RF-2015.6.30 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 June 30, 2015
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)
 
(I.R.S. Employer
Identification No.)
 
 
1900 Fifth Avenue North
Birmingham, Alabama
 
35203
(Address of principal executive offices)
 
(Zip Code)
(800) 734-4667
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    ý  No
The number of shares outstanding of each of the issuer’s classes of common stock was 1,324,907,149 shares of common stock, par value $.01, outstanding as of August 3, 2015.


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 reductions of economic growth, which may adversely affect our lending and other businesses and our financial results and conditions.
Possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations, which could have a material adverse effect on our earnings.
The effects of a possible downgrade in the U.S. government’s sovereign credit rating or outlook, which could result in risks to us and general economic conditions that we are not able to predict.
Possible changes in market interest rates or capital markets could adversely affect our revenue and expense, the value of assets and obligations, and the availability and cost of capital and liquidity.
Any impairment of our goodwill or other intangibles, or any adjustment of valuation allowances on our deferred tax assets due to adverse changes in the economic environment, declining operations of the reporting unit, or other factors.
Possible changes in the creditworthiness of customers and the possible impairment of the collectability of loans.
Changes in the speed of loan prepayments, loan origination and sale volumes, charge-offs, loan loss provisions or actual loan losses where our allowance for loan losses may not be adequate to cover our eventual losses.
Possible acceleration of prepayments on mortgage-backed securities due to low interest rates, and the related acceleration of premium amortization on those securities.
Our ability to effectively compete with other financial services companies, some of whom possess greater financial resources than we do and are subject to different regulatory standards than we are.
Loss of customer checking and savings account deposits as customers pursue other, higher-yield investments, which could increase our funding costs.
Our inability to develop and gain acceptance from current and prospective customers for new products and services in a timely manner could have a negative impact on our revenue.
Changes in laws and regulations affecting our businesses, such as the Dodd-Frank Act and other legislation and regulations relating to bank products and services, as well as changes in the enforcement and interpretation of such laws and regulations by applicable governmental and self-regulatory agencies, which could require us to change certain business practices, increase compliance risk, reduce our revenue, impose additional costs on us, or otherwise negatively affect our businesses.
Our ability to obtain no regulatory objection (as part of the comprehensive capital analysis and review ("CCAR") process or otherwise) to take certain capital actions, including paying dividends and any plans to increase common stock dividends, repurchase common stock under current or future programs, or redeem preferred stock or other regulatory capital instruments, may impact our ability to return capital to stockholders and market perceptions of us.
Our ability to comply with applicable capital and liquidity requirements (including the Basel III capital standards), including our ability to generate capital internally or raise capital on favorable terms, and if we fail to meet requirements, our financial condition could be negatively impacted.
The costs, including possibly incurring fines, penalties, or other negative effects (including reputational harm) of any adverse judicial, administrative, or arbitral rulings or proceedings, regulatory enforcement actions, or other legal actions to which we or any of our subsidiaries are a party, and which may adversely affect our results.
Our ability to manage fluctuations in the value of assets and liabilities and off-balance sheet exposure so as to maintain sufficient capital and liquidity to support our business.
Possible changes in consumer and business spending and saving habits and the related effect on our ability to increase assets and to attract deposits, which could adversely affect our net income.
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, which could, among other things, result in a breach of operating or security systems as a result of a cyber attack or similar act.


