<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1999 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) 944-1300
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to the filing requirements for at least
the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common Stock, $.625 Par Value-223,903,236 shares outstanding
as of July 31, 199
<PAGE>
REGIONS FINANCIAL CORPORATION
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Condition -
June 30, 1999, December 31, 1998
and June 30, 1998 2
Consolidated Statements of Income -
Three months ended June 30, 1999 and
June 30, 1998 and Six months ended
June 30, 1999 and June 30, 1998 3
Consolidated Statement of Stockholders' Equity -
Six months ended June 30, 1999 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 1999 and
June 30, 1998 5
Notes to Consolidated Financial Statements -
June 30, 1999 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
<PAGE>
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
June 30 December 31 June 30
1999 1998 1998
ASSETS
Cash and due from banks $ 1,350,476 $ 1,619,006 $ 1,393,961
Interest-bearing deposits
in other banks 77,255 143,965 98,907
Investment securities 3,327,552 3,125,114 2,787,680
Securities available for sale 5,512,854 4,844,023 4,444,509
Trading account assets 23,982 49,387 18,532
Mortgage loans held for sale 1,266,412 927,668 717,557
Federal funds sold and securities
purchased under agreement to resell 58,192 233,941 245,393
Loans 26,621,557 24,430,113 23,728,897
Unearned income (68,872) (64,526) (70,600)
Loans, net of unearned income 26,552,685 24,365,587 23,658,297
Allowance for loan losses (326,982) (315,412) (331,633)
Net Loans 26,225,703 24,050,175 23,326,664
Premises and equipment 571,564 534,425 519,719
Interest receivable 323,166 292,036 269,421
Due from customers on acceptances 54,339 57,046 64,219
Other assets 1,016,127 955,154 840,257
$39,807,622 $36,831,940 $34,726,819
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 4,569,264 $ 4,577,125 $ 3,869,690
Interest-bearing 23,857,947 23,772,941 23,382,332
Total Deposits 28,427,211 28,350,066 27,252,022
Borrowed funds:
Short-term borrowings:
Federal funds purchased and
securities sold under agreement
to repurchase 3,922,436 2,067,278 1,537,299
Commercial paper 56,750 56,750 54,750
Other short-term borrowings 3,457,604 2,372,700 2,114,740
Total Short-term Borrowings 7,436,790 4,496,728 3,706,789
Long-term borrowings 388,377 571,040 421,665
Total Borrowed Funds 7,825,167 5,067,768 4,128,454
Bank acceptances outstanding 54,339 57,046 64,219
Other liabilities 356,313 356,659 355,112
Total Liabilities 36,663,030 33,831,539 31,799,807
Stockholders' Equity:
Preferred Stock, par value $1.00
a share: Authorized 5,000,000 shares 0 0 0
Common Stock, par value $.625 a share:
Authorized - 500,000,000 shares
Issued, including treasury stock -
224,018,774; 221,305,715; and
220,518,856 shares, respectively 140,012 138,316 137,834
Surplus 1,167,994 1,147,357 1,127,762
Undivided profits 1,906,929 1,729,334 1,654,807
Treasury stock, at cost - 888;
851,588; and 15,943 shares,
respectively (34) (32,603) (634)
Unearned restricted stock (5,765) (6,955) (8,145)
Accumulated other comprehensive
income (64,544) 24,952 15,388
Total Stockholders' Equity 3,144,592 3,000,401 2,927,012
$39,807,622 $36,831,940 $34,726,819
</TABLE>
See notes to consolidated financial statements.
<PAGE>
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<TABLE>
<C> <S> <S> <S> <S>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
Interest Income:
Interest and fees on loans $549,864 $520,528 $1,073,711 $1,024,471
Interest on securities:
Taxable interest income 128,773 102,226 250,535 200,271
Tax-exempt interest income 9,761 10,461 19,559 21,652
Total Interest on Securities 138,534 112,687 270,094 221,923
Interest on mortgage loans held
for sale 17,548 9,193 38,184 18,209
Income on federal funds sold and
securities purchased under
agreement to resell 937 3,526 1,875 8,082
Interest on time deposits in other
banks 573 1,054 1,087 2,095
Interest on trading account assets 352 115 667 420
Total Interest Income 707,808 647,103 1,385,618 1,275,200
Interest Expense:
Interest on deposits 255,257 270,753 512,712 530,092
Interest on short-term borrowings 72,928 36,687 130,527 71,204
Interest on long-term borrowings 7,685 7,512 16,475 15,433
Total Interest Expense 335,870 314,952 659,714 616,729
Net Interest Income 371,938 332,151 725,904 658,471
Provision for loan losses 23,944 14,516 44,682 28,935
Net Interest Income After Provision
for Loan Losses 347,994 317,635 681,222 629,536
Non-Interest Income:
Trust department income 12,610 12,275 25,361 25,431
Service charges on deposit accounts 46,845 41,873 91,657 82,065
Mortgage servicing and origination
fees 26,453 30,178 59,537 56,396
Securities gains 22 2,938 38 3,042
Other 35,861 34,079 88,313 62,766
Total Non-Interest Income 121,791 121,343 264,906 229,700
Non-Interest Expense:
Salaries and employee benefits 138,723 134,417 275,372 265,688
Net occupancy expense 14,334 16,242 28,990 31,411
Furniture and equipment expense 16,322 16,083 32,852 30,883
Other 90,845 81,755 185,585 162,537
Total Non-Interest Expense 260,224 248,497 522,799 490,519
Income Before Income Taxes 209,561 190,481 423,329 368,717
Applicable income taxes 67,527 64,124 144,809 125,296
Net Income $142,034 $126,357 $278,520 $243,421
Average number of shares outstanding 223,995 220,392 223,206 219,921
Average number of shares outstanding
-diluted 226,887 224,630 226,181 224,039
Per share:
Net income $0.63 $0.57 $1.25 $1.11
Net income-diluted $0.63 $0.56 $1.23 $1.09
Cash dividends declared $0.25 $0.23 $0.50 $0.46
</TABLE>
See notes to consolidated financial statements.
