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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-6159
REGIONS FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
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Delaware 63-0589368
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
417 North 20th Street, Birmingham, Alabama 35203
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (205) 326-7100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK - PAR VALUE $.625
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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. Yes X No_____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
State the aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 17, 1997.
Common Stock, $.625 Par Value--$3,915,320,026
*Excludes as shares held by affiliates only shares held by the registrant's
Employee Stock Purchase Plan, Employees' Stock Ownership Plan, Directors' Stock
Investment Plan and executive officers who are directors without prejudice to a
determination of control.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of March 17, 1997.
Common Stock, $.625 Par Value--66,435,634 shares issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement dated April 1, 1997 are
incorporated by reference into Part III.
Portions of the annual report to stockholders for the year ended December 31,
1996, are incorporated by reference into Parts I and II.
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PART I
ITEM 1. Business
(a) The Registrant, Regions Financial Corporation (the
"Registrant" or "Regions"), is a regional bank holding company headquartered in
Birmingham, Alabama, which operated 377 full-service banking offices in
Alabama, Florida, Georgia, Louisiana and Tennessee as of December 31, 1996. At
that date, Regions had total consolidated assets of approximately $18.9
billion, total consolidated deposits of approximately $15.0 billion, and total
consolidated stockholders' equity of approximately $1.6 billion.
Regions was organized under the laws of the state of Delaware and
commenced operations in 1971 under the name First Alabama Bancshares, Inc. On
May 2, 1994, the name of First Alabama Bancshares, Inc. was changed to Regions
Financial Corporation. Regions' principal executive offices are located at 417
North 20th Street, Birmingham, Alabama 35203, and its telephone number at such
address is (205) 326-7100.
At December 31, 1996, Regions operated seven state-chartered
commercial bank subsidiaries and two federal savings banks (collectively, the
"Subsidiary Banks") in Alabama, Florida, Georgia, Louisiana and Tennessee and
various banking-related subsidiaries engaged in mortgage banking, credit life
insurance, leasing, commercial accounts receivable factoring, and securities
brokerage activities with offices in various southeastern states. Through its
subsidiaries, Regions offers a broad range of banking and banking-related
services.
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In Alabama, Regions operates through Regions Bank (Alabama), which
at December 31, 1996, had total consolidated assets of approximately $11.9
billion, total consolidated deposits of approximately $9.0 billion, and total
consolidated stockholders' equity of approximately $887 million. Regions Bank
(Alabama) operates 183 banking offices throughout Alabama.
In Florida, Regions operates through (i) Regions Bank of Florida,
(ii) The Key Bank of Florida, (iii) First Federal Savings Bank of New Smyrna,
and (iv) First Federal Savings Bank of Citrus County, which at December 31,
1996, had total combined assets of approximately $1.2 billion, total combined
deposits of approximately $1.1 billion, and total combined stockholders' equity
of approximately $99 million. The Florida affiliates operate through 36
banking offices in the northwest and central regions of Florida.
In Georgia, Regions operates through (i) Regions Bank of Georgia,
and (ii) Regions Bank (Georgia), which at December 31, 1996, had total combined
assets of approximately $3.5 billion, total combined deposits of approximately
$3.0 billion, and total combined stockholders' equity of approximately $356
million. Regions Bank of Georgia operates 74 banking offices in central and
northern Georgia.
In Louisiana, Regions operates through Regions Bank of Louisiana
which at December 31, 1996, had total consolidated assets of approximately $2.2
billion, total consolidated deposits of approximately $1.8 billion,
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and total consolidated stockholders' equity of approximately $222 million.
Regions Bank of Louisiana operates 59 banking offices in Louisiana.
In Tennessee, Regions operates through Regions Bank of Tennessee,
which at December 31, 1996, had total consolidated assets of approximately $507
million, total consolidated deposits of approximately $458 million, and total
consolidated stockholders' equity of approximately $34 million. Regions Bank
of Tennessee operates 25 banking offices in Tennessee.
In addition to the Subsidiary Banks, Regions provides additional
banking services through various banking- related subsidiaries, the most
significant of which provide mortgage banking, credit life insurance,
securities brokerage activities and commercial accounts receivable factoring.
Regions Mortgage Inc. (RMI), a subsidiary of Regions Bank (Alabama),
is engaged in mortgage banking with its primary business and source of income
being the origination and servicing of mortgage loans for long-term investors.
RMI serviced approximately $12.4 billion in real estate mortgages at December
31, 1996, and operates loan production offices in Alabama, Florida, Georgia,
Louisiana, Mississippi, South Carolina, and Tennessee.
Regions Agency, Inc., a subsidiary of Regions, acts as an insurance
agent or broker with respect to credit life and accident and health insurance
and other types of insurance relating to extensions of credit by the Subsidiary
Banks or banking-related subsidiaries.
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Regions Life Insurance Company, a subsidiary of Regions, acts as a
re-insurer of credit life and accident and health insurance in connection with
the activities of certain affiliates of Regions.
Regions Investment Company, Inc., a subsidiary of Regions Bank
(Alabama), engages in securities underwriting and brokerage activities and
operates offices in Alabama, Florida, Georgia, Louisiana and Tennessee.
Interstate Billing Service, Inc. (IBS), a subsidiary of Regions,
factors commercial accounts receivable and performs billing and collection
services. IBS primarily serves clients related to the automotive service
industry.
A substantial portion of the growth of Regions since commencing
operations in 1971 has been through the acquisition of other financial
institutions, including commercial banks and thrift institutions, and the
assets and deposits thereof. Since it began operations as a bank holding
company, Regions has completed 62 acquisitions of other financial institutions
representing in aggregate (at the time the acquisitions were completed)
approximately $11.1 billion in assets. As part of its ongoing strategic plan,
Regions continually evaluates business combination opportunities and frequently
conducts due diligence activities in connection with possible business
combinations. As a result, business combination discussions and, in some
cases, negotiations frequently take place, and future business combinations
involving cash, debt, or equity securities can be expected. Any future
business combination or series of
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business combinations that Regions might undertake may be material, in terms of
assets acquired or liabilities assumed, to Regions' financial condition.
Recent business combinations in the banking industry have typically involved
the payment of a premium over book and market values. This practice could
result in dilution of book value and net income per share for the acquirer. It
is Regions' practice to avoid possible dilution except where projections
indicate a relatively short payback period.
Reference is made to pages 21 through 48 and 74 through 75 of the
annual report to stockholders for the year ended December 31, 1996, included as
Exhibit 13 hereto, for certain statistical (Guide 3) and other information.
This Annual Report on Form 10-K, other periodic reports filed by
Regions under the Securities Exchange Act of 1934, as amended, and any other
written or oral statements made by or on behalf of Regions may include forward
looking statements which reflect Regions' current views with respect to future
events and financial performance. Such forward looking statements are based on
general assumptions and are subject to various risks, uncertainties, and other
factors that may cause actual results to differ materially from the views,
beliefs, and projections expressed in such statements. These risks,
uncertainties and other factors include, but are not limited to:
(1) Possible changes in economic and business conditions that may
affect the prevailing interest rates, the prevailing rates of inflation, or the
amount of growth, stagnation, or recession in the global, U.S., and
southeastern U.S. economies, the value of investments, collectability of loans,
and the profitability of business entities;
(2) Possible changes in monetary and fiscal policies, laws, and
regulations, and other activities of governments, agencies, and similar
organizations;
(3) The effects of easing of restrictions on participants in the
financial services industry, such as banks, securities brokers and dealers,
investment companies, and finance companies, and attendant changes in patterns
and effects of competition in the financial services industry;
(4) The cost and other effects of legal and administrative cases and
proceedings, claims, settlements, and judgment;
(5) The ability of Regions to achieve the earnings expectations
related to the acquired operations of recently-completed and pending
acquisitions, which depends on a variety of factors, including (i) the ability
of Regions to achieve the anticipated cost savings and revenue enhancements
with respect to the acquired operations, (ii) the assimilation of the acquired
operations to Regions' corporate culture, including the ability to instill
Regions' credit practices and efficient approach to the acquired operations,
(iii) the continued growth of the markets in which Regions operates consistent
with recent historical experience, (iv) the absence of material contingencies
related to the acquired operations, including asset quality and litigation
contingencies, and (v) Regions' ability to expand into new markets and to
maintain profit margins in the face of pricing pressures.
The words "believe", "expect", "anticipate", "project", and similar
expressions signify forward looking statements. Readers are cautioned not to
place undue reliance on any forward looking statements made by or on behalf of
Regions. Any such statement speaks only as of the date the statement was made.
Regions undertakes no obligation to update or revise any forward looking
statements.
(b) The primary business conducted by Registrant's banking
affiliates is banking, which includes provision of commercial and retail
banking services and, in some cases, trust services. Registrant's bank-related
subsidiaries perform services incidental to the business of banking.
Consequently, Registrant's only industry segment is the business of banking and
the information required for industry segments is not applicable.
Reference is made to pages 21 through 48 of the annual report to
stockholders for the year ended December 31, 1996, included as Exhibit 13
hereto, for information required by this item.
(c)(1) General. The Registrant is a bank holding company,
registered with the Board of Governors of the Federal Reserve System
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("Federal Reserve") under the Bank Holding Company Act of 1956, as amended
("BHC Act"). As such, the Registrant and its subsidiaries are subject to the
supervision, examination, and reporting requirements of the BHC Act and the
regulations of the Federal Reserve. In addition, as a savings and loan holding
company, the Registrant is also registered with the Office of Thrift
Supervision (OTS) and is subject to the regulation, supervision, examination,
and reporting requirements of the OTS.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or
control more than 5.0% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (iii) it may merge or consolidate with any other bank
holding company. Similar federal statutes require savings and loan holding
companies and other companies to obtain the prior approval of the OTS before
acquiring direct or indirect ownership or control of a savings association.
The BHC Act further provides that the Federal Reserve may not
approve any transaction that would result in a monopoly or would be in
furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any section of the United States, or the
effect of which may be substantially to lessen competition or to tend
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to create a monopoly in any section of the country, or that in any other manner
would be in restraint of trade, unless the anticompetitive effects of the
proposed transaction are clearly outweighed by the public interest in meeting
the convenience and needs of the community to be served. The Federal Reserve
is also required to consider the financial and managerial resources and future
prospects of the bank holding companies and banks concerned and the convenience
and needs of the community to be served. Consideration of financial resources
generally focuses on capital adequacy, and consideration of convenience and
needs issues includes the parties' performance under the Community Reinvestment
Act of 1977 (the "CRA"), both of which are discussed below.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks
by bank holding companies, such that the Registrant, and any other bank holding
company located in Alabama may now acquire a bank located in any other state,
and any bank holding company located outside Alabama may lawfully acquire any
Alabama-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that, after
June 1, 1997, national and state-chartered banks may branch interstate through
acquisitions of banks in other states.
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By adopting legislation prior to that date, a state has the ability either to
"opt-in" and accelerate the date after which interstate branching is
permissible or "opt-out" and prohibit interstate branching altogether. As of
the date hereof, none of the states in which the banking subsidiaries of the
Registrant are located has either moved up the date after which interstate
branching will be permissible or "opted-out." Assuming no state action prior to
June 1, 1997, the Registrant would be able to consolidate all of its Subsidiary
Banks into a single bank with interstate branches following that date.
The BHC Act generally prohibits the Registrant from engaging in
activities other than banking or managing or controlling banks or other
permissible subsidiaries and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those activities
determined by the Federal Reserve to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In
determining whether a particular activity is permissible, the Federal Reserve
must consider whether the performance of such an activity reasonably can be
expected to produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency, that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices. For example,
factoring accounts receivable, acquiring or servicing loans, leasing personal
property, conducting
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discount securities brokerage activities, performing certain data processing
services, acting as agent or broker in selling credit life insurance and
certain other types of insurance in connection with credit transactions, and
performing certain insurance underwriting activities all have been determined
by the Federal Reserve to be permissible activities of bank holding companies.
The BHC Act does not place territorial limitations on permissible nonbanking
activities of bank holding companies. Despite prior approval, the Federal
Reserve has the power to order a bank holding company or its subsidiaries to
terminate any activity or to terminate its ownership or control of any
subsidiary when it has reasonable cause to believe that continuation of such
activity or such ownership or control constitutes a serious risk to the
financial safety, soundness, or stability of any bank subsidiary of that bank
holding company.
Each of the Subsidiary Banks of the Registrant is a member of the
Federal Deposit Insurance Corporation ("FDIC"), and as such, its deposits are
insured by the FDIC to the extent provided by law. Each Subsidiary Bank is
also subject to numerous state and federal statutes and regulations that affect
its business, activities, and operations, and each is supervised and examined
by one or more state or federal bank regulatory agencies.
All of the Subsidiary Banks that are state-chartered banks that are
not members of the Federal Reserve System are subject to supervision and
examination by the FDIC and the state banking authorities of the states in
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which they are located. The Subsidiary Banks that are federal savings banks
are subject to regulation, supervision, and examination by the OTS and the
FDIC. The federal banking regulator for each of the Subsidiary Banks, as well
as the appropriate state banking authority for each of the Subsidiary Banks
that is a state chartered bank, regularly examines the operations of the
Subsidiary Banks and is given authority to approve or disapprove mergers,
consolidations, the establishment of branches, and similar corporate actions.
The federal and state banking regulators also have the power to prevent the
continuance or development of unsafe or unsound banking practices or other
violations of law.
The Subsidiary Banks are subject to the provisions of the CRA.
Under the terms of the CRA, the Subsidiary Banks have a continuing and
affirmative obligation consistent with their safe and sound operation to help
meet the credit needs of their entire communities, including low- and
moderate-income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires each appropriate federal bank regulatory agency, in connection
with its examination of a subsidiary depository institution, to assess such
institution's record in assessing and meeting the credit needs of the community
served by that institution, including low- and moderate-income neighborhoods.
The regulatory agency's assessment of the
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institution's record is made available to the public. Further, such assessment
is required of any institution which has applied to: (i) charter a national
bank; (ii) obtain deposit insurance coverage for a newly chartered institution;
(iii) establish a new branch office that will accept deposits; (iv) relocate an
office; or (v) merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution. In the case of a
bank holding company applying for approval to acquire a bank or other bank
holding company, the Federal Reserve will assess the records of each subsidiary
depository institution of the applicant bank holding company, and such records
may be the basis for denying the application. All of the Subsidiary Banks
received at least a "satisfactory" CRA rating in their most recent
examinations.
In April 1995, the federal banking agencies adopted amendments
revising their CRA regulations, with a phase- in schedule applicable to various
provisions. Among other things, the amended CRA regulations, when fully
implemented on July 1, 1997, will substitute for the prior process-based
assessment factors a new evaluation system that will rate an institution based
on its actual performance in meeting community needs. In particular, the system
will focus on three tests; (i) a lending test, to evaluate the institution's
record of making loans in its service areas; (ii) an investment test, to
evaluate the institution's record of investing in community development
projects; and (iii) a service test, to evaluate the institution's delivery of
services through its branches, ATM's and
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other offices. The amended CRA regulations also clarify how an institution's
CRA performance will be considered in the application process.
Payment of Dividends. The Registrant is a legal entity separate and
distinct from its banking and other subsidiaries. The principal source of cash
flow of the Registrant, including cash flow to pay dividends to its
stockholders, is dividends from the Subsidiary Banks. There are statutory and
regulatory limitations on the payment of dividends by the Subsidiary Banks to
the Registrant as well as the Registrant to its stockholders.
As to the payment of dividends, all of the Subsidiary Banks that are
state nonmember banks are subject to the respective laws and regulations of the
states of Alabama, Florida, Georgia, Louisiana, and Tennessee and to the
regulations of the FDIC. The Subsidiary Banks that are federal savings banks
are subject to the OTS' capital distributions regulation.
If, in the opinion of a federal regulatory agency, an institution
under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the
institution, could include the payment of dividends), such agency may require,
after notice and hearing, that such institution cease and desist from such
practice. The federal banking agencies have indicated that paying dividends
that deplete an institution's capital base to an inadequate level would be an
unsafe and unsound banking practice. Under
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the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
an insured institution may not pay any dividend if payment would cause it to
become undercapitalized or if it already is undercapitalized. See "Prompt
Corrective Action." Moreover, the Federal Reserve and the FDIC have issued
policy statements which provide that bank holding companies and insured banks
should generally pay dividends only out of current operating earnings.
At December 31, 1996, under dividend restrictions imposed under
federal and state laws, the Subsidiary Banks, without obtaining governmental
approvals, could declare aggregate dividends to the Registrant of approximately
$169 million.
The payment of dividends by the Registrant and the Subsidiary Banks
may also be affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines.
Capital Adequacy. The Registrant and the Subsidiary Banks are
required to comply with the capital adequacy standards established by the
Federal Reserve in the case of the Registrant and the FDIC and the OTS in the
case of the Subsidiary Banks. There are two basic measures of capital adequacy
for bank holding companies that have been promulgated by the Federal Reserve:
a risk-based measure and a leverage measure. All applicable capital standards
must be satisfied for a bank holding company to be considered in compliance.
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The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profile among banks
and bank holding companies, to account for off-balance-sheet exposure, and to
minimize disincentives for holding liquid assets. Assets and off-balance sheet
items are assigned to broad risk categories, each with appropriate weights.
The resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items.
The minimum guideline for the ratio of total capital ("Total
Capital") to risk-weighted assets (including certain off-balance-sheet items,
such as standby letters of credit) is 8.0%. At least half of the Total Capital
must be composed of common equity, undivided profits, minority interests in the
equity accounts of consolidated subsidiaries, noncumulative perpetual preferred
stock, and a limited amount of cumulative perpetual preferred stock, less
goodwill and certain other intangible assets ("Tier 1 Capital"). The remainder
may consist of subordinated debt, other preferred stock, and a limited amount
of loan loss reserves. The minimum guideline for Tier 1 Capital is 4.0%. At
December 31, 1996, the Registrant's consolidated Tier 1 Capital and Total
Capital ratios were 10.81% and 13.59%, respectively.
In addition, the Federal Reserve has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum ratio of Tier 1 Capital to average assets, less goodwill and certain
other intangible assets (the "Leverage Ratio"), of 3.0% for bank
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holding companies that meet certain specified criteria, including having the
highest regulatory rating. All other bank holding companies generally are
required to maintain a Leverage Ratio of at least 3.0%, plus an additional
cushion of 100 to 200 basis points. The Registrant's Leverage Ratio at
December 31, 1996, was 7.44%. The guidelines also provide that bank holding
companies experiencing internal growth or making acquisitions will be expected
to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital leverage ratio" (deducting all intangibles) and other
indicators of capital strength in evaluating proposals for expansion or new
activities.
Each of the Registrant's Subsidiary Banks is subject to risk-based
and leverage capital requirements adopted by the FDIC or the OTS, which are
substantially similar to those adopted by the Federal Reserve. Each of the
Registrant's Subsidiary Banks was in compliance with applicable minimum capital
requirements as of December 31, 1996. Neither the Registrant nor any of the
Subsidiary Banks has been advised by any federal banking agency of any specific
minimum capital ratio requirement applicable to it.
Failure to meet capital guidelines could subject a bank to a variety
of enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business. See "Prompt Corrective
Action."
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Support of Subsidiary Banks. Under Federal Reserve policy, the
Registrant is expected to act as a source of financial strength to, and to
commit resources to support, each of the Subsidiary Banks. This support may be
required at times when, absent such Federal Reserve policy, the Registrant may
not be inclined to provide it. In addition, any capital loans by a bank
holding company to any of the Subsidiary Banks are subordinate in right of
payment to deposits and to certain other indebtedness of such Subsidiary Bank.
In the event of a bank holding company's bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to maintain the capital of
a Subsidiary Bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
Under the Federal Deposit Insurance Act (FDIA), a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989, in
connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to any
commonly controlled FDIC-insured depository institution "in danger of default."
"Default" is defined generally as the appointment of a conservator or receiver,
and "in danger of default" is defined generally as the existence of certain
conditions indicating that a default is likely to occur in the absence of
regulatory assistance. The FDIC's claim for damages is superior to claims of
stockholders of the insured depository
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institution or its holding company, but is subordinate to claims of depositors,
secured creditors, and holders of subordinated debt (other than affiliates) of
the commonly controlled insured depository institution. The Subsidiary Banks
are subject to these cross-guarantee provisions. As a result, any loss
suffered by the FDIC in respect of any of the Subsidiary Banks would likely
result in assertion of the cross-guarantee provisions, the assessment of such
estimated losses against the Registrant's other Subsidiary Banks, and a
potential loss of the Registrant's investment in such other Subsidiary Banks.
Prompt Corrective Action. FDICIA establishes a system of prompt
corrective action to resolve the problems of undercapitalized institutions.
Under this system, which became effective in December 1992, the federal banking
regulators are required to establish five capital categories ("well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized") and to take certain
mandatory supervisory actions, and are authorized to take other discretionary
actions, with respect to institutions in the three undercapitalized categories,
the severity of which will depend upon the capital category in which the
institution is placed. Generally, subject to a narrow exception, FDICIA
requires the banking regulator to appoint a receiver or conservator for an
institution that is critically undercapitalized. The federal banking agencies
have specified by regulation the relevant capital level for each category.
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Under the final agency rule implementing the prompt corrective
action provisions, an institution that (i) has a Total Capital ratio of 10% or
greater, a Tier 1 Capital ratio of 6.0% or greater, and a Leverage Ratio of
5.0% or greater and (ii) is not subject to any written agreement, order,
capital directive, or prompt corrective action directive issued by the
appropriate federal banking agency is deemed to be "well capitalized." An
institution with a Total Capital ratio of 8.0% or greater, a Tier 1 Capital
ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or greater is considered
to be "adequately capitalized." A depository institution that has a Total
Capital ratio of less than 8.0%, a Tier 1 Capital ratio of less than 4.0%, or a
Leverage Ratio of less than 4.0% is considered to be "undercapitalized." A
depository institution that has a Total Capital ratio of less than 6.0%, a Tier
1 Capital ratio of less than 3.0%, or a Leverage Ratio of less than 3.0% is
considered to be "significantly undercapitalized," and an institution that has
a tangible equity capital to assets ratio equal to or less than 2.0% is deemed
to be "critically undercapitalized." For purposes of the regulation, the term
"tangible equity" includes core capital elements counted as Tier 1 Capital for
purposes of the risk-based capital standards plus the amount of outstanding
cumulative perpetual preferred stock (including related surplus), minus all
intangible assets with certain exceptions. A depository institution may be
deemed to be in a capitalization category that is lower than is indicated
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by its actual capital position if it receives an unsatisfactory examination
rating.
An institution that is categorized as undercapitalized,
significantly undercapitalized, or critically undercapitalized is required to
submit an acceptable capital restoration plan to its appropriate federal
banking agency. Under FDICIA, a bank holding company must guarantee that a
subsidiary depository institution meet its capital restoration plan, subject to
certain limitations. The obligation of a controlling bank holding company
under FDICIA to fund a capital restoration plan is limited to the lesser of
5.0% of an undercapitalized subsidiary's assets and the amount required to meet
regulatory capital requirements. An undercapitalized institution is also
generally prohibited from increasing its average total assets, making
acquisitions, establishing any branches, or engaging in any new line of
business, except in accordance with an accepted capital restoration plan or
with the approval of the FDIC. In addition, the appropriate federal banking
agency is given authority with respect to any undercapitalized depository
institution to take any of the actions it is required to or may take with
respect to a significantly undercapitalized institution as described below if
it determines "that those actions are necessary to carry out the purpose" of
FDICIA.
For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan,
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the appropriate federal banking agency must require the institution to take one
or more of the following actions: (i) sell enough shares, including voting
shares, to become adequately capitalized; (ii) merge with (or be sold to)
another institution (or holding company), but only if grounds exist for
appointing a conservator or receiver; (iii) restrict certain transactions with
banking affiliates as if the "sister bank" exception to the requirements of
Section 23A of the Federal Reserve Act did not exist; (iv) otherwise restrict
transactions with bank or nonbank affiliates; (v) restrict interest rates that
the institution pays on deposits to "prevailing rates" in the institution's
"region"; (vi) restrict asset growth or reduce total assets; (vii) alter,
reduce, or terminate activities; (viii) hold a new election of directors; (ix)
dismiss any director or senior executive officer who held office for more than
180 days immediately before the institution became undercapitalized, provided
that in requiring dismissal of a director or senior officer, the agency must
comply with certain procedural requirements, including the opportunity for an
appeal in which the director or officer will have the burden of proving his or
her value to the institution; (x) employ "qualified" senior executive officers;
(xi) cease accepting deposits from correspondent depository institutions; (xii)
divest certain nondepository affiliates which pose a danger to the institution;
or (xiii) be divested by a parent holding company. In addition, without the
prior approval of the appropriate federal banking agency, a significantly
undercapitalized
20
<PAGE> 22
institution may not pay any bonus to any senior executive officer or increase
the rate of compensation for such an officer without regulatory approval.
At December 31, 1996, all of the Registrant's Subsidiary Banks had
the requisite capital levels to qualify as well capitalized.
FDIC Insurance Assessments. Pursuant to FDICIA, the FDIC adopted a
risk-based assessment system for insured depository institutions that takes
into account the risks attributable to different categories and concentrations
of assets and liabilities. The risk-based system, which went into effect on
January 1, 1994, assigns an institution to one of three capital categories:
(i) well capitalized; (ii) adequately capitalized; and (iii) undercapitalized.
These three categories are substantially similar to the prompt corrective
action categories described above, with the "undercapitalized" category
including institutions that are undercapitalized, significantly
undercapitalized, and critically undercapitalized for prompt corrective action
purposes. An institution is also assigned by the FDIC to one of three
supervisory subgroups within each capital group. The supervisory subgroup to
which an institution is assigned is based on a supervisory evaluation provided
to the FDIC by the institution's primary federal regulator and information
which the FDIC determines to be relevant to the institution's financial
condition and the risk posed to the deposit insurance funds (which may include,
if applicable, information provided by the institution's state supervisor).
21
<PAGE> 23
An institution's insurance assessment rate is then determined based on the
capital category and supervisory category to which it is assigned. Under the
final risk-based assessment system, there are nine assessment risk
classifications (i.e., combinations of capital groups and supervisory
subgroups) to which different assessment rates are applied. Assessment rates
for both the Bank Insurance Fund (BIF) and the Savings Association Insurance
Fund (SAIF) for the first half of 1995, as they had been during 1994, ranged
from 23 basis points for an institution in the highest category (i.e., "well
capitalized" and "healthy") to 31 basis points for an institution in the lowest
category (i.e. "undercapitalized" and "substantial supervisory concern").
These rates were established for both funds to achieve a designated ratio of
reserves to insured deposits (i.e. 1.25%) within a specified period of time.
Once the designated ratio for the BIF was reached in May 1995, the
FDIC was authorized to reduce the minimum assessment rate below the 23 basis
points and to set future assessment rates at such levels that would maintain
the fund's reserve ratio at the designated level. In August 1995, the FDIC
adopted final regulations reducing the assessment rates for BIF-member banks.
Under the revised schedule, BIF-member banks, starting with the second half of
1995, would pay assessments ranging from 4.0 basis points to 31 basis points,
with an average assessment rate of 4.5 basis points. Refunds, with interest
were paid for assessments for the month(s) after the month in which the
designated reserve ratio for the BIF was
22
<PAGE> 24
reached. At the same time, the FDIC elected to retain the existing assessment
rate of 23 to 31 basis points for the SAIF members for the foreseeable future
given the undercapitalized nature of that insurance fund. Subsequently, on
November 14, 1995, the FDIC announced that, beginning in 1996, it would further
reduce the deposit insurance premiums for 92% of all BIF members that are in
the highest capital and supervisory categories to $2,000 per year, regardless
of deposit size. At the same time, the FDIC elected to retain the existing
assessment range of 23 to 31 basis points for SAIF members for the foreseeable
future given the undercapitalized nature of that insurance fund.
Recognizing that the disparity between the SAIF and BIF premium
rates have adverse consequences for SAIF- insured institutions and other banks
with SAIF assessed deposits, including reduced earnings and an impaired ability
to raise funds in capital markets and to attract deposits, on September 30,
1996, the President signed legislation to recapitalize the SAIF. Under this
legislation, all SAIF-member institutions were required to pay a special
assessment to recapitalize the SAIF, and the assessment base for the payments
on the Financing Corporation (FICO) bonds were expanded to include the deposits
of both BIF- and SAIF-insured institutions.
The amount of the special assessment was 65.7 basis points of
SAIF-insured deposits held as of March 31, 1995, (or approximately 52.6 basis
points on SAIF-insured deposits acquired by banks in certain qualifying
23
<PAGE> 25
transactions), which resulted in a pre-tax charge of $21.7 million for Regions
in 1996.
In addition, the FDIC revised the SAIF assessment rate schedule to
effect (i) a widening in the assessment rate spread among institutions in the
different capital and risk assessment categories and (ii) an overall reduction
of the assessment rate range assessable on SAIF deposits (0 to 27 basis
points). Effective January 1, 1997, FICO assessments were imposed on both BIF-
and SAIF-insured deposits at 1.29 basis points and 6.44 basis points,
respectively. Beginning in January 2000, BIF- and SAIF-insured deposits will
share the FICO interest cost at equal rates currently estimated at 2.43 basis
points. Regions anticipates that the net effect of the decrease in the premium
assessment rate on SAIF deposits will result in a reduction in its total
deposit insurance premium assessments for the years 1997 through 1999, assuming
no further changes in announced premium assessment rates.
Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe and unsound
practices, is in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, rule, order, or condition imposed by
the FDIC.
Safety and Soundness Standards. The FDIA, as amended by FDICIA and
the Riegle Community Development and Regulatory Improvement Act of 1994,
requires the federal bank regulatory agencies to prescribe standards, by
24
<PAGE> 26
regulations or guidelines, relating to internal controls, information systems
and internal audit systems, loan documentation, credit underwriting, interest
rate risk exposure, asset growth, asset quality, earnings, stock valuation and
compensation, fees and benefits and such other operational and managerial
standards as the agencies deem appropriate. The federal bank regulatory
agencies have adopted, effective August 9, 1995, a set of guidelines
prescribing safety and soundness standards pursuant to FDICIA, as amended. The
guidelines establish general standards relating to internal controls and
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth and compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risk and exposures specified
in the guidelines. The guidelines prohibit excessive compensation as an unsafe
and unsound practice and describe compensation as excessive when the amounts
paid are unreasonable or disproportionate to the services performed by an
executive officer, employee, director, or principle stockholder. The federal
banking agencies determined that stock valuation standards were not
appropriate. In addition, the agencies adopted regulations that authorize, but
do not require, an agency to order an institution that has been given notice by
an agency that it is not satisfying any of such safety and soundness standards
to submit a compliance plan. If, after being so notified, an institution fails
to submit an acceptable compliance plan or fails in any material
25
<PAGE> 27
respect to implement an acceptable compliance plan, the agency must issue an
order directing action to correct the deficiency and may issue an order
directing other actions of the types to which an undercapitalized institution
is subject under the "prompt corrective action" provisions of FDICIA. See
"Prompt Corrective Action." If an institution fails to comply with such an
order, the agency may seek to enforce such order in judicial proceedings and to
impose civil money penalties. The federal bank regulatory agencies also
proposed guidelines for asset quality and earnings standards.
Depositor Preference. The Omnibus Budget Reconciliation Act of 1993
provides that deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution would be
afforded a priority over other general unsecured claims against such an
institution in the "liquidation or other resolution" of such an institution by
any receiver.
Other. Because of concerns relating to the competitiveness and the
safety and soundness of the industry, the United States Congress continues to
consider a number of wide-ranging proposals for altering the structure,
regulation, and competitive relationships of the nation's financial
institutions. Among such bills are proposals to prohibit depository
institutions and bank holding companies from conducting certain types of
activities, to subject depository institutions to increased disclosure and
reporting requirements, to alter the statutory separation of commercial and
26
<PAGE> 28
investment banking, to require federal savings banks to convert to commercial
bank charters and to further expand the powers of depository institutions, bank
holding companies, and competitors of depository institutions. It cannot be
predicted whether or in what form any of these proposals will be adopted or the
extent to which the business of the Registrant may be affected thereby.
Registrant's broker/dealer subsidiary, Regions Investment Company,
Inc., is subject to regulation by the Securities and Exchange Commission, the
National Association of Securities Dealers, and certain state securities
commissions.
(i) The following chart shows for the last three years the
percentage of total operating income contributed by each of the major
categories of income.
