RF-2015.3.31 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 March 31, 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 1,340,355,251 shares of common stock, par value $.01, outstanding as of May 1, 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 finalized 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
 
 
March 31, 2015
 
December 31, 2014
 
(In millions, except share data)
Assets
 
 
 
Cash and due from banks
$
1,737

 
$
1,601

Interest-bearing deposits in other banks
4,224

 
2,303

Federal funds sold and securities purchased under agreements to resell
65

 
100

Trading account securities
107

 
106

Securities held to maturity (estimated fair value of $2,186 and $2,209, respectively)
2,129

 
2,175

Securities available for sale
22,879

 
22,580

Loans held for sale (includes $396 and $440 measured at fair value, respectively)
491

 
541

Loans, net of unearned income
78,243

 
77,307

Allowance for loan losses
(1,098
)
 
(1,103
)
Net loans
77,145

 
76,204

Other interest-earning assets
83

 
89

Premises and equipment, net
2,174

 
2,193

Interest receivable
313

 
310

Goodwill
4,816

 
4,816

Residential mortgage servicing rights at fair value
239

 
257

Other identifiable intangible assets
272

 
275

Other assets
5,773

 
6,013

Total assets
$
122,447

 
$
119,563

Liabilities and Stockholders’ Equity
 
 
 
Deposits:
 
 
 
Non-interest-bearing
$
33,553

 
$
31,747

Interest-bearing
63,924

 
62,453

Total deposits
97,477

 
94,200

Borrowed funds:
 
 
 
Short-term borrowings:
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
2,085

 
1,753

Other short-term borrowings

 
500

Total short-term borrowings
2,085

 
2,253

Long-term borrowings
3,208

 
3,462

Total borrowed funds
5,293

 
5,715

Other liabilities
2,626

 
2,775

Total liabilities
105,396

 
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
868

 
884

Common stock, authorized 3 billion shares, par value $.01 per share:
 
 
 
Issued including treasury stock—1,383,848,685 and 1,395,204,638 shares, respectively
14

 
14

Additional paid-in capital
18,604

 
18,767

Retained earnings (deficit)
(943
)
 
(1,177
)
Treasury stock, at cost—41,262,662 and 41,262,645 shares, respectively
(1,377
)
 
(1,377
)
Accumulated other comprehensive income (loss), net
(115
)
 
(238
)
Total stockholders’ equity
17,051

 
16,873

Total liabilities and stockholders’ equity
$
122,447

 
$
119,563


See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended March 31
 
2015
 
2014
 
(In millions, except per share data)
Interest income on:
 
 
 
Loans, including fees
$
725

 
$
732

Securities - taxable
153

 
154

Loans held for sale
3

 
8

Trading account securities
3

 
2

Other interest-earning assets
2

 
2

Total interest income
886

 
898

Interest expense on:
 
 
 
Deposits
28

 
27

Long-term borrowings
43

 
55

Total interest expense
71

 
82

Net interest income
815

 
816

Provision for loan losses
49

 
2

Net interest income after provision for loan losses
766

 
814

Non-interest income:
 
 
 
Service charges on deposit accounts
161

 
173

Card and ATM fees
85

 
79

Mortgage income
40

 
40

Securities gains (losses), net
5

 
2

Other
179

 
163

Total non-interest income
470

 
457

Non-interest expense:
 
 
 
Salaries and employee benefits
458

 
455

Net occupancy expense
91

 
93

Furniture and equipment expense
71

 
70

Other
285

 
199

Total non-interest expense
905

 
817

Income from continuing operations before income taxes
331

 
454

Income tax expense
95

 
151

Income from continuing operations
236

 
303

Discontinued operations:
 
 
 
Income (loss) from discontinued operations before income taxes
(4
)
 
19

Income tax expense (benefit)
(2
)
 
7

Income (loss) from discontinued operations, net of tax
(2
)
 
