<PAGE> 1
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, 1997
COMMISSION FILE NUMBER 0-6159
REGIONS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 63-0589368
- ---------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
417 North 20th Street, Birmingham, Alabama 35203
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
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
- -------------------------------------------------------------------
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 February 28, 1998.
Common Stock, $.625 Par Value--$5,516,315,059*
*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 February 28, 1998.
Common Stock, $.625 Par Value--141,898,577 shares issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to stockholders for the year ended December 31,
1997, are incorporated by reference into Parts I and II.
<PAGE> 2
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 435 full-service banking offices in Alabama, Florida,
Georgia, Louisiana and Tennessee as of December 31, 1997. At that date, Regions
had total consolidated assets of approximately $23.0 billion, total consolidated
deposits of approximately $17.8 billion, and total consolidated stockholders'
equity of approximately $1.9 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, 1997, Regions operated eight state-chartered
commercial bank subsidiaries and one federal savings bank (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.
1
<PAGE> 3
In Alabama, Regions Bank operates 183 banking offices throughout the
state. At December 31, 1997, these offices had total consolidated assets of
approximately $11.3 billion and total consolidated deposits of approximately
$8.9 billion.
In Florida, Regions Bank operates through 46 banking offices in the
northwest and central regions of the state. At December 31, 1997, these offices
had total combined assets of approximately $2.0 billion and total combined
deposits of approximately $1.6 billion.
In Georgia, Regions operates through (i) Regions Bank (Georgia), (ii)
Allied Bank of Georgia, (iii) Bank of Morgan County, (iv) Bank of Millen, (v)
Smyrna Bank and Trust, (vi) First Bank of Georgia, and (vii) Griffin Federal
Savings Bank which at December 31, 1997, had total combined assets of
approximately $5.4 billion and total combined deposits of approximately $4.2
billion. These institutions operate 107 banking offices in central and northern
Georgia.
In Louisiana, Regions Bank operates 75 banking offices throughout the
state. At December 31, 1997, these offices had total consolidated assets of
approximately $2.9 billion and total consolidated deposits of approximately $2.5
billion.
In Tennessee, Regions Bank operates 24 banking offices throughout the
middle part of the state. At December 31, 1997, these offices had total
consolidated assets of approximately $536 million and total consolidated
deposits of approximately $473 million.
2
<PAGE> 4
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, 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 $13.6 billion in real estate mortgages at December 31,
1997, and operates loan production offices in Alabama, Florida, Georgia,
Louisiana, 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.
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,
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
3
<PAGE> 5
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 71 acquisitions of other financial institutions
representing in aggregate (at the time the acquisitions were completed)
approximately $13.0 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 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.
Reference is made to pages 21 through 48 and 75 through 76 of the
annual report to stockholders for the year ended December 31, 1997,
4
<PAGE> 6
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;
5
<PAGE> 7
(4) The cost and other effects of legal and
administrative cases and proceedings, claims, settlements, and judgments;
(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-
6
<PAGE> 8
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, 1997, 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 ("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
7
<PAGE> 9
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 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
8
<PAGE> 10
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 provided that, after
June 1, 1997, national and state-chartered banks may branch interstate through
acquisitions of banks in other states.
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 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
9
<PAGE> 11
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 which
they are located. The Subsidiary Bank that is a federal savings bank is 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
10
<PAGE> 12
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 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
11
<PAGE> 13
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, implemented on July
1, 1997, substitute for the prior process-based assessment factors a new
evaluation system that rates an institution based on its actual performance in
meeting community needs. In particular, the system focuses 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
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
12
<PAGE> 14
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 and Georgia and to the regulations of the FDIC. The Subsidiary
Bank that is a federal savings banks is 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 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, 1997, under dividend restrictions imposed under
federal and state laws, the Subsidiary Banks, without obtaining
13
<PAGE> 15
governmental approvals, could declare aggregate dividends to the Registrant of
approximately $180 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.
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,
14
<PAGE> 16
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, 1997, the Registrant's
consolidated Tier 1 Capital and Total Capital ratios were 10.48% and 12.93%,
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 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, 1997, was
7.52%. 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.
15
<PAGE> 17
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, 1997. 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."
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.
16
<PAGE> 18
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 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
17
<PAGE> 19
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.
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
18
<PAGE> 20
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 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
19
<PAGE> 21
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, 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
20
<PAGE> 22
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 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, 1997, 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
21
<PAGE> 23
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). 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.
Pursuant to the Deposit Insurance Funds Act of 1996, the FDIC
implemented a special one-time assessment of approximately 65.7 basis points
(0.657%) on a depository institution's deposits insured by the Savings
Association Insurance Fund ("SAIF") held as of March 31, 1995 (or approximately
52.6 basis points on SAIF deposits acquired by banks in certain qualifying
transactions), and adopted revisions to the assessment rate schedules that would
generally eliminate the disparity between assessment rates applicable to the
deposits insured by the Bank Insurance Fund ("BIF") and the SAIF. The revisions
in the assessment rate schedules reduced assessment rates on SAIF-insured
deposits and would generally equalize BIF and SAIF assessment rates by January,
2000. 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 through 1999 as compared to years prior to
22
<PAGE> 24
1997, assuming no further changes in announced premium assessment rates. Regions
recorded a charge against earnings for the special assessment in the quarter
ended September 30, 1996 in the pre-tax amount of approximately $21.0 million.
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
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
23
<PAGE> 25
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 principal stockholder. 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 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
24
<PAGE> 26
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 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.
25
<PAGE> 27
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest and fees on loans 70.1% 68.6% 69.8%
Interest on securities 14.8 16.1 15.9
Interest on mortgage loans held for sale 0.9 1.0 0.6
Interest on federal funds sold 0.4 0.2 0.5
Other interest income 0.2 0.4 0.2
Trust department income 1.5 1.7 1.8
Service charges on deposit accounts 5.8 5.5 5.1
Mortgage servicing and origination fees 3.0 3.2 3.0
Other non-interest income 3.3 3.3 3.1
----- ----- -----
Total Operating Income 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
(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
26
<PAGE> 28
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 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
27
<PAGE> 29
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, 1997, 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 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
28
<PAGE> 30
deposit percentage and other restrictions. The Interstate Banking Act also
generally provided that, after June 1, 1997, national and state-chartered banks
may branch interstate through acquisitions of banks in other states. To 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, 1997, Registrant, its affiliate
banks and other subsidiaries had a total of 9,227 full-time-equivalent
employees.
(d) Registrant neither engages in foreign operations nor derives a
significant portion of its business from customers in foreign countries.
29
<PAGE> 31
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 493 office facilities, of which 343 are owned by the Registrant
or one of its subsidiaries and 150 are subject to building or ground leases. Of
the 435 branch office facilities operated by the Subsidiary Banks at December
31, 1997, 118 are subject to building or ground leases and 317 are wholly owned
by the Subsidiary Banks.
For offices in premises leased by the Registrant and its subsidiaries,
annual rentals totaled approximately $7,337,000 as of December 31, 1997. During
1997, the Registrant and its subsidiaries received approximately $3,184,000 in
rentals for space leased to others. At December 31, 1997, encumbrances on the
offices, equipment and other operational facilities owned by the Registrant and
its subsidiaries totaled approximately $6,247,000 with a weighted average
interest rate of 6.8%.
ITEM 3. Legal Proceedings
"Note L. Commitments and Contingencies" on page 63 of the annual report to
stockholders for the year ended December 31, 1997, is incorporated herein by
reference.
The Registrant continues to be concerned about the general trend in
litigation in Alabama state courts involving large damage awards against
financial service company defendants. Registrant directly or through its
30
<PAGE> 32
subsidiaries is party to approximately 55 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 precedent set in 1989 regarding
reliance by plaintiffs on verbal representations which are not in agreement with
written contracts. The 1989 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.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders for a vote during the fourth
quarter of 1997.
31
<PAGE> 33
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, 1997, is incorporated herein by
reference.
ITEM 6. Selected Financial Data
"Historical Financial Summary" on pages 75 through 76 of the annual report
to stockholders for the year ended December 31, 1997, 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, 1997, 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, 1997, are incorporated herein by
reference.
"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, 1997, are incorporated herein by reference.
32
<PAGE> 34
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.
33
<PAGE> 35
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information On Directors
The following table indicates, as of December 31, 1997, the age,
residence, principal occupation or employment for the last five years of each
director, position and offices held with Regions or its subsidiaries, and the
year the director was first elected.
<TABLE>
<CAPTION>
Year
Present Occupation Position and Year Term of
Name of and Principal Offices held with First Office
Director, Occupation for Regions and Elected Will
Residence, and Age Last Five Years Subsidiaries as Director Expire
- ------------------ --------------- ------------ ----------- ------
<S> <C> <C> <C> <C>
Sheila S. Blair Executive Director, Director, Regions 1989 1999
Birmingham, Alabama The Greater
62 Birmingham
Foundation
(Community
Foundation)
William R. Boles, Sr. Attorney, Boles, Director, Regions; 1995 1998
Monroe, Louisiana Boles & Ryan Director, Regions
70 Bank of Louisiana--
Monroe (1)
James B. Boone, Jr. Chairman of the Director, Regions; 1985 2000
Tuscaloosa, Alabama Board, Boone Director, Regions
62 Newspapers, Inc. Bank--Tuscaloosa (1)
(Newspaper
Publishing,
Management and
Ownership)
</TABLE>
- ----------
(1) As a consequence of the merger of all of Regions' subsidiary banks
into one bank (Regions Bank) and the resulting cessation of their
separate corporate existence, Regions has established bodies of
local advisory directors corresponding to the former boards of
directors of the subsidiary banks. Service on such a body is
denoted in the tables as, for example, "Director, Regions
Bank--Birmingham."
34
<PAGE> 36
<TABLE>
<CAPTION>
Year
Present Occupation Position and Year Term of
Name of and Principal Offices held with First Office
Director, Occupation for Regions and Elected Will
Residence, and Age Last Five Years Subsidiaries as Director Expire
- ------------------ --------------- ------------ ----------- ------
<S> <C> <C> <C> <C>
Albert P. Brewer Professor of Law Director, Regions; 1986 2000
Birmingham, Alabama and Government, Director, Regions
69 Samford University Bank--Decatur/
Hartselle (1)
James S.M. French Chairman and Director, Regions; 1986 2000
Birmingham, Alabama President, Dunn Director, Regions
58 Investment Co. Bank--Birmingham (1)
(Construction,
Construction
Materials,
Investments)
Richard D. Horsley Vice Chairman of Director, Regions; 1982 2000
Birmingham, Alabama the Board and Director, Regions
55 Executive Financial Bank, Regions Agency
Officer, Regions and Inc., Regions
Regions Bank Mortgage, Inc.,
Regions Life
Insurance Company,
and Regions Financial
Building Corp.,
Regions Asset Management Company,
Ramco-FL Holding, Inc., and
Ramco-FL, Inc.
Carl E. Jones, Jr. President and Chief Director, Regions 1997 1998
Birmingham, Alabama Operating Officer, and Regions Bank
57 Regions and Regions
Bank; Regional
President, Regions
Olin B. King Chairman and CEO, Director, Regions; 1984 1999
Huntsville, Alabama SCI Systems, Inc. Director,
63 (Diversified Regions Bank--
Electronics Huntsville (1)
Manufacturer)
</TABLE>
- ---------------
(1) As a consequence of the merger of all Regions' subsidiary banks
into one bank (Regions Bank) and the resulting cessation of their
separate corporate existence, Regions has established bodies of
local advisory directors corresponding to the former boards of
directors of the subsidiary banks. Service on such a body is
denoted in the tables as, for example, "Director, Regions
Bank--Birmingham."
35
<PAGE> 37
<TABLE>
<CAPTION>
Year
Present Occupation Position and Year Term of
Name of and Principal Offices held with First Office
Director, Occupation for Regions and Elected Will
Residence, and Age Last Five Years Subsidiaries as Director Expire
- ------------------ --------------- ------------ ----------- ------
<S> <C> <C> <C> <C>
J. Stanley Mackin Chairman and Chief Director, Regions; 1990 2000
Birmingham, Alabama Executive Officer, Director,
65 Regions and Regions Regions Bank, Regions
Bank Agency, Inc., Regions
Mortgage, Inc., and
Regions Life
Insurance Company.
Henry E. Simpson Attorney, Lange, Director, Regions; 1973 1998
Birmingham, Alabama Simpson, Robinson Director,
63 & Somerville LLP Regions Bank--
Birmingham (1)
Lee J. Styslinger, Jr. Chairman, ALTEC Director, Regions; 1985 1999
Birmingham, Alabama Industries, Inc. Director,
65 (Manufacturer of Regions Bank--
Mobile Utility Birmingham (1)
Equipment)
Robert J. Williams Chairman and Chief Director, Regions; 1996 1998
Mobile, Alabama Executive Officer, Director,
68 Terminix Services, Regions Bank--
Inc. (Pest Control Mobile (1)
Company)
</TABLE>
(1) As a consequence of the merger of all of Regions' subsidiary banks into
one bank (Regions Bank) and the resulting cessation of their separate
corporate existence, Regions has established bodies of local advisory
directors corresponding to the former boards of directors of the
subsidiary banks. Service on such a body is denoted in the tables as, for
example, "Director, Regions Bank--Birmingham."
36
<PAGE> 38
Of the directors listed above, three also serve as directors of other
companies with a class of securities registered under the Securities Exchange
Act of 1934. James S. M. French serves as a director of Energen Corporation, and
as a director of Hilb, Rogal and Hamilton Company; Olin B. King serves as a
director of SCI Systems, Inc.; and Lee J. Styslinger, Jr. serves as a director
of The Mead Corporation.
37
<PAGE> 39
Executive officers of the Registrant as of December 31, 1997, 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 65 Chairman, Director and Chief Executive Officer, 1983*
Registrant and Regions Bank; Director, Regions
Mortgage, Inc., Regions Agency, and Regions Life
Insurance Company.
Carl E. Jones, Jr. 57 Director, President and Chief Operating Officer, 1983*
Registrant and Regions Bank; President/Southern
Alabama Region and Louisiana Region.
Richard D. Horsley 55 Vice Chairman, Director and Executive Financial 1972
Officer, Registrant and Regions Bank; Director and
Vice President, Regions Agency, Inc., Regions Asset
Management Company, RAMCO - FL Holding, Inc., and
RAMCO - FL, Inc.; Director, Regions Life Insurance
Company, Regions Financial Building Corp. and
Regions Mortgage, Inc.
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
Position and
Offices Held with Officer
Executive Officer Age Registrant and Subsidiaries Since
----------------- --- --------------------------- -----
<S> <C> <C> <C>
Sam P. Faucett 63 President/Western Alabama Region and Florida 1983*
Region; Director, Regions Bank and Regions
Mortgage, Inc.
Joe M. Hinds, Jr. 60 President/Northern Alabama Region and Tennessee 1983*
Region; Director, Regions Bank.
Wilbur B. Hufham 60 President/Southeastern Alabama Region; Director, 1983*
Regions Bank.
William E. Jordan 63 President/Central Alabama Region; Chairman, Georgia 1990*
Region; Director, Regions Bank and Regions Bank
(Georgia).
Peter D. Miller 51 President/Georgia Region; Chairman, Director and 1996*
Chief Executive Officer Regions Bank (Georgia).
William E. Askew 48 Executive Vice President - Retail Banking Division, 1987
Registrant and Regions Bank.
Delmar F. Epton 64 Executive Vice President - Product Development, 1986*
Registrant and Regions Bank.
</TABLE>
39
<PAGE> 41
<TABLE>
<CAPTION>
Position and
Offices Held with Officer
Executive Officer Age Registrant and Subsidiaries Since
----------------- --- --------------------------- -----
<S> <C> <C> <C>
Robert P. Houston 53 Executive Vice President and Comptroller, 1974
Registrant and Regions Bank; 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.
E. Cris Stone 55 Executive Vice President - Corporate Banking, 1988
Registrant and Regions Bank; Director and Vice
President, Regions Financial Leasing, Inc.
Richard E. Wambsganss 57 Executive Vice President - Trust Group, Registrant 1987
and Regions Bank.
Samuel E. Upchurch Jr. 46 General Counsel and Corporate Secretary, Registrant 1994
and Regions Bank; 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.
40
<PAGE> 42
ITEM 11. Executive Compensation
Section 16 Transactions
Section 16(a) of the Securities Exchange Act of 1934 requires Regions'
executive officers and directors to file reports of ownership and changes in
ownership of Regions' stock with the Securities and Exchange Commission.
Executive officers and directors are required by SEC regulations to furnish
Regions with copies of all Section 16(a) forms they file.
Based on a review of the forms filed during 1997, Regions believes that
its executive officers and directors complied with all applicable filing
requirements.
SUMMARY COMPENSATION TABLE
The following table is a summary of certain information concerning the
compensation earned by Regions' chief executive officer and each of the other
four most highly compensated executive officers during the last three fiscal
years.
41
<PAGE> 43
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other All
Annual Restricted Stock LTIP Other
Name and Principal Position Year Salary Bonus Compensation Stock(1) Options Payouts Compensation
- --------------------------- ---- ------ ----- ------------ -------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Stanley Mackin 1997 $735,000 $661,500 $0 $2,132,500 150,000 $1,420,778 (2)$532,470
Chairman & Chief 1996 700,000 630,000 0 1,720,000 150,000 743,985 441,961
Executive Officer 1995 600,000 553,200 0 1,280,000 150,000 0 319,658
Carl E. Jones, Jr. 1997 $350,000 $200,556 $0 $218,589 14,359 $607,553 (3)$67,847
President & Chief 1996 242,000 147,969 0 0 30,000 349,030 61,103
Operating Officer 1995 232,000 146,030 0 0 30,000 0 49,897
Richard D. Horsley 1997 $275,000 $173,250 $0 $109,275 7,180 $598,433 (4)$82,405
Vice Chairman & 1996 262,500 165,375 0 0 30,000 349,030 72,944
Executive Financial Officer 1995 250,000 161,350 0 0 30,000 0 57,334
Sam P. Faucett 1997 $245,000 $153,881 $0 $109,275 7,180 $598,433 (5)$121,227
Regional President 1996 232,000 146,282 0 0 30,000 349,030 104,338
1995 222,000 142,579 0 0 30,000 0 79,961
William E. Jordan 1997 $248,000 $155,953 $0 $109,275 7,180 $598,433 (6)$131,505
Regional President 1996 233,000 147,017 0 0 30,000 349,030 112,616
1995 218,000 137,721 0 0 30,000 0 84,929
</TABLE>
(1) The Terms of the Restricted Stock awards are determined by the personnel
committee. Under the terms of the currently outstanding Restricted Stock
awards, the named executives must remain employed with Regions for five
years from the date of the grant at the same or higher level in order for
the shares to be released. During the five year period, the named executive
is eligible to receive dividends and exercise voting privileges on such
restricted shares. If any of the restrictions are removed at the discretion
of the personnel committee, the named executive officer will receive a
stock certificate for some percentage or all of the awarded restricted
shares. The restricted shares are not transferable by the named executive
during the restriction period. The personnel committee has the discretion
to modify the terms of the Restricted Stock awards. Mr. Mackin had 160,000
shares of Restricted Stock with a fair market value of $6,790,000 at
December 31, 1997. Mr. Jones had 5,641 shares of Restricted Stock with a
fair market value of $239,390 at December 31, 1997. Messrs. Horsley,
Faucett and Jordan each had 2,820 shares of Restricted Stock with a fair
market value of $119,674 at December 31, 1997.
(2) Includes $2,922 allocated to Mr. Mackin in 1997 under the Employee Stock
Ownership Plan; $17,878 allocated to Mr. Mackin in 1997 under the profit
sharing plan; and $511,670 representing the estimated term component of the
premium paid and the estimated interest cost to Regions in 1997 resulting
from premium payments for a life insurance benefit plan for Mr. Mackin.
This plan serves as an offset to an existing supplemental retirement plan.
(3) Includes $2,922 allocated to Mr. Jones in 1997 under the Employee Stock
Ownership Plan; $17,878 allocated to Mr. Jones in 1997 under the profit
sharing plan; and $47,047 representing the estimated term component of the
premium paid and the estimated interest cost to Regions in 1997 resulting
from premium payments for a life insurance benefit plan for Mr. Jones. This
plan serves as an offset to an existing supplemental retirement plan.
(4) Includes $2,922 allocated to Mr. Horsley in 1997 under the Employee Stock
Ownership Plan; $17,878 allocated to Mr. Horsley in 1997 under the profit
sharing plan; and $61,605 representing the estimated term component of the
premium paid and the estimated interest cost to Regions in 1997 resulting
from premium payments for a life insurance benefit plan for Mr. Horsley.
This plan serves as an offset to an existing supplemental retirement plan.
(5) Includes $2,922 allocated to Mr. Faucett in 1997 under the Employee Stock
Ownership Plan; $17,878 allocated to Mr. Faucett in 1997 under the profit
sharing plan; and $100,427 representing the estimated term component of the
premium paid and the estimated interest cost to Regions in 1997 resulting
from premium payments for a life insurance benefit plan for Mr. Faucett.
This plan serves as an offset to an existing supplemental retirement plan.
(6) Includes $2,922 allocated to Mr. Jordan in 1997 under the Employee Stock
Ownership Plan; $17,878 allocated to Mr. Jordan in 1997 under the profit
sharing plan; and $110,705 representing the estimated term component of the
premium paid and the estimated interest cost to Regions in 1997 resulting
from premium payments for a life insurance benefit plan for Mr. Jordan.
This plan serves as an offset to an existing supplemental retirement plan.
42
<PAGE> 44
Stock Options
The following table presents information concerning individual grants
of options to purchase Regions' common stock made during 1997 to the named
executive officers.
Option Grants In The Last Fiscal Year
<TABLE>
<CAPTION>
Number of % of Total Exercise
Securities Underlying Options Granted Price Grant Date
Name Options Granted to Employees in 1997 (per share) Expiration Date Present Value(1)
- ---- --------------- -------------------- ----------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
J. Stanley Mackin 150,000 25.5% $26.66 Jan. 15, 2007 $881,206
Carl E. Jones, Jr. 14,359 2.4% 38.75 Oct. 9, 2007 124,400
Richard D. Horsley 7,180 1.2% 38.75 Oct. 9, 2007 63,235
Sam P. Faucett 7,180 1.2% 38.75 Oct. 9, 2007 63,235
William E. Jordan 7,180 1.2% 38.75 Oct. 9, 2007 63,235
</TABLE>
(1) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options. The actual value, if any, an executive may
realize depends on the excess of the stock price over the exercise price
on the date the option is exercised, so there is no assurance the value
realized by an executive will be at or near the value estimated by the
Black-Scholes model. The estimated values under that model are based on
the assumptions of expected stock price volatility of .1468, risk-free
rate of return of 6.284%, dividend yield of 2.2% and expected time to
exercise of 5.7 years.
