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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER 0-6159
REGIONS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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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)
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Registrant's telephone number, including area code: (205) 944-1300
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK -- PAR VALUE $.625
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
State the aggregate market value of the voting stock held by non-affiliates
of the registrant as of February 29, 2000.
COMMON STOCK, $.625 PAR VALUE -- $4,460,799,278*
* Excludes as shares held by affiliates only shares held by the registrant's
Employee Stock Purchase Plan, Employees' Stock Ownership Plan, Directors'
Stock Investment Plan and executive officers who are directors without
prejudice to a determination of control.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of February 29, 2000.
Common Stock, $.625 Par Value -- 221,069,227 shares issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement to be dated approximately April 17,
2000 are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
(a) The Registrant, Regions Financial Corporation (the "Registrant" or
"Regions"), is a regional bank holding company headquartered in Birmingham,
Alabama, which operated 735 full-service banking offices in Alabama, Arkansas,
Florida, Georgia, Louisiana, South Carolina, Tennessee and Texas as of December
31, 1999. At that date, Regions had total consolidated assets of approximately
$42.7 billion, total consolidated deposits of approximately $30.0 billion, and
total consolidated stockholders' equity of approximately $3.1 billion.
Regions was organized under the laws of the state of Delaware and commenced
operations in 1971 under the name First Alabama Bancshares, Inc. On May 2, 1994,
the name of First Alabama Bancshares, Inc. was changed to Regions Financial
Corporation. Regions' principal executive offices are located at 417 North 20th
Street, Birmingham, Alabama 35203, and its telephone number at such address is
(205) 944-1300.
At December 31, 1999, Regions operated two state-chartered commercial bank
subsidiaries (collectively, the "Subsidiary Banks") in Alabama, Arkansas,
Florida, Georgia, Louisiana, South Carolina, Tennessee and Texas and various
banking-related subsidiaries engaged in mortgage banking, credit life insurance,
leasing, commercial accounts receivable factoring, specialty mortgage financing
and securities brokerage activities with offices in various southeastern states.
Through its subsidiaries, Regions offers a broad range of banking and
banking-related services.
In Alabama, Regions operates through Regions Bank which operates 196
banking offices throughout the state. At December 31, 1999, these offices had
32% of total consolidated assets and 33% of total consolidated deposits.
In Arkansas, Regions operates through Regions Bank with 134 banking offices
throughout the state. At December 31, 1999, these offices had 16% of total
consolidated assets and 17% of total consolidated deposits.
In Florida, Regions operates through Regions Bank which operates through 64
banking offices in the northwest and central regions of the state. At December
31, 1999, these offices had 7% of total consolidated assets and 8% of total
consolidated deposits.
In Georgia, Regions operates through Regions Bank, which operates 143
banking offices in the state. At December 31, 1999, these offices had 24% of
total consolidated assets and 21% of total consolidated deposits.
In Louisiana, (i) Regions Bank, and (ii) Minden Bank and Trust Company
operate 86 banking offices throughout the state. At December 31, 1999, these
offices had 9% of total consolidated assets and 10% of total consolidated
deposits.
In South Carolina, Regions Bank operates 35 banking offices throughout the
state. At December 31, 1999, these offices had 4% of total consolidated assets
and total consolidated deposits.
In Tennessee, Regions Bank operates 48 banking offices. At December 31,
1999, these offices had 5% of total consolidated assets and 4% of total
consolidated deposits.
In Texas, Regions Bank operates 29 banking offices throughout the eastern
portion of the state. At December 31, 1999, these offices had 3% of total
consolidated assets and total consolidated deposits.
In addition to the Subsidiary Banks, Regions provides additional financial
services through various banking-related subsidiaries, the most significant of
which provide mortgage banking, credit life insurance, securities brokerage
activities, commercial accounts receivable factoring, and specialty financing.
Regions Mortgage Inc. (RMI), a subsidiary of Regions Bank, is engaged in
mortgage banking with its primary business and source of income being the
origination and servicing of mortgage loans for long-term investors. RMI
serviced approximately $24.1 billion in real estate mortgages at December 31,
1999, and operates loan production offices in Alabama, Arkansas, Florida,
Georgia, Louisiana, South Carolina, and Tennessee.
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Regions Agency, Inc., a subsidiary of Regions, acts as an insurance agent
or broker with respect to credit life and accident and health insurance and
other types of insurance relating to extensions of credit by the Subsidiary
Banks or banking-related subsidiaries.
Regions Life Insurance Company, a subsidiary of Regions, acts as a
re-insurer of credit life and accident and health insurance in connection with
the activities of certain affiliates of Regions.
Regions Investment Company, Inc., a subsidiary of Regions Bank, engages in
securities underwriting and brokerage activities and operates offices in
Alabama, Arkansas, Florida, Georgia, Louisiana, South Carolina, Tennessee and
Texas.
Regions Interstate Billing Service, Inc. (RIBS), a subsidiary of Regions,
factors commercial accounts receivable and performs billing and collection
services. RIBS primarily serves clients related to the automotive service
industry.
EquiFirst, a subsidiary of EFC Holdings Corporation which is a wholly-owned
subsidiary of Regions Bank, provides specialty financing to consumer customers.
A substantial portion of the growth of Regions since commencing operations
in 1971 has been through the acquisition of other financial institutions,
including commercial banks and thrift institutions, and the assets and deposits
thereof. Since it began operations as a bank holding company, Regions has
completed 90 acquisitions of other financial institutions representing in
aggregate (at the time the acquisitions were completed) approximately $24.5
billion in assets. As part of its ongoing strategic plan, Regions continually
evaluates business combination opportunities and frequently conducts due
diligence activities in connection with possible business combinations. As a
result, business combination discussions and, in some cases, negotiations
frequently take place, and future business combinations involving cash, debt, or
equity securities can be expected. Any future business combination or series of
business combinations that Regions might undertake may be material, in terms of
assets acquired or liabilities assumed, to Regions' financial condition. Recent
business combinations in the banking industry have typically involved the
payment of a premium over book and market values. This practice could result in
dilution of book value and net income per share for the acquirer.
Reference is made to Items 6 and 7 of this Annual Report on Form 10-K for
certain statistical (Guide 3) and other information.
This Annual Report on Form 10-K, other periodic reports filed by Regions
under the Securities Exchange Act of 1934, as amended, and any other written or
oral statements made by or on behalf of Regions may include forward looking
statements which reflect Regions' current views with respect to future events
and financial performance. Such forward looking statements are based on general
assumptions and are subject to various risks, uncertainties, and other factors
that may cause actual results to differ materially from the views, beliefs, and
projections expressed in such statements.
Some of such factors are specific to Regions, including:
- The cost and other effects of material contingencies, including
litigation contingencies and other contingencies related to acquired
operations.
- Regions' ability to expand into new markets and to maintain profit
margins in the face of pricing pressures.
- The ability of Regions to achieve the earnings expectations related to
the acquired operations of recently-completed acquisitions, which in turn
depends on a variety of factors, including:
- the ability of Regions to achieve the anticipated cost savings and
revenue enhancements with respect to the acquired operations.
- the assimilation of the acquired operations to Regions' corporate
culture, including the ability to instill Regions' credit practices
and efficient approach to the acquired operations.
- the continued growth of the acquired entities' markets consistent
with recent historical experience.
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Other factors which may affect Regions apply to the financial services
industry more generally, including:
- Possible changes in economic and business conditions that may affect the
prevailing interest rates, the prevailing rates of inflation, or the
amount of growth, stagnation, or recession in the global, U.S., and
southeastern U.S. economies, the value of investments, collectibility of
loans, and the profitability of business entities.
- Possible changes in monetary and fiscal policies, laws, and regulations,
and other activities of governments, agencies, and similar organizations.
- The effects of easing of restrictions on participants in the financial
services industry, such as banks, securities brokers and dealers,
investment companies, and finance companies, and attendant changes in
patterns and effects of competition in the financial services industry.
The words "believe", "expect", "anticipate", "project", and similar
expressions signify forward looking statements. Readers are cautioned not to
place undue reliance on any forward looking statements made by or on behalf of
Regions. Any such statement speaks only as of the date the statement was made.
Regions undertakes no obligation to update or revise any forward looking
statements.
(b) The primary business conducted by Registrant's banking affiliates, in
each geographic region, is banking, which includes provision of commercial and
retail banking services and, in some cases, trust services. Registrant's
bank-related subsidiaries perform services incidental to the business of
banking.
Reference is made to Note W "Business Segment Information" to the
consolidated financial statements included under Item 8 of this Annual Report on
Form 10-K for information required by this item.
(c)(1) General. The Registrant is a bank holding company, registered with
the Board of Governors of the Federal Reserve System ("Federal Reserve") under
the Bank Holding Company Act of 1956, as amended ("BHC Act"). As such, the
Registrant and its subsidiaries are subject to the supervision, examination, and
reporting requirements of the BHC Act and the regulations of the Federal
Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5.0% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (iii) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues includes the
parties' performance under the Community Reinvestment Act of 1977 (the "CRA"),
both of which are discussed below.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks by
bank holding companies, such that the Registrant, and any other bank holding
company located in Alabama may now acquire a bank located in any other state,
and any bank holding company located outside Alabama may lawfully acquire any
Alabama-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provided that, after
June 1, 1997, national and state-chartered banks may branch interstate through
acquisitions of banks in other states.
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The BHC Act generally prohibits the Registrant from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices. For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance in connection with credit transactions, and performing certain
insurance underwriting activities all have been determined by the Federal
Reserve to be permissible activities of bank holding companies. The BHC Act does
not place territorial limitations on permissible nonbanking activities of bank
holding companies. Despite prior approval, the Federal Reserve has the power to
order a bank holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when it has reasonable
cause to believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.
On November 12, 1999, the President signed the Gramm-Leach-Bliley Act,
which significantly relaxes previously existing restrictions on the activities
of banks and bank holding companies. Effective 120 days after enactment, an
eligible bank holding company may elect to be a "financial holding company" and
thereafter may engage in a range of activities that are financial in nature and
that were not previously permissible for banks and bank holding companies. For a
bank holding company to be eligible for financial holding company status, all of
its subsidiary financial institutions must be well-capitalized and well managed.
It effects financial holding company status by filing a declaration with the
Federal Reserve Board that it elects to be a financial holding company. A
financial holding company may engage directly or through a subsidiary in the
statutorily authorized activities of securities dealing, underwriting, and
market making, insurance underwriting and agency activities, merchant banking,
and insurance company portfolio investments, and in any activity that the
Federal Reserve Board determines by rule or order to be financial in nature or
incidental to such financial activity. The Federal Reserve Board must deny
expanded authority to any bank holding company that received less than a
satisfactory rating on its most recent CRA review as of the time it submits its
declaration.
The Gramm-Leach-Bliley Act also permits securities brokerage firms and
insurance companies to own banks and bank holding companies. The Act also seeks
to streamline and coordinate regulation of integrated financial holding
companies, providing generally for "umbrella" regulation of financial holding
companies by the Federal Reserve Board, and for functional regulation of banking
activities by bank regulators, securities activities by securities regulators,
and insurance activities by insurance regulators.
Each of the Subsidiary Banks of the Registrant is a member of the Federal
Deposit Insurance Corporation ("FDIC"), and as such, its deposits are insured by
the FDIC to the extent provided by law. Each Subsidiary Bank is also subject to
numerous state and federal statutes and regulations that affect its business
activities and operations, and each is supervised and examined by one or more
state or federal bank regulatory agencies.
The Subsidiary Banks, which are state-chartered banks and are not members
of the Federal Reserve System, are subject to supervision and examination by the
FDIC and the state banking authorities of the states in which they are located.
The federal banking regulator of the Subsidiary Banks, as well as the
appropriate state banking authority for each of the Subsidiary Banks, regularly
examine the operations of the Subsidiary Banks and is given authority to approve
or disapprove mergers, consolidations, the establishment of branches, and
similar corporate actions. The federal and state banking regulators also have
the power to prevent the continuance or development of unsafe or unsound banking
practices or other violations of law.
The Subsidiary Banks are subject to the provisions of the CRA. Under the
terms of the CRA, the Subsidiary Banks have a continuing and affirmative
obligation consistent with their safe and sound operation
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to help meet the credit needs of their entire communities, including low- and
moderate-income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires each appropriate federal bank regulatory agency, in connection
with its examination of a subsidiary depository institution, to assess such
institution's record in assessing and meeting the credit needs of the community
served by that institution, including low- and moderate-income neighborhoods.
The regulatory agency's assessment of the institution's record is made available
to the public. Further, such assessment is required of any institution which has
applied to: (i) charter a national bank; (ii) obtain deposit insurance coverage
for a newly chartered institution; (iii) establish a new branch office that will
accept deposits; (iv) relocate an office; or (v) merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally regulated financial
institution. In the case of a bank holding company applying for approval to
acquire a bank or other bank holding company, the Federal Reserve will assess
the records of each subsidiary depository institution of the applicant bank
holding company, and such records may be the basis for denying the application.
All of the Subsidiary Banks received at least a "satisfactory" CRA rating in
their most recent examinations.
Payment of Dividends. The Registrant is a legal entity separate and
distinct from its banking and other subsidiaries. The principal source of cash
flow of the Registrant, including cash flow to pay dividends to its
stockholders, is dividends from the Subsidiary Banks. There are statutory and
regulatory limitations on the payment of dividends by the Subsidiary Banks to
the Registrant as well as the Registrant to its stockholders.
As to the payment of dividends, the Subsidiary Banks are subject to the
respective laws and regulations of the states of Alabama and Louisiana and to
the regulations of the FDIC.
If, in the opinion of a federal regulatory agency, an institution under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the institution, could
include the payment of dividends), such agency may require, after notice and
hearing, that such institution cease and desist from such practice. The federal
banking agencies have indicated that paying dividends that deplete an
institution's capital base to an inadequate level would be an unsafe and unsound
banking practice. Under the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"), an insured institution may not pay any dividend if
payment would cause it to become undercapitalized or if it already is
undercapitalized. See "Prompt Corrective Action." Moreover, the Federal Reserve
and the FDIC have issued policy statements which provide that bank holding
companies and insured banks should generally pay dividends only out of current
operating earnings.
At December 31, 1999, under dividend restrictions imposed under federal and
state laws, the Subsidiary Banks, without obtaining governmental approvals,
could declare aggregate dividends to the Registrant of approximately $354
million.
The payment of dividends by the Registrant and the Subsidiary Banks may
also be affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines.
Capital Adequacy. The Registrant and the Subsidiary Banks are required to
comply with the capital adequacy standards established by the Federal Reserve in
the case of the Registrant and the FDIC in the case of the Subsidiary Banks.
There are two basic measures of capital adequacy for bank holding companies that
have been promulgated by the Federal Reserve: a risk-based measure and a
leverage measure. All applicable capital standards must be satisfied for a bank
holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items.
The minimum guideline for the ratio of total capital ("Total Capital") to
risk-weighted assets (including certain off-balance-sheet items, such as standby
letters of credit) is 8.0%. At least half of the Total Capital must be composed
of common equity, undivided profits, minority interests in the equity accounts
of
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consolidated subsidiaries, noncumulative perpetual preferred stock, and a
limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 Capital"). The remainder may consist of
subordinated debt, other preferred stock, and a limited amount of loan loss
reserves. The minimum guideline for Tier 1 Capital is 4.0%. At December 31,
1999, the Registrant's consolidated Tier 1 Capital and Total Capital ratios were
9.51% and 11.42%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and certain other
intangible assets (the "Leverage Ratio"), of 3.0% for bank holding companies
that meet certain specified criteria, including having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3.0%, plus an additional cushion of 100 to 200 basis
points. The Registrant's Leverage Ratio at December 31, 1999, was 6.95%. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it
will consider a "tangible Tier 1 Capital leverage ratio" (deducting all
intangibles) and other indicators of capital strength in evaluating proposals
for expansion or new activities.
Each of the Registrant's Subsidiary Banks is subject to risk-based and
leverage capital requirements adopted by the FDIC, which are substantially
similar to those adopted by the Federal Reserve. Each of the Registrant's
Subsidiary Banks was in compliance with applicable minimum capital requirements
as of December 31, 1999. Neither the Registrant nor any of the Subsidiary Banks
has been advised by any federal banking agency of any specific minimum capital
ratio requirement applicable to it.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business. See "Prompt Corrective
Action."
Support of Subsidiary Banks. Under Federal Reserve policy, the Registrant
is expected to act as a source of financial strength to, and to commit resources
to support, each of the Subsidiary Banks. This support may be required at times
when, absent such Federal Reserve policy, the Registrant may not be inclined to
provide it. In addition, any capital loans by a bank holding company to any of
the Subsidiary Banks are subordinate in right of payment to deposits and to
certain other indebtedness of such Subsidiary Bank. In the event of a bank
holding company's bankruptcy, any commitment by the bank holding company to a
federal bank regulatory agency to maintain the capital of a Subsidiary Bank will
be assumed by the bankruptcy trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act (FDIA), a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989, in connection with
(i) the default of a commonly controlled FDIC-insured depository institution or
(ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured
depository institution "in danger of default." "Default" is defined generally as
the appointment of a conservator or receiver, and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory assistance. The FDIC's
claim for damages is superior to claims of stockholders of the insured
depository institution or its holding company, but is subordinate to claims of
depositors, secured creditors, and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institution. The
Subsidiary Banks are subject to these cross-guarantee provisions. As a result,
any loss suffered by the FDIC in respect of any of the Subsidiary Banks would
likely result in assertion of the cross-guarantee provisions, the assessment of
such estimated losses against the Registrant's other Subsidiary Banks, and a
potential loss of the Registrant's investment in such other Subsidiary Banks.
Prompt Corrective Action. FDICIA establishes a system of prompt corrective
action to resolve the problems of undercapitalized institutions. Under this
system, which became effective in December 1992, the federal banking regulators
are required to establish five capital categories ("well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized") and to take certain mandatory supervisory
actions, and are authorized to take other discretionary actions, with respect
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to institutions in the three undercapitalized categories, the severity of which
will depend upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, FDICIA requires the banking regulator
to appoint a receiver or conservator for an institution that is critically
undercapitalized. The federal banking agencies have specified by regulation the
relevant capital level for each category.
Under the final agency rule implementing the prompt corrective action
provisions, an institution that (i) has a Total Capital ratio of 10.0% or
greater, a Tier 1 Capital ratio of 6.0% or greater, and a Leverage Ratio of 5.0%
or greater and (ii) is not subject to any written agreement, order, capital
directive, or prompt corrective action directive issued by the appropriate
federal banking agency is deemed to be "well capitalized." An institution with a
Total Capital ratio of 8.0% or greater, a Tier 1 Capital ratio of 4.0% or
greater, and a Leverage Ratio of 4.0% or greater is considered to be "adequately
capitalized." A depository institution that has a Total Capital ratio of less
than 8.0%, a Tier 1 Capital ratio of less than 4.0%, or a Leverage Ratio of less
than 4.0% is considered to be "undercapitalized." A depository institution that
has a Total Capital ratio of less than 6.0%, a Tier 1 Capital ratio of less than
3.0%, or a Leverage Ratio of less than 3.0% is considered to be "significantly
undercapitalized," and an institution that has a tangible equity capital to
assets ratio equal to or less than 2.0% is deemed to be "critically
undercapitalized." For purposes of the regulation, the term "tangible equity"
includes core capital elements counted as Tier 1 Capital for purposes of the
risk-based capital standards plus the amount of outstanding cumulative perpetual
preferred stock (including related surplus), minus all intangible assets with
certain exceptions. A depository institution may be deemed to be in a
capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary depository
institution meet its capital restoration plan, subject to certain limitations.
The obligation of a controlling bank holding company under FDICIA to fund a
capital restoration plan is limited to the lesser of 5.0% of an undercapitalized
subsidiary's assets and the amount required to meet regulatory capital
requirements. An undercapitalized institution is also generally prohibited from
increasing its average total assets, making acquisitions, establishing any
branches, or engaging in any new line of business, except in accordance with an
accepted capital restoration plan or with the approval of the FDIC. In addition,
the appropriate federal banking agency is given authority with respect to any
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.
For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan, the appropriate
federal banking agency must require the institution to take one or more of the
following actions: (i) sell enough shares, including voting shares, to become
adequately capitalized; (ii) merge with (or be sold to) another institution (or
holding company), but only if grounds exist for appointing a conservator or
receiver; (iii) restrict certain transactions with banking affiliates as if the
"sister bank" exception to the requirements of Section 23A of the Federal
Reserve Act did not exist; (iv) otherwise restrict transactions with bank or
nonbank affiliates; (v) restrict interest rates that the institution pays on
deposits to "prevailing rates" in the institution's "region"; (vi) restrict
asset growth or reduce total assets; (vii) alter, reduce, or terminate
activities; (viii) hold a new election of directors; (ix) dismiss any director
or senior executive officer who held office for more than 180 days immediately
before the institution became undercapitalized, provided that in requiring
dismissal of a director or senior officer, the agency must comply with certain
procedural requirements, including the opportunity for an appeal in which the
director or officer will have the burden of proving his or her value to the
institution; (x) employ "qualified" senior executive officers; (xi) cease
accepting deposits from correspondent depository institutions; (xii) divest
certain nondepository affiliates which pose a danger to the institution; or
(xiii) be divested by a parent holding company. In addition, without the prior
approval of the appropriate federal banking agency, a significantly
undercapitalized institution may not pay any bonus to any senior executive
officer or increase the rate of compensation for such an officer without
regulatory approval.
7
<PAGE> 9
At December 31, 1999, all of the Registrant's Subsidiary Banks had the
requisite capital levels to qualify as well capitalized.
FDIC Insurance Assessments. Pursuant to FDICIA, the FDIC adopted a
risk-based assessment system for insured depository institutions that takes into
account the risks attributable to different categories and concentrations of
assets and liabilities. The risk-based system, which went into effect on January
1, 1994, assigns an institution to one of three capital categories: (i) well
capitalized; (ii) adequately capitalized; and (iii) undercapitalized. These
three categories are substantially similar to the prompt corrective action
categories described above, with the "undercapitalized" category including
institutions that are undercapitalized, significantly undercapitalized, and
critically undercapitalized for prompt corrective action purposes. An
institution is also assigned by the FDIC to one of three supervisory subgroups
within each capital group. The supervisory subgroup to which an institution is
assigned is based on a supervisory evaluation provided to the FDIC by the
institution's primary federal regulator and information which the FDIC
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor). An institution's
insurance assessment rate is then determined based on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, there are nine assessment risk classifications (i.e.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied.
All of Regions' subsidiary banks are now assessed at the well-capitalized
level where the premium rate is currently zero. Like all insured banks, all of
Regions' subsidiary banks also must pay a quarterly assessment of approximately
$.02 per $100 of assessable deposits to pay off bonds that were issued in the
late 1980's by a government corporation, the financing corporation, to raise
funds to cover costs of the savings and loan crisis.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
Safety and Soundness Standards. The FDIA, as amended by FDICIA and the
Riegle Community Development and Regulatory Improvement Act of 1994, requires
the federal bank regulatory agencies to prescribe standards, by regulations or
guidelines, relating to internal controls, information systems and internal
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, asset quality, earnings, stock valuation and
compensation, fees and benefits and such other operational and managerial
standards as the agencies deem appropriate. The federal bank regulatory agencies
have adopted, effective August 9, 1995, a set of guidelines prescribing safety
and soundness standards pursuant to FDICIA, as amended. The guidelines establish
general standards relating to internal controls and information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth and compensation, fees and benefits. In general, the
guidelines require, among other things, appropriate systems and practices to
identify and manage the risk and exposures specified in the guidelines. The
guidelines prohibit excessive compensation as an unsafe and unsound practice and
describe compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director, or principal stockholder. In addition, the agencies adopted
regulations that authorize, but do not require, an agency to order an
institution that has been given notice by an agency that it is not satisfying
any of such safety and soundness standards to submit a compliance plan. If,
after being so notified, an institution fails to submit an acceptable compliance
plan or fails in any material respect to implement an acceptable compliance
plan, the agency must issue an order directing action to correct the deficiency
and may issue an order directing other actions of the types to which an
undercapitalized institution is subject under the "prompt corrective action"
provisions of FDICIA. See "Prompt Corrective Action." If an institution fails to
comply with such an order, the agency may seek to enforce such order in judicial
proceedings and to impose civil money penalties. The federal bank regulatory
agencies also proposed guidelines for asset quality and earnings standards.
8
<PAGE> 10
Depositor Preference. The Omnibus Budget Reconciliation Act of 1993
provides that deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution would be
afforded a priority over other general unsecured claims against such an
institution in the "liquidation or other resolution" of such an institution by
any receiver.
Other. The United States Congress continues to consider a number of
wide-ranging proposals for altering the structure, regulation, and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or in what form further legislation may be adopted or the extent to
which the business of the Registrant may be affected thereby.
Registrant's broker/dealer subsidiary, Regions Investment Company, Inc., is
subject to regulation by the Securities and Exchange Commission, the National
Association of Securities Dealers, and certain state securities commissions.
(i) The following chart shows for the last three years the percentage
of total operating income contributed by each of the major categories of
income.
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Interest and fees on loans.................................. 64.9% 67.4% 68.5%
Interest on securities...................................... 16.6 14.9 14.9
Interest on mortgage loans held for sale.................... 2.4 1.5 0.8
Interest on federal funds sold.............................. 0.1 0.6 0.6
Other interest income....................................... 0.1 0.2 0.1
Trust department income..................................... 1.6 1.8 1.6
Service charges on deposit accounts......................... 5.8 5.6 5.6
Mortgage servicing and origination fees..................... 3.0 3.6 3.5
Other non-interest income................................... 5.5 4.4 4.4
----- ----- -----
Total Operating Income............................ 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
(ii) There has been no public announcement, and no information
otherwise has become public, about a material new product or line of
business.
(iii) The monetary policies of the Federal Reserve affect the
operations of Registrant's Subsidiary Banks. Through changes in the reserve
requirements against bank and thrift deposits, open market operations in
U.S. Government securities and changes in the discount rate on borrowings,
the Federal Reserve influences the cost and availability of funds obtained
for lending and investing.
The monetary policies of the Federal Reserve have had a significant
effect on the operating results of financial institutions in the past and
are expected to do so in the future. The impact of such policies on the
future business and earnings of the Registrant cannot be predicted.
(iv) The Registrant does not have any material patents, trademarks,
licenses, franchises, or concessions.
(v) No material portion of the Registrant's business is of a seasonal
nature.
(vi) The primary sources of funds for the Subsidiary Banks are
deposits and borrowed funds. The Registrant's primary sources of operating
funds are service fees, dividends, and interest which it receives from bank
and bank-related subsidiaries.
(vii) No material part of the business of the Registrant is dependent
upon a single customer or a few customers. No single customer or affiliated
group of customers accounts for 10% or more of Registrant's consolidated
revenues.
(viii) Information concerning backlog orders is not relevant to an
understanding of the business of the Registrant.
(ix) No material portion of the business of the Registrant is subject
to renegotiation of profits or termination of contracts or subcontracts by
governmental authorities.
9
<PAGE> 11
(x) All aspects of the Registrant's business are highly competitive.
The Registrant's subsidiaries compete with other financial institutions
located in Alabama, Arkansas, northwest and central Florida, Georgia,
Louisiana, South Carolina, Tennessee, east Texas and other adjoining
states, as well as large banks in major financial centers and other
financial intermediaries, such as savings and loan associations, credit
unions, consumer finance companies, brokerage firms, insurance companies,
investment companies, mutual funds, other mortgage companies and financial
service operations of major commercial and retail corporations.