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<TABLE>
<C> <S> <S> <S> <S> <S> <S> <S>
Accumulated
Unearned Other
Common Undivided Treasury Restricted Comprehen-
Stock Surplus Profits Stock Stock sive Income Total
BALANCE AT
JANUARY 1, 1999 $138,316 $1,147,357 $1,729,334 $(32,603) $(6,955) $24,952 $3,000,401
Comprehensive Income:
Net Income 278,520 278,520
Other comprehensive
income, net of tax
Unrealized (losses)
on available for
sale securities,
net of
reclassification
adjustment (89,496) (89,496)
Comprehensive income* 278,520 (89,496) 189,024
Equity from acquisitions
accounted for as poolings
of interests 1,085 12,410 11,417 24,912
Cash dividends declared
($0.50 per common share) (112,342) (112,342)
Purchase of treasury stock (42,770) (42,770)
Treasury stock retired and
reissued related to
acquisitions accounted
for as purchases (1,234) (74,105) 75,339 -0-
Common stock transactions:
Stock issued for
acquisitions 1,234 67,917 69,151
Stock issued to employees
under incentive plan 78 4,660 4,738
Stock options exercised 533 9,755 10,288
Amortization of unearned
restricted stock 1,190 1,190
BALANCE AT
JUNE 30, 1999 $140,012 $1,167,994 $1,906,929 $ (34) $(5,765) $(64,544) $3,144,592
Disclosure of reclassification amount:
Unrealized holding (losses) on
available for sale securities arising
during period $(89,471)
Less:Reclassification adjustment, net
of tax, for gains and losses realized
in net income 25
Net unrealized gains on available for
sale securities, net of tax $(89,496)
*Comprehensive income for the six and three months ended June 30, 1998 was $242.9 million and $130.3 million respectively.
Comprehensive income for the three months ended June 30, 1999 was $73.6 million.
See notes to consolidated financial statements.
</TABLE>
<PAGE>
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)
<TABLE>
<S> <C> <C>
Six Months Ended
June 30
1999 1998
Operating Activities:
Net income $ 278,520 $ 243,421
Adjustments to reconcile net cash provided
by operating activities
Depreciation and amortization of premises
and equipment 26,957 32,353
Provision for loan losses 44,682 28,935
Net (accretion) of securities (89) (15)
Amortization of loans and other assets 35,242 21,330
Amortization of deposits and borrowings 169 123
Provision for losses on other real estate 103 59
Deferred income taxes 2,920 2,686
Gain on sale of premises and equipment (1,025) (114)
Realized securities (gains) (38) (3,042)
Decrease in trading account assets 25,405 32,027
(Increase) in mortgages held for sale (338,744) (361,301)
(Increase) in interest receivable (24,971) (37,934)
(Increase) in other assets (90,311) (79,420)
Increase (decrease) in other liabilities 50,731 (80,506)
Stock issued to employees 4,959 14,717
Other 1,191 1,676
Net Cash Provided (Used) By Operating
Activities 15,701 (185,005)
Investing Activities:
Net (increase) in loans (1,790,512) (563,236)
Proceeds from sale of securities available
for sale 1,752 612,272
Proceeds from maturity of investment securities 352,421 986,086
Proceeds from maturity of securities
available for sale 1,440,976 1,404,220
Purchase of investment securities (701,570) (472,507)
Purchase of securities available for sale (2,016,802) (3,087,162)
Net decrease (increase) in interest-bearing
deposits in other banks 67,812 (7,778)
Proceeds from sale of premises and equipment 15,305 3,360
Purchase of premises and equipment (63,221) (44,934)
Net decrease in customers' acceptance liability 2,707 93,043
Net cash received in acquisitions 130,150 23,598
Net Cash (Used) By Investing Activities (2,560,982) (1,053,038)
Financing Activities:
Net (decrease) increase in deposits (496,308) 677,344
Net increase in short-term borrowings 2,936,504 986,243
Proceeds from long-term borrowings 422,020 213,408
Payments on long-term borrowings (613,683) (296,840)
Net (decrease) in bank acceptance liability (2,707) (93,043)
Cash dividends (112,342) (89,530)
Purchase of treasury stock (42,770) -0-
Issuance of stock by pooled company -0- (74,270)
Proceeds from exercise of stock options 10,288 4,603
Net Cash Provided By Financing Activities 2,101,002 1,327,915
(Decrease) Increase in Cash and Cash Equivalents (444,279) 89,872
Cash and Cash Equivalents, Beginning of Period 1,852,947 1,549,482
Cash and Cash Equivalents, End of Period $1,408,668 $1,639,354
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE A -- Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions for Form 10-Q,
and, therefore, do not include all information and footnotes
necessary for a fair presentation of financial position, results
of operations and cash flows in conformity with generally accepted
accounting principles. For a summary of significant accounting
policies that have been consistently followed, see NOTE A to the
Consolidated Financial Statements included under Item 8 of the
Annual Report on Form 10-K. It is management's opinion that all
adjustments, consisting of only normal and recurring items
necessary for a fair presentation, have been included.
