<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 SEPTEMBER 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-218,650,044 shares outstanding
as of October 31, 1999
<PAGE>
REGIONS FINANCIAL CORPORATION
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Condition -
September 30, 1999, December 31, 1998
and September 30, 1998 2
Consolidated Statements of Income -
Three months ended September 30, 1999 and
September 30, 1998 and Nine months ended
September 30, 1999 and September 30, 1998 3
Consolidated Statement of Stockholders' Equity -
Nine months ended September 30, 1999 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1999 and
September 30, 1998 5
Notes to Consolidated Financial Statements -
September 30, 1999 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
<PAGE>
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
September 30 December 31 September 30
1999 1998 1998
ASSETS
Cash and due from banks $ 1,249,061 $ 1,619,006 $ 1,225,990
Interest-bearing deposits in other banks 48,228 143,965 141,595
Investment securities 3,560,934 3,125,114 2,972,053
Securities available for sale 5,938,836 4,844,023 4,723,955
Trading account assets 19,929 49,387 24,553
Mortgage loans held for sale 1,227,275 927,668 728,746
Federal funds sold and securities
purchased under agreement to resell 90,462 233,941 117,148
Loans 27,587,448 24,430,113 23,923,417
Unearned income (75,976) (64,526) (71,211)
Loans, net of unearned income 27,511,472 24,365,587 23,852,206
Allowance for loan losses (330,679) (315,412) (325,238)
Net Loans 27,180,793 24,050,175 23,526,968
Premises and equipment 575,139 534,425 514,082
Interest receivable 293,467 292,036 287,317
Due from customers on acceptances 29,614 57,046 16,814
Other assets 1,015,426 955,154 797,043
$41,229,164 $36,831,940 $35,076,264
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 4,624,868 $ 4,577,125 $ 3,875,059
Interest-bearing 25,179,180 23,772,941 23,309,836
Total Deposits 29,804,048 28,350,066 27,184,895
Borrowed funds:
Short-term borrowings:
Federal funds purchased and securities
sold under agreement to repurchase 4,158,091 2,067,278 1,289,513
Commercial paper 59,250 56,750 56,750
Other short-term borrowings 3,436,292 2,372,700 2,551,480
Total Short-term Borrowings 7,653,633 4,496,728 3,897,743
Long-term borrowings 371,148 571,040 424,176
Total Borrowed Funds 8,024,781 5,067,768 4,321,919
Bank acceptances outstanding 29,614 57,046 16,814
Other liabilities 350,784 356,659 594,983
Total Liabilities 38,209,227 33,831,539 32,118,611
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 -
224,170,794; 221,305,715; and
221,111,474 shares, respectively 140,107 138,316 138,195
Surplus 1,169,324 1,147,357 1,142,592
Undivided profits 1,969,670 1,729,334 1,649,105
Treasury stock, at cost 4,882,066;
and 851,588 shares, respectively (172,056) (32,603) -0-
Unearned restricted stock (5,236) (6,955) (7,224)
Accumulated other comprehensive income (81,872) 24,952 34,985
Total Stockholders' Equity 3,019,937 3,000,401 2,957,653
$41,229,164 $36,831,940 $35,076,264
See notes to consolidated financial statements.
