a multi-year conspiracy to publish and disseminate false and defamatory information about plaintiffs to improperly drive down plaintiffs’ stock price, so that others could profit from short positions. Plaintiffs allege that defendants’ actions damaged their reputations and harmed their business relationships. Plaintiffs seek monetary damages for a number of categories of alleged damages, including lost insurance business, lost financings and increased financing costs, increased audit fees and directors and officers insurance premiums and lost acquisitions. In September 2012, the trial court dismissed the case with prejudice. Plaintiffs have filed an appeal. This matter is subject to the indemnification agreement with Raymond James.

A previously dismissed shareholder derivative action was refiled in June 2015. The original action alleged mismanagement, waste of corporate assets, breach of fiduciary duty and unjust enrichment relating to bonuses and other benefits received by executive management. The named defendants filed an opposition to the action, and on April 5, 2016, the court dismissed the action with prejudice. On May 5, 2016, plaintiffs filed a motion asking the court to reconsider the dismissal, which was denied by the court on June 24, 2016.

Regions is involved in formal and informal information-gathering requests, investigations, reviews, examinations and proceedings by various governmental regulatory agencies, law enforcement authorities and self-regulatory bodies regarding Regions’ business, Regions' business practices and policies, and the conduct of persons with whom Regions does business. Additional inquiries will arise from time to time. In connection with those inquiries, Regions receives document requests, subpoenas and other requests for information. The inquiries, including those described below, could develop into administrative, civil or criminal proceedings or enforcement actions that could result in consequences that have a material effect on Regions' consolidated financial position, results of operations or cash flows as a whole. Such consequences could include adverse judgments, findings, settlements, penalties, fines, orders, injunctions, restitution, or alterations in our business practices, and could result in additional expenses and collateral costs, including reputational damage.

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Regions has reached an agreement in principle on a settlement amount with the Department of Justice on behalf of HUD. This agreement resolves a previously disclosed regulatory inquiry regarding residential mortgage loan origination, underwriting and quality control practices for FHA insured loans made by Regions. The settlement, which is subject to final review and approval by the Department of Justice, will not have a material effect on Regions' consolidated financial position, results of operations or cash flows as a whole as Regions has previously established reserves to cover this matter.

In September 2014, Regions received an investigative request from the Office of Inspector General of the Federal Housing Finance Agency regarding its residential mortgage loan origination, underwriting and quality control practices for loans Regions sold to Fannie Mae and Freddie Mac. Regions has fully cooperated with the inquiry, which is part of an industry-wide investigation.

While the final outcome of litigation and claims exposures or of any inquiries is inherently unpredictable, management is currently of the opinion that the outcome of pending and threatened litigation and inquiries will not have a material effect on Regions’ business, consolidated financial position, results of operations or cash flows as a whole. However, in the event of unexpected future developments, it is reasonably possible that an adverse outcome in any of the matters discussed above could be material to Regions’ business, consolidated financial position, results of operations or cash flows for any particular reporting period of occurrence.

GUARANTEES

INDEMNIFICATION OBLIGATION

As discussed in Note 2, on April 2, 2012 (“Closing Date”), Regions closed the sale of Morgan Keegan and related affiliates to Raymond James. In connection with the sale, Regions agreed to indemnify Raymond James for all legal matters related to pre-closing activities, including matters filed subsequent to the Closing Date that relate to actions that occurred prior to closing. Losses under the indemnification include legal and other expenses, such as costs for judgments, settlements and awards associated with the defense and resolution of the indemnified matters. The maximum potential amount of future payments that Regions could be required to make under the indemnification is indeterminable due to the indefinite term of some of the obligations. However, Regions expects the majority of ongoing legal matters to be resolved within approximately one to two years.

As of the Closing Date, the fair value of the indemnification obligation, which includes defense costs and unasserted claims, was approximately $385 million, of which approximately $256 million was recognized as a reduction to the gain on sale of Morgan Keegan. The fair value was determined through the use of a present value calculation that takes into account the future cash flows that a market participant would expect to receive from holding the indemnification liability as an asset. Regions performed a probability-weighted cash flow analysis and discounted the result at a credit-adjusted risk free rate. The fair value of the indemnification liability includes amounts that Regions had previously determined meet the definition of probable and reasonably estimable. Adjustments to the indemnification obligation are recorded within professional and legal expenses within discontinued operations (see Note 2). As of June 30, 2016, the carrying value of the indemnification obligation was approximately $61 million.

FANNIE MAE DUS LOSS SHARE GUARANTEE

Regions is a Fannie Mae DUS lender. The Fannie Mae DUS program provides liquidity to the multi-family housing market. Regions services loans sold to Fannie Mae and is required to provide a loss share guarantee equal to one-third of the majority of its DUS servicing portfolio. At June 30, 2016, and December 31, 2015, the Company's DUS servicing portfolio totaled approximately $1.6 billion and $1.2 billion, respectively. Regions' maximum quantifiable contingent liability related to its loss share guarantee was approximately $484 million and $356 million at June 30, 2016 and December 31, 2015, respectively. The Company would be liable for this amount only if all of the loans it services for Fannie Mae, for which the Company retains some risk of loss, were to default and all of the collateral underlying these loans was determined to be without value at the time of settlement. Therefore, the maximum quantifiable contingent liability is not representative of the actual loss the Company would be expected to incur. The estimated fair value of the associated loss share guarantee recorded as a liability on the Company's balance sheet was approximately $3 million at June 30, 2016, and December 31, 2015. Refer to Note 1 "Summary of Significant Accounting Policies" to the consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2015, for additional information.

NOTE 15. RECENT ACCOUNTING PRONOUNCEMENTS

In August 2015, the FASB issued a standard that defers the effective date of the new revenue recognition standard, issued in May 2014, by one year. The new revenue recognition standard is discussed in the Annual Report on Form 10-K for the year ended December 31, 2014. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted as of the date of the original effective date, for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Regions is in the process of reviewing the potential impact the adoption of this guidance will have to its consolidated financial statements.

In January 2016, the FASB issued accounting guidance on the recognition and measurement of financial assets and financial liabilities that supersedes existing guidance. The new guidance: (a) requires equity investments (except for those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes

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in the fair value recognized through net income; (b) simplifies the impairment assessment of equity securities without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (d) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (e) requires an entity to present separately in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. This guidance is effective for annual and interim periods beginning after December 15, 2017. Early adoption is not permitted except for the amendment related to separate presentation in other comprehensive income discussed above in (e). Entities should apply the amendments by means of cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. Regions is evaluating the impact to its consolidated financial statements upon adoption.

In February 2016, the FASB issued accounting guidance intended to improve the understanding and comparability of financial statements by providing users with more information relating primarily to a lessee’s leasing activities. There are no significant changes expected to the income statement but lessees will be required to record a right-of-use asset and a corresponding liability equal to the present value of future rental payments on their balance sheets for all leases with a term greater than one year. Management will also be required under the new guidance to make significant judgments regarding the likelihood of exercising lease renewal or extension options in order to determine the appropriate lease term and amount of future minimum lease payments. While the new guidance removes the current bright lines used to classify leases, the criteria are largely similar to current lease accounting. Additionally, the new standard substantially changes sale-leaseback accounting requiring the lessee to record a right-of-use asset and aligning sale criteria with revenue recognition guidance. This guidance expands both quantitative and qualitative required disclosures in order to provide financial statement users information on the timing, amount, and uncertainty of future cash flows from leases. The revised leasing guidance is effective for fiscal years and interim periods beginning after December 15, 2018, with early application permitted. Regions is evaluating the impact to its consolidated financial statements upon adoption.

In March 2016, the FASB issued accounting guidance that clarifies and enhances the implementation guidance on principal versus agent considerations within the new revenue recognition standard. The amendments are as follows: (a) clarification regarding how an entity should identify the unit of accounting for the principal versus agent evaluation; (b) clarification regarding how the control principle applies to transactions such as service arrangements; (c) control indicators reframed to focus on evidence of a principal relationship rather than an agency relationship, as well as clarification added regarding the relationship between the control principle and the indicators; and (d) revisions to the examples presented in current guidance as well as the addition of new examples. The guidance is effective for annual and interim periods beginning after December 15, 2017. Regions is evaluating the impact to its consolidated financial statements upon adoption.

In March 2016, the FASB issued new accounting guidance that addresses how a change in the counterparty to a derivative contract affects a hedging relationship. This guidance clarifies that a novation (defined as replacing one counterparty to a derivative instrument with a new counterparty) of a derivative contract does not, in and of itself, require dedesignation of a hedging relationship or represent a change in the critical terms of the hedge relationship so long as (a) all other hedge accounting criteria are still met, (b) the hedging relationship is expected to remain highly effective, and (c) there are no concerns about the collectability of the derivative’s cash flows (i.e. the creditworthiness of the new counterparty is similar to the one being replaced). The guidance is effective for annual and interim periods beginning after December 15, 2016. The amendments may be applied prospectively or on a modified retrospective basis to all existing and new hedge accounting relationships in which a novation occurs after the effective date of the new guidance. Regions is evaluating the impact to its consolidated financial statements upon adoption.

In March 2016, the FASB issued new accounting guidance that clarifies that entities should solely use the four-step decision sequence described in current derivatives accounting guidance. This sequence should be used when assessing whether contingent exercise provisions associated with a put or call option are clearly and closely related to their debt hosts. Based on differences in interpretation, some entities have also included an additional assessment, which considers whether the event that triggers the ability to exercise the put or call is indexed only to interest rates or credit risk of the entity. This additional assessment potentially results in bifurcation of more embedded options than would occur when just applying the decision sequence outlined in the guidance. This guidance should be applied to existing debt instruments on a modified retrospective basis and is effective for annual, and interim periods therein, beginning after December 15, 2016. Regions is evaluating the impact to its consolidated financial statements upon adoption.

In March 2016, the FASB issued new accounting guidance that eliminates the requirement for an investor to retrospectively apply the equity method to investments when its ownership interest (or degree of influence in an investee) increases to a level that triggers the equity method of accounting. Currently, an entity must retrospectively adjust the investment, results of operations, and retained earnings as if the equity method had been in effect during all previous periods the investment was held. By eliminating

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this requirement, the FASB expects to reduce the cost and complexity when transitioning to the equity method. The guidance is effective for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. Regions believes the adoption of this guidance will not have a material impact to its consolidated financial statements.

In March 2016, the FASB issued new accounting guidance that intends to improve and simplify accounting for employee shared-based payments. The new guidance: (a) eliminates additional paid-in capital pools and designates that all excess tax benefits and deficiencies should be recorded in the income statement as income tax expense or benefit when the awards vest or are settled; entities should account for these income tax effects as discrete items in the reporting period in which they occur and exclude them from the estimated annual effective tax rate; (b) increases the permitted tax withholding limits from the employer’s statutory minimum rate to the employee’s maximum statutory rate before triggering liability classification; (c) changes the classification of excess tax benefits from a financing activity to an operating activity; (d) clarifies that cash paid to a tax authority when shares are withheld to satisfy an employer’s statutory income tax withholding obligation is a financing activity; (e) allows an entity to make an entity-wide accounting policy election to either account for forfeitures based on the number of awards that are expected to vest or account for forfeitures as they occur. The guidance is effective for interim and annual periods beginning after December 31, 2016. The method of accounting application (i.e. prospective, retrospective or modified retrospective application) differs by amendment and is defined in the guidance. Early adoption is permitted, but entities must adopt all of the guidance in the same period. Regions is not early adopting and believes the adoption of this guidance will not have a material impact to its consolidated financial statements.

In April 2016, the FASB issued new accounting guidance for revenue recognition that is related to contracts with customers. This guidance is expected to clarify how an entity should evaluate revenue in circumstances regarding granting licenses of intellectual property. The guidance also includes information regarding identifying differences when dealing with promised goods and services. The guidance is effective for annual and interim periods beginning after December 15, 2017. Regions is evaluating the impact to its consolidated financial statements upon adoption.

In May 2016, the FASB issued another new accounting guidance for revenue recognition that is related to contracts with customers. This guidance, as well as the guidance issued in April 2016, is intended to promote more consistent application of the standards as well as reduce the cost and complexity of applying the revenue guidance. The guidance contains amendments related to collectability, noncash consideration, and completed contracts at transition. The guidance is effective for annual and interim periods beginning after December 15, 2017. Regions is evaluating the impact to its consolidated financial statements upon adoption.

In June 2016, the FASB issued new accounting guidance regarding the measurement of credit losses on financial instruments. The new guidance will apply to most financial assets measured at amortized cost and certain other instruments including loans, debt securities held to maturity, net investments in leases and off-balance-sheet credit exposures (e.g., loan commitments, standby letters of credit, etc.). The guidance will replace the current incurred loss accounting model with an expected loss approach, whereby entities must consider all available relevant information when estimating those expected credit losses, including details about past events, current conditions and reasonable and supportable forecasts. The guidance eliminates the current accounting model for purchased credit impaired loans and debt securities. Regarding securities available for sale, credit losses are to be recognized as allowances rather than reductions in the amortized cost of the securities, which will require remeasurement of the related allowance at each reporting period. The guidance includes enhanced disclosure requirements intended to help financial statement users better understand estimates and judgments used in estimating credit losses. The guidance is effective for annual and interim periods beginning after December 15, 2019. However, entities can apply these amendments as early as fiscal years beginning after December 15, 2018. Regions is evaluating the impact to its consolidated financial statements upon adoption.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The following discussion and analysis is part of Regions Financial Corporation’s (“Regions” or the “Company”) Quarterly Report on Form 10-Q to the SEC and updates Regions’ Annual Report on Form 10-K for the year ended December 31, 2015, which was previously filed with the SEC. This financial information is presented to aid in understanding Regions’ financial position and results of operations and should be read together with the financial information contained in the Form 10-K. Certain other prior period amounts presented in this discussion and analysis have been reclassified to conform to current period classifications, except as otherwise noted. The emphasis of this discussion will be on the three and six months ended June 30, 2016 compared to the three and six months ended June 30, 2015 for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of June 30, 2016 compared to December 31, 2015.

This discussion and analysis contains statements that may be considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. See pages 5 through 7 for additional information regarding forward-looking statements.

CORPORATE PROFILE

Regions is a financial holding company headquartered in Birmingham, Alabama, which operates in the South, Midwest and Texas. Regions provides traditional commercial, retail and mortgage banking services, as well as other financial services in the fields of asset management, wealth management, securities brokerage, insurance, trust services, merger and acquisition advisory services and other specialty financing.

Regions conducts its banking operations through Regions Bank, an Alabama state-chartered commercial bank that is a member of the Federal Reserve System. At June 30, 2016, Regions operated 1,599 total branch outlets across the South, Midwest and Texas. Regions operates under three reportable business segments: Corporate Bank, Consumer Bank, and Wealth Management with the remainder split between Discontinued Operations and Other. See Note 13 “Business Segment Information” to the consolidated financial statements for more information regarding Regions’ segment reporting structure. Regions also provides full-line insurance brokerage services primarily through Regions Insurance, Inc., which is included in the Wealth Management segment.

On January 11, 2012, Regions entered into a stock purchase agreement to sell Morgan Keegan and related affiliates to Raymond James. The sale closed on April 2, 2012. Regions Investment Management, Inc. and Regions Trust were not included in the sale; they are included in the Wealth Management segment. See Note 2 “Discontinued Operations” to the consolidated financial statements for further discussion.

