Regions Bank 2008 Annual Report Download

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CHAIRMAN’S MESSAGE AND 10-K REPORT
2008

Table of contents

  • Page 1
    CHAIRMAN'S MESSAGE AND 10-K REPORT 2008

  • Page 2

  • Page 3
    ...riskier assets to investors, who had little transparency into what they were buying. After real estate prices peaked in March 2007, the subsequent decline of housing prices brought destructive results to the mortgage and credit markets. Ultimately, the destruction led to a capital and funding crisis...

  • Page 4
    ... banks, the most recent on February 6, 2009. These acquisitions meant additional deposits and liquidity and an expanding presence in Atlanta, Georgia, a long-term strategic market for our franchise. 2008 RESULTS Unlike some, we have no exotic securities, no brokered loans, and almost no sub-prime...

  • Page 5
    ...that reserve levels remain appropriate. In times like these, capital strength is paramount. Last fall, the U.S. Treasury invested in many financial services institutions to strengthen capital levels and open up the credit markets. Participating in the U.S. Treasury's Capital Purchase Program raised...

  • Page 6
    ... and housing values stabilize in 2009, and that valuations for financial services stocks, especially Regions, improve significantly. Finally, I thank our shareholders for your confidence, continuing support and investment. In spite of the credit crunch that has accompanied the current economic...

  • Page 7
    ...jurisdiction of incorporation or organization) (Address of principal executive offices) 63-0589368 (I.R.S. Employer Identification No.) 1900 Fifth Avenue North, Birmingham, Alabama 35203 Registrant's telephone number, including area code: (205) 944-1300 Securities registered pursuant to Section 12...

  • Page 8

  • Page 9
    ... in and Disagreements with Accountants on Accounting and Financial Disclosure ...Item 9A. Controls and Procedures ...Item 9B. Other Information ...PART III Item 10. Directors, Executive Officers and Corporate Governance ...Item 11. Executive Compensation ...Item 12. Security Ownership of Certain...

  • Page 10

  • Page 11
    ... President Bush signed into law, the Emergency Economic Stabilization Act of 2008, and on February 17, 2009 the American Recovery and Reinvestment Act of 2009 was signed into law. Additionally, the U.S. Treasury and federal banking regulators are implementing a number of programs to address capital...

  • Page 12
    ... Birmingham, Alabama, which operates throughout the South, Midwest and Texas. Regions provides traditional commercial, retail and mortgage banking services, as well as other financial services in the fields of investment banking, asset management, trust, mutual funds, securities brokerage, insurance...

  • Page 13
    ... 300 offices located in Alabama, Arkansas, Florida, Georgia, Illinois, Kentucky, Louisiana, Massachusetts, Mississippi, New York, North Carolina, South Carolina, Tennessee, Texas and Virginia. Regions Insurance Group, Inc., a subsidiary of Regions Financial Corporation, is an insurance broker that...

  • Page 14
    ... of securities dealing, underwriting and market making, insurance underwriting and agency activities, merchant banking and insurance company portfolio investments. A financial holding company also may engage in any activity that the Federal Reserve determines by rule or order to be financial in...

  • Page 15
    ... regulations that affect its business activities and operations, and is supervised and examined by one or more state or federal bank regulatory agencies. See "FDIC Temporary Liquidity Guarantee Program" below. Regions Bank is a state bank, chartered in Alabama and is a member of the Federal Reserve...

  • Page 16
    ...common stock of Regions to be issued under the Warrant certain registration rights, and subjects Regions to certain of the executive compensation limitations included in the Emergency Economic Stabilization Act of 2008. FDIC Temporary Liquidity Guarantee Program. Regions and Regions Bank have chosen...

  • Page 17
    ... the FDIA" below. Moreover, the Federal Reserve and the FDIC have issued policy statements stating that bank holding companies and insured banks should generally pay dividends only out of current operating earnings. Under the Federal Reserve's Regulation H, Regions Bank may not, without the approval...

  • Page 18
    .... See Item 1A. "Risk Factors" of this Annual Report on Form 10-K for additional information. In the current financial and economic environment, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at...

  • Page 19
    ...primary Federal supervisor to determine that application of the rule would not be appropriate in light of the bank's asset size, level of complexity, risk profile or scope of operations. Regions Bank is currently not required to comply with Basel II. In July 2008, the agencies issued a proposed rule...

  • Page 20
    ... are subject to certain collateralization requirements. "Covered transactions" are defined by statute to include a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve) from the affiliate, the...

  • Page 21
    ... increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except in accordance with an accepted capital restoration plan or with the approval of the FDIC. In addition, the appropriate federal banking agency is given authority with...

  • Page 22
    ... in 2009, thereby exhausting the credit. For more information, see the "Bank Regulatory Capital Requirements" section of Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operation" of this Annual Report on Form 10-K. In addition, the Deposit Insurance Funds Act...

  • Page 23
    ...SEC or require a complete liquidation. The SEC's risk assessment rules also apply to Morgan Keegan as a registered broker-dealer. These rules require broker-dealers to maintain and preserve records and certain information, describe risk management policies and procedures, and report on the financial...

  • Page 24
    ... loan associations, credit unions, consumer finance companies, brokerage firms, insurance companies, investment companies, mutual funds, mortgage companies and financial service operations of major commercial and retail corporations. Regions expects competition to intensify among financial services...

  • Page 25
    ....regions.com. Regions makes available on its website free of charge its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports which are filed with or furnished to the SEC pursuant to Section 13(a) of the Securities Exchange Act...

  • Page 26
    ... to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. As a result, defaults by, or...

  • Page 27
    ... general business operations and financial condition of Regions Bank, including permissible types, amounts and terms of loans and investments, to the amount of reserves against deposits, restrictions on dividends, establishment of branch offices, and the maximum interest rate that may be charged by...

