Regions Bank 2011 Annual Report Download

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2011
ANNUAL REPORT TO SHAREHOLDERS

Table of contents

  • Page 1
    2011 ANNUAL REPORT TO SHAREHOLDERS

  • Page 2

  • Page 3
    ... per share in 2011. While there is still work ahead, these results demonstrate that we are successfully executing our business plan, and I believe that we are well positioned to capitalize on future opportunities. Amid the sustained challenging economic environment and market turmoil, our associates...

  • Page 4
    ... home to Regions' Healthcare Specialty Banking Group. While the bulk of the healthcare business is in our Nashville market, there is tremendous opportunity with this growing segment throughout most of our Southeastern footprint. In the last two years alone, we have closed over $1 billion in new loan...

  • Page 5
    ... way it changes our business requires that all of our 23,707 bank associates understand our business plan so they can execute it. To that end, we have clearly identified four strategic priorities: • Strengthen Financial Performance • Focus on the Customer • Enhance Risk Management • Build...

  • Page 6
    ... the year, reï¬,ecting our ability to significantly re-price maturing 2 We were pleased to see our deposit strategy was validated by the FDIC's annual market share report, which showed that even as we reduced interest rates on deposits, Regions maintained a No. 1 market share position in Alabama...

  • Page 7
    ...Common 1 Ratio 2008 2009 2010 2011 6.57 % 7.15 % 7.85 % 8.51% As part of our process to evaluate how to best manage our capital and increase shareholder value, in January of this year we announced that we entered into a stock purchase agreement to sell Morgan Keegan & Company, Inc. and related af...

  • Page 8
    ... maintain important business relationships with Morgan Keegan associates that were developed over many years of working together to serve our customers' needs. This transaction, along with achieving continued, sustainable profitability and demonstrating a material improvement in our credit quality...

  • Page 9
    ... to operate. Focus On The Customer Keeping customers at the center of every business decision is what we do each day. We are focused on building deep and long-term relationships and are committed to being a trusted financial advisor to our customers. Our high loyalty and satisfaction scores come...

  • Page 10
    ...management. With enhanced check cashing, a reloadable Visa® prepaid card, and money transfer and bill payment services, consumers have the increased ï¬,exibility to manage their finances the way they prefer. Further supporting our efforts to improve the customer experience, Regions invested in new...

  • Page 11
    ... market segments. Small business, for example, experienced interest free deposit growth of 13% in 2011. Commercial Loan Growth Since 2009 vs. Peers We understand that a lack of knowledge of basic financial management played a role in the economic crisis several years ago. With a goal of supporting...

  • Page 12
    ...Credit quality plays a big role in risk management, and we believe there should be a shared responsibility between Regions and our customers when they face tough times and have trouble making their loan payment. That's why we are proactive about working with customers 10 REGIONS 2011 ANNUAL REPORT

  • Page 13
    ... that allows them to come to work with a sense of purpose and go home with a sense of pride every day. 64% of Regions associates own Regions stock. Regions associates participated in 906,368 hours of training in 2011. In our leadership development programs, we stress the importance of collaboration...

  • Page 14
    ... an incredibly challenging environment, and our associates who provide award-winning customer service every day. Finally, I thank you, our shareholders, for your confidence, continuing support and investment. O.B. Grayson Hall President and Chief Executive Officer From left to right: Earnest...

  • Page 15
    ... partnered with B.E.S.T. Academy to create a Youth Savings Program PUTTING PEOPLE FIRST 2011 CORPORATE SOCIAL RESPONSIBILITY AT REGIONS At Regions, our mission is to make life better, and we take great pride in how our business is shaped by our core values: Put people first, do what is right...

  • Page 16
    ... in good times and bad. Throughout the year, we rolled up our sleeves to make life better in our communities. In total, Regions associates volunteered more than 200,000 hours with more than 5,000 organizations. Many of these hours were through our "What a Difference a Day Makes" program, which gives...

  • Page 17
    .... We are proud to say that in 2011 we were the No. 1 Small Business Administration 504 lender in Alabama and Florida and the fifth largest in the United States. Reach higher: At Regions, we believe financial education and good money management are crucial life skills. We are committed to providing...

  • Page 18
    ... Executive Vice President Chief Credit Officer and Head of Credit Operations Operating Committee C. Keith Herron Senior Executive Vice President Midsouth Region President Operating Committee Ellen Jones Senior Executive Vice President Chief Financial Officer for Business Operations and Support...

  • Page 19
    Sitting left to right: Fournier J. "Boots" Gale III, Barb Godin First row, standing: David J. Turner Jr., Cynthia M. Rogers, Scott M. Peters, O.B. Grayson Hall Jr., John B. Owen, John Asbury, C. Matthew Lusco Back row, standing: David B. Edmonds, Brett D. Couch, John M. Turner Jr., William D. Ritter...

  • Page 20
    First row, left to right: Carolyn H. Byrd, Earnest W. Deavenport Jr., O.B. Grayson Hall Jr., Lee J. Styslinger III Second row: David J. Cooper Sr., Charles D. McCrary, Samuel W. Bartholomew Jr., James R. Malone, Don DeFosset, Susan W. Matlock Third row: Ruth Ann Marshall, ...

  • Page 21
    ... Sr. Vice Chairman Cooper/T. Smith Corporation Don DeFosset Retired Chairman President and Chief Executive Officer Walter Industries, Inc. Eric C. Fast President and Chief Executive Officer Crane Co. O.B. Grayson Hall Jr. President and Chief Executive Officer Regions Financial Corporation John...

  • Page 22
    ... common share - diluted $ (25) $ (429) $ (0.02) $ (0.34) $ (692) $ (763) $ (0.56) $ (0.62) $ (1,304) $ (1,261) $ (1.32) $ (1.27) BALANCE SHEET SUMMARY At year-end Loans net of unearned income Assets Deposits Long-term debt Stockholders' equity Average balances - Continuing Operations Loans net...

  • Page 23
    ... North, Birmingham, Alabama 35203 Registrant's telephone number, including area code: (205) 944-1300 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $.01 par value New York Stock Exchange 8.875% Trust Preferred...

  • Page 24
    ... Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accounting Fees and Services ...Exhibits, Financial...

  • Page 25
    ... of governments, agencies, and similar organizations, may have an adverse effect on business. The current stresses in the financial and real estate markets, including possible continued deterioration in property values. Regions' ability to manage fluctuations in the value of assets and liabilities...

  • Page 26
    ...new products and services in a timely manner and the acceptance of such products and services by Regions' customers and potential customers. Regions' ability to keep pace with technological changes. Regions' ability to effectively manage credit risk, interest rate risk, market risk, operational risk...

  • Page 27
    ... 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 28
    ...-related insurance products, such as title, term life, credit life, environmental, crop and mortgage insurance, as well as debt cancellation products to customers of Regions. Regions Insurance Group, Inc. is one of the twenty largest insurance brokers in the United States based on annual revenues...

  • Page 29
    ... Morgan Keegan & Company, Inc. ("Morgan Keegan"), are also subject to regulation by various federal and state agencies. As a registered investment adviser and broker-dealer, Morgan Keegan and its subsidiaries are subject to regulation and examination by the Securities and Exchange Commissioner ("SEC...

  • Page 30
    .... Federal Reserve's Comprehensive Capital Assessment Review. In November 2011, the Federal Reserve published a final rule which requires U.S. bank holding companies with total consolidated assets of $50 billion or more (such as Regions) to submit annual capital plans, along with related stress...

  • Page 31
    ... account for each company's unique risks and that permit continued operations during times of economic and financial stress. The capital plans are required to be submitted on an annual basis. Such bank holding companies will also be required to collect and report certain related data on a quarterly...

  • Page 32
    ... through September 30, 2011. Regions Bank is currently eligible for this adjustment. The final rule on debit interchange fees also prohibits issuers and payment card networks from restricting the number of payment card networks on which an electronic debit transaction may be processed to fewer than...

  • Page 33
    ... substantial risk to the safety and soundness of a depository institution or to the financial system generally. These activities include securities dealing, underwriting and market making, insurance underwriting and agency activities, merchant banking and insurance company portfolio investments. The...