Regions’ profitability, like that of many other financial institutions, is dependent on its ability to generate revenue from net interest income and other financing income as well as non-interest income sources. Net interest income and other financing income is primarily the difference between the interest income Regions receives on interest-earning assets, such as loans and securities, and the interest expense Regions pays on interest-bearing liabilities, principally deposits and borrowings. Regions’ net interest income and other financing income is impacted by the size and mix of its balance sheet components and the interest rate spread between interest earned on its assets and interest paid on its liabilities. Net interest income and other financing income also includes rental income and depreciation expense associated with operating leases for which Regions is the lessor. Non-interest income includes fees from service charges on deposit accounts, card and ATM fees, mortgage servicing and secondary marketing, investment management and trust activities, insurance activities, capital markets and other customer services which Regions provides. Results of operations are also affected by the provision for loan losses and non-interest expenses such as salaries and employee benefits, occupancy, professional, legal and regulatory expenses, FDIC insurance assessments, and other operating expenses, as well as income taxes.

Economic conditions, competition, new legislation and related rules impacting regulation of the financial services industry and the monetary and fiscal policies of the Federal government significantly affect most, if not all, financial institutions, including Regions. Lending and deposit activities and fee income generation are influenced by levels of business spending and investment, consumer income, consumer spending and savings, capital market activities, and competition among financial institutions, as well as customer preferences, interest rate conditions and prevailing market rates on competing products in Regions’ market areas.

Regions’ business strategy has been and continues to be focused on providing a competitive mix of products and services, delivering quality customer service and maintaining a branch distribution network with offices in convenient locations.

SECOND QUARTER OVERVIEW

Regions reported net income available to common shareholders of $259 million, or $0.20 per diluted share, in the second quarter of 2016 compared to $269 million, or $0.20 per diluted share, in the second quarter of 2015. Net income available to common shareholders from continuing operations was $256 million, or $0.20 per diluted share, compared to $273 million, or $0.20 per diluted share, over these same periods. Increased net interest income and other financing income and decreased non-interest expenses were offset by decreased non-interest income.

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For the second quarter of 2016, net interest income and other financing income (taxable-equivalent basis) from continuing operations totaled $869 million, up $30 million compared to the second quarter of 2015. The net interest margin (taxable-equivalent basis) was 3.15 percent for the second quarter of 2016 and 3.16 percent in the second quarter of 2015. The average balance of total earning assets increased in the second quarter of 2016 compared to the second quarter of 2015, while the yields remained flat. The average balance of total interest-bearing liabilities increased period over period due to increased long-term borrowings. These increases resulted in increased total funding costs from 25 to 29 basis points for the second quarter of 2016.

The provision for loan losses totaled $72 million in the second quarter of 2016 compared to $63 million during the second quarter of 2015. Given the current phase of the credit cycle, volatility in certain credit metrics is to be expected, especially related to large dollar commercial credits and fluctuating commodity prices.

Net charge-offs totaled $72 million, or an annualized 0.35 percent of average loans, in the second quarter of 2016, compared to $46 million, or an annualized 0.23 percent for the second quarter of 2015. Commercial and industrial loan net charge-offs increased, while total consumer net charge-offs were relatively consistent, when comparing the second quarter of 2016 to the prior year.

The allowance for loan losses at June 30, 2016, was 1.41 percent of total loans, net of unearned income, compared to 1.36 percent at December 31, 2015. Total non-performing assets were $1.1 billion at June 30, 2016, compared to $920 million at December 31, 2015. Continued low oil prices prompted a number of large energy credits to be downgraded during the first half of 2016 causing the increase in non-performing assets.

Non-interest income from continuing operations was $526 million for the second quarter of 2016 compared to $590 million for the second quarter of 2015. This decrease was primarily driven by insurance proceeds that were received in the second quarter of 2015. Card and ATM fees and capital markets fee income and other increased period over period. See Table 21 "Non-Interest Income from Continuing Operations" for more detail.

Total non-interest expense from continuing operations was $915 million in the second quarter of 2016, a $19 million decrease from the second quarter of 2015. The decrease was driven primarily by a $50 million decrease in professional, legal, and regulatory expenses as a result of a net $48 million accrual for contingent legal and regulatory expenses in the second quarter of 2015. This decrease was mainly offset by an increase in other non-interest expense. See Table 22 "Non-Interest Expense from Continuing Operations" for more detail.

Income tax expense from continuing operations for the three months ended June 30, 2016 was $115 million compared to income tax expense of $124 million for the same period in 2015. See "Income Taxes" toward the end of the Management’s Discussion and Analysis section of this report for more detail.

A discussion of activity within discontinued operations is included at the end of the Management’s Discussion and Analysis section of this report.

2016 Expectations

Management expectations for 2016 are noted below:


•	Average loan growth of 3 to 5 percent compared to fourth quarter of 2015 average balances, expect to track toward the lower end of the range


•	Average deposits relatively stable compared to fourth quarter of 2015 average balances; change from previous guidance for growth of 2 to 4 percent resulting from acceleration of planned reductions of certain deposits within the Wealth Management and Corporate Bank segments


•	Net interest income and other financing income up 2 to 4 percent; assuming no rate increases, expect to be at the mid-point of the range


•	Adjusted non-interest income (non-GAAP) up 4 to 6 percent on a full year basis, expect to be at the high end of the range


•	Plan to eliminate $300 million of existing non-interest expenses between 2016 and 2018 in order to self-fund new initiatives; expect to achieve 35 to 45 percent of that reduction in 2016


•	Adjusted non-interest expenses (non-GAAP) flat to up modestly on a full year basis


•	Full year adjusted efficiency ratio (non-GAAP) less than 63 percent


•	Adjusted operating leverage (non-GAAP) of 2 to 4 percent on a full year basis


•	Full year net charge-offs of 25 to 35 basis points; expect to be at the top end of the range

The reconciliation with respect to these forward-looking non-GAAP measures is expected to be consistent with the actual non-GAAP reconciliations within Management's Discussion and Analysis of this Form 10-Q. For more information related to the Company's 2016 expectations, including additional guidance within the ranges disclosed above, refer to the related sub-sections discussed in more detail within Management's Discussion and Analysis of this Form 10-Q.

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BALANCE SHEET ANALYSIS

CASH AND CASH EQUIVALENTS

Cash and cash equivalents decreased approximately $1.1 billion from year-end 2015 to June 30, 2016, due primarily to a decrease in interest-bearing deposits in other banks as a result of normal day-to-day operating variations. This decrease was offset by a modest increase in cash and due from banks.

SECURITIES

The following table details the carrying values of securities, including both available for sale and held to maturity:

Table 1—Securities



	June 30, 2016		December 31, 2015
	(In millions)
U.S. Treasury securities	$	241	$	229
Federal agency securities	362		558
Obligations of states and political subdivisions	1		1
Mortgage-backed securities:
Residential agency	18,260		17,491
Residential non-agency	5		5
Commercial agency	3,415		3,194
Commercial non-agency	1,183		1,231
Corporate and other debt securities	1,415		1,667
Equity securities	258		280
	$	25,140	$	24,656

Regions maintains a highly rated securities portfolio consisting primarily of agency mortgage-backed securities. Total securities at June 30, 2016 were relatively unchanged from year-end 2015. See Note 3 "Securities" to the consolidated financial statements for additional information.

Securities available for sale, which constitute the majority of the securities portfolio, are an important tool used to manage interest rate sensitivity and provide a primary source of liquidity for the Company. See the "Market Risk-Interest Rate Risk" and "Liquidity Risk" sections for more information.

LOANS HELD FOR SALE

Loans held for sale totaled $551 million at June 30, 2016, consisting primarily of $446 million of residential real estate mortgage loans, $58 million of commercial mortgage loans and $31 million of non-performing loans. At December 31, 2015, loans held for sale totaled $448 million, consisting of $354 million of residential real estate mortgage loans, $56 million of commercial mortgage loans, and $38 million of non-performing loans. The level of residential real estate mortgage loans held for sale that are part of the Company's mortgage originations to be sold in the secondary market fluctuates depending on the timing of origination and sale to third parties.

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LOANS

Loans, net of unearned income, represented approximately 73 percent of Regions’ interest-earning assets at June 30, 2016. The following table presents the distribution of Regions’ loan portfolio by portfolio segment and class, net of unearned income:

Table 2—Loan Portfolio



	June 30, 2016		December 31, 2015
	(In millions, net of unearned income)
Commercial and industrial	$	36,124	$	35,821
Commercial real estate mortgage—owner-occupied	7,193		7,538
Commercial real estate construction—owner-occupied	344		423
Total commercial	43,661		43,782
Commercial investor real estate mortgage	4,302		4,255
Commercial investor real estate construction	2,660		2,692
Total investor real estate	6,962		6,947
Residential first mortgage	13,164		12,811
Home equity	10,832		10,978
Indirect—vehicles	4,159		3,984
Indirect—other consumer	722		545
Consumer credit card	1,113		1,075
Other consumer	1,089		1,040
Total consumer	31,079		30,433
	$	81,702	$	81,162

PORTFOLIO CHARACTERISTICS

The following sections describe the composition of the portfolio segments and classes disclosed in Table 2, explain changes in balances from 2015 year-end, and highlight the related risk characteristics. Regions believes that its loan portfolio is well diversified by product, client, and geography throughout its footprint. However, the loan portfolio may be exposed to certain concentrations of credit risk which exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, certain loan products, or certain regions of the country. See Note 4 “Loans and the Allowance for Credit Losses” to the consolidated financial statements for additional discussion.

Commercial

The commercial portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases and other expansion projects. Commercial and industrial loans increased $303 million since year-end 2015 driven primarily by Regions’ market-based corporate and commercial bankers serving middle market clients and the Company's asset-based lending and corporate real estate groups. Commercial also includes owner-occupied commercial real estate mortgage 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. These loans declined $345 million from year-end 2015 as a result of continued customer deleveraging. Owner-occupied commercial real estate 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.

Over half of the Company’s total loans are included in the commercial portfolio segment. These balances are spread across numerous industries, as noted in the table below. The Company manages the related risks to this portfolio by setting certain lending limits for each significant industry. No single industry exceeded 15 percent of the total commercial portfolio balance at June 30, 2016 or December 31, 2015.

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Table 3—Selected Industry Exposure



	June 30, 2016
	Loans		Unfunded Commitments		Total Exposure
	(In millions)
Administrative, support, waste and repair	$	843	$	502	$	1,345
Agriculture	698		274		972
Educational services	1,906		264		2,170
Energy	2,392		2,088		4,480
Financial services	3,786		3,174		6,960
Government and public sector	2,446		101		2,547
Healthcare	4,068		1,589		5,657
Information	1,161		741		1,902
Manufacturing ⁽¹⁾	4,298		3,750		8,048
Professional, scientific and technical services ⁽¹⁾	1,686		1,137		2,823
Real estate	6,529		5,189		11,718
Religious, leisure, personal and non-profit services	2,038		584		2,622
Restaurant, accommodation and lodging	2,540		711		3,251
Retail trade	2,772		2,325		5,097
Transportation and warehousing ⁽¹⁾	2,201		960		3,161
Utilities	1,113		1,752		2,865
Wholesale goods ⁽¹⁾	3,012		2,524		5,536
Other	172		1,662		1,834
Total commercial	$	43,661	$	29,327	$	72,988



	December 31, 2015 ⁽²⁾
	Loans		Unfunded Commitments		Total Exposure
	(In millions)
Administrative, support, waste and repair	$	901	$	575	$	1,476
Agriculture	747		295		1,042
Educational services	1,846		312		2,158
Energy	2,533		2,461		4,994
Financial services ⁽³⁾	3,556		2,984		6,540
Government and public sector	2,408		238		2,646
Healthcare	4,322		1,407		5,729
Information	1,281		744		2,025
Manufacturing ⁽³⁾	4,407		3,938		8,345
Professional, scientific and technical services ⁽³⁾	1,730		1,114		2,844
Real estate	6,427		5,046		11,473
Religious, leisure, personal and non-profit services	2,165		600		2,765
Restaurant, accommodation and lodging	2,489		633		3,122
Retail trade	2,492		2,507		4,999
Transportation and warehousing ⁽³⁾	2,228		1,084		3,312
Utilities	1,047		1,674		2,721
Wholesale goods ⁽³⁾	2,981		2,588		5,569
Other	222		1,600		1,822
Total commercial	$	43,782	$	29,800	$	73,582

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________

(1)

Regions' definition of indirect energy-related lending includes certain balances within each of these selected industry categories. As of June 30, 2016, total indirect energy-related loans were approximately $531 million, with approximately $500 million included in commercial loans and $31 million in investor real estate loans. Total unfunded commitments for indirect energy-related lending were $465 million as of June 30, 2016.

(2)

As customers' businesses evolve (e.g. up or down the vertical manufacturing chain), Regions may need to change the assigned business industry code used to define the customer relationship. When these changes occur, Regions does not recast the customer history for prior periods into the new classification because the business industry code used in the prior period was deemed appropriate. As a result, year over year changes may be impacted.

(3)

Regions' definition of indirect energy-related lending includes certain balances within each of these selected industry categories. As of December 31, 2015, total indirect energy-related loans were approximately $519 million, with approximately $497 million included in commercial loans and $22 million in investor real estate loans. Total unfunded commitments for indirect energy-related lending were $446 million as of December 31, 2015.

Regions continues to monitor the impacts of low oil prices on both its direct and indirect energy lending portfolios. Regions’ direct energy loan balances at June 30, 2016 amounted to approximately $2.4 billion, consisting of loans such as oilfield services, exploration and production, and pipeline transportation of gas and crude oil. Other types of lending are tangentially impacted by the energy portfolio, such as petroleum wholesalers, oil and gas equipment manufacturing, air transportation, and petroleum bulk stations and terminals. These indirect energy loan balances were approximately $531 million at June 30, 2016. The entire energy-related portfolio, combining direct and indirect loans, was approximately $2.9 billion or 4 percent of total loans at June 30, 2016 (approximately $3.1 billion including energy-related operating leases).

Regions' energy-related portfolio is geographically concentrated primarily in Texas and, to a lesser extent, in South Louisiana. Regions employs a variety of risk management strategies, including the use of concentration limits and continuous monitoring, as well as utilizing underwriting with borrowing base structures tied to energy commodity reserve bases or other tangible assets. Additionally, heightened credit requirements have been adopted for select segments of the portfolio. Regions also employs experienced lending and underwriting teams including petroleum engineers, all with extensive energy sector experience through multiple economic cycles. If the current low level of oil prices continues, this energy-related portfolio may be subject to additional pressure on credit quality metrics including past due, criticized, and non-performing loans, as well as net charge-offs. Regions' energy-related portfolio consists of a relatively small number of customers, which provides the Company granular insight into the financial health of those borrowers. Through its on-going portfolio credit quality assessment, Regions will continue to assess the impact to the allowance for loan losses and make adjustments as appropriate.

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 consists of loans secured by residential product types (land, single-family and condominium loans) within Regions’ markets. Additionally, this category includes loans made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers. Total investor real estate loans increased $15 million from 2015 year-end balances.

Due to the nature of the cash flows typically used to repay investor real estate loans, these loans are particularly vulnerable to weak economic conditions. As a result, this loan type has a higher risk of non-collection than other loans.

Residential First Mortgage

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. These loans experienced a $353 million increase from year-end 2015, as prepayments have slowed. Approximately $1.5 billion in new loan originations were retained on the balance sheet through the first six months of 2016.

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Home Equity

Home equity lending includes both home equity loans and lines of credit. This type of lending, which is secured by a first or second mortgage on the borrower's residence, allows customers to borrow against the equity in their homes. The home equity portfolio totaled $10.8 billion at June 30, 2016 as compared to $11.0 billion at December 31, 2015. Substantially all of this portfolio was originated through Regions’ branch network.

