<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 MARCH 31, 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) 326-7100
(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-224,057,502 shares outstanding
as of April 30, 1999
<PAGE>
REGIONS FINANCIAL CORPORATION
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Condition -
March 31, 1999, December 31, 1998
and March 31, 1998 2
Consolidated Statements of Income -
Three months ended March 31, 1999 and
March 31, 1998 3
Consolidated Statement of Stockholders' Equity -
Three months ended March 31, 1999 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1999 and
March 31, 1998 5
Notes to Consolidated Financial Statements -
March 31, 1999 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. OTHER INFORMATION
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>
March 31 December 31 March 31
1999 1998 1998
ASSETS
Cash and due from banks $ 1,243,942 $ 1,619,006 $ 1,343,681
Interest-bearing deposits in
other banks 75,492 143,965 90,245
Investment securities 3,480,541 3,125,114 3,005,329
Securities available for sale 5,489,283 4,844,023 4,070,436
Trading account assets 24,447 49,387 24,729
Mortgage loans held for sale 1,046,924 927,668 427,088
Federal funds sold and securities
purchased under agreement
to resell 49,089 233,941 434,696
Loans 25,602,677 24,430,113 23,308,754
Unearned income (62,441) (64,526) (72,832)
Loans, net of unearned income 25,540,236 24,365,587 23,235,922
Allowance for loan losses (330,151) (315,412) (329,051)
Net Loans 25,210,085 24,050,175 22,906,871
Premises and equipment 559,241 534,425 511,753
Interest receivable 309,106 292,036 238,604
Due from customers on acceptances 73,036 57,046 141,948
Other assets 1,051,946 955,154 729,667
$38,613,132 $36,831,940 $33,925,047
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 4,473,304 $ 4,577,125 $ 3,871,913
Interest-bearing 24,657,747 23,772,941 23,553,201
Total Deposits 29,131,051 28,350,066 27,425,114
Borrowed funds:
Short-term borrowings:
Federal funds purchased and
securities sold under
agreement to repurchase 2,506,805 2,067,278 1,733,618
Commercial paper 56,750 56,750 54,750
Other short-term borrowings 2,934,584 2,372,700 959,526
Total Short-term Borrowings 5,498,139 4,496,728 2,747,894
Long-term borrowings 497,430 571,040 431,291
Total Borrowed Funds 5,995,569 5,067,768 3,179,185
Bank acceptances outstanding 73,036 57,046 141,948
Other liabilities 287,849 356,659 340,356
Total Liabilities 35,487,505 33,831,539 31,086,603
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 - 223,910,981;
221,305,715; and 220,200,726
shares, respectively 139,944 138,316 137,627
Surplus 1,167,184 1,147,357 1,126,463
Undivided profits 1,820,896 1,729,334 1,572,035
Treasury stock, at cost - 888;
851,588; and 15,943 shares,
respectively (34) (32,603) (634)
Unearned restricted stock (6,294) (6,955) (8,548)
Accumulated other comprehensive
income 3,931 24,952 11,501
Total Stockholders' Equity 3,125,627 3,000,401 2,838,444
$38,613,132 $36,831,940 $33,925,047
</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>
<S> <C> <C>
Three Months Ended
March 31
1999 1998
Interest Income:
Interest and fees on loans $523,847 $503,943
Interest on securities:
Taxable interest income 121,762 98,045
Tax-exempt interest income 9,798 11,191
Total Interest on Securities 131,560 109,236
Interest on mortgage loans held for sale 20,636 9,016
Income on federal funds sold
and securities purchased under
agreement to resell 938 4,556
Interest on time deposits in other banks 514 1,041
Interest on trading account assets 315 305
Total Interest Income 677,810 628,097
Interest Expense:
Interest on deposits 257,455 259,339
Interest on short-term borrowings 57,599 34,517
Interest on long-term borrowings 8,790 7,921
Total Interest Expense 323,844 301,777
Net Interest Income 353,966 326,320
Provision for loan losses 20,738 14,419
Net Interest Income After Provision
for Loan Losses 333,228 311,901
Non-Interest Income:
Trust department income 12,751 13,156
Service charges on deposit accounts 44,812 40,192
Mortgage servicing and origination
fees 33,084 26,218
Securities gains (losses) 16 104
Other 52,452 28,687
Total Non-Interest Income 143,115 108,357
Non-Interest Expense:
Salaries and employee benefits 136,649 131,271
Net occupancy expense 14,656 15,169
Furniture and equipment expense 16,530 14,800
Other 94,740 80,782
Total Non-Interest Expense 262,575 242,022
Income Before Income Taxes 213,768 178,236
Applicable income taxes 77,282 61,172
Net Income $136,486 $117,064
Average number of shares
outstanding 222,408 219,445
Average number of shares
outstanding--diluted 225,467 223,441
Per share:
Net income $0.61 $0.53
Net income--diluted $0.61 $0.52
Cash dividends declared $0.25 $0.23
</TABLE>
See notes to consolidated financial statements.