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The inability of our internal disclosure controls and procedures to prevent, detect or mitigate any material errors or fraudulent acts.
The effects of geopolitical instability, including wars, conflicts and terrorist attacks and the potential impact, directly or indirectly on our businesses.
The effects of man-made and natural disasters, including fires, floods, droughts, tornadoes, hurricanes, and environmental damage, which may negatively affect our operations and/or our loan portfolios and increase our cost of conducting business.
Our inability to keep pace with technological changes could result in losing business to competitors.
Our ability to identify and address cyber-security risks such as data security breaches, "denial of service" attacks, "hacking" and identity theft, a failure of which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information; increased costs; losses; or adverse effects to our reputation.
Possible downgrades in our credit ratings or outlook could increase the costs of funding from capital markets.
The effects of problems encountered by other financial institutions that adversely affect us or the banking industry generally could require us to change certain business practices, reduce our revenue, impose additional costs on us, or otherwise negatively affect our businesses.
The effects of the failure of any component of our business infrastructure provided by a third party could disrupt our businesses; result in the disclosure of and/or misuse of confidential information or proprietary information; increase our costs; negatively affect our reputation; and cause losses.
Our ability to receive dividends from our subsidiaries could affect our liquidity and ability to pay dividends to stockholders.
Changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies could materially affect how we report our financial results.
The effects of any damage to our reputation resulting from developments related to any of the items identified above.
You should not place undue reliance on any forward-looking statements, which speak only as of the date made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible to predict all of them. We assume no obligation to update or revise any forward-looking statements that are made from time to time, either as a result of future developments, new information or otherwise, except as may be required by law.
See also the reports filed with the Securities and Exchange Commission, including the discussion under the “Risk Factors” section of Regions’ Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission and available on its website at www.sec.gov.


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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
June 30, 2015
 
December 31, 2014
 
(In millions, except share data)
Assets
 
 
 
Cash and due from banks
$
1,661

 
$
1,601

Interest-bearing deposits in other banks
2,094

 
2,303

Federal funds sold and securities purchased under agreements to resell

 
100

Trading account securities
110

 
106

Securities held to maturity (estimated fair value of $2,093 and $2,209, respectively)
2,067

 
2,175

Securities available for sale
22,672

 
22,580

Loans held for sale (includes $466 and $440 measured at fair value, respectively)
511

 
541

Loans, net of unearned income
80,149

 
77,307

Allowance for loan losses
(1,115
)
 
(1,103
)
Net loans
79,034

 
76,204

Other interest-earning assets
70

 
89

Premises and equipment, net
2,147

 
2,193

Interest receivable
305

 
310

Goodwill
4,816

 
4,816

Residential mortgage servicing rights at fair value
268

 
257

Other identifiable intangible assets
268

 
275

Other assets
5,832

 
6,013

Total assets
$
121,855

 
$
119,563

Liabilities and Stockholders’ Equity
 
 
 
Deposits:
 
 
 
Non-interest-bearing
$
33,810

 
$
31,747

Interest-bearing
63,265

 
62,453

Total deposits
97,075

 
94,200

Borrowed funds:
 
 
 
Short-term borrowings:
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
96

 
1,753

Other short-term borrowings
1,750

 
500

Total short-term borrowings
1,846

 
2,253

Long-term borrowings
3,602

 
3,462

Total borrowed funds
5,448

 
5,715

Other liabilities
2,433

 
2,775

Total liabilities
104,956

 
102,690

Stockholders’ equity:
 
 
 
Preferred stock, authorized 10 million shares, par value $1.00 per share
 
 
 
Non-cumulative perpetual, liquidation preference $1,000.00 per share, including related surplus, net of issuance costs; issued—1,000,000 shares
852

 
884

Common stock, authorized 3 billion shares, par value $.01 per share:
 
 
 
Issued including treasury stock—1,371,885,146 and 1,395,204,638 shares, respectively
14

 
14

Additional paid-in capital
18,355

 
18,767

Retained earnings (deficit)
(658
)
 
(1,177
)
Treasury stock, at cost—41,262,678 and 41,262,645 shares, respectively
(1,377
)
 
(1,377
)
Accumulated other comprehensive income (loss), net
(287
)
 
(238
)
Total stockholders’ equity
16,899

 
16,873

Total liabilities and stockholders’ equity
$
121,855

 
$
119,563


See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2015
 
2014
 
2015
 
2014
 
(In millions, except per share data)
Interest income on:
 
 
 
 
 
 
 