  • Page 28
    ...of this Annual Report on Form 10-K. In addition, Regions will be required to pay significantly higher FDIC premiums because market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits. We may need to raise additional capital in...

  • Page 29
    ... its rating of Regions Bank's financial strength from B- to C+ and its rating of Regions Bank's long-term deposits from A1 to A2 and all of our debt and deposit ratings remain on negative outlook. In light of the difficulties in the financial services industry and the housing and financial markets...

  • Page 30
    ... Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia. The local economic conditions in these areas have a significant impact on Regions Bank's commercial, real estate and construction...

  • Page 31
    ... that carry prepayment risk, such as mortgage-backed and other asset-backed securities, may differ from those anticipated at the time of investment as a result of interest rate fluctuations. See the "Securities" section of Item 7. "Management's Discussion and Analysis of Financial Condition and...

  • Page 32
    .... In our market areas, we face competition from other commercial banks, savings and loan associations, credit unions, internet banks, finance companies, mutual funds, insurance companies, brokerage and investment banking firms, and other financial intermediaries that offer similar services. Some of...

  • Page 33
    ...the main banking facility of Regions Bank, located at 1900 Fifth Avenue North, Birmingham, Alabama 35203. Regions Bank, Regions' banking subsidiary, operates 1,900 banking offices. Regions provides investment banking and brokerage services from over 300 offices of Morgan Keegan. At December 31, 2008...

  • Page 34
    In late 2007 and during 2008, 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 shareholders of Regions. The complaints contain ...

  • Page 35
    ..." of this Annual Report on Form 10-K. The following table presents information regarding issuer purchases of equity securities during the fourth quarter of 2008. Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares...

  • Page 36
    ...134.69 134.99 $ 94.06 142.09 104.37 $33.88 89.52 66.10 The information required by Item 6. is set forth in Table 1 "Financial Highlights" of "Management's Discussion and Analysis of Financial Condition and Results of Operation", which is included in Item 7. of this Annual Report on Form 10-K. 26

  • Page 37
    ... addition, in December 2008, Morgan Keegan & Company, Inc. ("Morgan Keegan") a subsidiary of Regions Financial Corporation, acquired Revolution Partners, LLC, a Boston-based investment banking boutique specializing in mergers and acquisitions and private capital advisory services for the technology...

  • Page 38
    ...2007, Regions acquired two financial services entities. On January 2, 2007, Regions Insurance Group, Inc. acquired certain assets of Miles & Finch, Inc., a multi-line insurance agency headquartered in Kokomo, Indiana, with annual revenues of approximately $10 million. On June 15, 2007, Morgan Keegan...

  • Page 39
    ... as an Alabama state-chartered bank with branch offices in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia. The Treasury function includes the Company's securities portfolio and...

  • Page 40
    ... of unearned income ...Assets ...Deposits ...Long-term debt ...Stockholders' equity ...SELECTED RATIOS Tangible common stockholders' equity to tangible assets ...Allowance for loan losses as a percentage of loans, net of unearned income ...Allowance for credit losses as a percentage of loans, net of...

  • Page 41
    ...Regions did not have material exposure to many of the issues that plagued the industry (e.g., sub-prime loans, structured investment vehicles, collateralized debt obligations), the Company's exposure to the residential housing sector, primarily within its commercial real estate and construction loan...

  • Page 42
    ... two Morgan Keegan mutual funds. See Table 8 "Non-Interest Expense (including Non-GAAP Reconciliation)" for further details. Salaries and employee benefit cost were lower in 2008, mainly due to merger-related cost savings. Regions' commission-driven revenues such as brokerage, investment banking and...

  • Page 43
    ...performance-based multi-year incentive bonuses for certain executives Monthly financial performance reporting, including segment reporting Monthly close-out "flash" reporting of consolidated results (management only) Presentations to investors of Company performance Regions believes that presenting...

  • Page 44
    ... operations, net of tax (GAAP) ...Income (loss) available to common shareholders (GAAP) ...A Income (loss) from continuing operations available to common shareholders (GAAP) ...Merger-related charges, pre-tax Salaries and employee benefits ...Net occupancy expense ...Furniture and equipment expense...

  • Page 45
    ... the level of criticized credits is also a reasonably possible scenario, which would result in an approximate $111.8 million decrease in estimated inherent losses. For residential real estate mortgages, home equity lending and other consumer-related loans, individual products are reviewed on a group...

  • Page 46
    ..., Regions incurred a $6.0 billion impairment charge in 2008. See Note 1 "Summary of Significant Accounting Policies" to the consolidated financial statements for additional information. Other identifiable intangible assets, primarily core deposit intangibles, are reviewed at least annually for...

  • Page 47
    ... market interest rates and the yield curve were closely connected with economic developments during the year. Regions' balance sheet was in an asset sensitive position during 2008, meaning that decreases in interest rates cause contraction in the Company's net interest margin. As such, falling rates...

  • Page 48
    ... bank deposits into other asset classes, and increased the level of non-performing assets. During 2008, the Federal Reserve lowered the Federal funds rate by approximately 400 basis points in response to mounting concerns of a recession. As indicated above, Regions was asset sensitive at year...

  • Page 49
    ... income includes loan fees of $33,800,000, $65,673,000 and $78,360,000 for the years ended December 31, 2008, 2007 and 2006, respectively. (3) The computation of taxable-equivalent net interest income is based on the stautory federal income tax rate of 35%, adjusted for applicable state income...

  • Page 50
    ... interest-earning assets ...Interest expense on: Savings accounts ...Interest-bearing transaction accounts ...Money market accounts ...Money market accounts-foreign ...Time deposits-customer ...Interest-bearing deposits- divestitures ...Total customer deposits- interest-bearing ...Time deposits-non...