(2) All options become exercisable 12 months after the date of grant, except
that exercisability is delayed for an additional 12 months to the extent
the value of incentive stock options (determined as of the date of grant)
first exercisable in a calendar year exceeds $100,000 as to any recipient.
The following table presents information concerning exercises of stock
options to purchase Regions' common stock during 1997 and the number and value
of unexercised options and stock appreciation rights (SAR) held by the named
executive officers.
43
<PAGE> 45
Aggregated Option/SAR Exercises in 1997
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs Options/SARs
at 12-31-97 at 12-31-97
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- ---- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
J. Stanley Mackin 0 $0 498,750/154,650(1) $12,550,366/2,464,547
Carl E. Jones, Jr. 8,274 $188,626 140,530/ 18,815(2) 3,647,857/ 142,069
Richard D. Horsley 70,676 $1,520,011 109,168/ 11,636(3) 2,722,061/ 115,596
Sam P. Faucett 12,376 $281,167 160,428/ 11,636(4) 4,367,963/ 115,596
William E. Jordan 18,650 $389,453 125,994/ 11,636(5) 3,232,262/ 115,596
</TABLE>
(1) Of Mr. Mackin's currently exercisable options, none were granted with
tandem SARs.
(2) Of Mr. Jones' currently exercisable options, 4,160 were granted with
tandem SARs.
(3) Of Mr. Horsley's currently exercisable options, none were granted with
tandem SARs.
(4) Of Mr. Faucett's currently exercisable options, 14,080 were granted with
tandem SARs.
(5) Of Mr. Jordan' currently exercisable options, none were granted with
tandem SARs.
Long-Term Incentive Plan Awards in 1997
The following table presents information concerning the long-term
incentives awarded to Regions' named executive officers.
<TABLE>
<CAPTION>
Estimated Future Payouts under
Performance or Non-Stock Price-Based Plans (1)
Number of Other Period -----------------------------------------------
Shares, Units or Until Maturation Threshold Target Maximum
Name Other Rights(1) or Payout(2) # # #
- ---- --------------- ------------ - - -
<S> <C> <C> <C> <C> <C>
J. Stanley Mackin 20,000 3 Years 10,000 20,000 20,000
Carl E. Jones, Jr. 5,000 3 Years 2,500 5,000 5,000
Richard D. Horsley 5,000 3 Years 2,500 5,000 5,000
Sam P. Faucett 5,000 3 Years 2,500 5,000 5,000
William E. Jordan 5,000 3 Years 2,500 5,000 5,000
</TABLE>
(1) Each share or right represents performance share awards under the
Company's Long-Term Incentive Plan which are equal in value to the market
price of one share of Regions common stock at the maturation date.
(2) The performance objectives may relate to the specific performance of the
named executive, or the performance of the Company, region, subsidiary,
unit bank, department or function within which the named executive is
employed. The performance objectives established for the current awards
relate to the achievement of specific levels of return on equity by the
Company. If at the end of the performance period the performance
objectives have been satisfied, the named executive will have earned the
award, or, at the discretion of the compensation committee, some
percentage or fraction
44
<PAGE> 46
thereof, if the specified performance objectives are exceeded or satisfied
in part. The performance period generally will be not less than one year
or more than five years. The compensation committee has the discretion to
modify the terms of the Long-term Incentive Plan awards.
Retirement Plans
The named executive officers are covered by the Regions Financial
Corporation Retirement Plan, a qualified defined benefit retirement plan, as
complimented by retirement compensation agreements pursuant to its supplemental
executive retirement program.
The following table shows estimated annual benefits payable at
retirement, including both qualified plan benefits and supplemental benefits,
based on combinations of final compensation and age at retirement.
Pension Plan Table
<TABLE>
<CAPTION>
Age at Retirement
-------------------------------------------------------------------------------------------
Compensation 55 60 62 63 64 65
- ------------ --- --- --- --- --- --
<S> <C> <C> <C> <C> <C> <C>
$125,000 $ 50,000 $ 62,500 $ 67,500 $ 70,000 $ 72,500 $ 75,000
$150,000 $ 60,000 $ 75,000 $ 81,000 $ 84,000 $ 87,000 $ 90,000
$175,000 $ 70,000 $ 87,500 $ 94,500 $ 98,000 $101,500 $105,000
$200,000 $ 80,000 $100,000 $108,000 $112,000 $116,000 $120,000
$250,000 $100,000 $125,000 $135,000 $140,000 $145,000 $150,000
$300,000 $120,000 $150,000 $162,000 $168,000 $174,000 $180,000
$350,000 $140,000 $175,000 $189,000 $196,000 $203,000 $210,000
$400,000 $160,000 $200,000 $216,000 $224,000 $232,000 $240,000
$450,000 $180,000 $225,000 $243,000 $252,000 $261,000 $270,000
$500,000 $200,000 $250,000 $270,000 $280,000 $290,000 $300,000
$550,000 $220,000 $275,000 $297,000 $308,000 $319,000 $330,000
$600,000 $240,000 $300,000 $324,000 $336,000 $348,000 $360,000
$650,000 $260,000 $325,000 $351,000 $364,000 $377,000 $390,000
$700,000 $280,000 $350,000 $378,000 $392,000 $406,000 $420,000
$750,000 $300,000 $375,000 $405,000 $420,000 $435,000 $450,000
</TABLE>
45
<PAGE> 47
\
In 1997, compensation covered by the plans for the five highest paid
executive officers was as follows: Mr. Mackin, $735,000; Mr. Jones, $350,000;
Mr. Horsley, $275,000; Mr. Faucett, $245,000; and Mr. Jordan, $248,000.
Benefits are based on average compensation (limited to base salary)
over the three years prior to retirement, and are payable as a single life
annuity for single participants and a joint and 50% survivor annuity for married
participants. Other forms of payment are available on an actuarially equivalent
basis. Amounts shown are subject to offset for Company-sponsored long-term
disability payments and executive life insurance program cash values exceeding
premiums paid. Benefits are not offset by Social Security benefits. Benefits
will be reduced or eliminated if the participant terminates employment
voluntarily before age 55.
Employment Agreements
Regions has no employment agreements with any of the named executive
officers.
Directors' Compensation
In 1997, directors of Regions were paid an annual retainer of $10,000.
In addition, directors are paid a fee of $1,000 for each board meeting attended.
Directors who are chairman of board committees receive $750 and other directors
who are members of board committees receive $600 for each board committee
meeting attended, and half of those amounts for
46
<PAGE> 48
regularly scheduled telephonic committee meetings. Directors who are employees
of the parent company receive no fees for parent company board membership or
attendance at parent company board or board committee meetings.
In January 1984, the board of directors adopted the Directors' Stock
Investment Plan, a plan designed to provide added incentive to the non-employee
directors of the Company and its subsidiaries and local divisions. As amended in
1991, the plan provides that each participant may contribute to the plan all or
part of the fees payable by the Company. The Company will contribute 25% of the
amount contributed by each director. Both director and Company contributions
will be applied to the purchase of Regions' common stock for the account of the
director. Directors are immediately vested in all amounts held in the plan on
their behalf. Nonemployee directors of the parent company have the option to
participate in a nonqualified deferred plan which operates in a similar manner,
except that receipt and taxability of benefits is deferred until the participant
reaches age 65 or terminates as a director.
Compensation and Stock Option Determinations
The determination of executive compensation and the award of stock
options is delegated to the compensation committee of the board of directors.
The Company's directors believe that executive compensation decisions must
consider aggregate compensation, since executive compensation in the financial
services industry typically consists of a
47
<PAGE> 49
variety of elements, tied to an assortment of long-term and short-term
performance objectives.
Compensation Committee Interlocks and Insider Participation
The compensation committee of the board of directors consisted in 1997
of Mr. Brewer and Mr. Styslinger. In reaching compensation decisions concerning
executive officers other than Mr. Mackin, the chief executive officer, the
committee took into account discussions with and recommendations by Mr. Mackin
and the Company's senior personnel officer. There is no other involvement by the
Company's executive personnel in the committee's deliberations. Mr. Mackin did
not participate in deliberations and decisions regarding his own compensation.
Compensation Committee Executive Compensation Report
Set forth below is the Executive Compensation Committee Report of the
Compensation Committee.
EXECUTIVE COMPENSATION REPORT
General. Under the direct control of the compensation committee of the
board of directors, the Company has developed and installed compensation
policies, plans, and procedures that seek to enhance the profitability of the
Company. Stockholder value is aligned with the financial interests of the
Company's senior managers as financial goals are set for each year. The Company
recognizes the importance of annual and
48
<PAGE> 50
long-term incentive compensation plans to attract and retain corporate officers
and other key employees who are accordingly motivated to perform to the best of
their abilities. Both forms of incentive compensation are variable and
accordingly reflect corporate, strategic business unit, and individual
performance levels that encourage an explicit and continuing focus on increasing
profitability and stockholder value.
The committee's methodology and approach incorporate both qualitative
and quantitative considerations, which are reflected in the committee's
determinations concerning executive compensation and the specific components
thereof. In particular, the total compensation of the executive officers of the
Company can be divided into the categories of (i) annual base salary, (ii)
annual incentive compensation, and (iii) long-term incentive compensation. In
general, and as set forth in greater detail below, annual base salary is
intended to be comparable with executive base compensation paid by other similar
financial institutions; annual incentive compensation is intended to be tied
quantitatively to the achievement by the Company of pre-determined, objective
financial performance goals; and share-based grants for long-term incentive
compensation are intended to reward the executive recipients with incremental
value commensurate with long-term increases in value of the Company's common
stock. The compensation decisions of the committee relative to the Company's
principal executive officers, including the five officers named above in the
compensation tables, are described below as to each of the three categories.
49
<PAGE> 51
Base Salary. Annual base salaries are generally set at competitive
levels with similar financial institutions. Specifically the committee considers
peer group comparisons from survey data for other financial companies,
recommendations from an independent compensation consultant, and individual
performance assessments. For executives other than the chief executive officer,
the committee also considers the chief executive officer's recommendations.
While these factors are fully considered and discussed by the committee, the
committee members are not required to express or record the weight they assign
to any particular factor. In each instance the committee members reach a
consensus and the committee sets a base salary level for each executive.
In evaluating and establishing the base salaries of the executive
officers, the committee, in conjunction with its independent compensation
consultant, surveys the base salaries of the corresponding officers of other
bank holding companies in a survey group consisting of approximately 20
companies closest to Regions in asset size and deposit size, and also including
the three other largest bank holding companies headquartered in Alabama. The
committee attempts to establish the base salaries of the named executive
officers such that the aggregate of their base salaries is targeted to the
median point of the aggregate of the base salaries of the corresponding
executive officers of the companies in the survey group, based on the most
recent information available. Based on year end 1995 information, the
information most recently available, the aggregate of the actual base salaries
of Regions named executive officers group approximated such survey median point.
50
<PAGE> 52
It should be noted that the survey comparison group is not the same as
the group of companies which make up the NASDAQ Banks Index presented in the
Comparison of Five-year Cumulative Total Return graph included in this proxy
statement. The committee believes the use of a smaller survey group tailored by
asset and deposit size is more valid for salary evaluation purposes, even though
not all the survey companies are included in the NASDAQ Banks Index, and even
though numerous companies included in the NASDAQ Banks Index are not included in
the survey group.
Based on the survey comparison, advice of an independent compensation
consultant, recommendations from the chief executive officer, and an inherently
subjective assessment of the comparative contributions of the executive
personnel to the Company's continued financial and operating success, the 1997
base salaries for the other named officers were determined by the committee.
Annual Incentive Compensation. In the first quarter of 1997, the
compensation committee approved the Company's 1997 annual performance goals, as
prepared by the Company's comptroller, and as used for the purpose of
determining potential annual incentive compensation for the executive officers.
The performance goals were quantitative in nature, resulting in an incentive
plan formula that was weighted towards their overall importance in attaining the
Company's annual profit plan, and focused on the accomplishment of financial
objectives, before certain nonrecurring items, in the areas of: Net Income
Before Securities Transactions, Return on Assets, Return on Equity, Efficiency
Ratio; and,
51
<PAGE> 53
exclusive of acquisition related growth, Average Loan Growth, and Average Core
Deposit Growth. With record earnings in 1997, the Company exceeded maximum
levels in all Company performance goals except the Average Core Deposit goal, as
to which the threshold level was not achieved, and exceeded threshold levels in
the large majority of business unit performance goals. Based on the various
levels of goal achievement, the chief executive and the other named officers
received cash incentive awards as a formula driven percentage of 1997 base
salary levels.
Long Term Incentive Compensation. During 1997, the compensation
committee evaluated the merits of granting the chief executive officer, the
named officers and other key employees, further awards under the Company's 1991
Long-Term Incentive Plan (LTIP). The 1991 LTIP provides the flexibility to grant
long-term incentives in a variety of forms, including stock options, performance
shares and restricted stock. With respect to stock-based compensation, the
compensation committee placed relatively more reliance on the advice of the
Company's independent consultant than in the cases of base salary and non
stock-based compensation. As intended with the establishment of the 1991 LTIP,
the committee believes that it is highly desirable to increase management's
equity ownership interest in the Company. The committee further believes that
its initial 1991 awards under the LTIP successfully focused and committed the
Company's management on building profitability and stockholder value. The
primary purpose of LTIP awards is to encourage management members to take
long-term steps to
52
<PAGE> 54
achieve and sustain Return on Equity objectives. Accordingly, the committee
further awarded LTIP grants during 1997.
In establishing the LTIP awards for the named officers, senior
management and other key employees, the committee reviewed with the chief
executive officer the recommended individual awards, considering the scope of
accountability, financial goals, and anticipated performance requirements and
contributions expected of each participant. The committee also took into account
the number and size of LTIP awards and stock options already held by executive
officers considered for additional awards.
Compensation of Chief Executive Officer. In deliberating the
compensation of the Chief Executive Officer, the committee adheres to the same
basic methodology and approach applied to executive compensation generally.
Accordingly, the base salary determination reflects the peer group survey
comparison described above, the annual incentive compensation is based on an
objective formula and tied to the Company's achievement of pre-determined,
quantitative financial goals, and the realization of long-term incentive
compensation, by its nature, is aligned with the realization of long-term
stockholder value.
In addition, the committee, in deliberating the chief executive
officer's compensation, takes into account other factors. For example, special
consideration was given to the Company's superior earnings record since his
appointment, and the consistent successes of the Company's acquisition program,
including the assimilation of the institutions acquired. Consideration was also
given to the chief executive officer's
53
<PAGE> 55
personal job performance and the Company's profitable growth record. The weight
and significance accorded to these special factors in the committee's
deliberations are intrinsically subjective, and thus their bearing on the
committee's ultimate compensation determinations cannot be quantified.
LTIP awards for the chief executive officer were set separately and
independently of his participation, based on ownership and total compensation
objectives that reflected data from selected peer companies, his total
compensation, and the committee's recognition of his contributions to the
Company's attainment of its long-term performance goals.
Summary. The compensation committee of the board of directors remains
dedicated to ensuring that the Company's overall compensation program for its
executive officers, senior management and other key employees is properly
designed to:
- Attract, motivate, and retain outstanding contributors;
- Maintain a base salary structure that is competitive in the Company's
marketplace;
- Link annual incentive awards with specific performance targets that
yield superior results; and
- Provide long-term incentive awards that couple management ownership
with stockholder value.
54
<PAGE> 56
Section 162(m) of the Internal Revenue Code imposes certain limitations
on the deductibility by the Company for federal income tax purposes of
compensation amounts paid to highly paid executives. The committee is aware of
the potential effects of ss. 162(m) of the Internal Revenue Code. The committee
has concluded that ensuring deductibility under ss. 162(m) is not as important
as structuring incentive compensation based on methodology and factors it deems
appropriate. The committee has chosen not to distort its methodology and
application of the factors it believes pertinent so as to ensure that all
executive compensation is deductible under ss. 162(m). While the committee
intends that the Company's compensation plans will meet, to the extent
practical, the prerequisites for deductibility under ss. 162(m), if it develops
that a portion of the compensation of one or more executive officers is not
deductible under ss. 162(m), then the committee expects that Regions would honor
its obligations to the executive officers under the compensation arrangements
approved by the committee.
The compensation committee will continue to review and evaluate
compensation programs at least annually. When and where appropriate, the
committee will consult with independent compensation consultants, legal
advisors, and Regions' public accounting firm with respect to the proper design
of the program toward achieving Company objectives as set forth by the chief
executive officer and the board of directors.
This report furnished by:
Albert P. Brewer
Lee J. Styslinger, Jr.
55
<PAGE> 57
Financial Performance
Set forth below is a graph comparing the yearly percentage change in
the cumulative total return of Regions' common stock against the cumulative
total return of the S & P 500 Index and the NASDAQ Banks Index for the past five
years. This presentation assumes that the value of the investment in Regions'
common stock and in each index was $100 and that all dividends were reinvested.
<TABLE>
<CAPTION>
Period Ending
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Regions $100.00 101.40 100.73 144.53 178.85 298.80
NASDAQ Bank Index $100.00 114.04 113.63 169.22 223.41 377.44
S&P 500 $100.00 110.08 111.53 153.44 188.52 251.44
</TABLE>
56
<PAGE> 58
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1997, all Regions' affiliate banks beneficially held
in a fiduciary capacity for others under numerous trust relationships, 7,045,165
shares or 5.15% of Regions' outstanding common stock. Regions' affiliate bank
trust departments have sole voting power with respect to 6,657,682 of these
shares or 4.87%, shared voting power with respect to 106 of these shares, sole
dispositive power with respect to 2,602,623 of these shares and shared
dispositive power with respect to 1,883,366 of these shares. Of the directors,
none is a "control person" of the Company by virtue of stock ownership. The only
persons who might be considered "control persons" of the Company are J. Stanley
Mackin, Chairman, Carl E. Jones, Jr., Chief Executive Officer, and Richard D.
Horsley, Vice Chairman and Executive Financial Officer, who gain any control
they may exercise by virtue of office. No other entity is known to the Company
to be the beneficial owner of more than five percent of any class of voting
securities.
Security Ownership of Directors and Management
No director is deemed to own beneficially 1% or more of Regions' common
stock as of February 28, 1998. All directors and executive officers of Regions,
as a group, own beneficially a total of 5,392,119 shares (which includes
1,782,489 shares that are the subject of presently exercisable options) or 3.66%
of the Company's outstanding common stock. Information with respect to
beneficial ownership is based upon information furnished by each officer or
director, or contained in filings made with the Securities and Exchange
Commission.
57
<PAGE> 59
The following table presents information concerning the beneficial
ownership of Regions' common stock by certain of its executive officers and by
its directors at February 28, 1998.
<TABLE>
<CAPTION>
Regions Stock Beneficially Owned
--------------------------------
Name and Address Title of Class # of Shares(1) % of Class
- ---------------- -------------- -------------- ----------
<S> <C> <C> <C>
J. Stanley Mackin Common
Birmingham, Alabama 1,125,532 0.79%
Carl E. Jones, Jr. Common
Birmingham, Alabama 490,378 0.34
Richard D. Horsley Common
Birmingham, Alabama 380,596 0.27
Sam P. Faucett Common
Tuscaloosa, Alabama 361,858 0.25
William E. Jordan Common
Birmingham, Alabama 324,548 0.23
Sheila S. Blair Common
Birmingham, Alabama 115,838 0.08
William R. Boles, Sr. Common
Monroe, Louisiana 478,991 0.34
James B. Boone, Jr. Common
Tuscaloosa, Alabama 35,544 0.03
Albert P. Brewer Common
Birmingham, Alabama 156,758 0.11
James S.M. French Common
Birmingham, Alabama 125,867 0.09
Olin B. King Common
Huntsville, Alabama 20,216 0.01
</TABLE>
58
<PAGE> 60
<TABLE>
<CAPTION>
Regions Stock Beneficially Owned
--------------------------------
Name and Address Title of Class # of Shares(1) % of Class
- ---------------- -------------- -------------- ----------
<S> <C> <C> <C>
Henry E. Simpson
Birmingham, Alabama Common 192,657 0.14
Lee J. Styslinger, Jr.
Birmingham, Alabama Common 108,749 0.08
Robert J. Williams
Mobile, Alabama Common 80,163 0.06
</TABLE>
- ---------------------
(1) The amounts shown represent the total shares beneficially owned by such
individuals, restricted shares (160,000 for Mr. Mackin, 5,641 for Mr. Jones, and
2,820 for Messrs. Horsley, Faucett, and Jordan) and shares which are issuable
upon the exercise of all stock options which are currently exercisable and
exercisable within 60 days. Specifically, the following individuals have the
right to acquire the shares indicated after their names, upon the exercise of
such stock options: Mr. Mackin, 649,650; Mr. Jones, 144,986; Mr. Horsley,
113,624; Mr. Faucett, 164,884; and Mr. Jordan, 130,450.
No change in control of Regions has occurred since January 1, 1997 and
no arrangements are known to Regions which may at a later date result in a
change in control of the Company.
ITEM 13. Certain Relationships and Related Transactions
Other Transactions
59
<PAGE> 61
Directors and officers of Regions and their associates were customers
of, and had transactions with, the affiliate banks in the ordinary course of
business during 1997; additional transactions may be expected to take place in
the ordinary course of business. Included in such transactions are outstanding
loans and commitments from the affiliate banks, all of which were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than the normal risk of collectibility or present other
unfavorable features.
Regions retained during 1997 and prior years and proposes to retain in
the future on behalf of the Company or certain of its subsidiaries the law firms
Lange, Simpson, Robinson, & Somerville LLP, of which director Henry E. Simpson
is a partner. During 1997, the Company or its subsidiaries paid legal fees of
$1,574,064 to the firm of Lange, Simpson, Robinson & Somerville LLP.
60
<PAGE> 62
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
June 25, 1997, incorporated herein by reference
from the Exhibits to the Registration Statement
filed with the Commission and assigned file
number 333-37361.
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.
*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.
</TABLE>
61
<PAGE> 63
13. Annual Report to Stockholders for the year ended December 31,
1997.
21. List of Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
27.1 Financial Data Schedule (for SEC use only).
27.2 Restated Financial Data Schedule (for SEC use only).
27.3 Restated Financial Data Schedule (for SEC use only).
27.4 Restated Financial Data Schedule (for SEC use only).
27.5 Restated Financial Data Schedule (for SEC use only).
27.6 Restated Financial Data Schedule (for SEC use only).
27.7 Restated Financial Data Schedule (for SEC use only).
27.8 Restated Financial Data Schedule (for SEC use only).
27.9 Restated Financial Data Schedule (for SEC use only).
*- 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 1997:
No reports on Form 8-K were filed in the fourth quarter of 1997.
14(c) The Exhibits not incorporated herein by reference are submitted
as a separate part of this report.
62
<PAGE> 64
NOTE: Copies of the aforementioned exhibits are available to stockholders upon
request to:
Stockholder Assistance
417 North 20th Street
P. O. Box 10247
Birmingham, Alabama 35202-10247
14(d) Financial statement schedules: None.
