RF-2014.09.30 10-Q
Table of Contents


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

 
Form 10-Q
 
ý
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended September 30, 2014
or
¨
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from
 
to
                               

Commission File Number: 001-34034
 
 
 
Regions Financial Corporation
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
Delaware
 
63-0589368
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
 
 
1900 Fifth Avenue North
Birmingham, Alabama
 
35203
(Address of principal executive offices)
 
(Zip Code)
(800) 734-4667
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    ý  No
The number of shares outstanding of each of the issuer’s classes of common stock was 1,376,475,042 shares of common stock, par value $.01, outstanding as of November 3, 2014.


Table of Contents


REGIONS FINANCIAL CORPORATION
FORM 10-Q
INDEX
 
 
 
 
 
Page
Part I. Financial Information
Item 1.
 
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3.
 
 
Item 4.
 
 
 
 
 
Part II. Other Information
 
 
Item 1.
 
 
Item 2.
 
 
Item 6.
 
 
 
 
 
 


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Forward-Looking Statements
This Quarterly Report on Form 10-Q, other periodic reports filed by Regions Financial Corporation under the Securities Exchange Act of 1934, as amended, and any other written or oral statements made by us or on our behalf to analysts, investors, the media and others, may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The terms “Regions,” the “Company,” “we,” “us” and “our” mean Regions Financial Corporation, a Delaware corporation, and its subsidiaries when or where appropriate. The words “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “targets,” “projects,” “outlook,” “forecast,” “will,” “may,” “could,” “should,” “can,” and similar expressions often signify forward-looking statements. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results or other developments. Forward-looking statements are based on management’s current expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, and because they also relate to the future they are likewise subject to inherent uncertainties and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. Therefore, we caution you against relying on any of these forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, those described below:

Current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values, unemployment rates and potential reduction of economic growth.
Possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations.
The effects of a possible downgrade in the U.S. government’s sovereign credit rating or outlook.
Possible changes in market interest rates.
Any impairment of our goodwill or other intangibles, or any adjustment of valuation allowances on our deferred tax assets due to adverse changes in the economic environment, declining operations of the reporting unit, or other factors.
Possible changes in the creditworthiness of customers and the possible impairment of the collectability of loans.
Changes in the speed of loan prepayments, loan origination and sale volumes, charge-offs, loan loss provisions or actual loan losses.
Possible acceleration of prepayments on mortgage-backed securities due to low interest rates, and the related acceleration of premium amortization on those securities.
Our ability to effectively compete with other financial services companies, some of whom possess greater financial resources than we do and are subject to different regulatory standards than we are.
Loss of customer checking and savings account deposits as customers pursue other, higher-yield investments.
Our ability to develop and gain acceptance from current and prospective customers for new products and services in a timely manner.
Changes in laws and regulations affecting our businesses, including changes in the enforcement and interpretation of such laws and regulations by applicable governmental and self-regulatory agencies.
Our ability to obtain regulatory approval (as part of the CCAR process or otherwise) to take certain capital actions, including paying dividends and any plans to increase common stock dividends, repurchase common stock under current or future programs, or redeem preferred stock or other regulatory capital instruments.
Our ability to comply with applicable capital and liquidity requirements (including finalized Basel III capital standards), including our ability to generate capital internally or raise capital on favorable terms.
The costs and other effects (including reputational harm) of any adverse judicial, administrative, or arbitral rulings or proceedings, regulatory enforcement actions, or other legal actions to which we or any of our subsidiaries are a party.
Any adverse change to our ability to collect interchange fees in a profitable manner, whether such change is the result of regulation, litigation, legislation, or other governmental action.
Our ability to manage fluctuations in the value of assets and liabilities and off-balance sheet exposure so as to maintain sufficient capital and liquidity to support our business.
Possible changes in consumer and business spending and saving habits and the related effect on our ability to increase assets and to attract deposits.
Any inaccurate or incomplete information provided to us by our customers or counterparties.
Inability of our framework to manage risks associated with our business such as credit risk and operational risk, including third-party vendors and other service providers.
The inability of our internal disclosure controls and procedures to prevent, detect or mitigate any material errors or fraudulent acts.
The effects of geopolitical instability, including wars, conflicts and terrorist attacks.
The effects of man-made and natural disasters, including fires, floods, droughts, tornadoes, hurricanes and environmental damage.
Our ability to keep pace with technological changes.