12

Net income
$
234

 
$
315

Net income from continuing operations available to common shareholders
$
220

 
$
295

Net income available to common shareholders
$
218

 
$
307

Weighted-average number of shares outstanding:
 
 
 
Basic
1,346

 
1,378

Diluted
1,358

 
1,390

Earnings per common share from continuing operations:
 
 
 
Basic
$
0.16

 
$
0.21

Diluted
0.16

 
0.21

Earnings per common share:
 
 
 
Basic
$
0.16

 
$
0.22

Diluted
0.16

 
0.22

Cash dividends declared per common share
0.05

 
0.03


See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended March 31
 
2015
 
2014
 
(In millions)
Net income
$
234

 
$
315

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 ($1) 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 $49 and $49 tax effect, respectively)
80

 
79

Less: reclassification adjustments for securities gains (losses) realized in net income (net of $2 and $1 tax effect, respectively)
3

 
1

Net change in unrealized gains (losses) on securities available for sale, net of tax
77

 
78

Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
 
 
 
Unrealized holding gains (losses) on derivatives arising during the period (net of $35 and $14 tax effect, respectively)
58

 
23

Less: reclassification adjustments for gains (losses) realized in net income (net of $12 and $11 tax effect, respectively)
21

 
17

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

 
6

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)
(1
)
 

Less: reclassification adjustments for amortization of actuarial loss and prior service cost realized in net income (net of ($4) and $(2) tax effect, respectively)
(8
)
 
(4
)
Net change from defined benefit pension plans and other post employment benefits, net of tax
7

 
4

Other comprehensive income (loss), net of tax
123

 
90

Comprehensive income
$
357

 
$
405

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

 

 

 

 

 
315

 

 

 
315

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

 

 

 

 

 

 

 
78

 
78

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

 

 

 

 

 

 

 
6

 
6

Net change from employee benefit plans, net of tax

 

 

 

 

 

 

 
4

 
4

Cash dividends declared—$0.03 per share

 

 

 

 
(41
)
 

 

 

 
(41
)
Preferred stock dividends

 
(8
)
 

 

 

 

 

 

 
(8
)
Common stock transactions:
 
 
 
 
 
 
 
 

 

 

 

 

Impact of share repurchase

 

 
(1
)
 

 
(8
)
 

 

 

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

 

 
1

 

 
12

 

 

 

 
12

BALANCE AT MARCH 31, 2014
1

 
$
442

 
1,378

 
$
14

 
$
19,179

 
$
(2,009
)
 
$
(1,377
)
 
$
(229
)
 
$
16,020

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT JANUARY 1, 2015
1

 
$
884

 
1,354

 
$
14

 
$
18,767

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

Net income

 

 

 

 

 
234

 

 

 
234

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

 

 

 

 

 

 

 
77

 
77

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

 

 

 

 

 

 

 
37

 
37

Net change from employee benefit plans, net of tax

 

 

 

 

 

 

 
7

 
7

Cash dividends declared—$0.05 per share

 

 

 

 
(67
)
 

 

 

 
(67
)
Preferred stock dividends

 
(16
)
 

 

 

 

 

 

 
(16
)
Common stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact of share repurchase

 

 
(11
)
 

 
(102
)
 

 

 

 
(102
)
Impact of stock transactions under compensation plans, net

 

 

 

 
6

 

 

 

 
6

BALANCE AT MARCH 31, 2015
1

 
$
868

 
1,343

 
$
14

 
$
18,604

 
$
(943
)
 
$
(1,377
)
 
$
(115
)
 
$
17,051


See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Three Months Ended March 31
 
2015
 
2014
 
(In millions)
Operating activities:
 
 
 
Net income
$
234

 
$
315

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Provision for loan losses
49

 
2

Depreciation, amortization and accretion, net
123

 
122

Securities (gains) losses, net
(5
)
 
(2
)
Deferred income tax expense
38

 
115

Originations and purchases of loans held for sale
(565
)
 