  • Page 51
    ..., home equity and residential mortgage portfolios, all of which are closely tied to the housing market slowdown. Losses were also impacted by the disposition of problem loans, as well as generally weaker economic conditions in the broader economy. During the second half of the year, Regions...

  • Page 52
    ...Income 2008 Year Ended December 31 2007 2006 (In thousands) Service charges on deposit accounts ...Brokerage, investment banking and capital markets ...Trust department income ...Mortgage income ...Net securities gains (losses) ...Insurance commissions and fees ...Bank-owned life insurance ...Other...

  • Page 53
    ... value of managed assets during the year. Morgan Keegan's pre-tax income was negatively affected during 2008 by $49.4 million in losses on investments in two open-end mutual funds managed by Morgan Keegan. These losses totaled $42.8 million in 2007. The Company, through Morgan Keegan, purchased fund...

  • Page 54
    ...,087 Table 7-Morgan Keegan Revenue by Division Fixed-Income Capital Markets Year Ended December 31 Equity Capital Regions Markets MK Trust (Dollars in thousands) Private Client Asset Management Interest and Other 2008 Gross revenue ...Percent of gross revenue ...2007 Gross revenue ...Percent of...

  • Page 55
    ...-of-market mortgage servicing portfolio in 2007, realizing a loss on the sale of approximately $4.4 million. Net Securities Gains (Losses) Regions reported net gains of $92.5 million from the sale of securities available for sale in 2008, as compared to net losses of $8.6 million in 2007. The 2008...

  • Page 56
    ... expenses and goodwill impairment, for the years ended December 31, 2008, 2007 and 2006. Management believes Table 8 is useful in evaluating trends in non-interest expense. Note that merger-related charges as shown in this table relate to Regions' acquisition of AmSouth in November 2006. See Table...

  • Page 57
    ...) 2008 As Reported (GAAP) 2007 (In thousands) 2006 Salaries and employee benefits ...Net occupancy expense ...Furniture and equipment expense ...Professional fees ...Amortization of core deposit intangibles ...Other real estate owned expense ...Marketing ...Goodwill impairment ...Mortgage servicing...

  • Page 58
    ... 31, 2007. Lower incentives driven by a deteriorating business environment in 2008 were also a factor. Regions provides employees who meet established employment requirements with a benefits package that includes 401(k), pension, and medical, life and disability insurance plans. New enrollment in...

  • Page 59
    ...General Banking/Treasury reporting unit's goodwill was less than its book value, therefore requiring the impairment charge. Refer to Note 1 "Summary of Significant Accounting Policies" and Note 10 "Intangible Assets" to the consolidated financial statements for further discussion. Mortgage Servicing...

  • Page 60
    ...the Company's income tax expense in the fourth quarter of 2008. The agreement covers the Federal tax returns of Regions and its previous acquisitions, including Union Planters Corporation and AmSouth Bancorporation, for tax years 1999 through 2006 and includes matters related to Regions' real estate...

  • Page 61
    ... assets at December 31, 2008. Lending at Regions is generally organized along three functional lines: commercial and industrial loans (including financial and agricultural), real estate loans (commercial mortgage and construction loans) and consumer loans (residential first mortgage, home equity...

  • Page 62
    ...mortgage, home equity, indirect and other consumer loans. Commercial and Industrial-Commercial and industrial loans represent loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. During 2008, commercial...

  • Page 63
    ... 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...

  • Page 64
    ...rate risk, regulatory capital, and to take advantage of market conditions to generate a favorable return on investments without undue risk. The portfolio consists primarily of high-quality mortgage-backed and asset-backed securities, as well as U.S. Treasury and Federal agency securities. Securities...

  • Page 65
    ... of tax-exempt obligations. 2. Federal Reserve Bank stock, Federal Home Loan Bank stock, and equity stock of other corporations held by Regions are not included in the table above. Portfolio Quality-Regions' investment policy stresses credit quality and liquidity. Securities rated in the highest...

  • Page 66
    ...contingent funding needs. Trading Account Assets Trading account assets decreased $41.1 million to $1.1 billion at December 31, 2008. Trading account assets, which consist of U.S. Government agency and guaranteed securities and corporate and tax-exempt securities, are primarily held at Morgan Keegan...

  • Page 67
    ... 2009, Regions entered into derivative transactions to mitigate the impact of market value fluctuations related to mortgage servicing rights. Table 14-Mortgage Servicing Rights 2008 2007 (In thousands) 2006 Balance at beginning of year ...Amounts capitalized ...Sale of servicing assets ...Permanent...

  • Page 68
    ... the year, Regions also experienced substantial pricing strain from both community banks and some larger competitors. However, during the fourth quarter of 2008, Regions' time deposits and money market accounts grew in response to customers' desire to lock-in rates in a falling rate environment...

  • Page 69
    ...in 2007. These balances increased 2.8 percent in 2008 to $19.5 billion as compared to the prior year. Money market accounts were down most of the year; however, Regions experienced a significant increase in the fourth quarter of 2008 as customers moved into money market accounts and time deposits to...

  • Page 70
    ... purpose for TAF, Regions used TAF to provide additional liquidity at low rates and to build excess reserves in the Federal Reserve Bank account. This program provides Regions with an alternative source of short-term funding and aids in maintaining the stability of the financial markets by reducing...

  • Page 71
    ... unsecured debt as of September 30, 2008 that is scheduled to mature before June 30, 2009. This includes federal funds purchased, promissory notes, commercial paper, and certain types of inter-bank funding. Participants will be charged a 50-100 basis point fee to protect their new debt issues which...

  • Page 72
    ... information regarding these transactions. RATINGS Table 18 "Credit Ratings" reflects the debt ratings of Regions Financial Corporation and Regions Bank by Standard & Poor's Corporation, Moody's Investors Service, Fitch IBCA and Dominion Bond Rating Service as of December 31, 2008. A security rating...