</TABLE>
<PAGE>
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
Interest Income:
Interest and fees on loans $562,484 $521,428 $1,615,154 $1,545,899
Interest on securities:
Taxable interest income 135,346 105,163 385,881 305,434
Tax-exempt interest income 9,756 9,318 29,315 30,970
Total Interest on Securities 145,102 114,481 415,196 336,404
Interest on mortgage loans held for sale 22,506 13,880 60,690 32,089
Income on federal funds sold and securities
purchased under agreement to resell 1,046 5,563 2,921 13,645
Interest on time deposits in other banks 372 1,782 1,459 3,877
Interest on trading account assets 476 172 1,143 592
Total Interest Income 731,986 657,306 2,096,563 1,932,506
Interest Expense:
Interest on deposits 258,847 269,086 771,559 799,178
Interest on short-term borrowings 105,719 53,614 236,246 124,818
Interest on long-term borrowings 6,972 8,818 23,447 24,251
Total Interest Expense 371,538 331,518 1,031,252 948,247
Net Interest Income 360,448 325,788 1,065,311 984,259
Provision for loan losses 30,707 12,547 75,389 41,482
Net Interest Income After Provision for Loan
Losses 329,741 313,241 989,922 942,777
Non-Interest Income:
Trust department income 14,530 14,231 39,891 39,662
Service charges on deposit accounts 50,453 40,816 142,110 122,881
Mortgage servicing and origination fees 22,675 27,524 82,212 83,920
Securities gains 3 85 41 3,127
Other 45,611 31,606 133,924 94,372
Total Non-Interest Income 133,272 114,262 398,178 343,962
Non-Interest Expense:
Salaries and employee benefits 140,577 125,371 415,949 391,059
Net occupancy expense 16,422 15,253 45,412 46,664
Furniture and equipment expense 18,370 18,296 51,222 49,179
Other 89,851 75,772 275,436 238,309
Total Operating Expense 265,220 234,692 788,019 725,211
Merger and consolidation costs -0- 114,728 -0- 114,728
Total Non-interest Expense 265,220 349,420 788,019 839,939
Income Before Income Taxes 197,793 78,083 600,081 446,800
Applicable income taxes 66,835 26,799 203,754 152,095
Net Income $130,958 $51,284 $396,327 $294,705
Average number of shares outstanding 221,696 220,809 222,697 220,220
Average number of shares outstanding-diluted 223,715 223,711 225,350 223,935
Per share:
Net income $0.59 $0.23 $1.78 $1.34
Net income-diluted $0.59 $0.23 $1.76 $1.32
Cash dividends declared $0.25 $0.23 $0.75 $0.69
See notes to consolidated financial statements.
</TABLE>
<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 396,327 396,327
Other comprehensive income, net of
Tax
Unrealized (losses) on available
for sale securities, net of
reclassification adjustment (106,824) (106,824)
Comprehensive income* 396,327 (106,824) 289,503
Equity from acquisitions accounted for
as poolings of interests 1,085 12,410 11,417 24,912
Cash dividends declared ($0.75 per
common share) (167,408) (167,408)
Purchase of treasury stock (214,792) (214,792)
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 69 4,160 4,229
Stock options exercised 637 11,585 12,222
Amortization of unearned restricted
Stock 1,719 1,719
BALANCE AT SEPTEMBER 30, 1999 $140,107 $1,169,324 $1,969,670 $(172,056) $(5,236) $(81,872) $3,019,937
Disclosure of reclassification amount:
Unrealized holding (losses) on
Available for sale securities arising
during period $(106,797)
Less:Reclassification adjustment, net
of tax, for gains and losses realized
in net income 27
Net unrealized losses on available for
sale securities, net of tax $(106,824)
*Comprehensive income for the nine and three months ended September 30, 1998 was $313.7 million and $70.9 million respectively.
Comprehensive income for the three months ended September 30, 1999 was $113.6 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>
Nine Months Ended
September 30
1999 1998
Operating Activities:
Net income $ 396,327 $ 294,705
Adjustments to reconcile net cash provided by
operating activities
Depreciation and amortization of premises and equipment 43,922 62,438
Provision for loan losses 75,389 41,482
Net (accretion) amortization of securities (135) 122
Amortization of loans and other assets 50,543 44,051
Amortization of deposits and borrowings 490 241
Provision for losses on other real estate 325 3,807
Deferred income taxes 6,299 45,314
(Gain) loss on sale of premises and equipment (1,447) 596
Realized securities (gains) (41) (3,127)
Decrease in trading account assets 29,458 26,272
(Increase) in mortgages held for sale (299,607) (344,822)
Decrease (increase) in interest receivable 4,728 (42,801)
(Increase) in other assets (105,157) (109,294)
Increase in other liabilities 51,714 129,917
Stock issued to employees 4,959 14,717
Other 1,719 2,598
Net Cash Provided By Operating Activities 259,486 166,216
Investing Activities:
Net (increase) in loans (2,776,285) (1,123,731)
Proceeds from sale of securities available for sale 1,755 622,553
Proceeds from maturity of investment securities 409,550 1,527,722
Proceeds from maturity of securities available for sale 1,702,888 1,962,463
Purchase of investment securities (991,764) (1,145,825)
Purchase of securities available for sale (2,732,695) (3,986,432)
Net decrease (increase) in interest-bearing deposits in
other banks 96,839 (50,359)
Proceeds from sale of premises and equipment 17,796 5,278
Purchase of premises and equipment (85,829) (89,482)
Net decrease in customers' acceptance liability 27,432 140,448
Net cash received in acquisitions 130,150 48,355
Net Cash (Used) By Investing Activities (4,200,163) (2,089,010)
Financing Activities:
Net increase in deposits 880,208 917,537
Net increase in short-term borrowings 3,153,347 1,184,514
Proceeds from long-term borrowings 733,472 311,405
Payments on long-term borrowings (942,364) (342,643)
Net (decrease) in bank acceptance liability (27,432) (140,448)
Cash dividends (167,408) (140,176)
Purchase of treasury stock (214,792) -0-
Proceeds from exercise of stock options 12,222 5,990
Net Cash Provided By Financing Activities 3,427,253 1,796,179
(Decrease) in Cash and Cash Equivalents (513,424) (126,615)
Cash and Cash Equivalents, Beginning of Period 1,852,947 1,469,753
Cash and Cash Equivalents, End of Period $1,339,523 $1,343,138
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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.