  • Page 34
    ... do not take into account the other types of risk a banking organization may be exposed to (e.g., interest rate, market, liquidity and operational risks). Basel I and II Standards. Regions currently calculates its risk-based capital ratios under guidelines adopted by the Federal Reserve based on the...

  • Page 35
    ... 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 U.S. bank regulatory agencies issued a proposed rule that would...

  • Page 36
    ... framework provides for a number of new deductions from and adjustments to CET1. These include, for example, the requirement that mortgage servicing rights, deferred tax assets reliant on future profitability of the bank and significant investments in non-consolidated financial entities be deducted...

  • Page 37
    ... to the Federal Deposit Insurance Act, as amended (the "FDIA"), establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general...

  • Page 38
    ... equity to total assets less than 2 percent. For purposes of these regulations, the term "tangible equity" includes core capital elements counted as Tier 1 capital for purposes of the risk-based capital standards plus the amount of outstanding cumulative perpetual preferred stock (including related...

  • Page 39
    .... 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. Payment of Dividends by Regions Bank. Under the Federal Reserve's Regulation H, Regions Bank may not...

  • Page 40
    ...(such as transactions with a third party in which an affiliate has a financial interest), must be conducted on market terms. Deposit Insurance Regions Bank accepts deposits, and those deposits have the benefit of FDIC insurance up to the applicable limits. The applicable limit for FDIC insurance for...

  • Page 41
    ... operations or has violated any applicable law, regulation, rule, order or condition imposed by a bank's federal regulatory agency. Deposit Insurance Assessments. Regions Bank pays deposit insurance premiums to the FDIC based on an assessment rate established by the FDIC. Regions' FDIC assessment...

  • Page 42
    ...any, paid for deposit insurance according to the FDIC's risk-related assessment rate schedules. FICO assessment rates may be adjusted quarterly to reflect a change in assessment base. Regions Bank had a FICO assessment of $9 million in FDIC deposit premiums in 2011. Acquisitions The BHC Act requires...

  • Page 43
    ... to the services performed by an executive officer, employee, director or principal stockholder. In January 2010, the FDIC announced that it would seek public comment on whether banks with compensation plans that encourage risky behavior should be charged higher deposit assessment rates than such...

  • Page 44
    ... credit reports and asset and income information from applications. Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services. Community...

  • Page 45
    ...insurance laws and regulations requiring, among other things, maintenance of capital, record keeping, reporting and examinations. Regulation of Residential Mortgage Loan Originators On July 28, 2010, the Federal Reserve and other Federal bank regulatory authorities adopted a final rule on the Secure...

  • Page 46
    ... 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 47
    ... credit performance of real estate-related loans and resulted in, and may continue to result in, significant write-downs of asset values by us and other financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs, initially of mortgage...

  • Page 48
    ..., financial services companies with a substantial lending business, like ours, are dependent upon the ability of their borrowers to make debt service payments on loans. Should unemployment or real estate asset values fail to recover for an extended period of time, our business, financial condition...

  • Page 49
    ... four years as recent disruptions in the financial markets and the deterioration in housing markets and general economic conditions have caused a decline in home values, real estate market demand and the credit quality of borrowers. The effects of the continuing mortgage market challenges, combined...

  • Page 50
    ... originated as amortizing loans). 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 at the time of origination directly affect the amount of credit extended, and, in...

  • Page 51
    ... deposits. 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...

  • Page 52
    ... in loan loss performance and profitability, Standard & Poor's revised its outlook of Regions to stable in August 2011. Fitch Ratings followed suit in November 2011, noting that Regions' overall risk profile had improved. In February 2012, Moody's Investor Services also changed its outlook from...

  • Page 53
    ..., our market risk profile could be altered. Regions believes that this market risk exposure would be immaterial to its consolidated financial position, liquidity and results of operations. The value of our goodwill and other intangible assets may decline in the future. As of December 31, 2011, we...

  • Page 54
    ...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. Furthermore, although we do not hold any European sovereign debt, we may do business with...

  • Page 55
    ... business, financial condition or results of operations may be adversely affected. We need to stay current on technological changes in order to compete and meet customer demands. The financial services market, including banking services, is undergoing rapid changes with frequent introductions of new...

  • Page 56
    ... disruption to our physical infrastructure or operating systems that support our businesses and customers. Information security risks for large financial institutions such as Regions have generally increased in recent years in part because of the proliferation of new technologies, the use of the...

  • Page 57
    ... of operations or financial condition. We rely on other companies to provide key components of our business infrastructure. Third parties provide key components of our business operations such as data processing, recording and monitoring transactions, online banking interfaces and services, Internet...

  • Page 58
    ... that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. These critical accounting policies include: the allowance for credit losses; fair value measurements; intangible assets; mortgage servicing rights; and income...

  • Page 59
    ...and state-chartered banks, maintenance of adequate capital by bank holding companies and state-chartered banks, and general business operations and financial condition of Regions and Regions Bank (including permissible types, amounts and terms of loans and investments, the amount of reserves against...

  • Page 60
    ... interest on demand deposits to attract new clients or maintain current customers. Consequently, our business, financial condition or results of operations may be adversely affected, perhaps materially. We may be subject to more stringent capital requirements. Regions and Regions Bank are each...

  • Page 61
    ... Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operation" of this Annual Report on Form 10-K. Unfavorable results from ongoing stress analyses conducted on Regions may adversely affect our ability to retain customers or compete for new business opportunities. As...

  • Page 62
    ... on interchange fees because merchants may opt to route transactions over less expensive networks. The effects of this rule on our business, financial condition or results of operation are not yet known at this time. Risks Related to the Sale of Morgan Keegan The sale of Morgan Keegan may have...

  • Page 63
    ... equity dilution; Changes in the credit, mortgage and real estate markets, including the markets for mortgage-related securities; and Changes in global financial markets, global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity, credit or asset...

  • Page 64
    ...ratios exceeding 30 percent of after-tax net income. Additionally, as of December 30, 2011, the Federal Reserve will require bank holding companies with $50 billion or more of total consolidated assets, such as Regions, to submit annual capital plans to the applicable Federal Reserve Bank for review...

  • Page 65
    ... Annual Report on Form 10-K for a list of the states in which Regions Bank's branches and Morgan Keegan's offices are located. Item 3. Legal Proceedings Information required by this item is set forth in Note 23 "Commitments, Contingencies and Guarantees" in the Notes to the Consolidated Financial...

  • Page 66
    Item 4. Mine Safety Disclosures. Not applicable. Executive Officers of the Registrant Information concerning the Executive Officers of Regions is set forth under Item 10. "Directors, Executive Officers and Corporate Governance" of this Annual Report on Form 10-K. 42

  • Page 67
    ... of Equity Securities Regions' common stock, par value $.01 per share, is listed for trading on the New York Stock Exchange under the symbol RF. Quarterly high and low sales prices of and cash dividends declared on Regions' common stock are set forth in Table 30 "Quarterly Results of Operations" of...

  • Page 68
    ... expect to increase its quarterly dividend above such level for the foreseeable future. Also, Regions is a bank holding company, and its ability to declare and pay dividends is dependent on certain federal regulatory considerations, including the guidelines of the Federal Reserve regarding capital...

  • Page 69
    ....39 84.05 45.67 $21.81 96.71 55.31 $13.51 98.76 49.79 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 Operations", which is included in Item 7. of this Annual Report on Form 10-K. 45

  • Page 70
    ... a source of low-cost deposits. As a result of the process of selling Morgan Keegan, Regions recorded in the fourth quarter of 2011 a non-cash goodwill impairment charge of $731 million (net of $14 million income tax impact) within the Investment Banking/Brokerage/Trust segment. Based on a relative...

  • Page 71
    ... with the Federal Reserve, the loan-to-deposit ratio was 81 percent and cash at the parent company totaled $2.5 billion. Furthermore, as noted in the Morgan Keegan section above, the parent company cash level is expected to increase from the proceeds of the sale of Morgan Keegan. Regions' policy is...