Loans, including fees
$
728

 
$
737

 
$
1,453

 
$
1,469

Securities - taxable
149

 
156

 
302

 
310

Loans held for sale
4

 
4

 
7

 
12

Trading account securities
1

 

 
4

 
2

Other interest-earning assets
1

 
3

 
3

 
5

Total interest income
883

 
900

 
1,769

 
1,798

Interest expense on:
 
 
 
 
 
 
 
Deposits
27

 
25

 
55

 
52

Short-term borrowings
1

 
1

 
1

 
1

Long-term borrowings
35

 
51

 
78

 
106

Total interest expense
63

 
77

 
134

 
159

Net interest income
820

 
823

 
1,635

 
1,639

Provision for loan losses
63

 
35

 
112

 
37

Net interest income after provision for loan losses
757

 
788

 
1,523

 
1,602

Non-interest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
168

 
174

 
329

 
347

Card and ATM fees
90

 
84

 
175

 
163

Mortgage income
46

 
43

 
86

 
83

Securities gains (losses), net
6

 
6

 
11

 
8

Other
280

 
168

 
459

 
331

Total non-interest income
590

 
475

 
1,060

 
932

Non-interest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
477

 
443

 
935

 
898

Net occupancy expense
89

 
90

 
180

 
183

Furniture and equipment expense
76

 
70

 
147

 
140

Other
292

 
217

 
577

 
416

Total non-interest expense
934

 
820

 
1,839

 
1,637

Income from continuing operations before income taxes
413

 
443

 
744

 
897

Income tax expense
124

 
148

 
219

 
299

Income from continuing operations
289

 
295

 
525

 
598

Discontinued operations:
 
 
 
 
 
 
 
Income (loss) from discontinued operations before income taxes
(6
)
 
2

 
(10
)
 
21

Income tax expense (benefit)
(2
)
 
1

 
(4
)
 
8

Income (loss) from discontinued operations, net of tax
(4
)
 
1

 
(6
)
 
13

Net income
$
285

 
$
296

 
$
519

 
$
611

Net income from continuing operations available to common shareholders
$
273

 
$
287

 
$
493

 
$
582

Net income available to common shareholders
$
269

 
$
288

 
$
487

 
$
595

Weighted-average number of shares outstanding:
 
 
 
 
 
 
 
Basic
1,335

 
1,378

 
1,340

 
1,378

Diluted
1,346

 
1,390

 
1,352

 
1,390

Earnings per common share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.20

 
$
0.21

 
$
0.37

 
$
0.42

Diluted
0.20

 
0.21

 
0.36

 
0.42

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.20

 
$
0.21

 
$
0.36

 
$
0.43

Diluted
0.20

 
0.21

 
0.36

 
0.43

Cash dividends declared per common share
0.06

 
0.05

 
0.11

 
0.08


See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended June 30
 
2015
 
2014
 
(In millions)
Net income
$
285

 
$
296

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 ($2) 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 ($94) and $91 tax effect, respectively)
(152
)
 
151

Less: reclassification adjustments for securities gains (losses) realized in net income (net of $2 and $2 tax effect, respectively)
4

 
4

Net change in unrealized gains (losses) on securities available for sale, net of tax
(156
)
 
147

Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
 
 
 
Unrealized holding gains (losses) on derivatives arising during the period (net of ($3) and $26 tax effect, respectively)
(4
)
 
41

Less: reclassification adjustments for gains (losses) realized in net income (net of $13 and $11 tax effect, respectively)
21

 
18

Net change in unrealized gains (losses) on derivative instruments, net of tax
(25
)
 
23

Defined benefit pension plans and other post employment benefits:
 
 
 
Net actuarial gains (losses) arising during the period (net of zero and $2 tax effect, respectively)

 
1

Less: reclassification adjustments for amortization of actuarial loss and prior service cost realized in net income, (net of ($5) and ($2) tax effect, respectively)
(7
)
 
(4
)
Net change from defined benefit pension plans and other post employment benefits, net of tax
7

 
5

Other comprehensive income (loss), net of tax
(172
)
 
