Document
Table of Contents


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

 
Form 10-Q
 
ý
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended June 30, 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)
(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 1,255,198,176 shares of common stock, par value $.01, outstanding as of August 3, 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 - Federal Deposit Insurance Corporation.
Federal Reserve - 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 Bank.
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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IP - Intellectual Property
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 - United States Department of the Treasury.
UTB - Unrecognized tax benefits.
VIE - Variable interest entity.




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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.
Our ability to realize our efficiency ratio target as part of our expense management initiatives.
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.


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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, 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
 
 
June 30, 2016
 
December 31, 2015
 
(In millions, except share data)
Assets
 
 
 
Cash and due from banks
$
1,867

 
$
1,382

Interest-bearing deposits in other banks
2,370

 
3,932

Trading account securities
117

 
143

Securities held to maturity (estimated fair value of $1,707 and $1,969, respectively)
1,646

 
1,946

Securities available for sale
23,494

 
22,710

Loans held for sale (includes $475 and $353 measured at fair value, respectively)
551

 
448

Loans, net of unearned income
81,702

 
81,162

Allowance for loan losses
(1,151
)
 
(1,106
)
Net loans
80,551

 
80,056

Other earning assets
1,516

 
1,652

Premises and equipment, net
2,091

 
2,152

Interest receivable
312

 
319

Goodwill
4,882

 
4,878

Residential mortgage servicing rights at fair value
216

 
252

Other identifiable intangible assets
240

 
259

Other assets
6,359

 
5,921

Total assets
$
126,212

 
$
126,050

Liabilities and Stockholders’ Equity
 
 
 
Deposits:
 
 
 
Non-interest-bearing
$
34,982

 
$
34,862

Interest-bearing
62,263

 
63,568

Total deposits
97,245

 
98,430

Borrowed funds:
 
 
 
Short-term borrowings:
 
 
 
Other short-term borrowings
2

 
10

Total short-term borrowings
2

 
10

Long-term borrowings
8,968

 
8,349

Total borrowed funds
8,970

 
8,359

Other liabilities
2,612

 
2,417

Total liabilities
108,827

 
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—1,300,275,747 and 1,338,591,703 shares, respectively
13

 
13

Additional paid-in capital
17,539

 
17,883

Retained earnings (deficit)
242

 
(115
)
Treasury stock, at cost—41,261,041 and 41,261,018 shares, respectively
(1,377
)
 
(1,377
)
Accumulated other comprehensive income (loss), net
148

 
(380
)
Total stockholders’ equity
17,385

 
16,844

Total liabilities and stockholders’ equity
$
126,212

 
$
126,050


See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2016
 
2015
 
2016
 
2015
 
(In millions, except per share data)
Interest income, including other financing income on:
 
 
 
 
 
 
 
Loans, including fees
$
762

 
$
728

 
$
1,530

 
$
1,453

Securities - taxable
145

 
141

 
292

 
286

Loans held for sale
4

 
4

 
7

 
7

Trading account securities
1

 
1

 
4

 
4

Other earning assets
8

 
9

 
18

 
19

Operating lease assets
32

 

 
64

 

Total interest income, including other financing income
952

 
883

 
1,915

 
1,769

Interest expense on:
 
 
 
 
 
 
 
Deposits
28

 
27

 
55

 
55

Short-term borrowings

 
1

 

 
1

Long-term borrowings
50

 
35

 
97

 
78

Total interest expense
78

 
63

 
152

 
134

Depreciation expense on operating lease assets
26

 

 
53

 

Total interest expense and depreciation expense on operating lease assets
104

 
63

 
205

 
134

Net interest income and other financing income
848

 
820

 
1,710

 
1,635

Provision for loan losses
72

 
63

 
185

 
112

Net interest income and other financing income after provision for loan losses
776

 
757

 
1,525

 
1,523

Non-interest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
166

 
168

 
325

 
329

Card and ATM fees
99

 
90

 
194

 
175

Mortgage income
46

 
46

 
84

 
86

Securities gains, net
6

 
6

 
1

 
11

Other
209

 
280

 
428

 
459

Total non-interest income
526

 
590

 
1,032

 
1,060

Non-interest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
480

 
477

 
955

 
935

Net occupancy expense
86

 
89

 
172

 
180

Furniture and equipment expense
79

 
76

 
157

 
147

Other
270

 
292

 
500

 
577

Total non-interest expense
915

 
934

 
1,784

 
1,839

Income from continuing operations before income taxes
387

 
413

 
773

 
744

Income tax expense
115

 
124

 
228

 
219

Income from continuing operations
272

 
289

 
545

 
525

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

 
(6
)
 
5

 
(10
)
Income tax expense (benefit)
2

 
(2
)
 
2

 
(4
)
Income (loss) from discontinued operations, net of tax
3

 
(4
)
 
