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, 2016
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)
(205) 581-7890
(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 1,266,713,119 shares of common stock, par value $.01, outstanding as of May 4, 2016.


Table of Contents


REGIONS FINANCIAL CORPORATION
FORM 10-Q
INDEX
 
 
 
 
 
Page
Part I. Financial Information
Item 1.
 
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
 
 
 
Part II. Other Information
 
 
Item 1.
 
 
Item 2.
 
 
Item 6.
 
 
 
 
 
 


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Glossary of Defined Terms
Agencies - collectively, FNMA, FHLMC and GNMA.
ALCO - Asset/Liability Management Committee.
AOCI - Accumulated other comprehensive income.
ATM - Automated teller machine.
Basel I - Basel Committee's 1988 Regulatory Capital Framework (First Accord).
Basel III - Basel Committee's 2010 Regulatory Capital Framework (Third Accord).
Basel III Rules - Final capital rules adopting the Basel III capital framework approved by U.S. federal
regulators in 2013.
Basel Committee - Basel Committee on Banking Supervision.
BHC - Bank Holding Company.
BITS - Technology arm of the Financial Services Roundtable.
Bank - Regions Bank.
Board - The Company’s Board of Directors.
CAP - Customer Assistance Program.
CCAR - Comprehensive Capital Analysis and Review.
CD - Certificate of deposit.
CEO - Chief Executive Officer.
CET1 - Common Equity Tier 1.
CFPB - Consumer Financial Protection Bureau.
Company - Regions Financial Corporation and its subsidiaries.
CPR - Constant (or Conditional) Prepayment Rate.
CRA - Community Reinvestment Act of 1977.
Dodd-Frank Act - The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
DPD - Days Past Due.
DUS - Fannie Mae Delegated Underwriting & Servicing.
FASB - Financial Accounting Standards Board.
FDIC - The Federal Deposit Insurance Corporation.
Federal Reserve - The Board of Governors of the Federal Reserve System.
FHA - Federal Housing Administration.
FHLB - Federal Home Loan Bank.
FHLMC - Federal Home Loan Mortgage Corporation, known as Freddie Mac.
FNMA - Federal National Mortgage Association, known as Fannie Mae.
FS-ISAC - Financial Services - Information Sharing & Analysis Center
FRB - Federal Reserve Board.
GAAP - Generally Accepted Accounting Principles in the United States.
GCM - Guideline Public Company Method.
GNMA - Government National Mortgage Association.
GTM - Guideline Transaction Method.
HUD - U.S. Department of Housing and Urban Development.


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IPO - Initial public offering.
LCR - Liquidity coverage ratio.
LIBOR - London InterBank Offered Rates.
LTIP - Long-term incentive plan.
LTV - Loan to value.
MBS - Mortgage-backed securities.
Morgan Keegan - Morgan Keegan & Company, Inc.
MSAs - Metropolitan Statistical Areas.
MSR - Mortgage servicing right.
NM - Not meaningful.
NPR - Notice of Proposed Rulemaking.
OAS - Option-Adjusted Spread.
OCC - Office of the Comptroller of the Currency.
OCI - Other comprehensive income.
OTTI - Other-than-temporary impairment.
Raymond James - Raymond James Financial, Inc.
RICO - Racketeer Influenced and Corrupt Organizations Act.
SEC - U.S. Securities and Exchange Commission.
SERP - Supplemental Executive Retirement Plan.
SSFA - Simplified Supervisory Formula Approach.
TDR - Troubled debt restructuring.
U.S. - United States.
U.S. Treasury - The United States Department of the Treasury.
UTB - Unrecognized tax benefits.
VIE - Variable interest entity.
VRDN - Variable Rate Demand Notes.



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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.
The effects of any developments, changes or actions relating to any litigation or regulatory proceedings brought against us or any of our subsidiaries.
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 a regulatory non-objection (as part of the CCAR) process or otherwise) to take certain capital actions, including paying dividends and any plans to increase common stock dividends, repurchase common stock under current or future programs, or redeem preferred stock or other regulatory capital instruments, may impact our ability to return capital to stockholders and market perceptions of us.
Our ability to comply with stress testing and capital planning requirements (as part of the CCAR process or otherwise) may continue to require a significant investment of our managerial resources due to the importance and intensity of such tests and requirements.
Our ability to comply with applicable capital and liquidity requirements (including, among other things, the Basel III capital standards and the LCR rule), 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.