63
<PAGE> 65
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.
REGIONS FINANCIAL CORPORATION
/s/ Samuel E. Upchurch, Jr. 3/18/98
-------------------------------------------
Samuel E. Upchurch, Jr. Date
General Counsel
and Corporate Secretary
/s/Robert P. Houston 3/18/98
-------------------------------------------
Robert P. Houston Date
Executive Vice President
and Comptroller
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.
/s/ J. Stanley Mackin 3/18/98 /s/ William R. Boles, Sr. 3/18/98
- ---------------------------------- -------------------------------------
J. Stanley Mackin Date William R. Boles, Sr. Date
Chairman and Director Director
/s/ Carl E. Jones, Jr. 3/18/98 /s/ James B. Boone, Jr. 3/18/98
- ---------------------------------- -------------------------------------
Carl E. Jones, Jr. Date James B. Boone, Jr. Date
Chief Executive Officer and Director Director
/s/ Richard D. Horsley 3/18/98 /s/ Albert P. Brewer 3/18/98
- ---------------------------------- -------------------------------------
Richard D. Horsley Date Albert P. Brewer Date
Vice Chairman, Executive Director
Financial Officer and Director
/s/ James S. M. French 3/18/98
- ---------------------------------- -------------------------------------
Sheila S. Blair Date James S. M. French Date
Director Director
64
<PAGE> 66
/s/ Olin B. King 3/18/98 /s/ Lee J. Styslinger, Jr. 3/18/98
- ---------------------------------- -------------------------------------
Olin B. King Date Lee J. Styslinger, Jr. Date
Director Director
/s/ Robert J. Williams 3/18/98
- ---------------------------------- -------------------------------------
Henry E. Simpson Date Robert J. Williams Date
Director Director
65
<PAGE> 67
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, 1997
REGIONS FINANCIAL CORPORATION
BIRMINGHAM, ALABAMA
<PAGE> 68
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, 1997, are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Statements of Condition - December 31, 1997 and
1996
Consolidated Statements of Income - Years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended December 31, 1997,
1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements - December 31,
1997
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> 69
ANNUAL REPORT ON FORM 10-K
ITEM 14(c)
EXHIBITS
<PAGE> 70
EXHIBITS INDEX
<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
June 25, 1997, incorporated herein by reference
from the Exhibits to the Registration Statement
filed with the Commission and assigned file number
333-37361.
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.
b. 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, 1997.
21. List of Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
27.1 Financial Data Schedule (for SEC use only).
27.2 Restated Financial Data Schedule (for SEC use
only).
27.3 Restated Financial Data Schedule (for SEC use
only).
27.4 Restated Financial Data Schedule (for SEC use
only).
27.5 Restated Financial Data Schedule (for SEC use
only).
27.6 Restated Financial Data Schedule (for SEC use
only).
27.7 Restated Financial Data Schedule (for SEC use
only).
27.8 Restated Financial Data Schedule (for SEC use
only).
27.9 Restated Financial Data Schedule (for SEC use
only).
</TABLE>
<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 1995, 1996 and 1997; however, financial information for prior years
will also be presented when appropriate.
Regions' primary business is banking. In 1997, Regions' banking affiliates
contributed approximately $293 million to consolidated net income. During 1997
and early 1998, Regions' individual banking affiliates in each state (except for
several recently acquired banks) were merged into one state-chartered (Alabama)
bank. Selected information as of December 31, 1997, on Regions' banking
operations, by state, is as follows:
<TABLE>
<CAPTION>
Full-
Service
Assets Loans Deposits Offices
- ---------------------------------------------------------------------------------------------------------------------------
(dollar amounts in millions)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alabama $9,075 $6,585 $8,229 183
Georgia 4,359 3,448 3,875 107
Louisiana 2,337 1,737 2,291 75
Florida 1,626 1,137 1,518 46
Tennessee 536 395 473 24
Unallocated (1) 4,353 4,353 1,365
</TABLE>
(1) - Represents indirect mortgage loans, indirect auto loans, and credit
card loans of $2.7 billion, $1.5 billion, and $184 million, respectively, and
negotiable certificates of deposit and certain trust and other deposits, which
in aggregate approximate $1.4 billion.
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 $13.6 billion in mortgage
loans and in 1997 contributed approximately $18.7 million to net income.
The Company's principal market areas are all of Alabama, the northern
two-thirds 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 state of 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.
Regions most significant acquisition during the last three years occurred
in 1996 when 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 was
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.
<PAGE> 2
In 1995, Regions' acquisition activity 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 in 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.
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 receivable 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.
21
<PAGE> 3
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 National's 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 in Louisiana.
In 1997, Regions continued to strengthen its presence in Florida, Georgia
and Louisiana, through nine acquisitions, which combined added $1.9 billion in
assets, $1.0 billion in loans and $1.6 billion in deposits.
Regions expanded its Florida presence in Panama City and Longwood through
the acquisition of Florida First Bancorp, Inc. and First Mercantile National
Bank with $287 million and $157 million in assets, respectively.
In Georgia, Regions continued to expand its market presence through the
acquisition of four institutions: Allied Bankshares, Inc. of Thomson with assets
of $560 million; First Bankshares, Inc. of Hapeville with $127 million in
assets; SB&T Corporation of Smyrna with $148 million in assets; and GF
Bancshares, Inc. of Griffin with $99 million in assets.
Regions' expansion in Louisiana consisted of three institutions; West
Carroll Bancshares, Inc. of Oak Grove with assets of $127 million in the
northern part of the state and Gulf South Bancshares, Inc. of Gretna with assets
of $55 million and The New Iberia Bancorp, Inc. of New Iberia with assets of
$313 million in the southern part of Louisiana.
Regions' and First National's 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
- ---------------------------------------------------------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C>
January Florida First Bancorp, Panama City, Florida $ 286,515 Purchase
Inc.
January Allied Bankshares, Thomson, Georgia 559,815 Pooling
Inc.
March West Carroll Oak Grove, Louisiana 127,145 Pooling
Bancshares, Inc.
April Gulf South Bancshares, Gretna, Louisiana 55,363 Purchase
Inc.
May First Mercantile Longwood, Florida 157,434 Purchase
National Bank
May The New Iberia New Iberia, Louisiana 313,494 Pooling
Bancorp, Inc.
June First Bankshares, Inc. Hapeville, Georgia 126,826 Pooling
June SB&T Corporation Smyrna, Georgia 147,709 Pooling
December GF Bancshares, Inc. Griffin, Georgia 99,446 Purchase
1996
January Metro Financial Atlanta, Georgia 210,487 Purchase
Corporation
February The Enterprise Atlanta, Georgia 54,263 Purchase
National Bank of
Atlanta
February The Bank of Heard Franklin, Georgia 41,872 Pooling
County
March First National Bancorp Gainesville, Georgia 3,198,634 Pooling
April First Federal Bank of Cedartown, Georgia 93,381 Pooling
Northwest Georgia,
Federal Savings Bank
August First Gwinnett Norcross, Georgia 68,364 Purchase
Bancshares, Inc.
August Rockdale Community Conyers, Georgia 47,457 Purchase
Bank
August Delta Bank & Trust Belle Chasse, Louisiana 190,547 Purchase
Company
September American Bancshares of Houma, Houma, Louisiana 88,742 Purchase
Inc.
1995
March First Commercial Chalmette, Louisiana 112,968 Purchase
Bancshares, Inc.
May Fidelity Federal Dalton, Georgia 333,336 Pooling
Savings Bank
July Interstate Billing Decatur, Alabama 30,521 Pooling
Service, Inc.
July FF Bancorp, Inc. New Smyrna Beach, Florida 631,168 Pooling
November Branch Office of Cartersville, Georgia 59,933 Purchase
Prudential Savings
Bank
</TABLE>
As of December 31, 1997, Regions had six pending acquisitions, three in
South Carolina and one each in Florida, Georgia and Louisiana. These
institutions have combined assets of approximately $2.0 billion.
Subsequent to year end, Regions reached agreements with four other
institutions; one in Alabama, two in Georgia, and one headquartered in Arkansas.
These institutions have
22
<PAGE> 4
combined assets of approximately $7.6 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, 1997, loans represented 77% of Regions' earning assets.
Over the last four years loans increased a total of $8.0 billion, a
compound growth rate of 18%. Loans acquired in connection with acquisitions over
the last four years contributed $2.7 billion of this growth. The most
significant growth in the loan portfolio occurred in 1994, 1996 and 1997, with
loans increasing $2.4 billion, $1.8 billion and $3.1 billion, respectively. The
acquisition of seven banks in 1994 added $744 million in loans, the four
acquisitions in 1995 added $443 million in loans and the eight acquisitions in
1996 added $476 million. In 1997, acquisitions added $1.0 billion 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 $1.9 billion or 101%. Real estate construction loans increased $869
million or 240% over the same period. Real estate mortgage loans increased $3.1
billion or 77% and consumer loans increased $2.0 billion or 97% over the last
four years.
Regions' real estate mortgage portfolio includes $2.8 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 $982 million
in 1994, $424 million in 1996 and $655 million in 1997, accounting for
approximately 41%, 24% and 21%, respectively, of the growth in total loans in
1994, 1996 and 1997. The securitization in 1995 of the $396 million in
single-family residential mortgages resulted in this portfolio declining $123
million in 1995. Eighty-seven 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 $1.4 billion of single-family
mortgage loans obtained in various acquisitions, which are being serviced by
Regions' mortgage subsidiary. Fixed-rate single-family mortgages with a weighted
average interest rate of 8.12% and a weighted average remaining term of 16.3
years comprise 60% of this portfolio. Single-family ARM's, which have rates
approximately 250 to 275 basis points above one of several money market indices
when fully priced, comprise the remaining 40% of the overall balance of these
loans.
A sound credit policy and careful, consistent credit review are vital to a
successful lending program. All affiliates of Regions operate under written loan
policies which attempt to maintain a consistent lending philosophy, provide
sound traditional credit decisions, provide an adequate return and render
service to the communities in which the banks are located. Regions' lending
policy generally confines loans to local customers or to national firms doing
business locally. Credit reviews and loan examinations help confirm that
affiliates are adhering to these loan policies.
<TABLE>
<CAPTION>
Composition of Loans [Graph]
($ in Billions)
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Commercial 1.911 2.348 2.560 2.834 3.841
Real Estate Mortgage 4.054 5.384 5.380 5.860 7.183
Real Estate Construction .362 .493 .630 .880 1.231
Consumer 2.104 2.630 2.972 3.737 4.140
--------------------------------------------------------------------------------
Total 8.431 10.855 11.542 13.311 16.395
</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.
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):
<TABLE>
<CAPTION>
(in thousands, net of unearned
income) DECEMBER 31
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 3,841,378 $ 2,833,909 $ 2,559,974 $ 2,347,912 $1,911,222
Real estate-construction 1,230,769 879,629 629,888 493,027 362,063
Real estate-mortgage 7,182,538 5,859,817 5,380,815 5,384,341 4,054,316
Consumer 4,140,220 3,737,817 2,971,634 2,629,915 2,103,330
TOTAL $16,394,905 $13,311,172 $11,542,311 $10,855,195 $8,430,931
</TABLE>
The amounts of total gross loans (excluding residential mortgages on 1-4
family residences and consumer loans) outstanding at December 31, 1997, 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 $2,008,466 $1,283,097 $ 564,841 $3,856,404
Real estate-construction 728,154 366,724 136,189 1,231,067
Real estate-mortgage 611,629 887,277 870,893 2,369,799
TOTAL $3,348,249 $2,537,098 $1,571,923 $7,457,270
</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 $1,610,235 $ 926,863
Due after five years 630,493 941,430
TOTAL $2,240,728 $1,868,293
</TABLE>
24
<PAGE> 6
[Graph]
Non-Performing Assets as a Percentage of Loans and Other Real Estate
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
1.28% 0.80% 0.68% 0.76% 0.81%
</TABLE>
[Graph]
Net Loan Losses as a Percentage of Average Loans
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
0.23% 0.19% 0.17% 0.15% 0.25%
</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 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.
Over the last five years, the year-end allowance for loan losses as a
percentage of loans ranged from a low of 1.19% in 1997 to a high of 1.48% in
1993. 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 1.28% at December 31, 1993 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. 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% at December 31, 1996 and to 0.81% at
December 31, 1997, 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 160% at December 31, 1997,
compared to 194% at December 31, 1996, and to 232% at December 31, 1995. The
coverage ratio has declined as the mix of non-performing loans has changed to
include more loans with historically lower risk characteristics. 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, over the last five years, ranged from a high of $37.3 million in
1997 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 0.25% in 1997. Regions'
relatively low level of net loan losses is due to favorable economic conditions,
quality control efforts in the underwriting and monitoring of loans, a
substantial amount of recoveries of previously charged-off loans, and an
<PAGE> 7
increase in single-family residential mortgage loans as a percentage of the loan
portfolio, which historically have had lower net loan losses than other
categories of loans.
25
<PAGE> 8
In order to assess the risk characteristics of the loan portfolio at
December 31, 1997, 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 58% of
the portfolio held by banking offices in the state of Alabama. Banking offices
in Georgia hold 25% of the commercial loan portfolio, followed by Louisiana with
11%, Tennessee with 3% and Florida with 3%. A small portion of these loans is
secured by properties outside Regions' banking market areas.
The Alabama economy has experienced relatively stable 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 two-thirds 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.
From 1993 to 1996, net losses on commercial loans ranged from a low of
0.02% in 1996 to a high of 0.33% in 1994. In 1997, Regions recognized a net
recovery of 0.10% of commercial loans. Future losses are a function of many
variables, of which general economic conditions are the most important. If
economic conditions weaken in 1998, net commercial loan losses will likely be
near the mid-point of the 1993 to 1996 range. A continuation of moderate
economic growth during 1998 in Regions' market areas could result in 1998 net
commercial loan losses in the lower-end of this range. Management does not
expect to recognize another net recovery in commercial loans in 1998.
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 $351 million in 1997 to $1.2
billion. At December 31, 1997, these loans represented 7.5% of Regions' total
loan portfolio, compared to 4.3% at the end of 1993. Strong economic growth and
new development in Regions' market areas have enabled Regions to steadily
increase construction loans. 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 $2.2 billion at December 31,
1997. 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.
26
<PAGE> 9
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.
Loans on one-to-four family residential properties, which total
approximately 67% 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 1993 to 1995, net losses on real estate loans ranged from a high of
0.13% of real estate loans in 1993, to a low of 0.05% of real estate loans in
1995. In 1996 and 1997, Regions recognized net recoveries of 0.02% and 0.01% of
real estate loans, respectively. 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 1998 net real
estate loan losses approximates the level experienced in 1993 through 1995.
Regions' consumer loan portfolio consists of $3.5 billion in consumer
loans, $504 million in personal lines of credit (including home equity loans)
and $184 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 $1.5 billion in
indirect installment loans at December 31, 1997, compared to $1.4 billion at
December 31, 1996. 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 0.97% in 1997.
Higher levels of personal bankruptcies in Regions' market areas contributed to
the higher net consumer loan losses in 1997. Management expects net consumer
loan losses in 1998 to be near the 1997 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
- --------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-performing loans:
Loans accounted for on a
non-accrual basis $100,039 $ 60,202 $54,132 $59,799 $ 62,063
Loans contractually past due 90
days or more as to principal or interest
payments (exclusive of non-accrual
loans) 17,485 26,532 10,238 5,843 13,280
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) 4,140 3,625 4,234 2,863 4,533
Real estate acquired in settlement of
loans ("other real estate") 11,856 10,736 10,137 18,718 28,021
TOTAL $133,520 $101,095 $78,741 $87,223 $107,897
Non-performing assets as a percentage of
loans and other real estate 0.81% 0.76% 0.68% 0.80% 1.28%
</TABLE>
27
<PAGE> 10
The following analysis presents a five year history of the allowance for
loan losses and loan loss data:
<TABLE>
<CAPTION>
(dollar amounts in thousands) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses:
Balance at beginning of year $ 175,548 $ 159,487 $ 143,464 $ 125,027 $ 100,248
Loans charged off:
Commercial 9,368 7,390 11,399 12,199 9,239
Real estate 1,338 1,063 6,643 8,261 7,344
Installment 52,913 27,953 17,169 10,555 10,922
Total 63,619 36,406 35,211 31,015 27,505
Recoveries:
Commercial 12,597 6,877 7,053 5,084 4,755
Real estate 1,946 2,482 3,609 3,372 3,237
Installment 11,736 7,934 5,580 4,563 3,598
Total 26,279 17,293 16,242 13,019 11,590
Net loans charged off
(recovered):
Commercial (3,229) 513 4,346 7,115 4,484
Real estate (608) (1,419) 3,034 4,889 4,107
Installment 41,177 20,019 11,589 5,992 7,324
Total 37,340 19,113 18,969 17,996 15,915
Allowance of acquired banks 14,325 6,133 4,721 15,853 15,999
Provision charged to expense 41,773 29,041 30,271 20,580 24,695
Balance at end of year $ 194,306 $ 175,548 $ 159,487 $ 143,464 $ 125,027
Average loans outstanding:
Commercial $ 3,325,177 $ 2,671,387 $ 2,421,972 $2,147,183 $1,848,757
Real estate 7,587,292 6,272,304 6,130,853 4,880,319 3,259,040
Installment 4,236,960 3,468,660 2,860,075 2,325,354 1,863,813
Total $ 15,149,429 $ 12,412,351 $11,412,900 $9,352,856 $6,971,610
Net charge-offs (recoveries)
as percent of average loans
outstanding:
Commercial (.10)% .02% .18% .33% .24%
Real estate (.01) (.02) .05 .10 .13
Installment .97 .58 .41 .26 .39
Total .25 .15 .17 .19 .23
Net charge-offs as percent
of:
Provision for loan losses 89.4% 65.8% 62.7% 87.4% 64.5%
Allowance for loan losses 19.2 10.9 11.9 12.5 12.7
Allowance as percentage of
Loans, net of unearned
income 1.19% 1.32% 1.38% 1.32% 1.48%
Provision for loan losses
(net of tax effect) as
percentage of net income 8.7% 7.9% 9.6% 7.1% 10.5%
</TABLE>
28
<PAGE> 11
<TABLE>
<CAPTION>
[Graph]
Loans as a Percentage of Average Assets
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
65.7% 66.0% 69.6% 69.7% 71.1%
[Graph]
Allowance for Loan Losses as a Percentage of Loans
1993 1994 1995 1996 1997
1.48% 1.32% 1.38% 1.32% 1.19%
</TABLE>
At December 31, 1997, non-accrual loans totaled $100.0 million or 0.61% of
loans, compared to $60.2 million or 0.45% of loans at December 31, 1996. The
increase in the dollar amount of non-accrual loans at December 31, 1997,
resulted from increases in real estate and consumer non-accruing loans,
partially offset by a decline in commercial non-accruing loans. Commercial loans
comprised $21.1 million of the 1997 total, with real estate loans accounting for
$44.3 million and consumer loans $34.6 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 0.11% of total loans at
December 31, 1997, compared to 0.20% of total loans at December 31, 1996.
Decreased levels of past due consumer and commercial loans accounted for the
decrease in total loans past due 90 days or more since December 31, 1996. Loans
past due 90 days or more at December 31, 1997, consisted of $11.9 million in
commercial and real estate loans, $2.4 million in installment loans and $3.2
million in personal lines of credit and credit card loans.
Renegotiated loans were 0.03% of loans at December 31, 1997 and 1996.
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 increased slightly during the last two years,
totaling $11.9 million at December 31, 1997, compared to $10.7 million at
December 31, 1996. Other real estate added by acquisitions in 1997, partially
offset by sales of other real estate, accounts for the increased level of other
real estate. From 1993 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 1997 on the $100.0 million of
non-accruing loans outstanding at year end was approximately $4.3 million. If
these loans had been current in accordance with their original terms,
approximately $9.0 million would have been earned on these loans in 1997.
Approximately $474,000 in interest income would have been earned in 1997 under
the original terms of the $4.1 million in renegotiated loans outstanding at
December 31, 1997. Approximately $425,000 in interest income was actually earned
in 1997 on these loans.
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> 12
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, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
(dollar amounts in millions)
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------ ------------------------------ --------------------------
% OF % NON- % OF % NON- % OF % NON-
SIC CLASSIFICATION AMOUNT TOTAL ACCRUAL AMOUNT TOTAL ACCRUAL AMOUNT TOTAL ACCRUAL
- ------------------------------------------------------------------ ------------------------------ --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Individuals $ 8,871.3 54.0% 0.9% $ 7,697.5 57.7% 0.6% $ 6,718.4 58.1% 0.5%
Services:
Physicians 77.9 0.5 0.0 69.9 0.5 0.0 60.2 0.5 0.0
Business services 62.4 0.4 0.1 72.0 0.5 0.0 45.9 0.4 0.0
Religious organizations 129.1 0.8 0.0 107.3 0.8 0.0 99.5 0.9 0.0
Legal services 58.5 0.4 0.0 56.3 0.4 0.0 44.4 0.4 0.0
All other services 979.8 5.9 0.2 744.5 5.6 0.2 596.4 5.1 0.3
Total services 1,307.7 8.0 0.3 1,050.0 7.8 0.2 846.4 7.3 0.3
Manufacturing:
Electrical equipment 54.6 0.3 0.0 53.8 0.4 0.0 39.0 0.3 0.0
Food and kindred products 28.1 0.2 0.0 29.0 0.2 0.0 77.6 0.7 0.1
Rubber and plastic products 24.4 0.2 0.0 23.4 0.2 0.0 17.7 0.2 0.0
Lumber and wood products 122.3 0.7 0.0 96.3 0.7 0.0 71.7 0.6 0.0
Fabricated metal products 45.8 0.3 0.0 54.2 0.4 0.0 63.5 0.5 0.1
All other manufacturing 466.8 2.8 0.3 344.9 2.6 0.1 296.5 2.6 0.1
Total manufacturing 742.0 4.5 0.3 601.6 4.5 0.1 566.0 4.9 0.3
Wholesale trade 348.0 2.2 0.5 310.0 2.3 0.5 262.8 2.3 0.1
Finance, insurance and real estate:
Real estate 1,044.5 6.4 0.2 785.9 6.0 0.1 527.1 4.6 0.2
Banks and credit agencies 93.9 0.6 0.0 87.3 0.6 0.0 89.1 0.8 0.0
All other finance, insurance
and real estate 141.3 0.8 0.0 120.9 0.9 0.0 135.0 1.1 0.1
Total finance, insurance
and real estate 1,279.7 7.8 0.2 994.1 7.5 0.1 751.2 6.5 0.3
Construction:
Residential building construction 335.4 2.0 0.4 263.7 2.0 0.1 185.9 1.6 0.1
General contractors and builders 294.3 1.8 0.1 142.7 1.1 0.0 88.9 0.7 0.0
All other construction 173.7 1.1 0.0 137.0 1.0 0.2 262.8 2.3 0.5
Total construction 803.4 4.9 0.5 543.4 4.1 0.3 537.6 4.6 0.6
Retail trade:
Automobile dealers 263.8 1.6 0.1 242.3 1.8 0.1 202.2 1.7 0.0
All other retail trade 280.8 1.7 0.5 236.7 1.8 0.2 262.0 2.3 0.3
Total retail trade 544.6 3.3 0.6 479.0 3.6 0.3 464.2 4.0 0.3
Agriculture, forestry and fishing 237.8 1.5 0.2 193.8 1.5 0.2 162.2 1.4 0.5
Transportation, communication,
electrical, gas and sanitary 328.1 2.0 0.2 260.4 2.0 0.1 162.8 1.4 0.6
Mining (including oil and gas
extraction) 15.9 0.1 0.2 12.9 0.1 0.0 13.8 0.1 0.0
Public administration 333.9 2.0 1.0 379.4 2.8 0.9 63.3 0.5 4.8
Revolving credit loans 678.8 4.1 0.0 564.2 4.2 0.0 437.3 3.8 0.0
Other 936.4 5.6 0.0 249.2 1.9 0.0 583.6 5.1 0.7
TOTAL $ 16,427.6 100.0% 0.6% $ 13,335.5 100.0% 0.5% $ 11,569.6 100.0% 0.5%
</TABLE>
30
<PAGE> 13
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. This category of
earning assets declined from $56.5 million at December 31, 1995 to $33.2 million
and $29.5 million at December 31, 1996 and 1997, respectively. Maturities from a
portion of these assets were reinvested in alternative investments in 1996 and
1997, resulting in the declining balance over the past two years.