Prior period financial information has been restated for the
business combinations with First Commercial Corporation (First
Commercial) and other pooled companies, which were consummated in
the third quarter of 1998. These transactions were accounted for
as poolings of interests according to generally accepted
accounting principles.
Certain amounts in prior periods have been reclassified to conform
to the current period presentation.
NOTE B -- Business Combinations
Regions completed no business combinations in the second quarter
of 1999.
As explained in Note A, Regions restated the prior period
financial information for the First Commercial transaction and
other pooled companies, which were closed in the third quarter of
1998.
The following table presents financial information as reported by
Regions, First Commercial, other pooled companies and on a
combined basis for the six months ended June 30, 1998.
(in thousands, except per share data)
Net interest income:
Regions $490,858
First Commercial 146,274
Other pooled companies 21,339
Combined $658,471
Net income:
Regions $175,846
First Commercial 60,472
Other pooled companies 7,103
Combined $243,421
Net income per common share:
Regions $1.17
Combined $1.11
Net income per common share - diluted:
Regions $1.15
Combined $1.09
NOTE C -- Pending Acquisitions
Regions' pending acquisitions are summarized in the following
table. These transactions are expected to be accounted for as
purchases and are subject to applicable shareholder and regulatory
approvals.
<TABLE>
<S> <C> <C> <C> <C>
Expected
Number of
Shares of
Regions to
Approximate be
Asset Size Type of Exchange issued (1)
Institution (in millions) Consideration Ratio (in 000's)
LCB
Corporation,
of Regions
Fayetteville, Common
Tennessee $175 Stock 15.789 1,232
North Alabama Regions
Bank of Hazel Common
Green, Alabama 55 Stock 3.947 395
Minden
Bancshares,
Inc. of Regions
Minden, Common
Louisiana 332 Stock 8.000 2,245
(1) - Based on the number of shares of outstanding stock of each
institution as of the announcement date.
</TABLE>
NOTE D -- New Accounting Standards
In June 1999, The FASB issued Statement of Financial Accounting
Standards No. 137, 'Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133' (Statement 137). Statement 137 defers for one
year the effective date of FASB Statement of Financial Accounting
Standards No. 133, 'Accounting for Derivatives Instruments and
Hedging Activities' (Statement 133). Statement 133 requires all
derivatives to be recorded on the balance sheet at fair value and
establishes 'special accounting' for the following three different
types of hedges: hedges of changes in the fair value of assets,
liabilities or firm commitments (referred to as fair value
hedges); hedges of the variable cash flows of forecasted
transactions (cash flow hedges); and hedges of foreign currency
exposures of net investments in foreign operations. As amended,
Statement 133 is effective for quarters in fiscal years beginning
after June 15, 2000. Regions is currently evaluating the impact of
Statement 133 on its financial position and results of operations.
NOTE E -- Year 2000 Compliance
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the applicable
year. Any of the Company's computer programs or hardware that
have date-sensitive software or embedded chips may recognize a
date using '00' as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on past assessments, the Company determined that it would be
required to upgrade significant portions of its software and
selected hardware so that those systems would properly utilize
dates beyond December 31, 1999. The Company presently believes
that with these upgrades of existing software and selected
hardware, the Year 2000 Issue can be mitigated.
The Company's plan to resolve the Year 2000 Issue involves the
following five steps: awareness of the potential problems Year
2000 can present, inventory and assessment of where potential
problems are within the company, renovation and repair of
noncompliant systems, testing and validation of solutions, and
implementation. Regions began planning its Year 2000 strategy in
1996 and has since formed a project office composed of five people
who manage the project on a full-time basis. Additionally, a task
force composed of individuals representing all business units
within the corporation, and a leadership committee representing
all areas of the Company have been formed to support the project
office. The task force and leadership team provide reports to the
Audit Committee of the Board of Directors and to the Board of
Directors on a regular basis. Regions is utilizing both internal
and external resources to reprogram, replace, and test software
and other components of its systems for Year 2000 modifications.