177

Comprehensive income
$
113

 
$
473

 
 
 
 
 
Six Months Ended June 30
 
2015
 
2014
 
(In millions)
Net income
$
519

 
$
611

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

 

Less: reclassification adjustments for amortization of unrealized losses on securities transferred to held to maturity (net of ($3) and ($3) tax effect, respectively)
(4
)
 
(4
)
Net change in unrealized losses on securities transferred to held to maturity, net of tax
4

 
4

Unrealized gains (losses) on securities available for sale:
 
 
 
Unrealized holding gains (losses) arising during the period (net of ($45) and $140 tax effect, respectively)
(72
)
 
230

Less: reclassification adjustments for securities gains (losses) realized in net income (net of $4 and $3 tax effect, respectively)
7

 
5

Net change in unrealized gains (losses) on securities available for sale, net of tax
(79
)
 
225

Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
 
 
 
Unrealized holding gains (losses) on derivatives arising during the period (net of $32 and $40 tax effect, respectively)
54

 
64

Less: reclassification adjustments for gains (losses) realized in net income (net of $25 and $22 tax effect, respectively)
42

 
35

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

 
29

Defined benefit pension plans and other post employment benefits:
 
 
 
Net actuarial gains (losses) arising during the period (net of zero and $2 tax effect, respectively)
(1
)
 
1

Less: reclassification adjustments for amortization of actuarial loss and prior service cost realized in net income (net of($9) and $(4) tax effect, respectively)
(15
)
 
(8
)
Net change from defined benefit pension plans and other post employment benefits, net of tax
14

 
9

Other comprehensive income (loss), net of tax
(49
)
 
267

Comprehensive income
$
470

 
$
878

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 per share data)
BALANCE AT JANUARY 1, 2014
1

 
$
450

 
1,378

 
$
14

 
$
19,216

 
$
(2,324
)
 
$
(1,377
)
 
$
(319
)
 
$
15,660

Net income

 

 

 

 

 
611

 

 

 
611

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

 

 

 

 

 

 

 
4

 
4

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

 

 

 

 

 

 

 
225

 
225

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

 

 

 

 

 

 

 
29

 
29

Net change from employee benefit plans, net of tax

 

 

 

 

 

 

 
9

 
9

Cash dividends declared—$0.08 per share

 

 

 

 
(111
)
 

 

 

 
(111
)
Preferred stock dividends

 
(16
)
 

 

 

 

 

 

 
(16
)
Preferred stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net proceeds from issuance of 500 thousand shares of Series B, fixed to floating rate, non-cumulative perpetual preferred stock, including related surplus

 
486

 

 

 

 

 

 

 
486

Common stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact of share repurchase

 

 
(1
)
 

 
(8
)
 

 

 

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

 

 
1

 

 
24

 

 

 

 
24

BALANCE AT JUNE 30, 2014
1

 
$
920

 
1,378

 
$
14

 
$
19,121

 
$
(1,713
)
 
$
(1,377
)
 
$
(52
)
 
$
16,913

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT JANUARY 1, 2015
1

 
$
884

 
1,354

 
$
14

 
$
18,767

 
$
(1,177
)
 
$
(1,377
)
 
$
(238
)
 
$
16,873

Net income

 

 

 

 

 
519

 

 

 
519

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

 

 

 

 

 

 

 
4

 
4

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

 

 

 

 

 

 

 
(79
)
 
(79
)
Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment

 

 

 

 

 

 

 
12

 
12

Net change from employee benefit plans, net of tax

 

 

 

 

 

 

 
14

 
14

Cash dividends declared—$0.11 per share

 

 

 

 
(147
)
 

 

 

 
(147
)
Preferred stock dividends

 
(32
)
 

 

 

 

 

 

 
(32
)
Common stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact of share repurchase

 

 
(28
)
 

 
(274
)
 

 

 

 
(274
)
Impact of stock transactions under compensation plans, net

 

 
5

 

 
9

 

 

 