3

 
(6
)
Net income
$
275

 
$
285

 
$
548

 
$
519

Net income from continuing operations available to common shareholders
$
256

 
$
273

 
$
513

 
$
493

Net income available to common shareholders
$
259

 
$
269

 
$
516

 
$
487

Weighted-average number of shares outstanding:
 
 
 
 
 
 
 
Basic
1,265

 
1,335

 
1,275

 
1,340

Diluted
1,268

 
1,346

 
1,279

 
1,352

Earnings per common share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.20

 
$
0.20

 
$
0.40

 
$
0.37

Diluted
0.20

 
0.20

 
0.40

 
0.36

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.20

 
$
0.20

 
$
0.40

 
$
0.36

Diluted
0.20

 
0.20

 
0.40

 
0.36

Cash dividends declared per common share
0.065

 
0.06

 
0.125

 
0.11

See notes to consolidated financial statements.


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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended June 30
 
2016
 
2015
 
(In millions)
Net income
$
275

 
$
285

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

 

Less: reclassification adjustments for amortization of unrealized losses on securities transferred to held to maturity (net of ($3) and ($2) tax effect, respectively)
(5
)
 
(2
)
Net change in unrealized losses on securities transferred to held to maturity, net of tax
5

 
2

Unrealized gains (losses) on securities available for sale:
 
 
 
Unrealized holding gains (losses) arising during the period (net of $62 and ($94) tax effect, respectively)
103

 
(152
)
Less: reclassification adjustments for securities gains (losses) realized in net income (net of $2 and $2 tax effect, respectively)
4

 
4

Net change in unrealized gains (losses) on securities available for sale, net of tax
99

 
(156
)
Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
 
 
 
Unrealized holding gains (losses) on derivatives arising during the period (net of $51 and ($3) tax effect, respectively)
84

 
(4
)
Less: reclassification adjustments for gains (losses) on derivative instruments realized in net income (net of $13 and $13 tax effect, respectively)
22

 
21

Net change in unrealized gains (losses) on derivative instruments, net of tax
62

 
(25
)
Defined benefit pension plans and other post employment benefits:
 
 
 
Net actuarial gains (losses) arising during the period (net of $1 and zero tax effect, respectively)

 

Less: reclassification adjustments for amortization of actuarial loss and prior service cost realized in net income (net of ($3) and ($5) tax effect, respectively)
(5
)
 
(7
)
Net change from defined benefit pension plans and other post employment benefits, net of tax
5

 
7

Other comprehensive income (loss), net of tax
171

 
(172
)
Comprehensive income
$
446

 
$
113

 
 
 
 
 
Six Months Ended June 30
 
2016
 
2015
 
(In millions)
Net income
$
548

 
$
519

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 ($4) and ($3) tax effect, respectively)
(7
)
 
(4
)
Net change in unrealized losses on securities transferred to held to maturity, net of tax
7

 
4

Unrealized gains (losses) on securities available for sale:
 
 
 
Unrealized holding gains (losses) arising during the period (net of $187 and ($45) tax effect, respectively)
308

 
(72
)
Less: reclassification adjustments for securities gains (losses) realized in net income (net of zero and $4 tax effect, respectively)
1

 
7

Net change in unrealized gains (losses) on securities available for sale, net of tax
307

 
(79
)
Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
 
 
 
Unrealized holding gains (losses) on derivatives arising during the period (net of $153 and $32 tax effect, respectively)
249

 
54

Less: reclassification adjustments for gains (losses) on derivative instruments realized in net income (net of $28 and $25 tax effect, respectively)
46

 
42

Net change in unrealized gains (losses) on derivative instruments, net of tax
203

 
12

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

 
(1
)
Less: reclassification adjustments for amortization of actuarial loss and prior service cost realized in net income (net of ($6) and ($9) tax effect, respectively)
(11
)
 
(15
)
Net change from defined benefit pension plans and other post employment benefits, net of tax
11

 
14

Other comprehensive income (loss), net of tax
528

 
(49
)
Comprehensive income
$
1,076

 
$
470

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

 

 

 

 

 
519

 

 

 
519

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

 

 

 

 

 

 

 
4

 
4

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

 

 

 

 

 

 

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

 

 

 

 

 

 

 
12

 
12

Net change from employee benefit plans, net of tax

 

 

 

 

 

 

 
14

 
14

Cash dividends declared—$0.11 per share

 

 

 

 
(147
)
 

 

 

 
(147
)
Preferred stock dividends

 
(32
)
 

 

 

 

 

 

 
(32
)
Common stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact of share repurchase

 

 
(28
)
 

 
(274
)
 

 

 

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

 

 
5

 

 
9

 

 

 

 
9

BALANCE AT JUNE 30, 2015
1

 
$
852

 
1,331

 
$
14

 
$
18,355

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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT JANUARY 1, 2016
1