Systems have been scheduled for modification based on a risk-
adjusted priority to ensure that mission-critical systems are
completed in time to allow for extended testing.
To date, Regions has completed its awareness, assessment,
renovation and testing steps. The Company has completed the
installation of the Year 2000 releases provided by vendors on its
core-business systems and has completed the century date testing
and validation of its core business systems. Regions will
continue to communicate with its vendors and install any
additional code releases through 1999.
Approximately ninety percent of Regions' software is supplied by
outside suppliers affecting most significant systems of the
Company. Regions has initiated formal communications with all of
its significant suppliers and large customers to determine the
extent to which Regions is vulnerable to those third parties'
failure to remediate their own Year 2000 Issue. Regions is
spending the majority of its Year 2000 resource allocation
installing and testing vendor releases, and has hired consultants
to ensure that communications are proceeding properly with
vendors. To date, Regions is not aware of any external agent with
a Year 2000 Issue that would materially impact Regions' results of
operations, liquidity or capital resources.
The projected total cost of the Year 2000 project is currently
estimated at approximately $20 million and is being funded through
operating cash flows. The projected total costs includes personnel
costs and other operating expenses related to the modification of
systems and applications, as well as the cost to purchase or lease
certain hardware and software. Personnel costs and other
operating expenses associated with the Year 2000 project will be
expensed in the period incurred. The costs of hardware and
software associated with the Year 2000 project will be capitalized
in accordance with normal policy. The costs of the project and
the date on which Regions plans to complete Year 2000
modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including
the continued availability of certain resources, third party
modification plans and other factors. However, there can be no
assurance that these estimates will be achieved and actual results
could differ materially from those plans. From initiation of the
project through June 30, 1999, a cumulative total of approximately
$13.8 million had been spent on the assessment of and efforts in
connection with the Year 2000 project, including the renovation
and repair of noncompliant systems. This includes approximately
$10.2 million expended in 1997 and 1998 (including $2 million for
hardware and software) and $3.6 million expended to date in 1999.
The majority of the remaining cost will be spent on personnel
costs and consultant fees.
Management of Regions believes it has an effective program in
place to resolve the Year 2000 issue in a timely manner. As noted
above, the Company is nearing completion of all necessary phases
of the Year 2000 program. The mission-critical systems have been
upgraded. However, disruptions in the economy that are beyond the
Company's control resulting from Year 2000 issues could materially
adversely affect the Company. Furthermore, the Company has no
means of ensuring that external agents will be Year 2000 ready.
The inability of external agents to complete their Year 2000
resolution process in a timely fashion could materially impact the
Company's operations, the estimated costs of the Year 2000
project, and the target dates for completion. The effect of non-
compliance by external agents is not determinable. The Company
could be subject to litigation for computer systems product
failure, for example, equipment shutdown or failure to properly
date business records. The amount of potential liability and lost
revenue cannot be reasonably estimated at this time.
Management is continuing to develop contingency plans in the event
that efforts to renovate Regions' systems are not fully successful
or are not completed in accordance with current expectations. The
contingency plans represent an enhancement of Regions' existing
business resumption plans to safeguard Regions under various Year
2000 scenarios. The contingency plans are being designed to
address failures of systems outside Regions. The contingency plans
include the use of third party service providers, alternative
commercial vendors, alternative data security and other
contingency service suppliers.
NOTE F -- Announced Stock Repurchase
On July 21, 1999, Regions Board of Directors authorized the
repurchase of up to 12 million shares, approximately 5.4% of
outstanding shares, of the Registrant's common stock. The
purchases would be made from time to time in the open market or in
privately negotiated transactions and are expected to be completed
over the next 24 months, depending on market conditions and other
factors.
NOTE G. Business Segment Information
<TABLE>
<C> <S>
In 1998, Regions adopted FASB No. 131, Disclosures About Segments of an Enterprise and
Related Information. This statement requires additional financial disclosure of segment
information in the manner in which management organizes the segments within the enterprise
for making operating decisions and assessing performance. The new disclosures are as
follows.
Regions segment information is presented geographically, based on Regions' six operating
regions in the Southeastern United States. Each region is a strategic business unit that
serves a particular group of customers in a specified area. The company's six reportable
regions are Central, North, Northeast, South, Southwest, and West. These regions have
separate managements that are responsible for the operation of each business unit. The
Central region mainly consists of central Alabama and all of South Carolina. The Northern
region is made up of north Alabama and middle Tennessee. Regions' Georgia franchise
comprises the Northeast region. The South region consists primarily of south Alabama and
the Florida panhandle. The Southwest region is made up of west Alabama, all of Louisiana
and central Florida. The West region consists of Arkansas, east Texas and west Tennessee.