<PAGE>
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Unearned Other
Common Undivided Treasury Restricted Comprehensive
Stock Surplus Profits Stock Stock 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 136,486 136,486
Other comprehensive
income, net of tax
Unrealized (losses)
on AFS securities, net of
reclassification adjustment (21,021) (21,021)
Comprehensive income* 136,486 (21,021) 115,465
Equity from acquisitions
accounted for as poolings
of interests 1,085 12,410 11,417 24,912
Cash dividends declared
($0.25 per common share) (56,341) (56,341)
Purchase of treasury stock (31,300) (31,300)
Treasury stock retired and
reissued related to
acquisitions accounted for
as purchases (1,046) (62,823) 63,869 -0-
Common stock transactions:
Stock issued for
acquisitions 1,046 56,878 57,924
Stock issued to employees
under incentive plan 77 4,663 4,740
Stock options exercised 466 8,699 9,165
Amortization of unearned
restricted stock 661 661
BALANCE AT MARCH 31, 1999 $139,944 $1,167,184 $1,820,896 $ (34) $(6,294) $3,931 $3,125,627
Disclosure of reclassification amount:
Unrealized holding (losses) on AFS
securities arising during period $(21,011)
Less: Reclassification adjustment, net of
tax, for gains and losses realized in
net income 10
Net unrealized gains on AFS
securities, net of tax $(21,021)
</TABLE>
*Comprehensive income as of March 31, 1998 was $112.6 million.
See notes to consolidated financial statements.
<PAGE>
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)
<TABLE>
<S> <C> <C>
Three Months Ended
March 31
1999 1998
Operating Activities:
Net income $ 136,486 $ 117,064
Adjustments to reconcile net cash
provided by operating activities:
Depreciation and amortization of
premises and equipment 14,268 15,222
Provision for loan losses 20,738 14,419
Net (accretion) of securities (605) (261)
Amortization of loans and other assets 17,018 10,924
Amortization of deposits and borrowings 104 46
Provision for losses on other real estate 17 34
Deferred income taxes 3,460 (2,817)
Gain on sale of premises and equipment (485) (406)
Realized security (gains) (16) (104)
Decrease in trading account assets 24,940 26,096
(Increase) in mortgages held for sale (119,256) (66,177)
(Increase) in interest receivable (10,911) (7,323)
(Increase) decrease in other assets (107,916) 38,508
Increase in other liabilities (56,579) (86,739)
Stock issued to employees 4,871 14,717
Other 660 862
Net Cash Provided By Operating Activities (73,206) 74,065
Investing Activities:
Net (increase) in loans (750,854) (146,883)
Proceeds from sale of securities
available for sale 1,730 180,960
Proceeds from maturity of
investment securities 395,959 577,398
Proceeds from maturity of securities
available for sale 672,314 746,242
Purchase of investment securities (771,049) (250,632)
Purchase of securities
available for sale (1,243,986) (1,642,013)
Net decrease in interest-bearing
deposits in other banks 69,575 1,167
Proceeds from sale of premises
and equipment 6,904 1,877
Purchase of premises and equipment (30,347) (21,214)
Net (increase) decrease in customers'
acceptance liability (15,990) 15,314
Net cash received in acquisitions 118,679 96,576
Net Cash (Used) By Investing Activities(1,547,065) (441,208)
Financing Activities:
Net increase in deposits 207,597 856,854
Net increase in short-term borrowings 997,853 27,752
Proceeds from long-term borrowings 120,876 13,890
Payments on long-term borrowings (203,486) (90,397)
Net increase (decrease) in bank
acceptance liability 15,990 (15,314)
Cash dividends (56,341) (44,543)
Purchase of treasury stock (31,299) 0
Issuance of stock by pooled company 0 (74,270)
Proceeds from exercise of stock options 9,165 1,795
Net Cash Provided By
Financing Activities 1,060,355 675,767
(Decrease) Increase In Cash And
Cash Equivalents (559,916) 308,624
Cash and Cash Equivalents,
Beginning of Period 1,852,947 1,469,753
Cash And Cash Equivalents,
End of Period $1,293,031 $1,778,377
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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
In January 1999, Regions issued 490,541 shares of common stock in
exchange for all the outstanding stock of Meigs County Bancshares,
Inc. of Decatur, Tennessee. This transaction, accounted for as a
pooling of interests, added approximately $114 million in assets.