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The Basel III framework calls for additional risk-based capital surcharges for globally systemically important banks. Although we are not subject to such surcharges, it is possible that in the future we may become subject to similar surcharges.
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.
Our ability to execute on our strategic and operational plans, including our ability to fully realize the financial and non-financial benefits relating to our strategic initiatives.
The success of our marketing efforts in attracting and retaining customers.
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.
Our ability to recruit and retain talented and experienced personnel to assist in the development, management and operation of our products and services may be affected by changes in laws and regulations in effect from time to time.
Fraud or misconduct by our customers, employees or business partners.
Any inaccurate or incomplete information provided to us by our customers or counterparties.
The risks and uncertainties related to our acquisition and integration of other companies.
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.
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.
Changes in commodity market prices and conditions could adversely affect the cash flows of our borrowers operating in industries that are impacted by changes in commodity prices (including businesses indirectly impacted by commodities prices such as businesses that transport commodities or manufacture equipment used in the production of commodities), which could impair their ability to service any loans outstanding to them and/or reduce demand for loans in those industries.
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.
Significant disruption of, or loss of public confidence in, the Internet and services and devices used to access the Internet could affect the ability of our customers to access their accounts and conduct banking transactions.
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 FASB or other regulatory agencies could materially affect how we report our financial results.
Other risks identified from time to time in reports that we file with the SEC.
The effects of any damage to our reputation resulting from developments related to any of the items identified above.


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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, 2015 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, 2016
 
December 31, 2015
 
(In millions, except share data)
Assets
 
 
 
Cash and due from banks
$
1,708

 
$
1,382

Interest-bearing deposits in other banks
2,682

 
3,932

Trading account securities
110

 
143

Securities held to maturity (estimated fair value of $1,953 and $1,969, respectively)
1,901

 
1,946

Securities available for sale
23,095

 
22,710

Loans held for sale (includes $322 and $353 measured at fair value, respectively)
351

 
448

Loans, net of unearned income
81,606

 
81,162

Allowance for loan losses
(1,151
)
 
(1,106
)
Net loans
80,455

 
80,056

Other earning assets
1,574

 
1,652

Premises and equipment, net
2,134

 
2,152

Interest receivable
314

 
319

Goodwill
4,878

 
4,878

Residential mortgage servicing rights at fair value
239

 
252

Other identifiable intangible assets
246

 
259

Other assets
5,852

 
5,921

Total assets
$
125,539

 
$
126,050

Liabilities and Stockholders’ Equity
 
 
 
Deposits:
 
 
 
Non-interest-bearing
$
35,153

 
$
34,862

Interest-bearing
63,001

 
63,568

Total deposits
98,154

 
98,430

Borrowed funds:
 
 
 
Short-term borrowings:
 
 
 
Other short-term borrowings

 
10

Total short-term borrowings

 
10

Long-term borrowings
7,851

 
8,349

Total borrowed funds
7,851

 
8,359

Other liabilities
2,323

 
2,417

Total liabilities
108,328

 
109,206

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
820

 
820

Common stock, authorized 3 billion shares, par value $.01 per share:
 
 
 
Issued including treasury stock—1,316,074,413 and 1,338,591,703 shares, respectively
13

 
13

Additional paid-in capital
17,716

 
17,883

Retained earnings (deficit)
62

 
(115
)
Treasury stock, at cost—41,261,030 and 41,261,018 shares, respectively
(1,377
)
 
(1,377
)
Accumulated other comprehensive income (loss), net
(23
)
 
(380
)
Total stockholders’ equity
17,211

 
16,844

Total liabilities and stockholders’ equity
$
125,539

 
$
126,050


See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended March 31
 
2016
 
2015
 
(In millions, except per share data)
Interest income, including other financing income on:
 
 
 
Loans, including fees
$
768

 
$
725

Securities - taxable
147

 
145

Loans held for sale
3

 
3

Trading account securities
3

 
3

Other earning assets
10

 
10

Operating lease assets
32

 

Total interest income, including other financing income
963

 
886

Interest expense on:
 
 
 
Deposits
27

 
28

Long-term borrowings
47

 
43

Total interest expense
74

 
71

Depreciation expense on operating lease assets
27

 