Certain amounts in prior periods have been reclassified to conform
to the current period presentation.
In addition, Regions has adjusted certain previously reported
financial information for the periods ending March 31, 1999 and
June 30, 1999. The adjustments resulted from an overaccrual of
interest income on a certain portion of the Company's mortgage loan
portfolio following a processing system conversion. The adjusted
financial information has been presented in amended Form 10-Q's
for the first and second quarters of 1999. As adjusted, Regions
net income for the quarter ended March 31, 1999 was $129.4 million
or $.57 per diluted share, instead of the $136.5 million or $.61
per diluted share previously reported. As adjusted, Regions net
income for the quarter ended June 30, 1999 was $136.0 million or
$.60 per diluted share, instead of the $142.0 million or $.63 per
diluted share previously reported.
NOTE B -- Business Combinations
Regions completed no business combinations in the third quarter of
1999.
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
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, testing and implementation 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 established 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 September 30, 1999, a cumulative total of
approximately $15.6 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 $5.4 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. As noted above, the Company
has substantially completed all necessary phases of the Year 2000
program, including upgrading mission-critical systems. 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
and estimated costs of the Year 2000 project. 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 has developed 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.
During the third quarter of 1999, Region repurchased approximately
4.9 million shares of its common stock at a cost of approximately
$172 million.
NOTE G. 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 residential mortgage lending and mortgage banking segment as a
separate reportable segment. The reportable segment designated as "other"
includes 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>
<S> <C> <C> <C> <C> <C>
1999
(in thousands)
Central North Northeast South Southwest
Net interest income $151,670 $87,959 $160,551 $134,843 $147,685
Provision for loan loss 10,898 5,173 10,616 8,208 8,938
Non-interest income 43,099 22,566 40,259 47,356 37,703
Non-interest expense 78,460 45,754 87,351 67,847 78,419
Income taxes 40,150 23,432 40,712 42,405 38,393
Net income $65,261 $36,166 $ 62,131 $63,739 $ 59,638
Average assets $4,346,847 $2,902,310 $4,385,462 $4,123,682 $4,831,136
Residential Total
West Mortgage Other Company
Lending and
Mortgage
Banking
Net interest income $197,845 $ 17,690 $167,068 $1,065,311
Provision for loan loss 11,475 14,595 5,486 75,389
Non-interest income 50,282 129,473 27,440 398,178
Non-interest expense 109,603 101,321 219,264 788,019
Income taxes 50,103 17,224 (48,665) 203,754
Net income $76,946 $ 14,023 $18,423 $ 396,327
Average assets $5,584,362 $6,072,356 $6,709,300 $38,955,455
1998
Central North Northeast South Southwest
Net interest income $145,605 $75,791 $148,678 $125,385 $135,717
Provision for loan loss 6,415 2,697 5,559 4,746 5,162
Non-interest income 36,467 19,986 31,826 37,958 31,487
Non-interest expense 79,808 41,426 87,643 65,776 77,429
Income taxes 36,010 19,676 33,458 33,470 32,281
Net income $59,839 $31,978 $53,844 $59,351 $52,332
Average assets $4,324,690 $2,588,179 $4,057,828 $4,107,573 $4,466,695
Residential Total
West Mortgage Other Company
Lending and
Mortgage
Banking
Net interest income $181,608 $ 34,361 $137,114 $984,259
Provision for loan loss 10,265 6,487 151 41,482
Non-interest income 42,688 109,023 34,527 343,962
Non-interest expense 108,095 110,258 269,504 839,939
Income taxes 41,400 12,549 (56,749) 152,095
Net income $64,536 $ 14,090 $(41,265) $294,705
Average assets $6,117,217 $3,959,932 $3,956,075 $33,578,189
</TABLE>
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Regions' total assets at September 30, 1999, were $41.2 billion --
an increase of 18% 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 12%, 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, and
Arkansas Banking Company (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. Relevant 1998 and 1999 acquisitions are summarized
as follows:
<TABLE>
<S> <C> <C> <C> <C>
Date Company Headquarters Total Assets Accounting
Acquired Acquired Location (in thousands) Treatment
November EFC Holdings Charlotte, $ 63,147 Purchase
1998 Corporation North Carolina
December St. James Lutcher, 171,572 Purchase
1998 Bancorporation, Louisiana
Inc.