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Interest and fees on loans 68.6% 69.8% 65.1%
Interest on securities 16.1 15.9 17.6
Interest on mortgage loans held for sale 1.0 0.6 1.7
Interest on federal funds sold 0.2 0.5 0.6
Other interest income 0.4 0.2 0.2
Trust department income 1.7 1.8 1.9
Service charges on deposit accounts 5.5 5.1 5.3
Mortgage servicing and origination fees 3.2 3.0 3.9
Other non-interest income 3.3 3.1 3.7
------ ----- -----
Total Operating Income 100.0% 100.0% 100.0%
====== ===== =====
</TABLE>
27
<PAGE> 29
(ii) There has been no public announcement, and no information
otherwise has become public, about a material new product or line of business.
(iii) The monetary policies of the Federal Reserve affect the
operations of Registrant's Subsidiary Banks. Through changes in the reserve
requirements against bank and thrift deposits, open market operations in U.S.
Government securities and changes in the discount rate on borrowings, the
Federal Reserve influences the cost and availability of funds obtained for
lending and investing.
The monetary policies of the Federal Reserve have had a significant
effect on the operating results of financial institutions in the past and are
expected to do so in the future. The impact of such policies on the future
business and earnings of the Registrant cannot be predicted.
(iv) The Registrant does not have any material patents,
trademarks, licenses, franchises, or concessions.
(v) No material portion of the Registrant's business is of a
seasonal nature.
(vi) The primary sources of funds for the Subsidiary Banks are
deposits and borrowed funds. The Registrant's primary sources of operating
28
<PAGE> 30
funds are service fees, dividends, and interest which it receives from bank and
bank-related subsidiaries.
(vii) No material part of the business of the Registrant is
dependent upon a single customer or a few customers. No single customer or
affiliated group of customers accounts for 10% or more of Registrant's
consolidated revenues.
(viii) Information concerning backlog orders is not relevant to
an understanding of the business of the Registrant.
(ix) No material portion of the business of the Registrant is
subject to renegotiation of profits or termination of contracts or subcontracts
by governmental authorities.
(x) All aspects of the Registrant's business are highly
competitive. The Registrant's subsidiaries compete with other financial
institutions located in Alabama, northwest and central Florida, Georgia,
Louisiana, Tennessee, and other adjoining states, as well as large banks in
major financial centers and other financial intermediaries, such as savings and
loan associations, credit unions, consumer finance companies, brokerage firms,
insurance companies, investment companies, mutual funds, other mortgage
companies and financial service operations of major commercial and retail
corporations.
As of December 31, 1996, the Registrant was the second largest bank
holding company headquartered in Alabama based on assets. For information with
respect to the Registrant's markets and the size of the Subsidiary
29
<PAGE> 31
Banks operating in such markets, see the information provided under subsection
(a) of this Item 1.
Customers for banking services are generally influenced by
convenience, quality of service, personal contacts, price of services, and
availability of products. Although the ranking of Registrant's position varies
in different markets, Registrant believes that its affiliates effectively
compete with other banks and thrifts in their relevant market areas.
Under the provisions of the Interstate Banking Act, the existing
restrictions on interstate acquisitions of banks by bank holding companies,
including the regional interstate banking legislation adopted in 1987 by the
state of Alabama permitting interstate acquisitions of banks and bank holding
companies generally in certain southeastern states, were repealed effective
September 29, 1995, such that the Registrant and any other bank holding company
located in Alabama are now able to acquire a bank located in any other state,
and a bank holding company located outside Alabama could acquire any
Alabama-based bank, in either case subject to certain deposit percentage and
other restrictions. The Interstate Banking Act also generally provides that,
after June 1, 1997, national and state-chartered banks may branch interstate
through acquisitions of banks in other states. By adopting legislation prior
to that date, a state has the ability either to "opt in" and accelerate the
date after which interstate branching is permissible or "opt out" and prohibit
interstate branching altogether. To
30
<PAGE> 32
the extent that large bank holding companies that previously were not permitted
to make acquisitions in the markets in which Regions operates do effect
acquisitions pursuant to the Interstate Banking Act, competition in the
Registrant's markets could further intensify.
(xi) There were no material expenditures during the last three
fiscal years on research and development activities by the Registrant.
(xii) Regulations of any governmental authority concerning the
discharge of materials into the environment are expected to have no material
effect on the Registrant or any of its subsidiaries.
(xiii) As of December 31, 1996, Registrant, its affiliate banks
and other subsidiaries had a total of 8,150 full-time-equivalent employees.
(d) Registrant neither engages in foreign operations nor derives a
significant portion of its business from customers in foreign countries.
31
<PAGE> 33
ITEM 2. Properties
The corporate headquarters of the Registrant occupy several floors of
the main Birmingham banking facility of Regions Bank (Alabama), located at
417 North 20th Street, Birmingham, Alabama 35203.
The Registrant and its subsidiaries, including the Subsidiary Banks,
operate through 425 office facilities, of which 276 are owned by the Registrant
or one of its subsidiaries and 149 are subject to building or ground leases. Of
the 377 branch office facilities operated by the Subsidiary Banks at December
31, 1996, 101 are subject to building or ground leases and 276 are wholly owned
by the Subsidiary Banks.
For offices in premises leased by the Registrant and its
subsidiaries, annual rentals totaled approximately $6,353,000 as of December 31,
1996. During 1996, the Registrant and its subsidiaries received approximately
$3,481,000 in rentals for space leased to others. At December 31, 1996,
encumbrances on the offices, equipment and other operational facilities owned by
the Registrant and its subsidiaries totaled approximately $8,469,000 with a
weighted average interest rate of 6.6%.
ITEM 3. Legal Proceedings
"Note L. Commitments and Contingencies" on page 63 of the annual
report to stockholders for the year ended December 31, 1996, is incorporated
herein by reference.
The Registrant is becoming more concerned about the general trend in
litigation in Alabama state courts involving large damage awards against
32
<PAGE> 34
financial service company defendants. Registrant directly or through its
subsidiaries is party to approximately 71 cases in Alabama in the ordinary
course of business, some of which seek class action treatment or punitive
damages. The damage exposure in Alabama in any case and in the aggregate is
difficult to estimate because the jury has broad discretion as to the amount of
damages awarded. The U.S. Supreme Court overturned an Alabama case involving a
large jury award, holding that the punitive damage award was so grossly
excessive as to violate due process. Subsequently, the U.S. Supreme Court has
returned several cases to the Alabama courts for reconsideration in light of
its ruling. In addition, the Alabama Supreme Court has reduced several large
damage awards against defendants that were awarded by lower court juries. In
March of 1997, the Alabama Supreme Court reversed a precident set in 1989
reguarding reliance by plaintiffs on verbal representations which are not in
agreement with written contracts. The 1898 ruling had been the source of
significant litigation losses in the state and its reversal is viewed as a
positive event.
Notwithstanding these concerns, Registrant believes, based on
consultation with legal counsel, that the outcome of pending litigation will not
have a material effect on Registrant's consolidated financial position.
33
<PAGE> 35
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders for a vote in the
fourth quarter of 1996.
34
<PAGE> 36
PART II
ITEM 5. Market for the Registrant's Common Stock
and Related Security Holder Matters
"Common Stock Market Prices and Dividends" on page 48 of the annual report
to stockholders for the year ended December 31, 1996, is incorporated herein by
reference.
ITEM 6. Selected Financial Data
"Historical Financial Summary" on pages 74 through 75 of the annual report
to stockholders for the year ended December 31, 1996, is incorporated herein by
reference.
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" on pages 21 through 48 of the annual report to stockholders for
the year ended December 31, 1996, is incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The report of independent auditors and the consolidated financial
statements of the Registrant and its subsidiaries, included in the annual
report to stockholders for the year ended December 31, 1996, are incorporated
herein by reference.
35
<PAGE> 37
"Summary of Quarterly Results of Operations" on page 48 and "Effects of
Inflation" on page 47 of the annual report to stockholders for the year ended
December 31, 1996, are incorporated herein by reference.
ITEM 9. Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure
There have been no disagreements on accounting and financial disclosure
between Registrant and Ernst & Young LLP.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
"Information on Directors" from pages 3 through 5 and "Section 16
Transactions" on page 6 of the Registrant's proxy statement dated April 1,
1997, are incorporated herein by reference.
Executive officers of the Registrant as of December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
Position and
Offices Held with Officer
Executive Officer Age Registrant and Subsidiaries Since
- ----------------- --- --------------------------- -----
<S> <C> <C> <C>
J. Stanley Mackin 64 Chairman, Director and Chief Executive Officer, 1983*
Registrant and Regions Bank (Alabama); Director,
Regions Bank of Louisiana, Regions Mortgage,
Inc., Regions Agency, and Regions Life Insurance
Company.
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
Position and
Offices Held with Officer
Executive Officer Age Registrant and Subsidiaries Since
- ----------------- --- --------------------------- -----
<S> <C> <C> <C>
Carl E. Jones, Jr. 56 Director, President and Chief Operating Officer, 1983*
Registrant; President/Southern Alabama Region and
Louisiana Region; Director, Regions Bank
(Alabama) and Regions Bank of Louisiana.
Richard D. Horsley 54 Vice Chairman, Director and Executive Financial 1972
Officer, Registrant and Regions Bank (Alabama);
Director and Vice President, Regions Agency,
Inc., Regions Asset Management Company, RAMCO -
FL Holding, Inc., and RAMCO - FL, Inc.; Director,
Regions Bank of Louisiana, Regions Life Insurance
Company, Regions Financial Building Corp. and
Regions Mortgage, Inc.
Sam P. Faucett 62 President/Western Alabama Region and Florida 1983*
Region; Director, Regions Bank (Alabama), Regions
Bank of Florida and Regions Mortgage, Inc.
Joe M. Hinds, Jr. 59 President/Northern Alabama Region and Tennessee 1983*
Region; Director Regions Bank (Alabama) and
Regions Bank of Tennessee.
Wilbur B. Hufham 59 President/Southeastern Alabama Region; Director, 1983*
Regions Bank (Alabama) and Regions Bank of
Georgia.
</TABLE>
37
<PAGE> 39
<TABLE>
<CAPTION>
Position and
Offices Held with Officer
Executive Officer Age Registrant and Subsidiaries Since
- ----------------- --- --------------------------- -----
<S> <C> <C> <C>
William E. Jordan 62 President/Central Alabama Region; Chairman 1990*
Georgia Region; Director Regions Bank (Alabama)
and Regions Bank (Georgia).
Peter D. Miller 50 President/Georgia Region; Chairman, Director and 1996*
Chief Executive Officer Regions Bank (Georgia).
William E. Askew 47 Executive Vice President - Retail Banking 1987
Division, Registrant and Regions Bank (Alabama).
Delmar F. Epton 63 Executive Vice President - Product Development, 1986*
Registrant and Regions Bank (Alabama).
Robert P. Houston 52 Executive Vice President and Comptroller, 1974
Registrant and Regions Bank (Alabama); Director
and Treasurer, Regions Financial Building Corp.;
Director, Secretary and Treasurer, Regions Life
Insurance Company and Regions Agency, Inc.;
Director and Vice President, Regions Asset
Management Company, RAMCO - FL Holding, Inc., and
RAMCO - FL, Inc.
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
Position and
Offices Held with Officer
Executive Officer Age Registrant and Subsidiaries Since
- ----------------- --- --------------------------- -----
<S> <C> <C> <C>
E. Cris Stone 54 Executive Vice President - Corporate Banking, 1988
Registrant and Regions Bank (Alabama); Director
and Vice President, Regions Financial Leasing,
Inc.
Richard E. Wambsganss 56 Executive Vice President - Trust Group, 1987
Registrant and Regions Bank (Alabama).
Samuel E. Upchurch Jr. 45 General Counsel and Corporate Secretary, 1994
Registrant and Regions Bank (Alabama); Director
Regions Investment Company, Inc.
</TABLE>
*The years indicated are those in which the individual was first deemed to be
an executive officer of Registrant, although in every case the individual had
been an executive officer of a subsidiary of Registrant for a number of years.
ITEM 11. Executive Compensation
"Executive Compensation and Other Transactions" on pages 7 through 11,
excluding the information on page 11 under the sub-headings "Compensation and
Stock Option Determinations" and "Personnel Committee Executive Compensation
Report" of the Registrant's proxy statement dated April 1, 1997, are
incorporated herein by reference. "Executive Compensation Report" on pages 11
through 14, of the Registrant's proxy statement dated April 1, 1997, are
specifically not incorporated by reference herein.
39
<PAGE> 41
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
"Voting Securities and Principal Holders Thereof" on page 2 and
"Information on Directors" on pages 3 through 5 of the Registrant's proxy
statement dated April 1, 1997, are incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
"Other Transactions," on page 15 of the Registrant's proxy statement dated
April 1, 1997, are incorporated herein by reference.
40
<PAGE> 42
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
14(a)(1) and (2) The lists called for by this portion of Item 14 are
submitted as a separate part of this report.
14(a)(3) Listing of Exhibits:
<TABLE>
<CAPTION>
SEC Assigned
Exhibit Number Description of Exhibit
- -------------- ----------------------
<S> <C>
3. Bylaws as last amended on April 28, 1993, incorporated herein by reference from the
Exhibits to the Registration Statement filed with the Commission and assigned file number
33-50577.
Certificate of Incorporation as last amended on May 2, 1994, incorporated herein by
reference from the Exhibits to the Registration Statement filed with the Commission and
assigned file number 33-54231.
4. a. Subordinated Notes Indenture Agreement dated as of December 1, 1992, incorporated by
reference from the Exhibits to the Registration Statement filed with the Commission
and assigned registration number 33-45714.
10. *a. Regions Amended and Restated 1991 Long-Term Incentive Plan incorporated by reference
from Exhibit B to the Registrant's proxy statement filed with the Commission and
dated March 16, 1995.
</TABLE>
41
<PAGE> 43
*b. Regions Management Incentive Plan Amended
and Restated as of January 1, 1995,
incorporated by reference from Appendix A to
the Registrant's proxy statement filed with
the Commission and dated March 16, 1995.
13. Annual Report to Stockholders for the year ended
December 31, 1996.
21. List of Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
27. Financial Data Schedule (for SEC use only).
99. a. Form 11-K, Annual Report of Employee Stock
Purchase Plan of Regions Financial
Corporation for the year ended December 31,
1996.
b. Form 11-K, Annual Report of Directors'
Stock Investment Plan of Regions Financial
Corporation for the year ended December 31,
1996.
*- Represents a compensatory plan agreement
that is required to be filed under this
item.
14(b) Reports on Form 8-K filed in the fourth quarter of 1996:
In a report filed on Form 8-K, under items 5 and
7, dated November 20, 1996, the Registrant filed pro
forma financial statements reflecting certain aspects
of its pending acquisitions. Included in the report are
the unaudited pro forma combined condensed statement of
condition as of September 30, 1996, and unaudited pro
forma combined condensed statements of income for the
nine months ended September 30, 1996, and the years
ended December 31, 1995, 1994 and 1993.
14(c) The Exhibits not incorporated herein by reference are
submitted as a separate part of this report.
42
<PAGE> 44
NOTE: Copies of the aforementioned exhibits are available to
stockholders upon request to:
Stockholder Assistance
44 First Alabama Plaza
P. O. Box 1448
Montgomery, Alabama 36102-1448
14(d) Financial statement schedules: None.
43
<PAGE> 45
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
REGIONS FINANCIAL CORPORATION
/s/ Samuel E. Upchurch, Jr. 3/24/97
---------------------------------------------------
Samuel E. Upchurch, Jr. Date
General Counsel
and Corporate Secretary
/s/Robert P. Houston 3/20/97
---------------------------------------------------
Robert P. Houston Date
Executive Vice President
and Comptroller
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C> <C>
/s/ J. Stanley Mackin 3/20/97
- -----------------------------------------------------
J. Stanley Mackin Date -----------------------------------------------------
Chairman, Chief Executive Sheila S. Blair Date
Officer and Director Director
/s/ Carl E. Jones, Jr. 3/19/97
- -----------------------------------------------------
Carl E. Jones, Jr. Date
President, Chief Operating Officer and
Director -----------------------------------------------------
William R. Boles, Sr. Date
/s/ Richard D. Horsley 3/20/97 Director
- -----------------------------------------------------
Richard D. Horsley Date
Vice Chairman, Executive
Financial Officer and Director
-----------------------------------------------------
James B. Boone, Jr. Date
Director
</TABLE>
44
<PAGE> 46
<TABLE>
<CAPTION>
Director
<S> <C> <C> <C>
/s/ Lee J. Styslinger, Jr. 3/24/97
-----------------------------------------------------
/s/ Albert P. Brewer 3/21/97 Lee J. Styslinger, Jr. Date
- -----------------------------------------------------
Albert P. Brewer Date Director
Director
-----------------------------------------------------
Robert J. Williams Date
/s/ James S. M. French 3/21/97 Director
- -----------------------------------------------------
James S. M. French Date
Director
/s/ Catesby ap C. Jones 3/21/97
- -----------------------------------------------------
Catesby ap C. Jones Date
Director
- -----------------------------------------------------
Olin B. King Date
Director
/s/ Henry E. Simpson 3/24/97
- -----------------------------------------------------
Henry E. Simpson Date
Director
</TABLE>
45
<PAGE> 47
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) AND (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1996
REGIONS FINANCIAL CORPORATION
BIRMINGHAM, ALABAMA
<PAGE> 48
FORM 10-K - ITEM 14(a)(1) AND (2)
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and report of
independent auditors of Regions Financial Corporation and subsidiaries,
included in the annual report of the registrant to its stockholders for the
year ended December 31, 1996, are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Statements of Condition - December 31, 1996 and
1995
Consolidated Statements of Income - Years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity -
Years ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements - December 31,
1996
Schedules to the consolidated financial statements required by Article
9 of Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
<PAGE> 49
ANNUAL REPORT ON FORM 10-K
ITEM 14(c)
EXHIBITS
<PAGE> 50
EXHIBITS INDEX
SEC Assigned
Exhibit Number Description of Exhibit
- -------------- ----------------------
3. Bylaws as last amended on April 28, 1993,
incorporated herein by reference from the Exhibits
to the Registration Statement filed with the
Commission and assigned file number 33-50577.
Certificate of Incorporation as last amended on May
2, 1994, incorporated herein by reference from the
Exhibits to the Registration Statement filed with
the Commission and assigned file number 33-54231.
4. b. Subordinated Notes Indenture Agreement dated
as of December 1, 1992, incorporated by
reference from the Exhibits to the
Registration Statement filed with the
Commission and assigned registration number
33-45714.
10. a. Regions Amended and Restated 1991 Long-Term
Incentive Plan incorporated by reference from
Exhibit B to the Registrant's proxy statement
filed with the Commission and dated March 16,
1995.
13. Annual Report to Stockholders for the year ended
December 31, 1996.
21. List of Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
27. Financial Data Schedule (for SEC use only).
99. a. Form 11-K, Annual Report of Employee Stock
Purchase Plan of Regions Financial
Corporation for the year ended December
31, 1996.
b. Form 11-K, Annual Report of Directors' Stock
Investment Plan of Regions Financial
Corporation for the year ended December 31,
1996.
<PAGE> 1
EXHIBIT 13
Management's Discussion and Analysis of Financial Condition
and Operating Results
Introduction
The following discussion and financial information is presented to aid
in understanding Regions Financial Corporation's (Regions or the Company)
financial position and results of operations. The emphasis of this discussion
will be on the years 1996, 1995 and 1994; however, financial information for
prior years will also be presented when appropriate.
On March 1, 1996, First National Bancorp (First National) of
Gainesville, Georgia, merged with and into Regions. The merger was accounted
for as a pooling of interests and, accordingly, financial information for all
prior periods has been restated to present the combined financial condition and
results of operations of both companies as if the merger had been in effect for
all periods presented.
Regions primary business is banking. In 1996, Regions banking
affiliates contributed approximately $227 million to consolidated net
income. Selected information as of December 31, 1996, on Regions banking
affiliates is as follows:
<TABLE>
<CAPTION>
Full-
Service
Name of Affiliate Assets Loans Deposits Offices
- ------------------------------------------------------------------------------------
(dollar amounts in thousands)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Regions Bank (Alabama) $11,922,628 $8,218,525 $9,043,793 183
Regions Bank (Georgia) 3,359,547 2,370,861 2,899,236 70
Regions Bank of Louisiana 2,155,428 1,639,402 1,820,186 59
Regions Bank of Florida 574,190 372,283 512,939 27
Regions Bank of Tennessee 507,355 418,450 457,600 25
First Federal Savings Bank of
New Smyrna 312,825 238,421 286,725 3
First Federal Savings Bank of
Citrus County 223,946 157,795 207,421 5
Regions Bank of Georgia 113,705 33,935 99,212 4
The Key Bank of Florida 82,955 59,426 73,872 1
</TABLE>
Supplementing the Company's banking operations are a mortgage banking
company, credit life insurance related companies, a registered broker/dealer
firm and a commercial accounts receivable financing, billing and collection
company. Regions has no foreign operations, although it maintains an
International Department to assist customers with their foreign transactions.
The mortgage banking company services approximately $12.4 billion in mortgage
loans and in 1996 contributed approximately $13.6 million to net income.
The Company's principal market areas are all of Alabama, the northern
half of Georgia, parts of Louisiana, northwest and central Florida and middle
Tennessee. In addition, real estate mortgage loan origination offices are
located in other market areas in Tennessee, and in the states of Mississippi and
South Carolina.
The acquisitions of other banks and related institutions have
contributed significantly to Regions growth during the last three years. Regions
has expanded into new markets and strengthened its presence in existing markets.
<PAGE> 2
In 1994, acquisitions strengthened Regions franchise in Alabama,
Louisiana and Georgia. In Alabama, Regions added $494 million in assets through
two acquisitions--Union Bank & Trust Company and First Fayette Bancshares, Inc.
Louisiana acquisitions in Baton Rouge, New Roads and Monroe added $626 million
in assets. These banks, along with Secor Bank which was acquired in 1993, were
merged to form state-chartered Regions Bank of Louisiana. In Georgia, the
addition of First Community Bancshares, Inc. (now a part of Regions Bank in
Georgia) in September 1994 enabled Regions to establish a market presence in
Rome, Georgia. In 1994, First National entered into two new banking markets in
Georgia, Winder and Douglasville, adding $200 million in assets.
Regions acquisition activity in 1995 included increasing its New Orleans
area presence through the purchase of First Commercial Bancshares, Inc. and its
affiliate bank, the First National Bank of St. Bernard Parish, which was merged
into Regions Bank of Louisiana. The addition of Fidelity Federal Savings Bank
of Dalton, Georgia and the Cartersville, Georgia office of Prudential Savings
Bank (both now a part of Regions Bank in Georgia) added $393 million in assets
and enhanced Regions market coverage in northwestern Georgia.
In 1995 First National expanded into central Florida through the
acquisition of FF Bancorp, Inc. (FF Bancorp). FF Bancorp was the holding
company of two thrift institutions--First Federal Savings Bank of New Smyrna
Beach, Florida, and First Federal Savings Bank of Citrus County, Florida--and a
commercial bank, The Key Bank of Tampa, Florida. The acquisition of FF Bancorp
added approximately $631 million in assets and nine offices.
21
<PAGE> 3
Regions expanded its line of businesses in 1995 through the acquisition
of Interstate Billing Service, Inc., headquartered in Decatur, Alabama.
Interstate Billing factors commercial accounts receivables and performs billing
and collection services for its clients. Interstate Billing currently does
business in more than 25 states, primarily serving clients related to the
automotive service industry.
Acquisition activity in 1996 was centered in Georgia and Louisiana. In
early 1996, Regions acquired two suburban, Atlanta-area banks, Metro Financial
Corporation and The Enterprise National Bank of Atlanta, which combined added
$265 million in assets. Prior to its merger with Regions in March 1996, First
National acquired The Bank of Heard County, which added another $42 million in
assets. Further expansion in the northern half of Georgia continued in 1996
through the acquisitions of First Federal Bank of Northwest Georgia, First
Gwinnett Bancshares, Inc. and Rockdale Community Bank. All of these banks,
including First Nationals 18 separate Georgia banks and Regions banks in Rome
and Dalton, were merged into Regions Bank in Georgia in 1996. All operating
systems of these banks were converted to Regions standard processing systems,
which enabled Regions to reduce the level of operating expenses in the Georgia
franchise.
Expansion activity in Louisiana in 1996 occurred in the southern part of
the state. Delta Bank & Trust Company, with $191 million in assets, was
acquired in August and American Bancshares of Houma, Inc. added another $89
million in assets in September. Both banks acquired in these transactions were
merged into Regions Bank of Louisiana.
Regions and First Nationals business combinations over the last three
years are summarized in the following chart.
<TABLE>
<CAPTION>
TOTAL ASSETS ACCOUNTING
DATE COMPANY HEADQUARTERS LOCATION (in thousands) TREATMENT
- -------------------------------------------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C>
January Metro Financial Corporation Atlanta, Georgia $ 210,487 Purchase
February The Enterprise National Bank of Atlanta, Georgia 54,263 Purchase
Atlanta
February The Bank of Heard County Franklin, Georgia 41,872 Pooling
March First National Bancorp Gainesville, Georgia 3,198,634 Pooling
April First Federal Bank of Northwest Cedartown, Georgia 93,381 Pooling
Georgia, Federal Savings Bank
August First Gwinnett Bancshares, Inc. Norcross, Georgia 68,364 Purchase
August Rockdale Community Bank Conyers, Georgia 47,457 Purchase
August Delta Bank & Trust Company Belle Chasse, Louisiana 190,547 Purchase
September American Bancshares, Inc. Houma, Louisiana 88,742 Purchase
1995
March First Commercial
Bancshares, Inc. Chalmette, Louisiana 112,968 Purchase
May Fidelity Federal
Savings Bank Dalton, Georgia 333,336 Pooling
July Interstate Billing
Service, Inc. Decatur, Alabama 30,521 Pooling
July FF Bancorp, Inc. New Smyrna Beach, Florida 631,168 Pooling
November Branch Office of
Prudential Savings
Bank Cartersville, Georgia 59,933 Purchase
1994
February Metro Bancorp, Inc. Douglasville, Georgia 145,482 Purchase
May Guaranty Bancorp, Inc. Baton Rouge, Louisiana 186,879 Pooling
July First Fayette
Bancshares Inc. Fayette, Alabama 76,586 Purchase
July Barrow Bancshares, Inc. Winder, Georgia 54,687 Pooling
August BNR Bancshares, Inc. New Roads, Louisiana 136,799 Pooling
September First Community
Bancshares, Inc. Rome, Georgia 125,090 Pooling
November American Bancshares,
Inc. Monroe, Louisiana 302,674 Purchase
December Union Bank & Trust
Company Montgomery, Alabama 417,903 Purchase
</TABLE>
22
<PAGE> 4
As of December 31, 1996, Regions had seven pending acquisitions, three
in Georgia and two each in Florida and Louisiana. These institutions have
combined assets of approximately $1.4 billion and would increase Regions asset
size to $20.4 billion. See Note Q to the consolidated financial statements for
additional information regarding pending acquisitions.
FINANCIAL CONDITION
Regions financial condition depends primarily on the quality and nature
of its assets, liabilities and capital structure, the market and economic
conditions, and the quality of its personnel.
Loans and Allowance for Loan Losses
As a financial institution, Regions primary investment is loans. At
December 31, 1996, loans represented 76% of Regions earning assets.
Over the last four years loans increased a total of $6.7 billion, a
compound growth rate of 19%. Loans acquired in connection with acquisitions over
the last four years contributed $2.9 billion of this growth. The most
significant growth in the loan portfolio occurred in 1993, 1994 and 1996, with
loans increasing $1.8 billion, $2.4 billion and $1.8 billion, respectively. The
acquisitions of Secor Bank, Franklin County Bank and the two Florida thrifts in
1993 added $1.2 billion in loans. The acquisition of seven banks in 1994 added
$744 million in loans and the four acquisitions in 1995 added $443 million in
loans. In 1996, acquisitions added $476 million in loans.
During 1995, Regions securitized $396 million in single-family
residential mortgage loans. These assets were transferred from the loan
portfolio to the available for sale securities portfolio. The securitization of
these loans gives Regions additional flexibility for funding purposes and
results in a lower risk-weighted capital allocation for these assets. After
adjusting for the effect of the securitization, loans would have increased $1.1
billion or 10% in 1995.
All major categories of loans have shared in the growth in the loan
portfolio over the last four years, with the strongest growth occurring in real
estate mortgages (primarily single-family residential mortgages) and consumer
loans. Over the last four years, commercial, financial and agricultural loans
increased $953 million or 51%. Real estate construction loans increased $553
million or 170% over the same period. Real estate mortgage loans increased $3.1
billion or 113% and consumer loans increased $2.0 billion or 121% over the last
four years.
Regions real estate mortgage portfolio includes $2.0 billion of mortgage
loans secured by single-family residences that were originated by Regions
mortgage subsidiary. The majority of these loans are secured by homes in
Alabama, Georgia and Florida. These loans increased approximately $214 million
in 1993, $982 million in 1994 and $424 million in 1996, accounting for
approximately 12%, 41% and 24%, respectively, of the growth in total loans in
1993, 1994 and 1996. The securitization in 1995 of the $396 million in
single-family residential mortgages resulted in this portfolio declining $123
million in 1995. Eighty-three percent of the overall balance consists of
adjustable-rate mortgages (ARM's) that have rates approximately 275 basis points
above one of several money market indices when fully priced.
Regions real estate portfolio also includes $1.4 billion of
single-family mortgage loans obtained in various acquisitions, which are being
serviced by Regions mortgage subsidiary. Fixed-rate single-family mortgages
with a weighted average interest rate of 8.12% and a weighted average remaining
term of 22.6 years comprise 63% of this portfolio. Single-family ARM's, which
have rates approximately 250 to 275 basis points above one of several money
market indices when fully priced, comprise the remaining 37% of the overall
balance of these loans.
A sound credit policy and careful, consistent credit review are vital to
a successful lending program. All affiliates of Regions operate under written
loan policies which attempt to maintain a consistent lending philosophy, provide
sound traditional credit decisions, provide an adequate return and render
service to the communities in which the banks are located. Regions lending
policy generally confines loans to local customers or to national firms doing
business locally. Credit reviews and loan examinations help confirm that
affiliates are adhering to these loan policies.
COMPOSITION OF LOANS
(GRAPH)
<TABLE>
<CAPTION>
92 93 94 95 96
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
($ in billions)
Commercial 1.881 1.911 2.348 2.560 2.834
Real estate mortgage 2.756 4.054 5.384 5.380 5.860
Real estate construction 326 362 493 630 880
Consumer 1.695 2.104 2.630 2.972 3.737
----- ----- ------ ------ ------
Total 6.658 8.431 10.855 11.542 13.311
</TABLE>
23
<PAGE> 5
Every loan carries some degree of credit risk. This risk is reflected in
the consolidated financial statements by the size of the allowance for loan
losses, the amount of loans charged off and the provision for loan losses
charged to operating expense. It is Regions policy that when a loss is
identified, it is charged against the allowance for loan losses in the current
period. The policy regarding recognition of losses requires immediate
recognition of a loss if significant doubt exists as to principal repayment. In
addition, consumer installment credit is generally recognized as a loss when it
becomes 90 days or more past due, unless the underlying security or the
customer's financial position makes a loss improbable.