SECURITIES
The following table shows the carrying values of securities as follows: (in
thousands)
<TABLE>
<CAPTION>
December 31
- ------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities:
U.S. Treasury & Federal agency securities $2,078,016 $1,240,974 $ 894,606
Obligations of states and political
subdivisions 489,162 450,415 425,456
Mortgage-backed securities 307,039 411,344 268,926
Other securities 0 17 118
TOTAL $2,874,217 $2,102,750 $1,589,106
Securities available for sale:
U.S. Treasury & Federal agency securities $ 218,955 $ 429,620 $ 799,190
Obligations of states and political
subdivisions 26,917 8,292 20,219
Mortgage-backed securities 1,220,739 1,279,422 1,406,264
Other securities 820 8,030 15,092
Equity securities 58,541 42,481 33,910
TOTAL $1,525,972 $1,767,845 $2,274,675
</TABLE>
Total securities increased $530 million in 1997. U.S. Treasury and Federal
agency securities increased $626 million or 37% due primarily to acquisitions.
Obligations of states and political subdivisions increased $57 million or 13%.
Mortgage-backed securities decreased $163 million or 10% in 1997.
In 1996, total securities increased $6.8 million. U.S. Treasury and
Federal agency securities decreased $23.2 million, with mortgage-backed
securities increasing $15.6 million. Obligations of states and political
subdivisions increased $13 million or 3% in 1996.
In 1995, total securities increased $517 million or 15%. U.S. Treasury and
Federal agency securities accounted for $162 million of the 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 Statement of Financial
Accounting Standard 115. This reclassification gives Regions additional
flexibility in managing its securities portfolios.
Regions' investment portfolio policy stresses quality and liquidity. At
December 31, 1997, the average maturity of U.S. Treasury and Federal agency
securities was 4.0 years and that of obligations of states and political
subdivisions was 8.3 years. The average expected maturity of mortgage-backed
securities was 3.2 years and other securities had an average contractual
maturity of 5.0 years. Overall, the average maturity of the portfolio was 9.7
years using contractual maturities and 3.8 years using expected maturities.
31
<PAGE> 14
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.
The estimated fair market value of Regions' investment securities portfolio
at December 31, 1997, was 1.1% ($31.9 million) above the amount carried on
Regions' books. Regions' securities available for sale portfolio at December 31,
1997, included net unrealized gains of $18.1 million. Regions' investment
securities and securities available for sale portfolios included gross
unrealized gains of $60 million and gross unrealized losses of $10 million at
December 31, 1997. 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.,
95% are rated "A" or better. 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, 1997, 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 $385,992 $1,013,604 $678,420 $ -0- $2,078,016
Obligations of states and political
subdivisions 49,462 151,306 198,756 89,638 489,162
Mortgage-backed securities 17,842 281,009 -0- 8,188 307,039
Other securities -0- -0- -0- -0- -0-
TOTAL $453,296 $1,445,919 $877,176 $ 97,826 $2,847,217
Weighted average yield 6.81% 6.82% 7.38% 8.44% 7.05%
Securities available for sale:
U.S. Treasury and Federal agency securities $ 81,436 $ 136,749 $ 770 $ -0- $ 218,955
Obligations of states and political
subdivisions 1,574 12,893 7,967 4,483 26,917
Mortgage-backed securities 22,158 989,220 144,072 65,289 1,220,739
Other securities 520 -0- 300 -0- 820
TOTAL $105,688 $1,138,862 $153,109 $ 69,772 $1,437,431
Weighted average yield 6.25% 6.91% 7.33% 7.34% 6.92%
Taxable equivalent adjustment for calculation
of yield $ 2,961 $ 7,508 $ 5,060 $ 538 $ 16,067
</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> 15
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, 1997, commercial loans, real estate construction
loans and commercial mortgage loans with an aggregate balance of $3.3 billion,
as well as securities of $559 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 Company's 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 and to 92.36% at December 31, 1997, as earning asset
growth outpaced the growth in deposits, generating the need to increase
purchased funds and other short-term 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. 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 1996 and 1997, 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 1997 due to more reliance on short- and
long-term borrowings and to increases in deposits. 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 1995, 1996 and 1997. Funds needed for the pending acquisitions as of December
31, 1997, are expected to be provided by working capital or short-term
borrowings.
Regions Bank's short-term certificates of deposit are rated "A-1+" by
Standard & Poor's Corporation. This is the highest rating available for any
company. Regions Bank's 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 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 Bank has 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,
1996, $40 million in senior bank notes were outstanding. At December 31, 1997,
no senior bank notes were outstanding.
Regions Bank's notes were rated "A-1+/AA-" by Standard & Poor's Corporation
and "P-1/Aa2" by Moody's Investors Service. Regions' and its banking
subsidiary's 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.
<PAGE> 16
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> 17
DEPOSITS
Deposits are Regions' primary source of funds -- providing funding for 86% of
average earning assets in both 1997 and 1996. During the last four years,
average total deposits grew at a compound annual rate of 13%. Average deposits
grew $1.6 billion or 13% in 1995, $1.2 billion or 9% in 1996 and $2.6 billion or
18% in 1997. Acquisitions, net of branch sales, contributed average deposit
growth of $823 million in 1995, $636 million in 1996 and $607 million in 1997.
As money flows between the banking system and other financial markets,
Regions faces stiff competition from other banking and financial services
companies for a share of the deposit market. Regions' ability to compete in the
deposit market depends heavily on how effectively the company meets customers'
needs. Regions employs both traditional and non-traditional means to meet
customers' needs and enhance competitiveness. The traditional means include:
providing well-designed products, providing a high level of customer service,
providing attractive pricing and expanding the traditional branch network to
provide convenient branch locations for customers throughout the Southeastern
U.S. Recently, Regions has also begun to employ non-traditional approaches to
enhance its competitiveness. These include: providing centralized, high quality
telephone banking services and providing alternative product delivery channels
like PC and home banking. Regions' success at competing for deposits is
discussed below.
Average non-interest bearing deposits have grown at a steady pace, increasing
at a compound growth rate of 12% since 1994. This category of deposits grew 8%
in 1995, 4% in 1996 and 26% in 1997. Non-interest bearing deposits are a
significant funding source for Regions, accounting for 13% of average total
deposits in 1995, 1996 and 1997.
During 1995, 1996 and 1997, the rate paid on savings accounts was less
attractive to customers, relative to other investment alternatives. As a result,
savings accounts have increased at only a 1% compound growth rate since 1994.
Savings declined 1% in 1995, less than 1% in 1996 and increased 4% in 1997.
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 1997, savings accounts accounted for 6% of average total
deposits compared to 7% of average total deposits in 1996.
During 1997, interest-bearing transaction accounts increased 37%. 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 they declined as a source of funds in 1995
and 1996, interest-bearing transaction accounts increased in 1997, reflecting
their importance as a funding source to Regions. During 1996 and 1997,
interest-bearing transaction accounts accounted for 2% and 3% of average total
deposits, respectively.
<PAGE> 18
Money market savings products continue to be Regions' fastest growing
deposits, increasing at a compound annual rate of 43% since 1994. Customers have
responded to Regions' innovative, competitive money market savings products by
continuing to invest in these accounts. The results are increases in average
balances of 57% in 1995, 60% in 1996 and 17% in 1997. As mentioned above, a
reclassification from interest-bearing transaction accounts to money market
savings increased the 1995 and 1996 money market savings growth rate. Money
market savings products are one of Regions' most significant funding sources,
accounting for 18% of average total deposits in 1995 and 27% of average total
deposits in 1996 and 1997.
Certificates of deposit of $100,000 or more increased 38% in 1995, 19% in
1996 and 33% in 1997, due to their increased use as a funding source. Since
1994, certificates of deposit of $100,000 or more have increased at a compound
annual rate of 29%, and in 1997 accounted for 15% of average total deposits, up
from a four year low of 10% in 1994.
Other interest-bearing deposits (certificates of deposit of less than
$100,000 and time open accounts) increased 9% in 1996 and 12% in 1997. This
category of deposits continues to be Regions' primary funding source; it
accounted for 35% of average total deposits in 1997, down from 37% of average
total deposits in 1996. Wider pricing spreads over the last two years have made
this category of deposits attractive relative to other investment alternatives.
Innovative deposit products in this category have helped Regions continue to
increase deposits and maintain market share in the Company's major markets.
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 rates were relatively stable. During 1997,
market interest rates generally declined. While Regions' average interest rate
paid on interest-bearing deposits follows these trends, a lag period exists
between the change in market rates and the repricing of the deposits. The rate
paid on interest-bearing deposits increased from 3.71% in 1994 to 4.66% in 1995,
dropped slightly to 4.65% in 1996 and increased to 4.72% in 1997.
A detail of interest-bearing deposit balances at December 31, 1997, and 1996,
and the interest expense on these deposits for the three years ended December
31, 1997, is presented in Note H to the consolidated financial statements.
34
<PAGE> 19
The following table presents the detail of interest-bearing deposits and
maturities of the larger time deposits:
<TABLE>
<CAPTION>
(in thousands) December 31
1997 1996
<S> <C> <C>
Interest-bearing deposits of less than $100,000 $12,629,787 $10,757,175
Time deposits of $100,000 or more, maturing in:
3 months or less 1,086,020 986,947
over 3 through 6 months 559,543 464,281
over 6 through 12 months 378,057 419,341
over 12 months 729,972 511,418
----------- -----------
Total 2,753,592 2,381,987
Total $15,383,379 $13,139,162
</TABLE>
The following table presents the average amounts of deposits outstanding by
category for the four years ended December 31, 1997:
<TABLE>
<CAPTION>
(in thousands) Average Amounts Outstanding
1997 1996 1995 1994
<S> <C> <C> <C> <C>
Non-interest-bearing demand deposits $ 2,284,928 $ 1,816,495 $ 1,748,647 $ 1,613,461
Interest-bearing transaction accounts 490,655 359,254 1,428,900 1,805,640
Savings accounts 1,033,982 993,465 995,307 1,004,625
Money market savings accounts 4,586,604 3,911,791 2,450,687 1,557,413
Certificates of deposit of $100,000 or more 2,601,901 1,963,177 1,652,016 1,199,713
Other interest-bearing deposits 6,042,590 5,405,215 4,976,959 4,524,256
Total interest-bearing deposits 14,755,732 12,632,902 11,503,869 10,091,647
Total deposits $17,040,660 $14,449,397 $13,252,516 $11,705,108
</TABLE>
The following table presents the average rates paid on deposits by category for
the four years ended December 31, 1997:
<TABLE>
<CAPTION>
Average Rates Paid
1997 1996 1995 1994
<S> <C> <C> <C> <C>
Interest-bearing transaction accounts 3.31% 3.06% 2.86% 2.79%
Savings accounts 2.39 2.63 2.75 2.86
Money market savings accounts 3.56 3.45 3.93 2.84
Certificates of deposit of $100,000 or more 5.76 5.63 5.03 3.91
Other interest-bearing deposits 5.68 5.65 5.79 4.51
Total interest-bearing deposits 4.72% 4.65% 4.66% 3.71%
</TABLE>
35
<PAGE> 20
BORROWED FUNDS
Regions' short-term borrowings consist of federal funds purchased and
security repurchase agreements, commercial paper, Federal Home Loan Bank
structured notes 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 $1.5 billion
at December 31, 1996, to $1.9 billion at December 31, 1997. 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 $338.7
million in 1996 and $401.6 million in 1997. These increases resulted from
increased reliance on purchased funds to support earning asset growth. A higher
level of net purchased funds is expected to continue unless additional
alternative funding sources are utilized or unless earning assets grow slower
than interest-bearing liabilities.
In December 1997, Regions began to utilize Federal Home Loan Bank
structured notes as a short term funding source, primarily due to their
favorable interest rate. These structured notes have a stated ten year maturity
but are callable, at the option of the Federal Home Loan Bank, every three
months. Because of the call feature, the structured notes are considered short
term. As of December 31, 1997, $500 million of structured notes were
outstanding.
At December 31, 1997, $52.8 million in commercial paper was outstanding,
compared to $40.4 million at December 31, 1996. The Company issues commercial
paper through its private placement commercial paper program. 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 decreased $19.0 million from December 31, 1996
to December 31, 1997, primarily due to a decline in borrowings under a
short-term borrowing arrangement with an unaffiliated bank. 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 and other long-term notes payable.
The amount outstanding on subordinated notes did not change between
December 31, 1996 and 1997 since no maturities were due or new issuances
occurred.
Federal Home Loan Bank borrowings decreased $9.4 million in 1997 and $153.1
million in 1996 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.
The Company's bank note program provides Regions with another source of
funding and offers flexibility in structuring the term of the notes. Currently
up to $250 million of unsecured senior bank notes can be issued through Regions'
banking subsidiary, Regions Bank. The $40 million in senior bank notes
outstanding at December 31, 1996, matured in 1997 and no new notes have been
issued.
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
<PAGE> 21
financing, and miscellaneous notes payable. Other long-term borrowings increased
$2.3 million in 1997, due to notes assumed through acquisitions and increased
$3.3 million in 1996, due to increased equipment financing.
STOCKHOLDERS' EQUITY
Over the past three years, stockholders' equity has increased at a compound
annual growth rate of 14.1%. Stockholders' equity has grown from $1.3 billion at
the beginning of 1995 to $1.9 billion at year-end 1997. Internally generated
retained earnings contributed $454 million of this growth, equity issued in
connection with acquisitions accounted for $107 million, $25 million was
attributable to the exercise of stock options and to the issuance of stock for
dividend reinvestment plans and employee incentive plans, and $40 million was
attributable to increases in other components of equity. The internal capital
generation rate (net income less dividends as a percentage of average
stockholders' equity) was 10.4% in 1997, compared to 9.4% in 1996 and 8.7% in
1995.
Regions' ratio of stockholders' equity to total assets was 8.30% at
December 31, 1997, compared to 8.45% at December 31, 1996, and 8.48% at December
31, 1995. 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.
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.
36
<PAGE> 22
The following chart summarizes the applicable bank regulatory capital
requirements. Regions' capital ratios at December 31, 1997, substantially
exceeded all regulatory requirements.
BANK REGULATORY CAPITAL REQUIREMENTS
<TABLE>
<CAPTION>
MINIMUM
REGULATORY REGIONS AT
REQUIREMENT DECEMBER 31, 1997
<S> <C> <C>
Tier 1 capital to risk-adjusted assets 4.00% 10.48%
Total risk-based capital to risk-adjusted assets 8.00 12.93
Tier 1 leverage ratio 3.00 7.52
</TABLE>
At December 31, 1997, Tier 1 capital totaled $1.689 billion, total
risk-based capital totaled $2.083 billion, and risk-adjusted assets totaled
$16.118 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, 1997, 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 1997, Regions returned 36% of earnings to its stockholders in
the form of dividends. Total dividends declared by Regions in 1997 were $109.0
million or $.80 per share, an increase of 14% from the $0.70 per share in 1996.
Also in 1997, Regions declared and paid a two-for-one stock split.
In January 1998, the Board of Directors declared a 15% increase in the
quarterly cash dividend from $.20 to $.23 per share. This is the twenty-seventh
consecutive year that Regions has increased cash dividends.
37
<PAGE> 23
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, 1997:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Taxable securities 17.7% 20.0% 18.9% 20.2% 18.4%
Non-taxable securities 2.4 2.4 2.5 2.7 3.0
Federal funds sold 0.6 0.3 0.8 1.3 1.4
Loans (net of unearned
income):
Commercial 15.6 15.0 14.8 15.2 17.4
Real estate 35.6 35.2 37.4 34.4 30.7
Installment 19.9 19.5 17.5 16.4 17.6
Total loans 71.1 69.7 69.7 66.0 65.7
Allowance for loan losses (0.9) (1.0) (0.9) (1.0) (1.0)
Net loans 70.2 68.7 68.8 65.0 64.7
Other earning assets 1.2 1.5 1.0 2.4 3.7
Total earning assets 92.1 92.9 92.0 91.6 91.2
Cash and due from banks 3.0 2.7 3.3 3.7 4.4
Other non-earning assets 4.9 4.4 4.7 4.7 4.4
Total assets 100.0% 100.0% 100.0% 100.0% 100.0%
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits:
Non-interest-bearing 10.7% 10.2% 10.7% 11.4% 12.6%
Interest-bearing 69.3 70.9 70.1 71.2 73.4
Total deposits 80.0 81.1 80.8 82.6 86.0
Borrowed funds:
Short-term 8.1 6.7 5.5 3.4 2.1
Long-term 2.0 2.7 4.0 4.2 1.7
Total borrowed funds 10.1 9.4 9.5 7.6 3.8
Other liabilities 1.3 1.0 1.3 1.4 1.4
Total liabilities 91.4 91.5 91.6 91.6 91.2
Stockholders' equity 8.6 8.5 8.4 8.4 8.8
Total liabilities and
stockholders' equity 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
38
<PAGE> 24
OPERATING RESULTS
Net income increased 30% in 1997 and 16% in 1996. Excluding the SAIF
assessment and the merger expenses incurred in 1996 (see Note U to the
consolidated financial statements) income increased 21% in 1997. The
accompanying table presents the dollar amount and percentage change in the
important components of income that occurred in 1997 and 1996.
SUMMARY OF CHANGES IN OPERATING RESULTS
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN THOUSANDS) Increase (Decrease)
1997 Compared 1996 Compared
to 1996 to 1995
AMOUNT % Amount %
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INTEREST INCOME $ 128,415 18% $ 76,202 12%
Provision for loan losses 12,732 44 (1,230) (4)
Net interest income
after provision for
loan losses 115,683 17 77,432 13
NON-INTEREST INCOME:
Trust department income 1,572 6 1,978 8
Service charges on
deposit accounts 23,195 26 15,090 21
Mortgage servicing
and origination fees 4,805 9 7,009 16
Securities transactions (2,574) NM 3,539 NM
Other 10,816 21 5,717 13
Total non-interest
income 37,814 17 33,333 18
NON-INTEREST EXPENSE:
Salaries and
employee benefits 51,216 18 20,779 8
Net occupancy
expense 4,686 14 4,611 16
Furniture and equip-
ment expense 4,118 12 4,485 15
FDIC insurance
expense (2,472) (38) (11,848) (65)
SAIF assessment and merger
expenses (30,477) NM 30,477 NM
Other 19,469 12 17,836 12
Total non-interest
expense 46,540 8 66,340 14
Income before
income taxes 106,957 32 44,425 15
Applicable income
taxes 36,951 34 12,568 13
NET INCOME $ 70,006 30% $ 31,857 16%
INCOME BEFORE SAIF ASSESSMENT
AND MERGER EXPENSES $ 50,998 21% $ 50,865 26%
</TABLE>
<PAGE> 25
NET INTEREST INCOME
Net interest income (interest income less interest expense) is Regions'
principal source of income. Net interest income increased 18% in 1997 and 12% in
1996. On a taxable equivalent basis, net interest income increased 19% in 1997
and 11% in 1996. The table on page 43 provides additional information to analyze
the changes in net interest income.
In 1997, growth in interest-earning assets and interest-bearing liabilities
contributed to the increase in net interest income. During 1997, average
interest-earning assets grew 19% and average interest-bearing liabilities grew
18%. Growth in earning assets typically increases net interest income due to the
positive spread between earning asset yields and interest-bearing liability
rates. However, unfavorable changes in interest-bearing liability rates
partially offset the increase in net interest income attributable to growth.
In 1996, growth in interest-earning assets and interest-bearing liabilities
also contributed to the increase in net interest income. During 1996, both
average earning assets and average interest-bearing liabilities grew 10%.
Favorable changes in interest earning asset yields and interest-bearing
liability rates also contributed to the increase in net interest income.
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 average earning assets. The
interest margin increased from 4.21% in 1995, to 4.27% in 1996 and remained
4.27% in 1997. Changes in the interest margin occur primarily due to two
factors: (1) the interest rate spread (the difference between the taxable
equivalent yield on earning assets and the rate on interest-bearing liabilities)
and (2) the percentage of earning assets funded by interest-bearing liabilities.
The first factor affecting Regions' interest margin is the interest rate
spread. Regions' average interest rate spread was 3.51% in 1995, 3.59% in 1996
and 3.56% in 1997. 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.
In July 1995, the Federal Reserve (Fed) began lowering the Federal Funds
rate. In three separate moves, the Fed lowered the Federal Funds rate from 6.00%
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. In March 1997 the Fed raised
the Federal Funds rate to 5.50% where it remained for the rest of the year. As
can be seen above, Regions managed through this period with only minor changes
in the interest rate spread.
Although the Federal Funds rate was fairly stable during 1997, yields on
intermediate to long-term government securities dropped considerably. This drop
in government interest rates created a relatively flat yield curve. Regions'
interest-earning asset yields and interest-bearing liability rates were both
higher in 1997 compared to 1996 -- reflecting the higher market interest rates
experienced in late 1996 and early 1997. However, as market interest rates
declined and as the yield curve flattened, Regions' interest-earning asset
yields declined faster than did interest-bearing liability rates. The interest
rate spread contracted in 1997 because interest-bearing liability rates
increased 3 basis points more than did interest-earning asset yields.