 
$
820

 
1,297

 
$
13

 
$
17,883

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

Net income

 

 

 

 

 
548

 

 

 
548

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

 

 

 

 

 

 

 
7

 
7

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

 

 

 

 

 

 

 
307

 
307

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

 

 

 

 

 

 

 
203

 
203

Net change from employee benefit plans, net of tax

 

 

 

 

 

 

 
11

 
11

Cash dividends declared—$0.125 per share

 

 

 

 

 
(159
)
 

 

 
(159
)
Preferred stock dividends

 

 

 

 

 
(32
)
 

 

 
(32
)
Common stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact of share repurchase

 

 
(42
)
 

 
(354
)
 

 

 

 
(354
)
Impact of stock transactions under compensation plans, net and other

 

 
4

 

 
10

 

 

 

 
10

BALANCE AT JUNE 30, 2016
1

 
$
820

 
1,259

 
$
13

 
$
17,539

 
$
242

 
$
(1,377
)
 
$
148

 
$
17,385


See notes to consolidated financial statements.


11

Table of Contents


REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Six Months Ended June 30
 
2016
 
2015
 
(In millions)
Operating activities:
 
 
 
Net income
$
548

 
$
519

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Provision for loan losses
185

 
112

Depreciation, amortization and accretion, net
267

 
252

Securities (gains) losses, net
(1
)
 
(11
)
Deferred income tax expense
10

 
40

Originations and purchases of loans held for sale
(1,837
)
 
(1,224
)
Proceeds from sales of loans held for sale
1,823

 
1,295

(Gain) loss on sale of loans, net
(59
)
 
(48
)
(Gain) loss on early extinguishment of debt

 
43

Net change in operating assets and liabilities:
 
 
 
Trading account securities
26

 
(4
)
Other earning assets
83

 
(81
)
Interest receivable and other assets
(126
)
 
91

Other liabilities
197

 
(347
)
Other
14

 
30

Net cash from operating activities
1,130

 
667

Investing activities:
 
 
 
Proceeds from maturities of securities held to maturity
305

 
109

Proceeds from sales of securities available for sale
1,527

 
801

Proceeds from maturities of securities available for sale
1,983

 
1,911

Purchases of securities available for sale
(4,092
)
 
(2,733
)
Proceeds from sales of loans
47

 
49

Purchases of loans
(579
)
 
(547
)
Purchases of mortgage servicing rights
(24
)
 

Net change in loans
(202
)
 
(2,565
)
Net purchases of other assets
(41
)
 
(74
)
Net cash from investing activities
(1,076
)
 
(3,049
)
Financing activities:
 
 
 
Net change in deposits
(1,185
)
 
2,875

Net change in short-term borrowings
(8
)
 
(407
)
Proceeds from long-term borrowings
1,607

 
1,248

Payments on long-term borrowings
(1,000
)
 
(1,142
)
Cash dividends on common stock
(154
)
 
(147
)
Cash dividends on preferred stock
(32
)
 
(32
)
Repurchase of common stock
(354
)
 
(274
)
Other
(5
)
 
12

Net cash from financing activities
(1,131
)
 
2,133

Net change in cash and cash equivalents
(1,077
)
 
(249
)
Cash and cash equivalents at beginning of year
5,314

 
4,004

Cash and cash equivalents at end of period
$
4,237

 
$
3,755


See notes to consolidated financial statements.


12

Table of Contents


REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three and Six Months Ended June 30, 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 June 30
 
Six Months Ended June 30
 
2016
 
2015
 
2016
 
2015
 
(In millions, except per share data)
Non-interest expense:
 
 
 
 
 
 
 
Professional and legal expenses/(recoveries)
$
(5
)
 
$
5

 
$
(5
)
 
$
9

Other

 
1

 

 
1

Total non-interest expense
(5
)
 
6

 
(5
)
 
10

Income (loss) from discontinued operations before income taxes
5

 
(6
)
 
5

 
(10
)
Income tax expense (benefit)
2

 
(2
)
 
2

 
(4
)
Income (loss) from discontinued operations, net of tax
$
3

 
$
(4
)
 
$
3

 
$
(6
)
Earnings (loss) per common share from discontinued operations:
 
 
 
 
 
 
 
Basic
$
0.00

 
$
(0.00
)
 
$
0.00

 
$
(0.00
)
Diluted
$
0.00

 
$
(0.00
)
 
$
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:
 
June 30, 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
150

 

 
(4
)
 
146

 
4

 

 
150

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
1,384

 

 
(57
)
 
1,327

 
55

 

 
1,382

Commercial agency
176

 

 
(4
)
 
172

 
2

 

 
174

 
$
1,711

 
$

 
$
(65
)
 
$
1,646

 
$
61

 
$

 
$
1,707

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
235

 
$
5

 
$

 
$
240

 
 