Regions provision for loan losses is a reflection of actual losses
experienced during the year and management's judgment as to the adequacy of the
allowance for loan losses to absorb future losses. Some of the factors
considered by management in determining the amount of the provision and
resulting allowance include: (1) credit reviews of individual loans; (2) gross
and net loan charge-offs in the current year; (3) growth in the loan portfolio;
(4) the current level of the allowance in relation to total loans and to
historical loss levels; (5) past due and non-accruing loans; (6) collateral
values of properties securing loans; (7) the composition of the loan portfolio
(types of loans); and (8) management's estimate of future economic conditions
and the resulting impact on Regions. Lending at Regions is generally organized
along three functional lines: commercial loans (including industrial and
agricultural), real estate loans and consumer loans. The composition of the
portfolio by these major categories is presented below (with real estate loans
further broken down between construction and mortgage loans):
(in thousands, net of unearned
income)
<TABLE>
<CAPTION>
December 31
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 2,833,909 $ 2,559,974 $ 2,347,912 $1,911,222 $1,880,851
Real estate-construction 879,629 629,888 493,027 362,063 326,210
Real estate-mortgage 5,859,817 5,380,815 5,384,341 4,054,316 2,756,011
Consumer 3,737,817 2,971,634 2,629,915 2,103,330 1,694,485
TOTAL $13,311,172 $11,542,311 $10,855,195 $8,430,931 $6,657,557
</TABLE>
The amounts of total gross loans (excluding residential mortgages on 1-4 family
residences and consumer loans) outstanding at December 31, 1996, based on
remaining scheduled repayments of principal, due in (1) one year or less, (2)
more than one year but less than five years and (3) more than five years, are
shown in the following table. The amounts due after one year are classified
according to sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
(in thousands) Loans Maturing
- ---------------------------------------------------------------------------------------------------------------
After One But
Within Within Five After
One Year Years Five Years Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $1,459,698 $ 933,213 $ 437,360 $2,830,271
Real estate-construction 555,439 232,622 91,771 879,832
Real estate-mortgage 375,163 779,966 1,054,105 2,209,234
Total $2,390,300 $1,945,801 $1,583,236 $5,919,337
</TABLE>
<TABLE>
<CAPTION>
(in thousands) Sensitivity of Loans to Changes in Interest Rates
- ----------------------------------------------------------------------
Predetermined Variable
Rate Rate
- ----------------------------------------------------------------------
<S> <C> <C>
Due after one year but within five years $1,274,202 $ 671,599
Due after five years 822,209 761,027
$2,096,411 $1,432,626
</TABLE>
24
<PAGE> 6
NET LOAN LOSSES AS A PERCENTAGE OF AVERAGE LOANS
(Graph)
<TABLE>
<CAPTION>
92 93 94 95 96
--- --- --- --- ---
<S> <C> <C> <C> <C> <C>
.36 .23 .19 .17 .15
</TABLE>
NON-PERFORMING ASSETS AS A PERCENTAGE OF LOANS
AND OTHER REAL ESTATE
(Graph)
<TABLE>
<CAPTION>
92 93 94 95 96
--- --- --- --- ---
<S> <C> <C> <C> <C> <C>
1.39 1.28 .80 .68 .76
</TABLE>
A coordinated effort is undertaken to identify credit risks in the loan
portfolio for management purposes and to establish the loan loss provision and
resulting allowance for accounting purposes. A regular, formal and ongoing loan
review is conducted to identify loans with unusual risks or possible losses. The
primary responsibility for this review rests with the management of the
individual banking offices. Their work is supplemented with reviews by Regions'
internal audit staff and corporate loan examiners. Bank regulatory agencies and
the Company's independent auditors provide additional levels of review. This
process provides information which helps in assessing the quality of the
portfolio, assists in the prompt identification of problems and potential
problems and aids in deciding if a loan represents a probable loss which should
be recognized or a risk for which an allowance should be maintained.
If, as a result of Regions' loan review and evaluation procedures, it is
determined that payment of interest on a commercial or real estate loan is
questionable, it is Regions' policy to reverse interest previously accrued on
the loan against interest income. Interest on such loans is thereafter recorded
on a "cash basis" and is included in earnings only when actually received in
cash and when full payment of principal is no longer doubtful.
Although it is Regions' policy to immediately charge off as a loss all
loan amounts judged to be uncollectible, historical experience indicates that
certain losses exist in the loan portfolio which have not been specifically
identified. To anticipate and provide for these unidentifiable losses, the
allowance for loan losses is established by charging the provision for loan
losses expense against current earnings. No portion of the resulting allowance
is in any way allocated or restricted to any individual loan or group of loans.
The entire allowance is available to absorb losses from any and all loans.
The year-end allowance for loan losses as a percentage of loans ranged
from a low of 1.32% in 1994 and 1996 to a high of 1.51% in 1992. Although this
ratio is important, it is only one of the factors considered by management in
determining the adequacy of the allowance for loan losses. Management does not
attempt to maintain the allowance for loan losses at a certain percentage of
loans. As previously discussed, the adequacy of the allowance for loan losses is
based on management's evaluation of various factors.
The ratio of non-performing assets (including loans past due 90 days or
more and other real estate) to loans and other real estate declined steadily
from 1.39% at December 31, 1992 to 0.68% at December 31, 1995. Generally
improving economic conditions in Regions' markets during this period, partially
offset by the effect of non-performing assets added by certain acquisitions,
resulted in the declining trend in this ratio. At December 31, 1996, the ratio
of non-performing assets (including loans past due 90 days or more and other
real estate) to loans and other real estate increased to 0.76%, due primarily to
increases in consumer loan delinquencies.
The allowance for loan losses as a percentage of non-performing loans
(including loans past due 90 days or more) was 194% at December 31, 1996,
compared to 232% at December 31, 1995, and to 209% at December 31, 1994.
Management considers the current level of the allowance for loan losses adequate
to absorb possible losses from loans in the portfolio. Management's
determination of the adequacy of the allowance for loan losses, which is based
on the factors and risk identification procedures previously discussed, requires
the use of judgments and estimations that may change in the future. Unfavorable
changes in the factors used by management to determine the adequacy of the
reserve, including increased consumer loan delinquencies and subsequent
charge-offs, or the availability of new information, could cause the allowance
for loan losses to be increased or decreased in future periods. In addition,
bank regulatory agencies, as part of their examination process, may require that
additions be made to the allowance for loan losses based on their judgments and
estimates.
The analysis of loan loss experience (see chart following) shows that
net loan losses ranged from a high of $21.7 million in 1992 to a low of $15.9
million in 1993. Net loan losses were $19.1 million in 1996, $19.0 million in
1995 and $18.0 million in 1994. Over the last five years net loan losses
averaged 0.20% of average loans and were 0.15% in 1996. Regions' relatively low
level of net loan losses is due to favorable economic conditions relative to
some other sections of the country, quality control efforts in the underwriting
and monitoring of loans, a substantial amount of recoveries of previously
charged-off loans, and an increase in single-family residential mortgage loans
as a
25
<PAGE> 7
percentage of the loan portfolio, which historically have had lower net loan
losses than other categories of loans.
In order to assess the risk characteristics of the loan portfolio at
December 31, 1996, it is appropriate to consider the three major categories of
loans--commercial, real estate and consumer.
Regions' commercial loan portfolio is highly diversified within the
markets served by the Company. Geographically, the largest concentration is the
68% of the portfolio held by banking offices in the state of Alabama. Banking
offices in the northern half of Georgia hold 17% of the commercial loan
portfolio, followed by Louisiana with 10%, Tennessee with 3% and Florida with
2%. A small portion of these loans is secured by properties outside Regions'
banking market areas.
The Alabama economy has experienced relatively stable, slow growth over
the last several years. Industries important in the Alabama economy include
vehicle and vehicle parts manufacturing and assembly, lumber and wood products,
and steel production. High technology industries are important in the northern
part of the state. Service and health care industries have increased in
importance and are predicted to continue growing. Agriculture, particularly
poultry, beef cattle and cotton, are important to the state's economy.
The economy of the northern half of Georgia is diversified with a strong
presence in poultry production, carpet manufacturing, automotive manufacturing
related industries, tourism, and various service sector industries. A well
developed transportation system has contributed to growth in north Georgia. This
area has experienced rapid population growth and has very favorable household
income characteristics, relative to many of Regions other markets. Prospects are
good for continued strong growth in this area.
Natural resources are very important to the Louisiana economy. Energy
and petrochemical industries play a significant role in the economy. Shipping,
shipbuilding, and other transportation equipment industries are strong in the
state's durable goods industries. Tourism, amusement and recreation, service,
and health care industries are becoming increasingly important to the Louisiana
economy. Cotton, rice and sugarcane are among Louisiana's most important
agricultural commodities.
Middle Tennessee's economy is heavily influenced by automobile
manufacturing, tourism, entertainment and recreation, health care and other
service industries. With one out of four Tennesseeans employed in service
industries, the state's economy is very dependent on this sector for continued
good economic performance.
The northwestern part of Florida and the central Florida area have also
experienced excellent economic growth during the last several years. Tourism is
very important to the Florida economy and military payrolls are significant in
the panhandle area. Florida has experienced strong in-migration, contributing to
strong construction activity and a growing retirement-age population. Citrus
fruit production is also important in the state.
During the last five years, net losses on commercial loans ranged from a
low of 0.02% in 1996 to a high of 0.64% in 1992. Future losses are a function of
many variables, of which general economic conditions are the most important.
Management expects that 1997 net commercial loan losses will exceed the 1996
amount. If economic conditions weaken in 1997, net commercial loan losses will
likely be near the mid-point of this range. A continuation of moderate economic
growth during 1997 in Regions' market areas could result in 1997 net commercial
loan losses in the lower-end of this range.
Regions' real estate loan portfolio consists of construction and land
development loans, loans to businesses for long-term financing of land and
buildings, loans on one-to-four family residential properties, loans to mortgage
banking companies (which are secured primarily by loans on one-to-four family
residential properties and are known as warehoused mortgage loans) and various
other loans secured by real estate.
Real estate construction loans increased $250 million in 1996 to $880
million. At December 31, 1996, these loans represented 6.6% of Regions' total
loan portfolio, compared to 4.9% at the end of 1992. Most of the construction
loans relate to shopping centers, apartment complexes, commercial buildings and
residential property development. These loans are normally secured by land and
buildings and are generally backed by commitments for long-term financing from
other financial institutions. Real estate construction loans are closely
monitored by management, since these loans are generally considered riskier
than other types of loans and are particularly vulnerable in economic downturns
and in periods of high interest rates. Regions has not been an active lender to
speculative real estate developers or to developers outside its market areas.
The loans to businesses for long-term financing of land and buildings
are primarily to commercial customers within Regions' markets. Total loans
secured by non-farm, non-residential properties totaled $1.8 billion at December
31, 1996. Although some risk is inherent in this type of lending, the Company
attempts to minimize this risk by generally making such loans only on
owner-occupied properties, and by requiring collateral values which exceed the
loan amount, adequate cash flow to service the debt, and in most cases, the
personal guaranties of principals of the borrowers.
Generally, Regions' most significant market areas have not experienced
rapid increases in real estate property values or significant overbuilding.
Therefore, in management's opinion, real estate loan collateral values in
Regions' market areas should not be as vulnerable to significant deterioration,
as would other market areas which have experienced rapidly increasing property
values and significant overbuilding. However, collateral values are difficult to
estimate and are subject to change depending on economic conditions, the supply
of and demand for properties and other factors. Regions attempts to mitigate the
risks of real estate lending by adhering to strict loan underwriting policies
and by diversifying the portfolio both geographically within its market area and
within industry groups.
26
<PAGE> 8
Loans on one-to-four family residential properties, which total
approximately 68% of Regions' real estate mortgage portfolio, are principally on
single-family residences. These loans are geographically dispersed throughout
the southeastern states and some are guaranteed by government agencies or
private mortgage insurers. Historically, this category of loans has not produced
sizable loan losses; however, it is subject to some of the same risks as other
real estate lending. Warehoused mortgage loans, since they are secured primarily
by loans on one-to-four family residential properties, are similar to these
loans in terms of risk.
From 1992 to 1995, net losses on real estate loans ranged from a high of
0.15% of real estate loans in 1992, to a low of 0.05% of real estate loans in
1995. In 1996, Regions recognized net recoveries of 0.02% of real estate loans.
These losses depend, to a large degree, on the level of interest rates, economic
conditions and collateral values, and thus, are very difficult to predict.
Management's current estimate of 1997 net real estate loan losses approximates
the level experienced in 1992 through 1995.
Regions' consumer loan portfolio consists of $3.2 billion in consumer
loans, $391 million in personal lines of credit (including home equity loans)
and $174 million in credit card loans. Consumer loans are primarily borrowings
of individuals for home improvements, automobiles and other personal and
household purposes. Regions' consumer loan portfolio includes $1.4 billion in
indirect installment loans at December 31, 1996, compared to $1.2 billion at
December 31, 1995. Periods of economic recession tend to increase consumer loan
losses. During the past five years, the ratio of net consumer loan losses to
consumer loans ranged from a low of 0.26% in 1994 to a high of 0.58% in 1996.
Management expects net consumer loan losses in 1997 to be at or above the 1996
level.
The following table presents information on non-performing loans and
real estate acquired in settlement of loans:
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
(dollar amounts in thousands) DECEMBER 31
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-performing loans:
Loans accounted for on a
non-accrual basis $ 60,202 $54,132 $59,799 $ 62,063 $47,709
Loans contractually past due 90
days or more as to principal or interest
payments (exclusive of non-accrual loans) 26,532 10,238 5,843 13,280 6,272
Loans whose terms have been
renegotiated to provide a reduction
or deferral of interest or principal
because of a deterioration in the
financial position of the borrower
(exclusive of non-accrual loans and
loans past due 90 days or more) 3,625 4,234 2,863 4,533 5,422
Real estate acquired in settlement of
loans ("other real estate") 10,736 10,137 18,718 28,021 33,441
TOTAL $101,095 $78,741 $87,223 $107,897 $92,844
Non-performing assets as a percentage of
loans and other real estate 0.76% 0.68% 0.80% 1.28% 1.39%
</TABLE>
27
<PAGE> 9
The following analysis presents a five year history of the allowance for loan
losses and loan loss data:
<TABLE>
<CAPTION>
(dollar amounts in thousands) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses:
Balance at beginning of year $ 159,487 $ 143,464 $ 125,027 $ 100,248 $ 76,742
Loans charged off:
Commercial 7,390 11,399 12,199 9,239 15,099
Real estate 1,063 6,643 8,261 7,344 5,692
Installment 27,953 17,169 10,555 10,922 9,676
Total 36,406 35,211 31,015 27,505 30,467
Recoveries:
Commercial 6,877 7,053 5,084 4,755 3,914
Real estate 2,482 3,609 3,372 3,237 1,802
Installment 7,934 5,580 4,563 3,598 3,009
Total 17,293 16,242 13,019 11,590 8,725
Net loans charged off (recovered):
Commercial 513 4,346 7,115 4,484 11,185
Real estate (1,419) 3,034 4,889 4,107 3,890
Installment 20,019 11,589 5,992 7,324 6,667
Total 19,113 18,969 17,996 15,915 21,742
Allowance of acquired banks 6,133 4,721 15,853 15,999 5,881
Provision charged to expense 29,041 30,271 20,580 24,695 39,367
Balance at end of year $ 175,548 $ 159,487 $ 143,464 $ 125,027 $ 100,248
Average loans outstanding:
Commercial $ 2,671,387 $ 2,421,972 $2,147,183 $1,848,757 $1,752,448
Real estate 6,272,304 6,130,853 4,880,319 3,259,040 2,632,640
Installment 3,468,660 2,860,075 2,325,354 1,863,813 1,603,586
Total $ 12,412,351 $11,412,900 $9,352,856 $6,971,610 $5,988,674
Net charge-offs (recoveries) as percent of
average loans outstanding:
Commercial .02% .18% .33% .24% .64%
Real estate (.02) .05 .10 .13 .15
Installment .58 .41 .26 .39 .42
Total .15 .17 .19 .23 .36
Net charge-offs as percent of:
Provision for loan losses 65.8% 62.7% 87.4% 64.5% 55.2%
Allowance for loan losses 10.9 11.9 12.5 12.7 21.7
Allowance as percentage of
Loans, net of unearned income 1.32% 1.38% 1.32% 1.48% 1.51%
Provision for loan losses (net of tax effect)
as percentage of net income 7.9% 9.6% 7.1% 10.5% 20.0%
</TABLE>
28
<PAGE> 10
LOANS AS A PERCENTAGE OF AVERAGE ASSETS
(Graph)
<TABLE>
<CAPTION>
92 93 94 95 96
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
62.5 65.7 66.0 69.6 69.7
</TABLE>
ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF LOANS
(Graph)
<TABLE>
<CAPTION>
92 93 94 95 96
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
1.51 1.48 1.32 1.38 1.32
</TABLE>
At December 31, 1996, non-accrual loans totaled $60.2 million or 0.45%
of loans, compared to $54.1 million or 0.47% of loans at December 31, 1995. The
increase in the dollar amount of non-accrual loans at December 31, 1996,
resulted from increases in real estate and installment non-accruing loans,
partially offset by a decline in commercial non-accruing loans. Commercial loans
comprised $12.4 million of the 1996 total, with real estate loans accounting for
$36.5 million and consumer loans $11.3 million. The table on the following page
provides additional information on non-accruing loans based on the customer's
Standard Industrial Classification Code.
Loans contractually past due 90 days or more were 0.20% of total loans
at December 31, 1996, compared to 0.09% of total loans at December 31, 1995.
Increased levels of past due consumer and commercial loans accounted for the
increase in total loans past due 90 days or more since December 31, 1995. Loans
past due 90 days or more at December 31, 1996, consisted of $16.2 million in
commercial and real estate loans, $5.9 million in installment loans and $4.4
million in personal lines of credit and credit card loans.
Renegotiated loans were 0.03% of loans at December 31, 1996 and 0.04% of
loans at December 31, 1995. Renegotiated loans have remained at low levels over
the last five years, as a result of paydowns and payoffs on renegotiated loans
which were added by acquisitions.
Other real estate has remained relatively constant during the last two
years, totaling $10.7 million at December 31, 1996, compared to $10.1 million at
December 31, 1995. Reductions in other real estate attributable to sales have
been offset by other real estate added by acquisitions in 1996. From 1992
through 1995, other real estate declined due to increased sales of parcels of
other real estate, combined with fewer additions. Other real estate is recorded
at the lower of (1) the recorded investment in the loan or (2) the estimated net
realizable value of the collateral. Although Regions does not anticipate
material loss upon disposition of other real estate, sustained periods of
adverse economic conditions, substantial declines in real estate values in
Regions markets, actions by bank regulatory agencies, or other factors, could
result in additional loss from other real estate.
The amount of interest income earned in 1996 on the $60.2 million of
non-accruing loans outstanding at year end was approximately $1.4 million. If
these loans had been current in accordance with their original terms,
approximately $3.1 million would have been earned on these loans in 1996.
Approximately $284,000 in interest income would have been earned in 1996 under
the original terms of the $3.6 million in renegotiated loans outstanding at
December 31, 1996. Approximately $297,000 in interest income was actually earned
in 1996 on these loans, due in part to recognition of interest foregone in prior
years.
In the normal course of business, Regions makes commitments under
various terms to lend funds to its customers. These commitments include (among
others) revolving credit agreements, term loan agreements and short-term
borrowing arrangements, which are usually for working capital needs. Letters of
credit are also issued, which under certain conditions could result in loans.
See Note L to the consolidated financial statements for additional information
on commitments.
29
<PAGE> 11
The commercial, real estate and consumer loan portfolios are highly
diversified in terms of industry concentrations. The following table shows the
largest concentrations in terms of the customer's Standard Industrial
Classification (SIC) Code at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(dollar amounts in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
% of % Non- %of % Non-
SIC Classification Amount Total Accrual Amount Total Accrual
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Individuals $ 7,697.5 57.7% 0.6% $ 6,718.4 58.1% 0.5%
Services:
Physicians 69.9 0.5 0.0 60.2 0.5 0.0
Business services 72.0 0.5 0.0 45.9 0.4 0.0
Religious organizations 107.3 0.8 0.0 99.5 0.9 0.0
Legal services 56.3 0.4 0.0 44.4 0.4 0.0
All other services 744.5 5.6 0.2 596.4 5.1 0.3
Total services 1,050.0 7.8 0.2 846.4 7.3 0.3
Manufacturing:
Electrical equipment 53.8 0.4 0.0 39.0 0.3 0.0
Food and kindred products 29.0 0.2 0.0 77.6 0.7 0.1
Rubber and plastic products 23.4 0.2 0.0 17.7 0.2 0.0
Lumber and wood products 96.3 0.7 0.0 71.7 0.6 0.0
Fabricated metal products 54.2 0.4 0.0 63.5 0.5 0.1
All other manufacturing 344.9 2.6 0.1 296.5 2.6 0.1
Total manufacturing 601.6 4.5 0.1 566.0 4.9 0.3
Wholesale trade 310.0 2.3 0.5 262.8 2.3 0.1
Finance, insurance and real estate:
Real estate 785.9 6.0 0.1 527.1 4.6 0.2
Banks and credit agencies 87.3 0.6 0.0 89.1 0.8 0.0
All other finance, insurance
and real estate 120.9 0.9 0.0 135.0 1.1 0.1
Total finance, insurance
and real estate 994.1 7.5 0.1 751.2 6.5 0.3
Construction:
Residential building construction 263.7 2.0 0.1 185.9 1.6 0.1
General contractors and builders 142.7 1.1 0.0 88.9 0.7 0.0
All other construction 137.0 1.0 0.2 262.8 2.3 0.5
Total construction 543.4 4.1 0.3 537.6 4.6 0.6
Retail trade:
Automobile dealers 242.3 1.8 0.1 202.2 1.7 0.0
All other retail trade 236.7 1.8 0.2 262.0 2.3 0.3
Total retail trade 479.0 3.6 0.3 464.2 4.0 0.3
Agriculture, forestry and fishing 193.8 1.5 0.2 162.2 1.4 0.5
Transportation, communication,
electrical, gas and sanitary 260.4 2.0 0.1 162.8 1.4 0.6
Mining (including oil and gas
extraction) 12.9 0.1 0.0 13.8 0.1 0.0
Public administration 379.4 2.8 0.9 63.3 0.5 4.8
Revolving credit loans 564.2 4.2 0.0 437.3 3.8 0.0
Other 249.2 1.9 0.0 583.6 5.1 0.7
Total $ 13,335.5 100.0% 0.5% $ 11,569.6 100.0% 0.5%
</TABLE>
30
<PAGE> 12
Interest-Bearing Deposits In Other Banks
Interest-bearing deposits in other banks are used primarily as temporary
investments. These assets generally have short-term maturities. Interest-bearing
deposits in other banks, acquired in connection with acquisitions in 1995, was
the primary reason for this asset increasing from $16.9 million at December 31,
1994, to $56.5 million at December 31, 1995. Maturities from a portion of these
assets were reinvested in alternative investments in 1996, resulting in the
balance declining to $33.2 million at December 31, 1996.
Securities
Effective January 1, 1994, Regions adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). SFAS 115 requires that debt securities, which the
Company has both the positive intent and ability to hold to maturity, should be
carried at amortized cost. These securities are classified as investment
securities in the consolidated financial statements. Debt securities, which the
Company does not have the positive intent and ability to hold to maturity, and
all marketable equity securities, are carried at estimated fair value and are
included in securities available for sale in the consolidated financial
statements, exclusive of any such securities that are included in trading
securities. Unrealized holding gains and losses on securities available for
sale, net of taxes, are carried as a separate component of stockholders' equity.
The following table shows the carrying values of securities as follows:
<TABLE>
<CAPTION>
(in thousands) December 31
- -------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------
Investment securities:
<S> <C> <C> <C>
U.S. Treasury & Federal agency securities $1,240,974 $ 894,606 $ 903,390
Obligations of states and political 450,415 425,456 410,673
subdivisions
Mortgage-backed securities 411,344 268,926 791,443
Other securities 17 118 736
Total $2,102,750 $1,589,106 $2,106,242
Securities available for sale:
U.S. Treasury & Federal agency securities $ 429,620 $ 799,190 $ 627,985
Obligations of states and political
subdivisions 8,292 20,219 3,482
Mortgage-backed securities 1,279,422 1,406,264 559,504
Other securities 8,030 15,092 10,626
Equity securities 42,481 33,910 38,452
Total $1,767,845 $2,274,675 $1,240,049
</TABLE>
Total securities increased only $6.8 million in 1996. U. S. Treasury and
Federal agency securities decreased $23.2 million or 1% due to maturities and
paydowns. Obligations of states and political subdivisions increased $13.0
million or 3%. Mortgage-backed securities increased $15.6 million or 1% in 1996.
In 1995, total securities increased $517 million or 15%. U. S. Treasury
and Federal agency securities accounted for $162 million of this increase, with
mortgage-backed securities increasing $324 million or 24%. During 1995, $396
million of single-family residential mortgage loans were securitized and
transferred from the loan portfolio to mortgage-backed securities in the
available for sale securities portfolio. Excluding the effect of
securitizations, mortgage-backed securities would have decreased $72 million in
1995, due to maturities and paydowns. Obligations of states and political
subdivisions increased $32 million or 8%.
In December 1995, Regions reclassified $644 million of investment
securities to securities available for sale in accordance with the Financial
Accounting Standards Board Implementation Guide for SFAS 115. This
reclassification gives Regions additional flexibility in managing its
securities portfolios.
Total securities increased $353 million or 12% in 1994. U. S. Treasury
and Federal agency securities increased $522.4 million or 52%. Mortgage-backed
securities decreased $167.2 million or 11% due to maturities and paydowns.
Obligations of states and political subdivisions increased $48.4 million or 13%.
Regions investment portfolio policy stresses quality and liquidity. At
December 31, 1996, the average maturity of U.S. Treasury and Federal agency
securities was 2.9 years and that of obligations of states and political
subdivisions was 8.4 years. The average maturity of mortgage-backed securities
was 6.3 years and other securities had an average maturity of 11.9 years.
Overall, the average maturity of the portfolio was 5.1 years using contractual
maturities and 4.3 years using expected maturities. Expected maturities differ
from contractual maturities because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties. Securities purchased
during the last several years have consisted of primarily short to intermediate
term maturities.
31
<PAGE> 13
The estimated fair market value of Regions investment securities
portfolio at December 31, 1996, was 0.6% ($13.0 million) above the amount
carried on Regions books. Regions securities available for sale portfolio at
December 31, 1996, included unrealized gains of $6.1 million. Regions investment
securities and securities available for sale portfolios included gross
unrealized gains of $32.5 million and gross unrealized losses of $13.5 million
at December 31, 1996. Market values of these portfolios vary significantly as
interest rates change; however, management expects normal maturities from the
securities portfolios to meet liquidity needs.
Of Regions tax-free securities rated by Moody's Investors Service, Inc.,
98% are rated "A" or better. Nine percent of the tax-free bond portfolio is
non-rated. The portfolio is carefully monitored to assure no unreasonable
concentration of securities in the obligations of a single debtor, and current
credit reviews are conducted on each security holding.
The following table shows the maturities of securities (excluding equity
securities) at December 31, 1996, the weighted average yields and the taxable
equivalent adjustment used in calculating the yields:
<TABLE>
<CAPTION>
(in thousands) Securities Maturing
- -------------------------------------------------------------------------------------------------------------------
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment securities:
U.S. Treasury and Federal agency securities $ 124,127 $1,076,343 $ 40,504 $ -0- $1,240,974
Obligations of states and political
subdivisions 29,226 91,153 141,766 188,270 450,415
Mortgage-backed securities 32,748 26,084 25,014 327,498 411,344
Other securities 17 -0- -0- -0- 17
TOTAL $ 186,118 $1,193,580 $ 207,284 $ 515,768 $2,102,750
Weighted average yield 7.10% 6.94% 7.92% 6.78% 7.01%
Securities available for sale:
U.S. Treasury and Federal agency securities $ 108,028 $ 321,134 $ 458 $ -0- $ 429,620
Obligations of states and political
subdivisions 1,435 4,489 1,587 781 8,292
Mortgage-backed securities 29,291 25,196 71,123 1,153,812 1,279,422
Other securities -0- -0- 458 7,572 8,030
TOTAL $ 138,754 $ 350,819 $ 73,626 $1,162,165 $1,725,364
Weighted average yield 6.47% 7.26% 6.17% 6.42% 6.58%
Taxable equivalent adjustment for calculation
of yield $ 1,062 $ 2,549 $ 4,126 $ 5,577 $ 13,314
</TABLE>
Note: The weighted average yields are calculated on the basis of the yield to
maturity based on the book value of each security. Weighted average
yields on tax-exempt obligations have been computed on a fully taxable
equivalent basis using a tax rate of 35%. Yields on tax-exempt
obligations have not been adjusted for the non-deductible portion of
interest expense used to finance the purchase of tax-exempt obligations.
32
<PAGE> 14
Liquidity
Liquidity is an important factor in the financial condition of Regions
and affects Regions' ability to meet the borrowing needs and deposit withdrawal
requirements of its customers. Assets, consisting principally of loans and
securities, are funded by customer deposits, purchased funds, borrowed funds and
stockholders equity.
The securities portfolio is one of Regions primary sources of liquidity.
Maturities of securities provide a constant flow of funds which are available
for cash needs (see previous table on Securities Maturing). Maturities in the
loan portfolio also provide a steady flow of funds (see previous table on Loans
Maturing). At December 31, 1996, commercial loans, real estate construction
loans and commercial mortgage loans with an aggregate balance of $2.4 billion,
as well as securities of $325 million, were due to mature in one year or less.
Additional funds are provided from payments on consumer loans and one-to-four
family residential mortgage loans. Historically, the Companys high levels of net
operating earnings have also contributed to cash flow. In addition, liquidity
needs can be met by the purchase of funds in state and national money markets.
Regions liquidity also continues to be enhanced by a relatively stable deposit
base.
The loan to deposit ratio increased from 85.51% at December 31, 1995, to
88.46% at December 31, 1996, as earning asset growth outpaced the growth in
deposits, generating the need to increase purchased funds. The decline in the
loan to deposit ratio of 86.32% at December 31, 1994, to 85.51% at December 31,
1995, resulted primarily from the securitization of approximately $396 million
in loans and the subsequent transfer of these assets to the available for sale
securities portfolio. The securitization of these loans improved Regions
liquidity position, since these assets are now more easily salable; however,
Regions currently has no plans to sell these securities. In addition, these
securities can be used as collateral for securitized borrowings.
As shown in the Consolidated Statement of Cash Flows, operating
activities provided significant levels of funds in all three years, due
primarily to high levels of net income. A decrease in mortgages held for sale in
1994 resulted in a significant increase in cash provided by operating activities
in that year. Investing activities, primarily in loans and securities, were a
net user of funds in all three years. Strong loan growth over the last three
years, particularly in 1994 and 1996, has required a significant amount of funds
for investing activities. Funds needed for investing activities were provided
primarily by deposits, purchased funds, and borrowings. Financing activities
provided more funds in 1994 due to more reliance on short- and long-term
borrowings. Increases in deposits provided more funds in 1995. In 1996,
increases in deposits and short-term borrowings provided significant amounts of
funding. Cash dividends and the open-market purchase of the Company's common
stock, which was reissued in connection with specific purchase acquisitions,
also required funds in 1994, 1995 and 1996. Funds needed for the pending
acquisitions as of December 31, 1996, are expected to be provided by working
capital or short-term borrowings.
Regions Banks (Alabama) short-term certificates of deposit are rated
"A-1+" by Standard & Poor's Corporation. This is the highest rating available
for any company. Regions Banks (Alabama) long-term certificates of deposit are
rated "AA-", which is higher than any other Alabama bank and among the highest
in the Southeast.
Moody's Investors Service has also given similar quality ratings to
Regions Bank's (Alabama) short- and long-term debt and certificates of deposit.
Short-term debt and certificates of deposit are rated "P-1" and long-term debt
and certificates of deposit are rated "Aa2".
In addition, Regions Financial Corporation (the parent company) received
the highest issuer rating available ("A") from the internationally recognized
bank rating organization, Thomson BankWatch. This organization also assigned its
highest short-term rating of "TBW-1" to Regions Financial Corporation and to
Regions Bank (Alabama).
The $200 million in subordinated debt issued by Regions is rated "A" by
Standard & Poor's Corporation, "A2" by Moody's Investors Service, and "AA-" by
Thomson BankWatch.
Regions has a shelf-registration statement outstanding pursuant to which
it may offer up to an additional $200 million of its unsecured, subordinated
notes, debentures, bonds or other evidences of indebtedness. The proceeds from
any issuances of these securities can be used for general corporate purposes
and represents an additional funding source for Regions.
Two of Regions banking subsidiaries, Regions Bank (Alabama) and Regions
Bank of Louisiana, have taken the necessary steps for the possible issuance of
up to $250 million in bank notes to institutional investors. The notes can have
maturities ranging from 30 days to 30 years and fixed or variable interest
rates. The proceeds from issuance of the bank notes can be used in the ordinary
course of business and provide an additional source of funding. At December 31,
1995 and 1996, $75 million and $40 million, respectively, in senior bank notes,
issued by Regions Bank of Louisiana, were outstanding. Regions Banks (Alabama)
notes were rated "A-1+/AA-" by Standard & Poor's Corporation and "P-1/Aa2" by
Moody's Investors Service. Regions Bank of Louisiana's notes were rated
"A-1+/AA-" by Standard & Poor's Corporation and "P-1/Aa3" by Moody's Investors
Service.
Regions and its banking subsidiaries high quality ratings from
nationally recognized rating agencies enhance the Company's ability to raise
funds in national money markets. The high ratings also help to attract both loan
and deposit customers in local markets.
Historically, Regions has found short- and intermediate-term credit
readily available on reasonable terms from money center or regional banks.
Regions management places constant emphasis on the maintenance of adequate
liquidity to meet conditions which might reasonably be expected to occur.
33
<PAGE> 15
DEPOSITS
Deposits are Regions' primary funding source. Deposits accounted for 86%
of the funding for average earning assets in 1996 and 87% of the funding for
average earning assets in 1995. During 1994, market interest rates increased
rapidly causing customers to take advantage of higher rates and resulting wider
pricing spreads between transaction type deposits and time deposits by moving
funds out of liquid, short-term deposits into time deposits. The rapid increase
in interest rates was short-lived, as interest rates peaked in early 1995 and
moved lower for the remainder of the year. As interest rates moved lower during
1995, pricing spreads remained fairly wide. As a result, customers continued
moving funds out of liquid, short-term deposits into time deposits and money
market accounts. Compared to the previous two years, the interest rate
environment in 1996 was relatively stable. However, since pricing spreads
remained wide, customers continued to move funds out of liquid, short-term
deposits into time deposits and money market accounts. Management expects a
continuation of this trend as long as pricing spreads remain wide. The trends
mentioned above can be seen by examining Regions' deposit composition and by
comparing the relative growth rates of Regions' deposit products over the last
three years.