  • Page 72
    ... in its agency guaranteed residential mortgage-backed securities portfolio and reinvesting proceeds into lower yielding securities. The Company decreased the duration of the securities portfolio to 2.1 years as of December 31, 2011 from 3.4 years as of December 31, 2010. Management expects to see...

  • Page 73
    ..." and Note 25 "Subsequent Event" for further details. Business Segments 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 and...

  • Page 74
    ... Morgan Keegan's private client, retail brokerage services, fixed-income capital markets and equity capital markets line of businesses. Prior year disclosures have been adjusted to conform to the 2011 presentation. In 2011, Regions' Investment Banking/Brokerage/Trust operations reported a loss...

  • Page 75
    ... assets (non-GAAP) (1) ...Efficiency ratio (non-GAAP) (1) ...COMMON STOCK DATA Cash dividends declared per common share ...Stockholders' common equity per share ...Market value at year end ...Market price range: High ...Low ...Total trading volume ...Dividend payout ratio ...Shareholders of record...

  • Page 76
    ... loan and securities portfolios, and contributed to the decline in the yield on taxable securities from 3.66 percent in 2010 to 3.08 percent in 2011. The overall costs of deposits improved from 0.78 percent in 2010 to 0.49 percent in 2011, as short-term interest rates (for example, the Federal Funds...

  • Page 77
    ... credit card portfolio, and increases in indirect loans. Total deposits increased $1.0 billion in 2011 to $95.6 billion at December 31, 2011, and low-cost customer deposits increased $4.4 billion, or 6.2 percent, in 2011. Regions' Tier 1 capital (regulatory) and Tier 1 common (non-GAAP) ratios...

  • Page 78
    ... 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. Tangible common stockholders' equity ratios...

  • Page 79
    ... continuing operations available to common shareholders to income (loss) from continuing operations available to common shareholders, excluding merger, goodwill impairment and regulatory charge and related income tax benefit (non-GAAP), 3) a reconciliation of earnings (loss) per common share from...

  • Page 80
    ... from continuing operations (GAAP) ...Adjustments: Merger-related charges ...Goodwill impairment ...Regulatory charge ...Mortgage servicing rights impairment ...Loss on extinguishment of debt ...FDIC special assessment ...Securities impairment, net ...Branch consolidation and property and equipment...

  • Page 81
    ...(non-GAAP) ...Return on average tangible common equity from continuing operations, excluding merger, goodwill impairment and regulatory charge and related income tax benefit (non-GAAP) ... For Years Ended December 31 2010 2009 2008 (In millions, except per share data) $ 132,720 (0.52%) (0.46%) $ 139...

  • Page 82
    ...-BASED RATIO Stockholders' equity (GAAP) ...Accumulated other comprehensive (income) loss ...Non-qualifying goodwill and intangibles ...Disallowed deferred tax assets (4) ...Disallowed servicing assets ...Qualifying non-controlling interests ...Qualifying trust preferred securities ...Tier 1 capital...

  • Page 83
    .... For residential real estate mortgages, home equity lending and other consumer-related loans, individual products are reviewed on a group basis or in loan pools (e.g., residential real estate mortgage pools). Losses can be affected by such factors as collateral value, loss severity, the economy...

  • Page 84
    ... Company's assets and liabilities is carried at fair value, with changes in fair value recorded either in earnings or accumulated other comprehensive income (loss). These include trading account assets and liabilities, securities available for sale, mortgage loans held for sale, mortgage servicing...

  • Page 85
    ... the Capital Asset Pricing Model (CAPM) in order to derive the base discount rate. The inputs to the CAPM include the 20-year risk-free rate, 5-year beta for a select peer set, and the market risk premium based on published data. Once the output of the CAPM is determined, a size premium is added...

  • Page 86
    ... by market transactions occurring in 2010. See attached sensitivity tables for additional information. For the Investment Banking/Brokerage/Trust reporting unit, Regions performed and passed Step One of the goodwill impairment test as of the annual test date in the fourth quarter of 2011. Subsequent...

  • Page 87
    ... for the Insurance reporting unit: Banking/Treasury Reporting Unit Change in Discount Rate Estimated Amount of Impairment (In millions) + 0.75% ...+ 1.75% ...+ 2.75% ...Change in Tangible Book Value Mulipliers (b) $ (a) (558) (1,007) (a) (a) (a) (478) (967) (34)% ...55% Public Company Method...

  • Page 88
    ... value of the related mortgage servicing rights. As a result, Regions stratifies its mortgage servicing portfolio on the basis of certain risk characteristics, including loan type and contractual note rate, and values its mortgage servicing rights using discounted cash flow modeling techniques...

  • Page 89
    ... income tax rates. Any changes, if they occur, can be significant to the Company's financial position, results of operations or cash flows. OPERATING RESULTS GENERAL For 2011, Regions reported a net loss available to common shareholders of $429 million, or $0.34 per diluted common share. In January...

  • Page 90
    ... yield on the benchmark 2-year U.S. Treasury note ranged from a high of 0.85 percent to a low of 0.16 percent, and for the year decreased 36 basis points, ending the year at 0.24 percent. With short-term interest rates remaining low, deposit costs improved considerably from 0.78 percent in 2010 to...

  • Page 91
    ... for the years ended December 31, 2011, 2010 and 2009, 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 taxes net of the related federal tax benefit. (4) Total deposit costs may...

  • Page 92
    ... Continuing Operations 2011 Compared to 2010 2010 Compared to 2009 Change Due to Change Due to Yield/ Yield/ Volume Rate Net Volume Rate Net (Taxable equivalent basis - in millions) Interest income on: Federal funds sold and securities purchased under agreements to resell ...Trading account assets...

  • Page 93
    ... "Risk Management" section found later in this report. See also Note 6 "Allowance for Credit Losses" to the consolidated financial statements. NON-INTEREST INCOME Non-interest income from continuing operations represents fees and income derived from sources other than interest-earning assets. Table...

  • Page 94
    ... 2011 2010 2009 (In millions) Service charges on deposit accounts ...Capital markets and investment income ...Mortgage income ...Trust department income ...Securities gains, net ...Insurance commissions and fees ...Leveraged lease termination gains ...Commercial credit fee income ...Bank-owned life...

  • Page 95
    ...value of its mortgage servicing rights. Beginning in the fourth quarter of 2009, the Company also began using trading assets to mitigate the impact of changes in the fair value of its mortgage servicing rights. Because changes in value of trading assets are reported in capital markets and investment...

  • Page 96
    ..."Non-Interest Expense from Continuing Operations (including Non-GAAP reconciliation)" presents major non-interest expense components, both including and excluding the regulatory charge and goodwill impairment, for the years ended December 31, 2011, 2010 and 2009. Management believes the inclusion of...

  • Page 97
    ... Operations (including Non-GAAP reconciliation) As Reported (GAAP) Year Ended December 31 2011 2010 2009 (In millions) Salaries and employee benefits ...Net occupancy expense ...Furniture and equipment expense ...Professional and legal fees ...Amortization of core deposit intangibles ...Other real...

  • Page 98
    ... 2010. Excluding Morgan Keegan associates, there were 23,707 and 24,656 employees at the end of 2011 and 2010, respectively. Regions provides employees who meet established employment requirements with a benefits package that includes 401(k), pension, and medical, life and disability insurance plans...

  • Page 99
    ...quarter of 2011. The bank regulatory agencies' ratings, comprised of Regions Bank's capital, asset quality, management, earnings, liquidity and sensitivity to risk, along with certain financial ratios are used in determining FDIC insurance premiums. For further information, see discussion of Deposit...

  • Page 100
    ...these years leaving only 2009 and 2010 in loss positions. The Company did not generate any federal net operating losses or tax credit carryforwards until 2009, and in 2011 the Company utilized all federal net operating losses and a portion of the federal tax credit carryforwards. There is no history...

  • Page 101
    ... to the investor real estate segment. Goodwill declined between years as a result of the goodwill impairment recognized in the Investment/Banking/Brokerage/Trust segment related to the process of selling Morgan Keegan as further discussed in Note 9 "Intangible Assets." Other assets also declined...