 
 
 
$
240

Federal agency securities
213

 
3

 

 
216

 
 
 
 
 
216

Obligations of states and political subdivisions
1

 

 

 
1

 
 
 
 
 
1

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
16,602

 
342

 
(11
)
 
16,933

 
 
 
 
 
16,933

Residential non-agency
4

 
1

 

 
5

 
 
 
 
 
5

Commercial agency
3,150

 
93

 

 
3,243

 
 
 
 
 
3,243

Commercial non-agency
1,167

 
20

 
(4
)
 
1,183

 
 
 
 
 
1,183

Corporate and other debt securities
1,393

 
44

 
(22
)
 
1,415

 
 
 
 
 
1,415

Equity securities
249

 
10

 
(1
)
 
258

 
 
 
 
 
258

 
$
23,014

 
$
518

 
$
(38
)
 
$
23,494

 
 
 
 
 
$
23,494



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 $11.3 billion and $11.9 billion at June 30, 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 June 30, 2016 and December 31, 2015, respectively.
The amortized cost and estimated fair value of securities available for sale and securities held to maturity at June 30, 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
150

 
150

Mortgage-backed securities:
 
 
 
Residential agency
1,384

 
1,382

Commercial agency
176

 
174

 
$
1,711

 
$
1,707

Securities available for sale:
 
 
 
Due in one year or less
$
50

 
$
50

Due after one year through five years
646

 
660

Due after five years through ten years
883

 
907

Due after ten years
263

 
255

Mortgage-backed securities:
 
 
 
Residential agency
16,602

 
16,933

Residential non-agency
4

 
5

Commercial agency
3,150

 
3,243

Commercial non-agency
1,167

 
1,183

Equity securities
249

 
258

 
$
23,014

 
$
23,494

The following tables present gross unrealized losses and the related estimated fair value of securities available for sale and held to maturity at June 30, 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.
 
June 30, 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
$

 
$

 
$
944

 
$
(5
)
 
$
944

 
$
(5
)
Commercial agency

 

 
174

 
(3
)
 
174

 
(3
)
 
$

 
$

 
$
1,118

 
$
(8
)
 
$
1,118

 
$
(8
)
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
7

 
$

 
$
1

 
$

 
$
8

 
$

Federal agency securities
1

 

 

 

 
1

 

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
480

 
(3
)
 
805

 
(8
)
 
1,285

 
(11
)
       Residential non-agency
4

 

 

 

 
4

 

Commercial agency
44

 

 
45

 

 
89

 

Commercial non-agency
77

 
(1
)
 
264

 
(3
)
 
341

 
(4
)
All other securities
41

 
(1
)
 
291

 
(22
)
 
332

 
(23
)
 
$
654

 
$
(5
)
 
$
1,406

 
$
(33
)
 
$
2,060

 
$
(38
)



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 407 at June 30, 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 June 30, 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 six months ended June 30, 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 June 30
 
Six Months Ended June 30
 
2016
 
2015
 
2016
 
2015
 
(In millions)
Gross realized gains
$
13

 
$
9

 
$
29

 
$
14

Gross realized losses
(7
)
 
(3
)
 
(27
)
 
(3
)
OTTI

 

 
(1
)
 

Securities gains (losses), net
$
6

 
$
6

 
$
1


$
11

    


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:
 
June 30, 2016
 
December 31, 2015
 
(In millions, net of unearned income)
Commercial and industrial
$
36,124

 
$
35,821

Commercial real estate mortgage—owner-occupied
7,193

 
7,538

Commercial real estate construction—owner-occupied
344

 
423

Total commercial
43,661

 
43,782

Commercial investor real estate mortgage
4,302

 
4,255

Commercial investor real estate construction
2,660

 
2,692

Total investor real estate
6,962

 
6,947

Residential first mortgage
13,164

 
12,811

Home equity
10,832

 
10,978

Indirect—vehicles
4,159

 
3,984

Indirect—other consumer
722

 
545

Consumer credit card
1,113

 
1,075

Other consumer
1,089

 
1,040

Total consumer
31,079

 
30,433

 
$
81,702

 
$
81,162

During the three months ended June 30, 2016 and 2015, Regions purchased approximately $300 million and $291 million, respectively, in indirect-vehicles and indirect-other consumer loans from third parties. During the six months ended June 30, 2016 and 2015, the comparable loan purchase amounts were approximately $579 million and $547 million, respectively.
At June 30, 2016, $14.6 billion in securities and net eligible loans held by Regions were pledged to secure current and potential borrowings from the FHLB. At June 30, 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 and six months ended June 30, 2016 and 2015. The total allowance for loan losses and the related loan portfolio ending balances as of June 30, 2016 and 2015, are disaggregated to detail the amounts derived through individual evaluation and collective evaluation for impairment. The allowance for loa