The following table presents information regarding the future principal payment reset dates for the Company's home equity lines of credit as of June 30, 2016. The balances presented are based on maturity date for lines with a balloon payment and draw period expiration date for lines that convert to a repayment period.

Table 4—Home Equity Lines of Credit - Future Principal Payment Resets



	First Lien		% of Total		Second Lien		% of Total		Total
	(Dollars in millions)
2016	$	14	0.19	%	$	26	0.34	%	$	40
2017	4		0.05		9		0.12		13
2018	13		0.17		19		0.25		32
2019	84		1.11		76		1.00		160
2020	174		2.30		133		1.76		307
2021-2025	1,489		19.69		1,472		19.46		2,961
2026-2030	2,036		26.92		2,013		26.62		4,049
Thereafter	—		—		1		0.02		1
Total	$	3,814	50.43	%	$	3,749	49.57	%	$	7,563

Of the $10.8 billion home equity portfolio at June 30, 2016, approximately $7.6 billion were home equity lines of credit and $3.2 billion were closed-end home equity loans (primarily originated as amortizing loans). Beginning in May 2009, new home equity lines of credit have a 10-year draw period and a 10-year repayment period. Previously, the home equity lines of credit had a 20-year term with a balloon payment upon maturity or a 5-year draw period with a balloon payment upon maturity. The term “balloon payment” means there are no principal payments required until the balloon payment is due for interest-only lines of credit. As of June 30, 2016, none of Regions' home equity lines of credit have converted to mandatory amortization under the contractual terms. As presented in the table above, the majority of home equity lines of credit will either mature with a balloon payment or convert to amortizing status after fiscal year 2020.

Other Consumer Credit Quality Data

The Company calculates an estimate of the current value of property secured as collateral for both residential first mortgage and home equity lending products (“current LTV”). The estimate is based on home price indices compiled by a third party. The third party data indicates trends for MSAs. Regions uses the third party valuation trends from the MSAs in the Company's footprint in its estimate. The trend data is applied to the loan portfolios taking into account the age of the most recent valuation and geographic area.

The following table presents current LTV data for components of the residential first mortgage and home equity classes of the consumer portfolio segment. Current LTV data for the remaining loans in the portfolio is not available, primarily because some of the loans are serviced by others. Data may also not be available due to mergers and systems integrations. The amounts in the table represent the entire loan balance. For purposes of the table below, if the loan balance exceeds the current estimated collateral, the entire balance is included in the “Above 100%” category, regardless of the amount of collateral available to partially offset the shortfall. The balances in the “Above 100%” category as a percentage of the portfolio balances declined to 2 percent in the residential first mortgage portfolio and to 4 percent in the home equity portfolio at June 30, 2016.

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Table 5—Estimated Current Loan to Value Ranges



	June 30, 2016						December 31, 2015
	Residential First Mortgage		Home Equity				Residential First Mortgage		Home Equity
	Residential First Mortgage		1st Lien		2nd Lien		Residential First Mortgage		1st Lien		2nd Lien
	(In millions)
Estimated current loan to value:
Above 100%	$	208	$	110	$	339	$	267	$	127	$	417
80% - 100%	1,772		434		792		1,703		497		886
Below 80%	10,632		6,082		2,796		10,288		5,965		2,785
Data not available	552		101		178		553		107		194
	$	13,164	$	6,727	$	4,105	$	12,811	$	6,696	$	4,282

Indirect—Vehicles

Indirect-vehicles lending, which is lending initiated through third-party business partners, largely consists of loans made through automotive dealerships. This portfolio class increased $175 million from year-end 2015, reflecting continued growing demand for automobile loans.

Indirect—Other Consumer

Indirect-other consumer lending represents other point of sale lending through third parties. This portfolio class increased $177 million from year-end 2015 primarily due to new point of sale initiatives.

Consumer Credit Card

Consumer credit card lending represents primarily open-ended variable interest rate consumer credit card loans. These balances increased $38 million from year-end 2015.

Other Consumer

Other consumer loans primarily include direct consumer loans, overdrafts and other revolving loans. Other consumer loans increased $49 million from year-end 2015.

Regions qualitatively considers factors such as periodic updates of FICO scores, unemployment, home prices, and geography as credit quality indicators for consumer loans. FICO scores are obtained at origination as part of Regions' formal underwriting process. Refreshed FICO scores are obtained by the Company quarterly for all revolving accounts and home equity lines of credit and semi-annually for all other consumer loans. Residential first mortgage FICO scores were refreshed in March of 2016. Home equity, indirect, consumer credit card and other consumer FICO scores were refreshed in June of 2016. The following tables present estimated current FICO score data for components of classes of the consumer portfolio segment. Current FICO data is not available for the remaining loans in the portfolio for various reasons; for example, if customers do not use sufficient credit, an updated score may not be available. Residential first mortgage and home equity balances with FICO scores below 620 were 6 percent of the combined portfolios for both June 30, 2016 and December 31, 2015.

Table 6—Estimated Current FICO Score Ranges



	June 30, 2016
	Residential First Mortgage		Home Equity				Indirect⁽¹⁾		Consumer Credit Card		Other Consumer
	Residential First Mortgage		1st Lien		2nd Lien		Indirect⁽¹⁾		Consumer Credit Card		Other Consumer
	(In millions)
Below 620	$	797	$	307	$	233	$	442	$	56	$	78
620-680	991		539		379		619		177		147
681-720	1,447		843		538		716		257		197
Above 720	9,038		4,902		2,893		2,841		622		539
Data not available	891		136		62		263		1		128
	$	13,164	$	6,727	$	4,105	$	4,881	$	1,113	$	1,089

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	December 31, 2015
	Residential First Mortgage		Home Equity				Indirect⁽¹⁾		Consumer Credit Card		Other Consumer
	Residential First Mortgage		1st Lien		2nd Lien		Indirect⁽¹⁾		Consumer Credit Card		Other Consumer
	(In millions)
Below 620	$	768	$	311	$	249	$	421	$	55	$	86
620-680	1,013		531		415		549		158		150
681-720	1,489		789		530		611		247		191
Above 720	8,487		4,808		2,938		2,409		614		526
Data not available	1,054		257		150		539		1		87
	$	12,811	$	6,696	$	4,282	$	4,529	$	1,075	$	1,040


(1)	Amount represents both indirect-vehicles and indirect-other consumer portfolio classes.

ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses ("allowance") consists of two components: the allowance for loan losses and the reserve for unfunded credit commitments. The allowance represents management’s estimate of probable credit losses inherent in the loan and credit commitment portfolios as of period end. Regions determines its allowance 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. Additional discussion of the methodology used to calculate the allowance is included in Note 1 “Summary of Significant Accounting Policies” and Note 6 “Allowance for Credit Losses” to the consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2015, as well as related discussion in Management’s Discussion and Analysis.

The allowance for loan losses totaled $1.2 billion at June 30, 2016 as compared to $1.1 billion in December 31, 2015. The allowance for loan losses as a percentage of net loans increased from 1.36 percent at December 31, 2015 to 1.41 percent at June 30, 2016. The increase in the percentage is primarily attributable to the migration of energy loans, resulting in an increase in energy related allowance for loan losses. Total allowance for loan losses for the direct energy portfolio was approximately 9 percent at June 30, 2016 compared to approximately 6 percent at year-end.

Management expects that net loan charge-offs for the remainder of 2016 will be at the top end of the 0.25 percent to 0.35 percent range. Economic trends such as interest rates, unemployment, volatility in commodity prices and real estate valuations will impact the future levels of net charge-offs and may result in volatility during the remainder of 2016.

The provision for loan losses increased for the first six months of 2016 as compared to the same period in 2015. During the first six months of 2016, the provision for loan losses exceeded net charge-offs by approximately $45 million. The increase in loan loss provision reflects an increase in the allowance for loan losses for energy related loans.

Management considers the current level of the allowance appropriate to absorb losses inherent in the loan and credit commitment portfolios. Management’s determination of the appropriateness of the allowance requires the use of judgments and estimations that may change in the future. Changes in the factors used by management to determine the appropriateness of the allowance or the availability of new information could cause the allowance to be increased or decreased in future periods. Management expects the allowance for credit losses to total loans ratio to vary over time due to changes in portfolio balances, economic conditions, loan mix and collateral values, or variations in other factors that may affect inherent losses. In addition, bank regulatory agencies, as part of their examination process, may require changes in the level of the allowance based on their judgments and estimates. Management attributes portions of the allowance to loans that it evaluates and determines to be impaired and to groups of loans that it evaluates collectively. However, the entire allowance is available to cover all charge-offs that arise from the loan portfolio.

Given the current phase of the credit cycle, volatility in certain credit metrics is to be expected. Additionally, changes in circumstances related to individually large credits or certain portfolios may result in volatility.

Details regarding the allowance and net charge-offs, including an analysis of activity from the previous year’s totals, are included in Table 7 “Allowance for Credit Losses.”

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Activity in the allowance for credit losses is summarized as follows:

Table 7—Allowance for Credit Losses



	Six Months Ended June 30
	2016			2015
	(Dollars in millions)
Allowance for loan losses at beginning of year	$	1,106		$	1,103
Loans charged-off:
Commercial and industrial	57			45
Commercial real estate mortgage—owner-occupied	13			14
Commercial real estate construction—owner-occupied	1			—
Commercial investor real estate mortgage	1			12
Commercial investor real estate construction	—			—
Residential first mortgage	7			13
Home equity	35			36
Indirect—vehicles	23			19
Indirect—other consumer	6			—
Consumer credit card	19			19
Other consumer	32			29
	194			187
Recoveries of loans previously charged-off:
Commercial and industrial	10			25
Commercial real estate mortgage—owner-occupied	5			10
Commercial real estate construction—owner-occupied	—			—
Commercial investor real estate mortgage	4			9
Commercial investor real estate construction	1			4
Residential first mortgage	2			6
Home equity	14			14
Indirect—vehicles	9			8
Indirect—other consumer	—			—
Consumer credit card	3			3
Other consumer	6			8
	54			87
Net charge-offs:
Commercial and industrial	47			20
Commercial real estate mortgage—owner-occupied	8			4
Commercial real estate construction—owner-occupied	1			—
Commercial investor real estate mortgage	(3		)	3
Commercial investor real estate construction	(1		)	(4		)
Residential first mortgage	5			7
Home equity	21			22
Indirect—vehicles	14			11
Indirect—other consumer	6			—
Consumer credit card	16			16
Other consumer	26			21
	140			100
Provision for loan losses	185			112
Allowance for loan losses at June 30	$	1,151		$	1,115
Reserve for unfunded credit commitments at beginning of year	$	52		$	65
Provision (credit) for unfunded credit losses	12			(1		)
Reserve for unfunded credit commitments at June 30	$	64		$	64
Allowance for credit losses at June 30	$	1,215		$	1,179
Loans, net of unearned income, outstanding at end of period	$	81,702		$	80,149
Average loans, net of unearned income, outstanding for the period	$	81,735		$	78,562
Ratios:
Allowance for loan losses at end of period to loans, net of unearned income	1.41		%	1.39		%
Allowance for loan losses at end of period to non-performing loans, excluding loans held for sale	1.12x			1.49x
Net charge-offs as percentage of average loans, net of unearned income (annualized)	0.34		%	0.26		%

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TROUBLED DEBT RESTRUCTURINGS (TDRs)

TDRs are modified loans in which a concession is provided to a borrower experiencing financial difficulty. Residential first mortgage, home equity, indirect-vehicles, consumer credit card and other consumer TDRs are consumer loans modified under the CAP. Commercial and investor real estate loan modifications are not the result of a formal program, but represent situations where a modification was offered as a workout alternative. Renewals of classified commercial and investor real estate loans are considered to be TDRs, even if no reduction in interest rate is offered, if the existing terms are considered to be below market. More detailed information is included in Note 4 "Loans and the Allowance For Credit Losses" to the consolidated financial statements. The following table summarizes the loan balance and related allowance for accruing and non-accruing TDRs for the periods presented:

Table 8—Troubled Debt Restructurings



	June 30, 2016				December 31, 2015
	Loan Balance		Allowance for Loan Losses		Loan Balance		Allowance for Loan Losses
	(In millions)
Accruing:
Commercial	$	214	$	35	$	146	$	20
Investor real estate	122		12		157		17
Residential first mortgage	395		49		398		52
Home equity	306		5		323		7
Indirect—vehicles	1		—		1		—
Consumer credit card	2		—		2		—
Other consumer	11		—		12		—
	1,051		101		1,039		96
Non-accrual status or 90 days past due and still accruing:
Commercial	147		33		135		37
Investor real estate	19		3		22		3
Residential first mortgage	82		10		81		10
Home equity	18		—		18		—
	266		46		256		50
Total TDRs - Loans	$	1,317	$	147	$	1,295	$	146

TDRs - Held For Sale	8		—		8		—
Total TDRs	$	1,325	$	147	$	1,303	$	146

_________

Note: All loans listed in the table above are considered impaired under applicable accounting literature.

The following table provides an analysis of the changes in commercial and investor real estate TDRs. TDRs with subsequent restructurings that meet the definition of a TDR are only reported as TDR inflows in the period they were first modified. Other than resolutions such as charge-offs, foreclosures, payments, sales and transfers to held for sale, Regions may remove loans from TDR classification, if the borrower's financial condition improves such that the borrower is no longer in financial difficulty, the loan has not had any forgiveness of principal or interest, and the loan is subsequently refinanced or restructured at market terms and qualifies as a new loan.

For the consumer portfolio, changes in TDRs are primarily due to inflows from CAP modifications and outflows from payments and charge-offs. Given the types of concessions currently being granted under the CAP, as detailed in Note 4 “Loans and the Allowance for Credit Losses” to the consolidated financial statements, Regions does not expect that the market interest rate condition will be widely achieved. Therefore, Regions expects consumer loans modified through CAP to continue to be identified as TDRs for the remaining term of the loan.

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Table 9—Analysis of Changes in Commercial and Investor Real Estate TDRs



	Six Months Ended June 30, 2016
	Commercial			Investor Real Estate
	(In millions)
Balance, beginning of period	$	281		$	179
Inflows	177			11
Outflows
Charge-offs	(12		)	—
Payments, sales and other ⁽¹⁾	(85		)	(49		)
Balance, end of period	$	361		$	141



	Six Months Ended June 30, 2015
	Commercial			Investor Real Estate
	(In millions)
Balance, beginning of period	$	344		$	357
Inflows	93			27
Outflows
Charge-offs	(8		)	(7		)
Foreclosure	—			(32		)
Payments, sales and other ⁽¹⁾	(118		)	(115		)
Balance, end of period	$	311		$	230

(1) The majority of this category consists of payments and sales. "Other" outflows include normal amortization/accretion of loan basis adjustments and loans transferred to held for sale. It also includes $22 million of commercial loans and $6 million of investor real estate loans refinanced or restructured as new loans and removed from TDR classification for the six months ended June 30, 2016. During the six months ended June 30, 2015, $26 million of commercial loans and $22 million of investor real estate loans were refinanced or restructured as new loans and removed from TDR classification.