As of December 31, 1999, the Registrant was the third largest bank
holding company headquartered in Alabama based on assets. For information
with respect to the Registrant's markets and the size of the Subsidiary
Banks operating in such markets, see the information provided under
subsection (a) of this Item 1.
Customers for banking services are generally influenced by
convenience, quality of service, personal contacts, price of services, and
availability of products. Although the ranking of Registrant's position
varies in different markets, Registrant believes that its affiliates
effectively compete with other banks and thrifts in their relevant market
areas.
Under the provisions of the Interstate Banking Act, the Registrant and
any other bank holding company located in Alabama are now able to acquire a
bank located in any other state, and a bank holding company located outside
Alabama could acquire any Alabama-based bank, in either case subject to
certain deposit percentage and other restrictions. The Interstate Banking
Act also generally provided that national and state-chartered banks may
branch interstate through acquisitions of banks in other states. To the
extent that large bank holding companies make acquisitions in the markets
in which Regions operates do effect acquisitions pursuant to the Interstate
Banking Act, competition in the Registrant's markets could further
intensify.
(xi) There were no material expenditures during the last three fiscal
years on research and development activities by the Registrant.
(xii) Regulations of any governmental authority concerning the
discharge of materials into the environment are expected to have no
material effect on the Registrant or any of its subsidiaries.
(xiii) As of December 31, 1999, Registrant, its affiliate banks and
other subsidiaries had a total of 14,606 full-time-equivalent employees.
(d) Registrant neither engages in foreign operations nor derives a
significant portion of its business from customers in foreign countries.
10
<PAGE> 12
ITEM 2. PROPERTIES
The corporate headquarters of the Registrant occupy several floors of the
main Birmingham banking facility of Regions Bank, located at 417 North 20th
Street, Birmingham, Alabama 35203.
The Registrant and its subsidiaries, including the Subsidiary Banks,
operate through 966 office facilities, of which 706 are owned by the Registrant
or one of its subsidiaries and 260 are subject to building or ground leases. Of
the 735 branch office facilities operated by the Subsidiary Banks at December
31, 1999, 202 are subject to building or ground leases and 533 are wholly owned
by the Subsidiary Banks.
For offices in premises leased by the Registrant and its subsidiaries,
annual rentals totaled approximately $14,159,000 as of December 31, 1999. During
1999, the Registrant and its subsidiaries received approximately $8,218,000 in
rentals for space leased to others. At December 31, 1999, encumbrances on the
offices, equipment and other operational facilities owned by the Registrant and
its subsidiaries totaled approximately $1,765,000 with a weighted average
interest rate of 4.9%.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note L "Commitments and Contingencies", to the
consolidated financial statements included under Item 8 of this Annual Report on
Form 10-K.
The Registrant continues to be concerned about the general trend in
litigation in Alabama state courts and other courts involving large damage
awards against financial service company defendants. Registrant directly or
through its subsidiaries is party to approximately 179 cases in the ordinary
course of business, some of which seek class action treatment or punitive
damages.
Notwithstanding these concerns, Registrant believes, based on consultation
with legal counsel, that the outcome of pending litigation will not have a
material effect on Registrant's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders for a vote during the fourth
quarter of 1999.
11
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
On April 22, 1999, 301,929 shares of common stock of the Registrant were
issued in connection with a prior business combination with EFC Holdings
Corporation. Such shares were not registered under the Securities Act of 1933,
in reliance upon the exemption from registration provided by section 4(2) of
such act. Such shares were issued to six recipients, each of which was an
accredited investor within the meaning of Regulation D and each of which had
background and experience such that the recipient was capable of evaluating the
merits and risks of an investment in the Registrant's common stock. The
Registrant took appropriate precautions to prevent the unregistered distribution
of such securities, consisting of securing the agreement of the recipients not
to resell the securities in the absence of registration or the availability of
an exemption. The shares have been registered for resale under the Securities
Act (Registration No. 333-86975.)
Common Stock Market Prices and Dividend information for the year ended
December 31, 1999, is included under Item 8 of this Annual Report filed on Form
10-K in Note Z to the Consolidated Financial Statements.
12
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
HISTORICAL FINANCIAL SUMMARY
<TABLE>
<CAPTION>
COMPOUND
ANNUAL GROWTH
CHANGE RATE
1999 1998 1997 1996 1995 1994 1998-1999 1994-1999
---------- ---------- ---------- ---------- ---------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATING RESULTS
Interest income:
Interest and fees on
loans.................... $2,201,786 $2,072,204 $1,837,392 $1,554,478 $1,394,937 $1,050,318 6.25% 15.96%
Income on federal funds
sold..................... 4,256 17,610 16,882 11,060 13,462 12,096 -75.83 -18.85
Taxable interest on
securities............... 524,935 417,121 355,591 331,895 292,459 265,060 25.85 14.64
Tax-free interest on
securities............... 39,484 39,981 42,836 34,536 36,421 34,900 -1.24 2.50
Other interest income...... 84,225 50,870 23,883 22,314 13,148 23,138 65.57 29.49
---------- ---------- ---------- ---------- ---------- ----------
Total interest
income............... 2,854,686 2,597,786 2,276,584 1,954,283 1,750,427 1,385,512 9.89 15.56
Interest expense:
Interest on deposits....... 1,056,799 1,065,054 954,782 826,844 740,033 521,817 -0.78 15.16
Interest on short-term
borrowings............... 329,518 174,906 108,617 75,827 69,056 29,552 88.40 61.98
Interest on long-term
borrowings............... 42,514 33,008 33,977 39,788 52,153 46,791 28.80 -1.90
---------- ---------- ---------- ---------- ---------- ----------
Total interest
expense.............. 1,428,831 1,272,968 1,097,376 942,459 861,242 598,160 12.24 19.02
---------- ---------- ---------- ---------- ---------- ----------
Net interest
income............... 1,425,855 1,324,818 1,179,208 1,011,824 889,185 787,352 7.63 12.61
Provision for loan losses... 113,658 60,505 89,663 46,026 37,493 22,058 87.85 38.81
---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan
losses................... 1,312,197 1,264,313 1,089,545 965,798 851,692 765,294 3.79 11.39
Non-interest income:
Trust department income.... 53,434 55,218 44,227 41,660 38,328 34,016 -3.23 9.45
Service charges on deposit
accounts................. 194,984 171,344 151,618 124,960 105,207 91,648 13.80 16.30
Mortgage servicing and
origination fees......... 103,118 111,555 93,327 92,757 65,920 65,511 -7.56 9.50
Securities gains
(losses)................. 160 7,002 498 3,311 (697) 681 NM NM
Other...................... 185,445 129,578 117,312 82,415 71,379 60,662 43.11 25.04
---------- ---------- ---------- ---------- ---------- ----------
Total non-interest
income............... 537,141 474,697 406,982 345,103 280,137 252,518 13.15 16.29
Non-interest expense:
Salaries and employee
benefits................. 551,569 528,409 480,842 413,768 373,754 334,508 4.38 10.52
Net occupancy expense...... 61,635 62,887 61,933 55,163 48,724 45,088 -1.99 6.45
Furniture and equipment
expense.................. 72,013 68,595 56,304 49,971 41,719 38,891 4.98 13.11
Merger and consolidation
expenses and SAIF
assessment............... 0 121,438 0 33,777 0 0 NM NM
Other...................... 379,095 322,379 302,697 284,355 256,628 235,019 17.59 10.03
---------- ---------- ---------- ---------- ---------- ----------
Total non-interest
expense.............. 1,064,312 1,103,708 901,776 837,034 720,825 653,506 -3.57 10.25
---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes................ 785,026 635,302 594,751 473,867 411,004 364,306 23.57 16.60
Applicable income taxes..... 259,640 213,590 197,222 156,008 134,529 115,853 21.56 17.51
---------- ---------- ---------- ---------- ---------- ----------
Net income........... $ 525,386 $ 421,712 $ 397,529 $ 317,859 $ 276,475 $ 248,453 24.58% 16.16%
========== ========== ========== ========== ========== ==========
Average number of shares
outstanding................ 221,617 220,114 209,781 194,241 190,896 182,903 0.68% 3.91%
Average number of shares
outstanding -- diluted..... 223,967 223,781 213,750 197,751 193,579 185,110 0.08 3.88
Per share:
Net income............... $ 2.37 $ 1.92 $ 1.89 $ 1.64 $ 1.45 $ 1.36 23.44% 11.75%
Net income, diluted...... 2.35 1.88 1.86 1.61 1.43 1.34 25.00 11.89
Cash dividends
declared............... 1.00 0.92 0.80 0.70 0.66 0.60 8.70 10.76
</TABLE>
13
<PAGE> 15
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
HISTORICAL FINANCIAL SUMMARY -- (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
YIELDS AND COSTS (TAXABLE EQUIVALENT BASIS)
Earning assets:
Taxable securities..................................... 6.35% 6.42% 6.50% 6.37% 6.27% 5.86%
Tax-free securities.................................... 7.91 8.26 8.42 8.07 8.64 9.25
Federal funds sold..................................... 4.49 5.45 5.99 5.19 6.01 4.03
Loans (net of unearned income)......................... 8.33 8.88 8.98 8.99 8.94 8.17
Other earning assets................................... 7.06 6.59 7.32 8.10 7.23 6.33
Total earning assets........................... 7.83 8.27 8.42 8.35 8.30 7.53
Interest-bearing liabilities:
Interest-bearing deposits.............................. 4.32 4.61 4.63 4.58 4.55 3.61
Short-term borrowings.................................. 5.07 5.16 5.67 5.46 6.31 5.10
Long-term borrowings................................... 6.33 7.32 6.69 6.66 6.56 6.12
Total interest-bearing liabilities............. 4.52 4.73 4.76 4.70 4.74 3.79
Net yield on interest earning assets........... 3.94 4.25 4.41 4.36 4.27 4.33
RATIOS
Net income to:
Average stockholders' equity........................... 17.13% 14.62%** 15.38% 14.71%* 14.30% 14.88%
Average total assets................................... 1.33 1.24** 1.35 1.25* 1.19 1.23
Efficiency............................................... 53.60 60.82** 57.78 61.84* 61.61 62.89
Dividend payout.......................................... 42.19 47.92 42.33 42.68 45.52 44.12
Average loans to average deposits........................ 91.35 86.93 84.94 82.42 82.23 75.90
Average stockholders' equity to average total assets..... 7.74 8.47 8.75 8.50 8.36 8.23
Average interest-bearing deposits to average total
deposits............................................... 84.40 85.83 85.25 85.87 85.40 84.94
</TABLE>
- ---------------
* Ratios for 1996 excluding $20.2 million in after-tax charges for SAIF
assessment and merger expenses are as follows: Return on average
stockholders' equity 15.64%, Return on average total assets 1.33%, and
Efficiency 60.93%.
** Ratios for 1998 excluding $80.7 million in after-tax charges for merger and
consolidation charges are as follows: Return on average stockholders' equity
17.42%, Return on average total assets 1.48%, and Efficiency 54.13%.
14
<PAGE> 16
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
HISTORICAL FINANCIAL SUMMARY -- (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ------------ -----------
(AVERAGE DAILY BALANCES IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Taxable securities............... $ 8,244,603 $ 6,473,392 $ 5,443,877 $ 5,151,154 $ 4,646,458 $ 4,549,170
Tax-exempt securities............ 745,064 728,511 769,516 665,685 616,960 549,471
Federal funds sold............... 94,875 323,293 282,006 213,280 224,136 307,255
Loans, net of unearned Income.... 26,478,349 23,379,317 20,535,989 17,329,462 15,666,565 12,912,785
Other earning assets............. 1,195,729 773,077 327,265 276,257 181,890 361,025
----------- ----------- ----------- ----------- ----------- -----------
Total earning assets....... 36,758,620 31,677,590 27,358,653 23,635,838 21,336,009 18,679,706
Allowance for loan losses........ (328,188) (313,521) (284,606) (244,012) (221,004) (207,166)
Cash and due from banks.......... 1,237,318 981,930 1,003,864 811,790 918,010 835,364
Other non-earning assets......... 1,940,182 1,711,042 1,460,675 1,222,811 1,107,953 969,492
----------- ----------- ----------- ----------- ----------- -----------
Total assets............... $39,607,932 $34,057,041 $29,538,586 $25,426,427 $23,140,968 $20,277,396
=========== =========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits:
Non-interest-bearing............. $ 4,520,405 $ 3,812,177 $ 3,565,848 $ 2,970,682 $ 2,781,575 $ 2,562,650
Interest-bearing................. 24,465,254 23,081,727 20,611,654 18,056,076 16,271,457 14,449,888
----------- ----------- ----------- ----------- ----------- -----------
Total deposits............. 28,985,659 26,893,904 24,177,502 21,026,758 19,053,032 17,012,538
Borrowed funds:
Short-term....................... 6,502,860 3,386,392 1,917,127 1,389,922 1,095,129 577,526
Long-term........................ 671,665 450,808 507,775 597,034 794,576 766,281
----------- ----------- ----------- ----------- ----------- -----------
Total borrowed funds....... 7,174,525 3,837,200 2,424,902 1,986,956 1,889,705 1,343,807
Other liabilities................ 380,798 441,188 352,124 251,244 264,708 251,789
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities.......... 36,540,982 31,172,292 26,954,528 23,264,958 21,207,445 18,608,134
Stockholders' equity............. 3,066,950 2,884,749 2,584,058 2,161,469 1,933,523 1,669,262
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity..... $39,607,932 $34,057,041 $29,538,586 $25,426,427 $23,140,968 $20,277,396
=========== =========== =========== =========== =========== ===========
<CAPTION>
COMPOUND
ANNUAL GROWTH
CHANGE RATE
1998-1999 1994-1999
--------- ---------
(AVERAGE DAILY
BALANCES IN THOUSANDS)
<S> <C> <C>
ASSETS
Earning assets:
Taxable securities............... 27.36% 12.63%
Tax-exempt securities............ 2.27 6.28
Federal funds sold............... -70.65 -20.94
Loans, net of unearned Income.... 13.26 15.44
Other earning assets............. 54.67 27.06
Total earning assets....... 16.04 14.50
Allowance for loan losses........ 4.68 9.64
Cash and due from banks.......... 26.01 8.17
Other non-earning assets......... 13.39 14.88
Total assets............... 16.30% 14.33%
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits:
Non-interest-bearing............. 18.58% 12.02%
Interest-bearing................. 5.99 11.11
Total deposits............. 7.78 11.25
Borrowed funds:
Short-term....................... 92.03 62.30
Long-term........................ 48.99 -2.60
Total borrowed funds....... 86.97 39.79
Other liabilities................ -13.69 8.63
Total liabilities.......... 17.22 14.45
Stockholders' equity............. 6.32 12.94
Total liabilities and
stockholders' equity..... 16.30% 14.33%
</TABLE>
15
<PAGE> 17
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
HISTORICAL FINANCIAL SUMMARY -- (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997 1996
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
YEAR-END BALANCES
Assets........................... $42,714,395 $36,831,940 $31,414,058 $26,993,344
Securities....................... 10,913,044 7,969,137 6,315,923 5,742,375
Loans, net of unearned income.... 28,144,675 24,365,587 21,881,123 18,395,552
Non-interest-bearing deposits.... 4,419,693 4,577,125 3,744,198 3,143,968
Interest-bearing deposits........ 25,569,401 23,772,941 21,266,823 18,875,444
----------- ----------- ----------- -----------
Total deposits............. 29,989,094 28,350,066 25,011,021 22,019,412
Long-term debt................... 1,750,861 571,040 445,529 570,545
Stockholders' equity............. 3,065,112 3,000,401 2,679,821 2,274,563
Stockholders' equity per share... $ 13.89 $ 13.61 $ 12.75 $ 11.82
Market price per share of common
stock.......................... $ 25.13 $ 40.31 $ 42.19 $ 25.85
<CAPTION>
COMPOUND
ANNUAL GROWTH
CHANGE RATE
1995 1994 1998-1999 1994-1999
----------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
YEAR-END BALANCES
Assets........................... $24,419,249 $22,184,508 15.97% 14.00%
Securities....................... 5,618,839 5,143,226 36.94 16.24
Loans, net of unearned income.... 16,156,312 14,726,649 15.51 13.83
Non-interest-bearing deposits.... 3,086,166 2,765,390 -3.44 9.83
Interest-bearing deposits........ 16,896,367 15,283,516 7.56 10.84
----------- -----------
Total deposits............. 19,982,533 18,048,906 5.78 10.69
Long-term debt................... 762,521 766,774 206.61 17.96
Stockholders' equity............. 2,047,398 1,785,026 2.16 11.42
Stockholders' equity per share... $ 10.74 $ 9.58 2.06% 7.71%
Market price per share of common
stock.......................... $ 21.50 $ 15.50 -37.66% 10.15%
</TABLE>
- ---------------
Notes to Historical Financial Summary:
(1) Amounts in all periods have been restated to reflect significant business
transactions accounted for as poolings of interests, including significant
combinations through the year ended December 31, 1999.
(2) All per share amounts give retroactive recognition to the effect of stock
dividends and stock splits.
(3) Non-accruing loans, of an immaterial amount, are included in earning assets.
No adjustment has been made for these loans in the calculation of yields.
(4) Yields are computed on a taxable equivalent basis, net of interest
disallowance, using marginal federal income tax rates of 35% for 1999-1994.
(5) This summary should be read in conjunction with the related consolidated
financial statements and notes thereto under Item 8 on pages 48 to 81 of
this Annual Report on Form 10-K.
16
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion and financial information is presented to aid in
understanding Regions Financial Corporation's (Regions or the Company) financial
position and results of operations. The emphasis of this discussion will be on
the years 1997, 1998 and 1999; however, financial information for prior years
will also be presented when appropriate.
Regions' primary business is banking. In 1999, Regions' banking affiliates
contributed approximately $502 million to consolidated net income. During 1997
and 1998, Regions' individual banking affiliates in each state (except one
recently acquired bank) were merged into one state-chartered (Alabama) bank. A
distribution of selected information as of December 31, 1999, on Regions'
banking operations, by state, is as follows:
<TABLE>
<CAPTION>
FULL-SERVICE
ASSETS LOANS DEPOSITS OFFICES
------ ----- -------- ------------
<S> <C> <C> <C> <C>
Alabama........................................ 32% 32% 33% 196
Arkansas....................................... 16 16 17 134
Georgia........................................ 24 24 21 143
Louisiana...................................... 9 9 10 86
Florida........................................ 7 7 8 64
Texas.......................................... 3 3 3 29
South Carolina................................. 4 4 4 35
Tennessee...................................... 5 5 4 48
--- --- --- ---
Totals............................... 100% 100% 100% 735
=== === === ===
</TABLE>
Supplementing the Company's banking operations are a mortgage banking
company, credit life insurance related companies, a registered broker/dealer
firm and a commercial accounts receivable financing, billing and collection
company. Regions has no foreign operations, although it maintains an
International Department to assist customers with their foreign transactions.
The mortgage banking company services approximately $24.1 billion in mortgage
loans and in 1999 contributed approximately $21.9 million to income.
The Company's principal market areas are all of Alabama and Arkansas, north
and southwest Georgia, east Texas, parts of Louisiana, northwest and central
Florida, middle and west Tennessee and parts of South Carolina. In addition,
real estate mortgage loan origination offices are located in other market areas
in Tennessee, Mississippi and South Carolina.
On July 31, 1998, First Commercial Corporation of Little Rock, Arkansas,
(First Commercial) with approximately $7.3 billion in assets, merged with and
into Regions. On March 31, 1998, First State Corporation of Albany, Georgia,
with approximately $536 million in assets, merged with and into Regions. On
March 14, 1998, First United Bancorporation of Anderson, South Carolina, with
approximately $305 million in assets, merged with and into Regions. On February
13, 1998, PALFED, Inc., of Aiken, South Carolina, with approximately $665
million in assets, merged with and into Regions. These transactions were
accounted for as poolings of interests and accordingly, financial information
for all prior periods has been restated to present the combined financial
condition and results of operations of all companies as if these transactions
had been in effect for all periods presented.
The acquisitions of other banks and related institutions have contributed
significantly to Regions' growth during the last three years. Regions has
expanded into new markets and strengthened its presence in existing markets.
Regions' acquisition activity in 1997 strengthened its presence in Florida,
Georgia and Louisiana, through nine acquisitions, which combined added $1.9
billion in assets, $1.0 billion in loans and $1.6 billion in deposits.
17
<PAGE> 19
Regions expanded its Florida presence in Panama City and Longwood through
the acquisition of Florida First Bancorp, Inc. and First Mercantile National
Bank with $287 million and $157 million in assets, respectively.
In Georgia, Regions continued to expand its market presence through the
acquisition of four institutions: Allied Bankshares, Inc. of Thomson with assets
of $560 million; First Bankshares, Inc., of Hapeville with $127 million in
assets; SB&T Corporation of Smyrna with $148 million in assets; and GF
Bancshares, Inc. of Griffin with $99 million in assets.
Regions' expansion in Louisiana consisted of three institutions; West
Carroll Bancshares, Inc. of Oak Grove with assets of $127 million in the
northern part of the state, Gulf South Bancshares, Inc. of Gretna with assets of
$55 million and The New Iberia Bancorp, Inc. of New Iberia with assets of $313
million in the southern part of Louisiana.
In Arkansas, First Commercial acquired First Charter Bancshares, Inc.
located in Searcy, Arkansas, First Central Corporation located in Searcy,
Arkansas, and Southwest Bancshares, Inc. located in Jonesboro, Arkansas. These
transactions added $1.2 billion in assets.
First Commercial also acquired City National Bank of Whitehouse, Texas,
adding assets of $39 million.
In Tennessee, First Commercial expanded into Memphis through the
acquisition of W.B.T. Holding Company with assets of $267 million.
Regions' 1998 acquisition activity expanded its presence in Alabama,
Georgia, Florida, Louisiana, South Carolina, and Tennessee through ten
acquisitions with combined assets of $2.1 billion, combined loans of $1.3
billion and combined deposits of $1.8 billion.
In Alabama, Regions acquired Jacobs Bank, located in Scottsboro. The Jacobs
transaction added $186 million in assets.
Regions' expansion in Georgia included the acquisition of Etowah Bank
located in Canton, First Community Banking Services, Inc. located in Peachtree
City and branches purchased from First Union National Bank in Valdosta, adding
assets of $409 million, $125 million and $109 million, respectively.
Regions' acquisition activity in Florida added $416 million in combined
assets from transactions with two institutions; Key Florida Bancorp, Inc. and
Village Bankshares, Inc. These institutions added to Regions' existing central
Florida presence.
In Louisiana, Regions acquired two institutions: St. Mary Holding
Corporation in Franklin with assets of $111 million and St. James
Bancorporation, Inc. in Lutcher with assets of $172 million.
Also in 1998, Regions expanded its South Carolina market with the
acquisition of Greenville Financial Corporation. This transaction added $141
million in assets.
In Tennessee, First Commercial acquired a Federal Savings Bank subsidiary
of Kemmons Wilson, Inc. This transaction added $396 million in assets.
Additionally, Regions expanded its line of businesses and market area by
acquiring EFC Holdings Corporation (EFC), a Charlotte, North Carolina, specialty
financing institution. EFC, with $63 million in assets, originates and sells
consumer mortgage loans.
Acquisition activity in 1999 focused on strengthening several of Regions'
existing markets. In early 1999, Regions acquired two Georgia-based
institutions, VB&T Bancshares Corporation located in Valdosta and Bullsboro
BancShares, Inc. located in Newnan, which combined added approximately $176
million in assets. The VB&T transaction increased Regions' presence in Southwest
Georgia while the Bullsboro transaction increased Regions' suburban-Atlanta
franchise.
Also in early 1999, Regions increased its Tennessee presence with the
acquisition of Meigs County Bancshares, Inc., a $114 million institution located
in Decatur, a part of Regions' middle Tennessee market.
18
<PAGE> 20
Regions' 1999 expansion activity in Arkansas was in the northeast portion
of the state. In March, Regions acquired Arkansas Banking Company located in
Jonesboro. This transaction, while adding $355 million in assets, significantly
increased Regions' presence in the Jonesboro market.
At the end of 1999, Regions acquired Minden Bancshares, Inc., which is
located in Minden, Louisiana. This transaction added $319 million in assets to
Regions' existing market in the northwest corner of the state.
Regions' and the pooled companies' business combinations over the last
three years are summarized in the following chart.
<TABLE>
<CAPTION>
ACCOUNTING
DATE COMPANY HEADQUARTERS LOCATION TOTAL ASSETS TREATMENT
- ---- ------- --------------------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1999
January VB&T Bancshares Corporation Valdosta, Georgia $ 75,733 Pooling
January Bullsboro BancShares, Inc. Newnan, Georgia 100,682 Pooling
January Meigs County Bancshares, Inc. Decatur, Tennessee 114,407 Pooling
March Arkansas Banking Company Jonesboro, Arkansas 354,981 Purchase
December Minden Bancshares, Inc. Minden, Louisiana 318,955 Purchase
1998
February Greenville Financial Corporation Greenville, South 141,294 Pooling
Carolina
March St. Mary Holding Corporation Franklin, Louisiana 111,498 Pooling
March Key Florida Bancorp, Inc. Bradenton, Florida 204,435 Pooling
March Federal Savings Bank Subsidiary of Memphis, Tennessee 395,629 Purchase
Kemmons Wilson, Inc.
August Village Bankshares, Inc. Tampa, Florida 211,469 Pooling
August Jacobs Bank Scottsboro, Alabama 185,939 Pooling
September Etowah Bank Canton, Georgia 409,139 Pooling
September First Community Banking Services, Peachtree City, 124,762 Pooling
Inc. Georgia
September Branches of First Union National Valdosta, Georgia 108,913 Purchase
Bank, Inc.
November EFC Holdings Corporation Charlotte, North 63,147 Purchase
Carolina
December St. James Bancorporation, Inc. Lutcher, Louisiana 171,572 Purchase
1997
January Florida First Bancorp, Inc. Panama City, Florida 286,515 Purchase
January Allied Bankshares, Inc. Thomson, Georgia 559,815 Pooling
February W.B.T. Holding Company Memphis, Tennessee 267,131 Pooling
March West Carroll Bancshares, Inc. Oak Grove, Louisiana 127,145 Pooling
April Gulf South Bancshares, Inc. Gretna, Louisiana 55,363 Purchase
April City National Bank Whitehouse, Texas 38,706 Pooling
May First Mercantile National Bank Longwood, Florida 157,434 Purchase
May The New Iberia Bancorp, Inc. New Iberia, Louisiana 313,494 Pooling
May Southwest Bancshares, Inc. Jonesboro, Arkansas 847,000 Pooling
June First Bankshares, Inc. Hapeville, Georgia 126,826 Pooling
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
ACCOUNTING
DATE COMPANY HEADQUARTERS LOCATION TOTAL ASSETS TREATMENT
- ---- ------- --------------------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
June SB&T Corporation Smyrna, Georgia $147,709 Pooling
July First Central Corporation Searcy, Arkansas 269,000 Pooling
October First Charter Bancshares, Inc. Searcy, Arkansas 74,605 Pooling
December GF Bancshares, Inc. Griffin, Georgia 99,446 Purchase
</TABLE>
As of December 31, 1999, Regions had one pending acquisition in the state
of Tennessee. This institution has assets of approximately $175 million.
See Note Q to the consolidated financial statements for additional
information regarding the pending acquisition.
FINANCIAL CONDITION
Regions' financial condition depends primarily on the quality and nature of
its assets, liabilities and capital structure, the market and economic
conditions, and the quality of its personnel.
LOANS AND ALLOWANCE FOR LOAN LOSSES
As a financial institution, Regions' primary investment is loans. At
December 31, 1999, loans represented 71% of Regions' earning assets.