  • Page 73
    ... loss on securities available for sale and the net change from defined benefit pension plans decreased stockholders' equity by $414.6 million. Offsetting these items was a $190.1 million increase from the net change in unrealized gains on derivative instruments. The internal capital generation rate...

  • Page 74
    ..., 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 in response to the financial crises affecting the banking system. The U.S. Treasury and banking regulators are implementing a number of programs under this legislation to address capital and liquidity issues in...

  • Page 75
    ... pay some level of deposit insurance assessments regardless of the level of designated reserve ratio. Regions Bank had a FICO assessment of $10 million in FDIC deposit premiums in 2008 and $11 million in 2007, both of which were expensed in their respective years. The FDIC also has finalized rules...

  • Page 76
    ... Federal Reserve Board has indicated that such trust preferred securities will continue to constitute Tier 1 Capital until further notice. Also, Regions periodically invests in various limited partnerships that sponsor affordable housing projects, which are funded through a combination of debt and...

  • Page 77
    ... Company's policies, procedures and practices relating to market, regulatory and operational risk. Some of the more significant processes used to manage and control these and other risks are described in the remainder of this report. INTEREST RATE RISK Regions' primary market risk is interest rate...

  • Page 78
    ..., the lag time in pricing administered rate accounts, prepayments and other option risks. Regions considers these factors, as well as the degree of certainty or uncertainty surrounding their future behavior. Financial derivative instruments are used in hedging the values of selected assets and...

  • Page 79
    ... 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. Regions has made use...

  • Page 80
    ...portfolio, the mortgage fixed-rate loan portfolio and the mortgage servicing asset, all of which tend to be sensitive to interest rate movements. Prepayments on mortgage-backed securities slowed during the latter half of 2008 due to various factors associated with the housing crisis. Tighter lending...

  • Page 81
    ... 31, 2008, approximately $11.6 billion of first mortgage loans on one-to-four family dwellings and home equity lines of credit held by Regions Bank and its subsidiaries were pledged to secure borrowings from the FHLB. Investment in FHLB stock is required in relation to the level of outstanding...

  • Page 82
    ..., it trades certain equity securities in order to "make a market" in these securities. Morgan Keegan's trading activities require the commitment of capital. All principal transactions place the subsidiary's capital at risk. Profits and losses are dependent upon the skills of employees and market...

  • Page 83
    ... portion of Morgan Keegan's business. To manage trading risks arising from interest rate and equity price risks, Regions uses a Value at Risk ("VAR") model to measure the potential fair value the Company could lose on its trading positions given a specified statistical confidence level and time-to...

  • Page 84
    ... and independent commercial credit and consumer credit risk management organizational groups exist, which report to the Chief Credit Officer. These organizational units partner with the business line to assist in the processes described above, including the review and approval of new business and...

  • Page 85
    ... guarantee of the business owners. Net charge-offs on commercial and industrial loans were 0.92 percent of average commercial loans in 2008 compared to 0.33 percent in 2007. Regions expects that losses on these types of loans will continue to be at elevated levels during 2009. Commercial Real Estate...

  • Page 86
    ...revenues generated from the business of the borrower (e.g., the sale or refinance of completed properties). These loans are generally underwritten and managed by a specialized real estate group that also manages loan disbursements during the construction process. As of December 31, 2008, real estate...

  • Page 87
    ...in loss rate. Florida real estate markets have been particularly affected. Slightly more than one-third of Regions' home equity portfolio is located in Florida and has suffered losses reflective of the falling property values and demand in that geography. Regions has been proactive in its management...

  • Page 88
    ... charge-offs on home equity credits were also a driver of the increase, rising to 1.46 percent in 2008 versus 0.27 percent in 2007. Losses from Florida-based credits were particularly high, as property valuations in certain markets continued to experience ongoing deterioration. These loans and lines...

  • Page 89
    ... values of properties securing loans; (7) the composition of the loan portfolio, including unfunded credit commitments; and (8) management's analysis of current economic conditions. Various departments, including Credit Review, Commercial and Consumer Credit Risk Management, Collections, and Special...

  • Page 90
    ...by management to determine the adequacy of the allowance or the availability of new information could cause the allowance for credit losses to be increased or decreased in future periods. In addition, bank regulatory agencies, as part of their examination process, may require changes in the level of...

  • Page 91
    ...first mortgage not available for 2005 and 2004 due to the AmSouth merger; residential first mortgage is included in commercial real estate for 2005 and 2004. (2) During the fourth quarter of 2006, Regions transferred the portion of the allowance for loan losses related to unfunded credit commitments...

  • Page 92
    ...101.9 Allowance for credit losses ...81.4 19.6 12.6 17.4 17.4 Table 23-Allocation of the Allowance for Loan Losses 2008 2007 2006 (In thousands) 2005 2004 Commercial and industrial ...$ Commercial real estate ...Construction ...Residential first mortgage ...Home equity ...Indirect ...Other consumer...

  • Page 93
    ...90 percent in 2007. The increase in non-performing assets during the year ended December 31, 2008 was primarily driven by construction and commercial real estate loans, including the residential homebuilder portfolio, due to the widespread decline in residential property values. Of the $4.4 billion...

  • Page 94
    ...year-end 2007 levels, and reflected weaker economic conditions and general market deterioration. The increase was primarily due to increases in home equity and residential first mortgages, particularly in Florida, as well as commercial real estate loans being managed by the Special Assets Department...

  • Page 95
    ... ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosure. Regions' Disclosure Review Committee, which includes representatives from the legal, risk management, accounting, investor relations and audit departments, meets quarterly to review...