  • Page 102
    ... sale, increased $1.2 billion, or 5 percent. The "Market Risk-Interest Rate Risk" section, found later in this report, further explains Regions' interest rate risk management practices. The weighted-average yield earned on securities, less equities, was 2.91 percent in 2011 and 3.42 percent in 2010...

  • Page 103
    ... of securities impairments, related to equity and other debt securities. See Note 4 "Securities" to the consolidated financial statements for further details. Maturity Analysis-The average life of the securities portfolio (excluding equities) at December 31, 2011 was estimated to be 3.9 years, with...

  • Page 104
    ... occupied commercial real estate mortgage and construction loans), investor real estate loans (commercial real estate mortgage and construction loans) and consumer loans (residential first mortgage, home equity, indirect, consumer credit card and other consumer loans). Regions manages loan growth...

  • Page 105
    ... 10-Loan Portfolio 2011 2010 2009 2008 (In millions, net of unearned income) Commercial and industrial ...Commercial real estate mortgage-owner occupied ...Commercial real estate construction-owner occupied ...Total commercial ...Commercial investor real estate mortgage ...Commercial investor real...

  • Page 106
    ...small business credit card accounts. (2) Table 11 excludes residential first mortgage, home equity, indirect and other consumer loans. The following sections describe the composition of the portfolio segments and classes in Table 10 and explain variations in balances from the 2010 year-end. See Note...

  • Page 107
    ... unchanged from the prior year. CREDIT QUALITY Weak economic conditions, including declining property values and high levels of unemployment, impacted the credit quality of Regions' loan portfolio. Investor real estate loans and home equity products (particularly Florida second lien-see Table...

  • Page 108
    ... investor real estate portfolio segment experienced increased pressure. Continued weak economic conditions impacted demand for products and services in these sectors. Lower demand impacted cash flows generated by these properties, leading to a higher rate of non-collection for these types of loans...

  • Page 109
    .... Net charge-offs were an annualized 2.41 percent of home equity loans for the year ended December 31, 2011 compared to an annualized 2.80 percent for the year ended December 31, 2010. Losses in Florida-based credits remained at elevated levels, but the related net charge-off percentage did decrease...

  • Page 110
    ... CONSUMER CREDIT QUALITY DATA The Company calculates an estimate of the current value of property secured as collateral for both home equity and residential first mortgage lending products ("current LTV"). The estimate is based on home price indices compiled by the Federal Housing Finance Agency...

  • Page 111
    ...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. Regions considers FICO scores less than 620 to be indicative...

  • Page 112
    ..., the allowance for credit losses totaled $2.8 billion or 3.64 percent of loans, net of unearned income, compared to $3.3 billion or 3.93 percent at year-end 2010. See Note 6 to the consolidated financial statements and the "Credit Risk" section found later in this report for a detailed discussion...

  • Page 113
    ...Commercial investor real estate mortgage ...658 Commercial investor real estate construction ...189 Residential first mortgage ...217 Home equity ...328 Indirect ...13 Consumer credit card ...13 Other consumer ...52 1,970 Allowance allocated to sold loans and loans transferred to loans held for sale...

  • Page 114
    ... real estate (1) ...Construction ...Residential first mortgage ...Home equity ...Indirect ...Other consumer ...Allowance allocated to sold loans and loans transferred to loans held for sale ...Provision for loan losses from continuing operations ...Allowance for loan losses at December 31 ...Reserve...

  • Page 115
    ... such as real estate valuations, interest rates and unemployment will impact the future levels of net charge-offs and provision for loan losses. Regions recorded an allowance for loan losses and related premium of approximately $84 million related to its purchase of credit card accounts during the...

  • Page 116
    ... Debt Restructurings December 31, 2011 December 31, 2010 Loan Allowance for Loan Allowance for Balance Credit Losses Balance Credit Losses (In millions) Accruing: Commercial ...Investor real estate ...Residential first mortgage ...Home equity ...Other consumer ...Non-accrual status or 90 days...

  • Page 117
    ... ...Total investor real estate ...Residential first mortgage ...Home equity ...Total non-performing loans, excluding loans held for sale ...Non-performing loans held for sale ...Total non-performing loans (1) ...Foreclosed properties ...Total non-performing assets (1) ...Accruing loans 90 days past...

  • Page 118
    ... loans 90 days past due. (2) Breakout of commercial real estate mortgage and construction between owner occupied and investor categories not available for periods prior to 2008. Non-performing assets totaled $3.0 billion at December 31, 2011, compared to $3.9 billion at December 31, 2010. Foreclosed...

  • Page 119
    ... 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 $513 million recorded upon transfer. For additional discussion, see Note 6 "Allowance for Credit Losses" to the consolidated financial statements...

  • Page 120
    ... be materially different from the current risk profile of Regions' current portfolio. See the "Mortgage Income" section earlier in this report for detail regarding the effect of mortgage servicing rights and related hedging items on Regions' consolidated statement of operations. Other Identifiable...

  • Page 121
    ... in domestic money market accounts and time deposits. Regions continues to manage and deepen existing customer relationships, as well as develop new relationships through client acquisition and new checking products. Customer deposits, which exclude deposits used for wholesale funding purposes...

  • Page 122
    ... elected to exit the Federal Deposit Insurance Corporation's ("FDIC") Transaction Account Guarantee ("TAG") program on July 1, 2010. The TAG program was a component of the Temporary Liquidity Guarantee Program, whereby the FDIC guaranteed all funds held at participating institutions beyond the...

  • Page 123
    ... agreements are also offered as commercial banking products as short-term investment opportunities for customers. At the end of each business day, customer balances are swept into the agreement account. In exchange for cash, Regions sells the customer securities with a commitment to repurchase them...

  • Page 124
    ... money market instrument. From Regions' standpoint, the repurchase agreements are similar to deposit accounts, although they are not insured by the FDIC or guaranteed by the United States or agencies. Regions Bank does not manage the level of these investments on a daily basis as the transactions...

  • Page 125
    ..., 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...

  • Page 126
    ... Treasury's Capital Purchase Program ("CPP"). See Part II, Item 5 ("Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities") for more information. Regions' ratio of stockholders' equity to total assets was 12.99 percent at December 31, 2011 and...

  • Page 127
    ... Tier 1 capital. This disallowance of trust preferred securities will be phased in from January 1, 2013 to January 1, 2016. Debt or equity instruments issued to the Federal government as part of the CPP are exempt from the Collins Amendment. As of December 31, 2011, Regions had $846 million of trust...

  • Page 128
    ... servicing assets ...Qualifying non-controlling interests ...Qualifying trust preferred securities ...Tier 1 capital ...Qualifying subordinated debt ...Adjusted allowance for loan losses (2) ...Other ...Tier 2 capital ...Total capital ...Risk-weighted assets (regulatory) ...Capital ratios: Tier...

  • Page 129
    ... Note 12 "Long-Term Borrowings" to the consolidated financial statements), and Regions' equity interests in the business trusts are included in other assets. For regulatory reporting and capital adequacy purposes, the Federal Reserve Board has indicated that such trust preferred securities currently...

  • Page 130
    ... based on changes in interest rates and the associated impact on prepayments. Regions' market risk is made up of three components: interest rate risk, prepayment risk, and capital markets and brokerage-related risks (primarily associated with Morgan Keegan). Interest rate risk is the risk to net...

  • Page 131
    ... to decline materially from the recent implied market-forward outlook, Regions' loan and securities portfolios would expect to be subject to higher levels of prepayment. Deposit costs, having benefited from several years of very low short-term rates, would likely experience additional reduction from...

  • Page 132
    ... of its variable-rate loan portfolio 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...

  • Page 133
    ... different from the current risk profile of Regions' current portfolio. 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...

  • Page 134
    ... unfavorable 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 Morgan Keegan has recorded an unrealized gain. For exchange-traded contracts...