Total interest expense and depreciation expense on operating lease assets
101

 
71

Net interest income and other financing income
862

 
815

Provision for loan losses
113

 
49

Net interest income and other financing income after provision for loan losses
749

 
766

Non-interest income:
 
 
 
Service charges on deposit accounts
159

 
161

Card and ATM fees
95

 
85

Mortgage income
38

 
40

Securities gains (losses), net
(5
)
 
5

Other
219

 
179

Total non-interest income
506

 
470

Non-interest expense:
 
 
 
Salaries and employee benefits
475

 
458

Net occupancy expense
86

 
91

Furniture and equipment expense
78

 
71

Other
230

 
285

Total non-interest expense
869

 
905

Income from continuing operations before income taxes
386

 
331

Income tax expense
113

 
95

Income from continuing operations
273

 
236

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

 
(4
)
Income tax expense (benefit)

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

 
(2
)
Net income
$
273

 
$
234

Net income from continuing operations available to common shareholders
$
257

 
$
220

Net income available to common shareholders
$
257

 
$
218

Weighted-average number of shares outstanding:
 
 
 
Basic
1,286

 
1,346

Diluted
1,291

 
1,358

Earnings per common share from continuing operations:
 
 
 
Basic
$
0.20

 
$
0.16

Diluted
0.20

 
0.16

Earnings per common share:
 
 
 
Basic
$
0.20

 
$
0.16

Diluted
0.20

 
0.16

Cash dividends declared per common share
0.06

 
0.05

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
 
2016
 
2015
 
(In millions)
Net income
$
273

 
$
234

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 $125 and $49 tax effect, respectively)
205

 
80

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

Net change in unrealized gains (losses) on securities available for sale, net of tax
208

 
77

Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
 
 
 
Unrealized holding gains (losses) on derivatives arising during the period (net of $102 and $35 tax effect, respectively)
165

 
58

Less: reclassification adjustments for gains (losses) on derivative instruments realized in net income (net of $15 and $12 tax effect, respectively)
24

 
21

Net change in unrealized gains (losses) on derivative instruments, net of tax
141

 
37

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 ($3) and ($4) tax effect, respectively)
(6
)
 
(8
)
Net change from defined benefit pension plans and other post employment benefits, net of tax
6

 
7

Other comprehensive income (loss), net of tax
357

 
123

Comprehensive income
$
630

 
$
357

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, 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 and other

 

 

 

 
6

 

 

 

 
6

BALANCE AT MARCH 31, 2015
1

 
$
868

 
1,343

 
$
14

 
$
18,604

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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT JANUARY 1, 2016
1

 
$
820

 
1,297

 
$
13

 
$
17,883

 
$
(115
)
 
$
(1,377
)
 
$
(380
)
 
$
16,844

Net income

 

 

 

 

 
273

 

 

 
273

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

 

 

 

 

 

 

 
208

 
208

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

 

 

 

 

 

 

 
141

 
141

Net change from employee benefit plans, net of tax

 

 

 

 

 

 

 
6

 
6

Cash dividends declared—$0.06 per share

 

 

 

 

 
(80
)
 

 

 
(80
)
Preferred stock dividends

 

 

 

 

 
(16
)
 

 

 
(16
)
Common stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact of share repurchase

 

 
(23
)
 

 
(175
)
 

 

 

 
(175
)
Impact of stock transactions under compensation plans, net and other

 

 
1

 

 
8

 

 

 

 
8

BALANCE AT MARCH 31, 2016
1

 
$
820

 
1,275

 
$
13

 
$
17,716

 
$
62

 
$
(1,377
)
 
$
(23
)
 
$
17,211


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
 
2016
 
2015
 
(In millions)
Operating activities:
 
 
 
Net income
$
273

 
$
234

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Provision for loan losses
113

 
49

Depreciation, amortization and accretion, net
130

 
123

Securities (gains) losses, net
5

 
(5
)
Deferred income tax expense
20

 
38

Originations and purchases of loans held for sale
(482
)
 
(565
)
Proceeds from sales of loans held for sale
583

 
634

(Gain) loss on sale of loans, net
(21
)
 
(23
)
(Gain) loss on early extinguishment of debt

 
43

Net change in operating assets and liabilities:
 
 
 
Trading account securities
33

 
(1
)
Other earning assets
51

 
29

Interest receivable and other assets
108

 
(112
)
Other liabilities
(35
)
 