(511
)
Proceeds from sales of loans held for sale
634

 
640

Gain on TDRs held for sale, net

 
(35
)
(Gain) loss on sale of loans, net
(23
)
 
(7
)
(Gain) loss on early extinguishment of debt
43

 

Net change in operating assets and liabilities:
 
 
 
Trading account securities
(1
)
 
(6
)
Other interest-earning assets
6

 

Interest receivable and other assets
(112
)
 
(249
)
Other liabilities
(121
)
 
36

Other
(6
)
 
1

Net cash from operating activities
294

 
421

Investing activities:
 
 
 
Proceeds from maturities of securities held to maturity
46

 
36

Proceeds from sales of securities available for sale
516

 
185

Proceeds from maturities of securities available for sale
863

 
711

Purchases of securities available for sale
(1,232
)
 
(846
)
Proceeds from sales of loans
37

 
580

Purchases of loans
(256
)
 
(246
)
Net change in loans
(827
)
 
(963
)
Net purchases of premises and equipment and other assets
(51
)
 
(37
)
Net cash from investing activities
(904
)
 
(580
)
Financing activities:
 
 
 
Net change in deposits
3,277

 
940

Net change in short-term borrowings
(168
)
 
(201
)
Payments on long-term borrowings
(293
)
 
(602
)
Cash dividends on common stock
(67
)
 
(41
)
Cash dividends on preferred stock
(16
)
 
(8
)
Repurchase of common stock
(102
)
 
(8
)
Other
1

 
2

Net cash from financing activities
2,632

 
82

Net change in cash and cash equivalents
2,022

 
(77
)
Cash and cash equivalents at beginning of year
4,004

 
5,273

Cash and cash equivalents at end of period
$
6,026

 
$
5,196


See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 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 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, 2014.
Effective January 1, 2015, the Company adopted new guidance related to the accounting for investments in qualified affordable housing projects. For investments that have met the criteria specified in the guidance, Regions has elected to use the proportional amortization method. Under this method, the initial investment is 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 will be included as a component of income tax expense. The guidance required retrospective application. All prior period amounts impacted by this guidance have been 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 $861 million and $818 million at March 31, 2015 and December 31, 2014, respectively. These investments are reflected in other assets on Regions' consolidated balance sheets. The Company recognized $25 million and $22 million of amortization expense and $29 million and $26 million of tax credits related to these investments during the first quarter of 2015 and 2014, respectively. The Company also recognized $6 million of other tax benefits related to these investments for both the first quarter of 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 14 for related disclosure.


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The following table represents the condensed results of operations for discontinued operations:
 
Three Months Ended March 31
 
2015
 
2014
 
(In millions, except per share data)
Non-interest expense:
 
 
 
Professional and legal expenses
$
4

 
$
(19
)
Total non-interest expense
4

 
(19
)
Income (loss) from discontinued operations before income taxes
(4
)
 
19

Income tax expense (benefit)
(2
)
 
7

Income (loss) from discontinued operations, net of tax
$
(2
)
 
$
12

Earnings (loss) per common share from discontinued operations:
 
 
 
Basic
$
(0.00
)
 
$
0.01

Diluted
$
(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:
 
March 31, 2015
 
 
 
Recognized in OCI (1)
 
 
 
Not recognized in OCI
 
 
 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Carrying Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
(In millions)
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
1

 
$

 
$

 
$
1

 
$

 
$

 
$
1

Federal agency securities
350

 

 
(12
)
 
338

 
10

 

 
348

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
1,655

 

 
(69
)
 
1,586

 
49

 

 
1,635

Commercial agency
210

 

 
(6
)
 
204

 

 
(2
)
 
202

 
$
2,216

 
$

 
$
(87
)
 
$
2,129

 
$
59

 
$
(2
)
 
$
2,186

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
178

 
$
2

 
$

 
$
180

 
 
 
 
 
$
180

Federal agency securities
230

 
4

 