 
9

BALANCE AT JUNE 30, 2015
1

 
$
852

 
1,331

 
$
14

 
$
18,355

 
$
(658
)
 
$
(1,377
)
 
$
(287
)
 
$
16,899


See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Six Months Ended June 30
 
2015
 
2014
 
(In millions)
Operating activities:
 
 
 
Net income
$
519

 
$
611

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Provision for loan losses
112

 
37

Depreciation, amortization and accretion, net
252

 
248

Securities (gains) losses, net
(11
)
 
(8
)
Deferred income tax expense
40

 
167

Originations and purchases of loans held for sale
(1,224
)
 
(1,204
)
Proceeds from sales of loans held for sale
1,295

 
1,201

Gain on TDRs held for sale, net

 
(35
)
(Gain) loss on sale of loans, net
(48
)
 
(20
)
(Gain) loss on early extinguishment of debt
43

 

Net change in operating assets and liabilities:
 
 
 
Trading account securities
(4
)
 
11

Other interest-earning assets
19

 
21

Interest receivable and other assets
91

 
(351
)
Other liabilities
(347
)
 
60

Other
30

 
5

Net cash from operating activities
767

 
743

Investing activities:
 
 
 
Proceeds from maturities of securities held to maturity
109

 
79

Proceeds from sales of securities available for sale
828

 
1,004

Proceeds from maturities of securities available for sale
1,911

 
1,481

Purchases of securities available for sale
(2,860
)
 
(2,452
)
Proceeds from sales of loans
49

 
635

Purchases of loans
(547
)
 
(518
)
Net change in loans
(2,565
)
 
(1,686
)
Net purchases of premises and equipment and other assets
(74
)
 
(95
)
Net cash from investing activities
(3,149
)
 
(1,552
)
Financing activities:
 
 
 
Net change in deposits
2,875

 
1,369

Net change in short-term borrowings
(407
)
 
(364
)
Proceeds from long-term borrowings
1,248

 

Payments on long-term borrowings
(1,142
)
 
(1,004
)
Cash dividends on common stock
(147
)
 
(111
)
Cash dividends on preferred stock
(32
)
 
(16
)
Repurchase of common stock
(274
)
 
(8
)
Net proceeds from issuance of preferred stock

 
486

Other
12

 
3

Net cash from financing activities
2,133

 
355

Net change in cash and cash equivalents
(249
)
 
(454
)
Cash and cash equivalents at beginning of year
4,004

 
5,273

Cash and cash equivalents at end of period
$
3,755

 
$
4,819


See notes to consolidated financial statements.


9

Table of Contents


REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three and Six Months Ended June 30, 2015 and 2014
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, 2014. 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 15 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, 2014.
Effective January 1, 2015, the Company adopted new guidance related to the accounting for investments in qualified affordable housing projects. For investments that met the criteria specified in the guidance, Regions elected to use the proportional amortization method. Under this method, the initial investment was amortized in proportion to the actual tax credits and other tax benefits to be received in the current period as compared to the total tax credits and other tax benefits expected to be received over the life of the investment. The amortization and tax benefits were included as a component of income tax expense. The guidance required retrospective application. All prior period amounts impacted by this guidance were revised. The cumulative effect of the retrospective application was a $116 million decrease to retained earnings (deficit), a $22 million increase to other interest-earning assets and a $138 million decrease to other assets. The Company's total investments in qualified affordable housing projects were $897 million and $818 million at June 30, 2015 and December 31, 2014, respectively. These investments are reflected in other assets on Regions' consolidated balance sheets. The Company recognized $51 million and $45 million of amortization expense and $58 million and $50 million of tax credits related to these investments during the six months ended June 30, 2015 and 2014, respectively. The Company also recognized $11 million of other tax benefits related to these investments for both six months ended June 30, 2015 and 2014.
Certain other prior period amounts have been reclassified to conform to the current period presentation. These reclassifications are immaterial and have no effect on net income, comprehensive income, total assets or total stockholders’ equity as previously reported.
NOTE 2. DISCONTINUED OPERATIONS
On January 11, 2012, Regions entered into a stock purchase agreement to sell Morgan Keegan and related affiliates to Raymond James 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 15 for related disclosure.