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NON-PERFORMING ASSETS

Non-performing assets are summarized as follows:

Table 10—Non-Performing Assets



	June 30, 2016			December 31, 2015
	(Dollars in millions)
Non-performing loans:
Commercial and industrial	$	596		$	325
Commercial real estate mortgage—owner-occupied	240			268
Commercial real estate construction—owner-occupied	3			2
Total commercial	839			595
Commercial investor real estate mortgage	33			31
Total investor real estate	33			31
Residential first mortgage	52			63
Home equity	101			93
Total consumer	153			156
Total non-performing loans, excluding loans held for sale	1,025			782
Non-performing loans held for sale	31			38
Total non-performing loans⁽¹⁾	1,056			820
Foreclosed properties	89			100
Total non-performing assets⁽¹⁾	$	1,145		$	920
Accruing loans 90 days past due:
Commercial and industrial	$	6		$	9
Commercial real estate mortgage—owner-occupied	3			3
Total commercial	9			12
Commercial investor real estate mortgage	3			4
Total investor real estate	3			4
Residential first mortgage⁽²⁾	104			113
Home equity	34			59
Indirect—vehicles	8			9
Consumer credit card	13			12
Other consumer	3			4
Total consumer	162			197
	$	174		$	213
Restructured loans not included in the categories above	$	1,051		$	1,039
Non-performing loans⁽¹⁾ to loans and non-performing loans held for sale	1.29		%	1.01		%
Non-performing assets⁽¹⁾ to loans, foreclosed properties and non-performing loans held for sale	1.40		%	1.13		%

_________


(1)	Excludes accruing loans 90 days past due.


(2)	Excludes residential first mortgage loans that are 100% guaranteed by the FHA and all guaranteed loans sold to the GNMA where Regions has the right but not the obligation to repurchase. Total 90 days or more past due guaranteed loans excluded were $95 million at June 30, 2016 and $107 million at December 31, 2015.

Non-performing loans have increased over this period primarily as a result of pressure on the energy lending portfolio as discussed in the "Portfolio Characteristics" section. Economic trends such as interest rates, unemployment, volatility in commodity prices and real estate valuations will impact the future level of non-performing assets. Circumstances related to individually large credits could also result in volatility throughout 2016.

Loans past due 90 days or more and still accruing, excluding government guaranteed loans, were $174 million at June 30, 2016, a decrease from $213 million at December 31, 2015.

At June 30, 2016, Regions had approximately $150 million to $225 million of potential problem commercial and investor real estate loans that were not included in non-accrual loans, but for which management had concerns as to the ability of such

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borrowers to comply with their present loan repayment terms. This is a likely estimate of the amount of commercial and investor real estate loans that have the potential to migrate to non-accrual status in the next quarter.

In order to arrive at the estimate of potential problem loans, personnel from geographic regions forecast certain larger dollar loans that may potentially be downgraded to non-accrual at a future time, depending on the occurrence of future events. These personnel consider a variety of factors, including the borrower’s capacity and willingness to meet the contractual repayment terms, make principal curtailments or provide additional collateral when necessary, and provide current and complete financial information including global cash flows, contingent liabilities and sources of liquidity. Based upon the consideration of these factors, a probability weighting is assigned to loans to reflect the potential for migration to the pool of potential problem loans during this specific time period. Additionally, for other loans (for example, smaller dollar loans), a trend analysis is incorporated to determine the estimate of potential future downgrades. Because of the inherent uncertainty in forecasting future events, the estimate of potential problem loans ultimately represents the estimated aggregate dollar amounts of loans as opposed to an individual listing of loans.

The majority of the loans on which the potential problem loan estimate is based are considered criticized and classified. Detailed disclosures for substandard accrual loans (as well as other credit quality metrics) are included in Note 4 “Loans and the Allowance for Credit Losses” to the consolidated financial statements.

The following table provides an analysis of non-accrual loans (excluding loans held for sale) by portfolio segment:

Table 11—Analysis of Non-Accrual Loans



	Non-Accrual Loans, Excluding Loans Held for Sale Six Months Ended June 30, 2016
	Commercial			Investor Real Estate			Consumer⁽¹⁾			Total
	(In millions)
Balance at beginning of period	$	595		$	31		$	156		$	782
Additions	522			11			(2		)	531
Net payments/other activity	(152		)	(5		)	—			(157		)
Return to accrual	(21		)	(2		)	—			(23		)
Charge-offs on non-accrual loans⁽²⁾	(68		)	(1		)	—			(69		)
Transfers to held for sale⁽³⁾	(30		)	—			(1		)	(31		)
Transfers to foreclosed properties	(2		)	—			—			(2		)
Sales	(5		)	(1		)	—			(6		)
Balance at end of period	$	839		$	33		$	153		$	1,025



	Non-Accrual Loans, Excluding Loans Held for Sale Six Months Ended June 30, 2015
	Commercial			Investor Real Estate			Consumer⁽¹⁾			Total
	(In millions)
Balance at beginning of period	$	493		$	125		$	211		$	829
Additions	305			23			(29		)	299
Net payments/other activity	(122		)	(26		)	—			(148		)
Return to accrual	(92		)	(11		)	—			(103		)
Charge-offs on non-accrual loans⁽²⁾	(56		)	(12		)	—			(68		)
Transfers to held for sale⁽³⁾	(17		)	(3		)	—			(20		)
Transfers to foreclosed properties	(5		)	(31		)	—			(36		)
Sales	(2		)	—			—			(2		)
Balance at end of period	$	504		$	65		$	182		$	751

________


(1)	All net activity within the consumer portfolio segment other than sales and transfers to held for sale (including related charge-offs) is included as a single net number within the additions line.


(2)	Includes charge-offs on loans on non-accrual status and charge-offs taken upon sale and transfer of non-accrual loans to held for sale.


(3)	Transfers to held for sale are shown net of charge-offs of $16 million and $11 million recorded upon transfer for the six months ended June 30, 2016 and 2015, respectively.

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GOODWILL

Goodwill totaled $4.9 billion at both June 30, 2016 and December 31, 2015 and is allocated to each of Regions’ reportable segments (each a reporting unit), at which level goodwill is tested for impairment on an annual basis or more often if events and circumstances indicate the fair value of the reporting unit may have declined below the carrying value (refer to Note 1 “Summary of Significant Accounting Policies” to the 2015 consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2015 for further discussion of when Regions tests goodwill for impairment and the Company's methodology and valuation approaches used to determine the estimated fair value of each reporting unit).

The result of the assessment performed for the second quarter of 2016 did not indicate that the estimated fair values of the Company’s reporting units (Corporate Bank, Consumer Bank and Wealth Management) had declined below their respective carrying values. Therefore, Regions determined that a test of goodwill impairment was not required for each of Regions’ reporting units for the June 30, 2016 interim period.

OTHER ASSETS

Other assets increased approximately $438 million from December 31, 2015 to $6.4 billion as of June 30, 2016. The increase was primarily due to increases in derivative assets and miscellaneous assets, as well as timing differences between settlement and trade date accounting. These increases were offset by a decrease in deferred income taxes.

DEPOSITS

Regions competes with other banking and financial services companies for a share of the deposit market. Regions’ ability to compete in the deposit market depends heavily on the pricing of its deposits and how effectively the Company meets customers’ needs. Regions employs various means to meet those needs and enhance competitiveness, such as providing a high level of customer service, competitive pricing and convenient branch locations for its customers. Regions also serves customers through providing centralized, high-quality banking services and alternative product delivery channels such as internet banking.

The following table summarizes deposits by category:

Table 12—Deposits



	June 30, 2016		December 31, 2015
	(In millions)
Non-interest-bearing demand	$	34,982	$	34,862
Savings	7,786		7,287
Interest-bearing transaction	20,571		21,902
Money market—domestic	26,138		26,468
Money market—foreign	258		243
Low-cost deposits	89,735		90,762
Time deposits	7,286		7,468
Customer deposits	97,021		98,230
Corporate treasury time deposits	224		200
	$	97,245	$	98,430

Total deposits at June 30, 2016 decreased approximately $1.2 billion compared to year-end 2015 levels. The decline was primarily driven by declines in interest-bearing transaction and money market—domestic accounts, as well as continued declines in consumer time deposits. Contributing to the decline in interest-bearing transaction accounts was the planned reduction of certain trust customer deposits, which require collateralization by securities. These trust-related deposits were moved into other fee income producing customer investments. These declines were partially offset by growth in non-interest-bearing demand and savings categories.

SHORT-TERM BORROWINGS

Table 13—Short-Term Borrowings



	June 30, 2016		December 31, 2015
	(In millions)
Customer-related borrowings:
Customer collateral	$	2	$	10
	$	2	$	10

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Customer-Related Borrowings

Customer collateral includes cash collateral posted by customers related to derivative transactions.

LONG-TERM BORROWINGS

Table 14—Long-Term Borrowings



	June 30, 2016			December 31, 2015
	(In millions)
Regions Financial Corporation (Parent):
2.00% senior notes due May 2018	$	747		$	749
3.20% senior notes due February 2021	1,102			—
7.75% subordinated notes due September 2024	100			100
6.75% subordinated debentures due November 2025	159			159
7.375% subordinated notes due December 2037	297			300
Valuation adjustments on hedged long-term debt	12			(7		)
	2,417			1,301
Regions Bank:
Federal Home Loan Bank advances	4,755			5,255
2.25% senior notes due September 2018	747			749
7.50% subordinated notes due May 2018	499			500
6.45% subordinated notes due June 2037	495			497
3.80% affiliate subordinated notes due February 2025	150			150
Other long-term debt	47			48
Valuation adjustments on hedged long-term debt	8			(1		)
	6,701			7,198
Elimination of 3.80% affiliate subordinated notes due February 2025	(150		)	(150		)
Total consolidated	$	8,968		$	8,349

Long-term borrowings increased approximately $619 million since year-end 2015. The increase was primarily the result of the issuance of $1.1 billion of 3.20% senior notes offset by a $500 million decrease in the FHLB advances. Regions issued $500 million of 3.20% senior notes in the first quarter of 2016 and an additional $600 million of 3.20% senior notes during the second quarter of 2016.

Effective January 1, 2016, the Company adopted new guidance related to the accounting for debt issuance costs. All existing debt issuance costs were reclassified from other assets to long-term borrowings as direct deductions of the related debt instruments. The impact of the adoption of this guidance was not material to prior periods and therefore was not applied retrospectively.

Long-term FHLB advances have a weighted-average interest rate of 0.8 percent for June 30, 2016 and 0.7 percent for December 31, 2015 with remaining maturities ranging from less than one year to fifteen years and a weighted-average of 0.8 years.

STOCKHOLDERS’ EQUITY

Stockholders’ equity was $17.4 billion at June 30, 2016 as compared to $16.8 billion at December 31, 2015. During the first six months of 2016, net income increased stockholders’ equity by $548 million, while cash dividends on common stock reduced stockholders' equity by $159 million and cash dividends on preferred stock reduced stockholder's equity by $32 million. Changes in accumulated other comprehensive income increased stockholders' equity by $528 million, primarily due to the net change in the value of securities available for sale and derivative instruments. Common stock repurchased during the first six months of 2016 reduced stockholders' equity by $354 million. These shares were immediately retired and therefore are not included in treasury stock.

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On June 29, 2016, Regions received no objection from the Federal Reserve to its 2016 capital plan that was submitted as part of the CCAR process. In addition to continuing the $0.065 quarterly common stock dividend, actions that Regions may undertake as outlined in its capital plan include the repurchase of up to $640 million in common shares. The capital plan also provides the potential for a dividend increase beginning in the second quarter of 2017, which is expected to be considered by the Board in early 2017. On July 14, 2016, Regions' Board authorized a new $640 million common stock repurchase plan, permitting repurchases from the beginning of the third quarter of 2016 through the second quarter of 2017. The Company began to repurchase shares under this plan in the third quarter of 2016, and as of August 4, 2016, Regions has repurchased of approximately 9.4 million shares of common stock at a total cost of approximately $85.0 million. These shares were immediately retired upon repurchase and therefore are not included in treasury stock.

As part of its 2015 CCAR submission, Regions' Board authorized a $875 million common stock repurchase plan, permitting repurchases from the beginning of the second quarter of 2015 through the end of the second quarter of 2016. The Company closed out this repurchase plan in the second quarter of 2016.

Regions’ Board declared a cash dividend for the second quarter of 2016 of $0.065 per common share compared to $0.06 per common share for the first quarter of 2016. The Board declared a $0.05 per share and $0.06 per share cash dividend for the first and second quarters of 2015, respectively. The Board also declared $32 million in cash dividends on preferred stock for the first six months of 2016 and 2015. Prior to the first quarter of 2016, the Company was in a retained deficit position and common stock dividends were recorded as a reduction of additional paid-in capital, while preferred dividends were recorded as a reduction of preferred stock, including related surplus. During the first quarter of 2016, the Company achieved positive retained earnings and both common stock and preferred dividends were recorded as a reduction of retained earnings.

See Note 7 “Stockholders’ Equity and Accumulated Other Comprehensive Income (Loss)” for additional information.

REGULATORY REQUIREMENTS

CAPITAL RULES

Regions and Regions Bank are required to comply with regulatory capital requirements established by federal and state banking agencies. These regulatory capital requirements involve quantitative measures of assets, liabilities and certain off-balance sheet items, and also qualitative judgments by the regulators. Failure to meet minimum capital requirements can subject the Company to a series of increasingly restrictive regulatory actions.

In 2013, the Federal Reserve released its final rules detailing the U.S. implementation of the Basel III Rules. Under the Basel III Rules, Regions is designated as a standardized approach bank and, as such, began transitioning to the Basel III Rules in January 2015 subject to a phase-in period extending to January 2019. When fully phased in, the Basel III Rules will increase capital requirements through higher minimum capital levels as well as through increases in risk-weights for certain exposures. Additionally, the Basel III Rules place greater emphasis on common equity. The Basel III Rules substantially revise the regulatory capital requirements applicable to BHCs and depository institutions, including Regions and Regions Bank. The Basel III Rules define the components of capital and address other issues affecting the numerator in banking institutions' regulatory capital ratios. The Basel III Rules also address risk weights and other issues affecting the denominator in banking institutions' regulatory capital ratios to incorporate a more risk-sensitive approach. The Basel III Rules also implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies' rules.

The Basel III Rules, among other things, (i) introduce a measure called CET1, (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expand the scope of the deductions/adjustments to capital as compared to prior regulations.

Under the Basel III Rules, the initial minimum capital ratios as of January 1, 2015 were as follows:


•	4.5% CET1 to risk-weighted assets.


•	6.0% Tier 1 capital to risk-weighted assets.


•	8.0% Total capital to risk-weighted assets.

The Basel III Rules also introduce a new capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer is on top of these minimum risk-weighted asset ratios. In addition, the Basel III Rules provide for a countercyclical capital buffer applicable only to advanced approach institutions. Currently the countercyclical capital buffer is not applicable to Regions or Regions Bank. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the combined capital conservation buffer and countercyclical capital buffer (when applicable) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

When fully phased in on January 1, 2019, the Basel III Rules will require Regions and Regions Bank to maintain an additional capital conservation buffer of 2.5% of CET1 to risk-weighted assets, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii) Total capital to risk-weighted assets of at least 10.5%.

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The Basel III Rules provide for a number of deductions from and adjustments to CET1. For example, goodwill and certain other intangible assets, as well as certain deferred tax assets are deducted. MSRs, certain other deferred tax assets and significant investments in non-consolidated financial entities are also deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1. Under the Basel III Rules, the effects of certain accumulated other comprehensive items are included; however, standardized approach banking organizations, including Regions and Regions Bank, may make a one-time permanent election to exclude these items. Regions and Regions Bank made this election in order to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of their securities portfolios.

Implementation of the deductions and other adjustments to CET1 began on January 1, 2015 and will be phased in over a 4- year period (beginning at 40% on January 1, 2015 and an additional 20% per year thereafter). The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will be phased in over a remaining 3-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).