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Our ability to identify and address cyber-security risks such as data security breaches, “denial of service” attacks, “hacking” and identity theft.
Possible downgrades in our credit ratings or outlook.
The effects of problems encountered by other financial institutions that adversely affect us or the banking industry generally.
The effects of the failure of any component of our business infrastructure which is provided by a third party.
Our ability to receive dividends from our subsidiaries.
Changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies.
The effects of any damage to our reputation resulting from developments related to any of the items identified above.
You should not place undue reliance on any forward-looking statements, which speak only as of the date made. We assume no obligation to update or revise any forward-looking statements that are made from time to time, either as a result of future developments, new information or otherwise, except as may be required by law.
See also the reports filed with the Securities and Exchange Commission, including the discussion under the “Risk Factors” section of Regions’ Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the Securities and Exchange Commission and available on its website at www.sec.gov.


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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
September 30, 2014
 
December 31, 2013
 
(In millions, except share data)
Assets
 
 
 
Cash and due from banks
$
1,770

 
$
1,661

Interest-bearing deposits in other banks
2,993

 
3,612

Federal funds sold and securities purchased under agreements to resell
20

 

Trading account securities
103

 
111

Securities held to maturity (estimated fair value of $2,224 and $2,307, respectively)
2,222

 
2,353

Securities available for sale
22,379

 
21,485

Loans held for sale (includes $456 and $429 measured at fair value, respectively)
504

 
1,055

Loans, net of unearned income
76,607

 
74,609

Allowance for loan losses
(1,178
)
 
(1,341
)
Net loans
75,429

 
73,268

Other interest-earning assets
91

 
86

Premises and equipment, net
2,192

 
2,216

Interest receivable
310

 
313

Goodwill
4,816

 
4,816

Residential mortgage servicing rights at fair value
277

 
297

Other identifiable intangible assets
287

 
295

Other assets
5,833

 
5,828

Total assets
$
119,226

 
$
117,396

Liabilities and Stockholders’ Equity
 
 
 
Deposits:
 
 
 
Non-interest-bearing
$
31,388

 
$
30,083

Interest-bearing
62,742

 
62,370

Total deposits
94,130

 
92,453

Borrowed funds:
 
 
 
Short-term borrowings:
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
1,893

 
2,182

Long-term borrowings
3,813

 
4,830

Total borrowed funds
5,706

 
7,012

Other liabilities
2,230

 
2,163

Total liabilities
102,066

 
101,628

Stockholders’ equity:
 
 
 
Preferred stock, authorized 10 million shares, par value $1.00 per share
 
 
 
Non-cumulative perpetual, liquidation preference $1,000.00 per share, including related surplus, net of issuance costs; issued—1,000,000 and 500,000 shares, respectively
900

 
450

Common stock, authorized 3 billion shares, par value $.01 per share:
 
 
 
Issued including treasury stock—1,419,889,980 and 1,419,006,360 shares, respectively
14

 
14

Additional paid-in capital
19,069

 
19,216

Retained earnings (deficit)
(1,272
)
 
(2,216
)
Treasury stock, at cost—41,262,629 and 41,285,676 shares, respectively
(1,377
)
 
(1,377
)
Accumulated other comprehensive income (loss), net
(174
)
 
(319
)
Total stockholders’ equity
17,160

 
15,768

Total liabilities and stockholders’ equity
$
119,226

 
$
117,396


See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2014
 
2013
 
2014
 
2013
 
(In millions, except per share data)
Interest income on:
 
 
 
 
 
 
 
Loans, including fees
$
736

 
$
758

 
$
2,205

 
$
2,247

Securities - taxable
154

 
144

 
464

 
452

Loans held for sale
5

 
6

 
17

 
23

Trading account securities

 
1

 
2

 
2

Other interest-earning assets
2

 
2

 
6

 
5

Total interest income
897

 
911

 
2,694

 
2,729

Interest expense on:
 
 
 
 
 
 
 