 
234

 
 
 
 
 
234

Obligations of states and political subdivisions
2

 

 

 
2

 
 
 
 
 
2

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
15,838

 
329

 
(14
)
 
16,153

 
 
 
 
 
16,153

Residential non-agency
7

 

 

 
7

 
 
 
 
 
7

Commercial agency
1,964

 
29

 
(3
)
 
1,990

 
 
 
 
 
1,990

Commercial non-agency
1,535

 
23

 
(2
)
 
1,556

 
 
 
 
 
1,556

Corporate and other debt securities
2,047

 
50

 
(23
)
 
2,074

 
 
 
 
 
2,074

Equity securities
670

 
13

 

 
683

 
 
 
 
 
683

 
$
22,471

 
$
450

 
$
(42
)
 
$
22,879

 
 
 
 
 
$
22,879



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.
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.
 
March 31, 2015
 
December 31, 2014
 
(In millions)
Federal Reserve Bank
$
488

 
$
488

Federal Home Loan Bank
16

 
39

Securities with carrying values of $13.1 billion and $12.1 billion at March 31, 2015 and December 31, 2014, respectively, were pledged to secure public funds, trust deposits and certain borrowing arrangements. Of the $13.1 billion securities pledged at March 31, 2015, approximately $28 million represents encumbered U.S. Treasury securities.
The amortized cost and estimated fair value of securities available for sale and securities held to maturity at March 31, 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
1

 
1

Due after five years through ten years
350

 
348

Mortgage-backed securities:
 
 
 
Residential agency
1,655

 
1,635

Commercial agency
210

 
202

 
$
2,216

 
$
2,186

Securities available for sale:
 
 
 
Due in one year or less
$
105

 
$
105

Due after one year through five years
975

 
998

Due after five years through ten years
1,042

 
1,051

Due after ten years
335

 
336

Mortgage-backed securities:
 
 
 
Residential agency
15,838

 
16,153

Residential non-agency
7

 
7

Commercial agency
1,964

 
1,990

Commercial non-agency
1,535

 
1,556

Equity securities
670

 
683

 
$
22,471

 
$
22,879

The following tables present gross unrealized losses and the related estimated fair value of securities available for sale and held to maturity at March 31, 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.
 
March 31, 2015
 
Less Than Twelve Months
 
Twelve Months or More
 
Total
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
(In millions)
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
Federal agency securities
$
149

 
$
(1
)
 
$
199

 
$
(1
)
 
$
348

 
$
(2
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
289

 
(1
)
 
1,267

 
(19
)
 
1,556

 
(20
)
Commercial agency

 

 
202

 
(8
)
 
202

 
(8
)
 
$
438

 
$
(2
)
 
$
1,668

 
$
(28
)
 
$
2,106

 
$
(30
)
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
11

 
$

 
$

 
$

 
$
11

 
$

Federal agency securities

 

 
6

 

 
6

 

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
1,318

 
(5
)
 
978

 
(9
)
 
2,296

 
(14
)
Commercial agency
415

 
(2
)
 
247

 
(1
)
 
662

 
(3
)
Commercial non-agency
62

 
(1
)
 
240

 
(1
)
 
302

 
(2
)
All other securities
323

 
(8
)
 
267

 
(15
)
 
590

 
(23
)
 
$
2,129

 
$
(16
)
 
$
1,738

 
$
(26
)
 
$
3,867

 
$
(42
)



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 decreased from 827 at December 31, 2014 to 511 at March 31, 2015. The decrease in the number of securities and the total amount of unrealized losses from year-end 2014 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.
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 March 31
 
2015
 
2014
 
(In millions)
Gross realized gains
$
5

 
$
3

Gross realized losses

 
(1
)
Securities gains, net
$
5


$
2

    


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:
 