  • Page 135
    ... for the Company's commercial commitments at December 31, 2011. The securities portfolio is one of Regions' primary sources of liquidity. Maturities of securities provide a constant flow of funds available for cash needs (see Note 4 "Securities" to the consolidated financial statements). The agency...

  • Page 136
    ..."). At December 31, 2011, commercial loans and investor real estate mortgage and construction loans with an aggregate balance of $12.9 billion were due to mature in one year or less, although Regions may renew some of these lending arrangements if the risk profile is acceptable. Additionally...

  • Page 137
    ... debt, trust preferred securities and preferred shares in privately negotiated or open market transactions for cash or common shares. Regulatory approval would be required for retirement of some instruments. Morgan Keegan maintains certain lines of credit with unaffiliated banks to manage...

  • Page 138
    ..., are reviewed by line of business personnel and the Chief Credit Officer. The Chief Credit Officer reviews summaries of these credit reports with executive management and the Board of Directors. Finally, the Credit Review department provides ongoing independent oversight of the credit portfolios to...

  • Page 139
    ... consists of loans to small and mid-sized commercial and large corporate customers with business operations in Regions' geographic footprint. Loans in this portfolio are generally underwritten individually and are usually secured with the assets of the company and/or the personal guarantee of the...

  • Page 140
    ... in size than commercial or investor real estate loans and are geographically dispersed throughout Regions' market areas, with some guaranteed by government agencies or private mortgage insurers. Losses on the residential loan portfolio depend, to a large degree, on the level of interest rates, the...

  • Page 141
    ... and investor real estate portfolio segments. In some cases, the credit support provided by the guarantor is integral to the risk rating. In concluding that the risk rating is appropriate, Regions considers a number of factors including whether underlying cash flow is adequate to service the debt...

  • Page 142
    ...management, including the Chief Executive Officer ("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...

  • Page 143
    ... mortgage servicing rights and related derivatives which added $16 million and $13 million to mortgage income in 2010 and 2009, respectively. Regions reported net gains of $394 million from the sale of securities available for sale in 2010, compared to net gains of $69 million in 2009. The Company...

  • Page 144
    ... in premium rates. The bank regulatory agencies' ratings, comprised of Regions Bank's capital, asset quality, management, earnings, liquidity and sensitivity to risk, along with its long-term debt issuer ratings and financial ratios, were the primary factors in determining FDIC insurance premiums...

  • Page 145
    ... at year-end 2009. The increase in the allowance for loan loss ratio reflected management's estimate of the level of inherent losses in the portfolio, which stabilized during 2010, as well as a result of the decline in the loan portfolio balance. Table 30-Quarterly Results of Operations 2011 2010...

  • Page 146
    ... risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Regions' management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2011. In making...

  • Page 147
    ... Company Accounting Oversight Board (United States), the consolidated balance sheets of Regions Financial Corporation and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years...

  • Page 148
    ... of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company's management. Our responsibility...

  • Page 149
    ... December 31 2011 2010 (In millions, except share data) Assets Cash and due from banks ...Interest-bearing deposits in other banks ...Federal funds sold and securities purchased under agreements to resell ...Trading account assets ...Securities available for sale ...Securities held to maturity...

  • Page 150
    REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31 2011 2010 2009 (In millions, except per share data) Interest income on: Loans, including fees ...Securities: Taxable ...Tax-exempt ...Total securities ...Loans held for sale ...Trading account...

  • Page 151
    REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Accumulated Preferred Common Additional Retained Treasury Other Stock Stock Paid-In Earnings Stock, Comprehensive Shares Amount Shares Amount Capital (Deficit) At Cost Income (Loss) Total (In ...

  • Page 152
    REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY-Continued Accumulated Preferred Common Additional Retained Treasury Other Stock Stock Paid-In Earnings Stock, Comprehensive Shares Amount Shares Amount Capital (Deficit) At Cost Income (Loss) ...

  • Page 153
    REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31 2011 2010 2009 (In millions) Operating activities: Net income (loss) ...Adjustments to reconcile net cash provided by operating activities: Provision for loan losses ...Impairment of goodwill...

  • Page 154
    ... 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 155
    ... and losses, both realized and unrealized, related to continuing operations are included in capital markets and investment income. See Note 4 for further detail of trading account assets. SECURITIES Management determines the appropriate classification of debt and equity securities at the time of...

  • Page 156
    ...the fair value option for residential mortgage loans held for sale. Residential real estate mortgage loans not designated as held for sale are retained based on available liquidity, interest rate risk management and other business purposes. Commercial and investor real estate loans held for sale are...

  • Page 157
    ... value less estimated costs to sell no later than 120 days past due for home equity second liens or at 180 days past due for residential and home equity first liens. When a commercial or investor real estate loan is placed on non-accrual status, uncollected interest accrued in the current year...

  • Page 158
    ... for all other loans, including non-accrual loans less than $2.5 million and TDRs, management uses information to stratify the loan portfolio segments into loan pools with common risk characteristics. Classes in the commercial and investor real estate portfolio segments are disaggregated based...

  • Page 159
    ... expected future cash flows, which are primarily driven by the long-term target tangible equity to tangible assets ratio, and the discount rate, which is determined in the build-up approach using the risk-free rate of return, adjusted equity beta, equity risk premium, and a company-specific risk...

  • Page 160
    ...Note 7 for further information on servicing of financial assets. FORECLOSED PROPERTY AND OTHER REAL ESTATE Other real estate and certain other assets acquired in satisfaction of indebtedness ("foreclosure") are carried in other assets at the lower of the recorded investment in the loan or fair value...

  • Page 161
    ... futures contracts on Eurodollar deposits. Eurodollar futures 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. Derivative financial instruments that qualify for...

  • Page 162
    ...classified as trading assets or liabilities with gains and losses related to the change in fair value recognized in capital markets and investment income or mortgage income, as applicable, in the statements of operations during the period. Derivative contracts related to Morgan Keegan activities are...

  • Page 163
    ... or securities contracts. Credit-related fees, including letter of credit fees, finance charges and fees related to credit cards 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...

  • Page 164
    ... that are not directly comparable to the subject asset or liability. • • ITEMS MEASURED AT FAIR VALUE ON A RECURRING BASIS Trading account assets, securities available for sale, certain mortgage loans held for sale, mortgage servicing rights, derivative assets, trading account liabilities and...

  • Page 165
    ... 3 measurement. To validate pricing related to liquid investment securities, which represent the vast majority of the available for sale portfolio (e.g., mortgage-backed securities), Regions compares price changes received from the pricing service to overall changes in market factors in order to...

  • Page 166
    ... on sufficient information available to support an alternate opinion of market value. An estimated standard discount factor, which is updated at least annually, is applied to the appraisal amount for certain commercial and investor real estate properties when the recorded investment in the loan is...

  • Page 167
    ... speeds. Discount rates are determined using the Company's current origination rates on similar loans, adjusted for changes in current liquidity and credit spreads (if necessary) observed in market pricing. Other interest-earning assets: The carrying amounts reported in the consolidated balance...

  • Page 168
    ... Note 21 for additional information regarding fair value measurements. In February 2010, the FASB issued updated guidance which defers, for certain investment funds, the consolidation requirements as a result of updated consolidation guidance. Specifically, the deferral is applicable for a reporting...

  • Page 169
    ... for insurance entities. This update amends guidance related to financial services by requiring that costs incurred with the acquisition and renewal of insurance contracts be capitalized as deferred acquisition costs. Incremental direct costs, portions of employees' compensation associated with time...

  • Page 170
    ... assets on the consolidated balance sheets. Interest expense on the junior subordinated debentures is reported in interest expense on long-term borrowings. For regulatory reporting and capital adequacy purposes, the Federal Reserve Board has indicated that such trust preferred securities currently...

  • Page 171
    .... The funded portion of the short-term loans and letters of credit is classified as commercial and industrial loans on the consolidated balance sheets. A summary of Regions' equity method investments and related loans and letters of credit, representing Regions' maximum exposure to loss as of...

  • Page 172
    ...results of operations for discontinued operations for the years ended December 31: Year Ended December 31 2011 2010 2009 (In millions, except per share data) Interest income ...Interest expense ...Net interest income ...Non-interest income: Brokerage, investment banking and capital markets ...Other...