Deposits
26

 
31

 
78

 
106

Short-term borrowings

 
1

 
1

 
2

Long-term borrowings
50

 
55

 
156

 
191

Total interest expense
76

 
87

 
235

 
299

Net interest income
821

 
824

 
2,459

 
2,430

Provision for loan losses
24

 
18

 
61

 
59

Net interest income after provision for loan losses
797

 
806

 
2,398

 
2,371

Non-interest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
181

 
190

 
528

 
549

Card and ATM fees
85

 
82

 
248

 
239

Mortgage income
39

 
52

 
122

 
193

Securities gains (losses), net
7

 
3

 
15

 
26

Other
166

 
168

 
460

 
486

Total non-interest income
478

 
495

 
1,373

 
1,493

Non-interest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
456

 
455

 
1,354

 
1,354

Net occupancy expense
92

 
92

 
275

 
274

Furniture and equipment expense
73

 
71

 
213

 
209

Other
205

 
266

 
621

 
773

Total non-interest expense
826

 
884

 
2,463

 
2,610

Income from continuing operations before income taxes
449

 
417

 
1,308

 
1,254

Income tax expense
127

 
124

 
380

 
360

Income from continuing operations
322

 
293

 
928

 
894

Discontinued operations:
 
 
 
 
 
 
 
Income (loss) from discontinued operations before income taxes
5

 
(1
)
 
26

 
1

Income tax expense (benefit)
2

 
(1
)
 
10

 

Income (loss) from discontinued operations, net of tax
3

 

 
16

 
1

Net income
$
325

 
$
293

 
$
944

 
$
895

Net income from continuing operations available to common shareholders
$
302

 
$
285

 
$
892

 
$
870

Net income available to common shareholders
$
305

 
$
285

 
$
908

 
$
871

Weighted-average number of shares outstanding:
 
 
 
 
 
 
 
Basic
1,378

 
1,388

 
1,378

 
1,401

Diluted
1,389

 
1,405

 
1,390

 
1,415

Earnings per common share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.22

 
$
0.21

 
$
0.65

 
$
0.62

Diluted
0.22

 
0.20

 
0.64

 
0.61

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.22

 
$
0.21

 
$
0.66

 
$
0.62

Diluted
0.22

 
0.20

 
0.65

 
0.62

Cash dividends declared per common share
0.05

 
0.03

 
0.13

 
0.07


See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
Three Months Ended September 30
 
2014
 
2013
 
(In millions)
Net income
$
325

 
$
293

Other comprehensive income (loss), net of tax:
 
 
 
Unrealized losses on securities transferred to held to maturity:
 
 
 
Unrealized losses on securities transferred to held to maturity during the period (net of zero and zero tax effect, respectively)

 

Less: reclassification adjustments for amortization of unrealized losses on securities transferred to held to maturity (net of ($1) and ($2) tax effect, respectively)
(2
)
 
(2
)
Net change in unrealized losses on securities transferred to held to maturity, net of tax
2

 
2

Unrealized gains (losses) on securities available for sale:
 
 
 
Unrealized holding gains (losses) arising during the period (net of ($53) and $26 tax effect, respectively)
(87
)
 
43

Less: reclassification adjustments for securities gains (losses) realized in net income (net of $2 and $1 tax effect, respectively)
5

 
2

Net change in unrealized gains (losses) on securities available for sale, net of tax
(92
)
 
41

Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
 
 
 
Unrealized holding gains (losses) on derivatives arising during the period (net of ($10) and $18 tax effect, respectively)
(16
)
 
28

Less: reclassification adjustments for gains (losses) realized in net income (net of $13 and $10 tax effect, respectively)
21

 
16

Net change in unrealized gains (losses) on derivative instruments, net of tax
(37
)
 
12

Defined benefit pension plans and other post employment benefits:
 
 
 
Net actuarial gains (losses) arising during the period (net of zero and zero tax effect, respectively)

 

Less: reclassification adjustments for amortization of actuarial loss and prior service cost realized in net income, and other (net of ($2) and ($7) tax effect, respectively)
(5
)
 
(12
)
Net change from defined benefit pension plans, net of tax
5

 
12

Other comprehensive income (loss), net of tax
(122
)
 
67

Comprehensive income (loss)
$
203

 
$
360

 
 
 
 
 
Nine Months Ended September 30
 
2014
 
2013
 
(In millions)
Net income
$
944

 
$
895

Other comprehensive income (loss), net of tax:
 
 
 
Unrealized losses on securities transferred to held to maturity:
 
 
 
Unrealized losses on securities transferred to held to maturity during the period (net of zero and ($43) tax effect, respectively)

 
(68
)
Less: reclassification adjustments for amortization of unrealized losses on securities transferred to held to maturity (net of ($4) and ($2) tax effect, respectively)
(6
)
 
(2
)
Net change in unrealized losses on securities transferred to held to maturity, net of tax
6

 
(66
)
Unrealized gains (losses) on securities available for sale:
 
 
 