  • Page 96
    ... 2007 earnings, other than a full-year impact of the AmSouth merger, were Regions' solid fee income, record performance at Morgan Keegan and overall expense control. However, certain valuation-related and other charges during the fourth quarter of 2007, as well as a higher provision for loan losses...

  • Page 97
    ... to special assets litigation, a $63.9 million increase in marketing fees related to post-merger rebranding and branch conversion initiatives, a $51.5 million charge related to the Visa antitrust lawsuit settlement, and $38.5 million in losses related to investments in two Morgan Keegan mutual funds...

  • Page 98
    ... price and collateral value declines in certain of the Company's markets, particularly areas of Florida and Atlanta, Georgia. Net charge-offs totaled $270.5 million, or 0.29 percent of average loans, in 2007 compared to 0.22 percent in 2006. The increased loss rate resulted from deteriorating...

  • Page 99
    ... 0.36 38.17 33.83 Earnings (loss) per common share from continuing operations: Basic ...$ Diluted ...Earnings (loss) per common share: Basic ...Diluted ...Cash dividends declared per share ...Market price: High ...Low ... Note: Quarterly amounts may not add to year-to-date amounts due to rounding.

  • Page 100
    .... Regions' independent registered public accounting firm has issued an audit report on the effectiveness of the Company's internal control over financial reporting. This report appears on the following page. REGIONS FINANCIAL CORPORATION by /s/ C. DOWD RITTER C. Dowd Ritter Chief Executive Officer...

  • Page 101
    ... statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2008 of Regions Financial Corporation and our report dated February 24, 2009, expressed an unqualified opinion thereon. Birmingham, Alabama February 24, 2009...

  • Page 102
    ... REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD OF DIRECTORS AND SHAREHOLDERS OF REGIONS FINANCIAL CORPORATION We have audited the accompanying consolidated balance sheets of Regions Financial Corporation and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of...

  • Page 103
    REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31 2008 2007 (In thousands, except share data) Assets Cash and due from banks ...$ 2,642,509 $ 3,720,365 Interest-bearing deposits in other banks ...7,539,787 31,706 Federal funds sold and securities purchased under...

  • Page 104
    ... loan losses ...Non-interest income: Service charges on deposit accounts ...Brokerage, investment banking and capital markets ...Trust department income ...Mortgage income ...Securities gains (losses), net ...Other ...Total non-interest income ...Non-interest expense: Salaries and employee benefits...

  • Page 105
    ... in unrealized gains and losses on securities available for sale, net of tax and reclassification adjustment(1) ...- - Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment(1) ...- - Net change from defined benefit pension plans, net of tax...

  • Page 106
    ...change in unrealized gains and losses on securities available for sale, net of tax and reclassification adjustment(1) ...- Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment(1) ...- Net change from defined benefit pension plans, net of tax...

  • Page 107
    ... and amortization of premises and equipment ...Impairment of mortgage servicing rights ...Provision for losses on other real estate, net ...Net accretion of securities ...Net amortization of loans and other assets ...Net accretion of deposits and borrowings ...Amortization of discount on preferred...

  • Page 108
    ... services to individual and corporate customers through its subsidiaries and branch offices located primarily in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia. The Company...

  • Page 109
    ... of selling at a profit, consist of debt and marketable equity securities and are carried at estimated fair value. Gains and losses, both realized and unrealized, are included in brokerage, investment banking and capital markets income. Trading account net gains (losses) totaled $(2.1) million...

  • Page 110
    ... some of these loans based on available liquidity, interest rate risk management and other business purposes. Regions elected the fair value option for residential real estate mortgage loans held for sale originated after January 1, 2008. Student loans held for sale include certain loans for which...

  • Page 111
    ...type and are consistent with the factors used for portfolio loans, are applied to these funding estimates to arrive at the reserve balance. Changes in the reserve for unfunded commitments are recognized in other non-interest expense. ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS Regions...

  • Page 112
    ... prepayment rate model (CPR) and the Bond Market Trade Association's Mortgaged Asset-Backed Securities Division's prepayment model (PSA). On a quarterly basis, Regions ensures that any retained interests are valued appropriately in the consolidated financial statements. Management reviews the...

  • Page 113
    ... using cost of capital metrics for Regions' peer group or a build-up approach (such as the capital asset pricing model) applicable to each reporting group. The significant inputs to the income approach include the long-term target tangible equity to tangible assets ratio and the discount rate...

  • Page 114
    ...the recorded investment in the loan exceeds the property's fair value less cost to sell, write-downs are recorded as charge-offs in the allowance. Subsequent to transfer, additional write-downs are recorded as other non-interest expense. Gain or loss on the sale of foreclosed property and other real...

  • Page 115
    ...years open for examination. In July 2006, Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48") was issued, which requires that only benefits from tax positions that are more-likely-than-not of being sustained upon examination should be recognized in the financial statements...

  • Page 116
    ... contracts. Credit-related fees, including letter of credit fees, are recognized in non-interest income when earned. Regions recognizes commission revenue and brokerage, exchange and clearance fees on a trade-date basis. Other types of non-interest revenues, such as service charges on deposits...

  • Page 117
    ...split-dollar life insurance arrangements, whereby the employer owns and controls the insurance policies. The consensus concludes that an employer should recognize a liability for the postretirement benefit in accordance with Statement of Financial Accounting Standards No. 106, "Employers' Accounting...

  • Page 118
    ... assets/short-term borrowings on the consolidated balance sheets. In November 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 109, "Application of Accounting Principles to Loan Commitments" ("SAB 109"), to inform registrants of the Staff's view that the fair value...

  • Page 119
    ... assets held in an employer's defined benefit pension or other postretirement plan. This FSP is applicable to an employer that is subject to the disclosure requirements of FAS 132(R) and is generally effective for fiscal years ending after December 15, 2009. Regions is in the process of reviewing...