  • Page 173
    ...Value Securities available for sale: U.S. Treasury securities ...Federal agency securities ...Obligations of states and political subdivisions ...Mortgage-backed securities: Residential agency ...Residential non-agency ...Commercial agency ...Commercial non-agency ...Other debt securities ...Equity...

  • Page 174
    ... Morgan Keegan had no securities held to maturity at December 31, 2011 and approximately $2 million at December 31, 2010. Equity securities in the tables above included the following amortized cost related to Federal Reserve Bank stock and Federal Home Loan Bank ("FHLB") stock. Shares in the Federal...

  • Page 175
    ... 2010 Less Than Twelve Months Gross Estimated Fair Unrealized Value Losses Twelve Months or More Gross Estimated Fair Unrealized Value Losses (In millions) Total Estimated Fair Value Gross Unrealized Losses Mortgage-backed securities: Residential agency ...Commercial agency ...Commercial non-agency...

  • Page 176
    ... highest traded price within the past six months. The cost basis of the securities is adjusted to current fair value with the entire offset recorded in the statement of operations. For the years ended December 31, 2011, 2010 and 2009, activity related to the credit loss component for debt securities...

  • Page 177
    ... $32 (7) $52 30 $60 27 Morgan Keegan had approximately $35 million, $51 million, and $52 million in total net gains associated with trading account securities for the years ended December 31, 2011, 2010 and 2009, respectively. NOTE 5. LOANS The loan portfolio, net of unearned income, at December...

  • Page 178
    ..., Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia. Regions considers its investor real estate (specifically loans secured by land, multi-family and retail) and home equity loans secured by...

  • Page 179
    ... the same time for comparable transactions with other persons and involve no unusual risk of collectability. NOTE 6. ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses represents management's estimate of credit losses inherent in the loan and credit commitment portfolios as of year-end. The...

  • Page 180
    ... timing of expected future cash flows, value of collateral, and qualitative factors such as changes in economic conditions. Changes in the factors used by management to determine the appropriateness of the allowance or the availability of new information could cause the allowance for credit losses...

  • Page 181
    ...for credit losses related to collectively evaluated loans includes the remainder of the portfolio. 2011 Investor Real Estate Consumer (In millions) Commercial Total Allowance for loan losses, January 1, 2011 ...Provision for loan losses ...Loan losses: Charge-offs ...Recoveries ...Net loan losses...

  • Page 182
    ... 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 183
    ...for the loan portfolio segments and classes, excluding loans held for sale. Commercial and investor real estate loan classes are detailed by categories related to underlying credit quality and probability of default. These categories are utilized to develop the associated allowance for credit losses...

  • Page 184
    ...owner occupied ...Commercial real estate construction-owner occupied ...Total commercial ...Commercial investor real estate mortgage ...Commercial investor real estate construction ...Total investor real estate ...Residential first mortgage ...Home equity ...Indirect ...Consumer credit card ...Other...

  • Page 185
    ... ...Commercial real estate mortgage- owner occupied ...Commercial real estate construction-owner occupied ...Total commercial ...Commercial investor real estate mortgage ...Commercial investor real estate construction ...Total investor real estate ...Residential first mortgage ...Home equity...

  • Page 186
    ... following tables present details related to the Company's impaired loans. Loans deemed to be impaired include non-accrual commercial and investor real estate loans, excluding leasing, and all TDRs (including accruing commercial, investor real estate, and consumer TDRs). Loans which have been fully...

  • Page 187
    ... Commercial real estate mortgage- owner occupied . . 884 Commercial real estate construction- owner occupied . . 39 Total commercial . Commercial investor real estate mortgage ...Commercial investor real estate construction ...Total investor real estate ...Residential first mortgage ...Home equity...

  • Page 188
    ... loan sale market. During the year ended December 31, 2011, approximately $767 million in primarily non-performing investor real estate loans were transferred to held for sale; this amount is net of charge-offs of $513 million recorded upon transfer. At December 31, 2011 and 2010, non-accrual loans...

  • Page 189
    ... Regions based the allowance for loan losses on a discounted cash flow analysis performed at the note level, where projected cash flows reflect credit losses based on statistical information derived from loans with similar risk characteristics (e.g., risk rating and product type). For all commercial...

  • Page 190
    ... workout alternative, Regions periodically uses A/B note restructurings when the underlying assets (primarily investor real estate) have a stabilized level of cash flow. An appropriately underwritten A-note will allow for upgraded risk rating, with ultimate return to accrual status upon charge-off...

  • Page 191
    ... presented. Year Ended December 31, 2011 Financial Impact of Modifications Considered TDRs Number Increase in of Recorded Allowance at Obligors Investment Modification (In millions) Commercial and industrial ...Commercial real estate mortgage-owner occupied ...Commercial real estate construction...

  • Page 192
    ...was in financial difficulty. NOTE 7. SERVICING OF FINANCIAL ASSETS The fair value of mortgage servicing rights 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...

  • Page 193
    ... consolidated statements of operations associated with changes in mortgage servicing rights and related derivative and/or trading securities for the years ended December 31: Year Ended December 31 2011 2010 2009 (In millions) Net interest income ...Capital markets and investment income ...Mortgage...

  • Page 194
    ... to this reserve are recorded in other non-interest expense on the consolidated statements of operations. The table below presents an analysis of Regions' repurchase liability, related to mortgage loans sold with representations and warranty provisions, for the years ended December 31: 2011 2010 (In...

  • Page 195
    ... expected future cash flows, the long-term target tangible equity to tangible assets ratio, and the discount rate. Regions utilizes the capital asset pricing model ("CAPM") in order to derive the base discount rate used in the income approach The inputs to the CAPM include the 20-year risk-free rate...

  • Page 196
    ... Investment Banking/Brokerage/Trust reporting units, these multipliers are applied to tangible book value. Investment Banking/ Brokerage/ Trust As of Fourth Quarter 2010 Banking/ Treasury Insurance Discount rate used in income approach ...Public company method market multiplier(1) ...Transaction...

  • Page 197
    ... subsequent market disruptions that occurred in November of 2011 impacted the significant price declines related to this component. Accordingly, Regions tested the goodwill of the Investment Banking/Brokerage/Trust reporting unit as of December 15, 2011 resulting in the reporting unit failing Step...

  • Page 198
    ... reviewed at least annually, usually in the fourth quarter, for events or circumstances that could impact the recoverability of the intangible asset. These events could include loss of core deposits, significant losses of credit card accounts and/or balances, increased competition or adverse changes...

  • Page 199
    ... Federal Reserve Bank Discount Window. See Note 5 for loans pledged to the Federal Reserve Bank at December 31, 2011 and 2010. Other short-term borrowings are related to Morgan Keegan and include borrowings under certain lines of credit that Morgan Keegan maintains with unaffiliated banks. The lines...

  • Page 200
    ... money market instrument. From Regions' standpoint, the repurchase agreements are similar to deposit accounts, although they are not insured by the FDIC or guaranteed by the United States or agencies. Regions Bank does not manage the level of these investments on a daily basis as the transactions...

  • Page 201
    ...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 senior unsecured debt of banks, thrifts and certain holding companies, and...

  • Page 202
    ... deposits and they are not insured or guaranteed by the FDIC. Regions may, from time to time, consider opportunistically retiring outstanding issued securities, including subordinated debt, trust preferred securities and preferred shares in privately negotiated or open market transactions for cash...

  • Page 203
    ..., 2011, which would result in changes that would cause Regions or Regions Bank to fall below the well capitalized level. The banking regulatory agencies also have adopted regulations that supplement the risk-based guidelines to include a minimum ratio of 3 percent of Tier 1 capital to average assets...

  • Page 204
    ... market investors. NOTE 14. STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) On November 14, 2008, Regions completed the sale of 3.5 million shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A, to the U.S. Treasury as part of the Capital Purchase Program ("CPP"). Regions...