Unrealized holding gains (losses) arising during the period (net of $87 and ($232) tax effect, respectively)
143

 
(378
)
Less: reclassification adjustments for securities gains (losses) realized in net income (net of $5 and $9 tax effect, respectively)
10

 
17

Net change in unrealized gains (losses) on securities available for sale, net of tax
133

 
(395
)
Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
 
 
 
Unrealized holding gains (losses) on derivatives arising during the period (net of $30 and ($6) tax effect, respectively)
48

 
(10
)
Less: reclassification adjustments for gains (losses) realized in net income (net of $35 and $22 tax effect, respectively)
56

 
36

Net change in unrealized gains (losses) on derivative instruments, net of tax
(8
)
 
(46
)
Defined benefit pension plans and other post employment benefits:
 
 
 
Net actuarial gains (losses) arising during the period (net of $2 and zero tax effect, respectively)
1

 
(2
)
Less: reclassification adjustments for amortization of actuarial loss and prior service cost realized in net income, and other (net of ($6) and $(19) tax effect, respectively)
(13
)
 
(33
)
Net change from defined benefit pension plans, net of tax
14

 
31

Other comprehensive income (loss), net of tax
145

 
(476
)
Comprehensive income (loss)
$
1,089

 
$
419

See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
 
 
Preferred Stock
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
(Deficit)
 
Treasury
Stock,
At Cost
 
Accumulated
Other
Comprehensive
Income (Loss), Net
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
(In millions, except share and per share data)
BALANCE AT JANUARY 1, 2013
1

 
$
482

 
1,413

 
$
15

 
$
19,652

 
$
(3,338
)
 
$
(1,377
)
 
$
65

 
$
15,499

Net income

 

 

 

 

 
895

 

 

 
895

Unrealized losses on securities transferred to held to maturity, net of tax

 

 

 

 

 

 

 
(68
)
 
(68
)
Amortization of unrealized losses on securities transferred to held to maturity, net of tax

 

 

 

 

 

 

 
2

 
2

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

 

 

 

 

 

 

 
(395
)
 
(395
)
Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment

 

 

 

 

 

 

 
(46
)
 
(46
)
Net change from defined benefit pension plans, net of tax

 

 

 

 

 

 

 
31

 
31

Cash dividends declared—$0.07 per share

 

 

 

 
(97
)
 

 

 

 
(97
)
Preferred stock dividends

 
(24
)
 

 

 

 

 

 

 
(24
)
Common stock transactions:
 
 
 
 
 
 
 
 

 

 

 

 

Impact of share repurchase

 

 
(36
)
 
(1
)
 
(339
)
 

 

 

 
(340
)
Impact of stock transactions under compensation plans, net

 

 
1

 

 
32

 

 

 

 
32

BALANCE AT SEPTEMBER 30, 2013
1

 
$
458

 
1,378

 
$
14

 
$
19,248

 
$
(2,443
)
 
$
(1,377
)
 
$
(411
)
 
$
15,489

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT JANUARY 1, 2014
1

 
$
450

 
1,378

 
$
14

 
$
19,216

 
$
(2,216
)
 
$
(1,377
)
 
$
(319
)
 
$
15,768

Net income

 

 

 

 

 
944

 

 

 
944

Amortization of unrealized losses on securities transferred to held to maturity, net of tax

 

 

 

 

 

 

 
6

 
6

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

 

 

 

 

 

 

 
133

 
133

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

 

 

 

 

 

 

 
(8
)
 
(8
)
Net change from defined benefit pension plans, net of tax

 

 

 

 

 

 

 
14

 
14

Cash dividends declared—$0.13 per share

 

 

 

 
(180
)
 

 

 

 
(180
)
Preferred stock dividends

 
(36
)
 

 

 

 

 

 

 
(36
)
Preferred stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net proceeds from issuance of 500 thousand shares of Series B, fixed to floating rate, non-cumulative perpetual preferred stock, including related surplus

 
486

 

 

 

 

 

 

 
486

Common stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact of share repurchase

 

 
(1
)
 

 
(8
)
 

 

 

 
(8
)
Impact of stock transactions under compensation plans, net

 

 
2

 

 
41

 

 

 

 
41

BALANCE AT SEPTEMBER 30, 2014
1

 
$
900

 
1,379

 
$
14

 
$
19,069

 
$
(1,272
)
 
$
(1,377
)
 
$
(174
)
 
$
17,160


See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Nine Months Ended September 30
 