10

Table of Contents


The following table represents the condensed results of operations for discontinued operations:
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2015
 
2014
 
2015
 
2014
 
(In millions, except per share data)
Non-interest expense:
 
 
 
 
 
 
 
Professional and legal expenses
$
5

 
$
(3
)
 
$
9

 
$
(22
)
Other
1

 
1

 
1

 
1

Total non-interest expense
6

 
(2
)
 
10

 
(21
)
Income (loss) from discontinued operations before income taxes
(6
)
 
2

 
(10
)
 
21

Income tax expense (benefit)
(2
)
 
1

 
(4
)
 
8

Income (loss) from discontinued operations, net of tax
$
(4
)
 
$
1

 
$
(6
)
 
$
13

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

 
$
(0.00
)
 
$
0.01

Diluted
$
(0.00
)
 
$
0.00

 
$
(0.00
)
 
$
0.01

NOTE 3. SECURITIES
The amortized cost, gross unrealized gains and losses, and estimated fair value of securities held to maturity and securities available for sale are as follows:
 
June 30, 2015
 
 
 
Recognized in OCI (1)
 
 
 
Not recognized in OCI
 
 
 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Carrying Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
(In millions)
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
1

 
$

 
$

 
$
1

 
$

 
$

 
$
1

Federal agency securities
350

 

 
(11
)
 
339

 
8

 

 
347

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
1,597

 

 
(67
)
 
1,530

 
22

 
(2
)
 
1,550

Commercial agency
202

 

 
(5
)
 
197

 

 
(2
)
 
195

 
$
2,150

 
$

 
$
(83
)
 
$
2,067

 
$
30

 
$
(4
)
 
$
2,093

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
180

 
$
1

 
$

 
$
181

 
 
 
 
 
$
181

Federal agency securities
225

 
3

 

 
228

 
 
 
 
 
228

Obligations of states and political subdivisions
2

 

 

 
2

 
 
 
 
 
2

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
15,793

 
225

 
(76
)
 
15,942

 
 
 
 
 
15,942

Residential non-agency
6

 

 

 
6

 
 
 
 
 
6

Commercial agency
2,167

 
17

 
(8
)
 
2,176

 
 
 
 
 
2,176

Commercial non-agency
1,479

 
11

 
(9
)
 
1,481

 
 
 
 
 
1,481

Corporate and other debt securities
1,823

 
20

 
(39
)
 
1,804

 
 
 
 
 
1,804

Equity securities
841

 
11

 

 
852

 
 
 
 
 
852

 
$
22,516

 
$
288

 
$
(132
)
 
$
22,672

 
 
 
 
 
$
22,672



11

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December 31, 2014
 
 
 
Recognized in OCI (1)
 
 
 
Not recognized in OCI
 
 
 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Carrying Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
(In millions)
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
1

 
$

 
$

 
$
1

 
$

 
$

 
$
1

Federal agency securities
350

 

 
(12
)
 
338

 
6

 

 
344

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
1,698

 

 
(71
)
 
1,627

 
35

 
(1
)
 
1,661

Commercial agency
216

 

 
(7
)
 
209

 

 
(6
)
 
203

 
$
2,265

 
$

 
$
(90
)
 
$
2,175

 
$
41

 
$
(7
)
 
$
2,209

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
176

 
$

 
$

 
$
176

 
 
 
 
 
$
176

Federal agency securities
233

 
2

 

 
235

 
 
 
 
 
235

Obligations of states and political subdivisions
2

 

 

 
2

 
 
 
 
 
2

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
15,788

 
283

 
(33
)
 
16,038

 
 
 
 
 
16,038

Residential non-agency
7

 
1

 

 
8

 
 
 
 
 
8

Commercial agency
1,959

 
14

 
(9
)
 