January Meigs County Decatur, 114,407 Pooling
1999 Bancshares, Inc. Tennessee
January VB&T Bancshares Valdosta, 75,733 Pooling
1999 Corporation Georgia
January Bullsboro Newnan, 100,682 Pooling
1999 BancShares, Inc. Georgia
March Arkansas Banking Jonesboro, 354,981 Purchase
1999 Company Arkansas
</TABLE>
Loans have increased 15% since a year ago. During the third
quarter of 1999, Regions securitized $411 million of mortgage
loans. Loans added from the purchase acquisitions, combined with
the three pooling transactions, offset the effect of the
securitization. The 15% increase was attributable primarily to
growth in the real estate loan portfolio. Since year-end, total
loans have increased 13%, due to $433 million in loans added by
acquisitions and $2.7 billion in internal growth. The average
yield on loans during the first nine months of 1999 was 8.34%,
compared to 8.93% 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):
Sept. 30, Dec. 31, Sept. 30,
1999 1998 1998
Non-accruing loans $161,837 $124,718 $137,394
Loans past due 90
days or more 77,918 134,411 56,861
Renegotiated loans 10,219 4,550 4,852
Other real estate 13,371 17,273 16,677
Total $263,345 $280,952 $215,784
Non-performing assets
as a percentage of
loans and other real
estate .96% 1.15% .90%
Non-accruing loans have increased $24.4 million since September of
last year and $37.1 million since year end. The increases were
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 $21.1 million, compared to September
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). Since year end loans past due 90 days or more
have declined $56.5 million due to charge-offs and collections of
past due loans. At September 30, 1999, real estate loans comprised
$107.7 million of total non-accruing loans, with commercial loans
accounting for $52.4 million and consumer loans $1.7 million.
Other real estate decreased $3.9 million since year end, and $3.3
million since September 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):
Sept. 30, Sept. 30,
1999 1998
Balance at beginning of period $315,412 $304,223
Net loans charged-off:
Commercial 13,471 3,586
Real estate 9,550 2,307
Installment 42,635 31,756
Total 65,656 37,649
Allowance of acquired banks 5,534 17,182
Provision charged to expense 75,389 41,482
Balance at end of period $330,679 $325,238
Net loan losses in the first nine months of 1999 and 1998 were
0.34% and 0.22% of average loans (annualized), respectively. The
higher levels of loan losses in 1999 are due to increased charge-
offs of consumer loans and specific commercial and real estate
credits. At September 30, 1999 the allowance for loan losses stood
at 1.20% of loans, compared to 1.36% 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 132% and 126%,
respectively, at September 30, 1999, compared to 163% and 151%,
respectively, at September 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 September 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
the 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 23% since a year ago and 19% 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 1999 (which resulted in a $411 million increase in
available for sale securities) and increased balance sheet
leveraging.
Mortgage loans held for sale have increased $499 million since
September 30, 1998 and $300 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 $4.7 billion during the first nine months of
1999, compared to $3.5 billion during the same time period in
1998.