(121
)
Other
12

 
(6
)
Net cash from operating activities
790

 
317

Investing activities:
 
 
 
Proceeds from maturities of securities held to maturity
45

 
46

Proceeds from sales of securities available for sale
1,056

 
493

Proceeds from maturities of securities available for sale
774

 
863

Purchases of securities available for sale
(1,954
)
 
(1,232
)
Proceeds from sales of loans
30

 
37

Purchases of loans
(279
)
 
(256
)
Purchases of mortgage servicing rights
(5
)
 

Net change in loans
(266
)
 
(827
)
Net purchases of other assets
(57
)
 
(51
)
Net cash from investing activities
(656
)
 
(927
)
Financing activities:
 
 
 
Net change in deposits
(276
)
 
3,277

Net change in short-term borrowings
(10
)
 
(168
)
Proceeds from long-term borrowings
499

 

Payments on long-term borrowings
(1,000
)
 
(293
)
Cash dividends on common stock
(80
)
 
(67
)
Cash dividends on preferred stock
(16
)
 
(16
)
Repurchase of common stock
(175
)
 
(102
)
Other

 
1

Net cash from financing activities
(1,058
)
 
2,632

Net change in cash and cash equivalents
(924
)
 
2,022

Cash and cash equivalents at beginning of year
5,314

 
4,004

Cash and cash equivalents at end of period
$
4,390

 
$
6,026


See notes to consolidated financial statements.


12

Table of Contents


REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 2016 and 2015
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 across the South, Midwest and Texas. The Company competes with other financial institutions located in the states in which it operates, as well as other adjoining states. Regions is subject to the regulations of certain government agencies and undergoes periodic examinations by certain 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 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’ Annual Report on Form 10-K for the year ended December 31, 2015. 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 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, 2015.
During the fourth quarter of 2015, Regions reclassified its investments in FRB and FHLB stock from securities available for sale to other earning assets on its consolidated balance sheets. This reclassification has been made for all periods presented. Certain other prior period amounts have also 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. 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.
The following table represents the condensed results of operations for discontinued operations:
 
Three Months Ended March 31
 
2016
 
2015
 
(In millions, except per share data)
Non-interest expense:
 
 
 
Professional and legal expenses
$

 
$
4

Total non-interest expense

 
4

Income (loss) from discontinued operations before income taxes

 
(4
)
Income tax expense (benefit)

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

 
$
(2
)
Earnings (loss) per common share from discontinued operations:
 
 
 
Basic
$
0.00

 
$
(0.00
)
Diluted
$
0.00

 
$
(0.00
)


13

Table of Contents


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, 2016
 
 
 
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

 

 
(9
)
 
341

 
9

 

 
350

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
1,445

 

 
(59
)
 
1,386

 
42

 

 
1,428

Commercial agency
178

 

 
(5
)
 
173

 
1

 

 
174

 
$
1,974

 
$

 
$
(73
)
 
$
1,901

 
$
52

 
$

 
$
1,953

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
232

 
$
4

 
$

 
$
236

 
 
 
 
 
$
236

Federal agency securities
214

 
3

 

 
217

 
 
 
 
 
217

Obligations of states and political subdivisions
1

 

 

 
1

 
 
 
 
 
1

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
16,219

 
259

 
(17
)
 
16,461

 
 
 
 
 
16,461

Residential non-agency
5

 

 

 
5

 
 
 
 
 
5

Commercial agency
2,937

 
62

 
(1
)
 
2,998

 
 
 
 
 
2,998

Commercial non-agency
1,207

 
14

 
(7
)
 
1,214

 
 
 
 
 
1,214

Corporate and other debt securities
1,654

 
32

 
(36
)
 
1,650

 
 
 
 
 
1,650

Equity securities
305

 
8

 

 
313

 
 
 
 
 
313

 
$
22,774

 
$
382

 
$
(61
)
 
$
23,095

 
 
 
 
 
$
23,095



14

Table of Contents



 
December 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

 

 
(10
)
 
340

 
9

 

 
349

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
1,490

 

 
(61
)
 
1,429

 
18

 
(2
)
 
1,445

Commercial agency
181

 

 
(5
)
 
176

 

 
(2
)
 
174

 
$
2,022

 
$

 
$
(76
)
 
$
1,946

 
$
27

 
$
(4
)
 
$
1,969

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
228

 
$
1

 
$
(1
)
 