  • Page 120
    ... with commercial loans on the consolidated balance sheets. NOTE 3. BUSINESS COMBINATIONS AND ASSETS HELD FOR SALE On November 4, 2006, Regions completed its merger with AmSouth Bancorporation ("AmSouth"), headquartered in Birmingham, Alabama. Regions' consolidated financial statements include...

  • Page 121
    ... the years ended December 31, 2008 and 2007, respectively. BRANCH DIVESTITURES During the first quarter of 2007, Regions completed the divestiture of 52 former AmSouth branches. These divestitures were required by the Department of Justice and Board of Governors of the Federal Reserve in markets...

  • Page 122
    ...: 2008 Gross Gross Unrealized Unrealized Gains Losses (In thousands) Cost Estimated Fair Value Securities available for sale: U.S. Treasury securities ...Federal agency securities ...Obligations of states and political subdivisions ...Mortgage-backed securities ...Other debt securities ...Equity...

  • Page 123
    ...by investment category for securities available for sale at December 31: Less Than Twelve Months Estimated Unrealized Fair Value Losses 2008 Twelve Months or More Estimated Unrealized Fair Value Losses (In thousands) Total Estimated Unrealized Fair Value Losses Federal agency securities ...Mortgage...

  • Page 124
    ...and losses of $8.2 million and $50,000, respectively. Equity securities included $990.8 million and $738.0 million of amortized cost related to Federal Reserve Bank stock and Federal Home Loan Bank ("FHLB") stock as of December 31, 2008 and 2007, respectively, whose estimated fair value approximates...

  • Page 125
    ... Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia. Regions considers its residential homebuilder, home equity loans secured by second liens in Florida and condominium portfolios...

  • Page 126
    ...credit loss exposure related to these loans is addressed in management's periodic determination of the allowance for credit losses. As of December 31, 2008, Regions had funded $331.7 million in letters of credit backing Variable-Rate Demand Notes ("VRDNs"). These loans are included in the commercial...

  • Page 127
    ... During the fourth quarter of 2006, Regions transferred a portion of the allowance for loan losses related to unfunded credit commitments to other liabilities. NOTE 8. TRANSFERS AND SERVICING OF FINANCIAL ASSETS Prior to the third quarter of 2008, Regions sold commercial loans to third-party multi...

  • Page 128
    ... rate ...Weighted-average remaining maturity (months) ...Weighted-average servicing fee (basis points) ... 597 393 10.30% 9.80% 6.13% 6.18% 279 278 28.80 30.96 The estimated fair values of capitalized mortgage servicing rights were $160.9 million and $321.3 million at December 31, 2008 and 2007...

  • Page 129
    ... $ 2,610,851 NOTE 10. INTANGIBLE ASSETS GOODWILL Goodwill allocated to each reportable segment as of December 31 is presented as follows: 2008 2007 (In thousands) General Banking/Treasury ...Investment Banking/Brokerage/Trust ...Insurance ...Balance at end of year ... $4,690,731 740,264 117,300...

  • Page 130
    ... Company's overall market capitalization compounded by investor anxiety caused by the financial crises affecting the U.S. banking system during the fourth quarter of 2008. The Investment Banking/Brokerage/Trust and Insurance reporting units' Step One impairment tests indicated that the fair values...

  • Page 131
    NOTE 11. FORECLOSED PROPERTIES Other real estate acquired in foreclosure is carried at the lower of the recorded investment in the loan or fair value less estimated cost to sell. An analysis of foreclosed properties for the years ended December 31 follows: 2008 2007 (In thousands) Balance at ...

  • Page 132
    ... the Federal Reserve Bank. See Note 14 to the consolidated financial statements for further discussion of Regions' borrowing capacity with the FHLB. The short-sale liability represents Regions' trading obligation to deliver certain securities at a predetermined date and price. Through Morgan Keegan...

  • Page 133
    ... 14. LONG-TERM BORROWINGS Long-term borrowings at December 31 consist of the following: 2008 2007 (In thousands) Federal Home Loan Bank structured advances ...Other Federal Home Loan Bank advances ...6.375% subordinated notes due 2012 ...7.75% subordinated notes due 2011 ...7.00% subordinated notes...

  • Page 134
    ...2008, Regions had senior notes totaling $4.8 billion. In October 2008, the Federal Deposit Insurance Corporation ("FDIC") announced a new program - the Temporary Liquidity Guarantee Program ("TLGP") - to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued...

  • Page 135
    ...31, 2008 and 2007, the most recent notification from Federal banking agencies categorized Regions and its significant subsidiaries as "well capitalized" under the regulatory framework. Minimum capital requirements for all banks are Tier 1 Capital of at least 4% of risk-weighted assets, Total Capital...

  • Page 136
    ... two calendar years, less any required transfers to additional paid-in capital or to a fund for the retirement of preferred stock. As a result of the loss incurred by Regions Bank in 2008, Regions Bank cannot, without approval from the Federal Reserve, declare or pay a dividend to Regions until such...

  • Page 137
    ... shares are reserved for issuance under deferred compensation plans. In 2008, Regions decreased its dividend to $0.96 per common share, compared to $1.46 in 2007 and $1.40 in 2006. Also, the payment of dividends by Regions to its shareholders is limited to $0.10 per share per quarter until November...

  • Page 138
    ...Net change in unrealized gains and losses on derivative instruments ...Net actuarial gains and losses arising during the period ...Less: amortization of actuarial loss and prior service credit realized in net income ...Net change from defined benefit plans ...Comprehensive income ... $1,821,463 256...

  • Page 139
    ... years from the date of grant. Regions issues new shares from authorized reserves upon exercise. Grantees of restricted stock awards or units must either remain employed with the Company for certain periods from the date of grant in order for shares to be released or issued or retire after meeting...