In addition, Regions has included the activity of its mortgage banking segment. The other
reportable segments include activity of Regions' broker dealer and insurance subsidiaries,
the indirect lending division, and the parent company.
The accounting policies used by each reportable segment are the same as those discussed in
Note A to the Consolidated Financial Statements included under Item 8 of the Annual Report
on Form 10-K. The following table presents financial information for each reportable
segment.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
1999
(in thousands)
Central North Northeast South Southwest
Net interest income $ 99,556 $63,823 $105,858 $89,365 $111,776
Provision for loan loss 6,426 3,272 6,249 4,982 6,059
Non-interest income 28,099 16,236 26,290 26,382 26,872
Non-interest expense 53,612 34,077 58,722 45,089 59,351
Income taxes 25,362 16,544 26,305 24,274 28,346
Net income $ 42,255 $26,166 $ 40,872 $41,402 $ 44,892
Average assets $4,361,046 $3,196,200 $4,404,110 $4,115,807 $5,520,768
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Mortgage Total
West Banking Other Company
Net interest income $136,024 $ 6,795 $112,707 $725,904
Provision for loan loss 7,410 42 10,242 44,682
Non-interest income 33,335 71,081 36,611 264,906
Non-interest expense 73,905 63,770 134,273 522,799
Income taxes 34,466 5,289 (15,777) 144,809
Net income $ 53,578 $ 8,775 $20,580 $278,520
Average assets $5,825,461 $1,448,145 $9,301,086 $38,172,623
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
1998
Central North Northeast South Southwest
Net interest income $97,023 $53,935 $98,826 $81,923 $101,004
Provision for loan loss 4,412 2,105 3,973 3,282 4,091
Non-interest income 24,638 14,006 20,985 25,673 22,064
Non-interest expense 52,900 29,223 58,136 43,017 58,450
Income taxes 24,231 13,780 22,214 22,512 23,217
Net income $40,118 $22,833 $35,488 $38,785 $37,310
Average assets $4,304,125 $2,762,189 $4,050,999 $3,952,146 $4,968,195
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Mortgage Total
West Banking Other Company
Net interest income $123,187 $ 5,544 $97,029 $658,471
Provision for loan loss 7,418 17 3,637 28,935
Non-interest income 27,790 71,679 22,865 229,700
Non-interest expense 73,407 55,694 119,692 490,519
Income taxes 27,745 8,203 (16,606) 125,296
Net income $ 42,407 $13,309 $13,171 $243,421
Average assets $6,068,717 $811,976 $6,432,819 $33,351,166
</TABLE>
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Regions' total assets at June 30, 1999, were $39.8 billion -- an
increase of 15% over a year earlier. This increase was due to
growth in almost all categories of assets, particularly loans and
securities, due to acquisition activity and internal growth.
Since year-end 1998, total assets have increased 8%, due primarily
to acquisition activity and internal growth.
Comparisons with the prior year are affected by the acquisition of
St. James Bancorporation, Inc., EFC Holdings Corporation, Arkansas
Banking Company and the branch purchase from First Union National
Bank (accounted for as purchases) and by the business combinations
with Meigs County Bancshares, Inc., VB&T Bancshares Corporation
and Bullsboro BancShares, Inc. (all of which were accounted for as
poolings of interests). Prior year financial information has not
been restated to give effect to the Meigs County, VB&T, and
Bullsboro transactions since the effect is not material. Prior
period financial information has been restated for the business
combination with First Commercial Corporation and other pooled
companies which were closed in the third quarter of 1998. Relevant
1998 and 1999 acquisitions (excluding the business combinations
for which the prior period financial information has been
restated) are summarized as follows:
<TABLE>
<S> <C> <C> <C> <C>
Date Headquarters Total Assets Accounting
Acquired Company Acquired Location (in thousands) Treatment
September 1998 Branches of First
Union National Valdosta,
Bank Georgia $108,913 Purchase
November 1998 EFC Holdings Charlotte,
Corporation North Carolina 63,147 Purchase
December 1998 St. James
Bancorporation, Lutcher,
Inc. Louisiana 171,572 Purchase
January 1999 Meigs County Decatur,
Bancshares, Inc. Tennessee 114,407 Pooling
January 1999 VB&T Bancshares Valdosta,
Corporation Georgia 75,733 Pooling
January 1999 Bullsboro Newnan,
BancShares, Inc. Georgia 100,682 Pooling
March 1999 Arkansas Banking Jonesboro,
Company Arkansas 354,981 Purchase
</TABLE>
Loans have increased 12% since a year ago. During the third
quarter of 1998, Regions securitized $534 million of mortgage
loans. Loans added from the purchase acquisitions, combined with
the three pooling transactions, offset the effect of the
securitization. The 12% increase was attributable primarily to
growth in the real estate loan portfolio. Since year-end, total
loans have increased 9%, due to $433 million in loans added by
acquisitions and $1.8 billion in internal growth. The average
yield on loans during the first six months of 1999 was 8.54%,
compared to 9.00% during the same period in 1998. This decrease
was primarily the result of lower average base lending rates.