2014
 
2013
 
(In millions)
Operating activities:
 
 
 
Net income
$
944

 
$
895

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Provision for loan losses
61

 
59

Depreciation, amortization and accretion, net
391

 
497

Provision for losses on other real estate, net
(13
)
 
14

Securities (gains) losses, net
(15
)
 
(26
)
Deferred income tax expense
176

 
310

Originations and purchases of loans held for sale
(1,848
)
 
(3,373
)
Proceeds from sales of loans held for sale
1,948

 
4,156

Gain on TDRs held for sale, net
(35
)
 

(Gain) loss on sale of loans, net
(89
)
 
(101
)
(Gain) loss on early extinguishment of debt

 
61

(Gain) loss on sale of other assets

 
(24
)
Net change in operating assets and liabilities:
 
 
 
Trading account securities
8

 
(3
)
Other interest-earning assets
(5
)
 
795

Interest receivable
3

 
13

Other assets
(69
)
 
331

Other liabilities
64

 
(451
)
Other
(3
)
 
(7
)
Net cash from operating activities
1,518

 
3,146

Investing activities:
 
 
 
Proceeds from maturities of securities held to maturity
130

 
41

Proceeds from sales of securities available for sale
1,384

 
3,543

Proceeds from maturities of securities available for sale
2,350

 
4,611

Purchases of securities available for sale
(4,524
)
 
(5,888
)
Proceeds from sales of loans
649

 
152

Purchases of loans
(814
)
 
(733
)
Purchases of mortgage servicing rights
(12
)
 
(28
)
Net change in loans
(1,662
)
 
(1,970
)
Net purchases of premises and equipment and other assets
(164
)
 
(122
)
Net cash from investing activities
(2,663
)
 
(394
)
Financing activities:
 
 
 
Net change in deposits
1,677

 
(3,153
)
Net change in short-term borrowings
(289
)
 
199

Proceeds from long-term borrowings

 
750

Payments on long-term borrowings
(1,001
)
 
(1,719
)
Cash dividends on common stock
(180
)
 
(97
)
Cash dividends on preferred stock
(36
)
 
(24
)
Repurchase of common stock
(8
)
 
(340
)
Net proceeds from issuance of preferred stock
486

 

Other
6

 
2

Net cash from financing activities
655

 
(4,382
)
Net change in cash and cash equivalents
(490
)
 
(1,630
)
Cash and cash equivalents at beginning of year
5,273

 
5,489

Cash and cash equivalents at end of period
$
4,783

 
$
3,859


See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three and Nine Months Ended September 30, 2014 and 2013
NOTE 1. BASIS OF PRESENTATION
Regions Financial Corporation (“Regions” or "the Company”) provides a full range of banking and bank-related services to individual and corporate customers through its subsidiaries and branch offices located primarily in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia. The Company is subject to competition from other financial institutions, is subject to the regulations of certain government agencies and undergoes periodic examinations by certain of those regulatory authorities.
The accounting and reporting policies of Regions and the methods of applying those policies that materially affect the consolidated financial statements conform with accounting principles generally accepted in the United States (“GAAP”) and with general financial services industry practices. The accompanying interim financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and notes to the consolidated financial statements necessary for a complete presentation of financial position, results of operations, comprehensive income and cash flows in conformity with GAAP. In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the consolidated financial statements have been included. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in Regions’ Form 10-K for the year ended December 31, 2013. Regions has evaluated all subsequent events for potential recognition and disclosure through the filing date of this Form 10-Q.
On January 11, 2012, Regions entered into an agreement to sell Morgan Keegan & Company, Inc. (“Morgan Keegan”) and related affiliates. The transaction closed on April 2, 2012. See Note 2 and Note 14 for further details. Results of operations for the entities sold are presented separately as discontinued operations for all periods presented on the consolidated statements of income. This presentation is consistent with the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2013.
Certain amounts in prior period financial statements have been reclassified to conform to the current period presentation. For example, the "card and ATM fees" line item on the consolidated statements of income represents the combined amounts of credit card/bank card income and debit card and ATM related revenue. Debit card and ATM related revenue was previously included in the "service charges on deposit accounts" line item. Credit card/bank card income was previously included in the "other" non-interest income line item. These reclassifications are immaterial and have no effect on net income, comprehensive income, total assets or total stockholders’ equity as previously reported.
NOTE 2. DISCONTINUED OPERATIONS
On January 11, 2012, Regions entered into a stock purchase agreement to sell Morgan Keegan and related affiliates to Raymond James Financial, Inc. (“Raymond James”). The transaction closed on April 2, 2012. Regions Investment Management, Inc. (formerly known as Morgan Asset Management, Inc.) and Regions Trust were not included in the sale. In connection with the closing of the sale, Regions agreed to indemnify Raymond James for all litigation matters related to pre-closing activities. See Note 14 for related disclosure.