Over the last four years loans increased a total of $12.0 billion, a
compound growth rate of 15%. Loans acquired in connection with acquisitions over
the last four years contributed $3.6 billion of this growth. The most
significant growth in the loan portfolio occurred in 1997 and 1999, with loans
increasing $3.5 billion and $3.8 billion, respectively. In 1997 and 1998,
respectively, acquisitions added $1.3 billion in loans. Five 1999 acquisitions
added approximately $567 million in loans.
During 1998 and 1999, Regions securitized $534 million and $1.3 billion in
single-family residential mortgage loans, respectively. These assets were
transferred from the loan portfolio to the available for sale securities
portfolio. The securitization of these loans gives Regions additional
flexibility for funding purposes and results in a lower risk-weighted capital
allocation for these assets. After adjusting for the effect of the
securitizations, loans would have increased $3.0 billion or 14% in 1998 and $5.1
billion or 21% in 1999.
All major categories of loans have shared in the growth in the loan
portfolio over the last four years, with the strongest growth occurring in
commercial and real estate construction loans. Over the last four years,
commercial, financial and agricultural loans increased $4.7 billion or 133%.
Real estate construction loans increased $1.6 billion or 193% over the same
period. Real estate mortgage loans increased $3.9 billion or 49%, and consumer
loans increased $1.9 billion or 47% over the last four years. The increase in
real estate mortgage loans is net of the $534 million and the $1.3 billion
securitizations previously discussed.
Regions' real estate mortgage portfolio includes $5.4 billion of mortgage
loans secured by single-family residences that were originated by Regions'
mortgage subsidiary. The majority of these loans are secured by homes in
Alabama, Georgia and Florida. These loans increased approximately $655 million
in 1997, $815 million in 1998 and $1.9 billion in 1999, accounting for
approximately 19%, 33%, and 49% respectively, of the growth in total loans in
1997, 1998, and 1999. The increase in 1998 and 1999 is net of the securitization
of the $534 million and $1.3 billion in single-family residential mortgages.
Eighty-seven percent of the overall balance consists of adjustable-rate
mortgages (ARM's) that have rates approximately 275 basis points above one of
several money market indices when fully priced.
Regions' real estate portfolio also includes $1.5 billion of single-family
mortgage loans obtained in various acquisitions, which are being serviced by
Regions' mortgage subsidiary. Fixed-rate single-family mortgages with a weighted
average interest rate of 7.87% and a weighted average remaining term of 14.7
years comprise 51% of this portfolio. Single-family ARM's, which have rates
approximately 250 to 275 basis points above one
20
<PAGE> 22
of several money market indices when fully priced, comprise the remaining 49% of
the overall balance of these loans.
A sound credit policy and careful, consistent credit review are vital to a
successful lending program. All affiliates of Regions operate under written loan
policies which attempt to maintain a consistent lending philosophy, provide
sound traditional credit decisions, provide an adequate return and render
service to the communities in which the banks are located. Regions' lending
policy generally confines loans to local customers or to national firms doing
business locally. Credit reviews and loan examinations help confirm that
affiliates are adhering to these loan policies.
Every loan carries some degree of credit risk. This risk is reflected in
the consolidated financial statements by the allowance for loan losses, the
amount of loans charged off and the provision for loan losses charged to
operating expense. It is Regions' policy that when a loss is identified, it is
charged against the allowance for loan losses in the current period. The policy
regarding recognition of losses requires immediate recognition of a loss if
significant doubt exists as to principal repayment.
Regions' provision for loan losses is a reflection of actual losses
experienced during the year and management's judgment as to the adequacy of the
allowance for loan losses. Some of the factors considered by management in
determining the amount of the provision and resulting allowance include: (1)
credit reviews of individual loans; (2) gross and net loan charge-offs in the
current year; (3) growth in the loan portfolio; (4) the current level of the
allowance in relation to total loans and to historical loss levels; (5) past due
and non-accruing loans; (6) collateral values of properties securing loans; (7)
the composition of the loan portfolio (types of loans); and (8) management's
estimate of future economic conditions and the resulting impact on Regions.
Lending at Regions is generally organized along three functional lines:
commercial loans (including financial and agricultural), real estate loans and
consumer loans. The composition of the portfolio by these major categories is
presented below (with real estate loans further broken down between construction
and mortgage loans):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, NET OF UNEARNED INCOME)
<S> <C> <C> <C> <C> <C>
Commercial...................... $ 8,183,633 $ 7,119,093 $ 5,073,698 $ 3,951,766 $ 3,514,693
Real estate -- construction..... 2,439,104 1,865,972 1,582,706 1,222,519 831,694
Real estate -- mortgage......... 11,728,601 9,608,147 10,072,195 8,496,603 7,869,988
Consumer........................ 5,793,337 5,772,375 5,152,524 4,724,664 3,939,757
----------- ----------- ----------- ----------- -----------
Total................. $28,144,675 $24,365,587 $21,881,123 $18,395,552 $16,156,132
=========== =========== =========== =========== ===========
</TABLE>
The amounts of total gross loans (excluding residential mortgages on 1-4
family residences and consumer loans) outstanding at December 31, 1999, based on
remaining scheduled repayments of principal, due in (1) one year or less, (2)
more than one year but less than five years and (3) more than five years, are
shown in the following table. The amounts due after one year are classified
according to sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
LOANS MATURING
---------------------------------------------------------
WITHIN AFTER ONE BUT AFTER
ONE YEAR WITHIN FIVE YEARS FIVE YEARS TOTAL
---------- ----------------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural..... $3,688,753 $3,180,586 $1,360,226 $ 8,229,565
Real estate -- construction................ 1,285,907 924,699 228,498 2,439,104
Real estate -- mortgage.................... 590,012 1,476,041 3,420,752 5,486,805
---------- ---------- ---------- -----------
Total............................ $5,564,672 $5,581,326 $5,009,476 $16,155,474
========== ========== ========== ===========
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
SENSITIVITY OF LOANS TO
CHANGES IN INTEREST RATES
--------------------------
PREDETERMINED VARIABLE
RATE RATE
------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Due after one year but within five years.................... $1,022,298 $4,559,028
Due after five years........................................ 1,627,362 3,382,114
---------- ----------
Total............................................. $2,649,660 $7,941,142
========== ==========
</TABLE>
A coordinated effort is undertaken to identify credit risks in the loan
portfolio for management purposes and to establish the loan loss provision and
resulting allowance for accounting purposes. A regular, formal and ongoing loan
review is conducted to identify loans with unusual risks or possible losses. The
primary responsibility for this review rests with the management of the
individual banking offices. Their work is supplemented with reviews by Regions'
internal audit staff and corporate loan examiners. Bank regulatory agencies and
the Company's independent auditors provide additional levels of review. This
process provides information which helps in assessing the quality of the
portfolio, assists in the prompt identification of problems and potential
problems and aids in deciding if a loan represents a probable loss which should
be recognized or a risk for which an allowance should be maintained.
If, as a result of Regions' loan review and evaluation procedures, it is
determined that payment of interest on a loan is questionable, it is Regions'
policy to reverse interest previously accrued on the loan against interest
income. Interest on such loans is thereafter recorded on a "cash basis" and is
included in earnings only when actually received in cash and when full payment
of principal is no longer doubtful.
Although it is Regions' policy to immediately charge off as a loss all loan
amounts judged to be uncollectible, historical experience indicates that certain
losses exist in the loan portfolio which have not been specifically identified.
To anticipate and provide for these unidentifiable losses, the allowance for
loan losses is established by charging the provision for loan losses expense
against current earnings. No portion of the resulting allowance is in any way
allocated or restricted to any individual loan or group of loans. The entire
allowance is available to absorb losses from any and all loans.
Over the last five years, the year-end allowance for loan losses as a
percentage of loans ranged from a low of 1.20% in 1999 to a high of 1.43% in
1995. Although this ratio is important, it is only one of the factors considered
by management in determining the adequacy of the allowance for loan losses.
Management does not attempt to maintain the allowance for loan losses at a
certain percentage of loans. As previously discussed, the adequacy of the
allowance for loan losses is based on management's evaluation of various
factors.
The ratio of non-performing assets (including loans past due 90 days or
more and other real estate) to loans and other real estate increased from 0.81%
at December 31, 1995 to 1.15% at December 31, 1998. Generally improving economic
conditions in Regions' markets were offset by the effect of non-performing
assets added by certain acquisitions, resulting in the declining trend in this
ratio. The ratio of non-performing assets (including loans past due 90 days or
more and other real estate) to loans and other real estate declined to 0.93% at
December 31, 1999, due primarily to decreases in commercial and consumer loan
delinquencies.
The allowance for loan losses as a percentage of non-performing loans
(including loans past due 90 days or more) was 135% at December 31, 1999,
compared to 120% at December 31, 1998, and to 169% at December 31, 1997.
Management considers the current level of the allowance for loan losses adequate
to absorb possible losses from loans in the portfolio. Management's
determination of the adequacy of the allowance for loan losses, which is based
on the factors and risk identification procedures previously discussed, requires
the use of judgments and estimations that may change in the future. Unfavorable
changes in the factors used by management to determine the adequacy of the
reserve, including increased consumer loan delinquencies and subsequent
charge-offs, or the availability of new information, could cause the allowance
for loan losses to be increased or decreased in future periods. In addition,
bank regulatory agencies, as part of their examination process, may require that
additions be made to the allowance for loan losses based on their judgments and
estimates.
22
<PAGE> 24
The analysis of loan loss experience (see chart following) shows that net
loan losses, over the last five years, ranged from a high of $99.2 million in
1999 to a low of $23.2 million in 1995. Net loan losses were $66.4 million in
1998, $56.1 million in 1997 and $30.4 million in 1996. Over the last five years,
net loan losses averaged 0.27% of average loans and were 0.37% of average loans
in 1999. Regions' recent increased level of net loan losses is due to certain
identified commercial credits and segments of consumer credits, partially offset
by recoveries of previously charged-off loans in the commercial and consumer
categories.
In order to assess the risk characteristics of the loan portfolio at
December 31, 1999, it is appropriate to consider the three major categories of
loans -- commercial, real estate and consumer.
Regions' commercial loan portfolio is highly diversified within the markets
served by the Company. Geographically, the largest concentration is the 28% of
the portfolio held by banking offices in the state of Alabama. Banking offices
in Georgia and Arkansas hold 24% and 21% respectively, of the commercial loan
portfolio, followed by Louisiana with 10%, Tennessee with 5%, and Florida, South
Carolina and Texas with 4% each. A small portion of these loans is secured by
properties outside Regions' banking market areas.
The Alabama economy has experienced relatively stable growth over the last
several years. Industries important in the Alabama economy include vehicle and
vehicle parts manufacturing and assembly, lumber and wood products, and steel
production. High technology industries are important in the northern part of the
state. Service and health care industries have increased in importance and are
predicted to continue growing. Agriculture, particularly poultry, beef cattle
and cotton, are important to the state's economy.
The economy of the northern two-thirds of Georgia is diversified with a
strong presence in poultry production, carpet manufacturing, automotive
manufacturing related industries, tourism, and various service sector
industries. A well developed transportation system has contributed to the growth
in north Georgia. This area has experienced rapid population growth and has very
favorable household income characteristics, relative to many of Regions' other
markets. In 1999, Georgia's population grew at twice the national rate.
Prospects are good for continued strong growth in this area.
In the southern region of Georgia, while agriculture is important, other
industries play an important role in the economy. Albany and Valdosta, Regions
primary market areas, are hubs for retail trade and health care for the entire
south Georgia market. These markets are also home to numerous Fortune 500
Company manufacturing and production facilities.
The Arkansas economy is supported in part by the forest products industry
due to the abundance of corporate owned forests and public lands. In recent
years, steel production has become increasingly important to the state's
economy.
Natural resources are very important to the Louisiana economy. Energy and
petrochemical industries play a significant role in the economy. Shipping,
shipbuilding, and other transportation equipment industries are strong in the
state's durable goods industries. Tourism, amusement and recreation, service,
and health care industries are becoming increasingly important to the Louisiana
economy. Cotton, rice and sugarcane are among Louisiana's most important
agricultural commodities.
The economy along the I-85 corridor in South Carolina is among the fastest
growing in the country. This area is home to numerous multinational
manufacturers, resulting in one of the highest per capita foreign investment
areas in the nation. South Carolina has one of the highest growth rates in
personal income in the nation.
Tennessee's economy is heavily influenced by automobile manufacturing,
tourism, entertainment and recreation, health care and other service industries.
With one out of four Tennesseeans employed in service industries, the state's
economy is very dependent on this sector for continued good economic
performance.
The economy of the eastern portion of Texas remains healthy. A major
distribution center and a new telemarketing service center bode well for the
Tyler market while the Longview area benefits from manufacturing expansion and a
medical claims service center.
23
<PAGE> 25
The northwestern part of Florida and the central Florida area have also
experienced excellent economic growth during the last several years. Tourism is
very important to the Florida economy, and military payrolls are significant in
the panhandle area. Florida has experienced strong in-migration, contributing to
strong construction activity and a growing retirement-age population. Population
growth rates in Florida are 50% higher than the national average. Citrus fruit
production is also important in the state.
From 1995 to 1999, net losses on commercial loans ranged from a low of
0.03% in 1997 to a high of 0.30% in 1999. Commercial loan losses in 1999 were,
primarily due to losses on a small number of large commercial credits. Future
losses are a function of many variables, of which general economic conditions
are the most important. A continuation of moderate economic growth during 2000
in Regions' market areas could result in 2000 net commercial loan losses near
the 1999 level.
Regions' real estate loan portfolio consists of construction and land
development loans, loans to businesses for long-term financing of land and
buildings, loans on one-to-four family residential properties, loans to mortgage
banking companies (which are secured primarily by loans on one-to-four family
residential properties and are known as warehoused mortgage loans) and various
other loans secured by real estate.
Real estate construction loans increased $573 million in 1999 to $2.4
billion. At December 31, 1999, these loans represented 8.7% of Regions' total
loan portfolio, compared to 5.1% at the end of 1995. Strong economic growth and
new development in Regions' market areas have enabled Regions to steadily
increase construction loans. Most of the construction loans relate to shopping
centers, apartment complexes, commercial buildings and residential property
development. These loans are normally secured by land and buildings and are
generally backed by commitments for long-term financing from other financial
institutions. Real estate construction loans are closely monitored by
management, since these loans are generally considered riskier than other types
of loans and are particularly vulnerable in economic downturns and in periods of
high interest rates. Regions has not been an active lender to developers outside
its market areas.
The loans to businesses for long-term financing of land and buildings are
primarily to commercial customers within Regions' markets. Total loans secured
by non-farm, non-residential properties totaled $4.5 billion at December 31,
1999. Although some risk is inherent in this type of lending, the Company
attempts to minimize this risk by generally making such loans only on
owner-occupied properties, and by requiring collateral values which exceed the
loan amount, adequate cash flow to service the debt, and in most cases, the
personal guaranties of principals of the borrowers.
Generally, Regions' most significant market areas have not experienced
rapid increases in real estate property values or significant overbuilding.
Therefore, in management's opinion, real estate loan collateral values in
Regions' market areas should not be as vulnerable to significant deterioration,
as would other market areas which have experienced rapidly increasing property
values and significant overbuilding. However, collateral values are difficult to
estimate and are subject to change depending on economic conditions, the supply
of and demand for properties and other factors. Regions attempts to mitigate the
risks of real estate lending by adhering to strict loan underwriting policies
and by diversifying the portfolio both geographically within its market area and
within industry groups.
Loans on one-to-four family residential properties, which total
approximately 72% of Regions' real estate mortgage portfolio, are principally on
single-family residences. These loans are geographically dispersed throughout
the southeastern states and some are guaranteed by government agencies or
private mortgage insurers. Historically, this category of loans has not produced
sizable loan losses; however, it is subject to some of the same risks as other
real estate lending. Warehoused mortgage loans, since they are secured primarily
by loans on one-to-four family residential properties, are similar to these
loans in terms of risk.
From 1994 to 1998, net losses on real estate loans ranged from a high of
0.11% of real estate loans in 1998 and 1999, to a low of 0.01% of real estate
loans in 1996. The 1999 real estate loan losses were as a result of higher
commercial real estate charge offs. These losses depend, to a large degree, on
the level of interest rates, economic conditions and collateral values, and
thus, are very difficult to predict. Management expects 2000 net real estate
loan losses to be near the 1999 level.
24
<PAGE> 26
Regions' consumer loan portfolio consists of $4.8 billion in consumer
loans, $704 million in personal lines of credit (including home equity loans)
and $311 million in credit card loans. Consumer loans are primarily borrowings
of individuals for home improvements, automobiles and other personal and
household purposes. Regions' consumer loan portfolio includes $1.3 billion in
indirect installment loans at December 31, 1999 and 1998. Periods of economic
recession tend to increase consumer loan losses. During the past five years, the
ratio of net consumer loan losses to consumer loans ranged from a low of 0.41%
in 1995 to a high of 1.09% in 1999. Higher levels of personal bankruptcies in
Regions' market areas contributed to the higher net consumer loan losses in 1998
and 1999. Management expects net consumer loan losses in 2000 to be near the
1999 level.
The following table presents information on non-performing loans and real
estate acquired in settlement of loans:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
NON-PERFORMING ASSETS 1999 1998 1997 1996 1995
- --------------------- -------- -------- -------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-performing loans:
Loans accounted for on a non-accrual
basis.................................. $169,904 $124,718 $138,149 $ 84,219 $ 73,990
Loans contractually past due 90 days or
more as to principal or interest
payments (exclusive of non-accrual
loans)................................. 71,952 134,411 29,020 35,831 18,315
Loans whose terms have been renegotiated
to provide a reduction or deferral of
interest or principal because of a
deterioration in the financial position
of the borrower (exclusive of
non-accrual loans and loans past due 90
days or more).......................... 8,390 4,550 12,616 11,032 16,614
Real estate acquired in settlement of loans
("other real estate")..................... 12,662 17,273 20,511 21,099 21,421
-------- -------- -------- -------- --------
Total............................. $262,908 $280,952 $200,296 $152,181 $130,340
======== ======== ======== ======== ========
Non-performing assets as a percentage of
loans and other real estate............... .93% 1.15% 0.91% 0.83% 0.81%
</TABLE>
The following analysis presents a five year history of the allowance for
loan losses and loan loss data:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses:
Balance at beginning of year.... $ 315,412 $ 304,223 $ 253,248 $ 231,390 $ 207,272
Loans charged off:
Commercial.................... 35,589 24,214 15,534 9,561 12,790
Real estate................... 15,781 13,366 7,174 4,217 9,607
Installment................... 77,867 56,159 65,571 38,198 22,161
----------- ----------- ----------- ----------- -----------
Total................. 129,237 93,739 88,279 51,976 44,558
Recoveries:
Commercial.................... 12,934 10,473 14,265 8,121 9,418
Real estate................... 1,109 1,655 3,879 3,484 5,031
Installment................... 16,006 15,201 14,027 9,933 6,939
----------- ----------- ----------- ----------- -----------
Total................. 30,049 27,329 32,171 21,538 21,388
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net loans charged off:
Commercial.................... 22,655 13,741 1,269 1,440 3,372
Real estate................... 14,672 11,711 3,295 733 4,576
Installment................... 61,861 40,958 51,544 28,265 15,222
----------- ----------- ----------- ----------- -----------
Total................. 99,188 66,410 56,108 30,438 23,170
Allowance of acquired banks..... 8,493 17,094 17,420 6,270 9,795
Provision charged to expense.... 113,658 60,505 89,663 46,026 37,493
----------- ----------- ----------- ----------- -----------
Balance at end of year.......... $ 338,375 $ 315,412 $ 304,223 $ 253,248 $ 231,390
=========== =========== =========== =========== ===========
Average loans outstanding:
Commercial.................... $ 7,661,595 $ 7,060,917 $ 4,536,710 $ 3,583,628 $ 3,198,594
Real estate................... 13,144,153 10,479,084 10,768,271 9,318,457 8,735,992
Installment................... 5,672,601 5,839,316 5,231,008 4,427,377 3,731,979
----------- ----------- ----------- ----------- -----------
Total................. $26,478,349 $23,379,317 $20,535,989 $17,329,462 $15,666,565
=========== =========== =========== =========== ===========
Net charge-offs as percent of
average loans outstanding:
Commercial.................... .30% .19% .03% .04% .11%
Real estate................... .11 .11 .03 .01 .05
Installment................... 1.09 .70 .99 .64 .41
Total................. .37 .28 .27 .18 .15
Net charge-offs as percent of:
Provision for loan losses..... 87.3% 109.8% 62.6% 66.1% 61.8%
Allowance for loan losses..... 29.3 21.1 18.4 12.0 10.0
Allowance as percentage of
loans, net of unearned
income........................ 1.20% 1.29% 1.39% 1.38% 1.43%
Provision for loan losses (net
of tax effect) as percentage
of net income................. 13.5% 9.0% 14.1% 9.0% 8.5%
</TABLE>
At December 31, 1999, non-accrual loans totaled $169.9 million or 0.60% of
loans, compared to $124.7 million or 0.51% of loans at December 31, 1998. The
increase in the dollar amount of non-accrual loans at December 31, 1999, was
primarily due to increased levels of real estate loans being placed on
non-accrual status. Commercial loans comprised $50.2 million of the 1999 total,
with real estate loans accounting for $108.7 million and consumer loans $11.0
million.
Loans contractually past due 90 days or more were 0.26% of total loans at
December 31, 1999, compared to 0.55% of total loans at December 31, 1998. Since
December 31, 1998, loan delinquencies have declined resulting in fewer loans
being added to the past due category. Fewer additions to the past due category
combined with normal attrition of loans in the past due category at the
beginning of 1999, accounted for the decrease in total loans past due 90 days or
more since December 31, 1998. Loans past due 90 days or more at December 31,
1999, consisted of $33.0 million in commercial and real estate loans and $39.0
million in consumer loans.
Renegotiated loans were 0.03% and 0.02% of loans at December 31, 1999 and
1998, respectively. Renegotiated loans have remained at low levels over the last
five years, as a result of paydowns and payoffs on renegotiated loans, which
were added by acquisitions.
Other real estate has declined during the last four years and totaled $12.7
million at December 31, 1999, compared to $17.3 million at December 31, 1998.
Other real estate added by acquisitions in 1999, were offset by sales of other
real estate. From 1995 through 1997, other real estate declined due to increased
sales of parcels of other real estate, combined with fewer additions. Other real
estate is recorded at the lower of (1) the recorded investment in the loan or
(2) the estimated net realizable value of the collateral. Although
26
<PAGE> 28
Regions does not anticipate material loss upon disposition of other real estate,
sustained periods of adverse economic conditions, substantial declines in real
estate values in Regions' markets, actions by bank regulatory agencies, or other
factors, could result in additional loss from other real estate.
The amount of interest income earned in 1999 on the $169.9 million of
non-accruing loans outstanding at year end was approximately $6.2 million. If
these loans had been current in accordance with their original terms,
approximately $18.7 million would have been earned on these loans in 1999.
Approximately $565,000 in interest income would have been earned in 1999 under
the original terms of the $8.4 million in renegotiated loans outstanding at
December 31, 1999. Approximately $397,000 in interest income was actually earned
in 1999 on these loans.
In the normal course of business, Regions makes commitments under various
terms to lend funds to its customers. These commitments include (among others)
revolving credit agreements, term loan agreements and short-term borrowing
arrangements, which are usually for working capital needs. Letters of credit are
also issued, which under certain conditions could result in loans. See Note L to
the consolidated financial statements for additional information on commitments.
The commercial, real estate and consumer loan portfolios are highly
diversified in terms of industry concentrations. The following table shows the
largest concentrations in terms of the customer's Standard Industrial
Classification (SIC) Code at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
% %
% OF NON- % OF NON-
SIC AMOUNT TOTAL ACCRUAL AMOUNT TOTAL ACCRUAL
--- --------- ----- ------- --------- ----- -------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Individuals................................. $15,181.7 53.8% 0.5% $12,575.1 51.5% 0.1%
Services:
Physicians................................ 200.4 0.7 0.1 164.7 0.7 0.7
Business services......................... 149.5 0.5 1.4 142.8 0.6 1.0
Religious organizations................... 293.1 1.0 0.9 227.4 0.9 0.2
Legal services............................ 89.3 0.3 0.6 86.9 0.4 0.9
All other services........................ 1,910.2 6.9 0.5 1,572.8 6.4 1.1
--------- ----- --------- -----
Total services.................... 2,642.5 9.4 0.6 2,194.6 9.0 0.9
Manufacturing:
Electrical equipment...................... 62.2 0.2 0.0 46.1 0.2 2.9
Food and kindred products................. 57.8 0.2 0.0 60.9 0.3 1.4
Rubber and plastic products............... 35.2 0.1 3.2 40.6 0.2 3.5
Lumber and wood products.................. 129.1 0.5 0.0 158.0 0.7 0.7
Fabricated metal products................. 88.7 0.3 0.3 65.6 0.3 7.8
All other manufacturing................... 642.3 2.3 3.2 613.5 2.5 2.3
--------- ----- --------- -----
Total manufacturing............... 1,015.3 3.6 2.2 984.7 4.2 2.4
Wholesale trade............................. 649.6 2.3 0.3 520.8 2.1 0.9
Finance, insurance and real estate:
Real estate............................... 1,840.7 6.5 0.7 1,771.9 7.3 0.9
Banks and credit agencies................. 283.2 1.0 0.2 197.7 0.8 0.8
All other finance, insurance and real
estate................................. 1,249.6 4.4 0.4 347.4 1.4 0.6
--------- ----- --------- -----
Total finance, insurance and real
estate.......................... 3,373.5 11.9 0.5 2,317.0 9.5 0.9
Construction:
Residential building construction......... 541.5 1.9 0.3 391.8 1.6 0.5
General contractors and builders.......... 486.9 1.7 0.1 545.4 2.2 0.3
All other construction.................... 324.2 1.1 1.6 302.2 1.2 1.0
--------- ----- --------- -----
Total construction................ 1,352.6 4.7 0.6 1,239.4 5.0 0.5
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
% %
% OF NON- % OF NON-
SIC AMOUNT TOTAL ACCRUAL AMOUNT TOTAL ACCRUAL
--- --------- ----- ------- --------- ----- -------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Retail trade:
Automobile dealers........................ 251.8 0.9 0.1 548.8 2.2 0.2
All other retail trade.................... 805.5 2.9 0.6 553.3 2.3 1.5
--------- ----- --------- -----
Total retail trade................ 1,057.3 3.8 0.5 1,102.1 4.5 0.9
Agriculture, forestry and fishing........... 510.3 1.8 1.5 474.4 1.9 1.4
Transportation, communication, electrical,
gas and sanitary.......................... 408.4 1.4 0.1 406.6 1.7 0.5
Mining (including oil and gas extraction)... 40.1 0.1 9.0 32.7 0.1 0.6
Public administration....................... 113.1 0.4 0.0 1,109.2 4.5 1.7
Revolving credit loans...................... 335.4 1.2 0.0 321.5 1.3 0.0
Other....................................... 1,541.4 5.6 0.3 1,152.0 4.7 0.0
--------- ----- --------- -----
Total............................. $28,221.2 100.0% 0.6% $24,430.1 100.0% 0.5%
========= ===== === ========= ===== ===
</TABLE>
INTEREST-BEARING DEPOSITS IN OTHER BANKS
Interest-bearing deposits in other banks are used primarily as temporary
investments. These assets generally have short-term maturities. This category of
earning assets increased from $48.2 million at December 31, 1997 to $144.0
million at December 31, 1998, due to balances added in connection with
acquisition activity in 1998. Maturities of these assets were reinvested in
alternative investments in 1999, resulting in the balance declining to $9.7
million at December 31, 1999.