  • Page 140
    ... December 31, 2008. In connection with the AmSouth acquisition, Regions assumed AmSouth's long-term incentive plans. The awards issued under these plans are consistent with the awards issued under Regions' plans described above. However, all unvested awards vest upon the employee's retirement. Also...

  • Page 141
    ... from traded options on the Company's stock. The risk-free interest rate decreased in 2008 due to the lower interest rate environment in 2008. The expected option life has been impacted by the decrease in contractual life on new grants from ten years (historically) to seven years for grants issued...

  • Page 142
    ... certain senior executive officers defined pension benefits in relation to their compensation. Regions also sponsors a defined-benefit postretirement health care plan that covers certain retired employees. Currently, the Company pays a portion of the costs of certain health care benefits for all...

  • Page 143
    ... Benefits 2007 2008 2007 (In thousands) Change in benefit obligation Projected benefit obligation, beginning of period ...AmSouth acquisition ...Service cost ...Interest cost ...Actuarial losses (gains) ...Benefit payments ...Settlement payment ...Curtailments ...Plan amendments ...Special...

  • Page 144
    ...539) The weighted-average assumptions used to determine benefit obligations at December 31, 2008 and September 30, 2007 (the applicable measurement dates) follows: Other Postretirement Benefits 2008 2007 Pension 2008 2007 Discount rate ...Rate of annual compensation increase ... 6.15% 6.34% 6.20...

  • Page 145
    ...081) The asset allocation for the Regions pension plan at the end of 2008 and 2007, and the target allocation for 2009, by asset category, are as follows: Target Allocation 2009 Percentage of Plan Assets 2008 2007 Asset Category Equity securities ...Debt securities ...Real estate ...Other ... 55...

  • Page 146
    ... is a detail of other non-interest expense for the years ended December 31: 2008 2007 (In thousands) 2006 Professional fees ...Amortization of core deposit intangibles ...Other real estate expense ...Marketing ...Mortgage servicing rights impairment ...Other miscellaneous expenses ... $ 214,191 134...

  • Page 147
    ... for financial reporting purposes and the amounts used for income tax purposes. Significant components of Regions' deferred tax assets and liabilities as of December 31 are listed below: 2008 2007 (In thousands) Deferred tax assets: Loan loss allowance ...Other employee and director benefits...

  • Page 148
    ... December 2008, the Company reached an agreement with the Internal Revenue Service ("IRS") Appeals Division on the Federal tax treatment of a broad range of uncertain tax positions. The agreement covered the Federal tax returns of Regions Financial Corporation, Union Planters Corporation and AmSouth...

  • Page 149
    .... 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...

  • Page 150
    ... the net credit risk on all trading and other derivative positions held by Regions. Prior to 2008, Regions designated forward contracts to hedge the fair value of specific pools of residential mortgage loans held for sale against changes in interest rates. Beginning January 1, 2008, Regions elected...

  • Page 151
    ... changes in interest rates or the market values of the securities underlying the instruments. The credit risk associated with these contracts is typically limited to the cost of replacing all contracts on which the Company has recorded an unrealized gain. For exchange-traded contracts, the clearing...

  • Page 152
    ...assets and liabilities. Trading account assets and securities available for sale primarily consist of U.S. Treasuries, mortgagebacked and asset-backed securities (including agency securities), municipal bonds and equity securities (primarily common stock and mutual funds). Regions uses quoted market...

  • Page 153
    ... 31, 2008: Fair Value Measurements Using Significant Unobservable Inputs Year Ended December 31, 2008 (Level 3 measurements only) Trading Securities Account Available Net Short-Term Assets for Sale Derivatives Borrowings (In thousands) Beginning balance, January 1, 2008 ...Total gains (losses...

  • Page 154
    ... 2008 Securities ShortAvailable for Net Term Sale Derivatives Borrowings (In thousands) Trading Account Assets Classifications of gains (losses) both realized and unrealized included in earnings for the period: Interest income ...Brokerage, investment banking and capital markets ...Mortgage income...

  • Page 155
    ... 31, 2008 Loans Held for Sale ...Mortgage Servicing Rights ... $- - $133,912 - $221,300 160,890 $355,212 160,890 $(358,937) (85,000) Regions also uses fair value measurements on a non-recurring basis for certain non-financial instruments such as other real estate and foreclosed assets. However...

  • Page 156
    ...determined using the Company's current origination rates on similar loans, adjusted for changes in current liquidity and credit spreads (if necessary). Deposits: The fair value of non-interest-bearing demand accounts, interest-bearing transaction accounts, savings accounts, money market accounts and...

  • Page 157
    ... the Company's securities portfolio and other wholesale funding activities. Prior to year-end 2008, Regions had reported an Other segment that included merger charges and the parent company. Regions realigned to include the parent company with General Banking/Treasury as parent company transactions...

  • Page 158
    ... present financial information for each reportable segment for the years ended December 31: General Banking/ Treasury Investment Banking/ Brokerage/ Trust Merger Charges and Discontinued Operations Insurance (In thousands) Total Company 2008 Net interest income ...Provision for loan losses ...Non...

  • Page 159
    ... 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' credit policies...

  • Page 160
    ...below. In late 2007 and during 2008, 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 shareholders of Regions. The complaints contain...

  • Page 161
    ... rate applicable to Class B common stock outstanding and an additional $1.1 billion was deposited into the escrow account. As of December 31, 2008, Regions' remaining investment totaled approximately 1.5 million shares with a cost basis of zero. As of December 31, 2008, Regions recognized an asset...

  • Page 162
    ... financial statements of Regions Financial Corporation: Balance Sheets December 31 2008 2007 (In thousands) ASSETS Cash and due from banks ...Interest-bearing deposits in other banks ...Loans to subsidiaries ...Securities available for sale ...Trading assets ...Premises and equipment ...Investments...