During the last four years, average total deposits grew at a compound
annual rate of 17%. Average deposits grew $2.6 billion or 28% in 1994, $1.6
billion or 13% in 1995 and $1.2 billion or 9% in 1996. Acquisitions, net of
branch sales, contributed average deposit growth of $2.1 billion in 1994, $823
million in 1995 and $636 million in 1996.
Savings accounts declined during 1995 and 1996 because of the trends
mentioned above. Savings accounts increased 30% in 1994 but declined 1% in 1995
and less than 1% in 1996. However, since 1993, this category of deposits
increased $218 million, at a compound annual growth rate of 9%. As mentioned
above, growth in 1994 occurred as market interest rates fell, making the rates
paid on these accounts more attractive relative to other investment
alternatives. During 1995 and 1996, the rate paid on savings accounts became
less attractive relative to other investment alternatives. Management expects
savings accounts to continue to be a stable funding source, but does not expect
any significant growth in the current interest rate environment. In 1996,
savings accounts accounted for 7% of average total deposits compared to 8% of
average total deposits in 1995.
During 1995 and 1996, Regions reclassified a portion of interest-bearing
transaction accounts to money market savings accounts, resulting in a 21%
decline in 1995 and a 75% decline in 1996. Although declining as a source of
funds, interest-bearing transaction account customers continue to be important
to Regions. During 1995 and 1996, interest- bearing transaction accounts
accounted for 11% and 2% of average total deposits, respectively.
Money market savings products continue to be Regions' fastest growing
deposit products, increasing at a compound annual rate of 45% since 1993. As
market interest rates increased in 1994, decreased in 1995 and remained stable
in 1996, customers responded to Regions' innovative, competitive money market
savings products by continuing to invest in these accounts. The results were
increases in average balances of 21% in 1994, 57% in 1995 and 60% in 1996. As
mentioned above, a reclassification from interest-bearing transaction accounts
to money market savings inflated the 1995 and 1996 money market savings growth
rate. Money market savings products are one of Regions' most significant
funding sources, accounting for 13% of average total deposits in 1994, 18% of
average total deposits in 1995 and 27% of average total deposits in 1996.
Certificates of deposit of $100,000 or more increased 49% in 1994, 38%
in 1995 and 19% in 1996, due to their increased use as a funding source. Since
1993, certificates of deposit of $100,000 or more have increased at a compound
annual rate of 35%, and in 1996 accounted for 14% of average total deposits, up
from a three year low of 9% in 1993.
Other interest-bearing deposits (certificates of deposit of less than
$100,000 and time open accounts) increased 10% in 1995 and 9% in 1996. This
category of deposits continues to be Regions' primary funding source; it
accounted for 37% of average total deposits in 1996, down from 38% of average
total deposits in 1995. Rising interest rates and wider pricing spreads over the
last two years have made this category of deposits attractive relative to other
investment alternatives. Innovative deposit products have helped Regions
continue to grow deposits and maintain market share in the Company's major
markets.
34
<PAGE> 16
The sensitivity of Regions' deposit rates to changes in market interest
rates is reflected in the Company's average interest rate paid on
interest-bearing deposits (see table following on Average Rates Paid). Beginning
in early 1994 and continuing throughout the year, market interest rates rose.
Beginning in early 1995 and continuing throughout the year, market interest
rates began to decline. During 1996 market interest rate were relatively stable.
Regions' average interest rate paid on interest-bearing deposits reflects this
trend. The rate paid on interest-bearing deposits increased to 3.71% in 1994 to
4.66% in 1995 and dropped slightly to 4.65% in 1996.
A detail of interest-bearing deposit balances at December 31, 1996, and
1995, and the interest expense on these deposits for the three years ended
December 31, 1996, is presented in Note H to the consolidated financial
statements.
The following table presents the detail of interest-bearing deposits and
maturities of the larger time deposits:
<TABLE>
<CAPTION>
(in thousands) December 31
1996 1995
<S> <C> <C>
Interest-bearing deposits of less than $100,000 $10,757,175 $ 9,991,747
Time deposits of $100,000 or more, maturing in:
3 months or less 986,947 860,156
over 3 through 6 months 464,281 200,619
over 6 through 12 months 419,341 239,474
over 12 months 511,418 340,646
----------- -----------
Total 2,381,987 1,640,895
Total $13,139,162 $11,632,642
</TABLE>
The following table presents the average amounts of deposits outstanding by
category for the four years ended December 31, 1996:
<TABLE>
<CAPTION>
(in thousands) Average Amounts Outstanding
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Non-interest-bearing demand deposits $ 1,816,495 $ 1,748,647 $ 1,613,461 $1,340,625
Interest-bearing transaction accounts 359,254 1,428,900 1,805,640 1,545,462
Savings accounts 993,465 995,307 1,004,625 775,214
Money market savings accounts 3,911,791 2,450,687 1,557,413 1,287,717
Certificates of deposit of $100,000 or more 1,963,177 1,652,016 1,199,713 805,996
Other interest-bearing deposits 5,405,215 4,976,959 4,524,256 3,369,377
Total interest-bearing deposits 12,632,902 11,503,869 10,091,647 7,783,766
Total deposits $14,449,397 $13,252,516 $11,705,108 $9,124,391
</TABLE>
The following table presents the average rates paid on deposits by category for
the four years ended December 31, 1996:
<TABLE>
<CAPTION>
Average Rates Paid
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Interest-bearing transaction accounts 3.06% 2.86% 2.79% 2.53%
Savings accounts 2.63 2.75 2.86 2.85
Money market savings accounts 3.45 3.93 2.84 2.72
Certificates of deposit of $100,000 or more 5.63 5.03 3.91 3.58
Other interest-bearing deposits 5.65 5.79 4.51 4.46
Total interest-bearing deposits 4.65% 4.66% 3.71% 3.54%
</TABLE>
35
<PAGE> 17
BORROWED FUNDS
Regions' short-term borrowings consist of federal funds purchased and
security repurchase agreements, commercial paper and other short-term
borrowings.
Federal funds purchased and security repurchase agreements are used to
satisfy daily funding needs and, when advantageous, for rate arbitrage. Federal
funds purchased and security repurchase agreements increased from $1.0 billion
at December 31, 1995, to $1.5 billion at December 31, 1996. Balances in these
accounts can fluctuate significantly on a day-to-day basis. The average daily
balance of federal funds purchased and security repurchase agreements, net of
federal funds sold and security reverse repurchase agreements, increased $461.3
million in 1995 and $338.7 million in 1996. These increases resulted from
increased reliance on purchased funds to support earning asset growth. The
higher level of net purchased funds is expected to continue unless alternative
funding sources are utilized or unless earning assets grow slower than
interest-bearing liabilities.
At December 31, 1996, $40.4 million in commercial paper was outstanding,
compared to $21.1 million at December 31, 1995. The Company issues commercial
paper through its private placement commercial paper program. The Company's
retail commercial paper program was discontinued in 1993 since the private
placement program was meeting the Company's needs at a lower cost. Company
policy limits total commercial paper outstanding, at any time, to $75 million.
The level of commercial paper outstanding depends on the funding requirements of
the Company and the cost of commercial paper compared to alternative borrowing
sources.
Other short-term borrowings increased $6.3 million from December 31,
1995 to December 31, 1996 because of an increase in borrowings under a
short-term borrowing arrangement with an unaffiliated bank, partially offset by
a decline in treasury tax and loan note borrowings. Treasury tax and loan note
borrowings represent short-term borrowing from the U. S. Treasury, payable on
demand. The remaining balance in other short-term borrowings consists of a short
sale liability, which is frequently used by Regions' broker/dealer subsidiary to
offset other market risks which are undertaken in the normal course of business.
Regions' long-term borrowings consist primarily of subordinated notes,
Federal Home Loan Bank borrowings, senior bank notes and other long-term notes
payable.
The amount outstanding on subordinated notes did not change between
December 31, 1995 and 1996 since no maturities were due or new issuances
occurred. Regions has a shelf-registration statement outstanding which
authorizes the issuance of up to an additional $200 million in indebtedness.
Federal Home Loan Bank borrowings decreased $153.1 million in 1996 and
$23.2 million in 1995 due to scheduled payments and maturities. Membership in
the Federal Home Loan Bank system provides access to an additional source of
lower-cost funds. These borrowings can be used to partially hedge against the
effect future interest rate changes may have on the Company's real estate
mortgage portfolio.
In April 1995, Regions Bank of Louisiana, Regions' Louisiana bank
subsidiary, issued $100 million in unsecured senior bank notes under its bank
note program. Currently, up to $250 million can be outstanding under this
program. The bank note program provides Regions with another source of funding
and offers flexibility in structuring the terms of the notes. Of the total $100
million issued in 1995, $40 million remained outstanding at December 31, 1996.
Other long-term notes payable consist of mortgage notes payable on
certain of the Company's buildings and low-income housing partnership
investments, notes issued to former stockholders of acquired banks, notes for
equipment financing, and miscellaneous notes payable. Other long-term borrowings
increased $3.3 million in 1996, due to increased equipment financing, after
declining $1.9 million in 1995, due to scheduled maturities on other borrowings.
STOCKHOLDERS' EQUITY
Over the past three years, stockholders' equity has increased at a
compound annual growth rate of 13.1%. Stockholders' equity has grown from $1.1
billion at the beginning of 1994 to $1.6 billion at year-end 1996. Internally
generated retained earnings contributed $384 million of this growth, equity
issued in connection with acquisitions accounted for $87 million, and $21
million was attributable to the exercise of stock options and to the issuance of
stock for dividend reinvestment plans and employee incentive plans. The internal
capital generation rate (net income less dividends as a percentage of average
stockholders' equity) was 9.4% in 1996, compared to 8.7% in 1995 and 9.7% in
1994.
Regions' ratio of stockholders' equity to total assets was 8.45% at
December 31, 1996, compared to 8.48% at December 31, 1995, and 8.14% at December
31, 1994. Regions' capital level is a source of strength and provides
flexibility for future growth.
Regions and its subsidiaries are required to comply with capital
adequacy standards established by banking regulatory agencies. Currently, there
are two basic measures of capital adequacy: a risk-based measure and a leverage
measure.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance sheet exposure and interest rate
risk, and to minimize disincentives for holding liquid assets. Assets and
off-balance sheet items are assigned to broad risk categories, each with
specified risk-weighting factors. The resulting capital ratios represent capital
as a percentage of total risk-weighted assets and off-balance sheet items.
Banking organizations that are considered to have excessive interest rate risk
exposure are required to hold additional capital.
36
<PAGE> 18
The minimum standard for the ratio of total capital to risk-weighted
assets is 8%. At least 50% of that capital level must consist of common equity,
undivided profits and non-cumulative perpetual preferred stock, less goodwill
and certain other intangibles ("Tier 1 capital"). The remainder ("Tier 2
capital") may consist of a limited amount of other preferred stock, mandatory
convertible securities, subordinated debt and a limited amount of the allowance
for loan losses. The sum of Tier 1 capital and Tier 2 capital is "total
risk-based capital."
The banking regulatory agencies also have adopted regulations which
supplement the risk-based guidelines to include a minimum ratio of 3% of Tier 1
capital to average assets less goodwill (the "leverage ratio"). Depending upon
the risk profile of the institution and other factors, the regulatory agencies
may require a leverage ratio of 1% to 2% above the minimum 3% level.
The following chart summarizes the applicable bank regulatory capital
requirements. Regions' capital ratios at December 31, 1996, substantially
exceeded all regulatory requirements.
<TABLE>
<CAPTION>
BANK REGULATORY CAPITAL REQUIREMENTS
MINIMUM
REGULATORY REGIONS AT
REQUIREMENT DECEMBER 31, 1996
<S> <C> <C>
Tier 1 capital to risk-adjusted assets 4.00% 10.81%
Total risk-based capital to risk-adjusted assets 8.00 13.59
Tier 1 leverage ratio 3.00 7.44
</TABLE>
At December 31, 1996, Tier 1 capital totaled $1.416 billion, total
risk-based capital totaled $1.780 billion, and risk-adjusted assets totaled
$13.105 billion.
Total capital at the banking affiliates also has an important effect on
the amount of FDIC insurance premiums paid. Institutions not considered well
capitalized can be subject to higher rates for FDIC insurance. As of December
31, 1996, all of Regions' banking affiliates had the requisite capital levels to
qualify as well capitalized.
Regions attempts to balance the return to stockholders through the
payment of dividends, with the need to maintain strong capital levels for future
growth opportunities. In 1996, Regions returned 38% of earnings to its
stockholders in the form of dividends. Total dividends declared by Regions in
1996 were $87.0 million or $1.40 per share, an increase of 6% from the $1.32 per
share in 1995.
In January 1997, the Board of Directors declared a 14.3% increase in the
quarterly cash dividend from $.35 to $.40 per share. This is the twenty-sixth
consecutive year that Regions has increased cash dividends.
Also in January 1997, the Board of Directors approved plans for a
two-for-one stock split of the Company's common stock to be effective June 1,
1997. The split is contingent on stockholder approval at the annual meeting of
stockholders on May 14, 1997 of an increase in authorized shares from 120
million shares to 240 million shares.
37
<PAGE> 19
The following table shows the percentage distribution of Regions'
consolidated average balances of assets, liabilities and stockholders' equity
for the five years ended December 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Taxable securities 20.0% 18.9% 20.2% 18.4% 20.0%
Non-taxable securities 2.4 2.5 2.7 3.0 2.8
Federal funds sold 0.3 0.8 1.3 1.4 3.0
Loans (net of unearned
income):
Commercial 15.0 14.8 15.2 17.4 18.3
Real estate 35.2 37.4 34.4 30.7 27.5
Installment 19.5 17.5 16.4 17.6 16.7
Total loans 69.7 69.7 66.0 65.7 62.5
Allowance for loan losses (1.0) (0.9) (1.0) (1.0) (0.9)
Net loans 68.7 68.8 65.0 64.7 61.6
Other earning assets 1.5 1.0 2.4 3.7 3.6
Total earning assets 92.9 92.0 91.6 91.2 91.0
Cash and due from banks 2.7 3.3 3.7 4.4 4.2
Other non-earning assets 4.4 4.7 4.7 4.4 4.8
Total assets 100.0% 100.0% 100.0% 100.0% 100.0%
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits:
Non-interest-bearing 10.2% 10.7% 11.4% 12.6% 12.1%
Interest-bearing 70.9 70.1 71.2 73.4 75.2
Total deposits 81.1 80.8 82.6 86.0 87.3
Borrowed funds:
Short-term 6.7 5.5 3.4 2.1 2.2
Long-term 2.7 4.0 4.2 1.7 0.6
Total borrowed funds 9.4 9.5 7.6 3.8 2.8
Other liabilities 1.0 1.3 1.4 1.4 1.3
Total liabilities 91.5 91.6 91.6 91.2 91.4
Stockholders' equity 8.5 8.4 8.4 8.8 8.6
Total liabilities and
stockholders' equity 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
38
<PAGE> 20
OPERATING RESULTS
Net income increased 16% in 1996 and 10% in 1995. Income before the SAIF
assessment and the merger expenses (see Note U to the consolidated financial
statements) increased 26% in 1996. The accompanying table presents the dollar
amount and percentage change in the important components of income that
occurred in 1996 and 1995.
<TABLE>
<CAPTION>
SUMMARY OF CHANGES IN OPERATING RESULTS
(dollar amounts in thousands) Increase (Decrease)
1996 COMPARED 1995 Compared
TO 1995 to 1994
AMOUNT % Amount %
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INTEREST INCOME $ 76,202 12% $ 68,728 12%
Provision for loan losses (1,230) (4) 9,691 47
Net interest income
after provision for
loan losses 77,432 13 59,037 11
NON-INTEREST INCOME:
Trust department income 1,978 8 3,925 18
Service charges on
deposit accounts 15,090 21 11,004 18
Mortgage servicing
and origination fees 7,009 16 (1,757) (4)
Securities transactions 3,539 (NM) (768) (223)
Other 5,717 13 2,953 7
Total non-interest
income 33,333 18 15,357 9
NON-INTEREST EXPENSE:
Salaries and
employee benefits 20,779 8 32,867 14
Net occupancy
expense 4,611 16 1,793 7
Furniture and equip-
ment expense 4,485 15 2,029 7
FDIC insurance
expense (11,848) (65) (7,906) (30)
SAIF assessment and merger
expenses 30,477 (NM) -- --
Other 17,836 12 16,302 12
Total non-interest
expense 66,340 14 45,085 10
Income before
income taxes 44,425 15 29,309 11
Applicable income
taxes 12,568 13 12,000 14
NET INCOME $ 31,857 16% $ 17,309 10%
Income Before SAIF Assessment
and Merger Expenses $ 50,865 26% $ 17,309 10%
</TABLE>
NET INTEREST INCOME
Net interest income (interest income less interest expense) is Regions'
principle source of income. Net interest income increased 12% in 1996 and 12% in
1995. On a taxable equivalent basis, net interest income increased 11% in 1996
and 12% in 1995. The table on page 44 provides additional information to analyze
the changes in net interest income.
In 1996, growth in interest-earning assets and interest-bearing
liabilities contributed to the increase in net interest income. During 1996,
both average interest-earning assets and average interest-bearing liabilities
grew 10%. Growth in earning assets typically increases net interest income due
to the positive spread between earning asset yields and interest-bearing
liability rates. Favorable changes in interest-earning asset yields and
interest-bearing liability rates also contributed to the increase in net
interest income.
In 1995, growth in interest-earning assets and interest-bearing
liabilities also contributed to the increase in net interest income. During
1995, average earning assets grew 16% and average interest-bearing liabilities
grew 17%. However, unfavorable changes in interest-bearing liability rates
partially offset the increase in net interest income attributable to growth.
Regions measures its ability to produce net interest income with a ratio
called the interest margin. The interest margin is net interest income (on a
taxable equivalent basis) as a percentage of earning assets. The interest margin
declined from 4.37% in 1994 to 4.21% in 1995, but increased to 4.27% in 1996.
Changes in the interest margin occur primarily due to three factors: (1) the
interest rate spread (the difference between the taxable equivalent yield on
earning assets and the rate on interest-bearing liabilities), (2) the percentage
of earning assets funded by interest- bearing liabilities and (3) changes in the
statutory federal income tax rate. Year-to-year comparisons of the interest
margin ratio are affected by acquisitions accounted for as purchases that
occurred in late 1993 and in late 1994. These acquisitions added significantly
to net interest income, but generally had an adverse impact on the interest
margin ratio by negatively affecting items (1) and (2) above.
The first factor affecting Regions' interest margin is the interest rate
spread. Regions' average interest rate spread was 3.78% in 1994, 3.51% in 1995
and 3.59% in 1996. Market interest rates, both the level of rates and the slope
of the yield curve (the spread between short-term rates and longer-term rates),
affect the interest rate spread by influencing the pricing on most categories of
Regions' interest-earning assets and interest-bearing liabilities.
Interest rates reached historically low levels in late 1993. Beginning
in February 1994, the Fed increased the Federal Funds rate seven times in a 12
month period--increasing the rate 300 basis points from 3.00% to 6.00%. In July
1995, the Fed reversed course and began lowering the Federal Funds rate. In
three separate moves, the Fed lowered the Federal Funds rate to 5.25%. The final
move came on January 31, 1996. The Fed maintained the 5.25% Fed Funds rate
throughout the remainder of 1996. As can be seen above, Regions managed through
this volatile period with only minor changes in the interest rate spread.
39
<PAGE> 21
The interest rate spread increased in 1996 because interest-bearing
liability rates decreased 8 basis points while interest-earning asset yields
were unchanged. During 1996, with market interest rates down slightly, the yield
on interest-earning assets remained stable. Regions' rapid expansion in
adjustable rate mortgages (ARM's) helped stabilize the interest rate spread
during 1996. ARM's generally start with a reduced or "teaser" interest rate
NET INTEREST INCOME
(in thousands, taxable equivalent) [GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income 752,191 762,969 1,008,744 1,276,600 1,399,799
Interest expense 324,420 296,195 436,157 635,336 685,656
------- ------- ------- --------- ---------
NET INTEREST INCOME 427,771 466,774 572,587 641,264 714,143
</TABLE>
INTEREST RATE SPREAD
(taxable equivalent)
[GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average interest
rate earned 8.5% 7.8% 7.7% 8.4% 8.4%
Average interest
rate paid 4.3 3.6 3.9 4.9 4.8
--- --- --- --- ---
Interest rate
spread 4.2% 4.2% 3.8% 3.5% 3.6%
</TABLE>
and then adjust to a prevailing market interest rate plus a spread after an
initial fixed period. Consequently, ARM's tend to reduce the interest rate
spread early in their lives and increase the interest rate spread as their
yields become fully adjusted. Even though market interest rates were slightly
lower during 1996, many ARM's began to reprice to higher rates during the year,
providing a stabilizing effect on earning asset yields. Interest-bearing
liability rates continued to move lower during 1996 reflecting a lag between
declines in market interest rates and the repricing of the company's
certificate of deposit (CD) portfolio.
In 1995, the interest rate spread contracted because interest-bearing
liability rates increased 27 basis points more than did earning asset yields.
The reduced interest rate spread was the result of a volatile interest rate
environment and a strategic decision to pursue business opportunities having
narrower initial spreads. As mentioned above the company has actively built its
portfolio of ARM's. During 1995, most of these ARM's had not reached their
initial "roll" or repricing. As a result, they still carried "teaser" interest
rates which tended to reduce the overall interest rate spread. In addition,
Regions issued $100 million in senior bank notes, of which $25 million matured
by year-end 1995. Bank notes carry higher interest rates and longer terms than
Regions' primary funding sources, resulting in an increase in the average rate
paid on interest-bearing liabilities and a reduction in the interest rate
spread. Regions also purchased a large block of securities and funded the
purchase with market rate borrowings. Although this transaction created
substantial earnings, it also reduced the interest rate spread.
The mix of earning assets can also affect the interest rate spread.
During 1996, loans, which are typically Regions' highest yielding earning asset,
decreased as a percentage of earning assets -- partially offsetting the effects
of increasing spreads. Average loans as a percentage of earning assets were 75%
in 1995 and 74% in 1996.
The second factor affecting the interest margin is the percentage of
earning assets funded by interest-bearing liabilities. Funding for Regions'
earning assets comes from interest-bearing liabilities, non-interest-bearing
liabilities and stockholders' equity. The net spread on earning assets funded by
non-interest-bearing liabilities and stockholders' equity is higher than the net
spread on earning assets funded by interest-bearing liabilities. The percentage
of earning assets funded by interest-bearing liabilities increased from 85% in
1994 to 86% in 1995 and remained 86% in 1996. Since there was no change in the
percentage of earning assets funded by interest-bearing liabilities during 1996,
this factor did not affect the net interest margin. The changes in the
percentage of earning assets funded by interest-bearing liabilities had a
negative effect on net interest income in 1995. The trend has been for a greater
percentage of new funding for earning assets to come from interest-bearing
sources. Management expects this trend to continue.
The last factor, changes in the statutory federal income tax rate,
affected the interest margin in 1993. The marginal federal tax rate was constant
at 34% from 1988 through 1992, but was increased to 35% in 1993. Comparisons of
the interest margin to years prior to 1993 are affected by the change in this
rate. The higher tax rate in 1993 increased the taxable equivalent value of
interest income on tax-free loans and securities and thus increased the interest
margin by 1 basis point in 1993. This increase is "artificial" since it reflects
increased tax expense resulting from the tax rate change.
40
<PAGE> 22
INTEREST RATE SENSITIVITY
The primary objective of Asset/Liability Management at Regions is to
achieve reasonable stability in net interest income throughout interest rate
cycles. This is achieved by maintaining the proper balance of rate sensitive
earning assets, rate sensitive liabilities and off-balance sheet interest rate
hedges. The relationship of rate sensitive earning assets to rate sensitive
liabilities, adjusted for the effect of off-balance sheet hedges, (interest rate
sensitivity) is the principal factor in projecting the effect that fluctuating
interest rates will have on future net interest income. Rate sensitive earning
assets and interest-bearing liabilities are those that can be repriced to
current market rates within a relatively short time period. Management monitors
the rate sensitivity of earning assets and interest-bearing liabilities over
periods of up to ten years, but places particular emphasis on the first year. At
December 31, 1996, approximately 48% of earning assets and 71% of the funding
for these earning assets were scheduled to be repriced to current market rates
at least once during 1997.
The accompanying table shows Regions' rate sensitive position at
December 31, 1996, as measured by gap analysis (the difference between the
earning asset and interest-bearing liability amounts scheduled to be repriced to
current market rates in subsequent periods). Over the next 12 months
approximately $4.1 billion more interest-bearing liabilities than earning assets
can be repriced to current market rates at least once. As a result, the one-year
cumulative gap (the ratio of rate sensitive assets to rate sensitive
liabilities) at December 31, 1996, was 0.67, indicating a "liability sensitive"
position. However, this ratio is only one of the tools that management uses to
measure rate sensitivity.
Historically, Regions has not experienced the level of net interest
income volatility indicated by gap analysis. The primary reason for the lack of
volatility is that Regions has a relatively large base of core deposit products
that do not reprice on a contractual basis. These deposit products include
regular savings, interest-bearing transaction accounts and a portion of money
market savings accounts. Balances for these accounts are reported in the one to
three month repricing category and comprise 23% of interest-bearing deposits.
However, the rates paid on these accounts are typically not rate sensitive and
can be adjusted at management's discretion. Over the last five years, Regions
has used these accounts to effectively manage its interest rate sensitivity.
Another reason for the lack of volatility in net interest income is that
Regions' loan and security portfolios contain fixed-rate mortgage-related
products, including whole loans, mortgage-backed securities and collateralized
mortgage obligations having amortization and cash flow characteristics that vary
with the level of market interest rates. These earning assets are generally
reported in the non-sensitive category. In fact, a significant portion of these
earning assets may pay-off within one year or less, because their cash flow
characteristics are materially impacted by mortgage refinancing activity. If
regular savings, a portion of money market savings and a portion of
interest-bearing transaction accounts were redistributed based on expected cash
flows and probable repricing intervals, Regions' one-year cumulative gap ratio
would be 0.88 -- indicating a significantly less "liability sensitive" position
than that reported above.
Regions uses additional tools to monitor and manage interest rate
sensitivity. One of the primary tools used is simulation analysis. Simulation
analysis is the primary method of estimating earnings at risk and capital at
risk under varying interest rate conditions. Simulation analysis is used to test
the sensitivity of Regions' net interest income and stockholders' equity to both
the level of interest rates and the slope of the yield curve. Simulation
analysis uses a more detailed version of the information shown in the
accompanying table that includes adjustments for the expected timing and
magnitude of asset and liability cash flows, as well as the expected timing and
magnitude of repricings of deposits that do not reprice on a contractual basis.
In addition, simulation analysis includes adjustments for the lag between
movements in market interest rates and the movement of administered rates on
prime rate loans, interest-bearing transaction accounts, regular savings and
money market savings accounts. These adjustments are made to reflect more
accurately possible future cash flows, repricing behavior and ultimately net
interest income. Simulation analysis also indicates that Regions is slightly
"liability sensitive."
41
<PAGE> 23
<TABLE>
<CAPTION>
Interest Rate Sensitivity Analysis December 31, 1996
(dollar amounts in millions) Rate Sensitive Period
1-3 4-6 7-12 OVER 1 YEAR OR
MONTHS MONTHS MONTHS TOTAL NON-SENSITIVE TOTAL
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans, net of unearned income $ 4,725.9 $ 732.0 $ 1,229.0 $ 6,686.9 $ 6,624.3 $ 13,311.2
Investment securities 408.8 221.1 298.2 928.1 1,174.6 2,102.7
Securities available for sale 192.9 62.4 214.5 469.8 1,298.1 1,767.9
Interest bearing deposits
in other banks 33.2 -- -- 33.2 -- 33.2
Federal funds sold and securities
purchased under agreements
to resell 20.8 -- -- 20.8 -- 20.8
Mortgage loans held for sale 169.9 -- -- 169.9 -- 169.9
Trading account assets 29.6 -- -- 29.6 -- 29.6
Total earning assets $ 5,581.1 $ 1,015.5 $ 1,741.7 $ 8,338.3 $ 9,097.0 $ 17,435.3
Percent of total earning assets 32.0% 5.8% 10.0% 47.8% 52.2% 100.0%
FUNDING SOURCES:
Non-interest-bearing deposits -- -- -- -- $ 1,909.2 $ 1,909.2
Savings deposits $ 973.6 -- -- $ 973.6 -- 973.6
Other time deposits 6,776.6 $ 1,478.0 $ 1,536.6 9,791.2 2,374.4 12,165.6
Short-term borrowings 1,571.3 20.6 20.0 1,611.9 -- 1,611.9
Long-term borrowings 10.2 46.0 20.5 76.7 370.5 447.2
Total interest-bearing liabilities 9,331.7 1,544.6 1,577.1 12,453.4 2,744.9 15,198.3
Stockholders' equity -- -- -- -- 327.8 327.8
Total funding sources $ 9,331.7 $ 1,544.6 $ 1,577.1 $ 12,453.4 $ 4,981.9 $ 17,435.3
Percent of total funding sources 53.5% 8.9% 9.0% 71.4% 28.6% 100.0%
Interest sensitive gap $ (3,750.6) $ (529.1) $ 164.6 $ (4,115.1) $ 4,115.1 --
Cumulative interest sensitive gap $ (3,750.6) $ (4,279.7) $ (4,115.1) $ (4,115.1) -- --
As percent of total earning assets (21.5)% (24.5)% (23.6)% (23.6)% -- --
Ratio of earning assets
to funding sources 0.60 0.66 1.10 0.67 1.83 1.00
Cumulative ratio 0.60 0.61 0.67 0.67 1.00 1.00
</TABLE>
42
<PAGE> 24
<TABLE>
<CAPTION>
Analysis of Changes in Net Interest Income
(in thousands) Year Ended December 31
1996 OVER 1995 1995 over 1994
VOLUME YIELD/RATE TOTAL Volume Yield/Rate Total
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN:
Interest income on:
Loans $ 88,752 $ 3,871 $ 92,623 $ 177,660 $ 75,045 $ 252,705
Federal funds sold (4,306) (830) (5,136) (2,114) 2,859 745
Taxable securities 29,973 2,879 32,852 16,416 6,261 22,677
Non-taxable securities 1,085 (3,927) (2,842) 1,738 (237) 1,501
Other earning assets 7,319 1,706 9,025 (12,512) 2,791 (9,721)
Total 122,823 3,699 126,522 181,188 86,719 267,907
Interest expense on:
Savings deposits (51) (1,140) (1,191) (265) (1,116) (1,381)
Other interest-bearing
deposits 54,567 (1,512) 53,055 58,827 103,901 162,728
Borrowed funds 7,592 (9,136) (1,544) 28,328 9,504 37,832
Total 62,108 (11,788) 50,320 86,890 112,289 199,179
INCREASE (DECREASE) IN NET
INTEREST INCOME $ 60,715 $ 15,487 $ 76,202 $ 94,298 $ (25,570) $ 68,728
</TABLE>
Note: The change in interest due to both rate and volume has been allocated to
change due to volume and change due to rate in proportion to the
absolute dollar amounts of the change in each.
PROVISION FOR LOAN LOSSES
This expense is used to fund the allowance for loan losses. Actual loan losses,
net of recoveries, are charged directly to the allowance. The expense recorded
each year is a reflection of actual losses experienced during the year and
management's judgment as to the adequacy of the allowance to absorb future
losses. For an analysis and discussion of the allowance for loan losses, refer
to the section entitled "Loans and Allowance for Loan Losses." In 1994, the
provision for loan losses was reduced to $20.6 million, due primarily to
improving economic conditions and to improving loan portfolio quality
indicators. In 1995, the provision for loan losses was increased to $30.3
million due to internal growth in the loan portfolio, growth in loans from
acquisitions and the estimated impact on Regions of higher consumer debt
levels. In 1996, the provision for loan losses totaled $29.0 million. Higher
levels of consumer loan losses, a portion of which was provided for in the
prior year, were partially offset by higher levels of commercial and real
estate loan recoveries in 1996. Acquisitions added $6.1 million to the
allowance for loan losses in 1996. The resulting year end allowance for loan
losses increased $16.0 million to $175.5 million. Unfavorable changes in the
previously discussed factors considered by management in determining the amount
of the provision for loan losses and the resulting allowance, particularly
higher consumer loan losses, could require significantly higher provisions for
loans losses in the future.