SECURITIES
The following table shows the carrying values of securities as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Investment securities:
U.S. Treasury & Federal agency securities........ $2,639,214 $2,371,412 $2,356,320
Obligations of states and political
subdivisions.................................. 635,034 565,095 571,503
Mortgage-backed securities....................... 380,677 188,607 408,012
Other securities................................. 399,354 -0- 2,444
---------- ---------- ----------
Total.................................... $4,054,279 $3,125,114 $3,338,279
========== ========== ==========
Securities available for sale:
U.S. Treasury & Federal agency securities........ $ 568,561 $ 956,162 $1,261,882
Obligations of states and political
subdivisions.................................. 158,260 168,493 219,892
Mortgage-backed securities....................... 5,973,995 3,574,590 1,393,694
Other securities................................. 3,336 6,592 38,378
Equity securities................................ 154,613 138,186 63,798
---------- ---------- ----------
Total.................................... $6,858,765 $4,844,023 $2,977,644
========== ========== ==========
</TABLE>
In 1999, total securities increased $2.9 billion or 37%. U. S. Treasury and
Federal agency securities decreased $120 million. Mortgage-backed securities
increased $2.6 billion due to acquisition activity and the $1.3 billion
securitization of mortgage loans previously discussed. Obligations of states and
political subdivisions increased $59.7 million or 8% in 1999. Other securities
were up significantly in 1999 due to the investing of excess liquidity in
various short-term securities.
28
<PAGE> 30
Total securities increased $1.7 billion or 26% in 1998. U. S. Treasury and
Federal agency securities decreased $291 million. Obligations of states and
political subdivisions decreased $57.8 million. Mortgage-backed securities
increased $2.0 billion in 1998 due to acquisition activity and the $534 million
securitization of mortgage loans.
Regions' investment portfolio policy stresses quality and liquidity. At
December 31, 1999, the average maturity of U. S. Treasury and Federal agency
securities was 4.9 years and that of obligations of states and political
subdivisions was 7.8 years. The average expected maturity of mortgage-backed
securities was 4.9 years and other securities had an average contractual
maturity of less than a year. Overall, the average maturity of the portfolio was
16.1 years using contractual maturities and 4.8 years using expected maturities.
Expected maturities differ from contractual maturities because borrowers have
the right to call or prepay obligations with or without call or prepayment
penalties.
The estimated fair market value of Regions' investment securities portfolio
at December 31, 1999, was $120.2 million below the amount carried on Regions'
books. Regions' securities available for sale portfolio at December 31, 1999,
included net unrealized losses of $211.1 million. Regions' investment securities
and securities available for sale portfolios included gross unrealized gains of
$3.6 million and gross unrealized losses of $334.9 million at December 31, 1999.
Market values of these portfolios vary significantly as interest rates change;
however, management expects normal maturities from the securities portfolios to
meet liquidity needs.
Of Regions' tax-free securities rated by Moody's Investors Service, Inc.,
96% are rated "A" or better. The portfolio is carefully monitored to assure no
unreasonable concentration of securities in the obligations of a single debtor,
and current credit reviews are conducted on each security holding.
The following table shows the maturities of securities (excluding equity
securities) at December 31, 1999, the weighted average yields and the taxable
equivalent adjustment used in calculating the yields:
<TABLE>
<CAPTION>
SECURITIES MATURING
-----------------------------------------------------------
AFTER ONE AFTER FIVE
WITHIN BUT WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
-------- ---------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Investment securities:
U. S. Treasury and Federal
agency securities........... $ 44,988 $ 946,836 $1,647,151 $ 239 $2,639,214
Obligations of states and
political subdivisions...... 30,167 119,496 216,540 268,831 635,034
Mortgage-backed securities..... 35,200 57,245 168,961 119,271 380,677
Other securities............... 399,342 3 5 4 399,354
-------- ---------- ---------- -------- ----------
Total.................. $509,697 $1,123,580 $2,032,657 $388,345 $4,054,279
======== ========== ========== ======== ==========
Weighted average yield......... 6.38% 6.56% 6.52% 7.18% 6.58%
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
SECURITIES MATURING
------------------------------------------------------------
AFTER ONE AFTER FIVE
WITHIN BUT WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
-------- ---------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Securities available for sale:
U. S. Treasury and Federal
agency securities........... $147,823 $ 288,408 $ 130,027 $ 2,303 $ 568,561
Obligations of states and
political subdivisions...... 21,661 62,454 43,667 30,478 158,260
Mortgage-backed securities..... 45,269 1,735,375 1,937,745 2,255,606 5,973,995
Other securities............... 1,945 846 216 329 3,336
-------- ---------- ---------- --------- ----------
Total.................. $216,698 $2,087,083 $2,111,655 $2,288,716 $6,704,152
======== ========== ========== ========= ==========
Weighted average yield......... 6.87% 6.48% 6.22% 6.46% 6.40%
Taxable equivalent adjustment for
calculation of yield........... $ 1,270 $ 4,459 $ 6,378 $ 7,336 $ 19,443
</TABLE>
- ---------------
Note: The weighted average yields are calculated on the basis of the yield to
maturity based on the book value of each security. Weighted average
yields on tax-exempt obligations have been computed on a fully taxable
equivalent basis using a tax rate of 35%. Yields on tax-exempt
obligations have not been adjusted for the non-deductible portion of
interest expense used to finance the purchase of tax-exempt obligations.
LIQUIDITY
Liquidity is an important factor in the financial condition of Regions and
affects Regions' ability to meet the borrowing needs and deposit withdrawal
requirements of its customers. Assets, consisting principally of loans and
securities, are funded by customer deposits, purchased funds, borrowed funds and
stockholders' equity.
The securities portfolio is one of Regions' primary sources of liquidity.
Maturities of securities provide a constant flow of funds which are available
for cash needs (see previous table on Securities Maturing). Maturities in the
loan portfolio also provide a steady flow of funds (see previous table on Loans
Maturing). At December 31, 1999, commercial loans, real estate construction
loans and commercial mortgage loans with an aggregate balance of $5.6 billion,
as well as securities of $726 million, were due to mature in one year or less.
Additional funds are provided from payments on consumer loans and one-to-four
family residential mortgage loans. Historically, the Company's high levels of
net operating earnings have also contributed to cash flow. In addition,
liquidity needs can be met by the purchase of funds in state and national money
markets. Regions' liquidity also continues to be enhanced by a relatively stable
deposit base.
The loan to deposit ratio decreased from 87.49% at December 31, 1997, to
85.95% at December 31, 1998 but increased to 93.85% at December 31, 1999, due to
strong internal loan growth and acquisitions partially offset by securitization
and reclassification of mortgage loans to the securities available for sale
classification discussed previously.
As shown in the Consolidated Statement of Cash Flows, operating activities
provided significant levels of funds in 1999 and 1997, due primarily to high
levels of net income. Operating activities were a net user of funds in 1998 as
net income, mortgage loans held for sale and other assets increased and other
liabilities decreased. Investing activities, primarily in loans and securities,
were a net user of funds in all three years. Strong loan growth over the last
three years has required a significant amount of funds for investing activities.
Funds needed for investing activities were provided primarily by deposits,
purchased funds, and borrowings. Financing activities provided more funds in
1999 due to more reliance on short- and long-term borrowings. Cash dividends and
the open-market purchase of the Company's common stock, a portion of which was
30
<PAGE> 32
reissued in connection with specific purchase acquisitions, also required funds
in 1997, 1998 and 1999. Funds needed for the pending acquisition as of December
31, 1999, are expected to be provided by working capital or short-term
borrowings.
Standard & Poor's Corporation has assigned high quality ratings to Regions
Bank's certificates of deposit. Regions Bank's short-term certificates of
deposit are rated "A-1" by Standard & Poor's Corporation and long-term
certificates of deposit are rated "A+".
Moody's Investors Service has also given similar quality ratings to Regions
Bank's short- and long-term debt and certificates of deposit. Short-term debt
and certificates of deposit are rated "P-1" and long-term debt and certificates
of deposit are rated "Aa2".
In addition, Regions Financial Corporation (the parent company) received
the highest issuer rating available ("A") from the internationally recognized
bank rating organization, Thomson BankWatch. This organization also assigned its
highest short-term rating of "TBW-1" to Regions Financial Corporation and to
Regions Bank (Alabama).
The $200 million in subordinated debt issued by Regions is rated "A-" by
Standard & Poor's Corporation, "A2" by Moody's Investors Service, and "AA-" by
Thomson BankWatch.
Regions' and its banking subsidiary's high quality ratings from nationally
recognized rating agencies enhance the Company's ability to raise funds in
national money markets. The high ratings also help to attract both loan and
deposit customers in local markets.
Historically, Regions has found short- and intermediate-term credit readily
available on reasonable terms from money center or regional banks. Regions'
management places constant emphasis on the maintenance of adequate liquidity to
meet conditions which might reasonably be expected to occur.
DEPOSITS
Deposits are Regions' primary source of funds -- providing funding for 79%
of average earning assets in 1999 and 85% in 1998. During the last four years,
average total deposits grew at a compound annual rate of 11%. Average deposits
grew $2.0 billion or 10% in 1996, $3.2 billion or 15% in 1997, $2.7 billion or
11% in 1998 and $2.1 billion or 8% in 1999. Acquisitions contributed average
deposit growth of $667 million in 1996, $948 million in 1997, $1.5 billion in
1998 and $495 million in 1999.
Regions faces stiff competition from other banking and financial services
companies for a share of the deposit market. Regions' ability to compete in the
deposit market depends heavily on how effectively the company meets customers'
needs. Regions employs both traditional and non-traditional means to meet
customers' needs and enhance competitiveness. The traditional means include:
providing well-designed products, providing a high level of customer service,
providing attractive pricing and expanding the traditional branch network to
provide convenient branch locations for customers throughout the Southeastern
United States. Recently, Regions has also begun to employ non-traditional
approaches to enhance its competitiveness. These include: providing centralized,
high quality telephone banking services and providing alternative product
delivery channels like PC banking. Regions' success at competing for deposits is
discussed below.
Average non-interest bearing deposits have grown at a steady pace,
increasing at a compound growth rate of 15% since 1996. This category of
deposits grew 20% in 1997, 7% in 1998 and 19% in 1999. Non-interest bearing
deposits are a significant funding source for Regions, accounting for 15%, 14%
and 16% of average total deposits in 1997, 1998 and 1999 respectively.
During 1997, 1998 and 1999, the rate paid on savings accounts was less
attractive to customers, relative to other investment alternatives. As a result,
savings accounts have increased at only a 1% compound growth rate since 1996.
Savings increased 6% in 1997, 3% in 1998 but declined 4% in 1999. Management
expects savings accounts to continue to be a stable funding source, but does not
expect any significant growth in the current interest rate environment. In 1999,
savings accounts accounted for 5% of average total deposits.
31
<PAGE> 33
During 1999 and 1998, interest-bearing transaction accounts decreased 49%
and 3%, respectively due to less attractive rates relative to other investment
alternatives. In 1997, the average balance of these types of deposits accounts
increased 21%. During 1999 and 1998, interest-bearing transaction accounts
accounted for 2% and 3%, respectively, of average total deposits.
Money market savings products continue to be Regions' fastest growing
deposits, increasing at a compound annual rate of 21% since 1996. Customers have
responded to Regions' innovative, competitive money market savings products by
continuing to invest in these accounts. The results are increases in average
balances of 16% in 1997, 28% in 1998 and 20% in 1999. Money market savings
products are one of Regions' most significant funding sources, accounting for
25% of average total deposits in 1997, 28% of average total deposits in 1998 and
31% of average total deposits in 1999.
Certificates of deposit of $100,000 or more increased 22% in 1997, due to
their increased use as a funding source but increased only 2% in 1998 as
customers turned to other investments due to rates. In 1999, certificates of
deposit of $100,000 or more increased 20%. Since 1996, certificates of deposit
of $100,000 or more have increased at a compound annual rate of 14%, and in 1999
accounted for 15% of average total deposits.
Other interest-bearing deposits (certificates of deposit of less than
$100,000 and time open accounts) increased 11% in 1997, 8% in 1998 but declined
3% in 1999. This category of deposits continues to be one of Regions' primary
funding sources; it accounted for 32% of average total deposits in 1999, down
from 35% of average total deposits in 1998. Wider pricing spreads in 1998 made
this category of deposits attractive relative to other investment alternatives;
however, those spreads narrowed in 1999 resulting in a balance decline.
Innovative deposit products in this category have helped Regions maintain market
share in the Company's major markets.
The sensitivity of Regions' deposit rates to changes in market interest
rates is reflected in the Company's average interest rate paid on
interest-bearing deposits (see table following on Average Rates Paid).
Throughout 1996 and 1997, market interest rates were relatively stable. During
1998 and early 1999, market interest rates generally declined but increased in
the last half of 1999. While Regions' average interest rate paid on
interest-bearing deposits follows these trends, a lag period exists between the
change in market rates and the repricing of the deposits. The rate paid on
interest-bearing deposits increased from 4.58% in 1996, to 4.63% in 1997 but
decreased to 4.61% in 1998 and 4.32% in 1999.
A detail of interest-bearing deposit balances at December 31, 1999 and
1998, and the interest expense on these deposits for the three years ended
December 31, 1999, is presented in Note H to the consolidated financial
statements.
The following table presents the detail of interest-bearing deposits and
maturities of the larger time deposits:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Interest-bearing deposits of less than $100,000............. $20,341,509 $20,054,861
Time deposits of $100,000 or more, maturing in:
3 months or less.......................................... 2,079,337 92,900
over 3 through 6 months................................... 1,012,082 732,591
over 6 through 12 months.................................. 1,523,715 1,991,121
over 12 months............................................ 612,758 901,468
----------- -----------
Total.................................................. 5,227,892 3,718,080
----------- -----------
Total............................................. $25,569,401 $23,772,941
=========== ===========
</TABLE>
32
<PAGE> 34
The following table presents the average amounts of deposits outstanding by
category for the three years ended December 31, 1999:
<TABLE>
<CAPTION>
AVERAGE AMOUNTS OUTSTANDING
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Non-interest-bearing demand deposits.................... $ 4,520,405 $ 3,812,177 $ 3,565,848
Interest-bearing transaction accounts................... 458,094 890,911 916,689
Savings accounts........................................ 1,477,688 1,546,737 1,506,753
Money market savings accounts........................... 9,095,569 7,590,604 5,922,642
Certificates of deposit of $100,000 or more............. 4,218,828 3,524,889 3,453,465
Other interest-bearing deposits......................... 9,215,075 9,528,586 8,812,105
----------- ----------- -----------
Total interest-bearing deposits............... 24,465,254 23,081,727 20,611,654
----------- ----------- -----------
Total deposits................................ $28,985,659 $26,893,904 $24,177,502
=========== =========== ===========
</TABLE>
The following table presents the average rates paid on deposits by category
for the three years ended December 31, 1999:
<TABLE>
<CAPTION>
AVERAGE RATES PAID
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest-bearing transaction accounts....................... 4.22% 3.47% 2.93%
Savings accounts............................................ 1.61 2.17 2.43
Money market savings accounts............................... 3.27 3.48 3.40
Certificates of deposit of $100,000 or more................. 5.36 5.70 5.71
Other interest-bearing deposits............................. 5.32 5.62 5.59
Total interest-bearing deposits................... 4.32% 4.61% 4.63%
</TABLE>
BORROWED FUNDS
Regions' short-term borrowings consist of federal funds purchased and
security repurchase agreements, commercial paper, Federal Home Loan Bank
structured notes and other short-term borrowings.
Federal funds purchased and security repurchase agreements are used to
satisfy daily funding needs and, when advantageous, for rate arbitrage. Federal
funds purchased and security repurchase agreements totaled $5.6 billion and $2.1
billion at December 31, 1999 and 1998, respectively. Balances in these accounts
can fluctuate significantly on a day-to-day basis. The average daily balance of
federal funds purchased and security repurchase agreements, net of federal funds
sold and security reverse repurchase agreements, decreased $276 million in 1998
but increased $2.2 billion in 1999. The 1999 increase resulted from increased
reliance on purchased funds to support earning asset growth. The 1998 decrease
resulted from increased utilization of alternative short-term funding due to
favorable rates.
Throughout 1998 and 1999, Regions utilized Federal Home Loan Bank
structured notes as a short-term funding source, primarily due to their
favorable interest rate. These structured notes have a stated ten year maturity
but are callable, at the option of the Federal Home Loan Bank, at various times
less than one year. Because of the call feature, the structured notes are
considered short term. As of December 31, 1999, $950 million of structured notes
were outstanding compared to $2.4 billion as of December 31, 1998.
In addition to the structured notes, Regions also utilizes traditional
Federal Home Loan Bank advances as a short-term funding source. As of December
31, 1999, $600.0 million of Federal Home Loan Bank advances were outstanding as
compared to $5.0 million in 1998. The average rate on these borrowings in 1999,
was 6.1%.
During 1999, Regions mortgage banking affiliate negotiated a line of credit
with an unaffiliated bank. As of December 31, 1999, $400 million was outstanding
under this agreement with an interest rate of 8.5%.
33
<PAGE> 35
At December 31, 1999 and 1998, $56.8 million in commercial paper was
outstanding, compared to $52.8 million at December 31, 1997. The Company issues
commercial paper through its private placement commercial paper program. Company
policy limits total commercial paper outstanding, at any time, to $75 million.
The level of commercial paper outstanding depends on the funding requirements of
the Company and the cost of commercial paper compared to alternative borrowing
sources.
Other short-term borrowings decreased $14.1 million from December 31, 1998
to December 31, 1999, primarily due to a decline in Treasury tax and loan notes.
The remaining balance in other short-term borrowings consists of a short sale
liability, which is frequently used by Regions' broker/dealer subsidiary to
offset other market risks, which are undertaken in the normal course of
business.
Regions' long-term borrowings consist primarily of subordinated notes,
Federal Home Loan Bank borrowings and other long-term notes payable.
Federal Home Loan Bank borrowings increased $5.7 million in 1999 due to
notes assumed through acquisitions. Membership in the Federal Home Loan Bank
system provides access to an additional source of lower-cost funds. These
borrowings can be used to partially hedge against the effect future interest
rate changes may have on the Company's real estate mortgage portfolio.
In 1999, Regions began to utilize Federal Home Loan Bank structured notes
with call periods in excess of one year. These structured notes have a stated
ten year maturity but are callable, at the option of the Federal Home Loan Bank,
between one and two years.
Other long-term notes payable consist of mortgage notes payable on certain
of the Company's buildings and low-income housing partnership investments,
redeemable trust preferred securities, notes issued to former stockholders of
acquired banks, notes for equipment financing, and miscellaneous notes payable.
Other long-term borrowings increased $19.2 million in 1999 due primarily to the
issuance of $50 million of redeemable trust preferred securities partially
offset by various maturities.
STOCKHOLDERS' EQUITY
Over the past three years, stockholders' equity has increased at a compound
annual growth rate of 10.5%. Stockholders' equity has grown from $2.3 billion at
the beginning of 1997 to $3.1 billion at year-end 1999. Internally generated
retained earnings contributed $782 million of this growth, equity issued in
connection with acquisitions accounted for $76 million, $71 million was
attributable to the exercise of stock options and to the issuance of stock for
dividend reinvestment plans and employee incentive plans, and a $138 million
decline was attributable to decreases in other components of equity. The
internal capital generation rate (net income less dividends as a percentage of
average stockholders' equity) was 9.9% in 1999, compared to 8.0% in 1998 and
9.6% in 1997.
Regions' ratio of stockholders' equity to total assets was 7.18% at
December 31, 1999, compared to 8.15% at December 31, 1998, and 8.53% at December
31, 1997. Regions' capital level is a source of strength and provides
flexibility for future growth.
Regions and its subsidiaries are required to comply with capital adequacy
standards established by banking regulatory agencies. Currently, there are two
basic measures of capital adequacy: a risk-based measure and a leverage measure.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance sheet exposure and interest rate
risk, and to minimize disincentives for holding liquid assets. Assets and
off-balance sheet items are assigned to broad risk categories, each with
specified risk-weighting factors. The resulting capital ratios represent capital
as a percentage of total risk-weighted assets and off-balance sheet items.
Banking organizations that are considered to have excessive interest rate risk
exposure are required to hold additional capital.
34
<PAGE> 36
The minimum standard for the ratio of total capital to risk-weighted assets
is 8%. At least 50% of that capital level must consist of common equity,
undivided profits and non-cumulative perpetual preferred stock, less goodwill
and certain other intangibles ("Tier 1 capital"). The remainder ("Tier 2
capital") may consist of a limited amount of other preferred stock, mandatory
convertible securities, subordinated debt and a limited amount of the allowance
for loan losses. The sum of Tier 1 capital and Tier 2 capital is "total
risk-based capital."
The banking regulatory agencies also have adopted regulations which
supplement the risk-based guidelines to include a minimum ratio of 3% of Tier 1
capital to average assets less goodwill (the "leverage ratio"). Depending upon
the risk profile of the institution and other factors, the regulatory agencies
may require a leverage ratio of 1% to 2% above the minimum 3% level.
The following chart summarizes the applicable bank regulatory capital
requirements. Regions' capital ratios at December 31, 1999, substantially
exceeded all regulatory requirements.
BANK REGULATORY CAPITAL REQUIREMENTS
<TABLE>
<CAPTION>
MINIMUM
REGULATORY REGIONS AT
REQUIREMENT DECEMBER 31, 1999
----------- -----------------
<S> <C> <C>
Tier 1 capital to risk-adjusted assets...................... 4.00% 9.51%
Total risk-based capital to risk-adjusted assets............ 8.00 11.42
Tier 1 leverage ratio....................................... 3.00 6.95
</TABLE>
At December 31, 1999, Tier 1 capital totaled $2.8 billion, total risk-based
capital totaled $3.4 billion, and risk-adjusted assets totaled $29.3 billion.
Total capital at the banking affiliates also has an important effect on the
amount of FDIC insurance premiums paid. Institutions not considered well
capitalized can be subject to higher rates for FDIC insurance. As of December
31, 1999, all of Regions' banking affiliates had the requisite capital levels to
qualify as well capitalized.
Regions attempts to balance the return to stockholders through the payment
of dividends, with the need to maintain strong capital levels for future growth
opportunities. In 1999, Regions returned 42% of earnings to its stockholders in
the form of dividends. Total dividends declared by Regions in 1999 were $221.9
million or $1.00 per share, an increase of 9% from the $0.92 per share in 1998.
In 1997, Regions effected a two-for-one stock split.
In January 2000, the Board of Directors declared a 8% increase in the
quarterly cash dividend from $.25 to $.27 per share. This is the twenty-ninth
consecutive year that Regions has increased cash dividends.
35
<PAGE> 37
The following table shows the percentage distribution of Regions'
consolidated average balances of assets, liabilities and stockholders' equity
for the five years ended December 31, 1999:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Taxable securities................................... 20.8% 19.0% 18.4% 20.3% 20.1%
Non-taxable securities............................... 1.9 2.1 2.6 2.6 2.7
Federal funds sold................................... 0.2 0.9 1.0 0.8 1.0
Loans (net of unearned income):
Commercial........................................ 19.3 20.7 15.4 14.2 13.8
Real estate....................................... 33.2 30.8 36.5 36.6 37.7
Installment....................................... 14.4 17.1 17.7 17.4 16.1
----- ----- ----- ----- -----
Total loans.................................. 66.9 68.6 69.6 68.2 67.6
Allowance for loan losses......................... (0.8) (0.9) (1.0) (1.0) (1.0)
----- ----- ----- ----- -----
Net loans.................................... 66.1 67.7 68.6 67.2 66.6
Other earning assets.............................. 3.0 2.3 1.1 1.1 0.8
----- ----- ----- ----- -----
Total earning assets......................... 92.0 92.0 91.7 92.0 91.2
Cash and due from banks................................ 3.1 3.0 3.4 3.2 4.0
Other non-earning assets............................... 4.9 5.0 4.9 4.8 4.8
----- ----- ----- ----- -----
Total assets................................. 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing................................. 11.4% 11.2% 12.1% 11.7% 12.0%
Interest-bearing..................................... 61.8 67.8 69.8 71.0 70.3
----- ----- ----- ----- -----
Total deposits............................... 73.2 79.0 81.9 82.7 82.3
Borrowed funds:
Short-term........................................... 16.4 9.9 6.5 5.5 4.7
Long-term............................................ 1.7 1.3 1.7 2.3 3.5
----- ----- ----- ----- -----
Total borrowed funds......................... 18.1 11.2 8.2 7.8 8.2
Other liabilities...................................... 1.0 1.3 1.2 1.0 1.1
----- ----- ----- ----- -----
Total liabilities............................ 92.3 91.5 91.3 91.5 91.6
Stockholders' equity................................... 7.7 8.5 8.7 8.5 8.4
----- ----- ----- ----- -----
Total liabilities and stockholders' equity... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
36
<PAGE> 38
OPERATING RESULTS
Net income increased 25% in 1999 and 6% in 1998. Excluding the merger and
consolidation expenses incurred in 1998 (see Note U to the consolidated
financial statements) income increased 26% in 1998 and 5% in 1999. The
accompanying table presents the dollar amount and percentage change in the
important components of income that occurred in 1998 and 1999.
SUMMARY OF CHANGES IN OPERATING RESULTS
<TABLE>
<CAPTION>
INCREASE (DECREASE)
--------------------------------
1998 COMPARED 1999 COMPARED
TO 1997 TO 1998
-------------- ---------------
AMOUNT % AMOUNT %
-------- --- --------- ---
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net interest income........................................ $145,610 12% $ 101,037 8%
Provision for loan losses................................ (29,158) (33) 53,153 88
-------- ---------
Net interest income after provision for loan losses........ 174,768 16 47,884 4
Non-interest income:
Trust department income.................................. 10,991 25 (1,784) (3)
Service charges on deposit accounts...................... 19,726 13 23,640 14
Mortgage servicing and origination fees.................. 18,228 20 (8,437) (8)
Securities transactions.................................. 6,504 NM (6,842) NM
Other.................................................... 12,266 10 55,867 43
-------- ---------
Total non-interest income........................ 67,715 17 62,444 13
Non-interest expense:
Salaries and employee benefits........................... 47,567 10 23,160 4
Net occupancy expense.................................... 954 2 (1,252) (2)
Furniture and equipment expense.......................... 12,291 22 3,418 5
FDIC insurance expense................................... 684 13 740 13
Merger and consolidation expenses........................ 121,438 NM (121,438) NM
Other.................................................... 18,998 6 55,976 18
-------- ---------
Total non-interest expense....................... 201,932 22 (39,396) (4)
-------- ---------
Income before income taxes....................... 40,551 7 149,724 24
Applicable income taxes.................................. 16,368 8 46,050 22
-------- ---------
Net income....................................... $ 24,183 6% $ 103,674 25%
======== =========
Income excluding merger and consolidation
expenses....................................... $104,895 26% $ 22,962 5%
</TABLE>
NET INTEREST INCOME
Net interest income (interest income less interest expense) is Regions'
principal source of income. Net interest income increased 8% in 1999 and 12% in
1998. On a taxable equivalent basis, net interest income also increased 8% in
1999 and 12% in 1998. The table on page 41 provides additional information to
analyze the changes in net interest income.
In 1999 and 1998, growth in interest-earning assets and interest-bearing
liabilities contributed to the increase in net interest income. During 1999,
average interest-earning assets grew 16% and average interest-bearing
liabilities grew 18%. Growth in earning assets typically increases net interest
income due to the positive spread between earning asset yields and
interest-bearing liability rates. However, unfavorable changes in
interest-bearing liability rates partially offset the increase in net interest
income attributable to growth.