  • Page 163
    Statements of Operations 2008 Year Ended December 31 2007 2006 (In thousands) Income: Dividends received from subsidiaries ...$ Service fees from subsidiaries ...Interest from subsidiaries ...Other ...Expenses: Salaries and employee benefits ...Interest ...Net occupancy expense ...Furniture and ...

  • Page 164
    ... ...Investing activities: Investment in subsidiaries ...Principal payments (advances) on loans to subsidiaries ...Net purchases of premises and equipment ...Proceeds from sales and maturities of securities available for sale ...Purchases of securities available for sale ...Net cash provided by (used...

  • Page 165
    ... Financial Officer, the Chief Executive Officer and the 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 fourth fiscal quarter of the year ended December 31, 2008...

  • Page 166
    ... Morgan Keegan & Company, Inc. and Regions Insurance Group, Inc. Senior Executive Vice President and Head of Human Resources Group, registrant and Regions Bank. Previously, Senior Executive Vice President and Head of Human Resources of AmSouth Bancorporation and AmSouth Bank. Chief Financial Officer...

  • Page 167
    ... Sales, Service and Execution executive, head of the home equity business line and Chief Financial Officer for consumer real estate. Senior Executive Vice President, Chief Risk Officer and Head of Risk Management Group, registrant and Regions Bank. Previously Senior Executive Vice President, Chief...

  • Page 168
    ... "ELECTION OF DIRECTORS-Other Transactions," "-Review, Approval or Ratification of Transactions with Related Persons" and "-Director Independence" of the Proxy Statement are incorporated herein by reference. Item 14. Principal Accounting Fees and Services All information presented under the caption...

  • Page 169
    ... 4.2 to Form 8-K Current Report filed by registrant on November 18, 2008. AmSouth Bancorporation 2006 Long Term Incentive Compensation Plan, incorporated by reference to Appendix C to AmSouth Bancorporation's Proxy Statement dated March 10, 2006, for the AmSouth Annual Meeting of Shareholders held...

  • Page 170
    ....5 to Form 10-Q Quarterly Report filed by registrant on May 7, 2008. Form of stock option grant agreement under Regions Financial Corporation 2006 Long Term Incentive Plan, incorporated by reference to Exhibit 99.1 to Form 8-K Current Report filed by registrant on April 30, 2007. Form of restricted...

  • Page 171
    ... to Exhibit 10.9 to Form 10-Q Quarterly Report filed by registrant on August 3, 2007. Amended and Restated Regions Financial Corporation Directors' Deferred Stock Investment Plan. Amended and Restated Deferred Compensation Plan for Directors of AmSouth Bancorporation, incorporated by reference...

  • Page 172
    ...to Exhibit 10.59 to Form 10-K Annual Report filed by registrant on March 1, 2007. Amendment Number 2 to AmSouth Bancorporation Deferred Compensation Plan. Regions Financial Corporation Executive Bonus Plan, incorporated by reference to Exhibit 99 to Form 8-K Current Report filed by registrant on May...

  • Page 173
    ... 1, 2007. Amendment Number Two to the AmSouth Bancorporation Supplemental Retirement Plan, incorporated by reference to Exhibit 10.4 to Form 10-Q Quarterly Report filed by registrant on May 7, 2008. Amended and Restated Regions Financial Corporation Post 2006 Supplemental Executive Retirement Plan...

  • Page 174
    ...Exhibit 10.71 to Form 10-K Annual Report filed by registrant on March 1, 2007. Morgan Keegan & Company Amended and Restated Deferred Compensation Plan. Employment agreement dated as of October 18, 2006 with G. Douglas Edwards, the President and Chief Executive Officer of Morgan Keegan & Company, Inc...

  • Page 175
    ... duly authorized. REGIONS FINANCIAL CORPORATION By: /s/ C. DOWD RITTER C. Dowd Ritter Chairman, President and Chief Executive Officer Date: February 24, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of...

  • Page 176
    ...24, 2009 * John D. Buchanan, by signing his name hereto, does sign this document on behalf of each of the persons indicated above pursuant to powers of attorney executed by such persons and filed with the Securities and Exchange Commission. By: /s/ JOHN D. BUCHANAN John D. Buchanan Attorney in Fact...

  • Page 177
    EXHIBIT 12 Regions Financial Corporation Computation of Ratio of Earnings to Fixed Charges (from continuing operations) (Unaudited) 2008 (1) December 31 2007 (1) 2006 2005 (Amounts in thousands) 2004 Excluding Interest on Deposits Income (loss) before income taxes from continuing operations ...

  • Page 178
    EXHIBIT 31.1 CERTIFICATIONS I, C. Dowd Ritter, certify that: 1. I have reviewed this annual report on Form 10-K of Regions Financial Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the ...

  • Page 179
    EXHIBIT 31.2 CERTIFICATIONS I, Irene M. Esteves, certify that: 1. I have reviewed this annual report on Form 10-K of Regions Financial Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the ...

  • Page 180
    ... OF 2002 In connection with the Annual Report of Regions Financial Corporation (the "Company") on Form 10-K for the year ending December 31, 2008 (the "Report"), I, C. Dowd Ritter, Chief Executive Officer of the Company, and Irene M. Esteves, Chief Financial Officer of the Company, certify, pursuant...

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  • Page 183
    ... MORE INFORMATION Regions Financial Corporation Investor Relations 1900 Fifth Avenue North Birmingham, AL 35203 M. List Underwood, Jr. Director of Investor Relations (205) 801-0265 Tobin N. Vinson Associate Director of Investor Relations (205) 326-4891 Helen S. Johnson Shareholder Services Manager...

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