  • Page 205
    ... represent approximately 46,351,000 shares and approximately 179,000 shares are reserved for issuance under deferred compensation plans. The Board of Directors declared a $0.04 annual cash dividend for 2011 and 2010, compared to $0.13 in 2009. Regions does not expect to increase its quarterly...

  • Page 206
    ... service credit realized in net income (loss) ...Net change from defined benefit plans ...Comprehensive income (loss) ... $ (885) 83 394 (311) (9) 259 (268) (5) 44 (49) $(1,513) $ 346 (21) (138) 117 3 (99) 102 4 (15) 19 $ 584 $(539) 62 256 (194) (6) 160 (166) (1) 29 (30) $(929) Before Tax 2009...

  • Page 207
    ... earnings (loss) per common share for the years ended December 31: 2011 2010 2009 (In millions, except per share amounts) Numerator: Income (loss) from continuing operations ...Less: Preferred stock dividends and accretion ...Income (loss) from continuing operations available to common shareholders...

  • Page 208
    ... recognized in the consolidated statements of operations for the years ended December 31: 2011 2010 2009 (In millions) Compensation cost of share-based compensation awards: Restricted stock awards ...Stock options ...Cash-settled restricted stock units ...Tax benefits related to compensation cost...

  • Page 209
    ... during the years ended December 31: 2011 2010 2009 Expected option life ...Expected volatility ...Expected dividend yield ...Risk-free interest rate ...Fair value ... 5.8 yrs. 5.8 yrs. 6.8 yrs. 75.5% 74.0% 67.2% 2.3% 2.2% 1.8% 2.0% 2.2% 2.8% $3.66 $3.86 $1.79 Refer to Note 1 for a discussion...

  • Page 210
    .... No share-based compensation costs were capitalized during the years ended December 31, 2011, 2010 and 2009. Regions issued approximately 867 thousand, 799 thousand, and 638 thousand of cash-settled restricted stock units during 2011, 2010, and 2009, respectively. NOTE 17. EMPLOYEE BENEFIT PLANS...

  • Page 211
    ...the plans' change in benefit obligation, plan assets and the funded status of the pension and other postretirement benefits plans, using a December 31 measurement date, and amounts recognized in the consolidated balance sheets at December 31: Other Pension Postretirement Benefits 2011 2010 2011 2010...

  • Page 212
    ... assumptions used to determine net periodic benefit cost for the years ended December 31 are as follows: Pension 2011 2010 2009 Other Postretirement Benefits 2011 2010 2009 Discount rate ...Expected long-term rate of return on plan assets ...Rate of annual compensation increase ... 5.41% 6.02% 6.15...

  • Page 213
    ... documents. Other types of investments may include hedge funds, real estate funds, and private equity funds that follow several different strategies. Plan assets are highly diversified with respect to asset class, security and manager. Investment risk is controlled with plan assets rebalancing to...

  • Page 214
    ... ...Total common stock ...Mutual funds: Domestic ...International ...Total mutual funds ...Collective investment trust funds: Fixed income fund ...Common stock fund ...International fund ...International hedge funds ...Real estate funds ...Private equity funds ...Other assets ... $ 30 $- $- $ 30...

  • Page 215
    ... and mutual funds), collective trust funds, hedge funds, real estate funds, private equity and other assets and are recorded at fair value on a recurring basis. See Note 1 for a description of valuation methodologies related to U.S. Treasuries, federal agency securities, mortgage-backed securities...

  • Page 216
    ... Inputs Year Ended December 31, 2010 (Level 3 measurements only) Real estate funds Private equity funds (In millions) Other assets Beginning balance, January 1, 2010 ...Actual return on plan assets: Net appreciation (depreciation) in fair value of investments ...Purchases, sales, issuances...

  • Page 217
    ... non-interest income from continuing operations for the years ended December 31: 2011 2010 (In millions) 2009 Insurance commissions and fees ...Bank-owned life insurance ...Commercial credit income ...Net revenue (loss) from affordable housing ...Visa-related gains ...Other miscellaneous income...

  • Page 218
    ... components of the Company's net deferred tax asset at December 31 are listed below: 2011 2010 (In millions) Deferred tax assets: Allowance for loan losses ...Federal tax credit carryforwards ...Net operating loss carryfowards, if applicable, net of federal benefit ...Employee benefits and deferred...

  • Page 219
    ... 2010, the Internal Revenue Service ("IRS") completed the field examination for the tax years 2007, 2008 and 2009 and issued Revenue Agent's Reports to the Company. Included within these reports was a proposed adjustment to the timing of deductions related to certain expenses. The Company has filed...

  • Page 220
    ... the Company's business, financial position, results of operations or cash flows. All federal tax years subsequent to the above years are open to examination. With few exceptions, the Company is no longer subject to state and local income tax examinations for tax years before 2007. Currently, there...

  • Page 221
    ... of December 31: 2011 Asset Derivatives Notional Value Balance Sheet Location Liability Derivatives Fair Value Fair Value Balance Sheet Location (In millions) Derivatives in fair value hedging relationships: Interest rate swaps ...$ 5,535 Forward commitments ...640 Derivatives in cash flow hedging...

  • Page 222
    2010 Asset Derivatives Notional Value Liability Derivatives Balance Sheet Location Fair Value Balance Sheet Location Fair Value (In millions) Derivatives in fair value hedging relationships: Interest rate swaps ...$ 9,230 Derivatives in cash flow hedging relationships: Interest rate swaps ...15,...

  • Page 223
    ...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...

  • Page 224
    ...due to changes in the benchmark interest rate. Regions recognized an unrealized after-tax loss of $45 million and an unrealized after-tax gain of $37 million in accumulated other comprehensive income at December 31, 2011 and 2010, respectively, related to terminated cash flow hedges of loan and debt...

  • Page 225
    ... income on loans Interest expense on debt Interest income on loans Interest income on loans Year Ended December 31, 2009 Amount of Gain(Loss) Hedged Recognized Amount of Gain(Loss) Items in Fair Location of Gain(Loss) in Income on Recognized in Income Value Hedge Recognized in Income on Related on...

  • Page 226
    ... of rate lock commitments. Regions manages market risk on interest rate lock commitments and mortgage loans held for sale with corresponding forward sale commitments, which are recorded at fair value with changes in fair value recorded in mortgage income. At December 31, 2011 and 2010, Regions had...

  • Page 227
    ...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...

  • Page 228
    ... no such transfers during the years ended December 31, 2011, 2010 or 2009. Trading account assets are periodically transferred to or from Level 3 valuation based on management's conclusion regarding the best method of pricing for an individual security. Such transfers are accounted for as if they...

  • Page 229
    ...-agency ...- - 16 Commercial agency ...- 326 - Commercial non-agency ...- 321 - Other debt securities ...- 537 - - - Equity securities(2) ...115 Total securities available for sale ...$213 $23,522 $ 36 Mortgage loans held for sale ...$- Mortgage servicing rights ...$- Derivative assets Interest rate...

  • Page 230
    (1) All trading account assets are related to Morgan Keegan (see Note 25 for further discussion regarding the pending sale of Morgan Keegan) with the exception of $178 million and $141 million of equity securities at December 31, 2011 and 2010, respectively, of which all are classified as Level 1 in...

  • Page 231
    ... the years ended December 31, 2011, 2010 and 2009. 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). Year Ended December 31, 2011 Net change in unrealized...

  • Page 232
    ...Total trading account assets(d) ...Securities available for sale: ...Obligations of states and political subdivisions ...Residential non-agency MBS ...Total securities available for sale ...Mortgage servicing rights ...Trading account liabilities(c): Mortgage-backed securities: ...Commercial agency...

  • Page 233
    ... 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 were recorded in loans held for sale in the consolidated...

  • Page 234
    ...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...

  • Page 235
    ...Investment Banking/Brokerage/Trust segment includes trust activities and all brokerage and investment activities associated with Morgan Keegan. As discussed in Note 3 and in Note 25, in early 2012 Regions entered into an agreement to sell Morgan Keegan and related entities. The financial information...