Regions measures its ability to produce net interest income with a ratio
called the interest margin. The interest margin is net interest income (on a
taxable equivalent basis) as a percentage of average earning assets. The
interest margin decreased from 4.41% in 1997 to 4.25% in 1998 and 3.94% in 1999.
Changes in the interest margin occur primarily due to two factors: (1) the
interest rate spread (the difference between the
37
<PAGE> 39
taxable equivalent yield on earning assets and the rate on interest-bearing
liabilities) and (2) the percentage of earning assets funded by interest-bearing
liabilities.
The first factor affecting Regions' interest margin is the interest rate
spread. Regions' average interest rate spread was 3.66% in 1997, 3.54% in 1998
and 3.31% in 1999. Market interest rates, both the level of rates and the slope
of the yield curve (the spread between short-term rates and longer-term rates),
affect the interest rate spread by influencing the pricing on most categories of
Regions' interest-earning assets and interest-bearing liabilities.
In March 1997 the Fed raised the Federal Funds rate to 5.50% where it
remained for the rest of 1997. In 1998, the Fed reduced the Federal Funds rate
to 4.75% in a series of rate reductions in the second half of the year. There
were three 25 basis point rate increases by the Fed in the last half of 1999
resulting in a 5.50% Federal funds rate at the end of 1999.
Regions' interest-earning asset yields and interest-bearing liability rates
were both lower in 1999 compared to 1998 reflecting the repricing of assets and
liabilities not yet adjusted for the declining market interest rates experienced
in 1998. As market interest rates rose in the latter part of 1999, Regions'
interest-bearing liabilities rates increased faster than did interest-earning
assets yields. The interest rate spread contracted in 1999 because
interest-earning asset yields decreased 23 basis points more than did interest-
bearing liability rates.
The mix of earning assets can also affect the interest rate spread. During
1999, loans, which are typically Regions' highest yielding earning asset,
decreased as a percentage of earning assets adding to the effects of changing
earning asset yields and interest-bearing liability rates. Average loans as a
percentage of earning assets were 74% in 1998 and 72% in 1999.
The second factor affecting the interest margin is the percentage of
earning assets funded by interest-bearing liabilities. Funding for Regions'
earning assets comes from interest-bearing liabilities, non-interest-bearing
liabilities and stockholders' equity. The net spread on earning assets funded by
non-interest-bearing liabilities and stockholders' equity is higher than the net
spread on earning assets funded by interest-bearing liabilities. The percentage
of earning assets funded by interest-bearing liabilities was 84% in 1997, 85% in
1998 and 86% in 1999. The changes in the percentage of earning assets funded by
interest-bearing liabilities had a negative effect on net interest income in
1998 and 1999. The trend has been for a greater percentage of new funding for
earning assets to come from interest-bearing sources. Management expects this
trend to continue.
MARKET RISK -- INTEREST RATE SENSITIVITY
Market risk is the risk of loss arising from adverse changes in the fair
value of financial instruments due to a change in interest rates, exchange rates
and equity prices. Regions' primary risk is interest rate risk.
The primary objective of Asset/Liability Management at Regions is to manage
interest rate risk and achieve reasonable stability in net interest income
throughout interest rate cycles. This is achieved by maintaining the proper
balance of rate sensitive earning assets, rate sensitive liabilities and
off-balance sheet interest rate hedges. The relationship of rate sensitive
earning assets to rate sensitive liabilities, adjusted for the effect of
off-balance sheet hedges (interest rate sensitivity), is the principal factor in
projecting the effect that fluctuating interest rates will have on future net
interest income. Rate sensitive earning assets and interest-bearing liabilities
are those that can be repriced to current market rates within a relatively short
time period. Management monitors the rate sensitivity of earning assets and
interest-bearing liabilities over the entire life of these instruments, but
places particular emphasis on the first year. At December 31, 1999,
approximately 43% of earning assets and 76% of the funding for these earning
assets were scheduled to be repriced to current market rates at least once
during 2000.
The accompanying table shows Regions' rate sensitive position at December
31, 1999, as measured by gap analysis (the difference between the earning asset
and interest-bearing liability amounts scheduled to be repriced to current
market rates in subsequent periods). Over the next 12 months approximately $13.1
billion more interest-bearing liabilities than earning assets can be repriced to
current market rates at least once. As a result, the one-year cumulative gap
(the ratio of rate sensitive assets to rate sensitive liabilities) at
38
<PAGE> 40
December 31, 1999, was 0.56, indicating a "liability sensitive" position.
However, this ratio is only one of the tools that management uses to measure
rate sensitivity.
Historically, Regions has not experienced the level of net interest income
volatility indicated by gap analysis. The primary reason for the lack of
volatility is that Regions has a relatively large base of core deposits that do
not reprice on a contractual basis. These deposit products include regular
savings, interest-bearing transaction accounts and a portion of money market
savings accounts. Balances for these accounts are reported in the one to three
month repricing category. However, the rates paid are typically not directly
related to market interest rates, since management exercises some discretion in
adjusting these rates as market rates change.
Another reason for the lack of volatility in net interest income is that
Regions' loan and security portfolios contain fixed-rate mortgage-related
products, including whole loans, mortgage-backed securities and collateralized
mortgage obligations having amortization and cash flow characteristics that vary
with the level of market interest rates. These earning assets are generally
reported in the non-sensitive category. In fact, a portion of these earning
assets may pay-off within one year or less because their cash flow
characteristics are materially impacted by mortgage refinancing activity. If
deposit accounts that are not sensitive to market interest rate changes were
redistributed based on expected cash flows and probable repricing intervals,
Regions' one-year cumulative gap ratio would be 0.73 -- indicating a slightly
less "liability sensitive" position.
Regions uses additional tools to monitor and manage interest rate
sensitivity. One of the primary tools used is simulation analysis. Simulation
analysis is the primary method of estimating earnings at risk and capital at
risk under varying interest rate conditions. Simulation analysis is used to test
the sensitivity of Regions' net interest income and stockholders' equity to both
the level of interest rates and the slope of the yield curve. Simulation
analysis uses a more detailed version of the information shown in the
accompanying table and adds adjustments for the expected timing and magnitude of
asset and liability cash flows, as well as the expected timing and magnitude of
repricings of deposits that do not reprice on a contractual basis. In addition,
simulation analysis includes adjustments for the lag between movements in market
interest rates and the movement of administered rates on prime rate loans,
interest-bearing transaction accounts, regular savings and money market savings
accounts. These adjustments are made to reflect more accurately possible future
cash flows, repricing behavior and ultimately net interest income. Simulation
analysis indicates that Regions is "liability sensitive."
FORWARD-LOOKING STATEMENTS
The section that follows, "Exposure to Interest Rate Shifts", contains
certain forward-looking statements (as defined in the Private Securities
Litigation Reform Act of 1995). These forward-looking statements may involve
significant risk and uncertainties. Although Regions believes that the
expectations reflected in such forward-looking statements are reasonable, actual
results may differ materially from the results discussed in these
forward-looking statements.
Exposure to Interest Rate Shifts. Based on the aforementioned discussion,
management can estimate the effect shifts in interest rates may have upon the
Company's net interest income, Regions' principal source of income.
The following table demonstrates the expected effect a given interest rate
shift would have on Regions net interest income.
<TABLE>
<CAPTION>
CHANGE IN INTEREST RATES $ CHANGE IN NET % CHANGE IN NET
(IN BASIS POINTS) INTEREST INCOME INTEREST INCOME
- ------------------------ --------------- ---------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
+200...................................................... $(150,528) (10.6)%
+100...................................................... (75,818) (5.3)
-100...................................................... 63,994 4.5
-200...................................................... 111,273 7.8
</TABLE>
39
<PAGE> 41
In the event of a shift in interest rates, management would attempt to take
certain actions to mitigate the negative impact to net interest income. These
actions include but are not limited to, restructuring of interest-earning
assets, seeking alternative funding sources and entering into interest rate swap
agreements.
INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
RATE SENSITIVE PERIOD
------------------------------------------------------------------------------
1-3 4-6 7-12 OVER 1 YEAR OR
MONTHS MONTHS MONTHS TOTAL NON-SENSITIVE TOTAL
---------- ---------- ---------- ---------- -------------- ---------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans, net of
unearned
income.......... $ 9,171.6 $ 1,456.7 $ 2,448.8 $ 13,077.1 $15,067.6 $28,144.7
Investment
securities...... 999.0 247.4 39.9 1,286.3 2,768.0 4,054.3
Securities
available for
sale............ 1,690.1 418.6 67.4 2,176.1 4,682.7 6,858.8
Interest bearing
deposits in
other banks..... 9.7 -- -- 9.7 -- 9.7
Federal funds sold
and securities
purchased under
agreements to
resell.......... 66.1 -- -- 66.1 -- 66.1
Mortgage loans held
for sale........ 184.8 29.4 49.3 263.5 303.6 567.1
Trading account
assets.......... 14.5 -- -- 14.5 -- 14.5
---------- ---------- ---------- ---------- --------- ---------
Total
earning
assets... $ 12,135.8 $ 2,152.1 $ 2,605.4 $ 16,893.3 $22,821.9 $39,715.2
========== ========== ========== ========== ========= =========
Percent of
total
earning
assets... 30.6% 5.4% 6.6% 42.5% 57.5% 100.0%
Funding Sources:
Non-interest-bearing
deposits........ -- -- -- -- $ 4,419.7 $ 4,419.7
Savings deposits... $ 1,384.3 -- -- $ 1,384.3 -- 1,384.3
Other time
deposits........ 13,522.5 $ 2,935.1 $ 4,092.8 20,550.4 3,634.7 24,185.1
Short-term
borrowings...... 7,567.3 -- 57.7 7,625.0 -- 7,625.0
Long-term
borrowings...... 10.1 85.3 386.8 482.2 1,268.7 1,750.9
---------- ---------- ---------- ---------- --------- ---------
Total
interest-
bearing
liabilities... 22,484.2 3,020.4 4,537.3 30,041.9 4,903.4 34,945.3
Stockholders'
equity.......... -- -- -- -- 350.2 350.2
---------- ---------- ---------- ---------- --------- ---------
Total
funding
sources... $ 22,484.2 $ 3,020.4 $ 4,537.3 $ 30,041.9 $ 9,673.3 $39,715.2
========== ========== ========== ========== ========= =========
Percent of
total
funding
sources... 56.6% 7.6% 11.4% 75.6% 24.4% 100.0%
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
DECEMBER 31, 1999
RATE SENSITIVE PERIOD
------------------------------------------------------------------------------
1-3 4-6 7-12 OVER 1 YEAR OR
MONTHS MONTHS MONTHS TOTAL NON-SENSITIVE TOTAL
---------- ---------- ---------- ---------- -------------- ---------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Interest sensitive
gap................ $(10,348.4) $ (868.3) $ (1,931.9) $(13,148.6) $13,148.6 --
Cumulative interest
sensitive gap...... $(10,348.4) $(11,216.7) $(13,148.6) $(13,148.6) -- --
As percent of total
earning assets..... (26.1)% (28.2)% (33.1)% (33.1)% -- --
Ratio of earning
assets to funding
sources............ 0.54 0.71 0.57 0.56 2.36 1.00
Cumulative ratio..... 0.54 0.56 0.63 0.56 1.00 1.00
</TABLE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 OVER 1997 1999 OVER 1998
-------------------------------- --------------------------------
VOLUME YIELD/RATE TOTAL VOLUME YIELD/RATE TOTAL
-------- ---------- -------- -------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Interest income on:
Loans........................ $252,167 $(17,355) $234,812 $263,099 $(133,517) $129,582
Federal funds sold........... 2,334 (1,606) 728 (10,685) (2,669) (13,354)
Taxable securities........... 66,399 (4,869) 61,530 112,830 (5,016) 107,814
Non-taxable securities....... (2,257) (598) (2,855) 896 (1,393) (497)
Other earning assets......... 29,550 (2,563) 26,987 29,547 3,808 33,355
-------- -------- -------- -------- --------- --------
Total................... 348,193 (26,991) 321,202 395,687 (138,787) 256,900
Interest expense on:
Savings deposits............. 952 (4,109) (3,157) (1,439) (8,336) (9,775)
Other interest-bearing
deposits................... 116,412 (2,983) 113,429 67,334 (65,814) 1,520
Borrowed funds............... 77,299 (11,979) 65,320 173,422 (9,304) 164,118
-------- -------- -------- -------- --------- --------
Total................... 194,663 (19,071) 175,592 239,317 (83,454) 155,863
Increase (decrease) in net
interest income................. $153,530 $ (7,920) $145,610 $156,370 $ (55,333) $101,037
======== ======== ======== ======== ========= ========
</TABLE>
- ---------------
Note: The change in interest due to both rate and volume has been allocated to
change due to volume and change due to rate in proportion to the absolute
dollar amounts of the change in each.
PROVISION FOR LOAN LOSSES
This expense is used to fund the allowance for loan losses. Actual loan
losses, net of recoveries, are charged directly to the allowance. The expense
recorded each year is a reflection of actual losses experienced during the year
and management's judgment as to the adequacy of the allowance. For an analysis
and discussion of the allowance for loan losses, refer to the section entitled
"Loans and Allowance for Loan Losses." In 1997, the provision for loan losses
was increased to $89.7 million due to internal growth in the loan portfolio,
growth in loans from acquisitions, higher levels of consumer loan losses and
provisions for loan losses made by a pooled company for several specific problem
commercial loans. Acquisitions added $17.4 million to the allowance for loan
losses in 1997. In 1998, the provision for loan losses totaled $60.5 million and
acquisition activity added $17.1 million to the allowance for loan losses. The
provision for loan losses declined $29.2 million in 1998, even with higher net
charge-offs, because a significant portion of the 1998 charge-offs had been
identified and provided for in the prior years. The 1999 provision for loan
losses increased to $113.7 million due to higher charge-offs, primarily consumer
and commercial, and strong internal loan growth. The resulting year end
allowance for loan losses increased $23.0 million to $338.4 million. Unfavorable
changes in
41
<PAGE> 43
the previously discussed factors considered by management in determining the
amount of the provision for loan losses and the resulting allowance could
require significantly higher provisions for loan losses in the future.
TRUST INCOME
Trust income increased 6% in 1997 and 25% in 1998 but declined 3% in 1999.
Regions has in place an aggressive sales program as a means of increasing trust
revenue. Trust sales efforts are promoted throughout the company by strong sales
goals and cash incentives. In addition to increased sales efforts, trust income
is also affected by the securities markets, because most trust fees are
calculated as a percentage of trust asset values. The strength of the securities
markets during recent years has had a favorable impact on trust income. However
in 1999, these sales initiatives were offset by a decrease in trust fees due to
customer attrition in certain newly entered markets.
SERVICE CHARGES ON DEPOSIT ACCOUNTS
Service charge income increased 21% in 1997, 13% in 1998 and 14% in 1999,
due to increases in the number of deposit accounts, primarily because of
acquisitions, and changes in the pricing of certain deposit accounts and related
services.
MORTGAGE SERVICING AND ORIGINATION FEES
The primary source of this income is Regions' mortgage banking
affiliate -- Regions Mortgage, Inc. (RMI). RMI's primary business and source of
income is the origination and servicing of mortgage loans for long-term
investors.
In 1999, mortgage servicing and origination fees decreased 8%, from $111.6
million in 1998 to $103.1 million in 1999. Origination fees were lower due to a
decrease in the number of loans closed as the result of an increase in interest
rates. Servicing fees were also lower in 1999 as compared to 1998 due to
narrower servicing margin on 1999 loan production. At December 31, 1999,
Regions' servicing portfolio totaled $24.1 billion and included approximately
335,000 loans. At December 31, 1998, the servicing portfolio totaled $22.3
billion, compared to $20.4 billion at December 31, 1997. Growth in the servicing
portfolio resulted from retention of servicing on most mortgages originated
in-house and the purchase of servicing rights to mortgages originated by other
companies.
In 1998, mortgage servicing and origination fees increased 20%, from $93.3
million in 1997 to $111.6 million in 1998. Origination fees were significantly
higher due to an increase in the number of loans closed and the dollar amount of
loans closed. Servicing fees were also higher in 1998 than in 1997.
In 1997, mortgage servicing and origination fees increased 1%, from $92.8
million in 1996 to $93.3 million in 1997. Origination fees were higher due to an
increase in the number of loans closed and the dollar amount of loans closed.
Servicing fees increased slightly in 1997.
RMI, through its retail and correspondent lending operations, produced
mortgage loans totaling $5.6 billion, $5.0 billion, and $2.9 billion in 1999,
1998 and 1997, respectively. RMI produces loans from 85 offices in Alabama,
Arkansas, Florida, Georgia, Louisiana, South Carolina, and Tennessee, and from
other correspondent offices located throughout the United States.
An analysis of mortgage servicing rights, which are included in other
assets in the consolidated statement of condition, is presented as follows. The
balances shown represent the original amounts capitalized, less accumulated
amortization and valuation adjustments, for the right to service mortgage loans
that are owned by other investors. The carrying values of mortgage servicing
rights are affected by various factors, including prepayments of the underlying
mortgages. A significant increase in prepayments of mortgages in the servicing
portfolio in the future could result in significant increases in the valuation
adjustments.
42
<PAGE> 44
<TABLE>
<CAPTION>
MORTGAGE SERVICING RIGHTS
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................ $141,926 $124,087 $118,075
Net additions............................................. 37,545 49,671 31,935
Amortization.............................................. (35,195) (31,832) (25,923)
-------- -------- --------
Balance at end of year...................................... $144,276 $141,926 $124,087
======== ======== ========
</TABLE>
SECURITIES GAINS (LOSSES)
In 1997, net gains of $498,000 were reported from sale of available for
sale securities. These gains resulted primarily from the sale of U.S. agency
securities.
The $7.0 million in net gains recognized in 1998 from the sale of available
for sale securities were the result, primarily, of the sale of odd-lot high
coupon mortgage backed securities and odd-lot municipal securities obtained
through various acquisitions. These securities had characteristics which were
not consistent with Regions overall securities portfolio management strategy.
In 1999, net gains of $160,000 were reported from sale of available for
sale securities. These gains were primarily related to the sale of government
and agency securities.
OTHER INCOME
Refer to Note O to the consolidated financial statements for an analysis of
the significant components of other income. Increases in fee and commission
income during 1997 and 1998 resulted primarily from revisions in charges for
certain services, an increased emphasis on charging customers for services
performed and an increased customer base due to internal growth and
acquisitions. During 1999, fee and commission income was lower than prior year
due to lower safe deposit fees and credit card fees. These decreases were
partially offset by higher international department income, brokerage fees and
automated teller machine fees.
Insurance premium and commission income increased in 1999, 1998, and 1997.
This income originates primarily from the sale of credit life and accident and
health insurance to consumer loan customers. Increased consumer loan volumes
resulted in increased income in 1999, 1998 and 1997.
Trading account income increased in 1999, 1998 and 1997 due to expanded
trading activities, increased underwriting fees, and larger profits from trading
in the portfolio.
In 1999, Regions sold a block of mortgage servicing assets that did not fit
into Regions' long-term mortgage servicing operations which resulted in a
pre-tax gain of $7.5 million.
Also during 1999, Regions sold its joint venture banking interest, which
was acquired in connection with an acquisition and was not a strategic fit.
Additionally, in 1997, a pooled company recognized a gain related to the
divestiture of two banks. The divestiture was required by regulatory authorities
in connection with a business combination.
SALARIES AND EMPLOYEE BENEFITS
Total salaries and benefits increased 16% in 1997, 10% in 1998 and 4% in
1999. These increases resulted from normal merit and promotional adjustments,
increased incentive payments tied to performance, the effects of inflation,
higher benefit costs and increases in the number of employees due to increased
business activity and acquisitions.
At December 31, 1999, Regions had 14,606 full-time equivalent employees,
compared to 14,632 at December 31, 1998 and 13,294 at December 31, 1997.
Employees added as a result of acquisitions accounted for most of the increase.
43
<PAGE> 45
Salaries, excluding benefits, totaled $335.1 million in 1997, compared to
$382.4 million in 1998 and $410.1 million in 1999. These increases resulted from
increased employment levels, due to acquisitions and increased business
activity, and normal merit and promotional adjustments.
Regions provides employees who meet established employment requirements
with a benefits package which includes pension, profit sharing, stock purchase,
and medical, life and disability insurance plans. The total cost to Regions for
fringe benefits, including payroll taxes, equals approximately 22% of salaries.
The contribution to the profit sharing plan was equal to approximately 7%
of after-tax income in 1997, 6% in 1998 and 5% in 1999.
The contribution to the employee stock ownership plan (ESOP) equaled
approximately 1% of after-tax income in each of the last three years.
Commissions and incentives expense increased to $53.2 million in 1999,
compared to $47.0 million in 1998 and $54.4 million in 1997. Incentives are
being used increasingly to reward employees for selling products and services,
for productivity improvements and for achievement of other corporate goals.
Regions' long-term incentive plan provides for the granting of stock options,
stock appreciation rights, restricted stock and performance shares (see Note R
to the consolidated financial statements). The long-term incentive plan is
intended to assist the Company in attracting, retaining, motivating and
rewarding employees who make a significant contribution to the Company's
long-term success, and to encourage employees to acquire and maintain an equity
interest in the Company. The decline in Regions stock price in 1999 offset other
increases in commissions and incentives expense in 1999 because expense
recognition for a portion of Regions' equity incentive awards is related to
Regions stock price performance. Regions also uses cash incentive plans to
reward employees for achievement of various goals.
Payroll taxes increased 17% in 1997, 18% in 1998 and 5% in 1999. Increases
in the Social Security tax base, combined with increased salary levels and
additional employees due to growth and acquisitions, were the primary reasons
for increased payroll taxes.
Group insurance expense increased 17% in 1998, due to increased employment
levels associated with increased business activity and acquisitions and higher
claims cost. In 1997 and 1999, as a result of reduced claims costs, group
insurance expense decreased 1% and 13% respectively.
NET OCCUPANCY EXPENSE
Net occupancy expense includes rents, depreciation and amortization,
utilities, maintenance, insurance, taxes and other expenses of premises occupied
by Regions and its affiliates. Regions' affiliates operate offices throughout
Alabama, Arkansas and parts of Texas, Louisiana, Florida, Georgia, Tennessee and
South Carolina.
Net occupancy expense increased 12% in 1997 and 2% in 1998 due to new and
acquired branch offices, rising price levels, and increased business activity.
In 1999, occupancy expense declined as costs savings were realized from certain
1998 acquisitions.
FURNITURE AND EQUIPMENT EXPENSE
Furniture and equipment expense increased 13% in 1997, 22% in 1998, and 5%
in 1999. These increases resulted from acquisitions, rising price levels,
expenses related to equipment for new branch offices, and increased depreciation
and service contract expenses associated with other new back office and branch
equipment. The 1999 increase is net of cost savings realized in connection with
acquisitions.
FDIC INSURANCE EXPENSE
FDIC insurance expense decreased 46% in 1997. In 1997, deposit insurance
premium rates for Bank Insurance Fund (BIF) and Savings Association Insurance
Fund (SAIF) deposits were reduced; however, these reductions were partially
offset by the Financing Corporation (FICO) assessments, which are approximately
$.065 per $100 of SAIF-assessable deposits and $.013 per $100 of BIF-assessable
deposits.
44
<PAGE> 46
FDIC insurance expense increased 13% in 1998 and 1999, respectively, as a result
of increased deposits from acquisitions and growth.
MERGER AND CONSOLIDATION EXPENSES
In 1998, Regions incurred a pre-tax, non-recurring merger and consolidation
charge of $121.4 million related primarily to the merger of First Commercial and
four other institutions with Regions. The charge, recognized in the third
($114.7 million) and fourth ($6.7 million) quarters, consisted primarily of
employee-related obligations ($33.6 million), elimination of duplicate
facilities, obsolete equipment and other assets ($47.6 million), contract
terminations ($6.0 million), cost to exit certain lines of business ($5.1
million), and professional fees and contractual payments associated with the
mergers ($29.1 million). During 1998, merger-and consolidation-related costs
incurred or charged against the accrual totaled $117.0 million, resulting in a
balance in the merger and consolidation accrual of $4.4 million at December 31,
1998, which was primarily associated with certain employee related obligations.
These employee-related obligations were paid out in early 1999, resulting in the
merger and consolidation accrual being reduced to zero.
OTHER EXPENSES
Refer to Note O to the consolidated financial statements for an analysis of
the significant components of other expense. Increases in this category of
expense generally resulted from acquisitions, expanded programs, increased
business activity and rising price levels.
Other non-credit losses increased in 1997 as well as in 1998 but declined
in 1999. Other non-credit losses primarily include charges for items unrelated
to the extension of credit such as fraud losses, litigation losses, write-downs
of other real estate and insurance claims.
Amortization of mortgage servicing rights increased in 1999 and 1998, but
declined in 1997. The retention of servicing rights on much of Regions mortgage
subsidiary's production resulted in additional amortization expense in 1999 and
1998. Mortgage servicing rights amortization expense declined in 1997 due to
slower prepayment activity on the underlying mortgages than in other years.
Gains or losses on sales of mortgages result from changes in the fair
market value of mortgages held in inventory while awaiting sale to long-term
investors. Purchased commitments covering the sale of mortgages held in
inventory are used to mitigate market losses. (See Note M to the consolidated
financial statements for additional information.)
The increase in other miscellaneous expenses in 1999 resulted primarily
from increases in travel, sales and use taxes, equity asset line fees paid to
third parties and higher losses on disposals of fixed assets.
IMPACT OF YEAR 2000
In prior years Regions discussed the nature and progress of its plans to
become Year 2000 ready. In 1999, Regions completed its remediation and testing
of systems. As a result of those planning and remediation efforts, Regions
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. Regions expensed $7.2
million during 1999 in connection with remediating its systems. Regions is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products or services of third parties.
Regions will continue to monitor its mission critical computer applications and
those of its suppliers and vendors throughout the year 2000 to ensure that any
latent Year 2000 matters that arise are addressed promptly.
APPLICABLE INCOME TAX
Regions' provision for income taxes increased 22% in 1999. This increase
was caused primarily by a 24% increase in income before taxes. The Company's
effective income tax rates for 1999, 1998, and 1997 were 33.1%, 33.6%, and
33.2%, respectively. Note P to the consolidated financial statements provides
additional information about the provision for income taxes.
45
<PAGE> 47
Examinations of Regions' consolidated federal income tax returns have been
completed for years through 1996. The Company believes adequate provisions for
income tax have been recorded for all years open for review.
Management's determination of the realization of the deferred tax asset is
based upon management's judgment of various future events and uncertainties,
including the timing and amount of future income earned by certain subsidiaries
and the implementation of various tax planning strategies to maximize
realization of the deferred tax asset. Management believes that the subsidiaries
may be able to generate sufficient operating earnings to realize the deferred
tax benefits. However, a portion of the amount of the deferred tax asset that
can be realized in any year is subject to certain statutory federal income tax
limitations. Because of these uncertainties, a valuation allowance has been
established. Management periodically evaluates the realizability of the deferred
tax asset and, if necessary, adjusts the valuation allowance accordingly.
EFFECTS OF INFLATION
The majority of assets and liabilities of a financial institution are
monetary in nature; therefore, a financial institution differs greatly from most
commercial and industrial companies, which have significant investments in fixed
assets or inventories. However, inflation does have an important impact on the
growth of total assets in the banking industry and the resulting need to
increase equity capital at higher than normal rates in order to maintain an
appropriate equity to assets ratio. Inflation also affects other expenses which
tend to rise during periods of general inflation.