Non-performing assets were as follows (in thousands):
<TABLE>
<S> <C> <C> <C>
June 30, Dec. 31, June 30,
1999 1998 1998
Non-accruing loans $159,103 $124,718 $167,343
Loans past due 90
days or more 99,575 134,411 42,202
Renegotiated loans 5,849 4,550 4,084
Other real estate 13,942 17,273 21,932
Total $278,469 $280,952 $235,561
Non-performing assets
as a percentage of
loans and other real
estate 1.05% 1.15% .99%
</TABLE>
Non-accruing loans have decreased $8.2 million since June of last
year but increased $34.4 million since year end. The increase over
year end was primarily in the commercial real estate category
resulting from the transfer of certain credits to non-accrual
status. Loans past due 90 days or more increased $57.4 million,
compared to June 1998, primarily due to a change in policy (to no
longer transfer consumer loans past due 90 days or more to non-
accrual status as a matter of course). At June 30, 1999, real
estate loans comprised $111.8 million of total non-accruing loans,
with commercial loans accounting for $46.4 million and consumer
loans $0.9 million. Other real estate decreased $3.3 million since
year end, and $8.0 million since June 1998, due primarily to the
disposition and writedown of several parcels of other real estate.
Activity in the allowance for loan losses is summarized as follows
(in thousands):
<TABLE>
<S> <C> <C>
June 30, June 30,
1999 1998
Balance at beginning of period $315,412 $304,223
Net loans charged-off:
Commercial 10,666 3,673
Real estate 1,171 1,041
Installment 26,809 19,078
Total 38,646 23,792
Allowance of acquired banks 5,534 22,267
Provision charged to expense 44,682 28,935
Balance at end of period $326,982 $331,633
</TABLE>
Net loan losses in the first six months of 1999 and 1998 were
0.31% and 0.21% of average loans (annualized), respectively. The
higher levels of loan losses are due to increased charge-offs of
consumer loans and specific commercial credits. At June 30, 1999
the allowance for loan losses stood at 1.23% of loans, compared to
1.40% a year ago and 1.29% at year end. The allowance for loan
losses as a percentage of non-performing loans and non-performing
assets was 124% and 117%, respectively, at June 30, 1999, compared
to 155% and 141%, respectively, at June 30, 1998.
The allowance for loan losses is maintained at a level deemed
adequate by management to absorb possible losses from loans in the
portfolio. In determining the adequacy of the allowance for loan
losses, management considers numerous factors, including but not
limited to: (1) management's estimate of future economic
conditions and the resulting impact on Regions, (2) management's
estimate of the financial condition and liquidity of certain loan
customers, and (3) management's estimate of collateral values of
property securing certain loans. Because all of these factors and
others involve the use of management's estimation and judgment,
the allowance for loan losses is inherently subject to adjustment
at future dates. At June 30, 1999, it is management's opinion
that the allowance for loan losses is adequate. However,
unfavorable changes in the factors used by management to determine
the adequacy of the allowance, including increased consumer loan
delinquencies and subsequent charge-offs, or the availability of
new information, could require additional provisions, in excess of
normal provisions, to the allowance for loan losses in future
periods. 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.
Regions uses a systematic approach to determine the adequacy of
allowance for loan losses. Regions' systematic approach includes
assigning loss factors, based on historical data as adjusted for
current business and economic conditions, to portfolios of loans
with similar characteristics for which estimates of inherent
probable losses can be made. The loss factors are applied to the
respective portfolios in order to determine the overall allowance
adequacy.
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.
Total securities have increased 22% since a year ago and 11% since
year end, as a result of securities added by acquisitions in 1999,
the securitization of real estate mortgage loans in the third
quarter of 1998 (which resulted in a $534 million increase in
available for sale securities) and increased balance sheet
leveraging.
Mortgage loans held for sale have increased $549 million since
June 30, 1998 and $339 million since year end as a result of
record levels of residential mortgage loan production at Regions'
mortgage banking subsidiary on a year-to-date basis. Residential
mortgage loan production at Regions' mortgage banking subsidiary
was approximately $3.2 billion during the first six months of
1999, compared to $2.0 billion during the same time period in
1998.
Interest-bearing deposits in other banks at June 30, 1999 totaled
$77.3 million, a decrease of $21.7 million compared to a year ago
and $66.7 million compared to year end. These decreases resulted
from the utilization of alternative investments as opposed to the
interest bearing deposits, which were acquired in connection with
acquisitions.
Net federal funds purchased and security repurchase agreements
totaled $3.9 billion at June 30, 1999, $1.8 billion at year end
and $1.3 billion at June 30, 1998. The level of federal funds and
security agreements can fluctuate significantly on a day-to-day
basis, depending on funding needs and which sources of funds are
used to satisfy those needs. During the first six months of 1999
net funds purchased averaged $2.4 billion compared to $1.3 billion
for the same period of 1998, indicating increased reliance on
purchased funds to support earning asset growth since June of
1998.