With respect to Regions Bank, the Basel III Rules also revise the prompt corrective action regulations pursuant to Section 38 of the Federal Deposit Insurance Act, by (i) introducing a CET1 ratio requirement at each level (other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the required Tier 1 capital ratio for well-capitalized status being 8% (as compared to the previous 6%); and (iii) eliminating the provision that provides that a bank with a composite supervisory rating of 1 may have a 3% leverage ratio and still be adequately capitalized. The Basel III Rules do not change the total capital requirement for any prompt corrective action category.

The Basel III Rules prescribe a standardized approach for risk weightings that expands the risk-weighting categories from the previous four Basel I-derived categories (0%, 20%, 50% and 100%) to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 1,250% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories. Specific changes to the prior capital rules impacting Regions' determination of risk-weighted assets include, among other things:


•	Applying a 150% risk weight for certain high volatility commercial real estate acquisition, development and construction exposures (previously set at 100%).


•	Assigning a 150% risk weight to exposures (other than residential mortgage exposures) that are on non-accrual status or 90 days or more past due (previously set at 100%).


•	Providing for a 20% credit conversion factor for the unused portion of a loan commitment with an original maturity of less than one year that is not unconditionally cancellable (previously set at 0%).


•	Eliminating the previous 50% cap on the risk weight for derivative exposures.


•	Replacing the previous Ratings Based Approach for certain asset-backed securities with a SSFA which results in risk weights ranging from 20% to 1,250% (previously ranged from 100% to 1,250%).


•	Effective January 1, 2018, applying a 250% risk weight to the portion of MSRs and deferred tax assets that are includible in capital (previously set at 100%).

In addition, the Basel III Rules also provide more advantageous risk weights for derivatives and repurchase-style transactions cleared through a qualifying central counterparty and increase the scope of eligible guarantors and eligible collateral for purposes of credit risk mitigation.

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Table 15—Regulatory Capital Requirements



Transitional Basis Basel III Regulatory Capital Rules ⁽¹⁾	June 30, 2016 Ratio ⁽²⁾		December 31, 2015 Ratio		To Be Well Capitalized
Basel III common equity Tier 1 capital:
Regions Financial Corporation	10.98	%	10.93	%	N/A
Regions Bank	11.80		11.68		6.50	%
Tier 1 capital:
Regions Financial Corporation	11.74	%	11.65	%	6.00	%
Regions Bank	11.80		11.68		8.00
Total capital:
Regions Financial Corporation	13.92	%	13.88	%	10.00	%
Regions Bank	13.68		13.59		10.00
Leverage capital:
Regions Financial Corporation	10.19	%	10.25	%	N/A
Regions Bank	10.27		10.28		5.00	%

________


(1)	The 2016 and 2015 capital ratios were calculated at different points of the phase-in period under the Basel III Rules and therefore are not directly comparable.


(2)	The current quarter Basel III CET1 capital, Tier 1 capital, Total capital, and Leverage capital ratios are estimated.

LIQUIDITY COVERAGE RATIO

The Federal Reserve Board, the OCC and the FDIC approved a final rule in 2014 implementing a minimum LCR requirement for certain large BHCs, savings and loan holding companies and depository institutions, and a less stringent LCR requirement (the "modified LCR") for other banking organizations, such as Regions, with $50 billion or more in total consolidated assets. The final rule imposes a monthly calculation requirement. In January 2016, the minimum phased-in LCR requirement was 90 percent, to be followed by 100 percent in January 2017. The regulatory agencies have released an NPR that would require public disclosures of certain LCR measures beginning in 2018. The comment period for this NPR ended in February 2016.

At June 30, 2016, the Company was fully compliant with the LCR requirements. However, should the Company's cash position or investment mix change in the future, the Company's ability to meet the LCR requirement may be impacted, and additional funding would need to be sourced to remain compliant.

See the “Supervision and Regulation—Liquidity Regulation” subsection of the “Business” section and the “Risk Factors” section of the Company's Annual Report on Form 10-K for the year ended December 31, 2015 for more information.

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RATINGS

Table 16 “Credit Ratings” reflects the debt ratings information of Regions Financial Corporation and Regions Bank by Standard and Poor's ("S&P"), Moody’s, Fitch and Dominion Bond Rating Service ("DBRS") as of June 30, 2016 and December 31, 2015.

Table 16—Credit Ratings



	As of June 30, 2016 and December 31, 2015
	S&P	Moody’s	Fitch	DBRS
Regions Financial Corporation
Senior unsecured debt	BBB	Baa3	BBB	BBB
Subordinated debt	BBB-	Baa3	BBB-	BBBL
Regions Bank
Short-term	A-2	P-2	F2	R-1L
Long-term bank deposits	N/A	A3	BBB+	BBBH
Long-term rating	BBB+	A3	BBB	N/A
Senior unsecured debt	BBB+	Baa3	BBB	BBBH
Subordinated debt	BBB	Baa3	BBB-	BBB
Outlook	Stable	Stable	Stable	Positive

_______

N/A - Not applicable.

In general, ratings agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, probability of government support, and level and quality of earnings. Any downgrade in credit ratings by one or more ratings agencies may impact Regions in several ways, including, but not limited to, Regions’ access to the capital markets or short-term funding, borrowing cost and capacity, collateral requirements, and acceptability of its letters of credit, thereby potentially adversely impacting Regions’ financial condition and liquidity. See the “Risk Factors” section in the Annual Report on Form 10-K for the year ended December 31, 2015 for more information.

A security rating is not a recommendation to buy, sell or hold securities, and the ratings are subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.

NON-GAAP MEASURES

The table below presents computations of earnings and certain other financial measures, which exclude certain significant items that are included in the financial results presented in accordance with GAAP. These non-GAAP financial measures include “adjusted fee income ratio”, “adjusted efficiency ratio”, “return on average tangible common stockholders’ equity”, average and end of period “tangible common stockholders’ equity”, and “Basel III CET1, on a fully phased-in basis” and related ratios. Regions believes that expressing earnings and certain other financial measures excluding these significant items provides a meaningful base for period-to-period comparisons, which management believes will assist investors in analyzing the operating results of the Company and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of Regions’ business because management does not consider the activities related to the adjustments to be indications of ongoing operations. Regions believes that presentation of these non-GAAP financial measures will permit investors to assess the performance of the Company on the same basis as that applied by management. Management and the Board utilize these non-GAAP financial measures as follows:


•	Preparation of Regions’ operating budgets


•	Monthly financial performance reporting


•	Monthly close-out reporting of consolidated results (management only)


•	Presentations to investors of Company performance

The adjusted efficiency ratio (non-GAAP), which is a measure of productivity, is generally calculated as adjusted non-interest expense divided by adjusted total revenue on a taxable-equivalent basis. The adjusted fee income ratio (non-GAAP) is generally calculated as non-interest income divided by total revenue on a taxable-equivalent basis. Management uses these ratios to monitor performance and believes these measures provide meaningful information to investors. Non-interest expense (GAAP) is presented excluding adjustments to arrive at adjusted non-interest expense (non-GAAP), which is the numerator for the adjusted efficiency ratio. Non-interest income (GAAP) is presented excluding adjustments to arrive at adjusted non-interest income (non-GAAP), which is the numerator for the adjusted fee income ratio. Net interest income and other financing income on a taxable-equivalent basis and non-interest income are added together to arrive at total revenue on a taxable-equivalent basis. Adjustments are made to

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arrive at adjusted total revenue on a taxable-equivalent basis (non-GAAP), which is the denominator for the adjusted efficiency and adjusted fee income ratios.

Tangible common stockholders’ equity ratios have become a focus of some investors in analyzing the capital position of the Company absent the effects of intangible assets and preferred stock. Traditionally, the Federal Reserve and other banking regulatory bodies have assessed a bank’s capital adequacy based on Tier 1 capital, the calculation of which is codified in federal banking regulations. Analysts and banking regulators have assessed Regions’ capital adequacy using the tangible common stockholders’ equity measure. Because tangible common stockholders’ equity is not formally defined by GAAP, this measure is considered to be a non-GAAP financial measure and other entities may calculate it differently than Regions’ disclosed calculations. Since analysts and banking regulators may assess Regions’ capital adequacy using tangible common stockholders’ equity, Regions believes that it is useful to provide investors the ability to assess Regions’ capital adequacy on this same basis.

The Basel Committee's Basel III framework will strengthen international capital and liquidity regulations. When fully phased-in, Basel III will increase capital requirements through higher minimum capital levels as well as through increases in risk-weights for certain exposures. Additionally, the Basel III rules place greater emphasis on common equity. The Federal Reserve released its final Basel III rules detailing the U.S. implementation of Basel III in 2013. Regions, as a standardized approach bank, began transitioning to the Basel III framework in January 2015 subject to a phase-in period extending through January 2019. Because the Basel III implementation regulations will not be fully phased-in until 2019 and, are not formally defined by GAAP, these measures are considered to be non-GAAP financial measures. Since analysts and banking regulators may assess Regions’ capital adequacy using the fully phased-in Basel III framework, Regions believes that it is useful to provide investors information enabling them to assess Regions’ capital adequacy on the same basis.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. In particular, a measure of earnings that excludes selected items does not represent the amount that effectively accrues directly to stockholders.

The following table provides: 1) a reconciliation of net income (GAAP) to net income available to common shareholders (GAAP), 2) a reconciliation of non-interest expense from continuing operations (GAAP) to adjusted non-interest expense (non-GAAP), 3) a reconciliation of non-interest income from continuing operations (GAAP) to adjusted non-interest income (non-GAAP), 4) a computation of adjusted total revenue (non-GAAP), 5) a computation of the adjusted efficiency ratio (non-GAAP), 6) a computation of the adjusted fee income ratio (non-GAAP), 7) a reconciliation of average and ending stockholders’ equity (GAAP) to average and ending tangible common stockholders’ equity (non-GAAP) and calculations of related ratios (non-GAAP), 8) a reconciliation of stockholders’ equity (GAAP) to Basel III CET1, on a fully phased-in basis (non-GAAP), and calculation of the related ratio based on Regions’ current understanding of the Basel III requirements (non-GAAP).

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Table 17—GAAP to Non-GAAP Reconciliation



		Three Months Ended June 30						Six Months Ended June 30
		2016			2015			2016			2015
		(Dollars in millions, except per share data)
INCOME
Net income (GAAP)		$	275		$	285		$	548		$	519
Preferred dividends (GAAP)		(16		)	(16		)	(32		)	(32		)
Net income available to common shareholders (GAAP)	A	$	259		$	269		$	516		$	487
ADJUSTED FEE INCOME AND EFFICIENCY RATIOS
Non-interest expense from continuing operations (GAAP)	B	$	915		$	934		$	1,784		$	1,839
Significant items:
Professional, legal and regulatory expenses ⁽¹⁾		(3		)	(48		)	(3		)	(48		)
Branch consolidation, property and equipment charges		(22		)	(27		)	(36		)	(49		)
Loss on early extinguishment of debt		—			—			—			(43		)
Salary and employee benefits—severance charges		(1		)	—			(13		)	—
Adjusted non-interest expense (non-GAAP)	C	$	889		$	859		$	1,732		$	1,699
Net interest income and other financing income (GAAP)		$	848		$	820		$	1,710		$	1,635
Taxable-equivalent adjustment		21			19			42			36
Net interest income and other financing income from continuing operations, taxable-equivalent basis	D	869			839			1,752			1,671
Non-interest income from continuing operations (GAAP)	E	526			590			1,032			1,060
Significant items:
Securities gains, net		(6		)	(6		)	(1		)	(11		)
Insurance proceeds ⁽²⁾		—			(90		)	(3		)	(90		)
Leveraged lease termination gains, net		—			—			—			(2		)
Adjusted non-interest income (non-GAAP)	F	$	520		$	494		$	1,028		$	957
Total revenue, taxable-equivalent basis	D+E=G	$	1,395		$	1,429		$	2,784		$	2,731
Adjusted total revenue, taxable-equivalent basis (non-GAAP)	D+F=H	$	1,389		$	1,333		$	2,780		$	2,628
Efficiency ratio (GAAP)	B/G	65.62		%	65.41		%	64.08		%	67.35		%
Adjusted efficiency ratio (non-GAAP)	C/H	63.98		%	64.45		%	62.30		%	64.68		%
Fee income ratio (GAAP)	E/G	37.70		%	41.24		%	37.07		%	38.80		%
Adjusted fee income ratio (non-GAAP)	F/H	37.46		%	37.04		%	37.00		%	36.40		%
RETURN ON AVERAGE TANGIBLE COMMON STOCKHOLDERS’ EQUITY
Average stockholders’ equity (GAAP)		$	17,151		$	16,946		$	17,119		$	16,954
Less: Average intangible assets (GAAP)		5,124			5,083			5,127			5,086
Average deferred tax liability related to intangibles (GAAP)		(163		)	(171		)	(164		)	(172		)
Average preferred stock (GAAP)		820			856			820			867
Average tangible common stockholders’ equity (non-GAAP)	I	$	11,370		$	11,178		$	11,336		$	11,173
Return on average tangible common stockholders’ equity (non-GAAP) ⁽³⁾	A/I	9.15		%	9.66		%	9.15		%	8.79		%

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		June 30, 2016			December 31, 2015
		(Dollars in millions, except per share data)
TANGIBLE COMMON RATIOS
Ending stockholders’ equity (GAAP)		$	17,385		$	16,844
Less: Ending intangible assets (GAAP)		5,122			5,137
Ending deferred tax liability related to intangibles (GAAP)		(163		)	(165		)
Ending preferred stock (GAAP)		820			820
Ending tangible common stockholders’ equity (non-GAAP)	J	$	11,606		$	11,052
Ending total assets (GAAP)		$	126,212		$	126,050
Less: Ending intangible assets (GAAP)		5,122			5,137
Ending deferred tax liability related to intangibles (GAAP)		(163		)	(165		)
Ending tangible assets (non-GAAP)	K	$	121,253		$	121,078
End of period shares outstanding	L	1,259			1,297
Tangible common stockholders’ equity to tangible assets (non-GAAP)	J/K	9.57		%	9.13		%
Tangible common book value per share (non-GAAP)	J/L	$	9.22		$	8.52
BASEL III COMMON EQUITY TIER 1 RATIO—FULLY PHASED-IN PRO-FORMA ⁽⁴⁾
Stockholders’ equity (GAAP)		$	17,385		$	16,844
Non-qualifying goodwill and intangibles		(4,946		)	(4,958		)
Adjustments, including all components of accumulated other comprehensive income, disallowed deferred tax assets, threshold deductions and other adjustments		(227		)	286
Preferred stock (GAAP)		(820		)	(820		)
Basel III common equity Tier 1—Fully Phased-In Pro-Forma (non-GAAP)	M	$	11,392		$	11,352
Basel III risk-weighted assets—Fully Phased-In Pro-Forma (non-GAAP) ⁽⁵⁾	N	$	105,199		$	106,188
Basel III common equity Tier 1 ratio—Fully Phased-In Pro-Forma (non-GAAP)	M/N	10.83		%	10.69		%

_________

(1)

Regions recorded $3 million, $50 million and $100 million of contingent legal and regulatory accruals during the second quarter of 2016, the second quarter of 2015, and the fourth quarter of 2014, respectively, related to previously disclosed matters. The fourth quarter of 2014 accruals were settled in the second quarter of 2015 for $2 million less than originally estimated and a corresponding recovery was recognized.


(2)	Insurance proceeds recognized in all periods are related to the settlement of the previously disclosed 2010 class-action lawsuit.


(3)	Income statement amounts have been annualized in calculation.


(4)	Current quarter amounts and the resulting ratio are estimated.