Management believes the most significant impact of inflation on financial
results is the Company's ability to react to changes in interest rates. As
discussed previously, management is attempting to maintain an essentially
balanced position between rate sensitive assets and liabilities in order to
protect net interest income from being affected by wide interest rate
fluctuations.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to page 38 through 39 "Market Risk -- Interest Rate
Sensitivity" and to pages 39 through 40 "Forward Looking Statements" included in
Management's Discussion and Analysis under Item 7 of this Annual Report on Form
10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and report of independent auditors of
Regions Financial Corporation and subsidiaries are set forth in the pages listed
below.
<TABLE>
<S> <C>
Report of Independent Auditors.............................. 47
Consolidated Statements of Condition -- December 31, 1999
and 1998.................................................. 48
Consolidated Statements of Income -- Years ended December
31, 1999, 1998 and 1997................................... 49
Consolidated Statements of Cash Flows -- Years ended
December 31, 1999, 1998 and 1997.......................... 50
Consolidated Statements of Changes in Stockholders'
Equity -- Years ended December 31, 1999, 1998 and 1997.... 51
Notes to Consolidated Financial Statements -- December 31,
1999...................................................... 53
</TABLE>
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
46
<PAGE> 48
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Regions Financial Corporation
We have audited the accompanying consolidated statements of condition of Regions
Financial Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Regions Financial
Corporation and subsidiaries at December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Birmingham, Alabama
February 22, 2000, except for Note Y
as to which the date is March 15, 2000
47
<PAGE> 49
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
------------- -------------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 1,393,418 $ 1,619,006
Interest-bearing deposits in other banks.................... 9,653 143,965
Investment securities (aggregate estimated market value of
$3,934,047 in 1999 and $3,166,446 in 1998)................ 4,054,279 3,125,114
Securities available for sale............................... 6,858,765 4,844,023
Trading account assets...................................... 14,543 49,387
Mortgage loans held for sale................................ 567,131 927,668
Federal funds sold and securities purchased under agreements
to resell................................................. 66,078 233,941
Loans....................................................... 28,221,240 24,430,113
Unearned income............................................. (76,565) (64,526)
----------- -----------
Loans, net of unearned income...................... 28,144,675 24,365,587
Allowance for loan losses................................... (338,375) (315,412)
----------- -----------
Net loans.......................................... 27,806,300 24,050,175
Premises and equipment...................................... 580,707 534,425
Interest receivable......................................... 306,707 292,036
Due from customers on acceptances........................... 72,098 57,046
Other assets................................................ 984,716 955,154
----------- -----------
$42,714,395 $36,831,940
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing...................................... $ 4,419,693 $ 4,577,125
Interest-bearing.......................................... 25,569,401 23,772,941
----------- -----------
Total deposits..................................... 29,989,094 28,350,066
Borrowed funds:
Short-term borrowings:
Federal funds purchased and securities sold under
agreements to repurchase............................... 5,614,613 2,067,278
Commercial paper........................................ 56,750 56,750
Other short-term borrowings............................. 1,953,622 2,372,700
----------- -----------
Total short-term borrowings........................ 7,624,985 4,496,728
Long-term borrowings...................................... 1,750,861 571,040
----------- -----------
Total borrowed funds............................... 9,375,846 5,067,768
Bank acceptances outstanding................................ 72,098 57,046
Other liabilities........................................... 212,245 356,659
----------- -----------
Total liabilities.................................. 39,649,283 33,831,539
Stockholders' equity:
Preferred stock, par value $1.00 a share:
Authorized 5,000,000 shares............................. -0- -0-
Common stock, par value $.625 a share:
Authorized 500,000,000 shares, issued 220,635,661 shares
in 1999 and 221,305,715 shares in 1998................. 137,897 138,316
Surplus................................................... 1,022,825 1,147,357
Undivided profits......................................... 2,044,209 1,729,334
Treasury stock, at cost -- 0 shares in 1999 and 851,588
shares in 1998.......................................... -0- (32,603)
Unearned restricted stock................................. (4,719) (6,955)
Accumulated other comprehensive (loss) income............. (135,100) 24,952
----------- -----------
Total stockholders' equity......................... 3,065,112 3,000,401
----------- -----------
$42,714,395 $36,831,940
=========== ===========
</TABLE>
- ---------------
( ) Indicates deduction.
See notes to consolidated financial statements.
48
<PAGE> 50
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............................... $2,201,786 $2,072,204 $1,837,392
Interest on securities:
Taxable interest income............................... 524,935 417,121 355,591
Tax-exempt interest income............................ 39,484 39,981 42,836
---------- ---------- ----------
Total interest on securities..................... 564,419 457,102 398,427
Interest on mortgage loans held for sale................. 81,002 44,954 20,218
Income on federal funds sold and securities purchased
under agreements to resell............................ 4,256 17,610 16,882
Interest on time deposits in other banks................. 1,741 4,804 2,870
Interest on trading account assets....................... 1,482 1,112 795
---------- ---------- ----------
Total interest income............................ 2,854,686 2,597,786 2,276,584
Interest expense:
Interest on deposits..................................... 1,056,799 1,065,054 954,782
Interest on short-term borrowings........................ 329,518 174,906 108,617
Interest on long-term borrowings......................... 42,514 33,008 33,977
---------- ---------- ----------
Total interest expense........................... 1,428,831 1,272,968 1,097,376
---------- ---------- ----------
Net interest income.............................. 1,425,855 1,324,818 1,179,208
Provision for loan losses.................................. 113,658 60,505 89,663
---------- ---------- ----------
Net interest income after provision for loan
losses......................................... 1,312,197 1,264,313 1,089,545
Non-interest income:
Trust department income.................................. 53,434 55,218 44,227
Service charges on deposit accounts...................... 194,984 171,344 151,618
Mortgage servicing and origination fees.................. 103,118 111,555 93,327
Securities gains......................................... 160 7,002 498
Other.................................................... 185,445 129,578 117,312
---------- ---------- ----------
Total non-interest income........................ 537,141 474,697 406,982
Non-interest expense:
Salaries and employee benefits........................... 551,569 528,409 480,842
Net occupancy expense.................................... 61,635 62,887 61,933
Furniture and equipment expense.......................... 72,013 68,595 56,304
FDIC insurance expense................................... 6,546 5,806 5,122
Merger and consolidation expenses........................ -0- 121,438 -0-
Other.................................................... 372,549 316,573 297,575
---------- ---------- ----------
Total non-interest expense....................... 1,064,312 1,103,708 901,776
---------- ---------- ----------
Income before income taxes....................... 785,026 635,302 594,751
Applicable income taxes.................................... 259,640 213,590 197,222
---------- ---------- ----------
Net income....................................... $ 525,386 $ 421,712 $ 397,529
========== ========== ==========
Average number of shares outstanding....................... 221,617 220,114 209,781
Average number of shares outstanding, diluted.............. 223,967 223,781 213,750
Per share:
Net income............................................... $ 2.37 $ 1.92 $ 1.89
Net income, diluted...................................... 2.35 1.88 1.86
Cash dividends declared.................................. 1.00 0.92 0.80
</TABLE>
See notes to consolidated financial statements.
49
<PAGE> 51
CONSOLIDATED STATEMENTS OF CASH FLOWS
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income................................................ $ 525,386 $ 421,712 $ 397,529
Adjustments to reconcile net cash provided by operating
activities:
Gain from divestiture of banking interests.............. (18,399) -0- (25,084)
Depreciation and amortization of premises and
equipment............................................. 60,424 78,514 67,925
Provision for loan losses............................... 113,658 60,505 89,663
Net (accretion) amortization of securities.............. (775) 849 4,944
Amortization of loans and other assets.................. 71,148 58,646 31,582
Accretion (amortization) of deposits and borrowings..... 725 359 (1,642)
Provision for losses on other real estate............... 507 2,865 5,343
Deferred income taxes (benefit)......................... 10,217 5,581 (2,861)
(Gain) loss on sale of premises and equipment........... (1,416) (521) 510
Realized security (gains)............................... (160) (7,002) (498)
Decrease in trading account assets...................... 34,844 1,438 26,991
Decrease (increase) in mortgages held for sale.......... 360,537 (525,990) (196,344)
(Increase) in interest receivable....................... (5,648) (42,350) (26,808)
(Increase) in other assets.............................. (72,157) (209,887) (83,811)
(Decrease) increase in other liabilities................ (86,591) (170,173) 140,791
Stock issued to employees under incentive plan.......... 4,959 14,717 10,122
Other................................................... 2,259 7,679 8,132
----------- ----------- -----------
Net cash provided (used) by operating activities... 999,518 (303,058) 446,484
Investing activities:
Net (increase) in loans................................... (3,302,893) (1,228,740) (2,457,048)
Proceeds from sale of securities available for sale....... 6,711 628,212 71,113
Proceeds from maturity of investment securities........... 454,979 3,649,446 1,555,319
Proceeds from maturity of securities available for sale... 1,924,258 2,440,959 1,528,476
Purchase of investment securities......................... (1,529,850) (3,361,586) (1,974,755)
Purchase of securities available for sale................. (3,828,310) (4,588,572) (1,229,219)
Net decrease (increase) in interest-bearing deposits in
other banks............................................. 158,521 (94,324) 37,452
Proceeds from sale of premises and equipment.............. 25,625 74,048 11,702
Purchase of premises and equipment........................ (111,143) (177,378) (63,053)
Net (increase) decrease in customers' acceptance
liability............................................... (15,052) 100,216 (79,154)
Net cash received in acquisitions......................... 195,485 333,606 191,410
----------- ----------- -----------
Net cash (used) by investing activities............ (6,021,669) (2,224,113) (2,407,757)
Financing activities:
Net increase in deposits.................................. 794,881 1,515,891 1,339,369
Net increase in short-term borrowings..................... 3,111,469 1,786,640 839,325
Proceeds from long-term borrowings........................ 3,154,206 159,044 121,535
Payments on long-term borrowings.......................... (1,983,385) (86,116) (279,582)
Net increase (decrease) in bank acceptance liability...... 15,052 (100,216) 79,154
Cash dividends............................................ (221,928) (191,643) (149,447)
Purchase of treasury stock................................ (255,271) (181,651) (45,224)
Issuance of common stock by pooled company................ -0- -0- 43
Proceeds from exercise of stock options................... 13,676 8,416 5,536
----------- ----------- -----------
Net cash provided by financing activities.......... 4,628,700 2,910,365 1,910,709
----------- ----------- -----------
(Decrease) increase in cash and cash equivalents... (393,451) 383,194 (50,564)
Cash and cash equivalents at beginning of year............ 1,852,947 1,469,753 1,520,317
----------- ----------- -----------
Cash and cash equivalents at end of year.................. $ 1,459,496 $ 1,852,947 $ 1,469,753
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
50
<PAGE> 52
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TREASURY UNEARNED
COMMON UNDIVIDED COMPREHENSIVE STOCK, RESTRICTED
STOCK SURPLUS PROFITS INCOME AT COST STOCK TOTAL
-------- ---------- ---------- -------------------- --------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997... $81,244 $ 901,880 $1,303,895 $ 4,149 $ (12,356) $(4,249) $2,274,563
Comprehensive income:
Net income................. 397,529 397,529
Other comprehensive income,
net of tax:
Unrealized gains on
available for sale
securities, net of
reclassification
adjustment............. 11,580 11,580
---------- --------- ----------
Comprehensive income......... 397,529 11,580 409,109
Equity from immaterial
poolings of interest....... 5,250 81,625 55,524 214 142,613
Cash dividends declared:
Regions-$.80 per share..... (108,980) (108,980)
Pooled companies........... (40,467) (40,467)
Stock dividend of pooled
company.................. 1,899 97,991 (99,976) (86)
Two-for-one stock split...... 42,699 (42,699) 0
Purchase of treasury stock... (45,224) (45,224)
Treasury stock retired and
reissued relating to
acquisitions accounted for
as purchases............... (626) (43,097) 43,722 (1)
Stock issued for
acquisitions............... 414 29,195 29,609
Stock issued to employees
under incentive plan....... 220 16,442 1,605 (8,145) 10,122
Stock options exercised...... 522 5,014 5,536
Issuance of common stock by
pooled company............. 1 39 3 43
Amortization of unearned
restricted stock........... 2,984 2,984
-------- ---------- ---------- --------- --------- ------- ----------
BALANCE AT DECEMBER 31,
1997....................... 131,623 1,089,089 1,466,431 15,943 (13,855) (9,410) 2,679,821
Comprehensive income:
Net income................. 421,712 421,712
Other comprehensive income,
net of tax:
Unrealized gains on
available for sale
securities, net of
reclassification
adjustment............. 9,009 9,009
---------- --------- ----------
Comprehensive income......... 421,712 9,009 430,721
Equity from immaterial
poolings of interests...... 6,050 69,005 32,834 107,889
Cash dividends declared:
Regions-$.92 per share..... (170,059) (170,059)
Pooled companies........... (21,584) (21,584)
Purchase of treasury stock... (181,651) (181,651)
Treasury stock retired and
reissued relating to
acquisitions accounted for
as purchases............... (1,422) (114,987) 160,832 44,423
Retirement of treasury stock
of pooled company.......... (10) (595) 2,071 1,466
</TABLE>
51
<PAGE> 53
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TREASURY UNEARNED
COMMON UNDIVIDED COMPREHENSIVE STOCK, RESTRICTED
STOCK SURPLUS PROFITS INCOME AT COST STOCK TOTAL
-------- ---------- ---------- -------------------- --------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Buyout of minority interest
of pooled company.......... $ (320) $ (320)
Stock issued for
acquisitions............... $ 1,221 76,211 77,432
Stock issued to employees
under incentive plan....... 337 21,055 $ (412) 20,980
Stock options exercised...... 517 7,899 8,416
Amortization of unearned
restricted stock........... 2,867 2,867
-------- ---------- ---------- --------- --------- ------- ----------
BALANCE AT DECEMBER 31,
1998....................... 138,316 1,147,357 $1,729,334 $ 24,952 $ (32,603) (6,955) 3,000,401
Comprehensive income:
Net income................. 525,386 525,386
Other comprehensive income,
net of tax:
Unrealized losses on
available for sale
securities, net of
reclassification
adjustment........... (160,052) (160,052)
---------- --------- ----------
Comprehensive income......... 525,386 (160,052) 365,334
Equity from immaterial
poolings of interests...... 1,085 12,410 11,417 24,912
Cash dividends declared:
Regions-$1.00 per share.... (221,928) (221,928)
Purchase of treasury stock... (255,271) (255,271)
Treasury stock retired
relating to acquisitions
accounted for as
purchases.................. (2,786) (156,685) 159,471 -0-
Stock issued for
acquisitions............... 2,786 128,735 131,521
Retirement of treasury
stock...................... (2,331) (126,072) 128,403 -0-
Stock issued to employees
under incentive plan....... 68 4,163 (24) 4,207
Stock options exercised...... 759 12,917 13,676
Amortization of unearned
restricted stock........... 2,260 2,260
-------- ---------- ---------- --------- --------- ------- ----------
BALANCE AT DECEMBER 31,
1999....................... $137,897 $1,022,825 $2,044,209 $(135,100) $ -0- $(4,719) $3,065,112
======== ========== ========== ========= ========= ======= ==========
DISCLOSURE OF 1999
RECLASSIFICATION AMOUNT:
Unrealized holding losses on
available for sale securities
arising during the period...................................... $(159,948)
Less: Reclassification
adjustment, net of tax, for
net gains realized in net
income......................................................... 104
---------
Net unrealized losses on
available for sale securities,
net of taxes of $(92,415)...................................... $(160,052)
=========
</TABLE>
- ---------------
( ) Indicates deduction.
See notes to consolidated financial statements.
52
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Regions Financial Corporation
(Regions or the Company), conform with accounting principles generally accepted
in the United States and with general financial service industry practices.
Regions provides a full range of banking and bank-related services to individual
and corporate customers through its subsidiaries and branch offices located
primarily in Alabama, Arkansas, Florida, Georgia, Louisiana, South Carolina,
Tennessee and Texas. The Company is subject to intense competition from other
financial institutions and is also subject to the regulations of certain
government agencies and undergoes periodic examinations by those regulatory
authorities.
On July 31, 1998, First Commercial Corporation (First Commercial), merged
with and into Regions. Additionally, during the first quarter of 1998, PALFED,
Inc., First United Bancorporation, and First State Corporation merged with and
into Regions. All of these transactions were accounted for as poolings of
interests and, accordingly, financial information for all prior periods has been
restated to present the combined financial condition and results of operations
of all companies as if the transactions had been in effect for all periods
presented. Further details of these transactions are presented in Note Q
Business Combinations.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Regions and
its subsidiaries. Significant intercompany balances and transactions have been
eliminated. In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the statement of condition dates and revenues and expenses for
the periods shown. Actual results could differ from the estimates and
assumptions used in the consolidated financial statements.
Certain amounts in prior year financial statements have been reclassified
to conform to the current year presentation.
SECURITIES
The Company's policies for investments in debt and equity securities are as
follows. Management determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates such designations as of the
date of each statement of condition.
Debt securities are classified as investment securities when the Company
has the positive intent and ability to hold the securities to maturity.
Investment securities are stated at amortized cost.
Debt securities not classified as investment securities or trading account
assets, and marketable equity securities not classified as trading account
assets, are classified as securities available for sale. Securities available
for sale are stated at estimated fair value, with unrealized gains and losses,
net of taxes, reported as a component of other comprehensive income.
The amortized cost of debt securities classified as investment securities
or securities available for sale is adjusted for amortization of premiums and
accretion of discounts to maturity, or in the case of mortgage-backed
securities, over the estimated life of the security, using the effective yield
method. Such amortization or accretion is included in interest on securities.
Realized gains and losses are included in securities gains (losses). The cost of
the securities sold is based on the specific identification method.
Trading account assets, which are held for the purpose of selling at a
profit, consist of debt and marketable equity securities and are carried at
estimated market value. Gains and losses, both realized and unrealized, are
included in other income.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of aggregate cost or
estimated market value. Gains and losses on mortgages held for sale are included
in other expense.
53
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE
Securities purchased under agreements to resell and securities sold under
agreements to repurchase are generally treated as collaterized financing
transactions and are recorded at market value plus accrued interest. It is
Regions' policy to take possession of securities purchased under resell
agreements.
LOANS
Interest on loans is generally accrued based upon the principal amount
outstanding.
Through provisions charged directly to operating expense, Regions has
established an allowance for loan losses. This allowance is reduced by actual
loan losses and increased by subsequent recoveries, if any.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, historical loan loss experience, current economic conditions,
collateral values of properties securing loans, volume, growth, quality and
composition of the loan portfolio and other relevant factors. Unfavorable
changes in any of these, or other factors, or the availability of new
information, could require that the allowance for loan losses be increased in
future periods. The method used to determine the amount of loss inherent in the
loan portfolio and thereby assess the adequacy of the recorded balance of the
allowance for loan losses involves identifying portfolios of loans with similar
characteristics for which estimates of inherent future probable losses can be
made. The estimates are based on historical loss factors as adjusted for current
business and economic conditions. 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.
PREMISES AND EQUIPMENT
Premises and equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. The provision for depreciation is
computed using the straight-line and declining-balance methods over the
estimated useful lives of the assets. Leasehold improvements are amortized using
the straight-line method over the estimated useful lives of the improvements (or
the terms of the leases if shorter).
Estimated useful lives generally are as follows:
<TABLE>
<S> <C>
Premises and leasehold improvements......................... 10-40 years
Furniture and equipment..................................... 3-12 years
</TABLE>
INTANGIBLE ASSETS
Intangible assets, consisting of (1) the excess of cost over the fair value
of net assets of acquired businesses and (2) amounts capitalized for the right
to service mortgage loans, are included in other assets. The excess of cost over
the fair value of net assets of acquired businesses, which totaled $409,371,000
(net of accumulated amortization of $116.5 million) at December 31, 1999, and
$354,501,000 (net of accumulated amortization of $92.5 million) at December 31,
1998, is being amortized over periods of 12 to 25 years, principally using the
straight-line method of amortization. Amounts capitalized for the right to
service mortgage loans, which totaled $144,276,000 at December 31, 1999 and
$141,926,000 at December 31, 1998, are being amortized over the estimated
remaining servicing life of the loans, considering appropriate prepayment
assumptions. The estimated fair values of capitalized mortgage servicing rights
were $250 million and $169 million at December 31, 1999 and 1998, respectively.
The fair value of mortgage servicing rights is calculated by discounting
estimated future cash flows from the servicing assets, using market discount
rates,
54
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and using expected future prepayment rates. In 1999, 1998 and 1997, Regions
capitalized $37.5 million, $49.7 million and $31.9 million in mortgage servicing
rights, respectively. In 1999, 1998 and 1997, Regions' amortization of mortgage
servicing rights was $35.2 million, $31.8 million and $25.9 million,
respectively. Intangible assets are evaluated periodically for impairment. For
purposes of evaluating impairment, the Company stratifies its mortgage servicing
portfolio on the basis of certain risk characteristics including loan type and
note rate. The Company's unamortized excess purchase price is periodically
reviewed to ensure that there have been no events or circumstances to indicate
that the recorded amount is not recoverable based on projected undiscounted net
operating cash flows. If the projected undiscounted net operating cash flows are
less than the carrying amount, a loss would be recognized to reduce the carrying
amount to fair value.
On January 1, 1997, Regions adopted Statement of Financial Accounting
Standards No. 125 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities" (Statement 125), which superseded Statement
122. Statement 125 retained most of the provisions of Statement 122, and it
modified existing provisions affecting servicing right impairment evaluation,
and income from servicing in excess of contractually-stated amounts. The impact
of Statement 125 was not material to Regions' financial condition or results of
operations.
PENSION, PROFIT-SHARING AND EMPLOYEE STOCK OWNERSHIP PLANS
Regions has pension, profit-sharing and employee stock ownership plans
covering substantially all employees. Annual contributions to the profit-sharing
and employee stock ownership plans are determined at the discretion of the Board
of Directors. Pension expense is computed using the projected unit credit
(service prorate) actuarial cost method and the pension plan is funded using the
aggregate actuarial cost method. Annual contributions to all the plans do not
exceed the maximum amounts allowable for federal income tax purposes.
INCOME TAXES
Regions and its subsidiaries file a consolidated federal income tax return.
Regions accounts for income taxes using the liability method pursuant to
Financial Accounting Standards Board Statement 109, "Accounting for Income
Taxes." Under this method, the Company's deferred tax assets and liabilities
were determined by applying federal and state tax rates currently in effect to
its cumulative temporary book/tax differences. Temporary differences occur when
income and expenses are recognized in different periods for financial reporting
purposes and for purposes of computing income taxes currently payable. Deferred
taxes are provided as a result of such temporary differences.
PER SHARE AMOUNTS
Earnings per share computations are based upon the weighted average number
of shares outstanding during the periods. Diluted earnings per share
computations are based upon the weighted average number of shares outstanding
during the period plus the dilutive effect of outstanding stock options and
stock performance awards.
TREASURY STOCK
The purchase of the Company's common stock is recorded at cost. At the date
of retirement or subsequent reissue, the treasury stock account is reduced by
the cost of such stock.
INSURANCE SUBSIDIARIES
Insurance premium and commission income and acquisition costs are
recognized over the terms of the related policies. Losses are recognized as
incurred.
55
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF CASH FLOWS
Cash equivalents include cash and due from banks and federal funds sold and
securities purchased under agreements to resell. Regions paid $1.4 billion in
1999, $1.3 billion in 1998, and $1.1 billion in 1997 for interest on deposits
and borrowings. Income tax payments totaled $216 million for 1999, $187 million
for 1998, and $147 million for 1997. Loans transferred to other real estate
totaled $30 million in 1999, $19 million in 1998, and $26 million in 1997. The
securitization of loans during 1999 and 1998 resulted in the transfer of $1.3
billion and $533.7 million, respectively, from loans to securities available for
sale. In 1997, a pooled subsidiary securitized $47.5 million of mortgage loans,
which were transferred to trading account assets. In December 1999, Regions
retired 6.2 million shares of treasury stock, with a cost of $212.5 million.
NOTE B. RESTRICTIONS ON CASH AND DUE FROM BANKS
Regions' subsidiary banks are required to maintain reserve balances with
the Federal Reserve Bank. The average amount of the reserve balances maintained
for the year ended December 31, 1999 and 1998 was approximately $414,245,000 and
$110,884,000, respectively.
NOTE C. SECURITIES
The amortized cost and estimated fair value of investment securities and
securities available for sale at December 31, 1999, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES:
U.S. Treasury and Federal agency
securities.............................. $2,639,214 $ 258 $(105,032) $2,534,440
Obligations of states and political
subdivisions............................ 635,034 228 (4,656) 630,606
Mortgage backed securities................ 380,677 303 (11,333) 369,647
Other securities.......................... 399,354 -0- -0- 399,354
---------- ------ --------- ----------
Total........................... $4,054,279 $ 789 $(121,021) $3,934,047
========== ====== ========= ==========
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury and Federal agency
securities.............................. $ 578,906 $ 232 $ (10,577) $ 568,561
Obligations of states and political
subdivisions............................ 158,203 769 (712) 158,260
Mortgage backed securities................ 6,175,090 1,423 (202,518) 5,973,995
Other securities.......................... 3,396 26 (86) 3,336
Equity securities......................... 154,258 355 -0- 154,613
---------- ------ --------- ----------
Total........................... $7,069,853 $2,805 $(213,893) $6,858,765
========== ====== ========= ==========
</TABLE>
56
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The cost and estimated fair value of investment securities and securities
available for sale at December 31, 1999 by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
ESTIMATED
FAIR
COST VALUE
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
INVESTMENT SECURITIES:
Due in one year or less..................................... $ 474,497 $ 475,052
Due after one year through five years....................... 1,066,335 1,042,541
Due after five years through ten years...................... 1,863,696 1,787,881
Due after ten years......................................... 269,074 258,926
Mortgage backed securities.................................. 380,677 369,647
---------- ----------
Total............................................. $4,054,279 $3,934,047
========== ==========
SECURITIES AVAILABLE FOR SALE:
Due in one year or less..................................... $ 170,764 $ 171,428
Due after one year through five years....................... 356,390 351,708
Due after five years through ten years...................... 178,907 173,911
Due after ten years......................................... 34,444 33,110
Mortgage backed securities.................................. 6,175,090 5,973,995
Equity securities........................................... 154,258 154,613
---------- ----------
Total............................................. $7,069,853 $6,858,765
========== ==========
</TABLE>
Proceeds from sales of securities available for sale in 1999, were $6.7
million. Gross realized gains and losses were $167,000 and $7,000, respectively.
Proceeds from sales of securities available for sale in 1998 were $628.2
million, with gross realized gains and losses of $9.5 million and $2.5 million,
respectively. Proceeds from sales of securities available for sale in 1997 were
$71.1 million with gross realized gains and losses of $604,000 and $106,000,
respectively.
The amortized cost and estimated fair value of investment securities and
securities available for sale at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES:
U.S. Treasury and Federal agency securities........ $2,371,412 $12,023 $(121) $2,383,314
Obligations of states and political subdivisions... 565,095 28,205 -0- 593,300
Mortgage backed securities......................... 188,607 1,299 (74) 189,832
---------- ------- ----- ----------
Total.................................... $3,125,114 $41,527 $(195) $3,166,446
========== ======= ===== ==========
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury and Federal agency securities........ $ 948,592 $ 7,683 $(113) $ 956,162
Obligations of states and political subdivisions... 162,577 5,916 -0- 168,493
Mortgage backed securities......................... 3,550,476 24,736 (622) 3,574,590
Other securities................................... 6,415 219 (42) 6,592
Equity securities.................................. 138,157 29 -0- 138,186
---------- ------- ----- ----------
Total.................................... $4,806,217 $38,583 $(777) $4,844,023
========== ======= ===== ==========
</TABLE>
Securities with carrying values of $7,202,976,000 and $3,606,804,000 at
December 31, 1999, and 1998, respectively, were pledged to secure public funds,
trust deposits and certain borrowing arrangements.