  • Page 236
    ... following tables present financial information for each reportable segment for the years ended December 31: Year Ended December 31, 2011 Investment Banking/ Brokerage/Trust Continuing Discontinued Insurance Operations Operations (In millions) Banking/ Treasury Total Company Net interest income...

  • Page 237
    ... 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...

  • Page 238
    ..., Regions and certain of its affiliates have been 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 Funds were formerly managed by Morgan Asset 214

  • Page 239
    ...Financial, Inc. discussed in Note 25 "Subsequent Event". In July 2009, the Securities and Exchange Commission ("SEC") filed a complaint in U.S. District Court for the Northern District of Georgia against Morgan Keegan alleging violations of the federal securities laws in connection with auction rate...

  • Page 240
    ... current and former directors and officers were named in a consolidated shareholder derivative action filed in Jefferson County, Alabama. The complaint alleges mismanagement, waste of corporate assets, breach of fiduciary duty and unjust enrichment relating to bonuses and other benefits received...

  • Page 241
    NOTE 24. PARENT COMPANY ONLY FINANCIAL STATEMENTS Presented below are condensed financial statements of Regions Financial Corporation: Balance Sheets December 31 2011 2010 ASSETS Interest-bearing deposits in other banks ...Loans to subsidiaries ...Securities available for sale ...Trading assets ......

  • Page 242
    Statements of Operations Year Ended December 31 2011 2010 2009 (In millions) Income: Service fees from subsidiaries ...$ 129 Interest from subsidiaries ...10 Gain on extinguishment of debt ...- Other ...(5) 134 Expenses: Salaries and employee benefits ...Interest ...Net occupancy expense ......

  • Page 243
    ... James Financial Inc. ("Raymond James"), for approximately $930 million in cash. The sale has been approved by the board of directors of the Company and the board of directors of Raymond James. As part of the transaction, Morgan Keegan will also pay Regions a dividend of $250 million before closing...

  • Page 244
    ... 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, 2011, there have been no changes...

  • Page 245
    ...Regions Bank. Previously President and Chief Operating Officer, registrant and Regions Bank; Vice Chairman and Head of General Banking Group, registrant and Regions Bank; Senior Executive Vice President and Head of General Banking Group, registrant and Regions Bank. Director, Morgan Keegan & Company...

  • Page 246
    ... vice president of Business Banking. Director, Regions Equipment Finance Corporation Chief Executive Officer and Director, Morgan Keegan & Company, Inc. Previously president of Fixed Income Capital Markets at Morgan Keegan. Florida Region President and Senior Executive Vice President, Regions Bank...

  • Page 247
    ... Business Operations and Support Chief Financial Officer and Executive Vice President, Regions Bank. Previously held senior level finance leadership positions at Bank of America. Director, Regions Insurance Group, Inc. Director of Human Resources and Executive Vice President, registrant and Regions...

  • Page 248
    ...have been adjusted to reflect the applicable exchange ratio. See Note 16 "Share-Based Payments" to the consolidated financial statements included in Regions' Annual Report on Form 10-K for the year ended December 31, 2011. Does not include 178,826 shares issuable pursuant to outstanding rights under...

  • Page 249
    ... 2010; ...Consolidated Statements of Operations-Years ended December 31, 2011, 2010 and 2009; ...Consolidated Statements of Changes in Stockholders' Equity-Years ended December 31, 2011, 2010 and 2009; and ...Consolidated Statements of Cash Flows-Years ended December 31, 2011, 2010 and 2009...Notes...

  • Page 250
    ...10-Q Quarterly Report filed by registrant on August 4, 2010. Form of stock option grant agreement under Regions Financial Corporation 2010 Long Term Incentive Plan, incorporated by reference to Exhibit 10.5 to Form 10-K Annual Report filed by registrant on February 24, 2011. Form of 2009-2010 Annual...

  • Page 251
    ...Current Report filed by registrant on April 22, 2009. Form of director stock option grant agreement under Regions Financial Corporation 2006 Long Term Incentive Plan, incorporated by reference to Exhibit 10.45 to Form 10-K Annual Report filed by registrant on February 26, 2008. Form of 2009 LTI cash...

  • Page 252
    ... on February 25, 2009. Regions Financial Corporation Executive Bonus Plan, incorporated by reference to Exhibit 99 to Form 8-K Current Report filed by registrant on May 25, 2005, File No. 000-50831. Form of Change-in-Control Agreement for executive officers O. B. Grayson Hall, Jr., David B. Edmonds...

  • Page 253
    ... Form 8-K Current Report filed by registrant on December 18, 2009. Regions Financial Corporation Post 2006 Supplemental Executive Retirement Plan Amended and Restated as of January 1, 2010, incorporated by reference to Exhibit 10.64 to Form 10-K Annual Report filed by registrant on February 24, 2011...

  • Page 254
    ... 10-K Annual Report filed by registrant on February 26, 2008. Regions Financial Corporation Management Incentive Plan, incorporated by reference to Exhibit 10.2 to Form 8-K Current Report filed by registrant on December 11, 2009. Form of Morgan Keegan & Company, Inc. Restricted Cash Agreement for...

  • Page 255
    ... not included herein may be obtained free of charge, electronically through Regions' website at www.regions.com or through the SEC's website at www.sec.gov or upon request to: Investor Relations Regions Financial Corporation 1900 Fifth Avenue North Birmingham, Alabama 35203 (205) 326-5807 231

  • Page 256
    ..., thereunto duly authorized. REGIONS FINANCIAL CORPORATION By: /S/ O. B. GRAYSON HALL, JR. O. B. Grayson Hall, Jr. President and Chief Executive Officer Date: February 24, 2012 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 257
    ... J. Styslinger III Director February 24, 2012 * Fournier J. Gale, III, 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. /S/ FOURNIER...

  • Page 258

  • Page 259
    EXHIBIT 12 Regions Financial Corporation Computation of Ratio of Earnings to Fixed Charges (from continuing operations) (Unaudited) 2011 December 31 2010 2009 2008 (Dollars in millions) 2007 Excluding Interest on Deposits Income (loss) from continuing operations before income taxes ...$ 161 $ (844...

  • Page 260
    ...; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 24, 2012 /S/ O. B. GRAYSON HALL, JR. O. B. Grayson Hall, Jr. President and Chief Executive Officer

  • Page 261
    ... fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 24, 2012 /S/ DAVID J. TURNER, JR. David J. Turner, Jr. Senior Executive Vice President and Chief Financial Officer

  • Page 262
    ... with the Annual Report of Regions Financial Corporation (the "Company") on Form 10-K for the year ending December 31, 2011 (the "Report"), I, O. B. Grayson Hall, Jr., Chief Executive Officer of the Company, and David J. Turner, Jr., Chief Financial Officer of the Company, certify, pursuant...

  • Page 263
    ...reviewed, and evaluated with senior risk officers at least every six months during any part of the most recently completed fiscal year that was a TARP period, the senior executive officer (SEO) compensation plans and the employee compensation plans and the risks these plans pose to Regions Financial...

  • Page 264
    ... with any applicable Federal securities rules and regulations on the disclosures provided under the Federal securities laws related to SEO compensation paid or accrued during any part of the most recently completed fiscal year that was a TARP period; Regions Financial Corporation will disclose...

  • Page 265
    ... J. Turner, Jr., Senior Executive Vice President and Chief Financial Officer of Regions Financial Corporation, certify, based on my knowledge, that: (i) The compensation committee of Regions Financial Corporation has discussed, reviewed, and evaluated with senior risk officers at least every six...

  • Page 266
    ... with any applicable Federal securities rules and regulations on the disclosures provided under the Federal securities laws related to SEO compensation paid or accrued during any part of the most recently completed fiscal year that was a TARP period; Regions Financial Corporation will disclose...

  • Page 267
    ... Regions Financial Corporation Investor Relations 1900 Fifth Avenue North Birmingham, AL 35203 regions.com M. List Underwood Jr. Director of Investor Relations (205) 801-0265 Dana W. Nolan Associate Director of Investor Relations (205) 326-4803 Helen S. Johnson Shareholder Services Manager...

  • Page 268