TRUST INCOME
Trust income increased 6% in 1994, 18% in 1995 and 8% in 1996. An aggressive
sales program has been an important means of increasing trust revenue. Sales
goals have been established and employee incentive plans for obtaining new
trust business have been implemented. In addition to increased sales efforts,
trust income is also affected by the securities markets, since most trust fees
are calculated as a percentage of trust asset values. The strength of the
securities markets in 1995 and 1996 had a more favorable impact on trust income
in those years than in 1994. Increased trust assets, primarily due to
acquisitions, also contributed to the higher growth rate in trust income in
1995.
SERVICE CHARGES ON DEPOSIT ACCOUNTS
Service charge income increased 19% in 1994, 18% in 1995, and 21% in 1996, due
to increases in the number of deposit accounts, primarily because of
acquisitions, and changes in the pricing of certain deposit accounts and
related services.
43
<PAGE> 25
MORTGAGE SERVICING AND ORIGINATION FEES
The primary source of this income is Regions' mortgage banking
affiliate--Regions Mortgage, Inc. (RMI). RMI's primary business and source of
income is the origination and servicing of mortgage loans for long-term
investors.
In 1996, mortgage servicing and origination fees increased 16%, from
$43.6 million in 1995 to $50.6 million in 1996. Origination fees almost doubled
in 1996 due to a 67% increase in the number of loans closed and a 74% increase
in the dollar amount of loans closed. Servicing fees increased 4% in 1996. At
December 31, 1996, Regions' servicing portfolio totaled $12.4 billion and
included approximately 192,000 loans. At December 31, 1995, the servicing
portfolio totaled $11.0 billion, compared to $10.6 billion at December 31, 1994.
Growth in the servicing portfolio resulted from retention of servicing on most
mortgages originated in-house and the purchase of servicing rights to mortgages
originated by other companies, partially offset by the sale in 1995 of servicing
rights by First National on $1.1 billion of mortgage loans.
In 1995, mortgage servicing and origination fees decreased 4%, from
$45.4 million in 1994 to $43.6 million in 1995. Origination fees decreased in
1995 due to a decline in the number and dollar amount of loans closed. An
increase in servicing fees partially offset the decline in origination fees.
Mortgage servicing and origination fees decreased $1.8 million or 4% in
1994. Origination fees decreased due to a decline in the number of loans closed,
primarily as a result of higher mortgage interest rates in 1994. Servicing fees
reflected only nominal growth in 1994. The reduced rate of growth in servicing
fees in 1994 resulted primarily from (1) a slower rate of growth in the
servicing portfolio than in prior years and (2) an increased amount of mortgages
in RMI's servicing portfolio owned by Regions' subsidiary banks; servicing fees
from these mortgages are eliminated in consolidation as intercompany
transactions.
RMI, through its retail and wholesale operations, produced mortgage
loans totaling $1.7 billion, $954 million, and $1.9 billion in 1996, 1995 and
1994, respectively. RMI produces loans from 33 offices in Alabama, Georgia,
Florida, Louisiana, Mississippi, Tennessee and South Carolina, and from other
correspondent offices located primarily in the Southeast.
In 1996 Regions adopted Statement of Financial Accounting Standards No.
122 (Statement 122) "Accounting for Mortgage Servicing Rights, an Amendment of
FASB No. 65." Statement 122 requires companies that originate mortgage loans to
capitalize the cost of mortgage servicing rights separate from the cost of
originating the loan when a definitive plan to sell or securitize those loans
and retain the mortgage servicing rights exist. Prior to the adoption of
Statement 122, only mortgage servicing rights that were purchased from other
parties were capitalized and recorded as an asset. Therefore, Statement 122
eliminated the accounting inconsistencies that existed between mortgage
servicing rights that were derived from loan origination activities and those
acquired through purchase transactions. Statement 122 also requires that
capitalized mortgage servicing rights be assessed for impairment based on the
fair value of those rights.
An analysis of mortgage servicing rights, which are included in other
assets in the consolidated statement of condition, is presented as follows. The
balances shown represent the original amounts capitalized, less accumulated
amortization and valuation adjustments, for the right to service mortgage
loans that are owned by other investors. Amounts for 1995 and 1994 are not
restated for the adoption of Statement 122. The carrying values of mortgage
servicing rights are affected by various factors, including prepayments of the
underlying mortgages. A significant increase in prepayments of mortgages in
the servicing portfolio in the future could result in significant increases in
the valuation adjustments.
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $ 64,269 $ 64,381 $ 60,410
Net additions 20,670 11,465 17,157
Amortization (13,889) (11,257) (11,934)
Valuation adjustments -- (320) (1,252)
Balance at end of year $ 71,050 $ 64,269 $ 64,381
</TABLE>
SECURITIES GAINS (LOSSES)
The $344,000 net gain in 1994 from the sale of available for sale
securities resulted primarily from dispositions of small blocks of securities
acquired in connection with acquisitions, sales of several securities due to
credit quality concerns and management's decision to sell certain securities and
reinvest the proceeds in higher yielding alternative investments.
The $424,000 in net losses recognized in 1995 from the sale of available
for sale securities with a book value of $50.2 million resulted primarily from
sales of securities acquired in connection with acquisitions in which the
securities were not consistent with Regions' portfolio strategy and management's
decision to sell certain securities and reinvest the proceeds in higher yielding
securities.
In 1996, net gains from the sale of available for sale securities were
$3,115,000, resulting primarily from the sale of Freddie Mac stock that was
acquired in an acquisition.
OTHER INCOME
Refer to Note O to the consolidated financial statements for an analysis
of the significant components of other income. Increases in fee and commission
income over the last three years resulted primarily from revisions in charges
for certain services, an increased emphasis on charging customers for services
performed and an increased customer base due to internal growth and
acquisitions. Increases in safe deposit fees, international department income,
automated teller machine fees and other customer charges contributed to growth
in fees and commissions over the last three years.
44
<PAGE> 26
Insurance premium and commission income increased in 1996 and 1994, but
declined in 1995. This income originates primarily from the sale of credit life
and accident and health insurance to consumer loan customers. Increased
consumer loan volumes resulted in increased income in 1994 and 1996. The
additional income associated with increased consumer loan volume in 1995 was
offset by decreased commissions from collateral protection insurance coverage,
resulting in a decline in insurance premium and commission income in 1995.
Trading account income increased in 1996 due to expanded trading
activities, increased underwriting fees, and larger profits from trading in the
portfolio. Trading account income decreased in 1995 and 1994, primarily because
of lower volumes and a decline in profits from trading in the portfolio.
Gains on the sale of mortgage servicing rights totaled $4.6 million in
1994, compared to $150,000 in 1995. No sales of mortgage servicing rights
occurred in 1996.
SALARIES AND EMPLOYEE BENEFITS
Total salaries and benefits increased 15% in 1994, 14% in 1995 and 8% in
1996. These increases resulted from normal merit and promotional adjustments,
increased incentive payments tied to performance, the effects of inflation,
higher benefit costs and increases in the number of employees due to increased
business activity and acquisitions.
At December 31, 1996, Regions had 8,150 full-time equivalent employees,
compared to 7,707 at December 31, 1995 and 7,485 at December 31, 1994. Employees
added as a result of acquisitions accounted for most of these increases.
Salaries, excluding benefits, totaled $163.2 million in 1994, compared
to $184.3 million in 1995 and $195.7 million in 1996. These increases resulted
from increased employment levels, due to acquisitions and increased business
activity, and normal merit and promotional adjustments.
EFFICIENCY RATIO
(GRAPH)
<TABLE>
<CAPTION>
92 93 94 95 96
-- -- -- -- --
<S> <C> <C> <C> <C>
59.62% 60.23% 59.44% 58.79% 56.16%*
</TABLE>
*Excludes SAIF assessment and merger charges in 1996.
Regions provides employees who meet established employment requirements
with a benefits package which includes pension, profit sharing, stock purchase,
and medical, life and disability insurance plans. The total cost to Regions for
fringe benefits, including payroll taxes, equals approximately 29% of salaries.
The contribution to the profit sharing plan was equal to approximately
8% of after-tax income in 1994, 9% in 1995 and 7% in 1996.
The contribution to the employee stock ownership plan (ESOP) equaled
approximately 1% of after-tax income in each of the last three years.
Commissions and incentives expense increased to $30.1 million in 1996,
compared to $23.9 million in 1995 and $21.0 million in 1994. Incentives are
being used increasingly to reward employees for selling products and services,
for productivity improvements and for achievement of other corporate goals.
Regions' long-term incentive plan provides for the granting of stock options,
stock appreciation rights, restricted stock and performance shares. The
long-term incentive plan is intended to assist the Company in attracting,
retaining, motivating and rewarding employees who make a significant
contribution to the Company's long-term success, and to encourage employees to
acquire and maintain an equity interest in the Company. Regions also uses cash
incentive plans to reward employees for achievement of various goals.
Payroll taxes increased 19% in 1994, 27% in 1995 and 10% in 1996.
Increases in the Social Security tax base, combined with increased salary levels
and additional employees due to growth and acquisitions, were the primary
reasons for increased payroll taxes.
Group insurance expense increased 16% in 1994, 38% in 1995 and 4% in
1996 primarily because of increases in medical claims due to increased
employment levels associated with increased business activity and acquisitions,
and continued rising health care costs.
45
<PAGE> 27
NET OCCUPANCY EXPENSE
Net occupancy expense includes rents, depreciation and amortization,
utilities, maintenance, insurance, taxes and other expenses of premises occupied
by Regions and its affiliates. Regions' affiliates operate offices throughout
Alabama and parts of Louisiana, Florida, Georgia, Tennessee, Mississippi and
South Carolina.
Net occupancy expense increased 31% in 1994, 7% in 1995, and 16% in 1996
due to new and acquired branch offices, rising price levels, and increased
business activity. Increased acquisitions during 1993 and 1994 were the primary
reason for the larger 1994 increase.
FURNITURE AND EQUIPMENT EXPENSE
Furniture and equipment expense increased 18% in 1994, 7% in 1995, and
15% in 1996. These increases resulted from acquisitions (particularly during
1993, 1994 and 1996) rising price levels, expenses related to equipment for new
branch offices, and increased depreciation and service contract expenses
associated with other new equipment.
FDIC INSURANCE EXPENSE
FDIC insurance expense decreased 65% in 1996, after declining 30% in
1995. Beginning in mid-1995 and continuing in 1996, the FDIC significantly
reduced insurance premium rates on Bank Insurance Fund (BIF) deposits, which
resulted in lower FDIC insurance expense in 1995 and 1996. Deposit insurance
premium rates for Savings Association Insurance Fund (SAIF) deposits, which are
approximately 25% of Regions' assessable deposits, remained at $0.23 per $100 of
insured deposits during 1995 and 1996.
FDIC insurance expense increased 32% in 1994, as a result of increased
deposits from acquisitions and growth.
In 1997, deposit insurance premium rates for BIF and SAIF deposits are
expected to be zero for institutions, including Regions, in the most favorable
rate category. However, BIF and SAIF insured institutions will be required
beginning in 1997 to pay Financing Corporation (FICO) assessments, which are
estimated to be $.065 per $100 of SAIF-assessable deposits and $.013 per $100 of
BIF-assessable deposits. The combined effect of these changes is expected to
result in an annual pre-tax savings of $4.7 million in FDIC expense.
SAIF ASSESSMENT AND MERGER EXPENSES
On September 30, 1996, legislation to recapitalize the SAIF became
effective. This legislation required Regions, and all other depository
institutions having SAIF-insured deposits, to pay a one-time, special
assessment. This resulted in a pre-tax expense of $21.7 million for Regions,
which was recognized primarily in the third quarter of 1996.
In the first quarter of 1996, Regions incurred a pre-tax, non-recurring
merger charge of $8.8 million related to the merger of First National Bancorp
with Regions. This charge consisted primarily of investment banking and other
professional fees, severance costs, data processing contract buyouts and
obsolete equipment write-downs.
OTHER EXPENSES
Refer to Note O to the consolidated financial statements for an analysis
of the significant components of other expense. Increases in this category of
expense generally resulted from acquisitions, expanded programs, increased
business activity and rising price levels.
Other non-credit losses were reduced in 1995 because of a recovery from
a litigation matter. Other non-credit losses primarily include charges for items
unrelated to the extension of credit such as fraud losses, litigation losses,
write- downs of other real estate and insurance claims.
Amortization of mortgage servicing rights increased in 1996, after
declining in 1995 and 1994. Statement 122, which was adopted beginning in 1996,
results in the capitalization, and subsequent amortization thereof, of more
mortgage servicing rights than under previous standards. This resulted in
additional amortization expense in 1996. Mortgage servicing rights amortization
expense declined in 1995 and 1994 due to slower prepayment activity on the
underlying mortgages than in earlier years.
Gains or losses on sales of mortgages result from changes in the fair
market value of mortgages held in inventory while awaiting sale to long-term
investors. Purchased commitments covering the sale of mortgages held in
inventory are used to mitigate market losses. (See Note M to the consolidated
financial statements for additional information.)
The increase in other miscellaneous expenses resulted primarily from
increases in amortization of excess purchase price, courier service, sales and
use taxes, and state shares tax assessments.
APPLICABLE INCOME TAX
Regions' provision for income taxes increased 13% in 1996. This increase
was caused primarily by a 15% increase in income before taxes. Also contributing
to the larger provision for income taxes was a decline in Regions' tax exempt
income, as a percentage of total income. For 1994, 1995 and 1996, the Company's
tax exempt income as a percentage of income before income taxes was 12%, 11% and
9%, respectively. Management expects this trend to continue. Note P to the
consolidated
46
<PAGE> 28
financial statements provides additional information about the provision for
income taxes.
Currently, Regions' consolidated federal income tax returns for 1993 and
1994 are under review by the Internal Revenue Service. This is normal practice
and management does not expect any material adjustments as a result of this
examination.
Management's determination of the realization of the deferred tax asset
is based upon management's judgment of various future events and uncertainties,
including the timing and amount of future income earned by certain subsidiaries
and the implementation of various tax planning strategies to maximize
realization of the deferred tax asset. Management believes that the subsidiaries
may be able to generate sufficient operating earnings to realize the deferred
tax benefits. In addition, a portion of the amount of the deferred tax asset
that can be realized in any year is subject to certain statutory federal income
tax limitations. Because of these uncertainties, a valuation allowance has been
established. Management evaluates the realizability of the deferred tax asset
and adjusts, if necessary, the valuation allowance accordingly.
EFFECTS OF INFLATION
The majority of assets and liabilities of a financial institution are
monetary in nature; therefore, a financial institution differs greatly from most
commercial and industrial companies, which have significant investments in fixed
assets or inventories. However, inflation does have an important impact on the
growth of total assets in the banking industry and the resulting need to
increase equity capital at higher than normal rates in order to maintain an
appropriate equity to assets ratio. Inflation also affects other expenses which
tend to rise during periods of general inflation.
Management believes the most significant impact of inflation on
financial results is the Company's ability to react to changes in interest
rates. As discussed previously, management is attempting to maintain an
essentially balanced position between rate sensitive assets and liabilities in
order to protect net interest income from being affected by wide interest rate
fluctuations.
CATEGORIES OF NON-INTEREST EXPENSE
($ in millions)
(Graph)
<TABLE>
<CAPTION>
<S> <S> <C> <C> <C> <C>
92 93 94 95 96
-- -- -- -- --
Salaries and employee benefits 176 199 228 261 282
Net occupancy expense 20 21 27 29 34
Furniture and equipment expense 22 24 29 31 35
SAIF assessment and merger expenses - - - - 30
Other 125 139 158 166 173
--- --- --- --- ---
Total 343 383 442 487 554
</TABLE>
47
<PAGE> 29
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS, COMMON STOCK MARKET PRICES AND
DIVIDENDS
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
Three Months Ended
Mar. 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
1996
Total interest income $329,005 $348,906 $351,240 $356,971
Total interest expense 165,119 169,145 174,309 177,083
Net interest income 163,886 179,761 176,931 179,888
Provision for loan losses 6,874 7,442 7,418 7,307
Net interest income after
provision for loan losses 157,012 172,319 169,513 172,581
total non-interest income, excluding
securities gains 55,551 52,219 54,989 54,865
Securities gains 131 23 105 2,856
Total non-interest expense 135,008 130,599 150,348 137,846
Income taxes 24,892 32,450 23,680 27,655
Net income $ 52,794 $ 61,512 $ 50,579 $ 64,801
Per share:
Net income $ .85 $ .99 $ .82 $ 1.04
Cash dividends declared .35 .35 .35 .35
Market price:
Low 40 1/2 42 43 3/8 48
High 48 49 49 54
<CAPTION>
(in thousands, except per share amounts)
Three Months Ended
Mar. 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
1995
Total interest income $299,945 $314,141 $323,093 $322,421
Total interest expense 147,415 159,087 165,604 163,230
Net interest income 152,530 155,054 157,489 159,191
Provision for loan losses 5,050 5,811 6,414 12,996
Net interest income after
provision for loan losses 147,480 149,243 151,075 146,195
Total non-interest income, excluding
securities gains 43,912 45,675 48,713 49,530
Securities gains 7 214 85 (730)
Total non-interest expense 116,229 120,429 118,457 132,346
Income taxes 24,920 24,802 27,617 18,770
Net income $ 50,250 $ 49,901 $ 53,799 $ 43,879
Per share:
Net income $ .81 $ .81 $ .87 $ .71
Cash dividends declared .33 .33 .33 .33
Market price:
Low 31 34 1/2 36 7/8 39 5/8
High 36 1/2 37 1/2 41 3/8 45
</TABLE>
Regions Common Stock trades on the Nasdaq National Market tier of The Nasdaq
Stock Market under the symbol RGBK. Market prices shown represent sales prices
as reported in the Nasdaq Monthly Summary of Activity Report. At December 31,
1996, there were 41,532 shareholders of record of Regions Financial Corporation
Common Stock.
48
<PAGE> 30
CONSOLIDATED STATEMENTS OF CONDITION
Regions Financial Corporation & Subsidiaries
<TABLE>
<CAPTION>
(dollar amounts in thousands, except per share data) DECEMBER 31
- -------------------------------------------------------------------------------
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks $ 774,849 $ 587,161
Interest-bearing deposits in other banks 33,191 56,477
Investment securities (aggregate estimated
market value of $2,115,718 in 1996 and
a$1,626,775 in 1995) 2,102,750 1,589,106
Securities available for sale 1,767,845 2,274,675
Trading account assets 29,648 28,870
Mortgage loans held for sale 169,861 117,087
Federal funds sold and securities purchased
under agreements to resell 20,842 66,339
Loans 13,335,450 11,569,551
Unearned income (24,278) (27,240)
Loans, net of unearned income 13,311,172 11,542,311
Allowance for loan losses (175,548) (159,487)
Net loans 13,135,624 11,382,824
Premises and equipment 276,890 254,992
Interest receivable 139,333 120,950
Due from customers on acceptances 78,108 51,286
Other assets 401,234 322,007
$ 18,930,175 $ 16,851,774
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 1,909,174 $ 1,864,970
Interest-bearing 13,139,162 11,632,642
Total deposits 15,048,336 13,497,612
Borrowed funds:
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 1,549,729 1,031,957
Commercial paper 40,367 21,100
Other short-term borrowings 21,831 15,540
Total short-term borrowings 1,611,927 1,068,597
Long-term borrowings 447,269 632,019
Total borrowed funds 2,059,196 1,700,616
Bank acceptances outstanding 78,108 51,286
Other liabilities 145,809 173,007
Total liabilities 17,331,449 15,422,521
Stockholders' equity:
Common stock, par value $.625 a share:
Authorized 120,000,000 shares
Issued, 62,914,750 shares in 1996
and 61,733,185 shares in 1995 39,322 38,583
Surplus 520,571 505,350
Undivided profits 1,050,606 895,755
Treasury stock, at cost-260,000 shares
in 1996 and 614,000 shares in 1995 (12,356) (25,085)
Unearned restricted stock (3,121) (1,582)
Unrealized gain on securities
available for sale, net of taxes 3,704 16,232
Total stockholders' equity 1,598,726 1,429,253
$ 18,930,175 $ 16,851,774
</TABLE>
See notes to consolidated financial statements.
() Indicates deduction.
51
<PAGE> 31
CONSOLIDATED STATEMENTS OF INCOME
Regions Financial Corporation & Subsidiaries
<TABLE>
<CAPTION>
(amounts in thousands, except per share data) YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $1,102,406 $1,009,783 $757,078
Interest on securities:
Taxable interest income 237,046 204,194 181,517
Tax-exempt interest income 22,462 25,304 23,803
Total interest on securities 259,508 229,498 205,320
Interest on mortgage loans held for sale 15,286 9,335 20,363
Income on federal funds sold and
securities purchased under agreements
to resell 2,625 7,761 7,016
Interest on time deposits in other banks 5,003 2,751 1,741
Interest on trading account assets 1,294 472 175
Total interest income 1,386,122 1,259,600 991,693
Interest expense:
Interest on deposits 587,744 535,880 374,533
Interest on short-term borrowings 65,400 57,429 24,766
Interest on long-term borrowings 32,512 42,027 36,858
Total interest expense 685,656 635,336 436,157
Net interest income 700,466 624,264 555,536
Provision for loan losses 29,041 30,271 20,580
Net interest income after
provision for loan losses 671,425 593,993 534,956
Non-interest income:
Trust department income 27,634 25,656 21,731
Service charges on deposit accounts 88,190 73,100 62,096
Mortgage servicing and origination fees 50,617 43,608 45,365
Securities gains (losses) 3,115 (424) 344
Other 51,183 45,466 42,513
Total non-interest income 220,739 187,406 172,049
Non-interest expense:
Salaries and employee benefits 281,845 261,066 228,199
Net occupancy expense 33,616 29,005 27,212
Furniture and equipment expense 35,375 30,890 28,861
FDIC insurance expense 6,423 18,271 26,177
SAIF assessment and merger expenses 30,477 -0- -0-
Other 166,065 148,229 131,927
Total non-interest expense 553,801 487,461 442,376
Income before income taxes 338,363 293,938 264,629
Applicable income taxes 108,677 96,109 84,109
Net income $ 229,686 $ 197,829 $180,520
Average number of shares outstanding 62,136 61,670 58,206
Per share:
Net income $ 3.70 $ 3.21 $ 3.10
Cash dividends declared 1.40 1.32 1.20
</TABLE>
See notes to consolidated financial statements.
52
<PAGE> 32
CONSOLIDATED STATEMENTS OF CASH FLOWS
Regions Financial Corporation & Subsidiaries
<TABLE>
<CAPTION>
(amounts in thousands) YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 229,686 $ 197,829 $ 180,520
Adjustments to reconcile net cash provided by
operating activities:
Depreciation and amortization of premises and
equipment 28,471 26,232 24,558
Provision for loan losses 29,041 30,271 20,580
Net (accretion) amortization of securities (1,677) (6,644) 7,392
Amortization of loans and other assets 27,269 21,073 18,621
Amortization of deposits and borrowings (1,643) (5,643) (6,719)
Provision for losses on other real estate 91 2,726 687
Deferred income taxes 6,392 14,291 1,500
(Gain) loss on sale of premises and equipment (655) (27) 163
Realized security (gains) losses (3,115) 424 (344)
(Increase) in trading account assets (778) (4,017) (4,485)
(Increase) decrease in mortgages held for sale (52,774) 903 233,036
(Increase) in interest receivable (16,335) (12,759) (15,527)
(Increase) in other assets (99,634) (15,158) (3,386)
(Decrease)increase in other liabilities (34,526) 16,637 (35,985)
Stock issued to employees under incentive plan 4,333 601 1,502
Other 1,557 14,556 9,859
Net cash provided by operating activities 115,703 281,295 431,972
Investing activities:
Net (increase) in loans (1,310,399) (268,167) (1,633,251)
Proceeds from sale of securities available for sale 192,941 50,638 201,343
Proceeds from maturity of investment securities 526,897 503,811 834,546
Proceeds from maturity of securities available for
sale 532,927 510,201 243,816
Purchase of investment securities (556,830) (617,913) (823,969)
Purchase of securities available for sale (512,493) (880,753) (472,840)
Net decrease (increase) in interest-bearing
deposits in other banks 30,444 (31,194) 62,995
Proceeds from sale of premises and equipment 13,930 4,555 3,769
Purchase of premises and equipment (50,348) (43,186) (26,785)
Net (increase) decrease in customers' acceptance
liability (26,822) 59,234 (34,607)
Net cash received in acquisitions 116,725 50,908 278,441
Net cash (used) by investing activities (1,043,028) (661,866) (1,366,542)
Financing activities:
Net increase in deposits 872,647 472,194 195,805
Net increase (decrease) in short-term borrowings 539,646 (79,274) 794,521
Proceeds from long-term borrowings 32,428 125,851 406,496
Payments on long-term borrowings (215,535) (99,395) (330,825)
Net increase (decrease) in bank acceptance liability 26,822 (59,234) 34,607
Cash dividends (87,466) (77,020) (65,307)
Purchase of treasury stock (104,288) (61,882) (82,265)
Proceeds from exercise of stock options 5,262 2,451 4,688
Net cash provided by financing activities 1,069,516 223,691 957,720
Increase (decrease) in cash and cash equivalents 142,191 (156,880) 23,150
Cash and cash equivalents at beginning of year 653,500 810,380 787,230
Cash and cash equivalents at end of year $ 795,691 $ 653,500 $ 810,380
</TABLE>
See notes to consolidated financial statements.
53
<PAGE> 33
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Regions Financial Corporation & Subsidiaries
<TABLE>
<CAPTION>
(amounts in thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------------------
UNREALIZED
GAIN(LOSS)
ON
SECURITIES TREASURY UNEARNED
COMMON UNDIVIDED AVAILABLE STOCK, RESTRICTED
STOCK SURPLUS PROFITS FOR SALE AT COST STOCK
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1994 $35,747 $454,477 $630,183 $(12,320) $(1,726)
Equity from immaterial
acquisitions accounted
for as poolings of
interests 1,387 15,441 18,890
Adjustment for change in
accounting method, net
of income taxes of
$6,698 $ 11,129
Change in unrealized gains
and (losses), net of
income taxes of
($20,127) (35,509)
Net income for the year 180,520
Cash dividends declared--
Regions-$1.20 per share (50,273)
Pooled company (15,034)
Stock dividend of pooled company 167 5,943 (6,110)
Retirement of common stock
by pooled company (38) (1,146)
Purchase of treasury stock (81,081)
Stock issued for
acquisitions 1,116 44,916 80,960
Stock issued to employees
under incentive plans 1 294 1,120 87
Stock options exercised 319 4,369
Amortization of unearned
restricted stock 587
Issuance of common stock
by pooled company for
dividend reinvestment
plan 44 1,862
Balance at December 31,
1994 38,743 526,156 759,296 (24,380) (12,441) (1,052)
Equity from immaterial
acquisitions accounted
for as poolings of
interests 984 7,306 15,412
Change in unrealized gains
and (losses), net of
income taxes of $14,890 40,612
Net income for the year 197,829
Cash dividends declared--
Regions-$1.32 per share (60,075)
Pooled company (16,945)
Purchase of treasury stock (61,882)
Treasury stock retired and
reissued relating to
acquisitions accounted
for as purchases (408) (22,236) 36,797
Retirement of treasury
stock purchased in
prior years (922) (11,519) 12,441
Stock issued for
acquisition by pooled
company 9 391
Stock issued to employees
under incentive plans 32 1,961 238 (1,630)
Stock options exercised 125 2,326
Amortization of unearned
restricted stock 1,100
Issuance of common stock
by pooled company for
dividend reinvestment
plan 20 965
Balance at December 31,
1995 38,583 505,350 895,755 16,232 (25,085) (1,582)
Equity from immaterial
acquisitions accounted
for as poolings of
interests 306 (2,198) 12,631
Change in unrealized gains
and (losses), net of
income taxes of ($2,374) (12,528)
Net income for the year 229,686
Cash dividends declared--
Regions-$1.40 per share (87,466)
Purchase of treasury stock (104,288)
Treasury stock retired and
reissued relating to
acquisitions accounted
for as purchases (384) (26,867) 117,017
Stock issued for
acquisitions 476 31,922
Stock issued to employees
under incentive plans 111 7,332 (3,110)
Stock options exercised 230 5,032
Amortization of unearned
restricted stock 1,571
BALANCE AT DECEMBER 31,
1996 $39,322 $520,571 $1,050,606 $ 3,704 $ (12,356) $(3,121)
</TABLE>
See notes to consolidated financial statements.
() Indicates deduction.
54
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Regions Financial Corporation
(Regions or the Company), conform with generally accepted accounting principles
and with general financial service industry practices. Regions provides a full
range of banking and bank-related services to individual and corporate customers
through its subsidiaries and branch offices located primarily in Alabama,
Florida, Georgia, Louisiana and Tennessee. The Company is subject to intense
competition from other financial institutions and is also subject to the
regulations of certain government agencies and undergoes periodic examinations
by those regulatory authorities.
On March 1, 1996, First National Bancorp (First National) of
Gainesville, Georgia, merged with and into Regions. The merger was accounted for
as a pooling of interests and, accordingly, financial information for all prior
periods has been restated to present the combined financial condition and
results of operations of both companies as if the merger had been in effect for
all periods presented. Further details of the merger are presented in Note Q.
Business Combinations.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Regions
and its subsidiaries. Significant intercompany balances and transactions have
been eliminated. In preparing the financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the statement of condition dates and revenues and expenses for
the periods shown. Actual results could differ from the estimates and
assumptions used in the consolidated financial statements.
Certain amounts in prior year financial statements have been
reclassified to conform to the current year presentation.
SECURITIES
The Company's policies for investments in debt and equity securities are
as follows.
Management determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates such designations as of the
date of each statement of condition.
Debt securities are classified as investment securities when the Company
has the positive intent and ability to hold the securities to maturity.
Investment securities are stated at amortized cost.
Debt securities not classified as investment securities or trading
account assets, and marketable equity securities not classified as trading
account assets, are classified as securities available for sale. Securities
available for sale are stated at estimated fair value, with unrealized gains and
losses, net of taxes, reported as a separate component of stockholders' equity.
The amortized cost of debt securities classified as investment
securities or securities available for sale is adjusted for amortization of
premiums and accretion of discounts to maturity, or in the case of
mortgage-backed securities, over the estimated life of the security, using the
effective yield method. Such amortization or accretion is included in interest
on securities. Realized gains and losses are included in securities gains
(losses). The cost of the securities sold is based on the specific
identification method.
Trading account assets, which are held for the purpose of selling at a
profit, consist of debt and marketable equity securities and are carried at
estimated market value. Gains and losses, both realized and unrealized, are
included in other income.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of aggregate cost
or estimated market value. Gains and losses on mortgages held for sale are
included in other expense.
LOANS
Interest on loans is accrued based upon the principal amount outstanding
except for interest on discounted installment loans and leases, which is
generally credited to income based upon the sum-of-the-digits method and
generally approximates the interest method of income recognition.
Through provisions charged directly to operating expense, Regions has
established an allowance for loan losses. This allowance is reduced by actual
loan losses and increased by subsequent recoveries, if any.
The allowance for loan losses is maintained at a level believed adequate
by management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, historical loan loss experience, current economic conditions,
collateral values of properties securing loans, volume, growth, quality and
composition of the loan portfolio and other relevant factors. Unfavorable
changes in any of these, or other factors, or the availability of new
information, could require that the allowance for loan losses be increased in
future periods.
55
<PAGE> 35
PREMISES AND EQUIPMENT
Premises and equipment and leasehold improvements are stated at cost,
less accumulated depreciation and amortization. The provision for depreciation
is computed using the straight-line and declining-balance methods over the
estimated useful lives of the assets. Leasehold improvements are amortized using
the straight-line method over the estimated useful lives of the improvements (or
the terms of the leases if shorter).
<TABLE>
<S> <C>
Estimated useful lives generally are as follows:
Premises and leasehold improvements 10-40 years
Furniture and equipment 3-12 years
</TABLE>
INTANGIBLE ASSETS
Intangible assets, consisting of (1) the excess of cost over the fair
value of net assets of acquired businesses and (2) amounts capitalized for the
right to service mortgage loans, are included in other assets. The excess of
cost over the fair value of net assets of acquired businesses, which totaled
$173,820,000 at December 31, 1996, and $115,792,000 at December 31, 1995, is
being amortized over periods of 12 to 25 years, principally using the
straight-line method of amortization. Amounts capitalized for the right to
service mortgage loans, which totaled $71,050,000 at December 31, 1996 and
$64,269,000 at December 31, 1995, are being amortized over the estimated
remaining servicing life of the loans, considering appropriate prepayment
assumptions. Intangible assets are evaluated periodically for impairment.