57
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D. LOANS
The loan portfolio at December 31, 1999 and 1998, consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Commercial.................................................. $ 8,229,565 $ 7,144,176
Real estate-construction.................................... 2,439,104 1,865,973
Real estate-mortgage........................................ 11,749,914 9,623,401
Consumer.................................................... 5,802,657 5,796,563
----------- -----------
28,221,240 24,430,113
Unearned income............................................. (76,565) (64,526)
----------- -----------
Total............................................. $28,144,675 $24,365,587
=========== ===========
</TABLE>
Directors and executive officers of Regions and its principal subsidiaries,
including the directors' and officers' families and affiliated companies, are
loan and deposit customers and have other transactions with Regions in the
ordinary course of business. Total loans to these persons (excluding loans which
in the aggregate do not exceed $60,000 to any such person) at December 31, 1999,
and 1998, were approximately $182 million and $113 million respectively. During
1999, $609 million of new loans were made, repayments totaled $537 million and
decreases for changes in the composition of related parties totaled $3 million.
These loans were made in the ordinary course of business and on substantially
the same terms, including interest rates and collateral, as those prevailing at
the same time for comparable transactions with other persons and involve no
unusual risk of collectibility.
Loans sold with recourse totaled $1.4 billion and $506.5 million at
December 31, 1999, and 1998, respectively.
The loan portfolio is diversified geographically, primarily within Alabama,
Arkansas, Louisiana, Georgia, South Carolina, northwest and central Florida,
eastern Texas, and western and middle Tennessee.
The recorded investment in impaired loans was $120 million at December 31,
1999, and $175 million at December 31, 1998. The average amount of impaired
loans during 1999 was $115 million.
NOTE E. ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................ $ 315,412 $304,223 $253,248
Allowance of purchased institutions at acquisition date... 8,493 17,094 17,420
Provision charged to operating expense.................... 113,658 60,505 89,663
Loan losses:
Charge-offs............................................ (129,237) (93,739) (88,279)
Recoveries............................................. 30,049 27,329 32,171
--------- -------- --------
Net loan losses........................................ (99,188) (66,410) (56,108)
--------- -------- --------
Balance at end of year...................................... $ 338,375 $315,412 $304,223
========= ======== ========
</TABLE>
58
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F. PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 110,997 $ 106,845
Premises.................................................... 528,634 518,538
Furniture and equipment..................................... 434,399 370,992
Leasehold improvements...................................... 56,225 45,942
---------- ----------
1,130,255 1,042,317
Allowances for depreciation and amortization................ (549,548) (507,892)
---------- ----------
Total............................................. $ 580,707 $ 534,425
========== ==========
</TABLE>
Net occupancy expense is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross occupancy expense................................... $69,853 $72,221 $65,117
Less rental income........................................ 8,218 9,334 3,184
------- ------- -------
Net occupancy expense........................... $61,635 $62,887 $61,933
======= ======= =======
</TABLE>
NOTE G. OTHER REAL ESTATE
Other real estate acquired in satisfaction of indebtedness ("foreclosure")
is carried in other assets at the lower of the recorded investment in the loan
or the estimated net realizable value of the collateral. Other real estate
totaled $12,662,000 at December 31, 1999, and $17,273,000 at December 31, 1998.
Gain or loss on the sale of other real estate is included in other expense.
NOTE H. DEPOSITS
The following schedule presents the detail of interest-bearing deposits:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Interest-bearing transaction accounts....................... $ 462,863 $ 672,168
Interest-bearing accounts in foreign office................. 1,882,024 1,219,713
Savings accounts............................................ 1,384,326 1,508,510
Money market savings accounts............................... 7,704,243 6,999,452
Certificates of deposit ($100,000 or more).................. 4,695,432 3,471,203
Time deposits ($100,000 or more)............................ 532,460 246,877
Other interest-bearing deposits............................. 8,908,053 9,655,018
----------- -----------
Total............................................. $25,569,401 $23,772,941
=========== ===========
</TABLE>
59
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following schedule details interest expense on deposits:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest-bearing transaction accounts............... $ 19,343 $ 30,888 $ 26,878
Interest-bearing accounts in foreign office......... 71,920 42,319 30,888
Savings accounts.................................... 23,743 33,518 36,675
Money market savings accounts....................... 225,327 221,774 170,667
Certificates of deposit ($100,000 or more).......... 226,146 200,819 197,165
Other interest-bearing deposits..................... 490,320 535,736 492,509
---------- ---------- --------
Total..................................... $1,056,799 $1,065,054 $954,782
========== ========== ========
</TABLE>
The aggregate amount of maturities of all time deposits in each of the next
five years is as follows: 2000 -- $10.8 billion; 2001 -- $1.6 billion;
2002 -- $891 million; 2003 -- $174 million; and 2004 -- $61 million.
NOTE I. BORROWED FUNDS
Following is a summary of short-term borrowings:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal funds purchased............................ $4,596,540 $1,929,202 $1,686,094
Securities sold under agreements to repurchase..... 1,018,073 138,076 442,732
Federal Home Loan Bank structured notes............ 950,000 2,350,000 500,000
Federal Home Loan Bank advances.................... 600,000 5,001 8,284
Notes payable to unaffiliated banks................ 400,000 -0- -0-
Commercial paper................................... 56,750 56,750 52,750
Treasury tax and loan note......................... 2,229 15,988 14,657
Short sale liability............................... 1,393 1,711 2,834
---------- ---------- ----------
Total.................................... $7,624,985 $4,496,728 $2,707,351
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Maximum amount outstanding at any month-end:
Federal funds purchased and securities sold
under agreements to repurchase.............. $5,614,613 $2,067,278 $2,231,387
Aggregate short-term borrowings............... 8,475,717 4,496,728 2,709,309
Average amount outstanding (based on average of
daily balances).................................. 6,502,860 3,386,392 1,876,871
Weighted average interest rate at year end......... 5.6% 5.1% 4.8%
Weighted average interest rate on amounts
outstanding during the year (based on average of
daily balances).................................. 5.1% 5.2% 5.7%
</TABLE>
Federal funds purchased and securities sold under agreements to repurchase
had weighted average maturities of ten, six and seven days at December 31, 1999,
1998 and 1997, respectively. Weighted average rates on these dates were 5.4%,
5.4%, and 4.8%, respectively.
60
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Federal Home Loan Bank structured notes have a stated maturity ranging from
two to thirteen years but are callable within one year. The structured notes had
weighted average rates of 5.0% and 4.8% at December 31, 1999 and 1998,
respectively.
The Federal Home Loan Bank advances represent borrowings with original
stated maturities of less than one year. These notes had weighted average
interest rates on December 31, 1999, 1998, and 1997, of 6.1%, 6.1%, and 5.8%,
respectively.
Regions has an unsecured short-term credit agreement with an unaffiliated
bank that provides for maximum borrowings of $100 million. As of December 31,
1999, no borrowings were outstanding under this agreement. No compensating
balances or commitment fees are required by this agreement. In addition to this
short-term credit agreement, a subsidiary of Regions has an agreement with an
unaffiliated bank that provides for maximum borrowings of $400 million, all of
which was outstanding as of December 31, 1999 at a stated interest rate of 8.5%.
No borrowings were outstanding under this agreement at December 31, 1998 or
1997. Another subsidiary of Regions has, as of December 31, 1999, a $50 million
revolving credit line with an unaffiliated bank. No borrowings were outstanding
under this agreement as of December 31, 1999 or 1998.
Commercial paper maturities ranged from 4 to 689 days at December 31, 1999,
from 53 to 1,054 days at December 31, 1998 and from 257 to 581 days at December
31, 1997. Weighted average maturities were 481, 811 and 329 days at December 31,
1999, 1998 and 1997, respectively. The weighted average interest rates on these
dates were 5.8%, 5.8% and 6.3%, respectively.
The short-sale liability represents Regions' trading obligation to deliver
certain government securities at a predetermined date and price. These
securities had weighted average interest rates of 4.4%, 5.0% and 6.3% at
December 31, 1999, 1998 and 1997, respectively.
Long-term borrowings consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
---------- --------
(IN THOUSANDS)
<S> <C> <C>
7.80% subordinated notes.................................... $ 75,000 $ 75,000
7.65% subordinated notes.................................... 25,000 25,000
7.75% subordinated notes.................................... 100,000 100,000
Federal Home Loan Bank structured notes..................... 1,155,000 -0-
Federal Home Loan Bank advances............................. 311,997 306,337
Industrial development revenue bonds........................ 2,800 3,000
Notes payable to unaffiliated banks......................... -0- 10,250
Other notes payable......................................... 81,064 51,453
---------- --------
Total............................................. $1,750,861 $571,040
========== ========
</TABLE>
In July 1994, Regions issued $25 million of 7.65% subordinated notes, due
August 15, 2001, and in September 1994, Regions issued $100 million of 7.75%
subordinated notes, due September 15, 2024. The $100 million of 7.75%
subordinated notes may be redeemed in whole or in part at the option of the
holders thereof on September 15, 2004, at 100% of the principal amount to be
redeemed, together with accrued interest. In December 1992, Regions issued $75
million of 7.80% subordinated notes, due December 1, 2002. All issues of these
notes are subordinated and subject in right of payment of principal and interest
to the prior payment in full of all senior indebtedness of the Company,
generally defined as all indebtedness and other obligations of the Company to
its creditors, except subordinated indebtedness. Payment of the principal of the
notes may be accelerated only in the case of certain events involving
bankruptcy, insolvency proceedings or reorganization of the Company. The
subordinated notes described above, qualify as "Tier 2 capital" under Federal
Reserve guidelines.
61
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Federal Home Loan Bank structured notes have a stated ten year maturity but
are callable between one to two years. The structured notes had a weighted
average interest rate of 5.2% at December 31, 1999.
Federal Home Loan Bank advances represent borrowings with fixed interest
rates ranging from 5.0% to 8.1% and with maturities of one to eighteen years.
These borrowings, as well as the short-term borrowings from the Federal Home
Loan Bank, are secured by Federal Home Loan Bank stock (carried at cost of
$154.3 million) and by first mortgage loans on one-to-four family dwellings held
by certain banking subsidiaries (approximately $7.3 billion at December 31,
1999). The maximum amount that could be borrowed from Federal Home Loan Banks
under the current borrowing agreements and without further investment in Federal
Home Loan Bank stock is approximately $5.5 billion.
The industrial development revenue bonds mature on July 1, 2008, with
principal of $200,000 payable annually and interest at a tax effected prime rate
payable monthly.
Notes payable to unaffiliated banks represents revolving credit agreements
with unaffiliated banks. These agreements had interest rates from 5.3% to 9.2%
in 1998 and matured in 1999.
Other notes payable at December 31, 1999, had a weighted average interest
rate of 7.5% and a weighted average maturity of 10.9 years. Included in other
notes payable are mortgage notes payable collateralized by premises and
equipment carried at $7,282,000.
The aggregate amount of maturities of all long-term debt in each of the
next five years is as follows: 2000 -- $68,645,792; 2001 -- $272,712,559;
2002 -- $79,568,384; 2003 -- $1,082,811; 2004 -- $101,457,729.
Substantially all of the consolidated net assets are owned by the
subsidiaries and dividends paid by Regions are substantially provided by
dividends from the subsidiaries. Statutory limits are placed on the amount of
dividends the subsidiary banks can pay without prior regulatory approval. In
addition, regulatory authorities require the maintenance of minimum capital to
asset ratios at banking subsidiaries. At December 31, 1999, the banking
subsidiaries could pay approximately $354 million in dividends without prior
approval.
Management believes that none of these dividend restrictions will
materially affect Regions' dividend policy. In addition to dividend
restrictions, federal statutes also prohibit unsecured loans from banking
subsidiaries to the parent company. Because of these limitations, substantially
all of the net assets of Regions' subsidiaries are restricted, except for the
amount which can be paid to the parent in the form of dividends.
NOTE J. EMPLOYEE BENEFIT PLANS
Regions has a defined benefit pension plan covering substantially all
employees. The benefits are based on years of service and the employee's highest
five years of compensation during the last ten years of employment. Regions'
funding policy is to contribute annually at least the amount required by IRS
minimum funding standards. Contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected to be earned
in the future.
The Company also sponsors a supplemental executive retirement program,
which is a non-qualified plan that provides certain senior executive officers
defined pension benefits in relation to their compensation.
62
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the plans' funded status and amounts
recognized in the consolidated statement of condition:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Projected benefit obligation, beginning of year............. $209,552 $186,927
Service cost................................................ 10,572 8,861
Interest cost............................................... 14,791 13,058
Actuarial (gains) losses.................................... (29,274) 6,960
Obligations assumed through acquisitions.................... 5,276 -0-
Benefit payments............................................ (11,801) (6,254)
-------- --------
Projected benefit obligation, end of year................... $199,116 $209,552
CHANGE IN PLAN ASSETS
Fair value of plan assets, beginning of year................ $226,823 $211,196
Actual return on plan assets................................ 30,059 10,753
Assets assumed through acquisitions......................... 7,465 -0-
Company contributions....................................... 4,634 11,128
Benefit payments............................................ (11,801) (6,254)
-------- --------
Fair value of plan assets, end of year...................... $257,180 $226,823
-------- --------
Funded status of plan....................................... $ 58,064 $ 17,271
Unrecognized net actuarial (gain) loss...................... (20,872) 15,908
Unamortized prior service cost.............................. (4,406) (2,870)
-------- --------
Prepaid pension cost........................................ $ 32,786 $ 30,309
======== ========
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period........ $ 10,572 $ 8,861 $ 7,866
Interest cost on projected benefit obligation......... 14,791 13,058 11,906
Expected (return) on plan assets...................... (22,026) (17,455) (31,384)
Net (deferral) amortization........................... (1,146) (844) 15,183
-------- --------- --------
Net periodic pension expense.......................... $ 2,191 $ 3,620 $ 3,571
======== ========= ========
</TABLE>
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 8.00% and 4.50%, respectively, at December 31,
1999; 7.00% and 4.50%, respectively, at December 31, 1998; and 7.50% and 4.50%,
respectively, at December 31, 1997. The expected long-term rate of return on
plan assets was 9.5% at December 31, 1999 and 9.0% in 1998 and 1997.
Contributions to employee profit sharing plans totaled $24,300,000,
$23,764,000 and $21,016,000 for 1999, 1998 and 1997, respectively.
The 1999 contribution to the employee stock ownership plan totaled
$2,700,000, compared to $2,650,000 in 1998, and $2,950,000 in 1997.
Contributions are used to purchase Regions common stock for the benefit of
participating employees.
Contributions to the employee stock purchase plan in 1999, 1998 and 1997
were $2,171,000, $1,838,000 and $1,516,000, respectively.
63
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Regions sponsors a defined benefit postretirement health care plan that
covers certain retired employees. Currently the Company pays a portion of the
costs of certain health care benefits for all eligible employees that retired
before January 1, 1989. No health care benefits are provided for employees
retiring at normal retirement age after December 31, 1988. For employees
retiring before normal retirement age, the Company currently pays a portion
(based upon length of active service at the time of retirement) of the costs of
certain health care benefits until the retired employee becomes eligible for
Medicare. The plan is contributory and contains other cost-sharing features such
as deductibles and co-payments. Retiree health care benefits, as well as similar
benefits for active employees, are provided through a group insurance program in
which premiums are based on the amount of benefits paid. The Company's policy is
to fund the Company's share of the cost of health care benefits in amounts
determined at the discretion of management.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated statement of condition:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Projected benefit obligation, beginning of year............. $ 16,944 $ 9,803
Service cost................................................ 1,234 892
Interest cost............................................... 1,219 962
Actuarial (gains) losses.................................... (4,037) 5,764
Acquisitions................................................ 839 -0-
Benefit payments............................................ (705) (477)
--------- --------
Projected benefit obligation, end of year................... $ 15,494 $ 16,944
CHANGE IN PLAN ASSETS
Fair value of plan assets, beginning of year................ $ 159 $ -0-
Actual return on plan assets................................ -0- -0-
Company contributions....................................... 729 636
Benefit payments............................................ (706) (477)
--------- --------
Fair value of plan assets, end of year...................... $ 182 $ 159
--------- --------
Funded status of plan....................................... $ (15,312) $(16,785)
Recognized net actuarial loss............................... 4,856 8,645
--------- --------
Accrued postretirement benefit cost......................... $ (10,456) $ (8,140)
========= ========
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period.............. $1,234 $ 892 $ 381
Interest cost on benefit obligation......................... 1,219 962 681
Net amortization............................................ 591 590 590
Recognized (gain)........................................... -0- (114) (324)
------ ------ ------
Net periodic postretirement benefit cost.................... $3,044 $2,330 $1,328
====== ====== ======
</TABLE>
The assumed health care cost trend rate was 8.6% for 2000 and is assumed to
decrease gradually to 5.1% by 2007 and remain at that level thereafter.
Increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation at
December 31, 1999, by $1,509,678 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 1999 by
$315,592. Decreasing the assumed health care cost trend rates by one percentage
in each year would decrease the accumulated postretirement benefit obligation at
December 31, 1999, by $1,332,288 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 1999 by
$272,590. The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.00% at December 31, 1999, and 7.00% at
December 31, 1998.
64
<PAGE> 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K. LEASES
Rental expense for all leases amounted to approximately $16,523,000,
$19,537,000 and $14,828,000 for 1999, 1998 and 1997, respectively. The
approximate future minimum rental commitments as of December 31, 1999, for all
noncancelable leases with initial or remaining terms of one year or more are
shown in the following table. Included in these amounts are all renewal options
reasonably assured of being exercised.
<TABLE>
<CAPTION>
EQUIPMENT PREMISES TOTAL
--------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
2000........................................................ $ 704 $12,208 $12,912
2001........................................................ 459 10,724 11,183
2002........................................................ 283 8,645 8,928
2003........................................................ 204 6,982 7,186
2004........................................................ 50 5,650 5,700
2005-2009................................................... 29 16,725 16,754
2010-2014................................................... -0- 10,251 10,251
2015-2019................................................... -0- 3,156 3,156
2020-End.................................................... -0- 3,600 3,600
------ ------- -------
Total............................................. $1,729 $77,941 $79,670
====== ======= =======
</TABLE>
NOTE L. COMMITMENTS AND CONTINGENCIES
To accommodate the financial needs of its customers, Regions makes
commitments under various terms to lend funds to consumers, businesses and other
entities. These commitments include (among others) revolving credit agreements,
term loan commitments and short-term borrowing agreements. Many of these loan
commitments have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of these commitments are expected to expire
without being funded, the total commitment amounts do not necessarily represent
future liquidity requirements. Standby letters of credit are also issued, which
commit Regions to make payments on behalf of customers if certain specified
future events occur. Historically, a large percentage of standby letters of
credit also expire without being funded.
Both loan commitments and standby letters of credit have credit risk
essentially the same as that involved in extending loans to customers and are
subject to normal credit approval procedures and policies. Collateral is
obtained based on management's assessment of the customer's credit.
Loan commitments totaled $7.4 billion at December 31, 1999, and $5.9
billion at December 31, 1998. Standby letters of credit were $602.6 million at
December 31, 1999, and $492.3 million at December 31, 1998. Commitments under
commercial letters of credit used to facilitate customers' trade transactions
were $46.6 million at December 31, 1999, and $21.0 million at December 31, 1998.
The Company and its affiliates are defendants in litigation and claims
arising from the normal course of business. Based on consultation with legal
counsel, management is of the opinion that the outcome of pending and threatened
litigation will not have a material effect on Regions' consolidated financial
statements.
NOTE M. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the normal course of business, Regions enters into financial instrument
transactions with off-balance sheet risk. These financial instrument agreements
help the Company manage its exposure to interest rate fluctuations and help
customers manage exposure to foreign currency fluctuations.
65
<PAGE> 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Forward contracts represent commitments to sell money market instruments at
a future date at a specified price or yield. These contracts are utilized by the
Company to hedge interest rate risk positions associated with the origination of
mortgage loans held for sale. The amount of hedging gains and losses deferred,
which is reflected in gains and losses on mortgage loans held for sale as
realized, was not material to the results of operations for the years ended
December 31, 1999, 1998 or 1997. The Company is subject to the market risk
associated with changes in the value of the underlying financial instrument as
well as the risk that the other party will fail to perform. The gross contract
amount of forward contracts, which totaled $158 million and $265 million at
December 31, 1999, and 1998, respectively, represents the extent of Regions'
involvement. However, those amounts significantly exceed the future cash
requirements, as the Company intends to close out open positions prior to
settlement, and thus is subject only to the change in the value of the
instruments. The gross amount of contracts represents the Company's maximum
exposure to credit risk.
The Company utilizes put and call option contracts to hedge mortgage loan
originations in process. Option contracts represent rights to purchase or sell
securities or other money market instruments at a specified price and within a
specified period of time at the option of the holder. There were no option
contracts outstanding as of December 31, 1999 or December 31, 1998. The
commitment fees paid for option contracts reflect the maximum exposure to the
Company.
Foreign currency exchange contracts involve the trading of one currency for
another on a specified date and at a specified rate. These contracts are
executed on behalf of the Company's customers and are used to facilitate the
management of fluctuations in foreign exchange rates. The notional amount of
forward foreign exchange contracts totaled $24 million and $75 million at
December 31, 1999 and 1998, respectively. The Company is subject to the risk
that another party will fail to perform and the gross amount of the contracts
represents the Company's maximum exposure to credit risk.
Regions operates a broker-dealer subsidiary, which in the normal course of
trading inventory and clearing customers' securities transactions, is a party to
certain financial instruments with off-balance-sheet risk. The aggregate
off-balance-sheet risk from these financial instruments is not material to the
consolidated financial statements.
NOTE N. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
Cash and cash equivalents: The carrying amount reported in the
consolidated statements of condition and cash flows approximates the estimated
fair value.
Interest-bearing deposits in other banks: The carrying amount reported in
the consolidated statement of condition approximates the estimated fair value.
Investment securities: Estimated fair values are based on quoted market
prices, where available. If quoted market prices are not available, estimated
fair values are based on quoted market prices of comparable instruments.
Securities available for sale: Estimated fair values, which are the
amounts recognized in the consolidated statements of condition, are based on
quoted market prices, where available. If quoted market prices are not
available, estimated fair values are based on quoted market prices of comparable
instruments.
Trading account assets: Estimated fair values, which are the amounts
recognized in the consolidated statements of conditions, are based on quoted
market prices, where available. If quoted market prices are not available,
estimated fair values are based on quoted market prices of comparable
instruments.
Mortgage loans held for sale: Estimated fair values, which are the amounts
recognized in the consolidated statements of condition, are based on quoted
market prices of comparable instruments.
66
<PAGE> 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loans: Estimated fair values for variable rate loans, which reprice
frequently and have no significant credit risk, are based on carrying value.
Estimated fair values for all other loans are estimated using discounted cash
flow analyses, based on interest rates currently offered on loans with similar
terms to borrowers of similar credit quality. The carrying amount of accrued
interest reported in the consolidated statements of condition approximates the
fair value.
Deposit liabilities: The fair value of non-interest bearing demand
accounts, interest-bearing transaction accounts, savings accounts, money market
accounts and certain other time open accounts is the amount payable on demand at
the reporting date (i.e., the carrying amount). Fair values for certificates of
deposit are estimated by using discounted cash flow analyses, using the interest
rates currently offered for deposits of similar maturities.
Short-term borrowings: The carrying amount reported in the consolidated
statements of condition approximates the estimated fair value.
Long-term borrowings: Fair values are estimated using discounted cash flow
analyses, based on the current rates offered for similar borrowing arrangements.
Loan commitments, standby and commercial letters of credit: Estimated fair
values for these off-balance-sheet instruments are based on standard fees
currently charged to enter into similar agreements.
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------- -------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents......... $ 1,459,496 $ 1,459,496 $ 1,852,947 $ 1,852,947
Interest-bearing deposits in other
banks.......................... 9,653 9,653 143,965 143,965
Investment securities............. 4,054,279 3,934,047 3,125,114 3,166,446
Securities available for sale..... 6,858,765 6,858,765 4,844,023 4,844,023
Trading account assets............ 14,543 14,543 49,387 49,387
Mortgage loans held for sale...... 567,131 567,131 927,668 927,668
Loans, net (excluding leases)..... 27,448,765 27,531,111 23,835,842 24,503,246
Financial liabilities:
Deposits.......................... 29,989,094 29,929,116 28,350,066 28,435,116
Short-term borrowings............. 7,624,985 7,624,985 4,496,728 4,496,728
Long-term borrowings.............. 1,750,861 1,635,304 571,040 572,753
Off-balance-sheet instruments:
Loan commitments.................. -0- (69,176) -0- (53,884)
Standby letters of credit......... -0- (9,039) -0- (7,385)
Commercial letters of credit...... -0- (117) -0- (53)
</TABLE>
67
<PAGE> 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE O. OTHER INCOME AND EXPENSE
Other income consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fees and commissions................................... $ 49,357 $ 52,073 $ 48,722
Insurance premiums and commissions..................... 13,432 10,231 6,533
Trading account income................................. 29,977 21,915 14,069
Gain on sale of mortgage servicing rights.............. 7,526 839 -0-
Divestiture of banking interest........................ 18,399 -0- 25,084
Other miscellaneous income............................. 66,754 44,520 22,904
-------- -------- --------
Total........................................ $185,445 $129,578 $117,312
======== ======== ========
</TABLE>
Other expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Stationery, printing and supplies...................... $ 20,533 $ 20,625 $ 15,581
Advertising and business development................... 22,052 20,084 18,247
Postage and freight.................................... 20,503 18,727 19,228
Telephone.............................................. 26,951 24,480 16,870
Legal and other professional fees...................... 32,374 20,423 18,943
Other non-credit losses................................ 30,872 34,426 14,905
Outside computer services.............................. 24,078 17,433 16,787
Amortization of mortgage servicing rights.............. 35,195 31,832 25,923
Amortization of excess purchase price.................. 23,995 19,776 17,859
Loss on sale of mortgages by affiliate mortgage
companies............................................ 9,521 13,981 2,892
Other miscellaneous expenses........................... 126,475 94,786 130,340
-------- -------- --------
Total........................................ $372,549 $316,573 $297,575
======== ======== ========
</TABLE>
NOTE P. INCOME TAXES
At December 31, 1999, Regions has net operating loss carryforwards for
federal tax purposes of $10.9 million that expire in years 2003 through 2011.
These carryforwards resulted from various acquired financial institutions. For
financial reporting purposes, a valuation allowance of approximately $2.8
million has been recognized to offset a portion of the deferred tax asset
related to those carry forwards and certain temporary differences.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Regions' deferred tax assets and liabilities as of December 31, 1999 and 1998
are listed below.