Also in January, Regions issued 464,827 shares of common stock in
exchange for all the outstanding stock of VB&T Bancshares
Corporation of Valdosta, Georgia. This transaction, accounted for
as a pooling of interests, added approximately $76 million in
assets.
Additionally in January 1999, Regions issued 781,046 shares of
common stock in exchange for all the outstanding stock of
Bullsboro BancShares, Inc., of Newnan, Georgia. This transaction,
accounted for as a pooling of interests, added approximately $101
million in assets.
On March 31, 1999, Regions issued 1,672,893 shares of common stock
in exchange for all the outstanding stock of Arkansas Banking
Company of Jonesboro, Arkansas. This transaction, accounted for as
a purchase, added approximately $355 million in assets and
generated approximately $35 million in excess purchase price.
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 three months ended March 31, 1998.
Net interest income:
(in thousands, except per share data)
Regions $245,406
First Commercial 70,397
Other pooled companies 10,517
Combined $326,320
Net income:
Regions $ 86,203
First Commercial 27,308
Other pooled companies 3,553
Combined $117,064
Net income per common share:
Regions $.58
Combined $.53
Net income per common share - diluted:
Regions $.57
Combined $.52
NOTE C - Pending Acquisitions
As of March 31, 1999 Regions has no pending business combinations.
NOTE D - New Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, 'Accounting for Derivative 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. Statement 133
is effective for quarters in fiscal years beginning after June 15,
1999. 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 March 31, 1999, a cumulative total of
approximately $12.0 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 $1.8 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. Business Segment Information
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.
(in thousands)
1999
<TABLE>
<S> <C> <C> <C> <C> <C>
Central North Northeast South Southwest
Net interest income
(expense) $49,715 $28,420 $51,566 $44,657 $48,885
Provision for loan loss 2,985 1,377 2,897 2,355 2,524
Non-interest income 13,234 7,167 12,716 13,447 12,382
Non-interest expense 26,464 14,859 28,752 22,193 24,949
Income taxes 12,677 7,473 12,671 12,304 13,125
Net income $20,823 $11,878 $19,962 $21,252 $20,669
Average assets $4,440,707 $2,895,879 $4,412,386 $4,122,992 $4,818,507
Mortgage Total
West Banking Other Company
Net interest income
(expense) $65,835 $(2,893) $67,781 $353,966
Provision for loan loss 3,382 17 5,201 20,738
Non-interest income 15,781 39,882 28,506 143,115
Non-interest expense 35,953 32,132 77,273 262,575
Income taxes 16,532 1,830 670 77,282
Net income $25,749 $ 3,010 $13,143 $136,486
Average assets $5,809,072 $1,556,572 $9,266,338 $37,322,453
1998
Central North Northeast South Southwest
Net interest income
(expense) $47,152 $25,027 $49,299 $40,126 $44,515
Provision for loan loss 2,229 938 1,965 1,610 1,771
Non-interest income 12,361 6,900 10,112 13,058 10,191
Non-interest expense 26,401 13,188 29,129 20,837 25,868
Income taxes 11,708 6,786 10,899 11,337 10,418
Net income $19,175 $11,015 $17,418 $19,400 $16,649
Average assets $4,285,083 $2,551,904 $4,041,604 $3,859,734 $4,433,819
Mortgage Total
West Banking Other Company
Net interest income
(expense) $60,860 $(2,578) $61,919 $326,320
Provision for loan loss 3,767 8 2,131 14,419
Non-interest income 12,584 39,318 3,833 108,357
Non-interest expense 36,284 27,425 62,890 242,022
Income taxes 13,252 3,543 (6,771) 61,172
Net income $20,141 $ 5,764 $ 7,502 $117,064
Average assets $5,947,942 $756,798 $7,020,577 $32,897,461
</TABLE>
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Regions' total assets at March 31, 1999, were $38.6 billion -- an
increase of 14% 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 5%, 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 Company Headquarters Total Assets Accounting
Acquired Acquired Location (in thousands) Treatment
September Branches of First Valdosta,
1998 Union National Bank Georgia $108,913 Purchase
November EFC Holdings Charlotte,
1998 Corporation North Carolina 63,147 Purchase
December St. James Lutcher,
1998 Bancorporation, Inc. Louisiana 171,572 Purchase
January Meigs County Decatur,
1999 Bancshares, Inc. Tennessee 114,407 Pooling
January VB&T Bancshares Valdosta,
1999 Corporation Georgia 75,733 Pooling
January Bullsboro Newnan,
1999 BancShares, Inc. Georgia 100,682 Pooling
March Arkansas Banking Jonesboro,
1999 Company Arkansas 354,981 Purchase
</TABLE>
Loans have increased 10% 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 10% increase was attributable primarily to
growth in the real estate loan portfolio. Since year-end, total
loans have increased 5%, due to $433 million in loans added by
acquisitions and $742 million in internal growth. The average
yield on loans during the first three months of 1999 was 8.63%,
compared to 9.04% 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>