(5)	Regions continues to develop systems and internal controls to precisely calculate risk-weighted assets as required by Basel III on a fully phased-in basis. The amounts included above are a reasonable approximation, based on current understanding of the requirements.

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OPERATING RESULTS

NET INTEREST INCOME AND MARGIN

Table 18—Consolidated Average Daily Balances and Yield/Rate Analysis for Continuing Operations



	Three Months Ended June 30
	2016							2015
	Average Balance			Income/ Expense		Yield/ Rate		Average Balance			Income/ Expense		Yield/ Rate
	(Dollars in millions; yields on taxable-equivalent basis)
Assets
Earning assets:
Federal funds sold and securities purchased under agreements to resell	$	3		$	—	—	%	$	2		$	—	—	%
Trading account securities	114			1		0.99		112			1		1.06
Securities:
Taxable ⁽¹⁾	24,682			145		2.36		24,114			141		2.35
Tax-exempt	1			—		—		2			—		—
Loans held for sale	458			4		3.45		463			4		3.44
Loans, net of unearned income ⁽²⁾⁽³⁾	81,960			783		3.82		79,175			747		3.78
Investment in operating leases, net	792			6		2.81		—			—		—
Other earning assets ⁽¹⁾	2,970			8		1.10		2,659			9		1.44
Total earning assets	110,980			947		3.41		106,527			902		3.40
Allowance for loan losses	(1,158		)					(1,097		)
Cash and due from banks	1,792							1,706
Other non-earning assets	13,798							13,739
	$	125,412						$	120,875
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Savings	$	7,794		2		0.14		$	7,165		3		0.12
Interest-bearing checking	20,760			5		0.09		21,494			4		0.08
Money market	26,585			7		0.11		26,483			7		0.11
Time deposits	7,338			14		0.73		8,250			13		0.67
Total interest-bearing deposits ⁽⁴⁾	62,477			28		0.18		63,392			27		0.17
Federal funds purchased and securities sold under agreements to repurchase	—			—		—		637			—		—
Other short-term borrowings	—			—		—		942			1		0.21
Long-term borrowings	8,523			50		2.33		2,903			35		4.83
Total interest-bearing liabilities	71,000			78		0.44		67,874			63		0.37
Non-interest-bearing deposits ⁽⁴⁾	35,020			—		—		33,708			—		—
Total funding sources	106,020			78		0.29		101,582			63		0.25
Net interest spread						2.97							3.03
Other liabilities	2,241							2,343
Stockholders’ equity	17,151							16,950
	$	125,412						$	120,875
Net interest income and other financing income/margin on a taxable-equivalent basis from continuing operations ⁽⁵⁾				$	869	3.15	%				$	839	3.16	%

_________


(1)	Investments in FRB and FHLB stock were reclassified from securities available for sale to other earning assets during the fourth quarter of 2015. All periods presented have been revised to reflect this presentation.


(2)	Loans, net of unearned income include non-accrual loans for all periods presented.


(3)	Interest income includes net loan fees of $8 million and $14 million for the three months ended June 30, 2016 and 2015, respectively.


(4)	Total deposit costs may be calculated by dividing total interest expense on deposits by the sum of interest-bearing deposits and non-interest-bearing deposits. The rates for total deposit costs equal 0.12% and 0.11% for the three months ended June 30, 2016 and 2015, respectively.


(5)	The computation of taxable-equivalent net interest income and other financing income is based on the statutory federal income tax rate of 35%, adjusted for applicable state income taxes net of the related federal tax benefit.

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	Six Months Ended June 30
	2016							2015
	Average Balance			Income/ Expense		Yield/ Rate		Average Balance			Income/ Expense		Yield/ Rate
	(Dollars in millions; yields on taxable-equivalent basis)
Assets
Earning assets:
Federal funds sold and securities purchased under agreements to resell	$	7		$	—	—	%	$	11		$	—	—	%
Trading account securities	123			4		5.93		109			4		6.74
Securities:
Taxable ⁽¹⁾	24,650			292		2.38		24,142			286		2.39
Tax-exempt	1			—		—		2			—		—
Loans held for sale	410			7		3.38		435			7		3.45
Loans, net of unearned income ⁽²⁾⁽³⁾	81,735			1,572		3.84		78,562			1,489		3.82
Investment in operating leases, net	809			11		2.76		—			—		—
Other earning assets ⁽¹⁾	3,508			18		1.03		3,070			19		1.26
Total earning assets	111,243			1,904		3.42		106,331			1,805		3.42
Allowance for loan losses	(1,133		)					(1,098		)
Cash and due from banks	1,751							1,740
Other non-earning assets	13,825							13,749
	$	125,686						$	120,722
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Savings	$	7,642		5		0.15		$	7,023		5		0.13
Interest-bearing checking	21,002			10		0.09		21,631			9		0.09
Money market	26,703			14		0.11		26,432			14		0.11
Time deposits	7,353			26		0.70		8,374			27		0.66
Total interest-bearing deposits ⁽⁴⁾	62,700			55		0.18		63,460			55		0.18
Federal funds purchased and securities sold under agreements to repurchase	—			—		—		1,158			—		—
Other short-term borrowings	4			—		—		554			1		0.21
Long-term borrowings	8,665			97		2.23		3,135			78		5.03
Total interest-bearing liabilities	71,369			152		0.43		68,307			134		0.40
Non-interest-bearing deposits ⁽⁴⁾	34,923			—		—		32,985			—		—
Total funding sources	106,292			152		0.29		101,292			134		0.27
Net interest spread						2.99							3.02
Other liabilities	2,275							2,473
Stockholders’ equity	17,119							16,957
	$	125,686						$	120,722
Net interest income and other financing income/margin on a taxable-equivalent basis from continuing operations ⁽⁵⁾				$	1,752	3.17	%				$	1,671	3.17	%

_________


(1)	Investments in FRB and FHLB stock were reclassified from securities available for sale to other earning assets during the fourth quarter of 2015. All periods presented have been revised to reflect this presentation.


(2)	Loans, net of unearned income include non-accrual loans for all periods presented.


(3)	Interest income includes net loan fees of $19 million and $31 million for the six months ended June 30, 2016 and 2015, respectively.


(4)	Total deposit costs may be calculated by dividing total interest expense on deposits by the sum of interest-bearing deposits and non-interest-bearing deposits. The rates for total deposit costs equal 0.11% and 0.12% for the six months ended June 30, 2016 and 2015, respectively.


(5)	The computation of taxable-equivalent net interest income and other financing income is based on the statutory federal income tax rate of 35%, adjusted for applicable state income taxes net of the related federal tax benefit.

For the second quarter of 2016, net interest income and other financing income (taxable-equivalent basis) totaled $869 million compared to $839 million in the second quarter of 2015. The net interest margin (taxable-equivalent basis) was 3.15 percent for the second quarter of 2016 and 3.16 percent for the second quarter of 2015. For the first six months of 2016 and 2015, net interest

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income and other financing income (taxable-equivalent basis) totaled $1.8 billion and $1.7 billion, respectively. The net interest margin (taxable-equivalent basis) was 3.17 percent for the first six months of 2016 and 2015.

Management expects to increase net interest income and other financing income in the range of 2 percent to 4 percent in 2016. Should the Federal Reserve choose not to raise the targeted fed funds rate during the remainder of 2016, the Company would expect its net interest income and other financing income growth to be at the mid-point of that range.

MARKET RISK—INTEREST RATE RISK

Regions’ primary market risk is interest rate risk. This includes uncertainty with respect to absolute interest rate levels as well as relative interest rate levels, which are impacted by both the shape and the slope of the various yield curves that affect the financial products and services that the Company offers. To quantify this risk, Regions measures the change in its net interest income and other financing income in various interest rate scenarios compared to a base case scenario. Net interest income and other financing income sensitivity to market rate movements is a useful short-term indicator of Regions’ interest rate risk.

Sensitivity Measurement—Financial simulation models are Regions’ primary tools used to measure interest rate exposure. Using a wide range of sophisticated simulation techniques provides management with extensive information on the potential impact to net interest income and other financing income caused by changes in interest rates. Models are structured to simulate cash flows and accrual characteristics of Regions’ balance sheet. Assumptions are made about the direction and volatility of interest rates, the slope of the yield curve, and the changing composition of the balance sheet that result from both strategic plans and from customer behavior. Among the assumptions are expectations of balance sheet growth and composition, the pricing and maturity characteristics of existing business and the characteristics of future business. Interest rate-related risks are expressly considered, such as pricing spreads, the pricing of deposit accounts, prepayments and other option risks. Regions considers these factors, as well as the degree of certainty or uncertainty surrounding their future behavior.

The primary objective of asset/liability management at Regions is to coordinate balance sheet composition with interest rate risk management to sustain reasonable and stable net interest income and other financing income throughout various interest rate cycles. In computing interest rate sensitivity for measurement, Regions compares a set of alternative interest rate scenarios to the results of a base case scenario based on “market forward rates.” The standard set of interest rate scenarios includes the traditional instantaneous parallel rate shifts of plus 100 and 200 basis points. While not presented, up-rate scenarios of greater magnitude are also analyzed as the current, historic low levels of interest rates increase the relative likelihood of a sizable increase in interest rates. Regions also prepares a minus 50 basis points scenario, as minus 100 and 200 basis points scenarios are of limited use in the current rate environment. In addition to parallel curve shifts, multiple curve steepening and flattening scenarios are contemplated. Regions includes simulations of gradual interest rate movements phased in over a six-month period that may more realistically mimic the speed of potential interest rate movements.

Exposure to Interest Rate Movements—As of June 30, 2016, Regions was moderately asset sensitive to both gradual and instantaneous parallel yield curve shifts as compared to the base case for the measurement horizon ending June 2017. The estimated exposure associated with the parallel yield curve shift of minus 50 basis points in the table below reflects the combined impacts of movements in short-term and long-term rates. The decline in short-term interest rates (such as the Fed Funds rate and the rate of Interest on Excess Reserves) will lead to a reduction of yield on assets and liabilities contractually tied to such rates. Since interest rates have been at low levels for such an extended period, it is expected that declines in deposit costs will only partially offset the decline in asset yields. A reduction in long-term interest rates (such as intermediate to longer term U.S. Treasuries, swap and mortgage rates) will drive yields lower on certain fixed rate, newly originated or renewed loans, reduce prospective yields on certain investment portfolio purchases, and increase amortization of premium on existing securities in the investment portfolio.

With respect to sensitivity to long-term interest rates, the balance sheet is estimated to be moderately asset sensitive. Current simulation models estimate that, as compared to the base case, net interest income and other financing income over a 12 month horizon would respond favorably by approximately $120 million if longer-term interest rates were to immediately and on a sustained basis exceed the base scenario by 100 basis points. Conversely, if longer-term interest rates were to immediately and on a sustained basis underperform the base case by 50 basis points, then net interest income and other financing income, as compared to the base case, would decline by approximately $53 million. These estimates may vary to the extent that long-term yield curve basis relationships change. The table below summarizes Regions' positioning in various parallel yield curve shifts (i.e. including both long-term and short-term interest rates). The scenarios are inclusive of all interest rate risk hedging activities.

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Table 19—Interest Rate Sensitivity



	Estimated Annual Change in Net Interest Income June 30, 2016
	(In millions)
Gradual Change in Interest Rates
+ 200 basis points		$234
+ 100 basis points	130
- 50 basis points	(87		)

Instantaneous Change in Interest Rates
+ 200 basis points		$269
+ 100 basis points	165
- 50 basis points	(147		)

As discussed above, the interest rate sensitivity analysis presented in Table 19 is informed by a variety of assumptions and estimates regarding the course of the balance sheet in both the baseline scenario as well as the scenarios of instantaneous and gradual shifts in the yield curve. Though there are many assumptions which affect the estimates for net interest income and other financing income, those pertaining to deposit pricing, deposit mix and overall balance sheet composition are particularly impactful. Given the uncertainties associated with the prolonged period of low interest rates, management evaluates the impact to its sensitivity analysis of these key assumptions. Sensitivity calculations are hypothetical and should not be considered to be predictive of future results.

The Company’s baseline balance sheet growth assumptions include continued moderate loan and deposit growth with a composition largely reflecting a continuation of recent trends. The behavior of deposits in response to changes in interest rate levels is largely informed by analyses of prior rate cycles, but with suitable adjustments based on management’s expectations in the current rate environment. In the + 200 basis point gradual interest rate change scenario in Table 19, the total cumulative interest bearing deposit re-pricing sensitivity is expected to be approximately 60 percent of changes in short-term market rates (e.g. Federal Funds), as compared to approximately 55 percent in the 2004 to 2007 historical timeframe. A 5 percentage point higher sensitivity than the 60 percent baseline would reduce 12 month net interest income and other financing income in the gradual +200 basis points scenario by approximately $54 million. While the estimates should be used as a guide, differences may result driven by the pace of rate changes, and other market and competitive factors.

Similarly, management assumes that the change in the mix of deposits in a rising rate environment versus the baseline balance sheet growth assumptions is informed by analyses of prior rate cycles. Management assumes that in rising rate scenarios, some shift from non-interest bearing to interest-bearing products will occur. The magnitude of the shift is rate dependent, but equates to approximately $3.5 billion over 12 months in the gradual +200 basis point scenario in Table 19. In the event this shift increased by an additional $3.0 billion over 12 months, the result would be a reduction of 12 month net interest income and other financing income in the gradual +200 basis points scenario by approximately $31million.

Interest rate movements may also have an impact on the value of Regions’ securities portfolio, which can directly impact the carrying value of stockholders’ equity. Regions from time to time may hedge these price movements with derivatives (as discussed below).

Derivatives—Regions uses financial derivative instruments for management of interest rate sensitivity. ALCO, which consists of members of Regions’ senior management team, in its oversight role for the management of interest rate sensitivity, approves the use of derivatives in balance sheet hedging strategies. The most common derivatives Regions employs are forward rate contracts, Eurodollar futures contracts, interest rate swaps, options on interest rate swaps, interest rate caps and floors, and forward sale commitments. Derivatives are also used to offset the risks associated with customer derivatives, which include interest rate, credit and foreign exchange risks.

Forward rate contracts are commitments to buy or sell financial instruments at a future date at a specified price or yield. A Eurodollar futures contract is a future on a Eurodollar deposit. Eurodollar futures contracts subject Regions to market risk associated with changes in interest rates. Because futures contracts are cash settled daily, there is minimal credit risk associated with Eurodollar futures. Interest rate swaps are contractual agreements typically entered into to exchange fixed for variable (or vice versa) streams of interest payments. The notional principal is not exchanged but is used as a reference for the size of interest settlements. Interest rate options are contracts that allow the buyer to purchase or sell a financial instrument at a predetermined price and time. Forward sale commitments are contractual obligations to sell market instruments at a future date for an already agreed-upon price. Foreign currency contracts involve the exchange of one currency for another on a specified date and at a specified rate. These contracts are executed on behalf of the Company's customers and are used to manage fluctuations in foreign exchange rates. The Company is subject to the credit risk that another party will fail to perform.

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Regions has made use of interest rate swaps to effectively convert a portion of its fixed-rate funding position and available for sale securities portfolios to a variable-rate position and, in some cases, to effectively convert a portion of its variable-rate loan portfolios to fixed-rate. Regions also uses derivatives to manage interest rate and pricing risk associated with its mortgage origination business. In the period of time that elapses between the origination and sale of mortgage loans, changes in interest rates have the potential to cause a decline in the value of the loans in this held-for-sale portfolio. Futures contracts and forward sale commitments are used to protect the value of the loan pipeline and loans held for sale from changes in interest rates and pricing.