1,964

 
 
 
 
 
1,964

Commercial non-agency
1,489

 
14

 
(9
)
 
1,494

 
 
 
 
 
1,494

Corporate and other debt securities
1,980

 
36

 
(26
)
 
1,990

 
 
 
 
 
1,990

Equity securities
662

 
12

 
(1
)
 
673

 
 
 
 
 
673

 
$
22,296

 
$
362

 
$
(78
)
 
$
22,580

 
 
 
 
 
$
22,580

_________
(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.
Equity securities in the tables above included the following amortized cost related to Federal Reserve Bank stock and Federal Home Loan Bank (“FHLB”) stock. Shares in the Federal Reserve Bank and FHLB are accounted for at amortized cost, which approximates fair value.
 
June 30, 2015
 
December 31, 2014
 
(In millions)
Federal Reserve Bank
$
484

 
$
488

Federal Home Loan Bank
144

 
39

Securities with carrying values of $12.7 billion and $12.1 billion at June 30, 2015 and December 31, 2014, respectively, were pledged to secure public funds, trust deposits and certain borrowing arrangements. Of the $12.7 billion and the $12.1 billion securities pledged, approximately $12 million and zero represents encumbered U.S. Treasury securities at June 30, 2015 and December 31, 2014, respectively.
The amortized cost and estimated fair value of securities available for sale and securities held to maturity at June 30, 2015, 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.


12

Table of Contents


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

 
$

Due after one year through five years
351

 
348

Due after five years through ten years

 

Mortgage-backed securities:
 
 
 
Residential agency
1,597

 
1,550

Commercial agency
202

 
195

 
$
2,150

 
$
2,093

Securities available for sale:
 
 
 
Due in one year or less
$
101

 
$
102

Due after one year through five years
830

 
839

Due after five years through ten years
1,007

 
992

Due after ten years
292

 
282

Mortgage-backed securities:
 
 
 
Residential agency
15,793

 
15,942

Residential non-agency
6

 
6

Commercial agency
2,167

 
2,176

Commercial non-agency
1,479

 
1,481

Equity securities
841

 
852

 
$
22,516

 
$
22,672

The following tables present gross unrealized losses and the related estimated fair value of securities available for sale and held to maturity at June 30, 2015 and December 31, 2014. For securities transferred to held to maturity from available for sale, the analysis in the tables below is comparing the securities' original amortized cost to its current estimated fair value. These securities are segregated between investments that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more.
 
June 30, 2015
 
Less Than Twelve Months
 
Twelve Months or More
 
Total
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
(In millions)
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
Federal agency securities
$
149

 
$
(1
)
 
$
198

 
$
(2
)
 
$
347

 
$
(3
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
346

 
(8
)
 
1,203

 
(39
)
 
1,549

 
(47
)
Commercial agency

 

 
195

 
(7
)
 
195

 
(7
)
 
$
495

 
$
(9
)
 
$
1,596

 
$
(48
)
 
$
2,091

 
$
(57
)
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
7

 
$

 
$
8

 
$

 
$
15

 
$

Federal agency securities

 

 
4

 

 
4

 

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
4,955

 
(57
)
 
940

 
(19
)
 
5,895

 
(76
)
Commercial agency
528

 
(6
)
 
228

 
(2
)
 
756

 
(8
)
Commercial non-agency
562

 
(6
)
 
237

 
(3
)
 
799

 
(9
)
All other securities
743

 
(21
)
 
273

 
(18
)
 
1,016

 
(39
)
 
$
6,795

 
$
(90
)
 
$
1,690

 
$
(42
)
 
$
8,485

 
$
(132
)



13

Table of Contents


 
December 31, 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
$

 
$

 
$
344

 
$
(6
)
 
$
344

 
$
(6
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency

 

 
1,659

 
(37
)
 
1,659

 
(37
)
Commercial agency

 

 
203

 
(13
)
 
203

 
(13
)
 
$

 
$

 
$
2,206

 
$
(56
)
 