Premises and equipment have increased $37.1 million since year end
and $51.8 million since June 30, 1998. These increases were due
primarily to the addition of premises and equipment obtained
through acquisitions since December 1998 and the installation of
new branch equipment.
Other assets have increased $61.0 million since year end, and
$175.9 million since the second quarter of last year. These
increases were due primarily to higher excess purchase price due
to acquisitions, as well as increased investments in low-income
housing partnerships and increased mortgage servicing rights.
Total deposits have increased 4% since June 30 of last year. The
deposits acquired in connection with acquisitions resulted in a 3%
increase, with the remaining 1% increase attributable to internal
growth. The internal growth resulted primarily from increases in
interest-bearing checking accounts and large certificates of
deposit. Since year end, total deposits have declined slightly
after adjusting for the deposits acquired in connection with
acquisitions during the first quarter of 1999.
Other short-term borrowings increased $1.3 billion since June 30,
1998 and $1.1 billion since year end. These increases are the
result of Regions' increased utilization of Federal Home Loan Bank
structured notes as a short-term funding source due to more
favorable rates on this funding source relative to other sources
of funding.
Long-term borrowings have decreased $182.7 million since year end,
and $33.3 million since June 30, 1998. The declines in long-term
borrowings resulted primarily from maturities of Federal Home Loan
Bank advances and other long term notes payable.
Stockholders' equity was $3.1 billion at June 30, 1999, an
increase of 7% over last year and an increase of 5% since year
end. These increases resulted primarily from internally generated
capital and equity added in connection with acquisitions since
December 1998. Accumulated other comprehensive income totaled
$(64.5) million at June 30, 1999, compared to $25.0 million at
year end and $15.4 million at June of 1998. Regions' ratio of
equity to total assets was 7.90% at June 30, 1999, compared to
8.43% a year ago and 8.15% at year end.
Regions' primary sources of liquidity are maturities from its loan
and securities portfolios. In addition to these sources of
liquidity, Regions has access to purchased funds in the state and
national money markets. Liquidity is further enhanced by a
relatively stable source of deposits. At June 30, 1999, the loan
to deposit ratio was 93.41%, compared to 86.81% a year ago and
85.95% at year end. Regions' management places constant emphasis
on the maintenance of adequate liquidity to meet conditions that
might reasonably be expected to occur.
Net interest income for the first six months of 1999 increased
$67.4 million or 10%, compared to the same period in 1998. The
increased net interest income resulted from a higher level of
earning assets, partially offset by lower spreads on those earning
assets. The net yield on interest-earning assets (taxable
equivalent basis) was 4.21% in the first six months of 1999,
compared to 4.38% in the same period in 1998. This ratio
decreased due to unfavorable repricing of the securities and loan
portfolios partially offset by lower funding costs in the first
half of 1999. For the second quarter of 1999, net interest income
increased $39.8 million or 12% compared to the same period in 1998
due to higher levels of earning assets.
The provision for loan losses was $44.7 million or .35% annualized
of average loans in the first half of 1999, compared to $28.9
million or .25% annualized of average loans in the first half of
1998. A higher provision for loan losses was recorded in the first
half of 1999 because of higher net charge-offs and growth in the
loan portfolio. Acquisitions added $5.5 million to the allowance
for loan losses in the first quarter of 1999.
Total non-interest income increased $35.2 million or 15% over the
first six months of 1998. On a quarterly basis, total non-interest
income increased slightly over the second quarter of 1998. Trust
department income declined slightly compared to the first half of
1998 due to lower advisory fees from mutual funds but were
slightly higher in the second quarter of 1999 compared to the same
period in 1998. Increased number of deposit accounts due to
acquisitions and internal growth resulted in service charges on
deposit accounts increasing $9.6 million or 12% in the first six
months of 1999 and $5.0 million in the second quarter of 1999
compared to the same periods in 1998. Mortgage servicing and
origination fees increased $3.1 million or 6% in the first six
months of 1999 compared to the same period in 1998. Mortgage
origination fees were up due to increased volume of new loan
production in 1999. Mortgage servicing fees were lower on a year-
to-year comparison. In the second quarter of 1999, mortgage
servicing and origination declined $3.7 million or 12% compared to
the second quarter of 1998 as production slowed in the second
quarter of 1999. The mortgage company's servicing portfolio
totaled $23.2 billion at June 30, 1999. Other non-interest income
increased $25.5 million in the first half of 1999 and $1.8 million
in the second quarter of 1999 over the same periods in 1998. These
increases were the result of increased trading account income,
brokerage income and insurance premiums and commissions, as well
as an $18.4 million gain from the sale of joint venture banking
interests recognized in the first quarter of 1999.