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The following table represents the condensed results of operations for discontinued operations:
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2014
 
2013
 
2014
 
2013
 
(In millions, except per share data)
Non-interest income:
 
 
 
 
 
 
 
Insurance proceeds
$
19

 
$

 
$
19

 
$

Total non-interest income
19

 

 
19

 

Non-interest expense:
 
 
 
 
 
 
 
Professional and legal expenses
14

 
3

 
(8
)
 
(1
)
Other

 
(2
)
 
1

 

Total non-interest expense
14

 
1

 
(7
)
 
(1
)
Income (loss) from discontinued operations before income taxes
5

 
(1
)
 
26

 
1

Income tax expense (benefit)
2

 
(1
)
 
10

 

Income (loss) from discontinued operations, net of tax
$
3

 
$

 
$
16

 
$
1

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

 
$
(0.00
)
 
$
0.01

 
$
0.00

Diluted
$
0.00

 
$
(0.00
)
 
$
0.01

 
$
0.00


NOTE 3. SECURITIES
The amortized cost, gross unrealized gains and losses, and estimated fair value of securities held to maturity and securities available for sale are as follows:
 
September 30, 2014
 
 
 
Recognized in OCI (1)
 
 
 
Not recognized in OCI
 
 
 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Carrying Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
(In millions)
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
1

 
$

 
$

 
$
1

 
$

 
$

 
$
1

Federal agency securities
351

 

 
(13
)
 
338

 
4

 

 
342

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
1,745

 

 
(74
)
 
1,671

 
10

 
(5
)
 
1,676

Commercial agency
219

 

 
(7
)
 
212

 

 
(7
)
 
205

 
$
2,316

 
$

 
$
(94
)
 
$
2,222

 
$
14

 
$
(12
)
 
$
2,224

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
61

 
$

 
$

 
$
61

 
 
 
 
 
$
61

Federal agency securities
68

 
1

 

 
69

 
 
 
 
 
69

Obligations of states and political subdivisions
3

 

 

 
3

 
 
 
 
 
3

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
16,362

 
236

 
(78
)
 
16,520

 
 
 
 
 
16,520

Residential non-agency
8

 
1

 

 
9

 
 
 
 
 
9

Commercial agency
1,608

 
7

 
(12
)
 
1,603

 
 
 
 
 
1,603

Commercial non-agency
1,493

 
11

 
(16
)
 
1,488

 
 
 
 
 
1,488

Corporate and other debt securities
1,973

 
43

 
(22
)
 
1,994

 
 
 
 
 
1,994

Equity securities
622

 
10

 

 
632

 
 
 
 
 
632

 
$
22,198

 
$
309

 
$
(128
)
 
$
22,379

 
 
 
 
 
$
22,379



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________
(1) The gross unrealized losses recognized in other comprehensive income (OCI) on held to maturity securities resulted from a transfer of available for sale securities to held to maturity in the second quarter of 2013.    
 
December 31, 2013
 
 
 
Recognized in OCI (1)
 
 
 
Not recognized in OCI
 
 
 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Carrying Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
(In millions)
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
1

 
$

 
$

 
$
1

 
$

 
$

 
$
1

Federal agency securities
351

 

 
(15
)
 
336

 

 
(3
)
 
333

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
1,878

 

 
(81
)
 
1,797

 

 
(37
)
 
1,760

Commercial agency
227

 

 
(8
)
 
219

 

 
(6
)
 
213

 
$
2,457

 
$

 
$
(104
)
 
$
2,353

 
$

 
$
(46
)
 
$
2,307

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
56

 
$

 
$

 
$
56

 
 
 
 
 
$
56

Federal agency securities
88

 
1

 

 
89

 
 
 
 
 
89

Obligations of states and political subdivisions
5

 

 

 
5

 
 
 
 
 
5

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
15,664

 
183

 
(170
)
 
15,677

 
 
 
 
 
15,677

Residential non-agency
8

 
1

 

 
9

 
 
 
 
 
9

Commercial agency
947

 
4

 
(16
)
 