In 1996 Regions adopted Statement of Financial Accounting Standards No.
122 "Accounting for Mortgage Servicing Rights, an Amendment of FASB No. 65"
(Statement 122). Statement 122 requires companies that originate mortgage loans
to capitalize the cost of mortgage servicing rights separate from the cost of
originating the loan when a definitive plan to sell or securitize those loans
and retain the mortgage servicing rights exists. Prior to the adoption of
Statement 122, only mortgage servicing rights that were purchased from other
parties were capitalized and recorded as an asset. Therefore, Statement 122
eliminated the accounting inconsistencies that existed between mortgage
servicing rights that were derived from loan origination activities and those
acquired through purchase transactions. In 1996, Regions capitalized $20.7
million in mortgage servicing rights. Statement 122 also requires that
capitalized mortgage servicing rights be assessed for impairment based on the
fair value of those rights. For purposes of evaluating impairment, the Company
stratifies its mortgage servicing portfolio on the basis of certain risk
characteristics including loan type and note rate. The adoption of Statement
122 did not have a material impact on Regions' financial statements and in
accordance with Statement 122, prior year financial statements were not
restated to reflect the implementation of Statement 122.
PENSION, PROFIT-SHARING AND EMPLOYEE STOCK OWNERSHIP PLANS
Regions has pension, profit-sharing and employee stock ownership plans
covering substantially all employees. Annual contributions to the profit-sharing
and employee stock ownership plans are determined at the discretion of the Board
of Directors. Pension expense is computed using the projected unit credit
(service prorate) actuarial cost method and the plan is funded using the
aggregate actuarial cost method. Annual contributions to all the plans do not
exceed the maximum amounts allowable for federal income tax purposes.
INCOME TAXES
Regions and its subsidiaries file a consolidated federal income tax
return. The consolidated financial statements (including the provision for
income taxes) are prepared on the accrual basis. Temporary differences occur
when income and expenses are recognized in different periods for financial
reporting purposes and for purposes of computing income taxes currently payable.
Deferred taxes are provided as a result of such temporary differences.
PER SHARE AMOUNTS
Earnings per share computations are based upon the weighted average
number of shares outstanding during the periods. The dilutive effect of shares
issuable under stock options and stock performance awards granted by the Company
is immaterial.
TREASURY STOCK
The purchase of the Company's common stock is recorded at cost. At the
date of retirement or subsequent reissue, the treasury stock account is reduced
by the cost of such stock.
INSURANCE SUBSIDIARIES
Insurance premium and commission income and acquisition costs are
recognized over the terms of the related policies. Losses are recognized as
incurred.
STATEMENT OF CASH FLOWS
Cash equivalents include cash and due from banks and federal funds sold
and securities purchased under agreements to resell. Regions paid $682,385,000
in 1996, $617,952,000 in 1995, and $422,893,000 in 1994 for interest on deposits
and borrowings. Income tax payments totaled $112,791,000 for 1996, $89,380,000
for 1995, and $88,085,000 for 1994. Loans transferred to other real estate
totaled $14,933,000 in 1996, $13,686,000 in 1995, and $13,195,000 in 1994.
During 1995 investment securities of $643,976,000 were transferred to securities
available for sale, as permitted by the Financial Accounting Standard Board's
November 1995 Special Report. The securitization of loans during 1995 resulted
in the transfer of $396,130,000 from loans to securities available for sale.
56
<PAGE> 36
NOTE B. RESTRICTIONS ON CASH AND DUE FROM BANKS
Regions' subsidiary banks are required to maintain reserve balances with
the Federal Reserve Bank. The average amount of the reserve balances maintained
for the year ended December 31, 1996, was approximately $55,658,000.
NOTE C. SECURITIES
The amortized cost and estimated fair value of investment securities and
securities available for sale at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
(in thousands) DECEMBER 31, 1996
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES:
U.S. Treasury
and Federal
agency
securities $1,240,974 $12,691 $ (5,880) $1,247,785
Obligations
of states
and political
subdivisions 450,415 11,112 (1,471) 460,056
Mortgage backed
securities 411,344 857 (4,341) 407,860
Other securities 17 -0- -0- 17
TOTAL $2,102,750 $24,660 $(11,692) $2,115,718
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury
and Federal
agency
securities $ 423,351 $ 7,513 $ (1,244) $ 429,620
Obligations
of states
and political
subdivisions 8,063 258 (29) 8,292
Mortgage backed
securities 1,279,945 -0- (523) 1,279,422
Other securities 7,928 102 -0- 8,030
Equity securities 42,481 -0- -0- 42,481
TOTAL $1,761,768 $ 7,873 $ (1,796) $1,767,845
</TABLE>
The cost and estimated fair value of investment securities and
securities available for sale at December 31, 1996, 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.
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31, 1996
- ------------------------------------------------------------------
ESTIMATED
FAIR
COST VALUE
- ------------------------------------------------------------------
<S> <C> <C>
INVESTMENT SECURITIES:
Due in one year or less $ 153,370 $ 154,017
Due after one year through
five years 1,167,496 1,177,390
Due after five years through
ten years 182,270 185,736
Due after ten years 188,270 190,715
Mortgage backed
securities 411,344 407,860
TOTAL $2,102,750 $2,115,718
<CAPTION>
(in thousands) DECEMBER 31, 1996
- ------------------------------------------------------------------
ESTIMATED
FAIR
COST VALUE
- ------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE:
<S> <C> <C>
Due in one year or less $ 108,871 $ 109,463
Due after one year through
five years 319,840 325,623
Due after five years through
ten years 2,360 2,503
Due after ten years 8,271 8,353
Mortgage backed
securities 1,279,945 1,279,422
Equity securities 42,481 42,481
TOTAL $1,761,768 $1,767,845
</TABLE>
Proceeds from sales of securities available for sale in 1996, were
$192,941,000. Gross realized gains and losses were $4,447,000 and $1,332,000,
respectively. Proceeds from sales of securities available for sale in 1995 were
$50,638,000, with gross realized gains and losses of $809,000 and $1,233,000,
respectively. Proceeds from sales of securities available for sale in 1994 were
$201,343,000, with gross realized gains and losses of $3,131,000 and $2,787,000,
respectively.
57
<PAGE> 37
The amortized cost and estimated fair value of investment securities and
securities available for sale at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31, 1995
- -------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES:
U.S. Treasury
and Federal
agency
securities $ 894,606 $ 22,745 $ (604) $ 916,747
Obligations
of states
and political
subdivisions 425,456 17,842 (570) 442,728
Mortgage-backed
securities 268,926 590 (2,334) 267,182
Other securities 118 -0- -0- 118
TOTAL $1,589,106 $ 41,177 $ (3,508) $1,626,775
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury
and Federal
agency
securities $ 783,999 $ 16,703 $ (1,512) $ 799,190
Obligations
of states
and political
subdivisions 20,051 183 (15) 20,219
Mortgage backed
securities 1,397,634 14,797 (6,167) 1,406,264
Other securities 14,933 159 -0- 15,092
Equity securities 33,910 -0- -0- 33,910
TOTAL $2,250,527 $ 31,842 $ (7,694) $2,274,675
</TABLE>
Securities with carrying values of $1,724,003,000 and $1,732,010,000 at
December 31, 1996, and 1995, respectively, were pledged to secure public funds,
trust deposits and certain borrowing arrangements.
NOTE D. LOANS
The loan portfolio at December 31, 1996, and 1995, consisted of the following:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31
- ------------------------------------------------------------
1996 1995
- ------------------------------------------------------------
<S> <C> <C>
Commercial $ 2,830,271 $ 2,569,032
Real estate-construction 879,832 629,888
Real estate-mortgage 5,884,688 5,386,638
Consumer 3,740,659 2,983,993
13,335,450 11,569,551
Unearned income (24,278) (27,240)
Total $ 13,311,172 $ 11,542,311
</TABLE>
Directors and executive officers of Regions and its principal
subsidiaries, including the directors' and officers' families and affiliated
companies, are loan and deposit customers and have other transactions with
Regions in the ordinary course of business. Total loans to these persons
(excluding loans which in the aggregate do not exceed $60,000 to any such
person) at December 31, 1996, and 1995, were approximately $111,000,000 and
$95,000,000, respectively. During 1996, $484,000,000 of new loans were made,
repayments totaled $480,000,000 and increases for changes in the composition of
related parties totaled $12,000,000. These loans were made in the ordinary
course of business and on substantially the same terms, including interest rates
and collateral, as those prevailing at the same time for comparable transactions
with other persons and involve no unusual risk of collectibility.
Loans sold with recourse totaled $106.1 million and $31.2 million at
December 31, 1996, and 1995, respectively.
The loan portfolio is diversified geographically, primarily within
Alabama, Louisiana, northern Georgia, northwest and central Florida, and middle
Tennessee.
The recorded investment in impaired loans was $29 million at December
31, 1996, and $30 million at December, 31, 1995.
58
<PAGE> 38
NOTE E. ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
(in thousands) 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $159,487 $143,464 $125,027
Allowance of purchased
institutions at acquisition
date 6,133 4,721 15,853
Provision charged to
operating expense 29,041 30,271 20,580
Loan losses:
Charge-offs (36,406) (35,211) (31,015)
Recoveries 17,293 16,242 13,019
Net loan losses (19,113) (18,969) (17,996)
Balance at end of year $175,548 $159,487 $143,464
</TABLE>
NOTE F. PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31
- ------------------------------------------------------------
1996 1995
- ------------------------------------------------------------
<S> <C> <C>
Land $ 56,085 $ 52,389
Premises 267,756 242,251
Furniture and equipment 210,339 195,052
Leasehold improvements 33,250 30,761
567,430 520,453
Allowances for depreciation
and amortization (290,540) (265,461)
TOTAL $ 276,890 $ 254,992
</TABLE>
Net occupancy expense is summarized as follows:
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Gross occupancy expense $37,097 $32,660 $30,575
Less rental income 3,481 3,655 3,363
Net occupancy expense $33,616 $29,005 $27,212
</TABLE>
NOTE G. OTHER REAL ESTATE
Other real estate acquired in satisfaction of indebtedness
("foreclosure") is carried in other assets at the lower of the recorded
investment in the loan or the estimated net realizable value of the collateral.
Other real estate totaled $10,736,000 at December 31, 1996, and $10,137,000 at
December 31, 1995. Gain or loss on the sale of other real estate is included in
other expense.
NOTE H. DEPOSITS
The following schedule presents the detail of interest-bearing deposits:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31
- ------------------------------------------------------------
1996 1995
- ------------------------------------------------------------
<S> <C> <C>
Interest-bearing
transaction accounts $ 418,490 $ 707,006
Interest-bearing accounts
in foreign office 603,861 435,871
Savings accounts 973,615 980,374
Money market savings
accounts 3,447,259 2,826,907
Certificates of deposit
($100,000 or more) 2,234,848 1,383,849
Time deposits
($100,000 or more) 147,139 257,046
Other interest-bearing
deposits 5,313,950 5,041,589
Total $13,139,162 $11,632,642
</TABLE>
The following schedule details interest expense on deposits:
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-bearing
transaction accounts $ 10,977 $ 40,926 $ 50,426
Interest-bearing accounts
in foreign office 22,145 18,107 80
Savings accounts 26,167 27,358 28,739
Money market savings
accounts 112,839 78,307 44,202
Certificates of deposit
($100,000 or more) 110,525 83,103 46,938
Other interest-bearing
deposits 305,091 288,079 204,148
Total $587,744 $535,880 $374,533
</TABLE>
59
<PAGE> 39
NOTE I. BORROWED FUNDS
Following is a summary of short-term borrowings:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31
- ---------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased $1,318,171 $ 635,842 $ 911,205
Securities sold
under agreements
to repurchase 231,558 396,115 178,711
Commercial paper 40,367 21,100 18,600
Notes payable to an
unaffiliated bank 21,600 10,000 -0-
Treasury tax and loan note -0- 5,431 6,827
Short sale liability 231 109 1,327
Total $1,611,927 $1,068,597 $1,116,670
</TABLE>
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31
- ---------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum amount
outstanding at any
month-end:
Federal funds
purchased and
securities sold
under agreements
to repurchase $1,549,729 $1,383,505 $1,089,916
Aggregate short-
term borrowings 1,611,927 1,441,505 1,116,743
Average amount
outstanding (based
on average of daily
balances) 1,192,082 957,433 534,797
Weighted average
interest rate
at year end 6.2% 5.6% 5.7%
Weighted average interest
rate on amounts
outstanding during
the year (based on
average of daily balances) 5.5% 6.0% 4.6%
</TABLE>
Federal funds purchased and securities sold under agreements to
repurchase had weighted average maturities of eleven, nine and three days at
December 31, 1996, 1995 and 1994, respectively. Weighted average rates on these
dates were 6.2%, 5.7% and 5.7%, respectively.
Commercial paper maturities ranged from 3 to 715 days at December 31,
1996, from 4 to 166 days at December 31, 1995 and from 4 to 167 days at December
31, 1994. Weighted average maturities were 372, 113 and 101 days at December 31,
1996, 1995 and 1994, respectively. The weighted average interest rates on these
dates were 5.8%, 5.7% and 5.7%, respectively.
Regions has an unsecured short-term credit agreement with an
unaffiliated bank that provides for maximum borrowings of $100 million. No
borrowings were outstanding under this agreement at December 31, 1996 and 1995.
No compensating balances or commitment fees are required by this agreement. In
addition to this short-term credit agreement, a subsidiary of Regions has a $50
million revolving credit line with an unaffiliated bank that requires a $10,000
compensating balance. At December 31, 1996, $21.6 million was outstanding under
this agreement. No amounts were outstanding under this agreement at December
31, 1995.
The short-sale liability represents Regions' trading obligation to
deliver certain government securities at a predetermined date and price. These
securities had weighted average interest rates of 6.5%, 6.9% and 2.5% at
December 31, 1996, 1995 and 1994, respectively.
Long-term borrowings consist of the following:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31
- -------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
7.80% subordinated notes $ 75,000 $ 75,000
7.65% subordinated notes 25,000 25,000
7.75% subordinated notes 100,000 100,000
Federal Home Loan Bank notes 178,742 331,831
Senior bank notes 40,000 75,000
Mortgage notes payable 3,155 3,833
Industrial development revenue bond 3,300 3,400
Other notes payable 22,072 17,955
Total $447,269 $632,019
</TABLE>
In July 1994, Regions issued $25 million of 7.65% subordinated notes,
due August 15, 2001, and in September 1994, Regions issued $100 million of 7.75%
subordinated notes, due September 15, 2024. The $100 million of 7.75%
subordinated notes may be redeemed in whole or in part at the option of the
holders thereof on September 15, 2004, at 100% of the principal amount to be
redeemed, together with accrued interest. In December 1992, Regions issued $75
million of 7.80% subordinated notes, due December 1, 2002. All issuances of
these notes are subordinated and subject in right of payment of principal and
interest to the prior payment in full of all senior indebtedness of the Company,
generally defined as all indebtedness and other obligations of the Company to
its creditors, except subordinated indebtedness. Payment of the principal of the
notes may be accelerated only in the case of certain events involving
bankruptcy, insolvency proceedings or reorganization of the Company. The
subordinated notes qualify as "Tier 2 capital" under Federal Reserve guidelines.
60
<PAGE> 40
Federal Home Loan Bank notes represent borrowings from Federal Home Loan
Banks. Interest on these borrowings is at fixed rates ranging from 5.0% to 9.3%,
with maturities of one to thirteen years. These borrowings are secured by
Federal Home Loan Bank stock (carried at cost of $42.3 million) and by first
mortgage loans on one-to-four family dwellings held by certain banking
subsidiaries (approximately $4.2 billion at December 31, 1996). The maximum
amount that could be borrowed from Federal Home Loan Banks under the current
borrowing agreements and without further investment in Federal Home Loan Bank
stock is approximately $375 million.
At December 31, 1996, Regions Bank of Louisiana had outstanding $40
million in senior bank notes with an interest rate of 7.06%. These notes are
unsecured and mature in 1997. Regions' banking subsidiaries are currently
authorized to issue up to $250 million in bank notes to institutional investors.
The mortgage notes payable at December 31, 1996, had a weighted average
interest rate of 8.7% and were collateralized by premises and equipment carried
at $8,276,000.
The industrial development revenue bonds mature on July 1, 2008, with
principal of $100,000 payable annually and interest at a tax effected prime rate
payable monthly.
Other notes payable at December 31, 1996, had a weighted average
interest rate of 6.0% and a weighted average maturity of 9.8 years.
The aggregate amount of maturities of all long-term debt in each of the
next five years is as follows: 1997- $79,420,000; 1998-$65,690,000;
1999-$26,419,000; 2000-$51,598,000; 2001-$27,225,000.
Regions has a shelf-registration outstanding pursuant to which it may
offer up to an additional $200 million of its unsecured, subordinated notes,
debentures, bonds or other evidences of indebtedness. The proceeds from any
issuances of these securities can be used for general corporate purposes.
Substantially all of the consolidated net assets are owned by the
subsidiaries and dividends paid by Regions are substantially provided by
dividends from the subsidiaries. Statutory limits are placed on the amount of
dividends the subsidiaries can pay without prior regulatory approval. In
addition, regulatory authorities require the maintenance of minimum capital to
asset ratios at banking subsidiaries. At December 31, 1996, the banking
subsidiaries could pay approximately $169 million in dividends without prior
approval.
Management believes that none of these dividend restrictions will
materially affect Regions' dividend policy. In addition to dividend
restrictions, federal statutes also prohibit unsecured loans from banking
subsidiaries to the parent company. Because of these limitations, substantially
all of the net assets of Regions' subsidiaries are restricted, except for the
amount which can be paid to the parent in the form of dividends.
NOTE J. EMPLOYEE BENEFIT PLANS
Regions has a defined benefit pension plan covering substantially all
employees. The benefits are based on years of service and the employee's highest
five years of compensation during the last ten years of employment. Regions'
funding policy is to contribute annually at least the amount required by IRS
minimum funding standards. Contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected to be earned
in the future.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated statement of condition:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31
- ----------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit obligation,
including vested benefits
of $86,395 in 1996 and
$77,623 in 1995 $ (87,579) $ (78,880)
Projected benefit obligation for
service rendered to date $(103,509) $ (97,452)
Plan assets at fair value, primarily
listed stocks and bonds, and U.S.
Treasury and agency obligations 112,915 103,567
Plan assets in excess of projected
benefit obligation 9,406 6,115
Unrecognized net loss from
past experience different
from that assumed 5,178 12,287
Unrecognized prior service cost (1,376) (1,886)
Unrecognized net asset -0- (1,969)
Prepaid pension cost
included in other assets $ 13,208 $ 14,547
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during the
period $ 4,339 $ 3,501 $ 3,677
Interest cost on projected
benefit obligation 7,430 6,411 5,487
Actual (return) loss on
plan assets (14,897) (16,577) 1,473
Net amortization and
deferral 4,467 6,323 (11,516)
Net periodic pension
expense (income) $ 1,339 $ (342) $ (879)
</TABLE>
61
<PAGE> 41
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.75% and 4.5%, respectively, at December 31,
1996; 7.25% and 4.5%, respectively, at December 31, 1995; and 8.5% and 4.5%,
respectively, at December 31, 1994. The expected long-term rate of return on
plan assets was 9% in all years.
The Company also sponsors a supplemental executive retirement program,
which is a non-qualified plan that provides certain senior executive officers
defined pension benefits in relation to their compensation, as is provided to
other employees by the qualified pension plan. The projected benefit obligation
for this plan totaled $5,229,000 at December 31, 1996, and $4,144,000 at
December 31, 1995. The accumulated benefit obligation, all of which was vested
and accrued at December 31, 1996 and 1995, totaled $4,525,717 and $3,379,317,
respectively. Pension expense for this plan totaled $160,000 in 1996, and
$440,000 in 1995 and 1994.
Contributions to employee profit sharing plans totaled $16,202,000,
$17,084,000 and $14,347,000 for 1996, 1995 and 1994, respectively.
The 1996 contribution to the employee stock ownership plan totaled
$1,863,000, compared to $1,690,000 in 1995, and $1,417,000 in 1994.
Contributions are used to purchase Regions common stock for the benefit of
participating employees.
Contributions to the employee stock purchase plan in 1996, 1995 and 1994
were $1,479,000, $1,472,000 and $1,305,000, respectively.
Regions sponsors a defined benefit postretirement health care plan that
covers certain retired employees. Currently the Company pays a portion of the
costs of certain health care benefits for all eligible employees that retired
before January 1, 1989. No health care benefits are provided for employees
retiring at normal retirement age after December 31, 1988. For employees
retiring before normal retirement age, the Company currently pays a portion
(based upon length of active service at the time of retirement) of the costs of
certain health care benefits until the retired employee becomes eligible for
Medicare. The plan is contributory and contains other cost-sharing features such
as deductibles and co-payments. Retiree health care benefits, as well as similar
benefits for active employees, are provided through a group insurance program in
which premiums are based on the amount of benefits paid. The Company's policy is
to fund the Company's share of the cost of health care benefits in amounts
determined at the discretion of management.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated statement of condition:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31
- ----------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation,
including retiree benefits
of $5,640 in 1996 and $4,060
in 1995 $ (11,949) $ (9,109)
Unrecognized transition
obligation 9,661 8,255
Unrecognized net (gain) from
past experience different
from that assumed (3,350) (2,773)
Accrued postretirement benefit
obligation $ (5,638) $ (3,627)
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during the
period $ 544 $ 373 $ 521
Interest cost on
benefit obligation 833 622 736
Net amortization and
deferral 605 486 486
Unrecognized (gain) (158) (205) -0-
Net periodic postretirement
benefit cost $ 1,824 $ 1,276 $ 1,743
</TABLE>
The assumed health care cost trend rate was 10.5% for 1996 and is
assumed to decrease gradually to 5% by 2007 and remain at that level thereafter.
Increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation at
December 31, 1996, by $1,195,000 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 1996 by
$124,000. The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% at December 31, 1996, and 7.25% at
December 31, 1995.
62
<PAGE> 42
NOTE K. LEASES
Rental expense for all leases amounted to approximately $7,108,000,
$5,830,000 and $6,133,000 for 1996, 1995 and 1994, respectively. The approximate
future minimum rental commitments as of December 31, 1996, for all noncancelable
leases with initial or remaining terms of one year or more are shown in the
following table. Included in these amounts are all renewal options reasonably
assured of being exercised.
<TABLE>
<CAPTION>
(in thousands) Equipment Premises Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 $128 $ 4,119 $ 4,247
1998 103 3,886 3,989
1999 57 3,561 3,618
2000 22 3,198 3,220
2001 21 2,623 2,644
2002-2006 -0- 8,076 8,076
2007-2011 -0- 5,092 5,092
2012-2016 -0- 2,094 2,094
2017-End -0- 2,969 2,969
TOTAL $331 $35,618 $35,949
</TABLE>
NOTE L. COMMITMENTS AND CONTINGENCIES
To accommodate the financial needs of its customers, Regions makes
commitments under various terms to lend funds to consumers, businesses and other
entities. These commitments include (among others) revolving credit agreements,
term loan commitments and short-term borrowing agreements. Many of these loan
commitments have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of these commitments are expected to expire
without being funded, the total commitment amounts do not necessarily represent
future liquidity requirements. Standby letters of credit are also issued, which
commit Regions to make payments on behalf of customers if certain specified
future events occur. Historically, a large percentage of standby letters of
credit also expire without being funded.
Both loan commitments and standby letters of credit have credit risk
essentially the same as that involved in extending loans to customers and are
subject to normal credit approval procedures and policies. Collateral is
obtained based on management's assessment of the customer's credit.
Loan commitments totaled $3.6 billion at December 31, 1996, and $2.9
billion at December 31, 1995. Standby letters of credit were $446.4 million at
December 31, 1996, and $378.9 million at December 31, 1995. Commitments under
commercial letters of credit used to facilitate customers' trade transactions
were $32.3 million at December 31, 1996, and $44.1 million at December 31, 1995.
The Company and its affiliates are defendants in litigation and claims
arising from the normal course of business. Based on consultation with legal
counsel, management is of the opinion that the outcome of pending and threatened
litigation will not have a material effect on Regions' consolidated financial
statements.
NOTE M. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the normal course of business, Regions enters into financial
instrument transactions with off-balance sheet risk. These financial instrument
agreements help the Company manage its exposure to interest rate fluctuations
and help customers manage exposure to foreign currency fluctuations.
Forward contracts represent commitments to sell money market instruments
at a future date at a specified price or yield. These contracts are utilized by
the Company to hedge interest rate risk positions associated with the
origination of mortgage loans held for sale. The amount of hedging gains and
losses deferred, which is reflected in gains and losses on mortgage loans held
for sale as realized, was not material to the results of operations for the
years ended December 31, 1996, 1995 or 1994. The Company is subject to the
market risk associated with changes in the value of the underlying financial
instrument as well as the risk that the other party will fail to perform. The
gross contract amount of forward contracts, which totaled $57.0 million and
$25.0 million at December 31, 1996, and 1995, respectively, represents the
extent of Regions' involvement. However, those amounts significantly exceed
the future cash requirements, as the Company intends to close out open
positions prior to settlement, and thus is subject only to the change in the
value of the instruments. The gross amount of contracts represents the
Company's maximum exposure to credit risk.
The Company utilizes put and call option contracts to hedge mortgage
loan originations in process. Option contracts represent rights to purchase or
sell securities or other money market instruments at a specified price and
within a specified period of time at the option of the holder. There were no
option contracts outstanding at December 31, 1996. The notional amount of option
contracts totaled $31.0 million at December 31, 1995. The commitment fees paid
for option contracts reflect the maximum exposure to the Company.
Interest rate swap agreements, which were entered into by Secor Bank
prior to its acquisition by Regions, totaled $7.9 million in notional principal
amount at December 31, 1995. No interest rate swap agreements were outstanding
at December 31, 1996. Interest rate swap transactions, which Secor Bank used to
assist in managing interest rate exposure, generally involved the exchange of
fixed and floating rate interest payment obligations without the exchange of the
underlying notional principal amounts. Interest rate swap agreements subject the
Company to market risk associated with changes in interest rates, as well as the
risk that another party will fail to perform. Notional principal amounts often
are used to express the volume of these transactions, but the amounts
potentially subject to credit risk are substantially less.
63
<PAGE> 43
Foreign currency exchange contracts involve the trading of one currency
for another on a specified date and at a specified rate. These contracts are
executed on behalf of the Company's customers and are used to facilitate the
management of fluctuations in foreign exchange rates. The notional amount of
forward foreign exchange contracts totaled $24 million at December 31, 1996. The
Company is subject to the risk that another party will fail to perform and the
gross amount of the contracts represents the Company's maximum exposure to
credit risk.
Regions operates a broker-dealer subsidiary, which in the normal course
of trading inventory and clearing customers' securities transactions, is a party
to certain financial instruments with off-balance-sheet risk. The aggregate off-
balance-sheet risk from these financial instruments is not material to the
consolidated financial statements.
NOTE N. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
CASH AND CASH EQUIVALENTS: The carrying amount reported in the
consolidated statements of condition and cash flows approximates the estimated
fair value.
INTEREST-BEARING DEPOSITS IN OTHER BANKS: The carrying amount reported
in the consolidated statement of condition approximates the estimated fair
value.
INVESTMENT SECURITIES: Estimated fair values are based on quoted market
prices, where available. If quoted market prices are not available, estimated
fair values are based on quoted market prices of comparable instruments.
SECURITIES AVAILABLE FOR SALE: Estimated fair values, which are the
amounts recognized in the consolidated statement of condition, are based on
quoted market prices, where available. If quoted market prices are not
available, estimated fair values are based on quoted market prices of comparable
instruments.
TRADING ACCOUNT ASSETS: Estimated fair values, which are the amounts
recognized in the consolidated statement of condition, are based on quoted
market prices, where available. If quoted market prices are not available,
estimated fair values are based on quoted market prices of comparable
instruments.
MORTGAGE LOANS HELD FOR SALE: Estimated fair values, which are the
amounts recognized in the consolidated statement of condition, are based on
quoted market prices of comparable instruments.
LOANS: Estimated fair values for variable rate loans, which reprice
frequently and have no significant credit risk, are based on carrying value.
Estimated fair values for all other loans are estimated using discounted cash
flow analyses, based on interest rates currently offered on loans with similar
terms to borrowers of similar credit quality. The carrying amount of accrued
interest reported in the consolidated statement of condition approximates the
fair value.
DEPOSIT LIABILITIES: The fair value of non-interest bearing demand
accounts, interest-bearing transaction accounts, savings accounts, money market
accounts and certain other time open accounts is the amount payable on demand at
the reporting date (i.e., the carrying amount). Fair values for certificates of
deposit are estimated by using discounted cash flow analyses, using the interest
rates currently offered for deposits of similar maturities.
SHORT-TERM BORROWINGS: The carrying amount reported in the consolidated
statement of condition approximates the estimated fair value.
LONG-TERM BORROWINGS: Fair values are estimated using discounted cash
flow analyses, based on the current rates offered for similar borrowing
arrangements.
LOAN COMMITMENTS, STANDBY AND COMMERCIAL LETTERS OF CREDIT: Estimated
fair values for these off-balance-sheet instruments are based on standard fees
currently charged to enter into similar agreements.
64
<PAGE> 44
FORWARD CONTRACTS, CALL OPTIONS AND INTEREST RATE SWAPS: Estimated fair
values are based on dealer quotes. These values represent the estimated amount
the Company would pay to terminate the agreements.
The carrying amounts and estimated fair values of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31, 1996 DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 795,691 $ 795,691 $ 653,500 $ 653,500
Interest-bearing deposits
in other banks 33,191 33,191 56,477 56,477
Investment securities 2,102,750 2,115,718 1,589,106 1,626,775
Securities available for sale 1,767,845 1,767,845 2,274,675 2,274,675
Trading account assets 29,648 29,648 28,870 28,870
Mortgage loans held for sale 169,861 169,861 117,087 117,087
Loans (excluding leases) 12,992,471 13,148,381 11,273,027 11,360,434
Financial liabilities:
Deposits 15,048,336 15,060,375 13,497,612 13,538,435
Short-term borrowings 1,611,927 1,611,927 1,068,597 1,068,597
Long-term borrowings 447,269 438,154 632,019 623,699
Off-balance-sheet instruments:
Loan commitments - 0 - (30,653) - 0 - (20,574)
Standby letters of credit - 0 - (6,697) - 0 - (5,408)
Commercial letters of credit - 0 - (81) - 0 - (105)
Forward contracts, options
and interest rate swaps - 0 - - 0 - (500) 75
</TABLE>
NOTE O. OTHER INCOME AND EXPENSE
Other income consists of the following:
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Fees and commissions $20,619 $19,550 $14,279
Insurance premiums
and commissions 6,514 5,686 6,250
Trading account income 10,555 6,696 7,184
Gain on sale of mortgage
servicing rights -0- 150 4,629
Other miscellaneous income 13,495 13,384 10,171
Total $51,183 $45,466 $42,513
</TABLE>
Other expense consists of the following:
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stationery, printing
and supplies $ 12,747 $ 10,670 $ 9,129
Advertising and business
development 11,912 10,564 11,408
Postage and freight 10,135 10,997 8,882
Telephone 10,732 9,869 8,893
Legal and other
professional fees 14,189 13,380 11,426
Other non-credit losses 10,653 8,006 9,491
Outside computer services 12,771 9,326 8,695
Amortization of more-
gage servicing rights 13,889 11,577 13,186
Loss on sale of
mortgages by affiliate
mortgage companies 5,592 1,093 1,289
Other miscellaneous
expenses 63,445 62,747 49,528
Total $166,065 $148,229 $131,927
</TABLE>
65
<PAGE> 45
NOTE P. INCOME TAXES
Regions accounts for income taxes using the liability method pursuant to
Financial Accounting Standards Board Statement 109, "Accounting for Income
Taxes." Under this method the Company's deferred tax assets and liabilities were
determined by applying federal and state tax rates currently in effect to its
cumulative temporary book/tax differences.
At December 31, 1996, Regions has net operating loss carryforwards for
federal tax purposes of $38.2 million that expire in years 2003 through 2010.
These carryforwards resulted from the Company's acquisition of Secor Bank on
December 31, 1993 and the acquisition of other financial institutions on various
dates. For financial reporting purposes, a valuation allowance of approximately
$16.7 million has been recognized to offset a portion of the deferred tax assets
related to those carryforwards and certain temporary differences.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of Regions' deferred tax assets and liabilities as of December 31,
1996 and 1995 are listed below.