The following table presents additional information about the interest rate derivatives used by Regions to manage interest rate risk:

Table 20—Hedging Derivatives by Interest Rate Risk Management Strategy



	June 30, 2016
			Estimated Fair Value				Weighted-Average
	Notional Amount		Gain		Loss		Maturity (Years)	Receive Rate		Pay Rate
	(Dollars in millions)
Interest rate swaps:
Derivatives in fair value hedging relationships:
Receive fixed/pay variable	$	2,535	$	34	$	—	3.2	1.3	%	0.5	%
Receive variable/pay fixed	486		—		60		10.3	0.5		2.6
Derivatives in cash flow hedging relationships:
Receive fixed/pay variable	9,800		331		—		5.1	1.5		0.5
Total derivatives designated as hedging instruments	$	12,821	$	365	$	60	4.9	1.4	%	0.5	%

Regions manages the credit risk of these instruments in much the same way as it manages credit risk of the loan portfolios by establishing credit limits for each counterparty and through collateral agreements for dealer transactions. For non-dealer transactions, the need for collateral is evaluated on an individual transaction basis and is primarily dependent on the financial strength of the counterparty. Credit risk is also reduced significantly by entering into legally enforceable master netting agreements. When there is more than one transaction with a counterparty and there is a legally enforceable master netting agreement in place, the exposure represents the net of the gain and loss positions with and collateral received from and/or posted to that counterparty. The majority of interest rate derivatives traded by Regions are subject to mandatory clearing. The counterparty risk for cleared trades effectively moves from the executing broker to the clearinghouse allowing Regions to benefit from the risk mitigation controls in place at the respective clearinghouse. The “Credit Risk” section in Regions’ Annual Report on Form 10-K for the year ended December 31, 2015 contains more information on the management of credit risk.

Regions also uses derivatives to meet the needs of its customers. Interest rate swaps, interest rate options and foreign exchange forwards are the most common derivatives sold to customers. Other derivatives instruments with similar characteristics are used to hedge market risk and minimize volatility associated with this portfolio. Instruments used to service customers are held in the trading account, with changes in value recorded in the consolidated statements of income.

The primary objective of Regions’ hedging strategies is to mitigate the impact of interest rate changes, from an economic perspective, on net interest income and other financing income and the net present value of its balance sheet. The overall effectiveness of these hedging strategies is subject to market conditions, the quality of Regions’ execution, the accuracy of its valuation assumptions, counterparty credit risk and changes in interest rates. See Note 11 “Derivative Financial Instruments and Hedging Activities” to the consolidated financial statements for a tabular summary of Regions’ quarter-end derivatives positions and further discussion.

Regions accounts for residential MSRs at fair market value with any changes to fair value being recorded within mortgage income. Regions enters into derivative and balance sheet transactions to mitigate the impact of market value fluctuations related to residential MSRs. Derivative instruments entered into in the future could be materially different from the current risk profile of Regions’ current portfolio.

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MARKET RISK—PREPAYMENT RISK

Regions, like most financial institutions, is subject to changing prepayment speeds on mortgage-related assets under different interest rate environments. Prepayment risk is a significant risk to earnings and specifically to net interest income and other financing income. For example, mortgage loans and other financial assets may be prepaid by a debtor, so that the debtor may refinance its obligations at lower rates. As loans and other financial assets prepay in a falling rate environment, Regions must reinvest these funds in lower-yielding assets. Prepayments of assets carrying higher rates reduce Regions’ interest income and overall asset yields. Conversely, in a rising rate environment, these assets will prepay at a slower rate, resulting in opportunity cost by not having the cash flow to reinvest at higher rates. Prepayment risk can also impact the value of securities and the carrying value of equity. Regions’ greatest exposures to prepayment risks primarily rest in its mortgage-backed securities portfolio, the mortgage fixed-rate loan portfolio and the residential mortgage servicing asset, all of which tend to be sensitive to interest rate movements. Each of these assets is also exposed to prepayment risk due to factors which are not necessarily the result of interest rates, but rather due to changes in policies or programs related, either directly or indirectly, to the U.S. Government's governance over certain lending and financing within the mortgage market. Such policies can work to either encourage or discourage financing dynamics and represent a risk that is extremely difficult to forecast and may be the result of non-economic factors. The Company attempts to monitor and manage such exposures within reasonable expectations while acknowledging all such risks cannot be foreseen or avoided. Further, Regions has prepayment risk that would be reflected in non-interest income in the form of servicing income on the residential mortgage servicing asset. Regions actively monitors prepayment exposure as part of its overall net interest income and other financing income forecasting and interest rate risk management. In particular, because current interest rates are relatively low, Regions employs strategies to actively manage the potential exposure to declining prepayments that may occur in the loan and securities portfolio in the event of increasing market interest rates.

LIQUIDITY RISK

Liquidity is an important factor in the financial condition of Regions and affects Regions’ ability to meet the borrowing needs and deposit withdrawal requirements of its customers. In 2014, the Federal Reserve Board, the OCC and the FDIC released the final version of the Liquidity Coverage Ratio. The rule is designed to ensure that financial institutions have the necessary assets on hand to withstand short-term liquidity disruptions. See the "Liquidity Coverage Ratio" discussion included in the "Regulatory Requirements" section of Management's Discussion and Analysis for additional information.

Regions intends to fund its obligations primarily through cash generated from normal operations. In addition to these obligations, Regions has obligations related to potential litigation contingencies. See Note 14 “Commitments, Contingencies and Guarantees” to the consolidated financial statements for additional discussion of the Company’s funding requirements.

Assets, consisting principally of loans and securities, are funded by customer deposits, borrowed funds and stockholders’ equity. Regions’ goal in liquidity management is to satisfy the cash flow requirements of depositors and borrowers, while at the same time meeting the Company’s cash flow needs. Having and using various sources of liquidity to satisfy the Company’s funding requirements is important.

In order to ensure an appropriate level of liquidity is maintained, Regions performs specific procedures including scenario analyses and stress testing at the bank, holding company, and affiliate levels. Regions' liquidity policy requires the holding company to maintain cash sufficient to cover the greater of (1) 18 months of debt service and other cash needs or (2) a minimum cash balance of $500 million. Compliance with the holding company cash requirements is reported to the Risk Committee of the Board on a quarterly basis. Regions also has minimum liquidity requirements for the Bank and subsidiaries. The Bank's funding and contingency planning does not currently include any reliance on short-term unsecured sources. Risk limits are established within the Company's Liquidity Risk Oversight Committee and ALCO, which regularly reviews compliance with the established limits.

The securities portfolio is one of Regions’ primary sources of liquidity. Proceeds from maturities and principal and interest payments of securities provide a constant flow of funds available for cash needs (see Note 3 “Securities” to the consolidated financial statements). The agency guaranteed mortgage-backed securities portfolio is another source of liquidity in various secured borrowing capacities.

Maturities in the loan portfolio also provide a steady flow of funds. Additional funds are provided from payments on consumer loans and one-to-four family residential first mortgage loans. Regions’ liquidity is further enhanced by its relatively stable customer deposit base. Liquidity needs can also be met by borrowing funds in state and national money markets, although Regions does not currently rely on short-term unsecured wholesale market funding.

The balance with the Federal Reserve Bank is the primary component of the balance sheet line item, “interest-bearing deposits in other banks.” At June 30, 2016, Regions had approximately $2.4 billion in cash on deposit with the Federal Reserve, a decrease from approximately $3.9 billion at December 31, 2015.

Regions’ borrowing availability with the Federal Reserve Bank as of June 30, 2016, based on assets pledged as collateral on that date, was $22.3 billion.

Regions’ financing arrangement with the FHLB adds additional flexibility in managing the Company's liquidity position. As of June 30, 2016, Regions’ outstanding balance of FHLB borrowings was $4.8 billion and its total borrowing capacity from

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the FHLB totaled $12.3 billion. FHLB borrowing capacity is contingent on the amount of collateral pledged to the FHLB. Regions Bank pledged certain securities and residential first mortgage loans on one-to-four family dwellings and home equity lines of credit as collateral for the FHLB advances outstanding. Additionally, investment in FHLB stock is required in relation to the level of outstanding borrowings. The FHLB has been and is expected to continue to be a reliable and economical source of funding.

Regions maintains a shelf registration statement with the U.S. Securities and Exchange Commission that can be utilized by Regions to issue various debt and/or equity securities. Regions may also issue bank notes from time to time, either as part of a bank note program or as stand-alone issuances. Refer to Note 13 "Long-Term Borrowings" to the consolidated financial statements in the 2015 Annual Report on Form 10-K for additional information.

Regions may, from time to time, consider opportunistically retiring outstanding issued securities, including subordinated debt in privately negotiated or open market transactions for cash or common shares. Regulatory approval would be required for retirement of some instruments.

CREDIT RISK

Regions’ objective regarding credit risk is to maintain a high-quality credit portfolio that provides for stable credit costs with acceptable volatility through an economic cycle. Regions has a diversified loan portfolio in terms of product type, collateral and geography. See Table 2 for further details of each loan portfolio segment. See the “Portfolio Characteristics” section of the Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of risk characteristics of each loan type.

INFORMATION SECURITY RISK

Operational risks comprise several elements, including information security risks. Information security risks such as evolving and adaptive cyber attacks, for large financial institutions such as Regions, have generally increased in recent years and will continue to increase in part because of the proliferation of new technologies, the use of mobile devices, the internet, and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, nation-states, activists and other external parties or fraud on the part of employees.

Regions spends significant resources to identify and mitigate threats to the confidentiality, availability and integrity of our information systems. Regions regularly assesses the threat environment to identify and mitigate threats. Our layered security controls are designed to complement each other to protect the confidentiality, integrity and availability of our customer’s information and transactions. Regions will continue to commit the resources necessary to mitigate these growing cyber risks, as well as continue to develop and enhance controls, processes and technology to protect our systems from attacks or unauthorized access. In addition, Regions maintains a strong commitment to a comprehensive risk management program to include oversight of third-party relationships involving vendors.

Regions participates in information sharing organizations such as FS-ISAC to gather and share information amongst peer banks to better prepare and protect our systems from attack. FS-ISAC is a nonprofit organization whose objective is to protect the financial services sector against cyber and physical threats and risk. It acts as a trusted third party that provides anonymity to allow members to submit threat, vulnerability and incident information in a non-attributable and trusted manner so information that would normally not be shared is instead provided for the good of the membership. In addition to FS-ISAC, Regions is a member of BITS, the technology arm of the Financial Services Roundtable. BITS serves the financial community and its members by providing industry best practices on a variety of security and fraud topics.

Regions has contracts with vendors to provide denial of service mitigation and these vendors have also continued to commit the necessary resources to support Regions in the event of an attack. Even though Regions devotes significant resources to combat cyber security risks, there is no guarantee that these measures will provide absolute security. As an additional security measure, Regions has placed a computer forensics firm and an industry-leading consulting firm on retainer in case of a breach event.

Even if Regions successfully prevents data breaches to its own networks, the Company may still incur losses that result from customers' account information obtained through breaches of retailers' networks where customers have transacted business. The fraud losses, as well as the costs of investigations and re-issuing new customer cards impact Regions' financial results. In addition, Regions also relies on some vendors to provide certain components of our business infrastructure, which may also increase information security risk.

REGULATORY RISK

In 2014, the Federal Reserve Bank of Atlanta began a regularly scheduled CRA examination of Regions Bank covering 2012 and 2013 performance. This review included, among other things, a review of Regions Bank's previously disclosed public consent orders. As a result of the examination, the results of which were communicated during the fourth quarter of 2015, Regions Bank received "High Satisfactory" ratings on its CRA components, but its overall CRA rating was downgraded from "Satisfactory" to “Needs to Improve.” The downgrade was attributed to the matters underlying Regions Bank’s April 2015 public consent order with the CFPB related to overdrafts and Regulation E. Regions Bank had self-reported these matters and provided remuneration to affected customers during 2011 and 2012. This downgrade imposes restrictions on the Company's ability to undertake certain activities, including mergers and acquisitions of insured depository institutions and applications to open branches or certain other

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facilities until such time as the rating is improved. Regions Bank's next CRA examination is expected to commence during 2016, although the actual timing of the examination and any results therefrom will not be known until later.

PROVISION FOR LOAN LOSSES

The provision for loan losses is used to maintain the allowance for loan losses at a level that in management’s judgment is appropriate to absorb probable losses inherent in the portfolio at the balance sheet date. The provision for loan losses totaled $72 million in the second quarter of 2016 compared to $63 million during the second quarter of 2015. The provision for loan losses totaled $185 million for the first six months of 2016 compared to $112 million for the first six months of 2015. Refer to the “Allowance for Credit Losses” section of Management's Discussion and Analysis for further detail.

NON-INTEREST INCOME

Table 21—Non-Interest Income from Continuing Operations



	Three Months Ended June 30				Change June 30, 2016 vs. June 30, 2015
	2016		2015		Amount			Percent
	(Dollars in millions)
Service charges on deposit accounts	$	166	$	168	$	(2	)	(1.2	)%
Card and ATM fees	99		90		9			10.0	%
Investment management and trust fee income	52		51		1			2.0	%
Mortgage income	46		46		—			NM
Insurance commissions and fees	36		33		3			9.1	%
Capital markets fee income and other	38		27		11			40.7	%
Insurance proceeds	—		90		(90		)	(100.0	)%
Commercial credit fee income	18		21		(3		)	(14.3	)%
Bank-owned life insurance	20		18		2			11.1	%
Investment services fee income	15		13		2			15.4	%
Securities gains, net	6		6		—			NM
Net revenue from affordable housing	3		6		(3		)	(50.0	)%
Market value adjustments on employee benefit assets	8		2		6			300.0	%
Other miscellaneous income	19		19		—			NM
	$	526	$	590	$	(64	)	(10.8	)%




	Six Months Ended June 30					Change June 30, 2016 vs. June 30, 2015
	2016			2015		Amount			Percent
	(Dollars in millions)
Service charges on deposit accounts	$	325		$	329	$	(4	)	(1.2	)%
Card and ATM fees	194			175		19			10.9	%
Investment management and trust fee income	102			102		—			NM
Mortgage income	84			86		(2		)	(2.3	)%
Insurance commissions and fees	76			68		8			11.8	%
Capital markets fee income and other	79			47		32			68.1	%
Insurance proceeds	3			90		(87		)	(96.7	)%
Commercial credit fee income	37			37		—			NM
Bank-owned life insurance	53			38		15			39.5	%
Investment services fee income	31			25		6			24.0	%
Securities gains, net	1			11		(10		)	(90.9	)%
Net revenue from affordable housing	14			8		6			75.0	%
Market value adjustments on employee benefit assets	(4		)	—		(4		)	NM
Other miscellaneous income	37			44		(7		)	(15.9	)%
	$	1,032		$	1,060	$	(28	)	(2.6	)%

_________

NM - Not Meaningful

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Service charges on deposit accounts—Service charges on deposit accounts include non-sufficient fund fees and other service charges. The decreases during the second quarter and first six months of 2016 compared to the same periods of 2015 were primarily due to the change in posting order of customer deposit transactions that went into effect during the fourth quarter of 2015, partially offset by growth in consumer checking accounts.

Card and ATM fees—Card and ATM fees include the combined amounts of credit card/bank card income and debit card and ATM related revenue. The increases in the second quarter and first six months of 2016 compared to the same periods of 2015 were primarily the result of increased checking accounts, as well as increased transactions driven in part by the continued migration from cash and checks to cards. Additionally, continued increases in active credit cards generated greater purchase activity resulting in higher interchange income.