$
228

 
 
 
 
 
$
228

Federal agency securities
219

 

 
(1
)
 
218

 
 
 
 
 
218

Obligations of states and political subdivisions
1

 

 

 
1

 
 
 
 
 
1

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
16,003

 
149

 
(90
)
 
16,062

 
 
 
 
 
16,062

Residential non-agency
5

 

 

 
5

 
 
 
 
 
5

Commercial agency
3,033

 
10

 
(25
)
 
3,018

 
 
 
 
 
3,018

Commercial non-agency
1,245

 
3

 
(17
)
 
1,231

 
 
 
 
 
1,231

Corporate and other debt securities
1,718

 
12

 
(63
)
 
1,667

 
 
 
 
 
1,667

Equity securities
272

 
10

 
(2
)
 
280

 
 
 
 
 
280

 
$
22,724

 
$
185

 
$
(199
)
 
$
22,710

 
 
 
 
 
$
22,710

_________
(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.

Securities with carrying values of $11.8 billion and $11.9 billion at March 31, 2016 and December 31, 2015, respectively, were pledged to secure public funds, trust deposits and certain borrowing arrangements. Included within total pledged securities is approximately $51 million and $50 million of encumbered U.S. Treasury securities at March 31, 2016 and December 31, 2015, respectively.
The amortized cost and estimated fair value of securities available for sale and securities held to maturity at March 31, 2016, 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.


15

Table of Contents


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

 
$
1

Due after one year through five years
350

 
350

Mortgage-backed securities:
 
 
 
Residential agency
1,445

 
1,428

Commercial agency
178

 
174

 
$
1,974

 
$
1,953

Securities available for sale:
 
 
 
Due in one year or less
$
64

 
$
65

Due after one year through five years
801

 
811

Due after five years through ten years
957

 
963

Due after ten years
279

 
265

Mortgage-backed securities:
 
 
 
Residential agency
16,219

 
16,461

Residential non-agency
5

 
5

Commercial agency
2,937

 
2,998

Commercial non-agency
1,207

 
1,214

Equity securities
305

 
313

 
$
22,774

 
$
23,095

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, 2016 and December 31, 2015. 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, 2016
 
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:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
$
105

 
$
(1
)
 
$
1,300

 
$
(16
)
 
$
1,405

 
$
(17
)
Commercial agency

 

 
174

 
(4
)
 
174

 
(4
)
 
$
105

 
$
(1
)
 
$
1,474

 
$
(20
)
 
$
1,579

 
$
(21
)
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
6

 
$

 
$
1

 
$

 
$
7

 
$

Federal agency securities

 

 
1

 

 
1

 

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
1,099

 
(6
)
 
1,410

 
(11
)
 
2,509

 
(17
)
       Residential non-agency
3

 

 

 

 
3

 

Commercial agency
170

 

 
59

 
(1
)
 
229

 
(1
)
Commercial non-agency
283

 
(3
)
 
228

 
(4
)
 
511

 
(7
)
All other securities
276

 
(7
)
 
382

 
(29
)
 
658

 
(36
)
 
$
1,837

 
$
(16
)
 
$
2,081

 
$
(45
)
 
$
3,918

 
$
(61
)



16

Table of Contents


 
December 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
$
198

 
$
(1
)
 
$

 
$

 
$
198

 
$
(1
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
322

 
(7
)
 
1,121

 
(38
)
 
1,443

 
(45
)
Commercial agency

 

 
174

 
(7
)
 
174

 
(7
)
 
$
520

 
$
(8
)
 
$
1,295

 
$
(45
)
 
$
1,815

 
$
(53
)
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
59

 
$
(1
)
 
$
8

 
$

 
$
67

 
$
(1
)
Federal agency securities
74

 

 
7

 

 
81

 

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
8,037

 
(73
)
 
791

 
(17
)
 
8,828

 
(90
)
Residential non-agency
3

 

 

 

 
3

 

Commercial agency
1,695

 
(20
)
 
273

 
(5
)
 
1,968

 
(25
)
Commercial non-agency
684

 
(12
)
 
264

 
(6
)
 
948

 
(18
)
All other securities
805

 
(36
)
 
307

 
(29
)
 
1,112

 
(65
)
 
$
11,357

 
$
(142
)
 
$
1,650

 
$
(57
)
 