Interest-bearing deposits in other banks at September 30, 1999
totaled $48.2 million, a decrease of $93.4 million compared to a
year ago and $95.7 million compared to year end. These decreases
resulted from the utilization of alternative investments, as
interest bearing deposits, which were acquired in connection with
acquisitions, matured.
Net federal funds purchased and security repurchase agreements
totaled $4.1 billion at September 30, 1999, $1.8 billion at year
end and $1.2 billion at September 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 nine
months of 1999 net funds purchased averaged $3.1 billion, compared
to $1.2 billion for the same period of 1998, indicating increased
reliance on purchased funds to support earning asset growth since
September of 1998.
Premises and equipment have increased $40.7 million since year end
and $61.1 million since September 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 and back office equipment.
Other assets have increased $60.3 million since year end, and
$218.4 million since the third 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, increased mortgage loan escrow advances and
increased mortgage servicing rights.
Total deposits have increased 10% since September 30 of last year.
The deposits acquired in connection with acquisitions resulted in
a 4% increase, with the remaining 6% 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
increased 3% after adjusting for the deposits acquired in
connection with acquisitions during the first quarter of 1999.
Other short-term borrowings increased $884.8 million since
September 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 short-term borrowings.
Long-term borrowings have decreased $199.9 million since year end,
and $53.0 million since September 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 $3.0 billion at September 30, 1999, an
increase of 2% over last year and an increase of 1% since year
end. These increases resulted primarily from internally generated
capital and equity added in connection with acquisitions since
December 1998, offset by treasury stock purchases in the third
quarter of 1999 totaling $172 million. Accumulated other
comprehensive income totaled $(81.9) million at September 30,
1999, compared to $25.0 million at year end and $35.0 million at
September of 1998, reflecting changes in the estimated fair market
value of available for sale securities due to changes in market
interest rates. Regions' ratio of equity to total assets was
7.32% at September 30, 1999, compared to 8.43% a year ago and
8.15% at year end. This ratio has declined over the last year due
to strong asset growth, combined with treasury stock purchases and
decreased accumulated other comprehensive income.
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 September 30, 1999, the
loan to deposit ratio was 92.31%, compared to 87.74% 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 nine months of 1999 increased
$81.1 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 4.01% in the first nine months of 1999,
compared to 4.28% 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
nine months of 1999. For the third quarter of 1999, net interest
income increased $34.7 million or 11% compared to the same period
in 1998 due to higher levels of earning assets.
The provision for loan losses was $75.4 million or .39% annualized
of average loans in the first nine months of 1999, compared to
$41.5 million or .24% annualized of average loans in the first
nine months of 1998. A higher provision for loan losses was
recorded in the first nine months 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 $54.2 million or 16% over the
first nine months of 1998. On a quarterly basis, total non-
interest income increased $19.0 million or 17% over the third
quarter of 1998. Trust department income increased slightly
compared to the first nine months of 1998 and to the third quarter
of 1998 due to higher advisory fees from mutual funds. Increased
number of deposit accounts due to acquisitions and internal
growth, and adjustments in service charge fee schedules, resulted
in service charges on deposit accounts increasing $19.2 million or
16% in the first nine months of 1999 and $9.6 million or 24% in
the third quarter of 1999 compared to the same periods in 1998.
Mortgage servicing and origination fees decreased $1.7 million or
2% in the first nine months of 1999 and $4.8 million or 18% in the
third quarter of 1999 compared to the same periods in 1998.
Mortgage origination fees were down due to declining levels of new
loan production in the third quarter of 1999 compared to the same
period in 1998 and because third quarter 1999 new loan production
activity was more heavily dependent on ARM production, which
generally generate less origination income than fixed-rate
products. Mortgage servicing fees were lower on a year-to-year
comparison. The mortgage company's servicing portfolio totaled
$23.9 billion at September 30, 1999. Other non-interest income
increased $39.6 million in the first nine months of 1999 and $14.0
million in the third quarter of 1999 over the same periods in
1998. These increases were the result of increased income related
to investments in low-income housing partnerships, increased
trading account and brokerage income and increased 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.
During the third quarter of 1998, Regions incurred a $114.7
million pre-tax ($76.5 million or $.34 per share after-tax)
nonrecurring merger and consolidation charge primarily related to
acquisition activity.