39
<PAGE> 26
Net Interest Income
($ in Thousands, Taxable Equivalent)
[Graph]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Interest Income 762,969 1,008,744 1,276,600 1,399,799 1,670,471
Interest Expense 296,195 436,157 635,336 685,656 824,203
-------------------------------------------------------
Net Interest Income 466,774 572,587 641,264 714,143 846,268
</TABLE>
Interest Rate Spread
(Taxable Equivalent)
[Graph]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Average Interest Rate Earned 7.8 7.7 8.4 8.4 8.4
Average Interest Rate Paid 3.6 3.9 4.9 4.8 4.9
-------------------------------------------------
Interest Rate Spread 4.2 3.8 3.5 3.6 3.5
</TABLE>
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 from 1995,
the yield on interest-earning assets remained stable. 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.
The mix of earning assets can also affect the interest rate spread. During
1997, loans, which are typically Regions' highest yielding earning asset,
increased as a percentage of earning assets -- partially offsetting the effects
of changing earning asset yields and interest-bearing liability rates. Average
loans as a percentage of earning assets were 74% in 1996 and 76% in 1997.
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 was 86% in both 1995
and 1996, but dropped to 85% in 1997. The changes in the percentage of earning
assets funded by interest-bearing liabilities had a positive effect on net
interest income in 1997. 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 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.
MARKET RISK - INTEREST RATE SENSITIVITY
Market risk is the risk of loss arising from adverse changes in the fair
value of financial instruments due to a change in interest rates, exchange rates
and equity prices. Regions' primary risk is interest rate risk.
The primary objective of Asset/Liability Management at Regions is to manage
interest rate risk and 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 the entire life of these instruments, but
places particular emphasis on the first year. At December 31, 1997,
approximately 53% of earning assets and 69% of the funding for these earning
assets were scheduled to be repriced to current market rates at least once
during 1998.
40
<PAGE> 27
The accompanying table shows Regions' rate sensitive position at December
31, 1997, 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 $3.4
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, 1997, was 0.77, 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 deposits 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 are typically not directly related to market interest rates,
since management exercises some discretion in adjusting these rates as market
rates change.
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
deposit accounts that are not sensitive to market interest rate changes were
redistributed based on expected cash flows and probable repricing intervals,
Regions' one-year cumulative gap ratio would be 1.02 -- indicating an "asset
sensitive" position.
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 and adds 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 indicates that Regions is slightly "liability sensitive."
FORWARD-LOOKING STATEMENTS
The section that follows, "Exposure to Interest Rate Shifts", contains
certain forward-looking statements (as defined in the Private Securities
Litigation Reform Act of 1995). These forward-looking statements may involve
significant risk and uncertainties. Although Regions believes that the
expectations reflected in such forward-looking statements are reasonable, actual
results may differ materially from the results discussed in these
forward-looking statements.
EXPOSURE TO INTEREST RATE SHIFTS. Based on the afore mentioned discussion,
management can estimate the effect shifts in interest rates may have upon the
Company's net interest income, Regions' principal source of income.
The following table demontrates the expected effect a given interest rate
shift would have on Regions net interest income.
<TABLE>
<CAPTION>
(Dollar amounts in thousands)
CHANGE IN INTEREST RATES (IN $ CHANGE IN NET % CHANGE IN NET
BASIS POINTS) INTEREST INCOME INTEREST INCOME
<S> <C> <C>
+200 $(3,729) (.43)%
+100 (2,380) (.27)
-100 24,511 2.79
-200 49,427 5.63
</TABLE>
In the event of a shift in interest rates, management would attempt to take
certain actions to mitigate the negative impact to net interest income. These
actions include but are not limited to, restructuring of interest-earning
assets, seeking alternative funding sources and entering into interest rate swap
agreements.
41
<PAGE> 28
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
December 31, 1997
(dollar amounts in millions) Rate Sensitive Period
1-3 4-6 7-12 OVER 1 YEAR OR
MONTHS MONTHS MONTHS TOTAL NON-SENSITIVE TOTAL
EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income $ 6,362.3 $ 835.3 $ 1,449.9 $ 8,647.5 $ 7,747.4 $ 16,394.9
Investment securities 644.7 313.5 747.1 1,705.3 1,168.9 2,874.2
Securities available for sale 119.7 58.2 276.0 453.9 1,072.1 1,526.0
Interest bearing deposits
in other banks 29.3 .1 - 29.4 - 29.4
Federal funds sold and securities
purchased under agreements
to resell 97.1 - - 97.1 - 97.1
Mortgage loans held for sale 375.8 - - 375.8 - 375.8
Trading account assets 50.7 - - 50.7 - 50.7
Total earning assets $ 7,679.6 $ 1,207.1 $ 2,473.0 $ 11,359.7 $ 9,988.4 $ 21,348.1
Percent of total earning assets 36.0% 5.7% 11.6% 53.3% 46.7% 100.0%
FUNDING SOURCES:
Non-interest-bearing deposits -- - - - $ 2,367.5 $ 2,367.5
Savings deposits $ 990.5 - - $ 990.5 - 990.5
Other time deposits 7,413.5 $ 1,806.1 $ 1,993.1 11,212.7 3,180.2 14,392.9
Short-term borrowings 2,384.7 - 105.7 2,490.4 - 2,490.4
Long-term borrowings 29.3 48.6 15.9 93.8 306.4 400.2
Total interest-bearing liabilities 10,818.0 1,854.7 2,114.7 14,787.4 5,854.1 18,274.0
Stockholders' equity - - - - 706.6 706.6
Total funding sources $ 10,818.0 $ 1,854.7 $ 2,114.7 $ 14,787.4 $ 6,560.7 $ 21,348.1
Percent of total funding sources 50.7% 8.7% 9.9% 69.3% 30.7% 100.0%
Interest sensitive gap $ (3,138.4) $ (647.6) $ 358.3 $ (3,427.7) $ 3,427.7 -
Cumulative interest sensitive gap $ (3,138.4) $ (3,786.0) $ (3,427.7) $ (3,427.7) - -
As percent of total earning assets (14.7)% (17.7)% (16.1)% (16.1)% - -
Ratio of earning assets
to funding sources 0.71 0.65 1.17 0.77 1.52 1.00
Cumulative ratio 0.71 0.70 0.77 0.77 1.00 1.00
</TABLE>
42
<PAGE> 29
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(in thousands) Year Ended December 31
1997 OVER 1996 1996 OVER 1995
--------------------------------------- --------------------------------------
VOLUME YIELD/RATE TOTAL Volume Yield/Rate Total
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN:
Interest income on:
Loans $242,504 $(2,712) $239,792 $ 88,752 $ 3,871 $ 92,623
Federal funds sold 4,024 546 4,570 (4,306) (830) (5,136)
Taxable securities 14,725 2,382 17,107 29,973 2,879 32,852
Non-taxable securities 4,590 2,786 7,376 1,085 (3,927) (2,842)
Other earning assets 205 (2,088) (1,883) 7,319 1,706 9,025
Total 266,048 914 266,962 122,823 3,699 126,522
Interest expense on:
Savings deposits 1,037 (2,468) (1,431) (51) (1,140) (1,191)
Other interest-bearing
deposits 101,913 8,914 110,827 54,567 (1,512) 53,055
Borrowed funds 28,300 851 29,151 7,592 (9,136) (1,544)
Total 131,250 7,297 138,547 62,108 (11,788) 50,320
INCREASE (DECREASE) IN NET
INTEREST INCOME $134,798 $(6,383) $128,415 $ 60,715 $15,487 $ 76,202
</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 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. In 1997,
the provision for loan losses was increased to $41.8 million due to internal
growth in the loan portfolio and higher levels of consumer loan losses.
Acquisitions added $14.3 million to the allowance for loan losses in 1997. The
resulting year end allowance for loan losses increased $18.8 million to $194.3
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 18% in 1995, 8% in 1996 and 6% in 1997. Regions has in
place an aggressive sales program as a means of increasing trust revenue. Sales
goals have been established and employee incentive plans have been instituted in
order to promote sales efforts. In addition to increased sales efforts, trust
income is also affected by the securities markets, because most trust fees are
calculated as a percentage of trust asset values. The strength of the securities
markets during the last three years has had a favorable impact on trust income.
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 18% in 1995, 21% in 1996, and 26% in 1997, 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> 30
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 1997, mortgage servicing and origination fees increased 9%, from $50.6
million in 1996 to $55.4 million in 1997. Origination fees increased 18% in 1997
due to a 14% increase in the number of loans closed and a 35% increase in the
dollar amount of loans closed. Servicing fees increased 6% in 1997. At December
31, 1997, Regions' servicing portfolio totaled $13.6 billion and included
approximately 202,000 loans. At December 31, 1996, the servicing portfolio
totaled $12.4 billion, compared to $11.0 billion at December 31, 1995. 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 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.
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.
RMI, through its retail and wholesale operations, produced mortgage loans
totaling $2.2 billion, $1.7 billion, and $954 million in 1997, 1996 and 1995,
respectively. RMI produces loans from 33 offices in Alabama, Georgia, Florida,
Louisiana, 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 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
<PAGE> 31
portfolio in the future could result in significant increases in the valuation
adjustments.
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $ 71,050 $ 64,269 $ 64,381
Net additions 27,804 20,670 11,465
Amortization (11,983) (13,889) (11,257)
Valuation adjustments -- -- (320)
Balance at end of year $ 86,871 $ 71,050 $ 64,269
</TABLE>
SECURITIES GAINS (LOSSES)
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.
In 1997, net gains of $541,000 were reported from sale of available for
sale securities. These gains resulted primarily from the sale of U.S. agency
securities.
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, credit card fees and other customer charges
contributed to growth in fees and commissions over the last three years.
Insurance premium and commission income increased in 1997 and 1996, 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 1996 and 1997. 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 1997 and 1996 due to expanded trading
activities, increased underwriting fees, and larger profits from trading in the
portfolio. Trading account income decreased in 1995 primarily because of lower
volumes and a decline in profits from trading in the portfolio.
44
<PAGE> 32
Gains on the sale of mortgage servicing rights totaled $150,000 in 1995. No
sales of mortgage servicing rights occurred in 1996 or 1997.
SALARIES AND EMPLOYEE BENEFITS
Total salaries and benefits increased 14% in 1995, 8% in 1996 and 18% in
1997. 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, 1997, Regions had 9,227 full-time equivalent employees,
compared to 8,150 at December 31, 1996 and 7,707 at December 31, 1995. Employees
added as a result of acquisitions accounted for most of these increases.
Salaries, excluding benefits, totaled $184.3 million in 1995, compared to
$195.7 million in 1996 and $225.6 million in 1997. These increases resulted from
increased employment levels, due to acquisitions and increased business
activity, and normal merit and promotional adjustments.
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 28% of salaries.
The contribution to the profit sharing plan was equal to approximately 9%
of after-tax income in 1995 and 7% in 1996 and 1997.
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 $44.8 million in 1997,
compared to $30.1 million in 1996 and $23.9 million in 1995. 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 (see Note R
to the consolidated financial statements). 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. The 63% increase in Regions stock price in 1997
contributed to the higher commissions and incentives expense in 1997 because
expense recognition for a portion of Regions' equity incentive awards is related
to Regions stock price performance. Regions also uses cash incentive plans to
reward employees for achievement of various goals.
Payroll taxes increased 27% in 1995, 10% in 1996 and 17% in 1997. 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.
[Graph]
<TABLE>
<CAPTION>
Efficiency Ratio 1993 1994 1995 1996* 1997
<S> <C> <C> <C> <C> <C>
60.23% 59.44% 58.79% 56.16% 54.36%
</TABLE>
* Excludes SAIF assessment and merger charges in 1996.
45
<PAGE> 33
Group insurance expense increased 38% in 1995, due to increased employment
levels associated with increased business activity and acquisitions. In 1996,
the dollar amount of medical claims stabilized resulting in a 4% increase in
expense. In 1997, as a result of reduced claims costs, group insurance expense
decreased 11%.
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 and South Carolina.
Net occupancy expense increased 7% in 1995, 16% in 1996, and 14% in 1997
due to new and acquired branch offices, rising price levels, and increased
business activity.
FURNITURE AND EQUIPMENT EXPENSE
Furniture and equipment expense increased 7% in 1995, 15% in 1996, and 12%
in 1997. These increases resulted from acquisitions (particularly during 1996
and 1997) 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 38% in 1997, 65% in 1996, and 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 were approximately
25% of Regions' assessable deposits, remained at $0.23 per $100 of insured
deposits during 1995 and 1996. In 1997, deposit insurance premium rates for BIF
and SAIF deposits were further reduced; however, these reductions were partially
offset by the Financing Corporation (FICO) assessments, which are approximately
$.065 per $100 of SAIF-assessable deposits and $.013 per $100 of BIF-assessable
deposits.
SAIF ASSESSMENT AND MERGER EXPENSES IN 1996
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
<PAGE> 34
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 increased in 1997 as well as in 1996 and 1995.
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 declined in 1997 and 1995, but
increased in 1996. 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. However, mortgage servicing rights amortization
expense declined in 1997 and 1995 due to slower prepayment activity on the
underlying mortgages than in other 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 travel expenses.
YEAR 2000
Regions is in the process of preparing its computer systems and
applications for the Year 2000. This process involves modifying or replacing
certain hardware and software maintained by Regions as well as communicating
with external service providers to ensure that they are taking appropriate
action to remedy any Year 2000 issues. The majority of applications used by
Regions are products of established national vendors. Management expects to have
substantially all of the system and application changes completed by December
31, 1998, and believes that its level of preparedness is appropriate. However,
there can be no guarantee that the systems of other companies on which Regions'
systems rely will be timely converted and would not have an adverse impact on
the Company's systems.
Regions estimates that the cumulative cost of the project will be
approximately $15 million. This cost includes personnel cost related to the
modification of systems and applications as well as the cost to purchase or
lease certain hardware and software. In 1997, approximately $1.0 million of this
expense was incurred. The purchase of hardware and software will be capitalized
according to normal policy. Costs associated with personnel will be expensed in
the period incurred.
46
<PAGE> 35
APPLICABLE INCOME TAX
Regions' provision for income taxes increased 34% in 1997. This increase
was caused primarily by a 32% increase in income before taxes. Also contributing
to the larger provision for income taxes was a decline in Regions' tax exempt
income, as a percentage of total income. For 1995, 1996 and 1997, the Company's
tax exempt income as a percentage of income before income taxes was 11%, 9% and
9%, respectively. Management expects this trend to continue. Note P to the
consolidated financial statements provides additional information about the
provision for income taxes.
Examinations of Regions' consolidated federal income tax returns have been
completed for years through 1994. The Company believes adequate provisions for
income tax have been recorded for all years open for review.
Management's determination of the realization of the deferred tax asset is
based upon management's judgment of various future events and uncertainties,
including the timing and amount of future income earned by certain subsidiaries
and the implementation of various tax planning strategies to maximize
realization of the deferred tax asset. Management believes that the subsidiaries
may be able to generate sufficient operating earnings to realize the deferred
tax benefits. In addition, a portion of the amount of the deferred tax asset
that can be realized in any year is subject to certain statutory federal income
tax limitations. Because of these uncertainties, a valuation allowance has been
established. Management periodically evaluates the realizability of the deferred
tax asset and, if necessary, adjusts the valuation allowance accordingly.
Categories of Non-interest Expense
($ in Millions)
[GRAPH]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Salaries and Employee Benefits 199.178 228.199 261.066 281.845 333.061
Net Occupancy Expense 20.790 27.212 29.005 33.616 38.302
Furniture and Equipment Expense 24.432 28.861 30.890 35.375 39.493
SAIF and Merger Expenses - - - 30.477 -
Other 138.730 158.104 166.500 172.488 189.485
Total -------------------------------------------------
383.130 442.376 487.461 553.801 600.341
</TABLE>
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.
47
<PAGE> 36
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
1997
<S> <C> <C> <C> <C>
Total interest income $387,785 $405,475 $423,825 $435,999
Total interest expense 190,756 200,436 211,854 221,157
Net interest income 197,029 205,039 211,971 214,842
Provision for loan losses 10,407 10,150 10,892 10,324
Net interest income after
provision for loan losses 186,622 194,889 201,079 204,518
Total non-interest income, excluding
securities gains 60,740 62,407 66,705 68,160
Securities gains 464 37 40 0
Total non-interest expense 141,736 148,296 151,656 158,653
Income taxes 35,760 35,632 39,200 35,036
Net income $ 70,330 $ 73,405 $ 76,968 $ 78,989
Per share:
Net income $ .52 $ .54 $ .56 $ .58
Net income - assuming dilution .51 .53 .55 .57
Cash dividends declared .20 .20 .20 .20
Market price:
Low 25 11/16 27 1/16 31 1/8 35 5/8
High 31 1/16 33 3/8 39 1/2 45
<CAPTION>
(in thousands, except per share amounts) Three Months Ended
Mar. 31 June 30 Sept. 30 Dec. 31
1996
<S> <C> <C> <C> <C>
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 $ .43 $ .49 $ .41 $ .52
Net income - assuming dilution .42 .48 .40 .51
Cash dividends declared .175 .175 .175 .175
Market price:
Low 20 1/4 21 21 11/16 24
High 24 24 1/2 24 1/2 27
</TABLE>
Note: The first quarter of 1997, has been restated from the information shown in
Form 10-Q to reflect acquisitions closed in the second quarter and accounted for
as poolings of interests. The first quarter restatement resulted in an increase
in net interest income and net income of $6.0 million and $1.7 million,
respectively.
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, 1997, there were 46,790 shareholders of record of Regions
Financial Corporation Common Stock.
48
<PAGE> 37
FINANCIAL STATEMENTS & NOTES
CONSOLIDATED STATEMENTS OF CONDITION
Regions Financial Corporation & Subsidiaries
<TABLE>
<CAPTION>
(dollar amounts in thousands, except share data) DECEMBER 31
- -------------------------------------------------------------------------------------------
1997 1996
ASSETS
<S> <C> <C>
Cash and due from banks $ 726,059 $ 774,849
Interest-bearing deposits in other banks 29,453 33,191
Investment securities (aggregate estimated
market value of $2,906,112 in 1997 and
$2,115,718 in 1996) 2,874,217 2,102,750
Securities available for sale 1,525,972 1,767,845
Trading account assets 50,676 29,648
Mortgage loans held for sale 375,759 169,861
Federal funds sold and securities purchased
under agreements to resell 97,085 20,842
Loans 16,427,597 13,335,450
Unearned income (32,692) (24,278)
Loans, net of unearned income 16,394,905 13,311,172
Allowance for loan losses (194,306) (175,548)
Net loans 16,200,599 13,135,624
Premises and equipment 312,531 276,890
Interest receivable 171,693 139,333
Due from customers on acceptances 157,262 78,108
Other assets 512,922 401,234
$ 23,034,228 $ 18,930,175
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 2,367,547 $ 1,909,174
Interest-bearing 15,383,379 13,139,162
Total deposits 17,750,926 15,048,336
Borrowed funds:
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 1,934,719 1,549,729
Commercial paper 52,750 40,367
Other short-term borrowings 502,834 21,831
Total short-term borrowings 2,490,303 1,611,927
Long-term borrowings 400,199 447,269
Total borrowed funds 2,890,502 2,059,196
Bank acceptances outstanding 157,262 78,108
Other liabilities 322,683 145,809
Total liabilities 21,121,373 17,331,449
Stockholders' equity:
Common stock, par value $.625 a share:
Authorized 240,000,000 shares
Issued, 137,018,371 shares in 1997
and 62,914,750 shares in 1996 85,636 39,322
Surplus 601,801 520,571
Undivided profits 1,235,997 1,050,606
Treasury stock, at cost-322,221 shares
in 1997 and 260,000 shares in 1996 (12,390) (12,356)
Unearned restricted stock (9,410) (3,121)
Unrealized gain on securities
available for sale, net of taxes 11,221 3,704
Total stockholders' equity 1,912,855 1,598,726
$ 23,034,228 $ 18,930,175
</TABLE>
See notes to consolidated financial statements.
() Indicates deduction.
51
<PAGE> 38
CONSOLIDATED STATEMENTS OF INCOME
Regions Financial Corporation & Subsidiaries
<TABLE>
<CAPTION>
(amounts in thousands, except per share data) YEAR ENDED DECEMBER 31
- ------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $1,342,198 $1,102,406 $ 1,009,783
Interest on securities:
Taxable interest income 254,153 237,046 204,194
Tax-exempt interest income 29,838 22,462 25,304
Total interest on securities 283,991 259,508 229,498
Interest on mortgage loans held for sale 16,916 15,286 9,335
Income on federal funds sold and
securities purchased under agreements
to resell 7,195 2,625 7,761
Interest on time deposits in other banks 2,015 5,003 2,751
Interest on trading account assets 769 1,294 472
Total interest income 1,653,084 1,386,122 1,259,600
Interest expense:
Interest on deposits 697,140 587,744 535,880
Interest on short-term borrowings 97,963 65,400 57,429
Interest on long-term borrowings 29,100 32,512 42,027
Total interest expense 824,203 685,656 635,336
Net interest income 828,881 700,466 624,264
Provision for loan losses 41,773 29,041 30,271
Net interest income after
provision for loan losses 787,108 671,425 593,993
Non-interest income:
Trust department income 29,206 27,634 25,656
Service charges on deposit accounts 111,385 88,190 73,100
Mortgage servicing and origination fees 55,422 50,617 43,608
Securities gains (losses) 541 3,115 (424)
Other 61,999 51,183 45,466
Total non-interest income 258,553 220,739 187,406
Non-interest expense:
Salaries and employee benefits 333,061 281,845 261,066
Net occupancy expense 38,302 33,616 29,005
Furniture and equipment expense 39,493 35,375 30,890
FDIC insurance expense 3,951 6,423 18,271
SAIF assessment and merger expenses -0- 30,477 -0-
Other 185,534 166,065 148,229
Total non-interest expense 600,341 553,801 487,461
Income before income taxes 445,320 338,363 293,938
Applicable income taxes 145,628 108,677 96,109
Net income $ 299,692 $ 229,686 $ 197,829
Average number of shares outstanding 136,512 124,272 123,340
Average number of shares outstanding--assuming
dilution 139,421 126,777 125,289
Per share:
Net income $ 2.20 $ 1.85 $ 1.60
Net income, assuming dilution 2.15 1.81 1.58
Cash dividends declared 0.80 0.70 0.66
</TABLE>
See notes to consolidated financial statements.