Insurance commissions and fees—Regions sells property and casualty, life and health, mortgage, and other specialty insurance and credit related products to businesses and individuals. The increases in the second quarter and first six months of 2016 compared to the same periods of 2015 were partially due to additional revenue generated by the third quarter of 2015 acquisition of an insurance team that specializes in group employee benefits.

Capital markets fee income and other—Capital markets fee income and other primarily relates to capital raising activities that includes securities underwriting and placement, loan syndication and placement, as well as foreign exchange, derivatives, merger and acquisition and other advisory services. The increase in the second quarter of 2016 compared to the same period in 2015 was primarily due to mergers and acquisitions advisory fees which the company began recognizing in the fourth quarter of 2015 in connection with the purchase of a private, middle-market advisory firm. The increase in the first six months of 2016 compared to the same period in 2015 was primarily due to the purchase of the advisory firm, as well as increased loan syndication fees and fees generated from the placement of permanent financing for real estate customers.

Insurance proceeds—Insurance proceeds recognized in the first quarter of 2016 and the second quarter of 2015 were related to the settlement of the previously disclosed and accrued 2010 class-action lawsuit.

Bank-owned life insurance—Bank-owned life insurance increased in the first six months of 2016 compared to the same period in 2015 primarily due to claims benefits as well as a gain on exchange of policies.

Securities gains, net—Net securities gains primarily result from the Company's asset/liability management process. Net securities gains for the first six months of 2016 compared to the same period in 2015 were lower because during the first quarter of 2016, the Company reduced its exposure to energy-related corporate bonds in an effort to mitigate the risk of future downgrades and incurred $5 million in losses related to these sales. See Note 3 "Securities" to the consolidated financial statements for more information.

Market value adjustments on employee benefit assets—Market value adjustments on employee benefit assets increased in the second quarter and decreased for the first six months of 2016 compared to the same periods of 2015 reflecting market value variations related to assets held for certain employee benefits. These adjustments are offset in salaries and employee benefits expense.

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NON-INTEREST EXPENSE

Table 22—Non-Interest Expense from Continuing Operations



	Three Months Ended June 30				Change June 30, 2016 vs. June 30, 2015
	2016		2015		Amount			Percent
	(Dollars in millions)
Salaries and employee benefits	$	480	$	477	$	3		0.6	%
Net occupancy expense	86		89		(3		)	(3.4	)%
Furniture and equipment expense	79		76		3			3.9	%
Outside services	39		40		(1		)	(2.5	)%
Professional, legal and regulatory expenses	21		71		(50		)	(70.4	)%
FDIC insurance assessments	17		15		2			13.3	%
Marketing	28		25		3			12.0	%
Branch consolidation, property and equipment charges	22		27		(5		)	(18.5	)%
Credit/checkcard expenses	14		13		1			7.7	%
Other miscellaneous expenses	129		101		28			27.7	%
	$	915	$	934	$	(19	)	(2.0	)%




	Six Months Ended June 30				Change June 30, 2016 vs. June 30, 2015
	2016		2015		Amount			Percent
	(Dollars in millions)
Salaries and employee benefits	$	955	$	935	$	20		2.1	%
Net occupancy expense	172		180		(8		)	(4.4	)%
Furniture and equipment expense	157		147		10			6.8	%
Outside services	75		71		4			5.6	%
Professional, legal and regulatory expenses	34		90		(56		)	(62.2	)%
FDIC insurance assessments	42		37		5			13.5	%
Marketing	53		51		2			3.9	%
Branch consolidation, property and equipment charges	36		49		(13		)	(26.5	)%
Credit/checkcard expenses	27		26		1			3.8	%
Loss on early extinguishment of debt	—		43		(43		)	(100.0	)%
Other miscellaneous expenses	233		210		23			11.0	%
	$	1,784	$	1,839	$	(55	)	(3.0	)%

_________

NM - Not Meaningful

Salaries and employee benefits—Salaries and employee benefits are comprised of salaries, incentive compensation, long-term incentives, payroll taxes, and other employee benefits such as 401(k), pension, and medical, life and disability insurance, as well as, expenses from liabilities held for employee benefit purposes. Salaries and benefits increased slightly for the second quarter of 2016 compared to the same period in 2015. The primary driver of the increase from the previous year’s comparable quarter was increased incentives concurrent with continued increased revenue and production. Notably, staffing levels declined by approximately 400 full-time equivalent positions during the second quarter of 2016 compared to March 31, 2016, serving to lower base salaries and fully offset the impact of the Company’s annual merit increase. Salaries and benefits also increased for the first six months of 2016 compared to the same period in 2015. The primary drivers of the increase from the previous year-to-date period are increases in base salaries and incentives, combined with severance charges incurred in 2016, all of which were somewhat offset by decreased pension expenses. Base salaries increased for the first six months of 2016 compared to the same period in 2015 primarily due to increases for merit. Incentives increased for the first six months of 2016 compared to the same period in 2015 as a result of increased revenue and production. Severance charges of approximately $13 million were incurred in the first half of 2016. See Note 10 "Pension and Other Postretirement Benefits" for details of pension expenses that illustrate the decrease for the first six months of 2016 compared to the same period in 2015.

Full-time equivalent headcount decreased from 23,155 at June 30, 2015 to 22,447 at June 30, 2016 reflecting the impact of the Company's efficiency initiatives implemented as part of its three-year strategic plan.

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On December 31, 2015, Regions changed the basis for determining the assumption used to estimate the service and interest components of net periodic pension costs. Additionally, Regions separated the Regions Financial Corporation Retirement Plan into two plans, effective January 1, 2016. Including the impact of these changes, Regions expects total net periodic pension costs to decrease by approximately $20 million to $25 million in 2016 compared to 2015. Refer to Note 18 "Employee Benefit Plans" to the consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2015 for additional information. Refer also to Note 10 "Pension and Other Postretirement Benefits" for additional information.

Net occupancy expense—Net occupancy expense includes rent, depreciation and amortization, utilities, maintenance, insurance, taxes, and other expenses of premises occupied by Regions and its affiliates. Net occupancy expense decreased during the second quarter and first six months of 2016 compared to the same periods of 2015 due primarily to the branch consolidation that occurred early in 2015, as well as occupancy optimization initiatives in the first quarter of 2016.

Furniture and equipment expense—Furniture and equipment expense includes depreciation, maintenance and repairs, rent, taxes and other expenses of equipment utilized by Regions and its affiliates. Furniture and equipment expense increased during the second quarter and first six months of 2016 compared to the same periods of 2015 primarily driven by increased depreciation on new technology-related assets placed in service, as well as higher rent.

Professional, legal and regulatory expenses—Professional, legal and regulatory expenses consist of amounts related to legal, consulting, other professional fees and regulatory charges. Professional, legal and regulatory expenses decreased during the second quarter and first six months of 2016 compared to the same periods of 2015 as a result of a net $48 million accrual for contingent legal and regulatory expenses in the second quarter of 2015, as well as a favorable legal settlement of $7 million in the first quarter of 2016.

Branch consolidation, property and equipment charges—Branch consolidation, property and equipment charges include valuation adjustments related to owned branches when the decision to close them is made. Accelerated depreciation and lease write-off charges are recorded for leased branches through and at the actual branch close date. Branch consolidation, property and equipment charges in the first six months of 2016 also include costs related to occupancy optimization initiatives incurred in the first quarter of 2016.

Loss on early extinguishment of debt—During the first quarter of 2015, Regions redeemed approximately $250 million of its 7.50% subordinated notes, incurring a related early extinguishment charge.

Other miscellaneous expenses—Other miscellaneous expenses include expenses related to communications, postage, supplies, certain credit-related costs, foreclosed property expenses and mortgage repurchase costs. Other miscellaneous expenses increased during the second quarter and first six months of 2016 compared to the same periods of 2015 primarily due to increased provisions for unfunded credit losses and credit-related valuation charges associated with other real estate and loans held for sale.

INCOME TAXES

The Company’s income tax expense from continuing operations for the three months ended June 30, 2016 was $115 million compared to income tax expense of $124 million for the same period in 2015, resulting in effective tax rates of 29.7 percent and 30.1 percent, respectively. Income tax expense from continuing operations for the six months ended June 30, 2016 was $228 million compared to income tax expense of $219 million for the same period in 2015, resulting in effective tax rates of 29.5 percent for both periods.

In the three and six months periods ended June 30, 2015, the effective tax rates were favorably impacted by discrete items of $7 million and $17 million, respectively. In the current periods, the effective tax rates were favorably impacted by increased tax benefits from affordable housing investments, bank-owned life insurance and tax-exempt income.

The effective tax rate is affected by several factors including, but not limited to, the level of pre-tax income, the mix of income between various tax jurisdictions with differing tax rates, net tax benefits related to affordable housing investments, bank-owned life insurance and tax-exempt income. In addition, the effective tax rate is affected by items that may occur in any given period but are not consistent from period-to-period, such as the termination of certain leveraged leases, valuation allowance changes and changes to unrecognized tax benefits. Accordingly, the comparability of the effective tax rate between periods may be impacted.

At June 30, 2016, the Company reported a net deferred tax liability of $74 million compared to a net deferred tax asset of $254 million at December 31, 2015. The change is due principally to an increase in unrealized gains on securities available for sale and derivative instruments.

New accounting guidance related to accounting for share-based payments was issued in March 2016. The guidance eliminates additional paid-in capital pools and designates that all excess tax benefits and deficiencies should be recorded in the income tax expense or benefit when the awards vest or are settled. As a result of adoption in 2017, Regions estimates an incremental increase to income tax expense of approximately $5 million in the second quarter of 2017 and the first quarter of 2018 related to expiring stock options. See Note 15 "Recent Accounting Pronouncements" for additional information.

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DISCONTINUED OPERATIONS

Morgan Keegan was sold on April 2, 2012. Regions' results from discontinued operations are presented in Note 2 "Discontinued Operations" to the consolidated financial statements. The three and six months ended June 30, 2016 income from discontinued operations was primarily the result of recoveries of legal expenses.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Reference is made to pages 85 through 88 included in Management’s Discussion and Analysis.

Item 4. Controls and Procedures

Based on an evaluation, as of the end of the period covered by this Form 10-Q, under the supervision and with the participation of Regions’ management, including its Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer have concluded that Regions’ disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) are effective. During the quarter ended June 30, 2016, there have been no changes in Regions’ internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Regions’ internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information required by this item is set forth in Note 14, “Commitments, Contingencies and Guarantees” in the Notes to the Consolidated Financial Statements (Unaudited) in Part I. Item 1. of this report, which is incorporated herein by reference.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Information concerning Regions’ repurchases of its outstanding common stock during the three month period ended June 30, 2016, is set forth in the following table:

Issuer Purchases of Equity Securities



Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under Publicly Announced Plans or Programs
April 1-30, 2016	11,872,759	$	9.26	11,872,759	$	69,483,468
May 1-31, 2016	7,400,000	$	9.13	7,400,000	$	1,837,468
June 1-30, 2016	175,000	$	9.59	175,000	$	—
Total 2nd Quarter	19,447,759	$	9.21	19,447,759	$	—

On April 23, 2015, Regions' Board of Directors authorized a $875 million common stock repurchase plan, permitting repurchases from the beginning of the second quarter of 2015 through the end of the second quarter of 2016. During the second quarter of 2016, Regions concluded the plan with the repurchase of approximately 19 million shares of common stock at a total cost of approximately $179 million.

On July 14, 2016, Regions' Board authorized a new $640 million common stock repurchase plan, permitting repurchases from the beginning of the third quarter of 2016 through the second quarter of 2017. The Company began to repurchase shares under this plan in the third quarter of 2016, and as of August 4, 2016, Regions has repurchased approximately 9.4 million shares of common stock at a total cost of approximately $85.0 million. These shares were immediately retired upon repurchase and therefore are not included in treasury stock.

Restrictions on Dividends and Repurchase of Stock

Holders of Regions common stock are only entitled to receive such dividends as Regions’ Board may declare out of funds legally available for such payments. Furthermore, holders of Regions common stock are subject to the prior dividend rights of the holders of Regions preferred stock then outstanding.

Regions understands the importance of returning capital to shareholders. Management will continue to execute the capital planning process, including evaluation of the amount of the common dividend, with the Board and in conjunction with the regulatory supervisors, subject to the Company’s results of operations. Also, Regions is a BHC, and its ability to declare and pay dividends is dependent on certain federal regulatory considerations, including the guidelines of the Federal Reserve regarding capital adequacy and dividends.

On November 1, 2012, Regions completed the sale of 20 million depositary shares, each representing a 1/40th ownership interest in a share of its 6.375% Non-Cumulative Perpetual Preferred Stock, Series A, par value $1.00 per share (“Series A Preferred Stock”), with a liquidation preference of $1,000 per share of Series A Preferred Stock (equivalent to $25 per depositary share). The terms of the Series A Preferred Stock prohibit Regions from declaring or paying any dividends on any junior series of its capital stock, including its common stock, or from repurchasing, redeeming or acquiring such junior stock, unless Regions has declared and paid full dividends on the Series A Preferred Stock for the most recently completed dividend period. The Series A Preferred Stock is redeemable at Regions’ option in whole or in part, from time to time, on any dividend payment date on or after December 15, 2017, or in whole, but not in part, at any time within 90 days following a regulatory capital treatment event (as defined in the certificate of designations establishing the Series A Preferred Stock).

On April 29, 2014, Regions completed the sale of 20 million depositary shares, each representing a 1/40th ownership interest in a share of its 6.375% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series B, par value $1.00 per share (“Series B Preferred Stock”), with a liquidation preference of $1,000 per share of Series B Preferred Stock (equivalent to $25 per depositary share). The terms of the Series B Preferred Stock prohibit Regions from declaring or paying any dividends on any junior series of its capital stock, including its common stock, or from repurchasing, redeeming or acquiring such junior stock, unless Regions has declared and paid full dividends on the Series B Preferred Stock for the most recently completed dividend period. The Series B Preferred Stock is redeemable at Regions’ option in whole or in part, from time to time, on any dividend payment date on or after September 15, 2024, or in whole but not in part, at any time following a regulatory capital treatment event (as defined in the certificate of designations establishing the Series B Preferred Stock).

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Item 6. Exhibits

The following is a list of exhibits including items incorporated by reference



3.1		Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to Form 10-Q Quarterly Report filed by registrant on August 6, 2012.

3.2		Certificate of Designations, incorporated by reference to Exhibit 3.3 to Form 8-A filed by registrant on November 1, 2012.

3.3		Certificate of Designations, incorporated by reference to Exhibit 3.3 to the Form 8-A filed by registrant on April 28, 2014.

3.4		By-laws as amended and restated, incorporated by reference to Exhibit 3.2 to Form 8-K Current Report filed by registrant on February 12, 2015.

10.1		Form of Notice and Form of 2016 Director Restricted Stock Award Agreement under Regions Financial Corporation 2015 Long Term Incentive Plan.

10.2		Form of Notice and Form of Restricted Stock Unit Award Agreement under Regions Financial Corporation 2015 Long Term Incentive Plan.
10.3		Form of Notice and Form of Performance Stock Unit Award Agreement under Regions Financial Corporation 2015 Long Term Incentive Plan.

10.4		Form of Notice and Form of Performance Unit Award Agreement under Regions Financial Corporation 2015 Long Term Incentive Plan.

12		Computation of Ratio of Earnings to Fixed Charges.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Interactive Data File

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




DATE: August 5, 2016		Regions Financial Corporation

		/S/ HARDIE B. KIMBROUGH, JR.
		Hardie B. Kimbrough, Jr. Executive Vice President and Controller (Chief Accounting Officer and Authorized Officer)