935

 
 
 
 
 
935

Commercial non-agency
1,232

 
12

 
(33
)
 
1,211

 
 
 
 
 
1,211

Corporate and other debt securities
2,855

 
44

 
(72
)
 
2,827

 
 
 
 
 
2,827

Equity securities
664

 
12

 

 
676

 
 
 
 
 
676

 
$
21,519

 
$
257

 
$
(291
)
 
$
21,485

 
 
 
 
 
$
21,485

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

During the second quarter of 2013, Regions transferred securities with a fair value of $2.4 billion from available for sale to held to maturity. Management determined it has both the positive intent and ability to hold these securities to maturity. The securities were reclassified at fair value at the time of transfer and represented a non-cash transaction. Accumulated other comprehensive income included net pre-tax unrealized losses of $111 million on the securities at the date of transfer. These unrealized losses and the offsetting OCI components are being amortized into net interest income over the remaining life of the related securities as a yield adjustment, resulting in no impact on future net income.
Equity securities in the tables above included the following amortized cost related to Federal Reserve Bank stock and Federal Home Loan Bank (“FHLB”) stock. Shares in the Federal Reserve Bank and FHLB are accounted for at amortized cost, which approximates fair value.
 
September 30, 2014
 
December 31, 2013
 
(In millions)
Federal Reserve Bank
$
477

 
$
472

Federal Home Loan Bank
16

 
67

Securities with carrying values of $12.5 billion at both September 30, 2014 and December 31, 2013 were pledged to secure public funds, trust deposits and certain borrowing arrangements.
The amortized cost and estimated fair value of securities available for sale and securities held to maturity at September 30, 2014, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


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Table of Contents


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

 
$
1

Due after one year through five years
1

 
1

Due after five years through ten years
350

 
341

Mortgage-backed securities:
 
 
 
Residential agency
1,745

 
1,676

Commercial agency
219

 
205

 
$
2,316

 
$
2,224

Securities available for sale:
 
 
 
Due in one year or less
$
69

 
$
69

Due after one year through five years
749

 
764

Due after five years through ten years
968

 
968

Due after ten years
319

 
326

Mortgage-backed securities:
 
 
 
Residential agency
16,362

 
16,520

Residential non-agency
8

 
9

Commercial agency
1,608

 
1,603

Commercial non-agency
1,493

 
1,488

Equity securities
622

 
632

 
$
22,198

 
$
22,379

The following tables present gross unrealized losses and the related estimated fair value of securities available for sale and held to maturity at September 30, 2014 and December 31, 2013. For securities transferred to held to maturity from available for sale, the analysis in the tables below is comparing the securities' original amortized cost to its current estimated fair value. These securities are segregated between investments that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more.
 
September 30, 2014
 
Less Than Twelve Months
 
Twelve Months or More
 
Total
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
(In millions)
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
Federal agency securities
$

 
$

 
$
341

 
$
(9
)
 
$
341

 
$
(9
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency

 

 
1,674

 
(69
)
 
1,674

 
(69
)
Commercial agency

 

 
205

 
(14
)
 
205

 
(14
)
 
$

 
$

 
$
2,220

 
$
(92
)
 
$
2,220

 
$
(92
)
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
14

 
$

 
$
5

 
$

 
$
19

 
$

Federal agency securities

 

 
8

 

 
8

 

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
3,288

 
(14
)
 
2,944

 
(64
)
 
6,232

 
(78
)
       Residential non-agency
1

 

 

 

 
1

 

Commercial agency
556

 
(4
)
 
343

 
(8
)
 
899

 
(12
)
Commercial non-agency
320

 
(2
)
 
565

 
(14
)
 
885

 
(16
)
All other securities
275

 
(2
)
 
492

 
(20
)
 
767

 
(22
)
 
$
4,454

 
$
(22
)
 
$
4,357

 
$
(106
)
 
$
8,811

 
$
(128
)



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Table of Contents


 
December 31, 2013
 
Less Than Twelve Months
 
Twelve Months or More
 
Total
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
(In millions)
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
Federal agency securities
$
190

 
$
(9
)
 
$
142

 
$
(8
)
 
$
332

 
$
(17
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
1,236

 
(77
)
 
521

 
(41
)
 
1,757

 
(118
)
Commercial agency
212

 
(15
)
 

 

 
212

 
(15
)
 
$
1,638

 
$
(101
)
 
$
663

 
$
(49
)
 