52
<PAGE> 39
CONSOLIDATED STATEMENTS OF CASH FLOWS
Regions Financial Corporation & Subsidiaries
<TABLE>
<CAPTION>
(amounts in thousands) YEAR ENDED DECEMBER 31
- -----------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 299,692 $ 229,686 $ 197,829
Adjustments to reconcile net cash provided by
operating activities:
Depreciation and amortization of premises and
equipment 32,994 28,471 26,232
Provision for loan losses 41,773 29,041 30,271
Net amortization (accretion) of securities 4,944 (1,677) (6,644)
Amortization of loans and other assets 31,582 27,269 21,073
Amortization of deposits and borrowings (1,642) (1,643) (5,643)
Provision for losses on other real estate 598 91 2,726
Deferred income taxes 10,712 8,880 14,291
Loss (gain) on sale of premises and equipment 722 (655) (27)
Realized security (gains) losses (541) (3,115) 424
(Increase) in trading account assets (21,028) (778) (4,017)
(Increase) decrease in mortgages held for sale (168,178) (52,774) 903
(Increase) in interest receivable (25,987) (16,335) (12,759)
(Increase) in other assets (90,086) (99,634) (15,158)
Increase (decrease) in other liabilities 123,474 (37,014) 16,637
Stock issued to employees under incentive plan 10,971 4,333 601
Other 1,846 1,557 14,556
Net cash provided by operating activities 251,846 115,703 281,295
Investing activities:
Net (increase) in loans (2,071,696) (1,310,399) (268,167)
Proceeds from sale of securities available for sale 8,687 192,941 50,638
Proceeds from maturity of investment securities 721,080 526,897 503,811
Proceeds from maturity of securities available for
sale 614,424 532,927 510,201
Purchase of investment securities (1,234,431) (556,830) (617,913)
Purchase of securities available for sale (145,912) (512,493) (880,753)
Net decrease (increase) in interest-bearing
deposits in other banks 46,397 30,444 (31,194)
Proceeds from sale of premises and equipment 7,299 13,930 4,555
Purchase of premises and equipment (44,675) (50,348) (43,186)
Net (increase) decrease in customers' acceptance
liability (79,154) (26,822) 59,234
Net cash received in acquisitions 135,241 116,725 50,908
Net cash (used) by investing activities (2,042,740) (1,043,028) (661,866)
Financing activities:
Net increase in deposits 1,147,000 872,647 472,194
Net increase (decrease) in short-term borrowings 836,311 539,646 (79,274)
Proceeds from long-term borrowings 11,525 32,428 125,851
Payments on long-term borrowings (104,447) (215,535) (99,395)
Net increase (decrease) in bank acceptance liability 79,154 26,822 (59,234)
Cash dividends (108,980) (87,466) (77,020)
Purchase of treasury stock (43,756) (104,288) (61,882)
Proceeds from exercise of stock options 1,540 5,262 2,451
Net cash provided by financing activities 1,818,347 1,069,516 223,691
Increase (decrease) in cash and cash equivalents 27,453 142,191 (156,880)
Cash and cash equivalents at beginning of year 795,691 653,500 810,380
Cash and cash equivalents at end of year $ 823,144 $ 795,691 $ 653,500
</TABLE>
See notes to consolidated financial statements.
53
<PAGE> 40
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, 1995 $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 $14,890 40,612
Net income for the year 197,829
Cash dividends declared-
Regions-$.66 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 plan 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($2,374) (12,528)
Net income for the year 229,686
Cash dividends declared-
Regions-$.70 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 plan 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)
Equity from immaterial
acquisitions accounted
for as poolings of
interest 3,368 77,391 35,773
Change in unrealized gains
and (losses), net of
income taxes of $4,470 7,517
Net income for the year 299,692
Cash dividends declared-
Regions-$.80 per share (108,980)
Two-for-one stock split 42,699 (42,699)
Purchase of treasury stock (43,756)
Treasury stock retired and
reissued relating to
acquisitions accounted
for as purchases (626) (43,097) 43,722
Stock issued for
acquisitions 414 29,193
Stock issued to employees
under incentive plan 220 16,442 1,605 (8,145)
Stock options exercised 239 1,301
Amortization of unearned
restricted stock 1,856
BALANCE AT DECEMBER 31, $85,636 $601,801 $1,235,997 $ 11,221 $(12,390) $(9,410)
1997
</TABLE>
See notes to consolidated financial statements.
( ) Indicates deduction.
54
<PAGE> 41
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.
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.
<PAGE> 42
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.
On loans which are considered impaired, 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.
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).
Estimated useful lives generally are as follows:
Premises and leasehold improvements 10-40 years
Furniture and equipment 3-12 years
55
<PAGE> 43
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 $212,865,000
at December 31, 1997, and $173,820,000 at December 31, 1996, 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 $86,871,000 at December 31, 1997 and $71,050,000 at December 31, 1996,
are being amortized over the estimated remaining servicing life of the loans,
considering appropriate prepayment assumptions. The estimated fair value of
capitalized mortgage servicing rights were $107 million and $112 million at
December 31, 1997 and 1996, respectively. The fair value of mortgage servicing
rights is calculated by discounting estimated future cash flows from the
servicing assets, using market discount rates, and using expected future
prepayment rates. In 1997 and 1996, Regions amortization of mortgage servicing
rights was $12.0 million and $13.9 million, respectively. 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
<PAGE> 44
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 1997 and 1996, Regions capitalized
$27.8 million and $20.7 million in mortgage servicing rights, respectively.
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.
On January 1, 1997, Regions adopted Statement of Financial Accounting
Standards No. 125 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities" (Statement 125), which superseded Statement
122. Statement 125 retained most of the provisions of Statement 122, and it
modified existing provisions affecting servicing right impairment evaluation,
and income from servicing in excess of contractually-stated amounts. The impact
of Statement 125 was not material to Regions' financial condition or results of
operations.
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. 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. 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. Earnings per share, assuming dilution
computations are based upon the weighted average number of shares outstanding
during the period plus the dilutive effect of outstanding stock options and
stock performance awards. All per share amounts have been restated to reflect
the two-for-one stock split in 1997 and Financial Accounting Standards Board
Statement No. 128, "Earnings per Share".
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.
56
<PAGE> 45
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 $795,820,000 in
1997, $682,385,000 in 1996, and $617,952,000 in 1995 for interest on deposits
and borrowings. Income tax payments totaled $81,177,000 for 1997, $112,791,000
for 1996, and $89,380,000 for 1995. Loans transferred to other real estate
totaled $19,190,000 in 1997, $14,933,000 in 1996, and $13,686,000 in 1995.
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.
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, 1997 was approximately $34,086,000.
NOTE C. SECURITIES
The amortized cost and estimated fair value of investment securities and
securities available for sale at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES:
U.S. Treasury
and Federal
agency
securities $2,078,016 $12,094 $(1,392) $2,088,718
Obligations
of states
and political
subdivisions 489,162 22,131 (759) 510,534
Mortgage backed
securities 307,039 1,755 (1,934) 306,860
TOTAL $2,874,217 $35,980 $(4,085) $2,906,112
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury
and Federal
agency
securities $ 215,004 $ 4,385 $ (434) $ 218,955
Obligations
of states
and political
subdivisions 25,927 1,103 (113) 26,917
Mortgage backed
securities 1,207,652 18,529 (5,442) 1,220,739
Other securities 806 14 -0- 820
Equity securities 58,519 22 -0- 58,541
TOTAL $1,507,908 $24,053 $(5,989) $1,525,972
</TABLE>
The cost and estimated fair value of investment securities and securities
available for sale at December 31, 1997 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.
<PAGE> 46
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------
ESTIMATED
FAIR
COST VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT SECURITIES:
Due in one year or less $ 435,454 $ 437,991
Due after one year through
five years 1,164,910 1,176,210
Due after five years through
ten years 877,175 890,978
Due after ten years 89,639 94,073
Mortgage backed
securities 307,039 306,860
TOTAL $2,874,217 $2,906,112
<CAPTION>
(in thousands) DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------
ESTIMATED
FAIR
COST VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
SECURITIES AVAILABLE FOR SALE:
Due in one year or less $ 83,492 $ 83,530
Due after one year through
five years 145,500 149,642
Due after five years through
ten years 8,465 9,037
Due after ten years 4,280 4,483
Mortgage backed
securities 1,207,652 1,220,739
Equity securities 58,519 58,541
TOTAL $1,507,908 $1,525,972
</TABLE>
Proceeds from sales of securities available for sale in 1997, were $8.7
million. Gross realized gains and losses were $557,000 and $16,000,
respectively. Proceeds from sales of securities available for sale in 1996 were
$192,941,000, with gross realized gains and losses of $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.
57
<PAGE> 47
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>
Securities with carrying values of $2,218,184,000 and $1,724,003,000 at
December 31, 1997, and 1996, respectively, were pledged to secure public funds,
trust deposits and certain borrowing arrangements.
<PAGE> 48
NOTE D. LOANS
The loan portfolio at December 31, 1997 and 1996, consisted of the
following:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 3,856,405 $ 2,830,271
Real estate-construction 1,231,067 879,832
Real estate-mortgage 7,198,481 5,884,688
Consumer 4,141,644 3,740,659
16,427,597 13,335,450
Unearned income (32,692) (24,278)
Total $16,394,905 $13,311,172
</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, 1997,
and 1996, were approximately $115 million and $111 million respectively. During
1997, $335 million of new loans were made, repayments totaled $334 million and
increases for changes in the composition of related parties totaled $3 million.
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 $74.5 million and $106.1 million at
December 31, 1997, and 1996, 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 $34 million at December 31,
1997, and $29 million at December, 31, 1996.
58
<PAGE> 49
NOTE E. ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 175,548 $ 159,487 $ 143,464
Allowance of purchased
institutions at acquisition
date 14,325 6,133 4,721
Provision charged to
operating expense 41,773 29,041 30,271
Loan losses:
Charge-offs (63,619) (36,406) (35,211)
Recoveries 26,279 17,293 16,242
Net loan losses (37,340) (19,113) (18,969)
Balance at end of year $ 194,306 $ 175,548 $ 159,487
</TABLE>
NOTE F. PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31
- ------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 65,383 $ 56,085
Premises 304,316 267,756
Furniture and equipment 33,835 210,339
Leasehold improvements 230,024 33,250
633,558 567,430
Allowances for depreciation
and amortization (321,027) (290,540)
TOTAL $ 312,531 $ 276,890
</TABLE>
Net occupancy expense is summarized as follows:
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross occupancy expense $41,486 $37,097 $32,660
Less rental income 3,184 3,481 3,655
Net occupancy expense $38,302 $33,616 $29,005
</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 $11,856,000 at December 31, 1997, and $10,736,000 at December 31, 1996.
Gain or loss on the sale of other real estate is included in other expense.
<PAGE> 50
NOTE H. DEPOSITS
The following schedule presents the detail of interest-bearing deposits:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31
- ----------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Interest-bearing
transaction accounts $ 749,760 $ 418,490
Interest-bearing accounts
in foreign office 713,944 603,861
Savings accounts 990,548 973,615
Money market savings
accounts 4,006,645 3,447,259
Certificates of deposit
($100,000 or more) 2,514,113 2,234,848
Time deposits
($100,000 or more) 239,479 147,139
Other interest-bearing
deposits 6,168,890 5,313,950
Total $ 15,383,379 $13,139,162
</TABLE>
The following schedule details interest expense on deposits:
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-bearing
transaction accounts $ 16,223 $ 10,977 $ 40,926
Interest-bearing accounts
in foreign office 30,888 22,145 18,107
Savings accounts 24,736 26,167 27,358
Money market savings
accounts 132,198 112,839 78,307
Certificates of deposit
($100,000 or more) 149,867 110,525 83,103
Other interest-bearing
deposits 343,228 305,091 288,079
Total $697,140 $587,744 $535,880
</TABLE>
The aggregate amount of maturities of all time deposits in each of the next
five years is as follows: 1998-$5.3 billion; 1999-$1.3 billion; 2000-$2.0
billion; 2001-$123 million; and 2002-$185 million.
59
<PAGE> 51
NOTE I. BORROWED FUNDS
Following is a summary of short-term borrowings:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31
- ----------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased $1,659,134 $ 1,318,171 $635,842
Securities sold
under agreements
to repurchase 275,585 231,558 396,115
Federal Home Loan Bank
structured notes 500,000 -0- -0-
Commercial paper 52,750 40,367 21,100
Notes payable to an
unaffiliated bank -0- 21,600 10,000
Treasury tax and loan note -0- -0- 5,431
Short sale liability 2,834 231 109
Total $2,490,303 $1,611,927 $1,068,597
<CAPTION>
(in thousands) DECEMBER 31
- ----------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum amount
outstanding at any
month-end:
Federal funds
purchased and
securities sold
under agreements
to repurchase $ 2,035,322 $ 1,549,729 $1,383,505
Aggregate short-
term borrowings 2,490,303 1,611,927 1,441,505
Average amount
outstanding (based
on average of daily
balances) 1,726,269 1,192,082 957,433
Weighted average
interest rate
at year end 4.8% 6.2% 5.6%
Weighted average interest
rate on amounts
outstanding during
the year (based on
average of daily balances) 5.7% 5.5% 6.0%
</TABLE>
Federal funds purchased and securities sold under agreements to repurchase
had weighted average maturities of seven, eleven and nine days at December 31,
1997, 1996 and 1995, respectively. Weighted average rates on these dates were
4.8%, 6.2% and 5.7%, respectively.
Federal Home Loan Bank structured notes have a ten year maturity, but are
callable within three months. The structured notes had a weighted average rate
of 4.9% at December 31, 1997.
Commercial paper maturities ranged from 257 to 581 days at December 31,
1997, from 3 to 715 days at December 31, 1996 and from 4 to 166 days at December
31, 1995. Weighted average maturities were 329, 372 and 113 days at December 31,
1997, 1996 and 1995, respectively. The weighted average interest rates on these
dates were 6.3%, 5.8% 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, 1997 and 1996. No
<PAGE> 52
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, 1997, no borrowings were outstanding under
this agreement. On December 31, 1996, $21.6 million was outstanding.
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 6.3%, 6.5% and 6.9% at
December 31, 1997, 1996 and 1995, respectively.
Long-term borrowings consist of the following:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31
- ----------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------
<C> <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 169,360 178,742
Senior bank notes -0- 40,000
Mortgage notes payable 2,617 3,155
Industrial development revenue bond 3,200 3,300
Other notes payable 25,022 22,072
Total $400,199 $447,269
</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 issues 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.
Federal Home Loan Bank notes represent borrowings from Federal Home Loan
Banks. Interest on these borrowings is at fixed rates ranging from 5.8% to 7.4%,
with maturities of one to twenty years. These borrowings are secured by Federal
Home Loan Bank stock (carried at cost of $58.5 million) and by first mortgage
loans on one-to-four family dwellings held by certain banking subsidiaries
(approximately $5.1 billion at December 31, 1997). 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
$519 million.
As of December 31, 1997, no senior bank notes remained outstanding. At
December 31, 1996, Regions Bank had outstanding $40 million in senior bank notes
with an interest rate of 7.06%. These notes were unsecured and matured in 1997.
Regions' Bank is currently authorized to issue up to $250 million in bank notes
to institutional investors.
The mortgage notes payable at December 31, 1997, had a weighted average
interest rate of 8.7% and were collateralized by premises and equipment carried
at $7,949,000.
60
<PAGE> 53
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, 1997, had a weighted average interest
rate of 5.4% and a weighted average maturity of 7.1 years.
The aggregate amount of maturities of all long-term debt in each of the
next five years is as follows: 1998-$68,953,000; 1999-$24,260,000;
2000-$41,144,000; 2001-$27,056,000; 2002-$79,041,000.
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, 1997, the banking
subsidiaries could pay approximately $180 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
- ----------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit obligation,
including vested benefits
of $102,461 in 1997 and
$86,395 in 1996 $(103,851) $ (87,579)
Projected benefit obligation for
service rendered to date $(122,594) $(103,509)
Plan assets at fair value, primarily
listed stocks and bonds, and U.S.
Treasury and agency obligations 132,463 112,915
Plan assets in excess of projected
benefit obligation 9,869 9,406
Unrecognized net loss from
past experience different
from that assumed 3,461 5,178
Unrecognized prior service cost (2,239) (1,376)
Prepaid pension cost
included in other assets $ 11,091 $ 13,208
</TABLE>
61
<PAGE> 54
Net pension cost included the following components:
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during the
period $ 5,098 $ 4,339 $ 3,501
Interest cost on projected
benefit obligation 8,300 7,430 6,411
Actual (return) on
plan assets (18,904) (14,897) (16,577)
Net amortization and
deferral 8,317 4,467 6,323
Net periodic pension
expense (income) $ 2,811 $ 1,339 $ (342)
</TABLE>
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 7.50% and 4.50%, respectively, at December 31,
1997; 7.75% and 4.50%, respectively, at December 31, 1996; and 7.25% and 4.50%,
respectively, at December 31, 1995. 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 $5,652,000 at December 31, 1997, and $5,229,000 at
December 31, 1996. The accumulated benefit obligation, all of which was vested
and accrued at December 31, 1997 and 1996, totaled $5,208,000 and $4,526,000,
respectively. Pension expense for this plan totaled $480,000 in 1997 and 1996,
and $440,000 in 1995.
Contributions to employee profit sharing plans totaled $21,016,000,
$16,202,000 and $17,084,000 for 1997, 1996 and 1995, respectively.
The 1997 contribution to the employee stock ownership plan totaled
$2,950,000, compared to $1,863,000 in 1996, and $1,690,000 in 1995.
Contributions are used to purchase Regions common stock for the benefit of
participating employees.
Contributions to the employee stock purchase plan in 1997, 1996 and 1995
were $1,516,000, $1,479,000 and $1,472,000, 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.
<PAGE> 55
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
- ----------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation,
including retiree benefits
of $4,855 in 1997 and $5,640
in 1996 $(9,803) $(11,949)
Unrecognized transition
obligation 8,857 9,661
Unrecognized net (gain) from
past experience different
from that assumed (5,500) (3,350)
Accrued postretirement benefit
obligation $(6,446) $ (5,638)
Net periodic postretirement benefit cost included the following
components:
</TABLE>
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during the
period $ 381 $ 544 $ 373
Interest cost on
benefit obligation 681 833 622
Net amortization and
deferral 590 605 486
Unrecognized (gain) (324) (158) (205)
Net periodic postretirement
benefit cost $1,328 $1,824 $1,276
</TABLE>
The assumed health care cost trend rate was 10% for 1997 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,
1997, by $931,000 and the aggregate of the service and interest cost components
of net periodic postretirement benefit cost for 1997 by $132,000. The weighted
average discount rate used in determining the accumulated postretirement benefit
obligation was 7.50% at December 31, 1997, and 7.75% at December 31, 1996.
62
<PAGE> 56
NOTE K. LEASES
Rental expense for all leases amounted to approximately $8,404,000,
$7,108,000 and $5,830,000 for 1997, 1996 and 1995, respectively. The approximate
future minimum rental commitments as of December 31, 1997, 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
- ----------------------------------------------------------------------------------------
<C> <C> <C> <C>
1998 $266 $ 5,752 $ 6,018
1999 203 5,156 5,359
2000 162 4,493 4,655
2001 54 3,572 3,626
2002 37 3,271 3,308
2003-2007 7 9,046 9,053
2008-2012 0 4,914 4,914
2013-2017 0 1,833 1,833
2018-End 0 707 707
TOTAL $729 $38,744 $39,473
</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 $3.9 billion at December 31, 1997, and $3.6
billion at December 31, 1996. Standby letters of credit were $444.4 million at
December 31, 1997, and $446.4 million at December 31, 1996. Commitments under
commercial letters of credit used to facilitate customers' trade transactions
were $20.8 million at December 31, 1997, and $32.3 million at December 31, 1996.
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
<PAGE> 57
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, 1997, 1996 or 1995. 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 $90 million and $57
million at December 31, 1997, and 1996, 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 as of December 31, 1997 or December 31, 1996. The
commitment fees paid for option contracts reflect the maximum exposure to the
Company.
63
<PAGE> 58
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 $31 million and $24 million at
December 31, 1997 and 1996, respectively. 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> 59
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31, 1997 DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 823,144 $ 823,144 $ 795,691 $ 795,691
Interest-bearing deposits
in other banks 29,453 29,453 33,191 33,191
Investment securities 2,874,217 2,906,112 2,102,750 2,115,718
Securities available for sale 1,525,972 1,525,972 1,767,845 1,767,845
Trading account assets 50,676 50,676 29,648 29,648
Mortgage loans held for sale 375,759 375,759 169,861 169,861
Loans (excluding leases) 16,021,976 16,310,372 12,992,471 13,148,381
Financial liabilities:
Deposits 17,750,926 17,857,432 15,048,336 15,060,375
Short-term borrowings 2,490,303 2,490,303 1,611,927 1,611,927
Long-term borrowings 400,199 415,407 447,269 438,154
Off-balance-sheet instruments:
Loan commitments -0- (33,019) - 0 - (30,653)
Standby letters of credit -0- (6,666) - 0 - (6,697)
Commercial letters of credit -0- (52) - 0 - (81)
</TABLE>
NOTE O. OTHER INCOME AND EXPENSE
Other income consists of the following:
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fees and commissions $24,454 $20,619 $19,550
Insurance premiums
and commissions 6,530 6,514 5,686
Trading account income 14,069 10,555 6,696
Gain on sale of mortgage
servicing rights -0- -0- 150
Other miscellaneous income 16,946 13,495 13,384
Total $61,999 $51,183 $45,466
</TABLE>
Other expense consists of the following:
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stationery, printing
and supplies $ 10,597 $ 12,747 $ 10,670
Advertising and business
development 13,119 11,912 10,564
Postage and freight 11,516 10,135 10,997
Telephone 12,244 10,732 9,869
Legal and other
professional fees 13,539 14,189 13,380
Other non-credit losses 13,727 10,653 8,006
Outside computer services 9,137 12,771 9,326
Amortization of mortgage
servicing rights 11,983 13,889 11,577
Loss on sale of
mortgages by affiliate
mortgage companies 2,892 5,592 1,093
Other miscellaneous
expenses 86,780 63,445 62,747
Total $185,534 $166,065 $148,229
</TABLE>
65
<PAGE> 60
NOTE P. INCOME TAXES
At December 31, 1997, Regions has net operating loss carryforwards for
federal tax purposes of $21.8 million that expire in years 2003 through 2011.
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
$10.6 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, 1997 and 1996
are listed below.
<TABLE>
<CAPTION>
(in thousands) December 31
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Loan loss allowance $ 64,098 $ 56,190
Net operating loss
carryforwards 17,614 13,351
Other 39,526 42,882
Total deferred tax assets 121,238 112,423
Deferred tax liabilities:
Tax over book depreciation 2,013 2,363
Accretion of bond discount 4,123 3,479
Direct lease financing 19,160 18,135
Pension 3,994 4,886
Originated mortgage
servicing rights 8,094 3,055
Other 22,831 17,366
Total deferred tax liabilities 60,215 49,284
Net deferred tax assets
before valuation allowance 51,023 63,139
Valuation allowance (10,560) (17,060)
Net deferred tax asset $ 40,463 $ 46,079
</TABLE>
The valuation allowance for net deferred tax assets decreased by $6.5
million in 1997. The decrease was due to a reassessment of the Company's ability
to realize the benefit of certain net operating loss carryforwards.