March 31, Dec. 31, March 31,
1999 1998 1998
Non-accruing loans $152,630 $124,718 $154,720
Loans past due 90
days or more 121,393 134,411 28,665
Renegotiated loans 5,084 4,550 2,594
Other real estate 15,069 17,273 24,041
Total $294,176 $280,952 $210,020
Non-performing assets
as a percentage of
loans and other real
estate 1.15% 1.15% .90%
</TABLE>
Non-accruing loans have decreased $2.1 million since March of last
year but increased $27.9 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 $92.7 million,
compared to March 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 March 31, 1999, real
estate loans comprised $93.2 million of total non-accruing loans,
with commercial loans accounting for $52.9 million and consumer
loans $6.5 million. Other real estate decreased $2.2 million since
year end, and $9.0 million since March 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>
March 31, March 31,
1999 1998
Balance at beginning of period $315,412 $304,223
Net loans charged-off:
Commercial 1,833 73
Real estate 366 719
Installment 9,334 11,057
Total 11,533 11,849
Allowance of acquired banks 5,534 22,258
Provision charged to expense 20,738 14,419
Balance at end of period $330,151 $329,051
</TABLE>
Net loan losses in the first three months of 1999 and 1998 were
0.19% and 0.21% of average loans (annualized), respectively. At
March 31, 1999 and at year end, the allowance for loan losses
stood at 1.29% of loans, compared to 1.42% a year ago. The
allowance for loan losses as a percentage of non-performing loans
and non-performing assets was 118% and 112%, respectively, at
March 31, 1999, compared to 177% and 157%, respectively, at March
31, 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 March 31, 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 27% since a year ago and 13% 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 $620 million since
March 31, 1998 and $119 million since year end as a result of
record levels of residential mortgage loan production at Regions'
mortgage banking subsidiary. Residential mortgage loan production
at Regions' mortgage banking subsidiary was approximately $1.8
billion during the first three months of 1999, compared to $874
million during the same time period in 1998.
Interest-bearing deposits in other banks at March 31, 1999 totaled
$75.5 million, a decrease of $14.8 million compared to a year ago
and $68.5 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 $2.5 billion at March 31, 1999, $1.8 billion at year end
and $1.3 billion at March 31, 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 three months of
1999 net funds purchased averaged $2.1 billion compared to $1.3
billion for the same period of 1998, indicating increased reliance
on purchased funds to support earning asset growth since the first
quarter of 1998.
Premises and equipment have increased $24.8 million since year end
and $47.5 million since March 31, 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 $96.8 million since year end, and
$322.3 million since the first 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 6% since March 31 of last year. The
deposits acquired in connection with acquisitions resulted in a 3%
increase, with the remaining 3% increase attributable to internal
growth. The internal growth resulted primarily from increases in
interest-bearing checking accounts, large certificates of deposit
and other time deposits. Since year end, total deposits have
increased 1%, after adjusting for the deposits acquired in
connection with acquisitions during the first quarter of 1999.
Other short-term borrowings increased $2.0 billion since March 31,
1998 and $562 million 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 $73.6 million since year end,
but increased $66.1 million since March 31, 1998. The decrease in
long-term borrowings since year end resulted primarily from
maturities of Federal Home Loan Bank advances and other long term
notes payable. The increase, as compared to the first quarter of
1998, in long-term borrowings is increased use of Federal Home
Loan Bank advances to fund earning asset growth.
Stockholders' equity was $3.1 billion at March 31, 1998, an
increase of 10% over last year and an increase of 4% since year
end. These increases resulted primarily from internally generated
capital and equity added in connection with acquisitions since
December 1998. The accumulated other comprehensive income totaled
$3.9 million at March 31, 1999, compared to $25.0 million at year
end and $11.5 million at March of 1998. Regions' ratio of equity
to total assets was 8.09% at March 31, 1999, compared to 8.37% 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 March 31, 1999, the loan
to deposit ratio was 87.67%, compared to 84.72% 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 three months of 1999 increased
$27.6 million or 8%, 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 4.23% in the first three months of 1999,
compared to 4.43% 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
quarter of 1999.