<TABLE>
<CAPTION>
(in thousands) December 31
- ---------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Book over tax depreciation $ -0- $ 9,388
Loan loss allowance 60,493 42,830
Net operating loss
carryforwards 13,395 18,391
Other 42,555 46,335
Total deferred tax assets 116,443 116,944
Deferred tax liabilities:
Tax over book depreciation 940 -0-
Accretion of bond discount 2,512 3,588
Direct lease financing 16,549 14,632
Pension 5,279 6,084
Originated mortgage
servicing rights 3,010 -0-
Other 18,847 29,959
Total deferred tax liabilities 47,137 54,263
Net deferred tax assets
before valuation allowance 69,306 62,681
Valuation allowance (16,753) (16,812)
Net deferred tax asset $ 52,553 $ 45,869
</TABLE>
Applicable income taxes for financial reporting purposes differs from
the amount computed by applying the statutory federal income tax rate of 35% for
the reasons below:
<TABLE>
<CAPTION>
(in thousands) Year ended December 31
- ----------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Tax computed at
statutory federal income
tax rate $118,427 $102,878 $ 92,620
Increases(decreases) in
taxes resulting from:
Obligations of states and
political subdivisions:
Tax exempt income (10,726) (11,530) (11,121)
Tax on preference item 1,859 1,353 1,020
State income tax, net
of federal tax benefit 1,206 5,552 4,718
Subsidiary purchase
accounting adjustments (54) (51) (47)
Other, net (2,035) (2,093) (3,081)
Total $108,677 $ 96,109 $ 84,109
Effective Tax Rate 32.1% 32.7% 31.8%
</TABLE>
The provisions for income taxes included in the consolidated statements
of income are summarized below. Included in these amounts are income taxes of
$1,090,000, $(146,000) and $120,000 in 1996, 1995 and 1994, respectively,
related to securities transactions.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
(in thousands) Current Deferred Total
- ---------------------------------------------------------------------
<S> <C> <C> <C>
1996
Federal $100,272 $ 6,549 $106,821
State 2,013 (157) 1,856
TOTAL $102,285 $ 6,392 $108,677
1995
Federal $ 72,774 $14,336 $ 87,110
State 9,044 (45) 8,999
Total $ 81,818 $14,291 $ 96,109
1994
Federal $ 75,392 $ 1,315 $ 76,707
State 7,217 185 7,402
Total $ 82,609 $ 1,500 $ 84,109
</TABLE>
66
<PAGE> 46
NOTE Q. BUSINESS COMBINATIONS
On March 1, 1996, First National Bancorp of Gainesville, Georgia, with
approximately $3.2 billion in assets merged with and into Regions. Under the
terms of the transaction, Regions issued 15,920,108 shares of its common stock
for all of First National's outstanding common stock (based on an exchange ratio
of 0.76 of a share of Regions common stock for each share of First National
common stock). The transaction was accounted for as a pooling of interests and
accordingly, all prior period financial statements have been restated to include
the effect of the First National transaction.
The following table presents net interest income, net income and net
income per common share as reported by Regions, First National and on a combined
basis. In 1996, prior to consummation of the First National transaction, First
National contributed $22.8 million in net interest income and $7.9 million in
net income.
<TABLE>
<CAPTION>
(in thousands, except per share data) Year Ended December 31
- --------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Net interest income:
Regions $497,324 $435,640
First National 126,940 119,896
Combined $624,264 $555,536
Net income:
Regions $172,824 $145,884
First National 25,005 34,636
Combined $197,829 $180,520
Net income per common share:
Regions $ 3.75 $ 3.40
First National 1.22 1.72
Combined 3.21 3.10
</TABLE>
The following table presents recent business combinations by First National:
<TABLE>
<CAPTION>
Total Assets Accounting
Date Company Headquarters Location (in thousands) Treatment
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
February 1996 The Bank of Heard County Franklin, Georgia $41,872 Pooling
July 1995 FF Bancorp, Inc. New Smyrna Beach, Florida 631,168 Pooling
July 1994 Barrow Bancshares, Inc. Winder, Georgia 54,687 Pooling
February 1994 Metro Bancorp, Inc. Douglasville, Georgia 145,482 Purchase
</TABLE>
During 1996 Regions completed the following business combinations:
<TABLE>
<CAPTION>
Total Assets Accounting
Date Company Headquarters Location (in thousands) Treatment
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January Metro Financial Corporation Atlanta, Georgia $ 210,487 Purchase
February The Enterprise National Bank of Atlanta, Georgia 54,263 Purchase
Atlanta
March First National Bancorp Gainesville, Georgia 3,198,634 Pooling
April First Federal Bank of Northwest Cedartown, Georgia 93,381 Pooling
Georgia, Federal Savings Bank
August Delta Bank & Trust Company Belle Chasse, Louisiana 190,547 Purchase
August First Gwinnett Bancshares, Inc. Atlanta, Georgia 68,364 Purchase
August Rockdale Community Bank Conyers, Georgia 47,457 Purchase
September American Bancshares of Houma, Houma, Louisiana 88,742 Purchase
Inc.
</TABLE>
The total consideration paid for all the 1996 business combinations was
approximately $8.5 million in cash and 18,869,252 shares of Regions' common
stock (including treasury stock reissued) valued at $442.9 million. Total
intangible assets recorded in connection with the purchase transactions totaled
approximately $67.5 million.
During 1995 Regions completed the following business combinations:
<TABLE>
<CAPTION>
Total Assets Accounting
Date Company Headquarters Location (in thousands) Treatment
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March First Commercial Bancshares, Chalmette, Louisiana $ 112,968 Purchase
Inc.
May Fidelity Federal Savings Bank Dalton, Georgia 333,336 Pooling
July Interstate Billing Service, Decatur, Alabama 30,521 Pooling
Inc.
November Branch Office of Prudential Cartersville, Georgia 59,933 Purchase
Savings Bank
</TABLE>
67
<PAGE> 47
Because certain of the 1996 and 1995 business combinations were
accounted for as purchases, Regions' consolidated financial statements include
the results of operations of those companies only from their respective dates of
acquisition. The following unaudited summary information presents the
consolidated results of operations of Regions on a pro forma basis, as if all
the above companies had been acquired on January 1, 1995. The pro forma summary
information does not necessarily reflect the results of operations that would
have occurred, if the acquisitions had occurred at the beginning of the periods
presented, or of results which may occur in the future.
<TABLE>
<CAPTION>
(in thousands, except per share data) Year Ended December 31
- ----------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Interest income $1,404,946 $1,307,458
Interest expense 693,668 661,312
---------- ----------
Net interest income 711,278 646,146
Provision for loan losses 31,581 30,802
Non-interest income 222,849 194,814
Non-interest expense 567,919 518,775
---------- ----------
Income before income taxes 334,627 291,383
Applicable income taxes 108,493 96,195
---------- ----------
Net income $ 226,134 $ 195,188
Net income per share $ 3.63 $ 3.13
</TABLE>
The following chart summarizes the assets acquired and liabilities
assumed in connection with business combinations, excluding the First National
transaction, in 1996 and 1995.
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 64,511 $ 58,453
Investment securities 41,280 13,600
Securities available for sale 153,710 -0-
Loans, net 469,669 438,222
Other assets 24,071 26,483
Deposits 678,077 453,481
Borrowings 3,684 39,276
Other liabilities 3,972 6,994
</TABLE>
Regions' business combinations pending as of December 31, 1996, or
announced thereafter, are as follows:
<TABLE>
<CAPTION>
Approximate
(In millions) Consid- Anticipated
------------- eration Accounting
Asset Treatment
Institution Size
Value(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florida First Bancorp, Inc. located in Panama $ 297 $ 40 Cash Purchase
City, Florida
Allied Bankshares, Inc. located in Thomson, 557 136 Regions Pooling
Georgia Common Stock
West Carroll Bancshares, Inc. located in Oak 125 32 Regions Pooling
Grove, Louisiana Common Stock
Gulf South Bancshares, Inc. located in Gretna, 55 9 Regions Purchase
Louisiana Common
Stock
First Mercantile National Bank located in 145 21 Cash Purchase
Longwood, Florida
First Bankshares, Inc. located in East Point, 106 19 Regions Pooling
Georgia Common
Stock
SB&T Corporation located in Smyrna, Georgia 152 26 Regions Pooling
Common
Stock
The New Iberia Bancorp, Inc. located in New 299 65 Regions Pooling
Iberia, Louisiana Common
Stock
Totals $1,736 $348
</TABLE>
(1) Computed as of the date of announcement of each transaction.
During the first quarter of 1997, the Company completed the Florida
First purchase, and consummated the Allied and West Carroll transactions on
January 31, 1997, and March 13, 1997, respectively, with the issuance of
approximately 3.5 million shares of common stock. The other pending business
combinations remain subject to applicable approvals by regulatory agencies and
by stockholders of the institutions.
68
<PAGE> 48
NOTE R. STOCK OPTION AND LONG-TERM INCENTIVE PLANS
Regions has stock option plans for certain key employees that provide
for the granting of options to purchase up to 2,860,000 shares of Regions'
common stock. The terms of options granted are determined by the personnel
committee of the Board of Directors; however, no options may be granted after
ten years from the plans' adoption and no options may be exercised beyond ten
years from the date granted. The option price per share of incentive stock
options can not be less than the fair market value of the common stock on the
date of the grant; however, the option price of non-qualified options may be
less than the fair market value of the common stock on the date of the grant.
The plans also permit the granting of stock appreciation rights to holders of
stock options. Stock appreciation rights were attached to 90,114; 166,975 and
204,060 of the shares under option at December 31, 1996, 1995 and 1994,
respectively.
Regions' long-term incentive plan provides for the granting of up to
5,000,000 shares of common stock in the form of stock options, stock
appreciation rights, performance awards or restricted stock awards. The terms of
stock options granted under the long-term incentive plan are generally subject
to the same terms as options granted under Regions' stock option plans. A
maximum of 1,500,000 shares of restricted stock and 2,500,000 shares of
performance awards, may be granted. During 1996 and 1995, Regions granted 40,000
and 51,998 shares, respectively, as restricted stock and during 1996, 1995, and
1994, granted 138,800; 131,900 and 125,000 shares, respectively, as performance
awards. Grantees of restricted stock must remain employed with Regions for
certain periods from the date of the grant at the same or a higher level in
order for the shares to be released. However, during this period the grantee is
eligible to receive dividends and exercise voting privileges on such restricted
shares. In 1996, 1995, and 1994, 5,776; 4,325 and 1,650 restricted shares,
respectively, were released. Issuance of performance shares is dependent upon
achievement of certain performance criteria and is, therefore, deferred until
the end of the performance period. In 1996 and 1994, 245,640 and 3,897
performance shares, respectively, were issued. Total expense for restricted
stock was $1,507,000 in 1996, $1,074,000 in 1995, and $587,000 in 1994. Total
expense for performance shares was $9,261,000 in 1996, $9,118,000 in 1995, and
$6,666,000 in 1994.
In connection with the business combinations with First National, Metro,
Rockdale and First Gwinnett, Regions assumed stock options, which were
previously granted by those companies and converted those options, at the
appropriate exchange ratio, into options to acquire Regions' common stock. The
common stock for such options has been registered under the Securities Act of
1933 by Regions and is not included in the maximum number of shares that may be
granted by Regions under its existing stock option plans.
Stock option activity (including assumed options) over the last three
years is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Shares Under Option Price Average
Option Per Share Exercise Prices
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at
January 1, 1994 1,658,342 $12.33 -$35.44
Granted 542,927 27.63 - 32.69
Exercised (318,990) 13.07 - 26.31
Canceled (47,276) 14.66 - 32.31
Outstanding at
December 31, 1994 1,835,003 12.33 - 35.44
Granted 617,711 6.04 - 36.00
Exercised (233,197) 12.33 - 32.69
Canceled (18,198) 15.00 - 31.88
Outstanding at
December 31, 1995 2,201,319 6.04 - 36.00 $28.37
Granted 600,494 8.70 - 44.88 39.03
Exercised (584,284) 6.04 - 32.69 22.78
Canceled (10,392) 12.41 - 41.70 40.36
Outstanding at
December 31, 1996 2,207,137 $ 8.70 -$44.88 $31.22
Exercisable at
December 31, 1996 1,623,242 $ 8.70 -$36.00 $27.85
</TABLE>
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting and Disclosure of Stock-Based Compensation"
(Statement 123). Statement 123 is effective for fiscal years beginning after
December 15, 1995, and allows for the option of continuing to follow Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees", and the related Interpretations or selecting the fair value method
of expense recognition as described in Statement 123. The Company has elected to
follow APB 25 in accounting for its employee stock options. Pro forma net income
and net income per share data as if the fair-value method had been applied in
measuring compensation costs is presented below for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Pro forma net income ($000's) $ 226,177 $ 195,146
Pro forma net income per share $ 3.64 $ 3.16
</TABLE>
Compensation expense reflected in the pro forma disclosures is not
indicative of future amounts when the Statement 123 prescribed method will apply
to all outstanding nonvested awards.
Regions' options outstanding have a weighted average contractual life of
7.2 years. The weighted average fair value of options granted was $9.24 in 1996
and $5.94 in 1995. The fair value of each grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1996 and 1995: expected dividend yield of 2.7%;
expected option life of 5 years; expected volatility of 19.2%; and a risk free
interest rate of 6.0%.
Since the exercise price of the Company's employee stock options
equals the market price of underlying stock on the date of grant, no
compensation expense is recognized.
The effects of applying Statement 123 for providing pro forma
disclosures are not likely to be representative of the effects on reported net
income for future years.
69
<PAGE> 49
NOTE S. PARENT COMPANY ONLY FINANCIAL STATEMENTS
Presented below are condensed financial statements of Regions Financial
Corporation:
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31
- ------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash due from banks $ 6,483 $ 5,837
Securities purchased under
agreements to resell 10,000 -0-
Dividends receivable from
subsidiaries -0- 30,000
Loans to subsidiaries 41,260 29,294
Investment securities 6,744 4,609
Premises and equipment 8,981 1,091
Investment in subsidiaries:
Banks 1,708,254 1,555,919
Non-banks 112,061 86,093
1,820,315 1,642,012
Other assets 20,621 18,179
$ 1,914,404 $ 1,731,022
Liabilities and Stockholders' Equity
Commercial paper $ 40,367 $ 21,100
Short-term borrowings -0- 10,000
Long-term borrowings 218,320 223,532
Other liabilities 56,991 47,137
Total liabilities 315,678 301,769
Stockholders' Equity:
Common stock 39,322 38,583
Surplus 520,571 505,350
Undivided profits 1,054,310 911,987
Treasury stock (12,356) (25,085)
Unearned restricted stock (3,121) (1,582)
Total stockholders' equity 1,598,726 1,429,253
$ 1,914,404 $ 1,731,022
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends received
from subsidiaries:
Banks $ 213,326 $ 136,500 $ 43,300
Non-banks -0- -0- -0-
213,326 136,500 43,300
Service fees from
subsidiaries 27,781 24,819 19,886
Interest from
subsidiaries 3,249 2,132 1,844
Other 4,446 440 398
248,802 163,891 65,428
Expenses:
Salaries and employee
benefits 22,828 16,903 13,089
Interest 21,455 19,443 11,297
Net occupancy expense 1,012 647 527
Furniture and equipment
expense 972 364 342
Legal and other
professional fees 5,855 2,510 1,874
Amortization of excess
purchase price 8,375 5,505 3,278
Other expenses 8,945 4,713 5,071
69,442 50,085 35,478
Income before income
taxes and equity in
undistributed earnings
of subsidiaries 179,360 113,806 29,950
Applicable income taxes
(credit) (8,858) (6,973) (5,293)
Income before equity
in undistributed earnings
of subsidiaries 188,218 120,779 35,243
Equity in undistributed
earnings of subsidiaries:
Banks 47,893 68,985 142,180
Non-banks (6,425) 8,065 3,097
41,468 77,050 145,277
NET INCOME $ 229,686 $ 197,829 $ 180,520
</TABLE>
Aggregate maturities of long-term borrowings in each of the next five
years for the parent company only are as follows: $620,000 in each of the years
1997 -- 1999; $1,050,000 in 2000; and $26,080,000 in 2001. Standby letters of
credit issued by the parent company totaled $10.0 million at December 31, 1996.
This amount is included in total standby letters of credit disclosed in Note L.
70
<PAGE> 50
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 229,686 $ 197,829 $ 180,520
Adjustments to reconcile
net cash provided by
operating activities:
Equity in undistributed
earnings of subsidiaries (41,468) (77,050) (145,277)
Provision for depreciation
and amortization 10,978 7,049 5,089
Increase (decrease) in other
liabilities 9,854 6,988 (13,879)
Decrease (increase) in dividends
receivable from subsidiaries 30,000 (30,000) 11,200
(Increase) in other assets (2,637) (3,813) (4,897)
Stock issued to employees under
incentive plan 4,333 253 1,191
Net cash provided by
operating activities 240,746 101,256 33,947
Investing activities:
Investment in subsidiaries (25,018) (10,139) (28,536)
Principal (advances) payments on
loans to subsidiaries (11,966) (26,870) 496
Purchases and sales of
premises and equipment (8,541) (184) (587)
(Purchase) maturity of investment
securities (2,138) 550 -0-
Net cash (used) by investing activities (47,663) (36,643) (28,627)
Financing activities:
Increase in
commercial paper borrowings 19,267 2,500 1,399
Cash dividends (87,466) (60,075) (50,273)
Purchase of treasury stock (104,288) (61,882) (81,081)
Proceeds from long-term borrowings 42,098 12,990 141,188
Principal payments on
long-term borrowings (47,310) (5,200) (7,695)
Net (decrease) increase in short-term
borrowings (10,000) 10,000 -0-
Proceeds from exercise of
stock options 5,262 836 811
Net cash (used) provided by
financing activities (182,437) (100,831) 4,349
Increase (decrease) in cash and cash 10,646 (36,218) 9,669
equivalents
Cash and cash equivalents at
beginning of year 5,837 42,055 32,386
Cash and cash equivalents at
end of year $ 16,483 $ 5,837 $ 42,055
</TABLE>
Note T. Regulatory Capital Requirements
Regions and its banking subsidiaries are subject to regulatory capital
requirements administered by federal banking agencies. These regulatory capital
requirements involve quantitative measures of the Company's assets, liabilities
and certain off-balance sheet items, and also qualitative judgments by the
regulators. Failure to meet minimum capital requirements can subject the Company
to a series of increasingly restrictive regulatory actions. As of December 31,
1996, the most recent notification from federal banking agencies categorized
Regions and its significant subsidiaries as "well capitalized" under the
regulatory framework.
Minimum capital requirements for all banks are Tier 1 Capital of at
least 4% of risk-weighted assets, Total Capital of at least 8% of risk-weighted
assets and a Leverage ratio of 3%, plus an additional 100 to 200 basis point
cushion in certain circumstances, of adjusted quarterly average assets. Tier 1
Capital consists principally of stockholders' equity, excluding unrealized gains
and losses on securities available for sale, less excess purchase price and
certain other intangibles. Total Capital consists of Tier 1 Capital plus certain
debt instruments and the allowance for loan losses, subject to limitation.
71
<PAGE> 51
Regions' and its most significant subsidiaries' capital levels at
December 31, 1996 and 1995, exceeded the "well capitalized" levels, as shown
below:
<TABLE>
<CAPTION>
December 31, 1996 To Be Well
(in thousands) Amount Ratio Capitalized
------ ----- -----------
<S> <C> <C> <C>
Tier I Capital:
Regions Financial Corporation $1,416,400 10.81% 6.00%
Regions Bank (Alabama) 860,105 10.55 6.00
Regions Bank (Georgia) 332,264 13.49 6.00
Regions Bank of Louisiana 214,018 14.47 6.00
Total Capital:
Regions Financial Corporation $1,780,355 13.59% 10.00%
Regions Bank (Alabama) 959,589 11.77 10.00
Regions Bank (Georgia) 363,131 14.75 10.00
Regions Bank of Louisiana 232,536 15.72 10.00
Leverage:
Regions Financial Corporation $1,416,400 7.44% 5.00%
Regions Bank (Alabama) 860,105 7.20 5.00
Regions Bank (Georgia) 332,264 9.94 5.00
Regions Bank of Louisiana 214,018 10.02 5.00
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 To Be Well
(in thousands) Amount Ratio Capitalized
------ ----- -----------
<S> <C> <C> <C>
Tier I Capital:
Regions Financial Corporation $1,004,316 11.14% 6.00%
Regions Bank (Alabama) 811,904 11.62 6.00
Regions Bank of Louisiana 192,009 15.19 6.00
Total Capital:
Regions Financial Corporation $1,317,285 14.61% 10.00%
Regions Bank (Alabama) 899,271 12.88 10.00
Regions Bank of Louisiana 207,850 16.45 10.00
Leverage:
Regions Financial Corporation $1,004,316 7.49% 5.00%
Regions Bank (Alabama) 811,904 7.70 5.00
Regions Bank of Louisiana 192,009 9.12 5.00
</TABLE>
Regions Bank (Georgia) did not exist in 1995 and, therefore, no
comparable numbers exists.
Note U. SAIF Assessment and Merger Expenses
Approximately 25% of Regions' assessable deposits are insured by the
Savings Association Insurance Fund (SAIF). On September 30, 1996, legislation to
recapitalize the SAIF became effective. This legislation required Regions, and
all other depository institutions having SAIF-insured deposits, to pay a
one-time, special assessment. This resulted in a pre-tax expense of $21.7
million for Regions, which was recognized primarily in the third quarter of
1996.
In the first quarter of 1996, Regions incurred a pre-tax, non-recurring
merger charge of $8.8 million related to the merger of First National Bancorp
with Regions. This charge consisted primarily of investment banking and other
professional fees, severance costs, data processing contract buyouts and
obsolete equipment write-downs.
Note V. Recent Accounting Pronouncement
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities," (Statement 125). Statement 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities based on consistent application of a
"financial-components approach" that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, and
derecognizes liabilities when extinguished. Statement 125 provides standards
for consistently distinguishing transfers of financial assets that are sales
from transfers that are secured borrowings. Regions will adopt Statement 125
on January 1, 1997 and based on current estimates, does not believe the effect
of adoption will be material to Regions' financial condition or results of
operation.
72
<PAGE> 52
AUDITORS' REPORT
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Regions Financial Corporation
We have audited the accompanying consolidated statements of condition
of Regions Financial Corporation and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Regions Financial Corporation and subsidiaries at December 31, 1996 and 1995
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
February 4, 1997,
except for the last two paragraphs
of Note Q as to which the
date is March 13, 1997.
73
<PAGE> 53
HISTORICAL FINANCIAL SUMMARY
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
<TABLE>
<CAPTION>
(in thousands-except ratios, yields, and per share amounts)
- -------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATING RESULTS 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $1,102,406 $ 1,009,783 $757,078 $559,850 $531,422
Income on federal funds sold 2,625 7,761 7,016 4,658 10,585
Taxable interest on securities 237,046 204,194 181,517 136,007 149,530
Tax-free interest on securities 22,462 25,304 23,803 20,733 19,082
Other interest income 21,583 12,558 22,279 25,296 26,475
Total interest income 1,386,122 1,259,600 991,693 746,544 737,094
Interest expense:
Interest on deposits 587,744 535,880 374,533 275,455 311,945
Interest on short-term borrowings 65,400 57,429 24,766 7,859 7,846
Interest on long-term borrowings 32,512 42,027 36,858 12,881 4,629
Total interest expense 685,656 635,336 436,157 296,195 324,420
Net interest income 700,466 624,264 555,536 450,349 412,674
Provision for loan losses 29,041 30,271 20,580 24,695 39,367
Net interest income after provision for loan losses 671,425 593,993 534,956 425,654 373,307
Non-interest income:
Trust department income 27,634 25,656 21,731 20,549 19,118
Service charges on deposit accounts 88,190 73,100 62,096 52,382 49,936
Mortgage servicing and origination fees 50,617 43,608 45,365 47,148 40,299
Securities gains (losses) 3,115 (424) 344 831 2,417
Other 51,183 45,466 42,513 49,239 38,590
Total non-interest income 220,739 187,406 172,049 170,149 150,360
Non-interest expense:
Salaries and employee benefits 281,845 261,066 228,199 199,178 175,942
Net occupancy expense 33,616 29,005 27,212 20,790 19,616
Furniture and equipment expense 35,375 30,890 28,861 24,432 22,423
Other 202,965 166,500 158,104 138,730 125,298
Total non-interest expense 553,801 487,461 442,376 383,130 343,279
Income before income taxes 338,363 293,938 264,629 212,673 180,388
Applicable income taxes 108,677 96,109 84,109 66,169 56,405
Net income $ 229,686 $ 197,829 $180,520 $146,504 $123,983
Average number of shares outstanding 62,136 61,670 58,206 52,153 51,192
Per share:
Net income $ 3.70 $ 3.21 $ 3.10 $ 2.81 $ 2.42
Cash dividends declared 1.40 1.32 1.20 1.04 .91
YIELDS AND COSTS (TAXABLE EQUIVALENT BASIS)
Earning assets:
Taxable securities 6.57% 6.54% 6.34% 6.96% 7.82%
Tax-free securities 8.42 9.00 9.76 10.30 10.66
Federal funds sold 5.19 5.89 3.95 3.09 3.63
Loans (net of unearned income) 8.91 8.89 8.14 8.09 9.05
Other earning assets 8.26 7.99 6.44 6.48 6.07
Total earning assets 8.38 8.38 7.69 7.80 8.53
Interest-bearing liabilities:
Interest-bearing deposits 4.65 4.66 3.71 3.54 4.33
Short-term borrowings 5.49 6.38 5.25 3.61 3.81
Long-term borrowings 6.71 6.44 6.12 7.07 7.23
Total interest-bearing liabilities 4.79 4.87 3.91 3.62 4.34
Net yield on interest earning assets 4.27 4.21 4.37 4.77 4.85
RATIOS
Net income to:
Average stockholders' equity 15.19%* 14.29% 15.26% 15.76% 15.04%
Average total assets 1.29* 1.21 1.27 1.38 1.29
Efficiency 59.44* 58.79 59.44 60.23 59.62
Dividend payout 37.84 41.12 38.71 37.01 37.60
Average loans to average deposits 85.90 86.12 79.90 76.41 71.59
Average stockholders' equity to average total assets 8.49 8.44 8.35 8.76 8.60
Average interest-bearing deposits to average
total deposits 87.43 86.81 86.22 85.31 86.1
</TABLE>
*Ratios for 1996 excluding $19.0 million in after-tax charges for SAIF
assessment and merger expenses are as follows: Return on average stockholders'
equity 16.45%, Return on average total assets 1.40%, and Efficiency 56.16%.
<TABLE>
<CAPTION>
Annual Change Compound Growth
- --------------------------------------------
1995-1996 1992-1996
- --------------------------------------------
<S> <C>
9.17% 20.01%
-66.18 -29.43
16.09 12.21
-11.23 4.16
71.87 -4.98
10.04 17.10
9.68 17.16
13.88 69.92
-22.64 62.79
7.92 20.57
12.21 14.14
-4.06 -7.32
13.04 15.81
7.71 9.65
20.64 15.28
16.07 5.86
NM 6.55
12.57 7.32
17.79 10.07
7.96 12.50
15.90 14.42
14.52 12.07
21.90 12.82
13.61 12.70
15.11 17.03
13.08 17.82
16.10% 16.67%
.76% 4.96%
15.26% 11.20%
6.06 11.37
</TABLE>
74
<PAGE> 54
HISTORICAL FINANCIAL SUMMARY--CONTINUED REGIONS FINANCIAL CORPORATION &
SUBSIDIARIES
<TABLE>
<CAPTION>
(average daily balances)
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning assets:
Taxable securities $ 3,557,041 $ 3,106,739 $ 2,854,715 $ 1,954,191 $ 1,913,037
Tax-exempt securities 429,004 410,765 382,583 316,651 272,636
Federal funds sold 50,613 131,862 177,642 150,664 291,764
Loans, net of unearned 12,412,351 11,412,900 9,352,856 6,971,610 5,988,674
income
Other earning assets 262,024 171,284 346,656 391,071 347,374
Total earning assets 16,711,033 15,233,550 13,114,452 9,784,187 8,813,485
Allowance for loan losses (170,666) (154,170) (139,604) (108,951) (87,313)
Cash and due from banks 478,840 546,529 525,936 469,657 400,085
Other non-earning assets 790,841 775,125 663,403 458,743 455,241
Total assets $ 17,810,048 $ 16,401,034 $ 14,164,187 $ 10,603,636 $ 9,581,498
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 1,816,495 $ 1,748,647 $ 1,613,461 $ 1,340,625 $ 1,158,463
Interest-bearing 12,632,902 11,503,869 10,091,647 7,783,766 7,206,810
Total deposits 14,449,397 13,252,516 11,705,108 9,124,391 8,365,273
Borrowed funds:
Short-term 1,192,082 900,246 471,332 217,703 206,146
Long-term 484,390 652,520 601,781 182,115 64,016
Total borrowed funds 1,676,472 1,552,766 1,073,113 399,818 270,162
Other liabilities 172,406 211,037 202,765 150,107 121,928
Total liabilities 16,298,275 15,016,319 12,980,986 9,674,316 8,757,363
Stockholders' equity 1,511,773 1,384,715 1,183,201 929,320 824,135
Total liabilities and
stockholders' equity $ 17,810,048 $ 16,401,034 $ 14,164,187 $ 10,603,636 $ 9,581,498
YEAR-END BALANCES
Assets $ 18,930,175 $ 16,851,774 $ 15,810,076 $ 13,163,161 $ 10,457,676
Securities 3,870,595 3,863,781 3,346,291 2,993,417 2,255,732
Loans, net of unearned income 13,311,172 11,542,311 10,855,195 8,430,931 6,657,557
Non-interest-bearing 1,909,174 1,864,970 1,799,451 1,488,395 1,289,447
deposits
Interest-bearing deposits 13,139,162 11,632,642 10,776,142 9,536,981 7,634,354
Total deposits 15,048,336 13,497,612 12,575,593 11,025,376 8,923,801
Long-term debt 447,269 632,019 599,476 525,820 151,460
Stockholders' equity 1,598,726 1,429,253 1,286,322 1,106,361 886,116
Stockholders' equity per 25.52 23.38 21.26 19.85 17.13
share
Market price per share of 51.69 43.00 31.00 32.38 32.63
common stock
</TABLE>
Notes to Historical Financial Summary:
(1) Amounts prior to 1996 have been restated to reflect the merger with First
National Bancorp, which was accounted for as a pooling of interests.
(2) All per share amounts give retroactive recognition to the effect of stock
dividends and stock splits effective prior to December 31, 1996.
(3) Non-accruing loans, of an immaterial amount, are included in earning
assets. No adjustment has been made for these loans in the calculation of
yields.
(4) Yields are computed on a taxable equivalent basis, net of interest
disallowance, using marginal federal income tax rates of 35% for 1996-1993
and 34% for 1992.
(5) This summary should be read in conjunction with the related financial
statements and notes thereto on pages 51 to 72.
<TABLE>
<CAPTION>
Annual Compound
Change Growth Rate
- -----------------------------------
1995-1996 1992-1996
- -----------------------------------
<S> <C>
14.49% 16.77%
4.44 12.00
-61.62 -35.46
8.76 19.99
52.98 -6.81
9.70 17.34
10.70 18.24
-12.39 4.59
2.03 14.81
8.59% 16.76%
3.88% 11.90%
9.81 15.06
9.03 14.64
32.42 55.07
-25.77 65.85
7.97 57.83
-18.31 9.05
8.54 16.80
9.18 16.38
8.59% 16.76%
12.33% 15.99%
.18 14.45
15.33 18.91
2.37 10.31
12.95 14.54
11.49 13.96
-29.23 31.09
11.86 15.90
9.15 10.48
20.21 12.19
</TABLE>
75
<PAGE> 1
EXHIBIT 21
Exhibit 21 - List of Subsidiaries at December 31, 1996:
Regions Bank (Alabama) (1)
Regions Bank of Florida(2)
The Key Bank of Florida(2)
Regions Bank of Georgia(3)
Regions Bank (Georgia) (3)
First Federal Savings Bank of New Smyrna(4)
First Federal Savings Bank of Citrus County(4)
Regions Bank of Tennessee(5)
Regions Bank of Louisiana(6)
Regions Financial Leasing, Inc. (7)
Mortgage Guaranty Title Company (7)
Regions Agency, Inc. (7)
Regions Financial Building Corporation (7)
Regions Investment Company, Inc. (7)
Regions Mortgage, Inc. (7)
Regions Life Insurance Company (8)
Georgia State Building Corporation (9)
America's Loan Source, Inc. (9)
Regions Title Company, Inc. (10)
Secor Realty and Investment Corporation(7)
Secor Insurance Agency, Inc. Alabama(7)
Secor Insurance Agency, Inc. Louisiana(11)
Regions Credit Corporation (7)
Interstate Billing Service, Inc. (7)
Regions Asset Management Company (7)
RAMCO - FL Holding, Inc. (7)
RAMCO - FL, Inc. (7)
(1) Affiliate state bank in Alabama chartered under the banking laws of
Alabama.