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
- -------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax computed at
statutory federal income
tax rate $155,862 $118,427 $102,878
Increases (decreases) in
taxes resulting from:
Obligations of states and
political subdivisions:
Tax exempt income (12,849) (10,726) (11,530)
Tax on preference item 2,295 1,859 1,353
State income tax, net
of federal tax benefit 6,809 1,206 5,552
Subsidiary purchase
accounting adjustments (57) (54) (51)
Other, net (6,432) (2,035) (2,093)
Total $145,628 $108,677 $ 96,109
Effective Tax Rate 32.7% 32.1% 32.7%
</TABLE>
<PAGE> 61
The provisions for income taxes included in the consolidated statements of
income are summarized below. Included in these amounts are income taxes of
$203,000, $1,090,000, and $(146,000) in 1997, 1996 and 1995, respectively,
related to securities transactions.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(in thousands) Current Deferred Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997
Federal $124,724 $10,329 $135,053
State 10,192 383 10,575
TOTAL $134,916 $10,712 $145,628
1996
Federal $ 97,620 $ 6,549 $106,821
State 2,177 (157) 1,856
Total $ 99,797 $ 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
</TABLE>
66
<PAGE> 62
NOTE Q. BUSINESS COMBINATIONS
During 1997 Regions completed the following business combinations:
<TABLE>
<CAPTION>
Total Assets Accounting
Date Company Headquarters Location (in thousands) Treatment
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January Florida First Panama City, Florida $286,515 Purchase
Bancorp, Inc.
January Allied Bankshares, Inc. Thomson, Georgia 559,815 Pooling
March West Carroll Oak Grove, Louisiana 127,145 Pooling
Bancshares, Inc.
April Gulf South Bancshares, Inc. Gretna, Louisiana 55,363 Purchase
May First Mercantile Longwood, Florida 157,434 Purchase
National Bank
May The New Iberia Bancorp, Inc. New Iberia, Louisiana 313,494 Pooling
June First Bankshares, Inc. Hapeville, Georgia 126,826 Pooling
June SB&T Corporation Smyrna, Georgia 147,709 Pooling
December GF Bancshares, Inc. Griffin, Georgia 99,446 Purchase
</TABLE>
The total consideration paid for all the 1997 business combinations was
approximately $58 million in cash and 11.6 million shares of Regions' common
stock (including treasury stock reissued) valued at $342 million. Total
intangible assets recorded in connection with the purchase transactions totaled
approximately $42 million.
During 1996 Regions completed the following business combinations:
<TABLE>
<CAPTION>
Total Assets Accounting
Date Company Headquarters Location (in thousands) Treatment
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January Metro Financial
Corporation Atlanta, Georgia $ 210,487 Purchase
February The Enterprise National Bank of
Atlanta Atlanta, Georgia 54,263 Purchase
March First National Bancorp Gainesville, Georgia 3,198,634 Pooling
April First Federal Bank of
Northwest Georgia,
Federal Savings Bank Cedartown, Georgia 93,381 Pooling
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, Inc. Houma, Louisiana 88,742 Purchase
</TABLE>
67
<PAGE> 63
Because certain of the 1997 and 1996 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, 1996. 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
- --------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income $1,662,118 $1,537,711
Interest expense 829,554 757,605
---------- ----------
Net interest income 832,564 780,106
Provision for loan losses 42,050 38,139
Non-interest income 264,675 242,221
Non-interest expense 609,291 635,873
---------- ----------
Income before income taxes 445,898 348,315
Applicable income taxes 146,102 114,469
---------- ----------
Net income $ 299,796 $ 233,846
Net income per share $ 2.20 $ 1.73
Net income per share,assuming dilution $ 2.15 $ 1.70
</TABLE>
The following chart summarizes the assets acquired and liabilities assumed
in connection with business combinations, excluding the First National
transaction, in 1997 and 1996.
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 180,305 $ 64,511
Investment securities 219,005 41,280
Securities available for sale 266,870 153,710
Loans, net 1,034,565 469,669
Other assets 173,002 24,071
Deposits 1,555,590 678,077
Borrowings 85,559 3,684
Other liabilities 38,224 3,972
</TABLE>
<PAGE> 64
Regions' business combinations pending as of December 31, 1997, or
announced prior to February 14, 1998, are as follows:
<TABLE>
<CAPTION>
Approximate
(In millions)
------------- Anticipated
Asset Consider- Accounting
Institution Size Value(1) ation Treatment
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Greenville Financial Corporation located in $ 134 $ 34 Regions Pooling
Greenville, South Carolina Common
Stock
PALFED, Inc. located in Aiken, South Carolina 665 145 Regions Pooling
Common
Stock
First United Bancorporation, located in Anderson, 292 80 Regions Pooling
South Carolina Common
Stock
St. Mary Holding Corporation, located in 113 31 Regions Pooling
Franklin, Louisiana Common
Stock
Key Florida Bancorp, Inc. located in Bradenton, 212 39 Regions Pooling
Florida Common
Stock
First State Corporation located in Albany, Georgia 540 161 Regions Pooling
Common
Stock
Etowah Bank, located in Canton, Georgia 432 117 Regions Pooling
Common
Stock
First Community Banking Services, Inc. located in 131 33 Regions Pooling
Peachtree City, Georgia Common
Stock
First Commercial Corporation located in Little 6,887 2,587 Regions Pooling
Rock, Arkansas Common
Stock
Jacobs Bank located in Scottsboro, Alabama 190 53 Regions Pooling
Common
Stock
</TABLE>
(1) Computed as of the date of announcement of each transaction.
In early 1998, the Company consummated the Greenville and PALFED
transactions, with the issuance of approximately 4.8 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> 65
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 31,840,216 shares of its common stock
for all of First National's outstanding common stock (based on an exchange ratio
of .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 were 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
- ------------------------------------------------------------------------------------------------------
<S> <C>
Net interest income:
Regions $497,324
First National 126,940
Combined $624,264
Net income:
Regions $172,824
First National 25,005
Combined $197,829
Net income per common share:
Regions $ 1.87
First National .61
Combined 1.60
</TABLE>
<PAGE> 66
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 5,720,000 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 134,956; 180,228 and 333,950 of the shares
under option at December 31, 1997, 1996 and 1995, respectively.
Regions' long-term incentive plan provides for the granting of up to
10,000,000 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 3,000,000 shares of restricted stock and 5,000,000 shares of
performance awards, may be granted. During 1997 and 1996, Regions granted
236,469 and 80,000 shares, respectively, as restricted stock and during 1997,
1996, and 1995, granted 211,350; 277,600 and 263,800 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 1997, 1996, and 1995, 117,680; 11,552 and 8,650 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 1997 and 1996, 629,150 and 491,280
performance shares, respectively, were issued. Total expense for restricted
stock was $1,846,000 in 1997, $1,507,000 in 1996, and $1,074,000 in 1995. Total
expense for performance shares was $20,927,000 in 1997, $9,261,000 in 1996, and
$9,118,000 in 1995.
In connection with the business combinations with Florida First , New
Iberia, West Carroll, First Bankshares and First Mercantile, 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.
69
<PAGE> 67
Stock option activity (including assumed options) over the last three years
is summarized as follows:
<TABLE>
<CAPTION>
Shares Under Option Weighted
Option Price Average
Per Share Exercise
Prices
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at
January 1,
1995 3,670,006 $6.17 - $17.72
Granted 1,235,422 3.02 - 18.00
Exercised (466,394) 6.17 - 16.35
Canceled (36,396) 7.50 - 15.94
Outstanding at
December 31,
1995 4,402,638 3.02 - 18.00 $ 14.19
Granted 1,200,988 4.35 - 22.44 19.52
Exercised (1,168,568) 3.02 - 16.35 11.39
Canceled (20,784) 6.21 - 20.85 20.18
Outstanding at
December 31, 1996 4,414,274 4.35 - 22.44 15.61
Options assumed
through
acquisitions 417,873 2.64 - 20.31 9.73
Granted 588,432 26.06 - 38.75 34.39
Exercised (822,363) 2.64 - 22.44 13.05
Canceled (34,254) 7.43 - 26.06 13.04
Outstanding at
December 31, 1997
4,563,962 $3.39 - $38.75 $ 17.98
Exercisable at
December 31, 1997 3,748,063 $3.39 - $22.44 $ 15.61
</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>
1997 1996 1995
<S> <C> <C> <C>
Pro forma net income ($000's) $ 298,125 $ 226,177 $ 195,146
Pro forma net income per share 2.18 1.82 1.58
Pro forma net income per
share, assuming dilution 2.14 1.78 1.56
</TABLE>
Regions' options outstanding have a weighted average contractual life of
6.8 years. The weighted average fair value of options granted was $7.66 in
<PAGE> 68
1997, $4.62 in 1996 and $2.97 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 1997: expected dividend yield of 2.2%;
expected option life of 5 years; expected volatility of 19.7%; and a risk free
interest rate of 5.7%. The 1996 and 1995 assumptions were: 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 incentive 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.
NOTE S. PARENT COMPANY ONLY FINANCIAL STATEMENTS
Presented below are condensed financial statements of Regions Financial
Corporation:
<TABLE>
<CAPTION>
STATEMENTS OF CONDITION
(in thousands) DECEMBER 31
- -------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash due from banks $ 8,283 $ 6,483
Securities purchased under
agreements to resell -0- 10,000
Loans to subsidiaries 46,140 41,260
Investment securities 3,904 6,744
Premises and equipment 8,872 8,981
Investment in subsidiaries:
Banks 2,046,019 1,708,254
Non-banks 105,329 112,061
2,151,348 1,820,315
Other assets 28,812 20,621
$ 2,247,359 $ 1,914,404
Liabilities and Stockholders' Equity
Commercial paper $ 52,750 $ 40,367
Long-term borrowings 220,443 218,320
Other liabilities 61,311 56,991
Total liabilities 334,504 315,678
Stockholders' Equity:
Common stock 85,636 39,322
Surplus 601,801 520,571
Undivided profits 1,247,218 1,054,310
Treasury stock (12,390) (12,356)
Unearned restricted stock (9,410) (3,121)
Total stockholders' equity 1,912,855 1,598,726
$ 2,247,359 $ 1,914,404
</TABLE>
70
<PAGE> 69
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
(in thousands) YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends received
from subsidiaries:
Banks $ 223,850 $ 213,326 $ 136,500
Non-banks 3,000 -0- -0-
226,850 213,326 136,500
Service fees from
subsidiaries 38,369 27,781 24,819
Interest from
subsidiaries 2,936 3,249 2,132
Other 484 4,446 440
268,639 248,802 163,891
Expenses:
Salaries and employee
benefits 29,558 22,828 16,903
Interest 22,217 21,455 19,443
Net occupancy expense 857 1,012 647
Furniture and equipment
expense 654 972 364
Legal and other
professional fees 3,526 5,855 2,510
Amortization of excess
purchase price 10,892 8,375 5,505
Other expenses 4,736 8,945 4,713
72,440 69,442 50,085
Income before income
taxes and equity in
undistributed earnings
of subsidiaries 196,199 179,360 113,806
Applicable income taxes
(credit) (7,688) (8,858) (6,973)
Income before equity
in undistributed earnings
of subsidiaries 203,887 188,218 120,779
Equity in undistributed
earnings of subsidiaries:
Banks 90,287 47,893 68,985
Non-banks 5,518 (6,425) 8,065
95,805 41,468 77,050
NET INCOME $ 299,692 $ 229,686 $ 197,829
</TABLE>
Aggregate maturities of long-term borrowings in each of the next five years
for the parent company only are as follows: $5,670,000 in 1998; $670,000 in
1999; $630,000 in 2000; $25,660,000 in 2001; and $75,690,000 in 2002. Standby
letters of credit issued by the parent company totaled $8.9 million at December
31, 1997. This amount is included in total standby letters of credit disclosed
in Note L.
<PAGE> 70
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(in thousands) YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 299,692 $ 229,686 $ 197,829
Adjustments to reconcile
net cash provided by
operating activities:
Equity in undistributed
earnings of subsidiaries (95,805) (41,468) (77,050)
Provision for depreciation
and amortization 13,494 10,978 7,049
(Decrease) increase in other
liabilities (144) 9,854 6,988
Decrease (increase) in dividends
receivable from subsidiaries -0- 30,000 (30,000)
(Increase) in other assets (19,074) (2,637) (3,813)
Stock issued to employees under
incentive plan 10,971 4,333 253
Net cash provided by
operating activities 209,134 240,746 101,256
Investing activities:
Investment in subsidiaries (77,948) (25,018) (10,139)
Principal (advances) payments on
loans to subsidiaries (4,880) (11,966) (26,870)
Purchases and sales of
premises and equipment (656) (8,541) (184)
Maturity (purchase) of investment
securities 2,840 (2,138) 550
Net cash (used) by investing activities (80,644) (47,663) (36,643)
Financing activities:
Increase in
commercial paper borrowings 12,383 19,267 2,500
Cash dividends (108,980) (87,466) (60,075)
Purchase of treasury stock (43,756) (104,288) (61,882)
Proceeds from long-term borrowings 7,243 42,098 12,990
Principal payments on
long-term borrowings (5,120) (47,310) (5,200)
Net (decrease) increase in short-term
borrowings -0- (10,000) 10,000
Exercise of
stock options 1,540 5,262 836
Net cash (used) by
financing activities (136,690) (182,437) (100,831)
(Decrease) increase in cash and cash (8,200) 10,646 (36,218)
equivalents
Cash and cash equivalents at
beginning of year 16,483 5,837 42,055
Cash and cash equivalents at
end of year $ 8,283 $ 16,483 $ 5,837
</TABLE>
71
<PAGE> 71
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,
1997, 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.
Regions' and its most significant subsidiaries' capital levels at December
31, 1997 and 1996, exceeded the "well capitalized" levels, as shown below:
<TABLE>
<CAPTION>
December 31, 1997 To Be Well
(in thousands) Amount Ratio Capitalized
------ ----- -----------
<S> <C> <C> <C>
Tier I Capital:
Regions Financial Corporation $1,689,059 10.48% 6.00%
Regions Bank (Alabama) 1,334,111 10.47 6.00
Regions Bank (Georgia) 367,334 12.95 6.00
Total Capital:
Regions Financial Corporation $2,083,365 12.93% 10.00%
Regions Bank (Alabama) 1,478,543 11.60 10.00
Regions Bank (Georgia) 402,699 14.20 10.00
LEVERAGE:
Regions Financial Corporation $1,689,059 7.52% 5.00%
Regions Bank (Alabama) 1,334,111 7.57 5.00
Regions Bank (Georgia) 367,334 10.83 5.00
<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>
72
<PAGE> 72
NOTE U. 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.
NOTE V. EARNINGS PER SHARE
The following table sets forth the computation of basic earnings per share and
earnings per share assuming dilution.
<TABLE>
<CAPTION>
(in thousands except per share amounts)
1997 1996 1995
<S> <C> <C> <C>
Numerator:
For basic earnings per share
and earnings per share,
assuming dilution
net income $299,692 $229,686 $197,829
======== ======== ========
Denominator:
For basic earnings per share -
weighted shares outstanding 136,512 124,272 123,340
Effect of dilutive
securities:
Stock options 1,963 1,294 650
Performance shares 946 1,211 1,299
-------- -------- --------
2,909 2,505 1,949
For earnings per share,
assuming dilution 139,421 126,777 125,289
======== ======== ========
Basic earnings per share $ 2.20 $ 1.85 $ 1.60
======== ======== ========
Earnings per share,
assuming dilution $ 2.15 $ 1.81 $ 1.58
======== ======== ========
</TABLE>
NOTE W. RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 127, "Deferral of the
Effective Date of Certain Provision of Financial Accounting Standards Board No.
125" (Statement 127), amended Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", and delayed until 1998 certain provisions that
deal with securities lending, repurchase and dollar agreements, and the
recognition of collateral. The Company will adopt Statement 127 in 1998 and does
not believe the effect of adoption will be material.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," (Statement 130). Statement 130
establishes standards for reporting the components of comprehensive income and
requires that all items that are required to be recognized under
<PAGE> 73
accounting standards as components of comprehensive income be included in a
financial statement that is displayed with the same prominence as other
financial statements. The provisions of this statement are effective beginning
with interim reporting beginning after December 15, 1997. These disclosure
requirements will have no impact on financial position or results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise and Related Information,"
(Statement 131). Statement 131 requires disclosure of financial and descriptive
information about an enterprise's operating segments in annual and interim
reports issued to shareholders. Statement 131 defines an operating segment as a
component of an enterprise that engages in business activity, generates revenue
and incurs expenses, whose operating results are reviewed by the chief operating
decision maker in the determination of resource allocation and performance, and
for which discrete financial information is available. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. Statement 131 is effective for fiscal years beginning after
December 15, 1997. Regions is currently evaluating the impact of Statement 131
on the disclosures included in its financial statements.
73
<PAGE> 74
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, 1997 and
1996, 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, 1997. 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, 1997 and 1996
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
February 9, 1998,
except for Note Q as
to which the date is
February 13, 1998
74
<PAGE> 75
HISTORICAL FINANCIAL SUMMARY
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
<TABLE>
<CAPTION>
(in thousands-except ratios, yields, and per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATING RESULTS 1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $1,342,198 $1,102,406 $ 1,009,783 $757,078 $559,850 $531,422
Income on federal funds sold 7,195 2,625 7,761 7,016 4,658 10,585
Taxable interest on securities 254,153 237,046 204,194 181,517 136,007 149,530
Tax-free interest on securities 29,838 22,462 25,304 23,803 20,733 19,082
Other interest income 19,700 21,583 12,558 22,279 25,296 26,475
Total interest income 1,653,084 1,386,122 1,259,600 991,693 746,544 737,094
Interest expense:
Interest on deposits 697,140 587,744 535,880 374,533 275,455 311,945
Interest on short-term borrowings 97,963 65,400 57,429 24,766 7,859 7,846
Interest on long-term borrowings 29,100 32,512 42,027 36,858 12,881 4,629
Total interest expense 824,203 685,656 635,336 436,157 296,195 324,420
Net interest income 828,881 700,466 624,264 555,536 450,349 412,674
Provision for loan losses 41,773 29,041 30,271 20,580 24,695 39,367
Net interest income after provision for loan losses 787,108 671,425 593,993 534,956 425,654 373,307
Non-interest income:
Trust department income 29,206 27,634 25,656 21,731 20,549 19,118
Service charges on deposit accounts 111,385 88,190 73,100 62,096 52,382 49,936
Mortgage servicing and origination fees 55,422 50,617 43,608 45,365 47,148 40,299
Securities gains (losses) 541 3,115 (424) 344 831 2,417
Other 61,999 51,183 45,466 42,513 49,239 38,590
Total non-interest income 258,553 220,739 187,406 172,049 170,149 150,360
Non-interest expense:
Salaries and employee benefits 333,061 281,845 261,066 228,199 199,178 175,942
Net occupancy expense 38,302 33,616 29,005 27,212 20,790 19,616
Furniture and equipment expense 39,493 35,375 30,890 28,861 24,432 22,423
Other 189,485 202,965 166,500 158,104 138,730 125,298
Total non-interest expense 600,341 553,801 487,461 442,376 383,130 343,279
Income before income taxes 445,320 338,363 293,938 264,629 212,673 180,388
Applicable income taxes 145,628 108,677 96,109 84,109 66,169 56,405
Net income $ 299,692 $ 229,686 $ 197,829 $180,520 $146,504 $123,983
Average number of shares outstanding 136,512 124,272 123,340 116,412 104,306 102,384
Average number of shares outstanding--assuming dilution 139,421 126,777 125,289 118,223 106,126 103,961
Per share:
Net income $ 2.20 $ 1.85 $ 1.60 $ 1.55 $ 1.41 $ 1.21
Net income--assuming dilution 2.15 1.81 1.58 1.53 1.38 1.19
Cash dividends declared 0.80 0.70 0.66 0.60 0.52 0.46
YIELDS AND COSTS (TAXABLE EQUIVALENT BASIS)
Earning assets:
Taxable securities 6.68% 6.57% 6.54% 6.34% 6.96% 7.82%
Tax-free securities 8.90 8.42 9.00 9.76 10.30 10.66
Federal funds sold 6.12 5.19 5.89 3.95 3.09 3.63
Loans (net of unearned income) 8.88 8.91 8.89 8.14 8.09 9.05
Other earning assets 7.48 8.26 7.99 6.44 6.48 6.07
Total earning assets 8.43 8.38 8.38 7.69 7.80 8.53
Interest-bearing liabilities:
Interest-bearing deposits 4.72 4.65 4.66 3.71 3.54 4.33
Short-term borrowings 5.66 5.49 6.38 5.25 3.61 3.81
Long-term borrowings 6.76 6.71 6.44 6.12 7.07 7.23
Total interest-bearing liabilities 4.87 4.79 4.87 3.91 3.62 4.34
Net yield on interest earning assets 4.27 4.27 4.21 4.37 4.77 4.85
RATIOS
Net income to:
Average stockholders' equity 16.29% 15.19%* 14.29% 15.26% 15.76% 15.04%
Average total assets 1.41 1.29* 1.21 1.27 1.38 1.29
Efficiency 54.36 59.44* 58.79 59.44 60.23 59.62
Dividend payout 36.36 37.84 41.25 38.71 36.88 38.02
Average loans to average deposits 88.90 85.90 86.12 79.90 76.41 71.59
Average stockholders' equity to average total assets 8.63 8.49 8.44 8.35 8.76 8.60
Average interest-bearing deposits to average
total deposits 86.59 87.43 86.81 86.22 85.31 86.15
</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%.