March 31, 2015
 
December 31, 2014
 
(In millions, net of unearned income)
Commercial and industrial
$
33,681

 
$
32,732

Commercial real estate mortgage—owner-occupied
8,043

 
8,263

Commercial real estate construction—owner-occupied
437

 
407

Total commercial
42,161

 
41,402

Commercial investor real estate mortgage
4,499

 
4,680

Commercial investor real estate construction
2,422

 
2,133

Total investor real estate
6,921

 
6,813

Residential first mortgage
12,418

 
12,315

Home equity
10,854

 
10,932

Indirect
3,701

 
3,642

Consumer credit card
966

 
1,009

Other consumer
1,222

 
1,194

Total consumer
29,161

 
29,092

 
$
78,243

 
$
77,307

During the three months ended March 31, 2015 and 2014, Regions purchased approximately $256 million and $246 million, respectively, in indirect loans from a third party.
At March 31, 2015, $13.3 billion in loans held by Regions were pledged to secure borrowings from the FHLB. At March 31, 2015, an additional $30.0 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 months ended March 31, 2015 and 2014. The total allowance for loan losses and the related loan portfolio ending balances as of March 31, 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 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 remainder of the portfolio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


15

Table of Contents


 
Three Months Ended March 31, 2015
 
Commercial
 
Investor Real
Estate
 
Consumer
 
Total
 
(In millions)
Allowance for loan losses, January 1, 2015
$
654

 
$
150

 
$
299

 
$
1,103

Provision (credit) for loan losses
59

 
(25
)
 
15

 
49

Loan losses:
 
 
 
 
 
 
 
Charge-offs
(34
)
 
(8
)
 
(59
)
 
(101
)
Recoveries
17

 
8

 
22

 
47

Net loan losses
(17
)
 

 
(37
)
 
(54
)
Allowance for loan losses, March 31, 2015
696

 
125

 
277

 
1,098

Reserve for unfunded credit commitments, January 1, 2015
57

 
8

 

 
65

Provision (credit) for unfunded credit losses
1

 

 

 
1

Reserve for unfunded credit commitments, March 31, 2015
58

 
8

 

 
66

Allowance for credit losses, March 31, 2015
$
754

 
$
133

 
$
277

 
$
1,164

Portion of ending allowance for loan losses:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
178

 
$
49

 
$
73

 
$
300

Collectively evaluated for impairment
518

 
76

 
204

 
798

Total allowance for loan losses
$
696

 
$
125

 
$
277

 
$
1,098

Portion of loan portfolio ending balance:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
766

 
$
320

 
$
857

 
$
1,943

Collectively evaluated for impairment
41,395

 
6,601

 
28,304

 
76,300

Total loans evaluated for impairment
$
42,161

 
$
6,921

 
$
29,161

 
$
78,243

 
Three Months Ended March 31, 2014
 
Commercial
 
Investor Real
Estate
 
Consumer
 
Total
 
(In millions)
Allowance for loan losses, January 1, 2014
$
711

 
$
236

 
$
394

 
$
1,341

Provision (credit) for loan losses
5

 
(27
)
 
24

 
2

Loan losses:
 
 
 
 
 
 
 
Charge-offs
(41
)
 
(9
)
 
(74
)
 
(124
)
Recoveries
17

 
8

 
17

 
42

Net loan losses
(24
)
 
(1
)
 
(57
)
 
(82
)
Allowance for loan losses, March 31, 2014
692

 
208

 
361

 
1,261

Reserve for unfunded credit commitments, January 1, 2014
63

 
12

 
3

 
78

Provision (credit) for unfunded credit losses

 
(1
)
 
1

 

Reserve for unfunded credit commitments, March 31, 2014
63

 
11

 
4

 
78

Allowance for credit losses, March 31, 2014
$
755

 
$
219

 
$
365

 
$
1,339

Portion of ending allowance for loan losses:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
223

 
$
98

 
$
90

 
$
411

Collectively evaluated for impairment
469

 
110

 
271

 
850

Total allowance for loan losses
$
692

 
$
208

 
$
361

 
$
1,261

Portion of loan portfolio ending balance:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
1,006