The provision for loan losses was $20.7 million or .34% annualized
of average loans in the first quarter of this year, compared to
$14.4 million or .25% annualized of average loans in the first
quarter of 1998. Acquisitions added $5.5 million to the allowance
for loan losses in the first quarter of 1999.
Total non-interest income increased $34.8 million or 32% over the
first three months of 1998. Trust department income decreased
slightly compared to the first quarter of 1998 due to lower
advisory fees from mutual funds. Increased number of deposit ac-
counts due to acquisitions and internal growth resulted in service
charges on deposit accounts increasing $4.6 million or 11% in the
first three months of 1999 compared to the same period in 1998.
Mortgage servicing and origination fees increased $6.9 million or
26% in the first three months of 1999 compared to the same period
in 1998. Mortgage origination fees were up significantly due to
increased volume of new loan production in 1999. Mortgage
servicing fees were also higher on a year-to-year comparison. The
mortgage company's servicing portfolio totaled $23.0 billion at
March 31, 1999. Other non-interest income increased $23.8 million
in the first quarter of 1999 over 1998. The increase is a result
of an $18.4 million gain from the sale of joint venture banking
interests recognized in the first quarter of 1999 and increases in
trading account income, brokerage income and insurance premiums
and commissions.
Total non-interest expense increased $20.6 million or 8% in the
first quarter of 1999 compared to the same period in 1998.
Salaries and employee benefits were up 4% in the first quarter of
1999 compared to the same period in 1998, due to an increase in
the number of employees because of acquisitions coupled with
normal merit increases and higher benefit costs. Net occupancy
expense and furniture and equipment expense increased 4% in the
first quarter of 1999 over the same period in 1998. The increase
is primarily due to additional expenses associated with branch
offices and equipment added by the 1999 acquisitions. Other
non-interest expense increased $14.0 million or 17% in the first
quarter of 1999 compared to the same period in 1998. The increase
resulted from increases in amortization of mortgage servicing
rights, communication costs, postage and legal fees.
Income tax expense increased $16.1 million or 26% over the first
quarter of 1998. This increase was the result of an increase in
taxable income and an increase in taxable income as a percentage
of total income.
Net income for the first quarter was $136.5 million--up 17%
compared to the first quarter of last year. Annualized return on
stockholders' equity increased to 18.13%, compared to 16.79% in the
first quarter of last year. Annualized return on assets also
increased to 1.48% in the first quarter of 1999, compared to 1.44%
for the same period in 1998.
<PAGE>
Part II. Other Information
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 first 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: May 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,243,942,000
<INT-BEARING-DEPOSITS> 75,492,000
<FED-FUNDS-SOLD> 49,089,000
<TRADING-ASSETS> 24,447,000
<INVESTMENTS-HELD-FOR-SALE> 5,489,283,000
<INVESTMENTS-CARRYING> 3,480,541,000
<INVESTMENTS-MARKET> 3,494,231,000
<LOANS> 25,540,236,000
<ALLOWANCE> 330,151,000
<TOTAL-ASSETS> 38,613,132,000
<DEPOSITS> 29,131,051,000
<SHORT-TERM> 5,498,139,000
<LIABILITIES-OTHER> 360,885,000
<LONG-TERM> 497,430,000
0
0
<COMMON> 139,944,000
<OTHER-SE> 2,985,683,000
<TOTAL-LIABILITIES-AND-EQUITY> 38,613,132,000
<INTEREST-LOAN> 523,847,000
<INTEREST-INVEST> 131,560,000
<INTEREST-OTHER> 22,403,000
<INTEREST-TOTAL> 677,810,000
<INTEREST-DEPOSIT> 257,455,000
<INTEREST-EXPENSE> 323,844,000
<INTEREST-INCOME-NET> 353,966,000
<LOAN-LOSSES> 20,738,000
<SECURITIES-GAINS> 16,000
<EXPENSE-OTHER> 262,575,000
<INCOME-PRETAX> 213,768,000
<INCOME-PRE-EXTRAORDINARY> 213,768,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,486,000
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
<YIELD-ACTUAL> 4.23
<LOANS-NON> 152,630,000
<LOANS-PAST> 121,393,000
<LOANS-TROUBLED> 5,084,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 315,412,000
<CHARGE-OFFS> 20,082,000
<RECOVERIES> 8,549,000
<ALLOWANCE-CLOSE> 330,151,000
<ALLOWANCE-DOMESTIC> 330,151,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 330,151,000
</TABLE>