(2) Affiliate state bank in Florida chartered under the banking laws of
Florida.
(3) Affiliate state bank in Georgia chartered under the banking laws of
Georgia.
(4) Federal Savings Bank incorporated under the laws of the United States.
<PAGE> 2
(5) Affiliate state bank in Tennessee chartered under the banking laws of
Tennessee
(6) Affiliate state bank in Louisiana chartered under the banking laws of
Louisiana.
(7) Bank-related subsidiary organized under the Business Corporation Act
of the state of Alabama.
(8) Bank-related subsidiary incorporated under the laws of the state of
Arizona and doing business principally in the state of Alabama.
(9) Bank-related subsidiary incorporated under the laws of the state of
Georgia.
(10) Bank-related subsidiary incorporated under the laws of the state of
Tennessee.
(11) Bank-related subsidiary incorporated under the laws of the state of
Louisiana.
<PAGE> 1
EXHIBIT 23-CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Regions Financial Corporation and subsidiaries of our report dated February
4, 1997, except for the last two paragraphs of Note Q as to which the date is
March 13, 1997, included in the 1996 Annual Report to Stockholders of Regions
Financial Corporation.
We also consent to the incorporation by reference of our report dated February
4, 1997, except for the last two paragraphs of Note Q as to which the date is
March 13, 1997, with respect to the consolidated financial statements of
Regions Financial Corporation and subsidiaries incorporated by reference in the
Annual Report (Form 10-K) for the year ended December 31, 1996 in the following
Registration Statements and in the related Prospectuses:
Form S-8 No. 33-36936 pertaining to the Employee Stock Purchase Plan of Regions
Financial Corporation;
Post Effective Amendment No. 1 to Form S-8 No. 33-41784 pertaining to the
Directors' Stock Investment Plan of Regions Financial Corporation;
Form S-8 No. 2-95291 pertaining to the 1983 Stock Option Plan;
Form S-8 No. 33-40728 pertaining to the 1991 Long-Term Incentive Plan;
Form S-8 No. 33-58469 pertaining to the Stock Options Assumed in the
acquisition of First Community Bancshares, Inc. and the Stock Options
Assumed in the acquisition of Union Bank and Trust Company;
Form S-8 No. 33-58979 pertaining to the 1991 Long-Term Incentive Plan;
Form S-3 No. 33-59735 pertaining to the registration of $200,000,000
Subordinated Debt Securities;
Form S-8 No. 333-05281 pertaining to the Stock Options Assumed in Acquisition
of Metro Financial Corporation;
Form S-8 No. 333-05335 pertaining to the Stock Options Assumed in Combination
with First National Bancorp;
Form S-8 No. 333-10575 pertaining to the Common Stock of Regions Financial
Corporation Distributable Under First National Bancorp Employee And
Director Stock Purchase Plan Pursuant to the Combination with First National
Bancorp;
Form S-8 No. 333-10701 pertaining to the Stock Options Assumed in Acquisition
of First Gwinnett Bancshares, Inc.;
Form S-8 No. 333-10683 pertaining to the Stock Options Assumed in Acquisition
of Rockdale Community Bank; and
Form S-8 No. 333-21651 pertaining to the Stock Options Assumed in Acquisition
of Florida First Bancorp, Inc.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-36936) pertaining to the Employee Stock Purchase Plan of
Regions Financial Corporation and in the related Prospectus of our report dated
March 21, 1997, with respect to the financial statements of the Employee Stock
Purchase Plan of Regions Financial Corporation included in the Annual Report
(Form 11-K), filed as an exhibit to Form 10-K, for the year ended December 31,
1996.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-41784) pertaining to the Directors' Stock Investment Plan of
Regions Financial Corporation and in the related Prospectus of our report dated
March 21, 1997, with respect to the financial statements of the Directors' Stock
Investment Plan of Regions Financial Corporation included in the Annual Report
(Form 11-K), filed as an exhibit to Form 10-K, for the year ended December 31,
1996.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 26,1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 774,849,000
<INT-BEARING-DEPOSITS> 33,191,000
<FED-FUNDS-SOLD> 20,842,000
<TRADING-ASSETS> 29,648,000
<INVESTMENTS-HELD-FOR-SALE> 1,767,845,000
<INVESTMENTS-CARRYING> 2,102,750,000
<INVESTMENTS-MARKET> 2,115,718,000
<LOANS> 13,311,172,000
<ALLOWANCE> 175,548,000
<TOTAL-ASSETS> 18,930,175,000
<DEPOSITS> 15,048,336,000
<SHORT-TERM> 1,611,927,000
<LIABILITIES-OTHER> 223,917,000
<LONG-TERM> 447,269,000
0
0
<COMMON> 39,322,000
<OTHER-SE> 1,559,404,000
<TOTAL-LIABILITIES-AND-EQUITY> 18,930,175,000
<INTEREST-LOAN> 1,102,406,000
<INTEREST-INVEST> 259,508,000
<INTEREST-OTHER> 24,208,000
<INTEREST-TOTAL> 1,386,122,000
<INTEREST-DEPOSIT> 587,744,000
<INTEREST-EXPENSE> 685,656,000
<INTEREST-INCOME-NET> 700,466,000
<LOAN-LOSSES> 29,041,000
<SECURITIES-GAINS> 3,115,000
<EXPENSE-OTHER> 553,801,000
<INCOME-PRETAX> 338,363,000
<INCOME-PRE-EXTRAORDINARY> 338,363,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229,686,000
<EPS-PRIMARY> 3.70
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.27
<LOANS-NON> 60,202,000
<LOANS-PAST> 26,532,000
<LOANS-TROUBLED> 3,625,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 159,487,000
<CHARGE-OFFS> 36,406,000
<RECOVERIES> 17,293,000
<ALLOWANCE-CLOSE> 175,548,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 175,548,000
</TABLE>
<PAGE> 1
EXHIBIT 99a
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS AND SIMILAR PLANS
PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 33-36936
A. Full title of the plan and address, if different from that of the
issuer named below:
REGIONS FINANCIAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
REGIONS FINANCIAL CORPORATION
P. O. BOX 10247
BIRMINGHAM, ALABAMA 35202
Exhibit 99 a.
<PAGE> 2
REGIONS FINANCIAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
The following report of independent auditors and financial statements of the
registrant are submitted herewith:
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Report of Independent Auditors 1
Statements of Financial Condition - December 31, 1996 and 1995 2
Statements of Income and Changes in Plan Equity for the Years
Ended December 31, 1996, 1995, and 1994 3
Notes to Financial Statements 4
</TABLE>
All schedules (Nos. I, II and III) for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
inapplicable or the required disclosures have been made elsewhere in the
financial statements and notes thereto. These schedules have therefore been
omitted.
i
<PAGE> 3
Report of Independent Auditors
Benefits Committee
Regions Financial Corporation
Employee Stock Purchase Plan
We have audited the accompanying statements of financial condition of Regions
Financial Corporation Employee Stock Purchase Plan as of December 31, 1996 and
1995, and the related statements of income and changes in plan equity for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Regions Financial Corporation
Employee Stock Purchase Plan at December 31, 1996 and 1995, and the income and
changes in plan equity for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 21, 1997
1
<PAGE> 4
STATEMENTS OF FINANCIAL CONDITION
REGIONS FINANCIAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Common Stock of Regions
Financial Corporation
at market value - 393,766
shares in 1996 and 379,275
shares in 1995 (cost
$13,313,813 in 1996 and
$11,258,096 in 1995) $20,352,797 $16,308,825
Dividends receivable 136,976 124,588
----------- -----------
Total Assets $20,489,773 $16,433,413
=========== ===========
PLAN EQUITY
Plan equity (5,376 and 3,759
participants in 1996
and 1995, respectively) $20,489,773 $16,433,413
----------- -----------
Total Plan Equity $20,489,773 $16,433,413
=========== ===========
</TABLE>
See notes to financial statements.
2
<PAGE> 5
STATEMENTS OF INCOME AND CHANGES IN PLAN EQUITY
REGIONS FINANCIAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Dividend income $ 532,590 $ 476,463 $ 404,049
Gain realized on distribution of common
stock of Regions Financial
Corporation to participants upon
withdrawal 1,346,668 787,988 868,405
Unrealized appreciation (depreciation)
of Common Stock of Regions Financial
Corporation 1,988,255 3,507,399 (1,399,777)
Contributions received:
From participants 3,317,675 2,956,862 2,579,395
From participating companies 1,119,260 993,611 884,578
Withdrawals by participants (4,248,088) (3,351,827) (3,663,908)
------------ ------------ ------------
Income and changes in plan equity 4,056,360 5,370,496 (327,258)
Plan equity at beginning of period 16,433,413 11,062,917 11,390,175
------------ ------------ ------------
PLAN EQUITY AT DECEMBER 31 $ 20,489,773 $ 16,433,413 $ 11,062,917
============ ============ ============
</TABLE>
( ) Indicates deduction
See notes to financial statements.
3
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
REGIONS FINANCIAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Formation of the Plan: Regions Financial Corporation (Regions or the Company)
formed the Regions Financial Corporation Employee Stock Purchase Plan (the
Plan) effective September 1, 1978.
Investments: The investment in Common Stock of the Company is stated at market
value. The NASDAQ quoted market price of Regions Financial Corporation Common
Stock was $51.69 per share at December 31, 1996 and $43.00 per share at
December 31, 1995. The average cost of the shares distributed is used to
compute gain or loss.
Income: Dividend income is accrued on the ex-dividend date.
Contributions: Contributions of participants and participating companies (see
Notes B and D) are accounted for on the accrual basis.
Income Taxes: The Plan is not subject to income tax. Participants must treat as
ordinary income their pro rata share of contributions to the Plan by the
participating companies. Cash dividends paid on stock purchased under the Plan
will be taxed to the participants on a pro rata basis for federal and state, as
applicable, income tax purposes.
Expenses of the Plan: All expenses incurred in the administration of the Plan,
other than brokerage fees, are paid by the participating companies. Brokerage
fees are included in the price of shares purchased.
NOTE B - PROVISIONS OF THE PLAN
The Plan is a voluntary contribution plan to which Regions and subsidiaries
contribute monthly, from 25% to 50% of the employees' monthly contributions.
Participating employees may contribute a maximum of 6% of their monthly salary
with a minimum monthly contribution of $5.00. Participation in the Plan is open
to those employees at least 21 years of age who have been employed with the
Company at least one year. Employees are immediately vested upon contribution
to the Plan to the extent of the employee's and the employer's contribution to
date. In the event the Plan terminates, or the employee terminates either his
or her employment with the Company or participation in the Plan, the employee
will receive a certificate for all whole shares owned in the Plan, cash for any
additional fractional shares owned, and cash for any remaining balance in such
participant's cash account.
NOTE C - PLAN AMENDMENT
Effective January 3, 1996, the Plan was amended to eliminate the requirement
for a trust and terminate the trust agreement. The amendment eliminated the
Plan Trustee and established a Plan Administrator with the authority to appoint
an investment manager to assume the administration and investment of Plan
assets. The amendment also allowed plan participants to use the shares in the
participant's account as security for a loan from the Plan.
4
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - CONTRIBUTIONS RECEIVED
Contributions by participating companies or divisions of Regions and
participants' contributions are as follows:
<TABLE>
<CAPTION>
Contributions Received
-----------------------------------------------
Participating Company or Division Company Employee Total
- --------------------------------- ------------ ------------ -----------
<S> <C> <C> <C>
Year ended December 31, 1996:
Regions Financial Corporation $ 241,091 $ 680,281 $ 921,372
Regions Bank of Alabama 584,901 1,634,722 2,219,623
Regions Bank of Louisiana 60,152 239,184 299,336
Regions Bank of Florida 29,598 104,284 133,882
Regions Bank of Georgia 48,877 184,001 232,878
Regions Bank of Tennessee 41,239 118,189 159,428
Regions Investment Company, Inc. 23,255 76,583 99,838
Regions Mortgage, Inc. 90,147 280,431 370,578
------------ ------------ -----------
TOTALS $ 1,119,260 $ 3,317,675 $ 4,436,935
============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Contributions Received
-----------------------------------------------
Participating Company or Division Company Employee Total
- --------------------------------- ------------ ------------ -----------
<S> <C> <C> <C>
Year ended December 31, 1995:
Regions Financial Corporation $ 202,398 $ 584,913 $ 787,311
Regions Bank of Alabama 553,788 1,562,993 2,116,781
Regions Bank of Louisiana 50,166 201,762 251,928
Regions Bank of Florida 26,956 95,891 122,847
Regions Bank of Georgia 19,357 74,882 94,239
Regions Bank of Tennessee 42,046 123,195 165,241
Regions Investment Company, Inc. 21,509 70,141 91,650
Regions Mortgage, Inc. 77,391 243,085 320,476
------------ ------------ -----------
TOTALS $ 993,611 $ 2,956,862 $ 3,950,473
============ ============ ===========
</TABLE>
5
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - CONTRIBUTIONS RECEIVED (CONTINUED)
<TABLE>
<CAPTION>
Contributions Received
-----------------------------------------------
Participating Company or Division Company Employee Total
- --------------------------------- ------------ ------------ -----------
<S> <C> <C> <C>
Year ended December 31, 1994:
Regions Financial Corporation $ 188,585 $ 531,453 $ 720,038
Regions Bank of Alabama 513,470 1,460,371 1,973,841
Regions Bank of Louisiana 22,107 85,616 107,723
Regions Bank of Georgia 19,036 67,384 86,420
Regions Bank of Florida 6,211 21,388 27,599
Regions Bank of Tennessee 40,394 113,594 153,988
Regions Investment Company, Inc. 19,591 64,131 83,722
Regions Mortgage, Inc. 75,184 235,458 310,642
------------ ------------ -----------
TOTALS $ 884,578 $ 2,579,395 $ 3,463,973
============ ============ ===========
</TABLE>
6
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE E - UNREALIZED APPRECIATION OF COMMON STOCK OF REGIONS FINANCIAL
CORPORATION
The unrealized appreciation of Common Stock of Regions Financial Corporation is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Unrealized appreciation at beginning
of year $ 5,050,729 $ 1,543,330 $ 2,943,107
Unrealized appreciation at end of
year 7,038,984 5,050,729 1,543,330
------------ ------------ -----------
INCREASE (DECREASE) IN UNREALIZED
APPRECIATION $ 1,988,255 $ 3,507,399 $(1,399,777)
============ ============ ===========
</TABLE>
NOTE F - GAIN REALIZED ON DISTRIBUTION OF COMMON STOCK OF REGIONS FINANCIAL
CORPORATION TO PARTICIPANTS UPON WITHDRAWAL
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------- -----------
<S> <C> <C> <C>
Market value of shares distributed $ 4,248,088 $ 3,350,619 $ 3,651,704
Cost of shares distributed 2,901,420 2,562,631 2,783,299
------------ ------------ -----------
TOTAL REALIZED GAIN $ 1,346,668 $ 787,988 $ 868,405
============ ============ ===========
</TABLE>
NOTE G - Investments
The fair value of individual investments that represent 5% or more of the
Plan's net assets are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
Common Stock of Regions Financial Corporation
(393,766 shares in 1996, and 379,275 shares in 1995) $ 20,352,797 $ 16,308,825
</TABLE>
7
<PAGE> 10
ITEM 9b. Exhibits
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Employee Stock Purchase Plan Benefits Committee has duly caused the annual
report to be signed by the undersigned thereunto duly authorized.
REGIONS FINANCIAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Date: March 27, 1997 By: /s/ Douglas W. Graham
--------------- ---------------------------------
Douglas W. Graham
Senior Vice President - Personnel
Regions Financial Corporation
8
<PAGE> 1
EXHIBIT 99b
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS AND SIMILAR PLANS
PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 33-41784
A. Full title of the plan and address, if different from that of the
issuer named below:
REGIONS FINANCIAL CORPORATION
DIRECTORS' STOCK INVESTMENT PLAN
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
REGIONS FINANCIAL CORPORATION
P. O. BOX 10247
BIRMINGHAM, ALABAMA 35202
Exhibit 99 b.
<PAGE> 2
REGIONS FINANCIAL CORPORATION
DIRECTORS' STOCK INVESTMENT PLAN
The following report of independent auditors and financial statements of the
registrant are submitted herewith:
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Report of Independent Auditors 1
Statements of Financial Condition - December 31, 1996 and 1995 2
Statements of Income and Changes in Plan Equity for the Years
Ended December 31, 1996, 1995, and 1994 3
Notes to Financial Statements 4
</TABLE>
All schedules (Nos. I, II and III) for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
inapplicable or the required disclosures have been made elsewhere in the
financial statements and notes thereto. These schedules have therefore been
omitted.
i
<PAGE> 3
Report of Independent Auditors
Benefits Committee
Directors' Stock Investment Plan of
Regions Financial Corporation
We have audited the accompanying statements of financial condition of the
Directors' Stock Investment Plan of Regions Financial Corporation as of
December 31, 1996 and 1995, and the related statements of income and changes in
plan equity for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Directors' Stock
Investment Plan of Regions Financial Corporation at December 31, 1996 and 1995,
and the income and changes in plan equity for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/Ernst & Young LLP
Birmingham, Alabama
March 21, 1997
1
<PAGE> 4
STATEMENTS OF FINANCIAL CONDITION
REGIONS FINANCIAL CORPORATION
DIRECTORS' STOCK INVESTMENT PLAN
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
---------------------------
<S> <C> <C>
ASSETS
Common Stock of Regions Financial
Corporation at market value -
346,967 shares in 1996 and
336,573 shares in 1995 (cost
$9,310,045 in 1996 and $8,260,988
in 1995) $17,933,889 $14,472,639
Dividends receivable 121,113 110,109
Contribution receivable 24,938 0
---------------------------
Total Assets $18,079,940 $14,582,748
===========================
LIABILITIES AND PLAN EQUITY
Plan equity (374 and 327 participants
in 1996 and 1995, respectively) $18,079,940 $14,582,748
---------------------------
Total Liabilities and Plan Equity $18,079,940 $14,582,748
===========================
</TABLE>
See notes to financial statements.
2
<PAGE> 5
STATEMENTS OF INCOME AND CHANGES IN PLAN EQUITY
REGIONS FINANCIAL CORPORATION
DIRECTORS' STOCK INVESTMENT PLAN
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Dividend income $ 472,922 $ 431,936 $ 370,395
Gain recognized on distribution of
Common Stock of Regions Financial
Corporation to participants upon
withdrawal 549,207 426,631 407,960
Unrealized appreciation(depreciation)
of Common Stock of Regions
Financial Corporation 2,412,193 3,493,332 (855,976)
Contributions received:
From participants 1,024,485 1,150,116 987,856
From participating companies 256,122 287,529 246,969
Withdrawals by participants (1,217,737) (1,128,868) (1,129,459)
-----------------------------------------------
Income and changes in plan equity 3,497,192 4,660,676 27,745
Plan equity at beginning of period 14,582,748 9,922,072 9,894,327
-----------------------------------------------
PLAN EQUITY AT DECEMBER 31 $ 18,079,940 $ 14,582,748 $ 9,922,072
===============================================
</TABLE>
( ) Indicates deduction
See notes to financial statements.
3
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
REGIONS FINANCIAL CORPORATION
DIRECTORS' STOCK INVESTMENT PLAN
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Formation of the Plan: Regions Financial Corporation (Regions or the Company)
formed the Regions Financial Corporation Directors' Stock Investment Plan (the
Plan) effective May 1, 1984.
Investments: The investment in Common Stock of the Company is stated at market
value. The NASDAQ quoted market price of Regions Financial Corporation Common
Stock was $51.69 per share at December 31, 1996 and $43.00 per share at
December 31, 1995. The average cost of the shares distributed is used to
compute gain or loss.
Income: Dividend income is accrued on the ex-dividend date.
Contributions: Contributions of participants and participating companies
(see Notes B and C) are accounted for on the accrual basis.
Income Taxes: The Plan is not subject to income tax. Participants must treat as
ordinary income their pro rata share of contributions to the Plan by the
participating companies. Cash dividends paid on stock purchased under the Plan
will be taxed to the participants on a pro rata basis for federal and state, as
applicable, income tax purposes.
Expenses of the Plan: All expenses incurred in the administration of the Plan,
other than brokerage fees, are paid by the participating companies. Brokerage
fees are included in the price of shares purchased.
NOTE B - PROVISIONS OF THE PLAN
The Plan is a voluntary contribution plan to which the Company contributes 25%
of actual contributions made by participants. Participating directors may
contribute all or any part of their directors' fees. Participation in the Plan
is open to any person who is a director of Regions Financial Corporation, any
subsidiary or any body designated as a local division's Board of Directors who
is not an employee of Regions Financial Corporation, or any subsidiary or local
division. Directors are immediately vested upon contribution to the Plan to the
extent of the director's and the Company's contribution to date. In the event
the Plan terminates, or the director terminates either his or her position with
the Company or participation in the Plan, the director will receive a
certificate for all whole shares owned in the Plan, cash for any additional
fractional shares owned, and cash for any remaining balance in such
participant's cash account.
NOTE C - PLAN AMENDMENT
Effective January 3, 1996, the Plan was amended to eliminate the requirement
for a trust and terminate the trust agreement. The amendment also eliminated
the Plan Trustee and established a Plan Administrator with the authority to
appoint an investment manager to assume the administration and investment of
Plan assets.
4
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - CONTRIBUTIONS RECEIVED
Contributions by participating companies or divisions of Regions and
participants' contributions are as follows:
Year ended December 31, 1996:
<TABLE>
<CAPTION>
CONTRIBUTIONS RECEIVED
----------------------------------
PARTICIPATING COMPANY OR DIVISION COMPANY DIRECTOR TOTAL
- ---------------------------------------- ----------------------------------
<S> <C> <C> <C>
Regions Financial Corporation $10,625 $ 42,500 $ 53,125
Regions Bank, Montgomery 13,400 53,600 67,000
Regions Bank, Birmingham 18,775 75,100 93,875
Regions Bank, Huntsville 11,550 46,200 57,750
Regions Bank, Tuscaloosa 8,638 34,550 43,188
Regions Bank, Dothan 8,025 32,100 40,125
Regions Bank, Selma 5,125 20,500 25,625
Regions Bank, Gadsden 5,831 23,325 29,156
Regions Bank, Athens 3,875 15,500 19,375
Regions Bank, Baldwin County 3,975 15,900 19,875
Regions Bank, Guntersville 3,275 13,100 16,375
Regions Bank, Phenix City 2,363 9,450 11,813
Regions Bank, Mobile 25,525 102,100 127,625
Regions Bank, Lee County 3,600 14,400 18,000
Regions Bank, Cullman 3,900 15,600 19,500
Regions Bank, Lauderdale County 2,062 8,250 10,312
Regions Bank, Conecuh County 2,063 8,250 10,313
Regions Bank, Sumter County 2,100 8,400 10,500
Regions Bank, Talladega County 8,181 32,725 40,906
Regions Bank, Chilton County 1,650 6,600 8,250
Regions Bank, Troy 4,187 16,750 20,937
Regions Bank, Anniston 10,038 40,150 50,188
Regions Bank, South Baldwin 2,500 10,000 12,500
Regions Bank, Centre 1,800 7,200 9,000
Regions Bank, Covington County 3,063 12,250 15,313
Regions Bank Shelby County 3,500 14,000 17,500
Regions Bank, Decatur 5,562 22,250 27,812
Regions Bank, Oneonta 5,006 20,025 25,031
Regions Bank, Enterprise 3,625 14,500 18,125
Regions Bank, Butler 800 3,200 4,000
Regions Bank, Albertville 2,250 9,000 11,250
Regions Bank, Fayette 900 3,600 4,500
Regions Bank of Louisiana 29,600 118,400 148,000
Regions Bank of Florida 7,975 31,900 39,875
Key Bank of Florida 975 3,900 4,875
</TABLE>
5
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - CONTRIBUTIONS RECEIVED (CONTINUED)
Year ended December 31, 1996 continued:
<TABLE>
<CAPTION>
CONTRIBUTIONS RECEIVED
--------------------------------------------------------
PARTICIPATING COMPANY OR DIVISION COMPANY DIRECTOR TOTAL
- --------------------------------- --------------------------------------------------------
<S> <C> <C> <C>
Regions Bank of Georgia 2,775 11,100 13,875
Regions Bank (Georgia) 20,650 82,600 103,250
Regions Bank of Tennessee 6,328 25,310 31,638
Regions Mortgage, Inc. 50 200 250
-------------------------------------------------------
TOTALS $ 256,122 $1,024,485 $ 1,280,607
=======================================================
</TABLE>
6
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - CONTRIBUTIONS RECEIVED (CONTINUED)
Year ended December 31, 1995:
<TABLE>
<CAPTION>
CONTRIBUTIONS RECEIVED
-----------------------------------
PARTICIPATING COMPANY OR DIVISION COMPANY DIRECTOR TOTAL
- --------------------------------- -----------------------------------
<S> <C> <C> <C>
Regions Financial Corporation $42,460 $169,841 $212,301
Regions Bank, Montgomery 16,150 64,600 80,750
Regions Bank, Birmingham 17,600 70,400 88,000
Regions Bank, Huntsville 12,300 49,200 61,500
Regions Bank, Tuscaloosa 10,462 41,850 52,312
Regions Bank, Dothan 8,162 32,650 40,812
Regions Bank, Selma 6,124 24,500 30,624
Regions Bank, Gadsden 6,800 27,200 34,000
Regions Bank, Athens 3,000 12,000 15,000
Regions Bank, Baldwin County 3,825 15,300 19,125
Regions Bank, Guntersville 3,125 12,500 15,625
Regions Bank, Phenix City 2,081 8,325 10,406
Regions Bank, Mobile 28,650 114,600 143,250
Regions Bank, Lee County 3,600 14,400 18,000
Regions Bank, Cullman 3,900 15,600 19,500
Regions Bank, Lauderdale County 2,594 10,375 12,969
Regions Bank, Conecuh County 2,406 9,625 12,031
Regions Bank, Sumter County 2,475 9,900 12,375
Regions Bank, Talladega County 7,981 31,925 39,906
Regions Bank, Chilton County 1,763 7,050 8,813
Regions Bank, Troy 3,369 13,475 16,844
Regions Bank, Anniston 12,100 48,400 60,500
Regions Bank, South Baldwin 2,625 10,500 13,125
Regions Bank, Centre 1,650 6,600 8,250
Regions Bank, Covington County 3,625 14,500 18,125
Regions Bank, Shelby County 3,200 12,800 16,000
Regions Bank, Decatur 4,794 19,175 23,969
Regions Bank, Oneonta 5,725 22,900 28,625
Regions Bank, Enterprise 3,750 15,000 18,750
Regions Bank, Butler 700 2,800 3,500
Regions Bank, Albertville 2,250 9,000 11,250
Regions Bank, Fayette 563 2,250 2,813
Regions Bank of Louisiana 29,553 118,210 147,763
Regions Bank of Florida 6,898 27,590 34,488
Regions Bank of Georgia 3,431 13,725 17,156
Regions Bank of Rome 3,225 12,900 16,125
</TABLE>
7
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - CONTRIBUTIONS RECEIVED (CONTINUED)
Year ended December 31, 1995 continued:
<TABLE>
<CAPTION>
CONTRIBUTIONS RECEIVED
-------------------------------------------------
PARTICIPATING COMPANY OR DIVISION COMPANY DIRECTOR TOTAL
- --------------------------------- -------------------------------------------------
<S> <C> <C> <C>
Regions Bank, FSB 6,300 25,200 31,500
Regions Bank of Tennessee 8,138 32,550 40,688
Regions Mortgage Inc. 175 700 875
------------ ------------ -----------
TOTALS $ 287,529 $ 1,150,116 $ 1,437,645
============ ============ ===========
</TABLE>
8
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - CONTRIBUTIONS RECEIVED (CONTINUED)
Year ended December 31, 1994:
<TABLE>
<CAPTION>
CONTRIBUTIONS RECEIVED
-----------------------------------
PARTICIPATING COMPANY OR DIVISION COMPANY DIRECTOR TOTAL
- --------------------------------- -----------------------------------
<S> <C> <C> <C>
Regions Financial Corporation $36,738 $146,950 $183,688
Regions Bank, Montgomery 11,600 46,400 58,000
Regions Bank, Birmingham 21,425 85,700 107,125
Regions Bank, Huntsville 12,238 48,950 61,188
Regions Bank, Tuscaloosa 10,488 41,950 52,438
Regions Bank, Dothan 7,738 30,950 38,688
Regions Bank, Selma 4,125 16,500 20,625
Regions Bank, Gadsden 6,431 25,724 32,155
Regions Bank, Athens 3,344 13,374 16,718
Regions Bank, Baldwin County 3,825 15,300 19,125
Regions Bank, Guntersville 3,225 12,900 16,125
Regions Bank, Phenix City 2,550 10,200 12,750
Regions Bank, Mobile 28,675 114,700 143,375
Regions Bank, Lee County 4,200 16,800 21,000
Regions Bank, Cullman 4,300 17,200 21,500
Regions Bank, Lauderdale County 2,188 8,750 10,938
Regions Bank, Conecuh County 1,719 6,874 8,593
Regions Bank, Sumter County 1,500 6,000 7,500
Regions Bank, Talladega County 7,550 30,200 37,750
Regions Bank, Chilton County 1,500 6,000 7,500
Regions Bank, Troy 2,956 11,824 14,780
Regions Bank, Anniston 11,263 45,050 56,313
Regions Bank, South Baldwin 2,938 11,750 14,688
Regions Bank, Centre 1,650 6,600 8,250
Regions Bank, Covington County 3,250 13,000 16,250
Regions Bank, Shelby County 2,800 11,200 14,000
Regions Bank, Decatur 4,450 17,800 22,250
Regions Bank, Oneonta 5,881 23,525 29,406
Regions Bank, Enterprise 3,750 15,000 18,750
Regions Bank, Choctaw 700 2,800 3,500
Regions Bank, Albertville 2,800 11,200 14,000
Regions Bank, Fayette 338 1,350 1,688
Regions Bank of Louisiana 6,088 24,350 30,438
Regions Bank of Florida 9,590 38,360 47,950
Regions Bank of Georgia 3,600 14,400 18,000
</TABLE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
9
<PAGE> 12
NOTE D - CONTRIBUTIONS RECEIVED (CONTINUED)
Year ended December 31, 1994 continued:
<TABLE>
<CAPTION>
CONTRIBUTIONS RECEIVED
-------------------------------------------------
PARTICIPATING COMPANY OR DIVISION COMPANY DIRECTOR TOTAL
- --------------------------------- -------------------------------------------------
<S> <C> <C> <C>
Regions Bank of Tennessee 9,331 37,325 46,656
Regions Mortgage Inc. 225 900 1,125
-----------------------------------------------
TOTALS $ 246,969 $ 987,856 $ 1,234,825
===============================================
</TABLE>
10
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE E - UNREALIZED APPRECIATION OF COMMON STOCK OF REGIONS FINANCIAL
CORPORATION
The unrealized appreciation of Common Stock of Regions Financial Corporation is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Unrealized appreciation at beginning
of year $ 6,211,651 $ 2,718,319 $ 3,574,295
Unrealized appreciation at end of year 8,623,844 6,211,651 2,718,319
-----------------------------------------------
INCREASE (DECREASE) IN UNREALIZED
APPRECIATION $ 2,412,193 $ 3,493,332 $ (855,976)
===============================================
</TABLE>
NOTE F - GAIN REALIZED ON DISTRIBUTION OF COMMON STOCK OF REGIONS FINANCIAL
CORPORATION TO PARTICIPANTS UPON WITHDRAWAL
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Market value of shares distributed $ 1,217,737 $ 1,128,868 $ 1,125,631
Cost of shares distributed 668,530 702,237 717,671
-----------------------------------------------
TOTAL REALIZED GAIN $ 549,207 $ 426,631 $ 407,960
===============================================
</TABLE>
NOTE G - INVESTMENTS
The fair value of individual investments that represent 5% or more of the
Plan's net assets are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------
<S> <C> <C>
Common Stock of Regions Financial Corporation (346,967
shares in 1996 and 336,573 shares in 1995) $ 17,933,889 $ 14,472,639
</TABLE>
11
<PAGE> 14
ITEM 9b. Exhibits
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Directors' Stock Investment Plan Benefits Committee has duly caused the annual
report to be signed by the undersigned thereunto duly authorized.
DIRECTORS' STOCK INVESTMENT PLAN
REGIONS FINANCIAL CORPORATION
Date: March 27, 1997 By: /s/ Douglas W. Graham
----------------- ---------------------
Douglas W. Graham
Senior Vice President - Personnel
Regions Financial Corporation
12