$
13,007

 
$
(199
)
The number of individual positions in an unrealized loss position in the tables above decreased from 1,081 at December 31, 2015 to 596 at March 31, 2016. The decrease in the number of securities and the total amount of unrealized losses from year-end 2015 was primarily due to changes in interest rates. In instances where an unrealized loss existed, there was no indication of an adverse change in credit on the underlying positions in the tables above. As it relates to these positions, management believes no individual unrealized loss, other than those discussed below, 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 positions before the recovery of their amortized cost basis, which may be at maturity.
As part of the Company's normal process for evaluating other-than-temporary impairments, management did identify a limited number of positions where an other-than-temporary impairment was believed to exist as of March 31, 2016. Such impairments were related to available for sale equity securities with current market values below the highest traded price in the last six months. For the quarter ending March 31, 2016, such impairments totaled $1 million, and have been reflected as a reduction of net securities gains (losses) on the consolidated statements of income.
Gross realized gains and gross realized losses on sales of securities available for sale, as well as other-than-temporary impairment losses, are shown in the table below. The cost of securities sold is based on the specific identification method.
 
Three Months Ended March 31
 
2016
 
2015
 
(In millions)
Gross realized gains
$
16

 
$
5

Gross realized losses
(20
)
 

OTTI
(1
)
 

Securities gains (losses), net
$
(5
)
 
$
5

    


17

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, 2016
 
December 31, 2015
 
(In millions, net of unearned income)
Commercial and industrial
$
36,200

 
$
35,821

Commercial real estate mortgage—owner-occupied
7,385

 
7,538

Commercial real estate construction—owner-occupied
346

 
423

Total commercial
43,931

 
43,782

Commercial investor real estate mortgage
4,516

 
4,255

Commercial investor real estate construction
2,554

 
2,692

Total investor real estate
7,070

 
6,947

Residential first mortgage
12,895

 
12,811

Home equity
10,914

 
10,978

Indirect—vehicles
4,072

 
3,984

Indirect—other consumer
652

 
545

Consumer credit card
1,045

 
1,075

Other consumer
1,027

 
1,040

Total consumer
30,605

 
30,433

 
$
81,606

 
$
81,162

During the three months ended March 31, 2016 and 2015, Regions purchased approximately $279 million and $256 million, respectively, in indirect-vehicles and indirect-other consumer loans from third parties.
At March 31, 2016, $14.6 billion in net eligible loans held by Regions were pledged to secure borrowings from the FHLB. At March 31, 2016, an additional $31.5 billion in net eligible loans held by Regions were pledged to the Federal Reserve Bank for potential borrowings.
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, 2015, 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, 2016 and 2015. The total allowance for loan losses and the related loan portfolio ending balances as of March 31, 2016 and 2015, 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 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


18

Table of Contents


 
Three Months Ended March 31, 2016
 
Commercial
 
Investor Real
Estate
 
Consumer
 
Total
 
(In millions)
Allowance for loan losses, January 1, 2016
$
758

 
$
97

 
$
251

 
$
1,106

Provision (credit) for loan losses
85

 
(10
)
 
38

 
113

Loan losses:
 
 
 
 
 
 
 
Charge-offs
(29
)
 

 
(67
)
 
(96
)
Recoveries
7

 
4

 
17

 
28

Net loan losses
(22
)
 
4

 
(50
)
 
(68
)
Allowance for loan losses, March 31, 2016
821

 
91

 
239

 
1,151

Reserve for unfunded credit commitments, January 1, 2016
47

 
5

 

 
52

Provision (credit) for unfunded credit losses
1

 

 

 
1

Reserve for unfunded credit commitments, March 31, 2016
48

 
5

 

 
53

Allowance for credit losses, March 31, 2016
$
869

 
$
96

 
$
239

 
$
1,204

Portion of ending allowance for loan losses:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
254

 
$
20

 
$
66

 
$
340

Collectively evaluated for impairment
567

 
71

 
173

 
811

Total allowance for loan losses
$
821

 
$
91

 
$
239

 
$
1,151

Portion of loan portfolio ending balance:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
949

 
$
155

 
$
827

 
$
1,931

Collectively evaluated for impairment
42,982

 
6,915

 
29,778

 
79,675

Total loans evaluated for impairment
$
43,931

 
$
7,070

 
$
30,605

 
$
81,606

 
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


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


19

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 e