$
2,301

 
$
(150
)
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
15

 
$

 
$
1

 
$

 
$
16

 
$

Federal agency securities
3

 

 
9

 

 
12

 

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
6,153

 
(161
)
 
270

 
(9
)
 
6,423

 
(170
)
Commercial agency
610

 
(17
)
 

 

 
610

 
(17
)
Commercial non-agency
711

 
(30
)
 
62

 
(3
)
 
773

 
(33
)
All other securities
1,422

 
(58
)
 
209

 
(13
)
 
1,631

 
(71
)
 
$
8,914

 
$
(266
)
 
$
551

 
$
(25
)
 
$
9,465

 
$
(291
)
The number of individual securities in an unrealized loss position in the tables above decreased from 1,052 at December 31, 2013 to 834 at September 30, 2014. The decrease in the number of securities and the total amount of unrealized losses from year-end 2013 was primarily due to changes in interest rates. In instances where an unrealized loss did occur, there was no indication of an adverse change in credit on any of the underlying securities in the tables above. Management believes no individual unrealized loss represented an other-than-temporary impairment as of those dates. The Company does not intend to sell, and it is not more likely than not that the Company will be required to sell, the securities before the recovery of their amortized cost basis, which may be at maturity.
At June 30, 2014, the Company made the decision to sell approximately $328 million of certain other securities available for sale that remained on the Company's balance sheet. As the Company intended to sell these securities, each security reflecting an unrealized loss was considered to have an other-than-temporary impairment. The table below reflects total other-than-temporary impairment losses recorded during the second quarter of 2014. All of these securities were subsequently sold during the third quarter of 2014.
Gross realized gains and gross realized losses on sales of securities available for sale, as well as other-than-temporary impairment losses are shown in the table below. The cost of securities sold is based on the specific identification method.
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2014
 
2013
 
2014
 
2013
 
(In millions)
Gross realized gains
$
9

 
$
7

 
$
25

 
$
52

Gross realized losses
(2
)
 
(4
)
 
(8
)
 
(26
)
Other-than-temporary-impairment ("OTTI")

 

 
(2
)
 

Securities gains, net
$
7

 
$
3

 
$
15


$
26

    


14

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NOTE 4. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES
LOANS
The following table presents the distribution of Regions' loan portfolio by segment and class, net of unearned income:
 
September 30, 2014
 
December 31, 2013
 
(In millions, net of unearned income)
Commercial and industrial
$
31,857

 
$
29,413

Commercial real estate mortgage—owner-occupied
8,666

 
9,495

Commercial real estate construction—owner-occupied
350

 
310

Total commercial
40,873

 
39,218

Commercial investor real estate mortgage
4,940

 
5,318

Commercial investor real estate construction
1,878

 
1,432

Total investor real estate
6,818

 
6,750

Residential first mortgage
12,264

 
12,163

Home equity
10,968

 
11,294

Indirect
3,543

 
3,075

Consumer credit card
964

 
948

Other consumer
1,177

 
1,161

Total consumer
28,916

 
28,641

 
$
76,607

 
$
74,609

During the three months ended September 30, 2014 and 2013, Regions purchased approximately $296 million and $277 million, respectively, in indirect loans from a third party. During the nine months ended September 30, 2014 and 2013, the comparable loan purchase amounts were approximately $814 million and $733 million, respectively.
At September 30, 2014, $13.2 billion in loans held by Regions were pledged to secure borrowings from the FHLB. At September 30, 2014, an additional $29.4 billion of loans held by Regions were pledged to the Federal Reserve Bank.

ALLOWANCE FOR CREDIT LOSSES
Regions determines the appropriate level of the allowance on at least a quarterly basis. Refer to Note 1 “Summary of Significant Accounting Policies” to the consolidated financial statements to the Annual Report on Form 10-K for the year ended December 31, 2013, for a description of the methodology.
ROLLFORWARD OF ALLOWANCE FOR CREDIT LOSSES
The following tables present analyses of the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2014 and 2013. The total allowance for loan losses and the related loan portfolio ending balances as of September 30, 2014 and 2013 are disaggregated to detail the amounts derived through individual evaluation and collective evaluation for impairment. The allowance for loan losses related to individually evaluated loans is attributable to reserves for non-accrual loans and leases greater than or equal to $2.5 million and all troubled debt restructurings ("TDRs"). The allowance for loan losses and the loan portfolio ending balances related to collectively evaluated loans is attributable to the remainde