Total non-interest expense increased $32.3 million or 7% in the
first half of 1999 and $11.7 million or 5% in the second quarter
of 1999 compared to the same periods in 1998. Salaries and
employee benefits were up 4% in the first half of 1999 compared to
the same period in 1998 and up 3% in the second quarter of 1999
compared to the same period in 1998. These increases are due to a
higher number of employees due to acquisitions coupled with normal
merit increases and higher benefit costs. Net occupancy expense
and furniture and equipment expense decreased 1% in the first half
of 1999 and 5% in the second quarter of 1999 over the same periods
in 1998. These declines are primarily the result of consolidation
and conversion of branch office space and systems added through
acquisitions. Other non-interest expense increased $23.0 million
or 14% in the first half of 1999 and $9.1 million or 11% in the
second quarter of 1999 compared to the same periods in 1998. These
increases resulted from increases in amortization of mortgage
servicing rights, communication costs, postage and professional
fees.
Income tax expense increased $19.5 million or 16% over the first
half of 1998 and $3.4 million or 5% over the second quarter of
1998. These increases were the result of an increase in taxable
income and an increase in taxable income as a percentage of total
income.
Net income for the second quarter was $142.0 million--up 12%
compared to the second quarter of last year. Year-to-date net
income totaled $278.5 million or $1.23 per diluted share, a 13%
increase on a per share basis compared to the first six months of
1998. Annualized return on stockholders' equity increased to
18.12%, compared to 17.15% in the first half of last year.
Annualized return on assets was 1.47% in the first half of 1999 and
1998.
<PAGE>
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Stockholders held May 19, 1999,
five nominees were elected as directors of Regions to
serve three year terms. The directors elected at the 1999
Annual Meeting were Sheila S. Blair (175,201,663 votes in
favor and 2,322,378 votes withheld), Barnett Grace
(173,966,974 votes in favor and 3,557,067 votes withheld),
Olin B. King (175,201,384 votes in favor and 2,322,657
votes withheld), Lee J. Styslinger (175,210,249 votes in
favor and 2,313,792 votes withheld) and C. Kemmons Wilson,
Jr. (175,261,365 votes in favor and 2,262,676 votes
withheld).
In addition, the stockholders approved an amendment to
Article VIII of the Certificate of Incorporation to
remove reference to retirement of directors and to ratify
a restatement of the Certificate of Incorporation
(171,899,869 votes in favor, 2,471,607 votes against, and
1,999,670 votes abstained).
The stockholders also approved the Management Incentive
Plan, an annual incentive compensation plan (161,755,645
votes in favor, 11,894,317 votes against, and 2,721,184
votes abstained), and the 1999 Long Term Incentive Plan,
an incentive plan (143,137,044 votes in favor, 30,302,037
votes against, and 2,932,065 votes abstained).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27.1) Financial Data Schedule (SEC use only)
(b) Reports on Form 8-K:
No report on Form 8-K was filed in the second quarter
of 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by undersigned thereunto duly authorized.
Regions Financial Corporation
DATE: August 12, 1999 /s/ Robert P. Houston
Robert P. Houston
Executive Vice President and
Comptroller
(Chief Accounting Officer and
Duly Authorized Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,350,476,000
<INT-BEARING-DEPOSITS> 77,255,000
<FED-FUNDS-SOLD> 58,192,000
<TRADING-ASSETS> 23,982,000
<INVESTMENTS-HELD-FOR-SALE> 5,512,854,000
<INVESTMENTS-CARRYING> 3,327,552,000
<INVESTMENTS-MARKET> 3,241,547,000
<LOANS> 26,552,685,000
<ALLOWANCE> 326,982,000
<TOTAL-ASSETS> 39,807,622,000
<DEPOSITS> 28,427,211,000
<SHORT-TERM> 7,436,790,000
<LIABILITIES-OTHER> 410,652,000
<LONG-TERM> 388,377,000
0
0
<COMMON> 140,012,000
<OTHER-SE> 3,004,580,000
<TOTAL-LIABILITIES-AND-EQUITY> 39,807,622,000
<INTEREST-LOAN> 1,073,711,000
<INTEREST-INVEST> 270,094,000
<INTEREST-OTHER> 41,813,000
<INTEREST-TOTAL> 1,385,618,000
<INTEREST-DEPOSIT> 512,712,000
<INTEREST-EXPENSE> 659,714,000
<INTEREST-INCOME-NET> 725,904,000
<LOAN-LOSSES> 44,682,000
<SECURITIES-GAINS> 38,000
<EXPENSE-OTHER> 522,799,000
<INCOME-PRETAX> 423,329,000
<INCOME-PRE-EXTRAORDINARY> 423,329,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 278,520,000
<EPS-BASIC> 1.25
<EPS-DILUTED> 1.23
<YIELD-ACTUAL> 4.21
<LOANS-NON> 159,103,000
<LOANS-PAST> 99,575,000
<LOANS-TROUBLED> 5,849,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 315,412,000
<CHARGE-OFFS> 54,463,000
<RECOVERIES> 15,817,000
<ALLOWANCE-CLOSE> 326,982,000
<ALLOWANCE-DOMESTIC> 326,982,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 326,982,000
</TABLE>