 
$
676

 
$
869

 
$
2,551

Collectively evaluated for impairment
39,092

 
6,316

 
27,721

 
73,129

Total loans evaluated for impairment
$
40,098

 
$
6,992

 
$
28,590

 
$
75,680


PORTFOLIO SEGMENT RISK FACTORS
The following describe the risk characteristics relevant to each of the portfolio segments.
Commercial—The commercial loan portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Commercial also includes owner-occupied commercial real estate mortgage loans to operating businesses, which are loans for long-term financing of land and buildings, and are repaid by cash flow generated by business operations. Owner-occupied


16

Table of Contents


construction loans are made to commercial businesses for the development of land or construction of a building where the repayment is derived from revenues generated from the business of the borrower. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers’ business operations.
Investor Real Estate—Loans for real estate development are repaid through cash flow related to the operation, sale or refinance of the property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of real estate or income generated from the real estate collateral. A portion of Regions’ investor real estate portfolio segment consists of loans secured by residential product types (land, single-family and condominium loans) within Regions’ markets. Additionally, these loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers. Loans in this portfolio segment are particularly sensitive to valuation of real estate.
Consumer—The consumer loan portfolio segment includes residential first mortgage, home equity, indirect, consumer credit card, and other consumer loans. Residential first mortgage loans represent loans to consumers to finance a residence. These loans are typically financed over a 15 to 30 year term and, in most cases, are extended to borrowers to finance their primary residence. Home equity lending includes both home equity loans and lines of credit. This type of lending, which is secured by a first or second mortgage on the borrower’s residence, allows customers to borrow against the equity in their home. Real estate market values as of the time the loan or line is secured directly affect the amount of credit extended and, in addition, changes in these values impact the depth of potential losses. Indirect lending, which is lending initiated through third-party business partners, largely consists of loans made through automotive dealerships. Consumer credit card includes Regions branded consumer credit card accounts. Other consumer loans include other revolving consumer accounts, direct consumer loans and overdrafts. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.
CREDIT QUALITY INDICATORS
The following tables present credit quality indicators for the loan portfolio segments and classes, excluding loans held for sale, as of March 31, 2015 and December 31, 2014. Commercial and investor real estate loan portfolio segments are detailed by categories related to underlying credit quality and probability of default. Regions assigns these categories at loan origination and reviews the relationship utilizing a risk-based approach on, at minimum, an annual basis or at any time management becomes aware of information affecting the borrowers' ability to fulfill their obligations. Both quantitative and qualitative factors are considered in this review process. These categories are utilized to develop the associated allowance for credit losses.
Pass—includes obligations where the probability of default is considered low;
Special Mention—includes obligations that have potential weakness which may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date. Obligations in this category may also be subject to economic or market conditions which may, in the future, have an adverse effect on debt service ability;
Substandard Accrual—includes obligations that exhibit a well-defined weakness that presently jeopardizes debt repayment, even though they are currently performing. These obligations are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected;
Non-accrual—includes obligations where management has determined that full payment of principal and interest is in doubt.
Substandard accrual and non-accrual loans are often collectively referred to as “classified.” Special mention, substandard accrual, and non-accrual loans are often collectively referred to as “criticized and classified.” Classes in the consumer portfolio segment are disaggregated by accrual status.


17

Table of Contents


 
March 31, 2015
 
Pass
 
Special  Mention
 
Substandard
Accrual
 
Non-accrual
 
Total
 
(In millions)
Commercial and industrial
$
32,185

 
$
600

 
$
598

 
$
298

 
$
33,681

Commercial real estate mortgage—owner-occupied
7,207

 
311

 
309

 
216

 
8,043

Commercial real estate construction—owner-occupied
405

 
15

 
14

 
3

 
437

Total commercial
$
39,797

 
$
926<