$
2,206

 
$
(56
)
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
74

 
$

 
$
3

 
$

 
$
77

 
$

Federal agency securities

 

 
3

 

 
3

 

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
1,178

 
(5
)
 
2,587

 
(28
)
 
3,765

 
(33
)
Commercial agency
464

 
(4
)
 
316

 
(5
)
 
780

 
(9
)
Commercial non-agency
242

 
(1
)
 
500

 
(8
)
 
742

 
(9
)
All other securities
400

 
(7
)
 
455

 
(20
)
 
855

 
(27
)
 
$
2,358

 
$
(17
)
 
$
3,864

 
$
(61
)
 
$
6,222

 
$
(78
)
The number of individual securities in an unrealized loss position in the tables above increased from 827 at December 31, 2014 to 895 at June 30, 2015. The increase in the number of securities and the total amount of unrealized losses from year-end 2014 was primarily due to changes in interest rates, and credit spreads in certain instances. 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.
Gross realized gains and gross realized losses on sales of securities available for sale are shown in the table below. The cost of securities sold is based on the specific identification method.
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2015
 
2014
 
2015
 
2014
 
(In millions)
Gross realized gains
$
9

 
$
13

 
$
14

 
$
16

Gross realized losses
(3
)
 
(5
)
 
(3
)
 
(6
)
Other-than-temporary-impairment ("OTTI")

 
(2
)
 

 
(2
)
Securities gains, net
$
6

 
$
6

 
$
11


$
8

    


14

Table of Contents


NOTE 4. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES
LOANS
The following table presents the distribution of Regions' loan portfolio by segment and class, net of unearned income:
 
June 30, 2015
 
December 31, 2014
 
(In millions, net of unearned income)
Commercial and industrial
$
35,347

 
$
32,732

Commercial real estate mortgage—owner-occupied
7,797

 
8,263

Commercial real estate construction—owner-occupied
448

 
407

Total commercial
43,592

 
41,402

Commercial investor real estate mortgage
4,509

 
4,680

Commercial investor real estate construction
2,419

 
2,133

Total investor real estate
6,928

 
6,813

Residential first mortgage
12,589

 
12,315

Home equity
10,899

 
10,932

Indirect—vehicles
3,782

 
3,642

Indirect—other consumer
383

 
206

Consumer credit card
992

 
1,009

Other consumer
984

 
988

Total consumer
29,629

 
29,092

 
$
80,149

 
$
77,307

During the three months ended June 30, 2015 and 2014, Regions purchased approximately $291 million and $272 million, respectively, in indirect-vehicles and indirect-other consumer loans from third parties. During the six months ended June 30, 2015 and 2014, the comparable loan purchase amounts were approximately $547 million and $518 million, respectively.
At June 30, 2015, $13.3 billion in loans held by Regions were pledged to secure borrowings from the FHLB. At June 30, 2015, an additional $31.1 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, 2014, for a description of the methodology.
ROLLFORWARD OF ALLOWANCE FOR CREDIT LOSSES
The following tables present analyses of the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2015 and 2014. The total allowance for loan losses and the related loan portfolio ending balances as of June 30, 2015 and 2014 are disaggregated to detail the amounts derived through individual evaluation and collective evaluation for impairment. The allowance for loan losses related to individually evaluated loans is attributable to reserves for non-accrual commercial and investor real estate loans and all troubled debt restructurings ("TDRs"). The allowance for loan losses and the loan portfolio ending balances related to collectively evaluated loans is attributable to the remainder of the portfolio.


15

Table of Contents


 
Three Months Ended June 30, 2015
 
Commercial
 
Investor Real
Estate
 
Consumer
 
Total
 
(In millions)
Allowance for loan losses, April 1, 2015
$
696

 
$
125

 
$
277

 
$
1,098

Provision (credit) for loan losses
51

 
(3
)
 
15

 
63

Loan losses:
 
 
 
 
 
 
 
Charge-offs
(25
)
 
(4
)
 
<