Total non-interest expense, excluding merger and consolidation
charges, increased $62.8 million or 9% in the first nine months of
1999 and $30.5 million or 13% in the third quarter of 1999
compared to the same periods in 1998. Salaries and employee bene-
fits were up 6% in the first nine months of 1999 compared to the
same period in 1998 and up 12% in the third 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 increased less than 1% in the
first nine months of 1999 and 4% in the third quarter of 1999 over
the same periods in 1998. These increases are primarily the result
of higher levels of depreciation expense partially offset by the
benefits from consolidation and conversion of branch offices and
back office systems added through acquisitions. Other non-interest
expense increased $37.1 million or 16% in the first nine months of
1999 and $14.1 million or 19% in the third quarter of 1999
compared to the same periods in 1998. These increases resulted
from increases in amortization of excess purchase price,
communication costs, postage and professional fees.
Income tax expense increased $51.7 million or 34% over the first
nine months of 1998 and $40.0 million or 149% over the third
quarter of 1998. These increases were the result of an increase in
taxable income in 1999 as compared to 1998, which was impacted by
the nonrecurring merger and consolidation charge taken in the
third quarter of 1998. Excluding the effect of the nonrecurring
merger and consolidation charge, income tax expense would have
increased 7% on a yearly comparison and 3% on a quarterly
comparison.
Net income for the third quarter was $131.0 million--up 155%
compared to the third quarter of last year. Year-to-date net income
totaled $396.3 million or $1.76 per diluted share, a 33% increase
on a per share basis compared to the first nine months of 1998.
Annualized return on stockholders' equity increased to 17.16%,
compared to 13.79% in the first nine months of last year.
Annualized return on assets was 1.36% in the first nine months of
1999 compared to 1.17% in the same period in 1998. Operating income
(net income less nonrecurring items) increased 7% on a yearly
comparison and 2% on a quarterly comparison
<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:
On October 19, 1999, a report on Form 8-K, dated
October 18, 1999, was filed under items 5 and 7. The
report related to the Registrant's results of
operations and financial position for the third
quarter of 1999 and to the Registrant's adjustment of
previously reported results of operations and
financial position for the first and second quarters
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: November 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,249,061,000
<INT-BEARING-DEPOSITS> 48,228,000
<FED-FUNDS-SOLD> 90,462,000
<TRADING-ASSETS> 19,929,000
<INVESTMENTS-HELD-FOR-SALE> 5,938,836,000
<INVESTMENTS-CARRYING> 3,560,934,000
<INVESTMENTS-MARKET> 3,357,556,000
<LOANS> 27,511,472,000
<ALLOWANCE> 330,679,000
<TOTAL-ASSETS> 41,229,164,000
<DEPOSITS> 29,804,048,000
<SHORT-TERM> 7,653,633,000
<LIABILITIES-OTHER> 380,398,000
<LONG-TERM> 371,148,000
0
0
<COMMON> 140,107,000
<OTHER-SE> 2,879,830,000
<TOTAL-LIABILITIES-AND-EQUITY> 41,229,164,000
<INTEREST-LOAN> 1,615,154,000
<INTEREST-INVEST> 415,196,000
<INTEREST-OTHER> 66,213,000
<INTEREST-TOTAL> 2,096,563,000
<INTEREST-DEPOSIT> 771,559,000
<INTEREST-EXPENSE> 1,031,252,000
<INTEREST-INCOME-NET> 1,065,311,000
<LOAN-LOSSES> 75,389,000
<SECURITIES-GAINS> 41,000
<EXPENSE-OTHER> 788,019,000
<INCOME-PRETAX> 600,081,000
<INCOME-PRE-EXTRAORDINARY> 600,081,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 396,327,000
<EPS-BASIC> 1.78
<EPS-DILUTED> 1.76
<YIELD-ACTUAL> 4.01
<LOANS-NON> 161,837,000
<LOANS-PAST> 77,918,000
<LOANS-TROUBLED> 10,219,000
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<ALLOWANCE-OPEN> 315,412,000
<CHARGE-OFFS> 89,360,000
<RECOVERIES> 23,704,000
<ALLOWANCE-CLOSE> 330,679,000
<ALLOWANCE-DOMESTIC> 330,679,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 330,679,000
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