<PAGE> 76
<TABLE>
<CAPTION>
Annual Compound
Change Growth Rate
----------------------------------
1996-1997 1992-1997
----------------------------------
<S> <C>
21.75% 20.36%
174.10 -7.43
7.22 11.19
32.84 9.35
-8.72 -5.74
19.26 17.53
18.61 17.45
49.79 65.68
-10.49 44.44
20.21 20.50
18.33 14.97
43.84 1.19
17.23 16.09
5.69 8.84
26.30 17.40
9.49 6.58
-82.63 -25.87
21.13 9.95
17.13 11.45
18.17 13.61
13.94 14.32
11.64 11.99
-6.64 8.62
8.40 11.83
31.61 19.81
34.00 20.89
30.48% 19.31%
9.85% 5.92%
9.97 6.05
18.92% 12.70%
18.78 12.56
14.29 11.70
</TABLE>
75
<PAGE> 77
HISTORICAL FINANCIAL SUMMARY--CONTINUED
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
<TABLE>
<CAPTION>
(average daily balances)
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS 1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Taxable securities $ 3,776,116 $ 3,557,041 $ 3,106,739 $ 2,854,715 $ 1,954,191 $ 1,913,037
Tax-exempt securities 510,772 429,004 410,765 382,583 316,651 272,636
Federal funds sold 117,613 50,613 131,862 177,642 150,664 291,764
Loans, net of unearned 15,149,429 12,412,351 11,412,900 9,352,856 6,971,610 5,988,674
income
Other earning assets 264,540 262,024 171,284 346,656 391,071 347,374
Total earning assets 19,818,470 16,711,033 15,233,550 13,114,452 9,784,187 8,813,485
Allowance for loan losses (193,486) (170,666) (154,170) (139,604) (108,951) (87,313)
Cash and due from banks 649,493 478,840 546,529 525,936 469,657 400,085
Other non-earning assets 1,030,978 790,841 775,125 663,403 458,743 455,241
Total assets $ 21,305,455 $ 17,810,048 $ 16,401,034 $ 14,164,187 $ 10,603,636 $ 9,581,498
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 2,284,928 $ 1,816,495 $ 1,748,647 $ 1,613,461 $ 1,340,625 $ 1,158,463
Interest-bearing 14,755,732 12,632,902 11,503,869 10,091,647 7,783,766 7,206,810
Total deposits 17,040,660 14,449,397 13,252,516 11,705,108 9,124,391 8,365,273
Borrowed funds:
Short-term 1,726,269 1,192,082 900,246 471,332 217,703 206,146
Long-term 430,737 484,390 652,520 601,781 182,115 64,016
Total borrowed funds 2,157,006 1,676,472 1,552,766 1,073,113 399,818 270,162
Other liabilities 268,108 172,406 211,037 202,765 150,107 121,928
Total liabilities 19,465,774 16,298,275 15,016,319 12,980,986 9,674,316 8,757,363
Stockholders' equity 1,839,681 1,511,773 1,384,715 1,183,201 929,320 824,135
Total liabilities and
stockholders' equity $ 21,305,455 $ 17,810,048 $ 16,401,034 $ 14,164,187 $ 10,603,636 $ 9,581,498
YEAR-END BALANCES
Assets $ 23,034,228 $ 18,930,175 $ 16,851,774 $ 15,810,076 $ 13,163,161 $10,457,676
Securities 4,400,189 3,870,595 3,863,781 3,346,291 2,993,417 2,255,732
Loans, net of unearned income 16,394,905 13,311,172 11,542,311 10,855,195 8,430,931 6,657,557
Non-interest-bearing 2,367,547 1,909,174 1,864,970 1,799,451 1,488,395 1,289,447
deposits
Interest-bearing deposits 15,383,379 13,139,162 11,632,642 10,776,142 9,536,981 7,634,354
Total deposits 17,750,926 15,048,336 13,497,612 12,575,593 11,025,376 8,923,801
Long-term debt 400,199 447,269 632,019 599,476 525,820 151,460
Stockholders' equity 1,912,855 1,598,726 1,429,253 1,286,322 1,106,361 886,116
Stockholders' equity per 13.99 12.76 11.69 10.63 9.93 8.57
share
Market price per share of 42.19 25.85 21.50 15.50 16.19 16.32
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.
(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 1997-1993
and 34% for 1992.
(5) This summary should be read in conjunction with the related financial
statements and notes thereto on pages 51 to 73.
76
<PAGE> 78
<TABLE>
<CAPTION>
Annual Compound
Change Growth Rate
- ----------------------------------------
1996-1997 1992-1997
- ----------------------------------------
<S> <C>
6.16% 14.57%
19.06 13.38
132.38 -16.62
22.05 20.40
0.96 -5.30
18.60 17.59
13.37 17.25
35.64 10.18
30.36 17.76
19.63% 17.33%
25.79% 14.55%
16.80 15.41
17.93 15.29
44.81 52.96
-11.08 46.41
28.66 51.51
55.51 17.07
19.43 17.32
21.69 17.42
19.63% 17.33%
21.68% 17.11%
13.68 14.30
23.17 19.75
24.01 12.92
17.08 15.04
17.96 14.75
-10.52 21.45
19.65 16.64
9.64 10.30
63.21 20.92
</TABLE>
<PAGE> 1
Exhibit 21 - List of Subsidiaries at December 31, 1997:
Regions Bank (Alabama) (1)
Regions Bank (Georgia) (2)
Allied Bank of Georgia (2)
Bank of Morgan County (2)
The Bank of Millen (2)
Smyrna Bank & Trust Company (2)
First Bank of Georgia (2)
Griffin Federal Savings Bank (3)
The New Iberia Bank (4)
Regions Financial Leasing, Inc. (5)
Mortgage Guaranty Title Company (5)
Regions Agency, Inc. (5)
Regions Financial Building Corporation (5)
Regions Investment Company, Inc. (5)
Regions Mortgage, Inc. (5)
Regions Life Insurance Company (6)
Regions Agency, Inc. (Georgia) (7)
First Bankshares Mortgage (7)
Knox Mortgage Company (7)
America's Loan Source, Inc. (7)
Regions Title Company, Inc. (8)
Secor Realty and Investment Corporation(5)
Secor Insurance Agency, Inc. Alabama(5)
Secor Insurance Agency, Inc. Louisiana(9)
Regions Credit Corporation (5)
Interstate Billing Service, Inc. (5)
Regions Asset Management Company (5)
RAMCO - FL Holding, Inc. (5)
RAMCO - FL, Inc. (5)
Regions Financial (DE), Inc. (10)
(1) Affiliate state bank in Alabama chartered under the banking laws of Alabama.
(2) Affiliate state bank in Georgia chartered under the banking laws of Georgia.
(3) Federal Savings Bank incorporated under the laws of the United States.
<PAGE> 2
(4) Affiliate state bank in Louisiana chartered under the banking laws of
Louisiana.
(5) Bank-related subsidiary organized under the Business Corporation Act of the
state of Alabama.
(6) Bank-related subsidiary incorporated under the laws of the state of Arizona
and doing business principally in the state of Alabama.
(7) Bank-related subsidiary incorporated under the laws of the state of
Georgia.
(8) Bank-related subsidiary incorporated under the laws of the state of
Tennessee.
(9) Bank-related subsidiary incorporated under the laws of the state of
Louisiana.
(10) Bank related subsidiary incorporated under the laws of the State of
Delaware
<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
9, 1998, except for Note Q as to which the date is February 13, 1998, included
in the 1997 Annual Report to Stockholders of Regions Financial Corporation.
We also consent to the incorporation by reference of our report dated February
9, 1998, except for Note Q as to which the date is February 13, 1998, 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, 1997 in the following Registration
Statements and in the related Prospectuses:
Form S-8 No. 2-95291 pertaining to the 1983 Stock Option Plan;
Form S-8 No.33-24370 pertaining to the 1988 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. 333-10701 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;
Form S-8 No. 333-21651 pertaining to the Stock Options Assumed in Acquisition
of Florida First Bancorp, Inc.;
Form S-8 No. 333-24265 pertaining to the Regions Financial Corporation Profit
Sharing Plan;
Form S-8 No. 333-28091 pertaining to the Stock Options Assumed in Acquisition
of First Mercantile National Bank;
Form S-8 No. 333-28089 pertaining to the Stock Options Assumed in Acquisition
of West Carroll Bancshares, Inc.;
Form S-8 No. 333-29685 pertaining to the Stock Options Assumed in Acquisition
of First Bankshares, Inc.;
Form S-8 No. 333-30643 pertaining to the Stock Options Assumed in Acquisition
of The New Iberia Bancorp, Inc.;
Form S-8 No. 333-43675 pertaining to the Regions Financial Corporation
Directors' Stock Investment Plan;
Form S-8 No. 333-43677 pertaining to the Regions Financial Corporation
Employee Stock Purchase Plan; and
Form S-8 No. 333-43943 pertaining to the Stock Options Assumed in Acquisition
of GF Bancshares, Inc.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF REGIONS FINANCIAL COMPANY FOR THE YEAR ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 726,059,000
<INT-BEARING-DEPOSITS> 29,453,000
<FED-FUNDS-SOLD> 97,085,000
<TRADING-ASSETS> 50,676,000
<INVESTMENTS-HELD-FOR-SALE> 1,525,972,000
<INVESTMENTS-CARRYING> 2,874,217,000
<INVESTMENTS-MARKET> 2,906,112,000
<LOANS> 16,394,905,000
<ALLOWANCE> 194,306,000
<TOTAL-ASSETS> 23,034,228,000
<DEPOSITS> 17,750,926,000
<SHORT-TERM> 2,490,303,000
<LIABILITIES-OTHER> 479,945,000
<LONG-TERM> 400,199,000
0
0
<COMMON> 85,636,000
<OTHER-SE> 1,827,219,000
<TOTAL-LIABILITIES-AND-EQUITY> 1,912,855,000
<INTEREST-LOAN> 1,342,198,000
<INTEREST-INVEST> 283,991,000
<INTEREST-OTHER> 26,895,000
<INTEREST-TOTAL> 1,653,084,000
<INTEREST-DEPOSIT> 697,140,000
<INTEREST-EXPENSE> 824,203,000
<INTEREST-INCOME-NET> 828,881,000
<LOAN-LOSSES> 41,773,000
<SECURITIES-GAINS> 541,000
<EXPENSE-OTHER> 600,341,000
<INCOME-PRETAX> 445,320,000
<INCOME-PRE-EXTRAORDINARY> 445,320,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 299,692,000
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.15
<YIELD-ACTUAL> 4.27
<LOANS-NON> 100,039,000
<LOANS-PAST> 19,053,000
<LOANS-TROUBLED> 4,140,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 175,548,000
<CHARGE-OFFS> 63,619,000
<RECOVERIES> 26,279,000
<ALLOWANCE-CLOSE> 194,306,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 194,306,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF REGIONS FINANCIAL COMPANY FOR THE NINE MONTHS PERIOD
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 753,391,000
<INT-BEARING-DEPOSITS> 29,542,000
<FED-FUNDS-SOLD> 183,984,000
<TRADING-ASSETS> 23,217,000
<INVESTMENTS-HELD-FOR-SALE> 1,729,544,000
<INVESTMENTS-CARRYING> 2,656,619,000
<INVESTMENTS-MARKET> 2,677,824,000
<LOANS> 15,823,660,000
<ALLOWANCE> 196,118,000
<TOTAL-ASSETS> 22,241,897,000
<DEPOSITS> 17,623,742,000
<SHORT-TERM> 2,067,204,000
<LIABILITIES-OTHER> 296,831,000
<LONG-TERM> 402,627,000
0
0
<COMMON> 85,513,000
<OTHER-SE> 1,765,980,000
<TOTAL-LIABILITIES-AND-EQUITY> 1,851,493,000
<INTEREST-LOAN> 985,890,000
<INTEREST-INVEST> 212,897,000
<INTEREST-OTHER> 18,298,000
<INTEREST-TOTAL> 1,217,085,000
<INTEREST-DEPOSIT> 510,092,000
<INTEREST-EXPENSE> 603,046,000
<INTEREST-INCOME-NET> 614,039,000
<LOAN-LOSSES> 31,449,000
<SECURITIES-GAINS> 541,000
<EXPENSE-OTHER> 441,688,000
<INCOME-PRETAX> 331,295,000
<INCOME-PRE-EXTRAORDINARY> 331,295,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 220,703,000
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.59
<YIELD-ACTUAL> 4.30
<LOANS-NON> 89,491,000
<LOANS-PAST> 19,053,000
<LOANS-TROUBLED> 5,030,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 175,548,000
<CHARGE-OFFS> 43,300,000
<RECOVERIES> 18,667,000
<ALLOWANCE-CLOSE> 196,118,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 196,118,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF REGIONS FINANCIAL CORPORATION FOR THE PERIOD ENDED JUNE
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 626,943,000
<INT-BEARING-DEPOSITS> 27,326,000
<FED-FUNDS-SOLD> 127,861,000
<TRADING-ASSETS> 20,474,000
<INVESTMENTS-HELD-FOR-SALE> 1,857,240,000
<INVESTMENTS-CARRYING> 2,434,760,000
<INVESTMENTS-MARKET> 2,444,000,000
<LOANS> 15,149,584,000
<ALLOWANCE> 195,941,000
<TOTAL-ASSETS> 21,214,942,000
<DEPOSITS> 16,824,389,000
<SHORT-TERM> 1,908,574,000
<LIABILITIES-OTHER> 245,238,000
<LONG-TERM> 419,513,000
0
0
<COMMON> 85,452,000
<OTHER-SE> 1,731,776,000
<TOTAL-LIABILITIES-AND-EQUITY> 21,214,942,000
<INTEREST-LOAN> 640,140,000
<INTEREST-INVEST> 141,669,000
<INTEREST-OTHER> 11,451,000
<INTEREST-TOTAL> 793,260,000
<INTEREST-DEPOSIT> 331,964,000
<INTEREST-EXPENSE> 391,192,000
<INTEREST-INCOME-NET> 402,068,000
<LOAN-LOSSES> 20,557,000
<SECURITIES-GAINS> 501,000
<EXPENSE-OTHER> 290,032,000
<INCOME-PRETAX> 215,127,000
<INCOME-PRE-EXTRAORDINARY> 215,127,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 143,735,000
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.04
<YIELD-ACTUAL> 4.32
<LOANS-NON> 85,049,000
<LOANS-PAST> 21,612,000
<LOANS-TROUBLED> 5,644,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 175,548,000
<CHARGE-OFFS> 27,026,000
<RECOVERIES> 13,108,000
<ALLOWANCE-CLOSE> 195,941,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 195,941,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMNTS OF REGIONS FINANCIAL COMPANY FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 501,007,000
<INT-BEARING-DEPOSITS> 21,785,000
<FED-FUNDS-SOLD> 94,048,000
<TRADING-ASSETS> 13,623,000
<INVESTMENTS-HELD-FOR-SALE> 1,811,857,000
<INVESTMENTS-CARRYING> 2,296,371,000
<INVESTMENTS-MARKET> 2,285,669,000
<LOANS> 14,105,619,000
<ALLOWANCE> 185,757,000
<TOTAL-ASSETS> 19,786,121,000
<DEPOSITS> 15,922,671,000
<SHORT-TERM> 1,403,313,000
<LIABILITIES-OTHER> 257,773,000
<LONG-TERM> 482,217,000
0
0
<COMMON> 41,520,000
<OTHER-SE> 1,678,627,000
<TOTAL-LIABILITIES-AND-EQUITY> 19,786,121,000
<INTEREST-LOAN> 303,912,000
<INTEREST-INVEST> 67,706,000
<INTEREST-OTHER> 4,952,000
<INTEREST-TOTAL> 376,570,000
<INTEREST-DEPOSIT> 158,065,000
<INTEREST-EXPENSE> 185,548,000
<INTEREST-INCOME-NET> 191,022,000
<LOAN-LOSSES> 10,177,000
<SECURITIES-GAINS> 464,000
<EXPENSE-OTHER> 137,012,000
<INCOME-PRETAX> 103,626,000
<INCOME-PRE-EXTRAORDINARY> 103,626,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,672,000
<EPS-PRIMARY> .52
<EPS-DILUTED> .51
<YIELD-ACTUAL> 4.31
<LOANS-NON> 80,966,000
<LOANS-PAST> 28,668,000
<LOANS-TROUBLED> 4,875,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 175,548,000
<CHARGE-OFFS> 13,430,000
<RECOVERIES> 6,950,000
<ALLOWANCE-CLOSE> 185,757,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 185,757,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF REGIONS FINANCIAL CORPORATION FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<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> 686,656,000
<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> 1.85
<EPS-DILUTED> 1.81
<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>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF REGIONS FINANCIAL CORPORATION FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 791,284,000
<INT-BEARING-DEPOSITS> 46,187,000
<FED-FUNDS-SOLD> 78,085,000
<TRADING-ASSETS> 14,693,000
<INVESTMENTS-HELD-FOR-SALE> 1,880,650,000
<INVESTMENTS-CARRYING> 2,125,025,000
<INVESTMENTS-MARKET> 2,117,698,000
<LOANS> 13,032,238,000
<ALLOWANCE> 178,435,000
<TOTAL-ASSETS> 18,731,424,000
<DEPOSITS> 15,186,950,000
<SHORT-TERM> 1,365,736,000
<LIABILITIES-OTHER> 176,039,000
<LONG-TERM> 447,959,000
0
0
<COMMON> 39,257,000
<OTHER-SE> 1,515,483,000
<TOTAL-LIABILITIES-AND-EQUITY> 18,731,424,000
<INTEREST-LOAN> 813,671,000
<INTEREST-INVEST> 196,098,000
<INTEREST-OTHER> 19,382,000
<INTEREST-TOTAL> 1,029,151,000
<INTEREST-DEPOSIT> 435,022,000
<INTEREST-EXPENSE> 508,573,000
<INTEREST-INCOME-NET> 520,578,000
<LOAN-LOSSES> 21,734,000
<SECURITIES-GAINS> 259,000
<EXPENSE-OTHER> 415,955,000
<INCOME-PRETAX> 245,907,000
<INCOME-PRE-EXTRAORDINARY> 245,907,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164,885,000
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.30
<YIELD-ACTUAL> 4.29
<LOANS-NON> 56,819,000
<LOANS-PAST> 25,161,000
<LOANS-TROUBLED> 3,643,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 159,487,000
<CHARGE-OFFS> 22,000,000
<RECOVERIES> 13,078,000
<ALLOWANCE-CLOSE> 178,435,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 178,435,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE
FINANCIAL STATEMENTS OF REGIONS FINANCIAL CORPORATION FOR 6 MONTHS ENDED JUNE
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 677,250,000
<INT-BEARING-DEPOSITS> 60,337,000
<FED-FUNDS-SOLD> 66,637,000
<TRADING-ASSETS> 11,691,000
<INVESTMENTS-HELD-FOR-SALE> 1,864,209,000
<INVESTMENTS-CARRYING> 2,103,436,000
<INVESTMENTS-MARKET> 2,130,906,000
<LOANS> 12,371,967,000
<ALLOWANCE> 171,436,000
<TOTAL-ASSETS> 17,920,608,000
<DEPOSITS> 14,614,716,000
<SHORT-TERM> 1,275,579,000
<LIABILITIES-OTHER> 130,341,000
<LONG-TERM> 457,189,000
0
0
<COMMON> 39,173,000
<OTHER-SE> 1,403,610,000
<TOTAL-LIABILITIES-AND-EQUITY> 17,920,608,000
<INTEREST-LOAN> 532,818,000
<INTEREST-INVEST> 131,600,000
<INTEREST-OTHER> 13,493,000
<INTEREST-TOTAL> 677,911,000
<INTEREST-DEPOSIT> 285,428,000
<INTEREST-EXPENSE> 334,264,000
<INTEREST-INCOME-NET> 343,647,000
<LOAN-LOSSES> 14,316,000
<SECURITIES-GAINS> 154,000
<EXPENSE-OTHER> 265,607,000
<INCOME-PRETAX> 171,648,000
<INCOME-PRE-EXTRAORDINARY> 171,648,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114,306,000
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.90
<YIELD-ACTUAL> 4.31
<LOANS-NON> 49,533,000
<LOANS-PAST> 18,326,000
<LOANS-TROUBLED> 6,152,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 159,487,000
<CHARGE-OFFS> 13,313,000
<RECOVERIES> 8,108,000
<ALLOWANCE-CLOSE> 171,436,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 171,436,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF REGIONS FINANCIAL CORPORATION FOR THE THREE MONTHS
ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 578,339,000
<INT-BEARING-DEPOSITS> 86,900,000
<FED-FUNDS-SOLD> 87,495,000
<TRADING-ASSETS> 9,551,000
<INVESTMENTS-HELD-FOR-SALE> 2,195,845,000
<INVESTMENTS-CARRYING> 1,925,152,000
<INVESTMENTS-MARKET> 1,936,477,000
<LOANS> 11,864,356,000
<ALLOWANCE> 167,066,000
<TOTAL-ASSETS> 17,531,422,000
<DEPOSITS> 14,182,607,000
<SHORT-TERM> 1,124,633,000
<LIABILITIES-OTHER> 239,872,000
<LONG-TERM> 501,520,000
0
0
<COMMON> 38,866,000
<OTHER-SE> 1,443,924,000
<TOTAL-LIABILITIES-AND-EQUITY> 17,531,422,000
<INTEREST-LOAN> 259,020,000
<INTEREST-INVEST> 64,977,000
<INTEREST-OTHER> 5,008,000
<INTEREST-TOTAL> 329,005,000
<INTEREST-DEPOSIT> 140,033,000
<INTEREST-EXPENSE> 165,119,000
<INTEREST-INCOME-NET> 163,886,000
<LOAN-LOSSES> 6,874,000
<SECURITIES-GAINS> 131,000
<EXPENSE-OTHER> 135,008,000
<INCOME-PRETAX> 77,686,000
<INCOME-PRE-EXTRAORDINARY> 77,686,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,794,000
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.42
<YIELD-ACTUAL> 4.22
<LOANS-NON> 57,162,000
<LOANS-PAST> 10,860,000
<LOANS-TROUBLED> 4,081,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 159,487,000
<CHARGE-OFFS> 5,894,000
<RECOVERIES> 4,225,000
<ALLOWANCE-CLOSE> 167,066,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 167,066,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF REGIONS FINANCIAL CORPORATION FOR THE YEAR ENDED
DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 587,161,000
<INT-BEARING-DEPOSITS> 56,477,000
<FED-FUNDS-SOLD> 66,339,000
<TRADING-ASSETS> 28,870,000
<INVESTMENTS-HELD-FOR-SALE> 2,274,675,000
<INVESTMENTS-CARRYING> 1,589,106,000
<INVESTMENTS-MARKET> 1,626,775,000
<LOANS> 11,542,311,000
<ALLOWANCE> 159,487,000
<TOTAL-ASSETS> 16,851,774,000
<DEPOSITS> 13,497,612,000
<SHORT-TERM> 1,068,597,000
<LIABILITIES-OTHER> 224,293,000
<LONG-TERM> 632,019,000
0
0
<COMMON> 38,583,000
<OTHER-SE> 1,390,670,000
<TOTAL-LIABILITIES-AND-EQUITY> 16,851,774,000
<INTEREST-LOAN> 1,009,783,000
<INTEREST-INVEST> 229,498,000
<INTEREST-OTHER> 20,319,000
<INTEREST-TOTAL> 1,259,600,000
<INTEREST-DEPOSIT> 535,880,000
<INTEREST-EXPENSE> 635,336,000
<INTEREST-INCOME-NET> 624,264,000
<LOAN-LOSSES> 30,271,000
<SECURITIES-GAINS> (424,000)
<EXPENSE-OTHER> 487,461,000
<INCOME-PRETAX> 293,938,000
<INCOME-PRE-EXTRAORDINARY> 293,938,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 197,829,000
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.58
<YIELD-ACTUAL> 4.21
<LOANS-NON> 54,132,000
<LOANS-PAST> 10,238,000
<LOANS-TROUBLED> 4,234,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 143,464,000
<CHARGE-OFFS> 35,211,000
<RECOVERIES> 16,242,000
<ALLOWANCE-CLOSE> 159,487,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 129,559,000
</TABLE>