68
<PAGE> 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Loan loss allowance....................................... $105,386 $100,481
Net operating loss carryforwards.......................... 3,770 6,778
Mark-to-market securities available for sale.............. 75,988 -0-
Other..................................................... 65,171 62,673
-------- --------
Total deferred tax assets......................... 250,315 169,932
Deferred tax liabilities:
Tax over book depreciation................................ 11,191 7,944
Accretion of bond discount................................ 10,905 9,707
Direct lease financing.................................... 31,226 30,772
Pension................................................... 10,442 13,513
Mark-to-market securities available for sale.............. -0- 12,854
Originated mortgage servicing rights...................... 16,140 11,750
Other..................................................... 33,485 25,091
-------- --------
Total deferred tax liabilities.................... 113,389 111,631
-------- --------
Net deferred tax assets before valuation allowance.......... 136,926 58,301
Valuation allowance......................................... (2,802) (2,802)
-------- --------
Net deferred tax asset...................................... $134,124 $ 55,499
======== ========
</TABLE>
Applicable income taxes for financial reporting purposes differs from the
amount computed by applying the statutory federal income tax rate of 35% for the
reasons below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax on income computed at statutory federal income tax
rate...................................................... $274,759 $222,356 $208,163
Increases (decreases) in taxes resulting from:
Obligations of states and political subdivisions:
Tax exempt income...................................... (15,634) (15,571) (17,007)
State income tax, net of federal tax benefit.............. 2,605 7,818 7,662
Other, net................................................ (2,090) (1,013) (1,596)
-------- -------- --------
Total............................................. $259,640 $213,590 $197,222
Effective Tax Rate.......................................... 33.1% 33.6% 33.2%
</TABLE>
69
<PAGE> 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provisions for income taxes in the consolidated statements of income
are summarized below. Included in these amounts are income taxes of $56,000,
$2,644,000, and $187,000 in 1999, 1998 and 1997, respectively, related to
securities transactions.
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
1999
Federal................................................... $245,573 $10,059 $255,632
State..................................................... 3,850 158 4,008
-------- ------- --------
Total........................................... $249,423 $10,217 $259,640
======== ======= ========
1998
Federal................................................... $196,296 $ 5,267 $201,563
State..................................................... 11,713 314 12,027
-------- ------- --------
Total........................................... $208,009 $ 5,581 $213,590
======== ======= ========
1997
Federal................................................... $186,587 $(1,983) $184,604
State..................................................... 13,496 (878) 12,618
-------- ------- --------
Total........................................... $200,083 $(2,861) $197,222
======== ======= ========
</TABLE>
NOTE Q. BUSINESS COMBINATIONS
During 1999 Regions completed the following business combinations:
<TABLE>
<CAPTION>
HEADQUARTERS ACCOUNTING
DATE COMPANY LOCATION TOTAL ASSETS TREATMENT
- ---- ------- ------------ -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
January Meigs County Bancshares, Inc. Decatur, Tennessee $114,407 Pooling
January VB&T Bancshares Corporation Valdosta, Georgia 75,733 Pooling
January Bullsboro BancShares, Inc. Newnan, Georgia 100,682 Pooling
March Arkansas Banking Company Jonesboro, Arkansas 354,981 Purchase
December Minden Bancshares, Inc. Minden, Louisiana 318,955 Purchase
</TABLE>
The total consideration paid for these business combinations was
approximately 5.9 million shares of Regions' common stock (including treasury
stock reissued) valued at $190 million. Total intangible assets recorded in
connection with the purchase transactions totaled approximately $63 million.
70
<PAGE> 72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1998 Regions completed the following additional business
combinations:
<TABLE>
<CAPTION>
HEADQUARTERS ACCOUNTING
DATE COMPANY LOCATION TOTAL ASSETS TREATMENT
---- ------- ------------ -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
February Greenville Financial Corporation Greenville, South $141,294 Pooling
Carolina
March St. Mary Holding Corporation Franklin, Louisiana 111,498 Pooling
March Key Florida Bancorp, Inc. Bradenton, Florida 204,435 Pooling
August Village Bankshares, Inc. Tampa, Florida 211,469 Pooling
August Jacobs Bank Scottsboro, Alabama 185,939 Pooling
September Etowah Bank Canton, Georgia 409,139 Pooling
September First Community Banking Services, Inc. Peachtree City, 124,762 Pooling
Georgia
September Branches of First Union National Bank Valdosta, Georgia 108,913 Purchase
November EFC Holdings Corporation Charlotte, North 63,147 Purchase
Carolina
December St. James Bancorporation, Inc. Lutcher, Louisiana 171,572 Purchase
</TABLE>
Because certain of the 1999 and 1998 business combinations were accounted
for as purchases, Regions' consolidated financial statements include the results
of operations of those companies only from their respective dates of
acquisition. The following unaudited summary information presents the
consolidated results of operations of Regions on a pro forma basis, as if all
the above companies had been acquired on January 1, 1998. The pro forma summary
information does not necessarily reflect the results of operations that would
have occurred, if the acquisitions had occurred at the beginning of the periods
presented, or of results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Interest income............................................. $2,879,033 $2,681,682
Interest expense............................................ 1,442,140 1,320,271
---------- ----------
Net interest income....................................... 1,436,893 1,361,411
Provision for loan losses................................... 116,088 64,417
Non-interest income......................................... 540,871 505,985
Non-interest expense........................................ 1,078,477 1,160,245
---------- ----------
Income before income taxes................................ 783,199 642,734
Applicable income taxes..................................... 259,659 217,673
---------- ----------
Net income.................................................. $ 523,540 $ 425,061
========== ==========
Net income per share........................................ $2.36 $1.92
Net income per share, diluted............................... 2.34 1.88
</TABLE>
71
<PAGE> 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following chart summarizes the assets acquired and liabilities assumed
in connection with business combinations, excluding the First Commercial and
other pooled companies business combinations, in 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash and due from banks..................................... $114,549 $ 245,610
Investment securities....................................... 5,982 72,514
Securities available for sale............................... 213,672 331,158
Loans, net.................................................. 566,821 1,304,507
Other assets................................................ 63,734 86,741
Deposits.................................................... 843,422 1,822,795
Borrowings.................................................. 25,788 55,320
Other liabilities........................................... 5,598 101,872
</TABLE>
As of December 31, 1999, Regions had the following pending business
combination:
<TABLE>
<CAPTION>
APPROXIMATE
---------------- ANTICIPATED
ASSET ACCOUNTING
INSTITUTION SIZE VALUE(1) CONSIDERATION TREATMENT
- ----------- ----- -------- ------------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
LCB Corporation, located in Fayetteville,
Tennessee.................................. $175 $47 Regions Common Stock Purchase
</TABLE>
- ---------------
(1) Computed as of the date of announcement of the transaction.
In January 2000, the Company consummated the LCB transaction, with the
issuance of approximately 1.2 million shares of common stock. This transaction
generated approximately $12.3 million of excess purchase price.
On July 31, 1998, First Commercial Corporation of Little Rock, Arkansas,
with approximately $7.3 billion in assets merged with and into Regions. Under
the terms of the transaction, Regions issued 64,120,031 shares of its common
stock for all of First Commercial's outstanding common stock (based on an
exchange ratio of 1.7 shares of Regions common stock for each share of First
Commercial common stock).
On March 31, 1998, First State Corporation of Albany, Georgia, (First
State) with approximately $536 million in assets merged with and into Regions.
Under the terms of the transaction, Regions issued 3,853,298 shares of its
common stock for all of First State's outstanding common stock (based on an
exchange ratio of .56 of a share of Regions common stock for each share of First
State common stock).
On March 14, 1998, First United Bancorporation of Anderson, South Carolina,
(First United) with approximately $305 million in assets merged with and into
Regions. Under the terms of the transaction, Regions issued 2,148,950 shares of
its common stock for all of First United's outstanding common stock (based on an
exchange ratio of .5173 of a share of Regions common stock for each share of
First United common stock).
On February 13, 1998, PALFED, Inc., of Aiken, South Carolina, (PALFED) with
approximately $665 million in assets merged with and into Regions. Under the
terms of the transaction, Regions issued 3,790,747 shares of its common stock
for all of PALFED's outstanding common stock (based on an exchange ratio of .7
of a share of Regions common stock for each share of PALFED common stock).
These transactions were accounted for as poolings of interests and
accordingly, all prior period financial statements were restated to include the
effect of these transactions.
72
<PAGE> 74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents financial information as reported by Regions,
First Commercial, other pooled companies (First State, First United, and PALFED)
and on a combined basis. In 1998, prior to consummation of First Commercial and
the other pooled companies, First Commercial contributed $171.8 in net interest
income and $72.3 million to net income and the other pooled companies
contributed $11.9 million in net interest income and $3.8 million to net income.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Net interest income:
Regions................................................... $ 828,881
First Commercial.......................................... 282,968
Other pooled companies.................................... 67,359
Combined.................................................. $1,179,208
Net income:
Regions................................................... $ 299,692
First Commercial.......................................... 100,059
Other pooled companies.................................... (2,222)
Combined.................................................. $ 397,529
Net income per common share:
Regions................................................... $ 2.20
Combined.................................................. 1.89
Net income per common share -- diluted:
Regions................................................... $ 2.15
Combined.................................................. 1.86
</TABLE>
NOTE R. STOCK OPTION AND LONG-TERM INCENTIVE PLANS
Regions has stock option plans for certain key employees that provide for
the granting of options to purchase up to 5,720,000 (excluding options assumed
in connection with acquisitions) shares of Regions' common stock. The terms of
options granted are determined by the personnel committee of the Board of
Directors; however, no options may be granted after ten years from the plans'
adoption and no options may be exercised beyond ten years from the date granted.
The option price per share of incentive stock options can not be less than the
fair market value of the common stock on the date of the grant; however, the
option price of non-qualified options may be less than the fair market value of
the common stock on the date of the grant. The plans also permit the granting of
stock appreciation rights to holders of stock options. Stock appreciation rights
were attached to 81,755; 116,713 and 134,956 of the shares under option at
December 31, 1999, 1998 and 1997, respectively.
Regions' long-term incentive plan provides for the granting of up to
10,000,000 shares of common stock in the form of stock options, stock
appreciation rights, performance awards or restricted stock awards. The terms of
stock options granted under the long-term incentive plan are generally subject
to the same terms as options granted under Regions' stock option plans. A
maximum of 3,000,000 shares of restricted stock and 5,000,000 shares of
performance awards may be granted. During 1999 and 1998, Regions granted 700 and
199,506 shares, respectively, as restricted stock and during 1999, 1998, and
1997, granted 411,372; 311,393 and 211,350 shares, respectively, as performance
awards. Grantees of restricted stock must remain employed with Regions for
certain periods from the date of the grant at the same or a higher level in
order for the shares to be released. However, during this period the grantee is
eligible to receive dividends and exercise voting privileges on such restricted
shares. In 1999, 1998, and 1997, 150,384; 99,013 and 179,314 restricted shares,
respectively, were released. Issuance of performance shares is dependent upon
achievement of certain performance criteria and is, therefore, deferred until
the end of the performance period. In 1999 and 1998,
73
<PAGE> 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
199,091 and 264,540 performance shares, respectively, were issued. Total expense
for restricted stock was $2,117,000 in 1999, $2,693,000 in 1998, and $2,969,000
in 1997. Total expense for performance shares was $3,274,000 in 1999,
$18,424,000 in 1998, and $20,927,000 in 1997.
In connection with the business combinations with Meigs County Bancshares,
Inc., VB&T Bancshares Corporation, Bullsboro BancShares, Inc., Arkansas Banking
Company and Minden Bancshares, Inc. in 1999, Regions assumed stock options,
which were previously granted by those companies and converted those options,
based on the appropriate exchange ratio, into options to acquire Regions' common
stock. The common stock for such options has been registered under the
Securities Act of 1933 by Regions and is not included in the maximum number of
shares that may be granted by Regions under its existing stock option plans.
Stock option activity (including assumed options) over the last three years
is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTION AVERAGE
SHARES UNDER PRICE EXERCISE
OPTION PER SHARE PRICES
------------ -------------- --------
<S> <C> <C> <C>
Balance at January 1, 1997..................... 6,724,748 $3.31 -- 22.44 $14.37
Options assumed through acquisitions......... 417,873 2.64 -- 20.31 9.73
Granted...................................... 975,538 22.94 -- 38.75 33.71
Exercised.................................... (1,453,529) 2.64 -- 22.44 11.05
Canceled..................................... (81,954) 7.43 -- 26.06 15.10
----------
Outstanding at December 31, 1997............... 6,582,676 $3.39 -- 38.75 $17.44
Options assumed through acquisitions......... 281,891 5.50 -- 33.72 11.77
Granted...................................... 1,150,257 39.47 -- 41.38 41.17
Exercised.................................... (1,166,575) 3.39 -- 36.42 12.17
Canceled..................................... (64,797) 9.03 -- 41.34 28.82
----------
Outstanding at December 31, 1998............... 6,783,452 $3.39 -- 41.38 $22.05
Options assumed through acquisitions......... 498,625 6.06 -- 17.81 9.83
Granted...................................... 1,242,172 34.66 -- 37.47 35.67
Exercised.................................... (1,292,088) 3.39 -- 37.85 12.61
Canceled..................................... (94,632) 8.01 -- 41.34 29.47
----------
Outstanding at December 31, 1999............... 7,137,529 $4.35 -- 41.38 $25.16
==========
Exercisable at December 31, 1999............. 5,681,014 $4.35 -- 41.38 $23.06
</TABLE>
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting and Disclosure of Stock-Based Compensation"
(Statement 123). Statement 123 is effective for fiscal years beginning after
December 15, 1995, and allows for the option of continuing to follow Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees", and the related Interpretations, or selecting the fair value method
of expense recognition as described in Statement 123. The Company has elected to
follow APB 25 in accounting for its employee stock options. Pro forma net income
and net income per share data as if the fair-value method had been applied in
measuring compensation costs is presented below for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Pro forma net income ($000's)............................... $520,625 $412,701 $395,171
Pro forma net income per share.............................. $2.35 $1.87 $1.88
Pro forma net income per share, diluted..................... 2.32 1.84 1.85
</TABLE>
Regions' options outstanding have a weighted average contractual life of
6.5 years. The weighted average fair value of options granted was $6.63 in 1999,
$8.77 in 1998 and $7.82 in 1997. The fair value of each grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions
74
<PAGE> 76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
used for grants in 1999: expected dividend yield of 4.0%; expected option life
of 5 years; expected volatility of 20.7%; and a risk free interest rate of 6.3%.
The 1998 assumptions used in the model included: expected dividend yield of
2.3%; expected option life of 5 years; expected volatility of 19.3%; and a risk
free interest rate of 4.5%. The 1997 assumptions were: expected dividend yield
of 2.2%; expected option life of 5 years; expected volatility of 19.7%; and a
risk free interest rate of 5.7%.
Since the exercise price of the Company's employee stock options equals the
market price of underlying stock on the date of grant, no compensation expense
is recognized.
The effects of applying Statement 123 for providing pro forma disclosures
are not likely to be representative of the effects on reported net income for
future years.
NOTE S. PARENT COMPANY ONLY FINANCIAL STATEMENTS
Presented below are condensed financial statements of Regions Financial
Corporation:
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash due from banks......................................... $ 122,457 $ 15,490
Loans to subsidiaries....................................... 6,200 61,100
Investment securities....................................... 3,914 3,929
Securities available for sale............................... 56 -0-
Premises and equipment...................................... 13,183 10,778
Investment in subsidiaries:
Banks..................................................... 3,124,962 2,995,219
Non-banks................................................. 112,382 196,120
---------- ----------
3,237,344 3,191,339
Other assets................................................ 36,257 47,938
---------- ----------
$3,419,411 $3,330,574
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper............................................ $ 56,750 $ 56,750
Long-term borrowings........................................ 213,446 220,173
Other liabilities........................................... 84,103 53,250
---------- ----------
Total liabilities........................................... 354,299 330,173
Stockholders' equity:
Common stock.............................................. 137,897 138,316
Surplus................................................... 1,022,825 1,147,357
Undivided profits......................................... 1,909,109 1,754,286
Treasury stock............................................ -0- (32,603)
Unearned restricted stock................................. (4,719) (6,955)
---------- ----------
Total stockholders' equity........................ 3,065,112 3,000,401
---------- ----------
$3,419,411 $3,330,574
========== ==========
</TABLE>
75
<PAGE> 77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
Dividends received from subsidiaries:
Banks.................................................. $392,749 $246,164 $290,902
Non-banks.............................................. 3,000 -0- 3,000
-------- -------- --------
395,749 246,164 293,902
Service fees from subsidiaries............................ 32,826 91,647 46,847
Interest from subsidiaries................................ 3,694 3,622 5,158
Other..................................................... 19,345 7,161 25,646
-------- -------- --------
451,614 348,594 371,553
Expenses:
Salaries and employee benefits............................ 14,216 54,794 34,706
Interest.................................................. 21,556 20,783 23,829
Net occupancy expense..................................... 1,167 1,946 857
Furniture and equipment expense........................... 1,339 4,111 654
Legal and other professional fees......................... 7,326 8,979 3,526
Amortization of excess purchase price..................... 15,098 11,412 10,892
Other expenses............................................ 8,757 7,286 27,372
-------- -------- --------
69,459 109,311 101,836
Income before income taxes and equity in undistributed
earnings of subsidiaries.................................. 382,155 239,283 269,717
Applicable income taxes (credit)............................ (694) (1,804) (3,153)
-------- -------- --------
Income before equity in undistributed earnings of
subsidiaries.............................................. 382,849 241,087 272,870
Equity in undistributed earnings of subsidiaries:
Banks..................................................... 138,787 169,689 119,141
Non-banks................................................. 3,750 10,936 5,518
-------- -------- --------
142,537 180,625 124,659
-------- -------- --------
Net Income........................................ $525,386 $421,712 $397,529
======== ======== ========
</TABLE>
Aggregate maturities of long-term borrowings in each of the next five years
for the parent company only are as follows: $630,000 in 2000; $25,660,000 in
2001; $75,690,000 in 2002; $710,000 in 2003; and $100,850,000 in 2004. Standby
letters of credit issued by the parent company totaled $7.6 million at December
31, 1999. This amount is included in total standby letters of credit disclosed
in Note L.
76
<PAGE> 78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income................................................ $ 525,386 $ 421,712 $ 397,529
Adjustments to reconcile net cash provided by operating
activities:
Equity in undistributed earnings of subsidiaries....... (142,537) (180,625) (124,659)
Provision for depreciation and amortization............ 18,636 17,409 16,551
Increase (decrease) in other liabilities............... 104,491 (32,424) 5,944
Loss on sale of premises and equipment................. 93 44 -0-
(Increase) in other assets............................. (3,417) (17,069) (18,842)
Stock issued to employees under incentive plan......... 4,959 14,717 10,971
Other.................................................. -0- -0- 588
--------- --------- ---------
Net cash provided by operating activities.............. 507,611 223,764 288,082
Investing activities:
Investment in subsidiaries................................ 18,525 103,138 (72,480)
Principal payments (advances) on loans to subsidiaries.... 54,900 (1,103) 508
Sale of subsidiaries...................................... -0- -0- 26,127
Sale and purchases of premises and equipment.............. (3,778) 3,368 (3,437)
Maturity (purchase) of investment securities.............. 15 34,519 (30,802)
Purchase of available for sale securities................. (56) -0- -0-
--------- --------- ---------
Net cash provided (used) by investing activities.......... 69,606 139,922 (80,084)
Financing activities:
Increase in commercial paper borrowings................... -0- 4,000 12,383
Cash dividends............................................ (221,928) (191,643) (149,533)
Purchase of treasury stock................................ (255,271) (181,651) (45,224)
Proceeds from long-term borrowings........................ 6,701 4,500 8,743
Principal payments on long-term borrowings................ (13,428) (10,120) (16,491)
Net (decrease) in short-term borrowings................... -0- -0- (31,850)
Proceeds from issuance of common stock.................... -0- -0- 2,417
Exercise of stock options................................. 13,676 8,416 3,150
--------- --------- ---------
Net cash (used) by financing activities................... (470,250) (366,498) (216,405)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents.......... 106,967 (2,812) (8,407)
Cash and cash equivalents at beginning of year............ 15,490 18,302 26,709
--------- --------- ---------
Cash and cash equivalents at end of year.................. $ 122,457 $ 15,490 $ 18,302
========= ========= =========
</TABLE>
NOTE T. REGULATORY CAPITAL REQUIREMENTS
Regions and its banking subsidiaries are subject to regulatory capital
requirements administered by federal banking agencies. These regulatory capital
requirements involve quantitative measures of the Company's assets, liabilities
and certain off-balance sheet items, and also qualitative judgments by the
regulators. Failure to meet minimum capital requirements can subject the Company
to a series of increasingly restrictive regulatory actions. As of December 31,
1999, the most recent notification from federal banking agencies categorized
Regions and its significant subsidiaries as "well capitalized" under the
regulatory framework.
Minimum capital requirements for all banks are Tier 1 Capital of at least
4% of risk-weighted assets, Total Capital of at least 8% of risk-weighted assets
and a Leverage Ratio of 3%, plus an additional 100 to 200
77
<PAGE> 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
basis point cushion in certain circumstances, of adjusted quarterly average
assets. Tier 1 Capital consists principally of stockholders' equity, excluding
unrealized gains and losses on securities available for sale, less excess
purchase price and certain other intangibles. Total Capital consists of Tier 1
Capital plus certain debt instruments and the allowance for loan losses, subject
to limitation.
Regions' and its most significant subsidiaries' capital levels at December
31, 1999 and 1998, exceeded the "well capitalized" levels, as shown below:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 TO BE
------------------ WELL
AMOUNT RATIO CAPITALIZED
---------- ----- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Tier I Capital:
Regions Financial Corporation......................... $2,791,191 9.51% 6.00%
Regions Bank.......................................... 2,917,543 9.79 6.00
Total Capital:
Regions Financial Corporation......................... $3,351,098 11.42% 10.00%
Regions Bank.......................................... 3,298,864 11.07 10.00
Leverage:
Regions Financial Corporation......................... $2,791,191 6.95% 5.00%
Regions Bank.......................................... 2,917,543 7.11 5.00
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998 TO BE
------------------ WELL
AMOUNT RATIO CAPITALIZED
---------- ----- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Tier I Capital:
Regions Financial Corporation......................... $2,625,312 10.26% 6.00%
Regions Bank.......................................... 2,580,689 10.73 6.00
Total Capital:
Regions Financial Corporation......................... $3,115,724 12.17% 10.00%
Regions Bank.......................................... 2,877,925 11.97 10.00
Leverage:
Regions Financial Corporation......................... $2,625,312 7.40% 5.00%
Regions Bank.......................................... 2,580,689 7.37 5.00
</TABLE>
NOTE U. MERGER AND CONSOLIDATION EXPENSES
In 1998, Regions incurred a pre-tax, non-recurring merger and consolidation
charge of $121.4 million related primarily to the merger of First Commercial and
four other institutions with Regions. The charge, recognized in the third
($114.7 million) and fourth ($6.7 million) quarters, consisted primarily of
employee-related obligations ($33.6 million), elimination of duplicate
facilities, obsolete equipment and other assets ($47.6 million), contract
terminations ($6.0 million), costs to exit certain lines of business ($5.1
million), and professional fees and contractual payments associated with the
mergers ($29.1 million). During 1998, merger-and consolidation-related costs
incurred or charged against the accrual totaled $117.0 million, resulting in a
balance in merger and consolidation accrual of $4.4 million at December 31,
1998, which is primarily associated with certain employee related obligations.
These employee-related obligations were paid out in early 1999, resulting in the
merger and consolidation accrual being reduced to zero.
The employee-related obligations primarily relates to termination payments
and payments under change of control provisions. The termination payments
related to the elimination of back office and administrative personnel. Excess
personnel were terminated during 1998 and all employee obligations were paid
during 1998, with the exception of the $4.4 million referred to above.
78
<PAGE> 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Regions recorded $47.6 million of write-downs related to facilities,
equipment and other assets that were impaired as a result of Regions'
consolidation of bank charters, consolidations of back office and certain branch
operations, and instituting efficiencies through alteration and elimination of
activities of the combining enterprises.
NOTE V. EARNINGS PER SHARE
The following table sets forth the computation of basic net income per
share and diluted net income per share.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Numerator:
For basic net income per share and diluted net income per
share, net income...................................... $525,386 $421,712 $397,529
======== ======== ========
Denominator:
For basic net income per share --
Weighted average shares outstanding.................... 221,617 220,114 209,781
Effect of dilutive securities:
Stock options............................................. 2,138 2,951 3,023
Performance shares........................................ 212 716 946
-------- -------- --------
2,350 3,667 3,969
-------- -------- --------
For diluted net income per share............................ 223,967 223,781 213,750
======== ======== ========
Basic net income per share.................................. $ 2.37 $ 1.92 $ 1.89
======== ======== ========
Diluted net income per share................................ 2.35 1.88 1.86
======== ======== ========
</TABLE>
NOTE W. 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 (including the merger and consolidation
charge).
79
<PAGE> 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The accounting policies used by each reportable segment are the same as
those discussed in Note A (summary of significant accounting policies). The
following table presents financial information for each reportable segment.
<TABLE>
<CAPTION>
MORTGAGE
CENTRAL NORTH NORTHEAST SOUTH SOUTHWEST WEST BANKING
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Net interest income... $ 201,436 $ 117,464 $ 215,336 $ 179,907 $ 194,262 $ 258,789 $ 88,653
Provision for loan
loss................. 16,211 7,957 16,116 12,456 14,013 17,201 21,466
Non-interest income... 60,482 30,864 53,787 63,890 51,290 68,428 142,375
Non-interest
expense.............. 106,560 61,721 117,905 90,973 106,918 148,157 132,684
Income taxes
(benefit)............ 55,748 31,459 54,312 56,620 50,200 64,631 36,990
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income........... $ 83,399 $ 47,191 $ 80,790 $ 83,748 $ 74,421 $ 97,228 $ 39,888
========== ========== ========== ========== ========== ========== ==========
Average assets........ $4,352,455 $2,917,670 $4,385,657 $4,167,355 $4,827,989 $5,545,436 $6,329,384
1998
Net interest income... $ 194,509 $ 102,289 $ 198,095 $ 170,023 $ 182,054 $ 242,773 $ 50,435
Provision for loan
loss................. 9,144 3,940 8,344 6,878 7,715 10,005 8,909
Non-interest income... 49,832 27,088 44,573 50,989 42,624 57,428 146,407
Non-interest
expense.............. 106,911 55,333 116,781 89,359 103,764 143,519 142,709
Income taxes
(benefit)............ 48,147 26,810 45,369 45,063 43,511 55,708 20,456
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss).... $ 80,139 $ 43,294 $ 72,174 $ 79,712 $ 69,688 $ 90,969 $ 24,768
========== ========== ========== ========== ========== ========== ==========
Average assets........ $4,369,141 $2,617,801 $4,102,434 $4,137,530 $4,499,761 $6,034,299 $4,135,151
1997
Net interest income... $ 174,559 $ 86,469 $ 162,324 $ 141,100 $ 149,054 $ 231,700 $ 19,799
Provision for loan
loss................. 14,828 5,951 12,329 10,517 9,858 23,321 11,025
Non-interest income... 47,073 22,162 38,322 45,472 33,618 46,831 139,278
Non-interest
expense.............. 110,985 49,942 102,674 88,592 85,379 146,324 102,439
Income taxes
(benefit)............ 38,611 21,284 34,783 33,208 34,763 49,463 21,221
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income........... $ 57,208 $ 31,454 $ 50,860 $ 54,255 $ 52,672 $ 59,423 $ 24,392
========== ========== ========== ========== ========== ========== ==========
Average assets........ $3,950,675 $2,224,756 $3,217,231 $3,560,545 $3,726,562 $5,705,377 $2,792,081
<CAPTION>
TOTAL
OTHER COMPANY
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
1999
Net interest income... $ 170,008 $ 1,425,855
Provision for loan
loss................. 8,238 113,658
Non-interest income... 66,025 537,141
Non-interest
expense.............. 299,394 1,064,312
Income taxes
(benefit)............ (90,320) 259,640
---------- -----------
Net income........... $ 18,721 $ 525,386
========== ===========
Average assets........ $7,081,986 $39,607,932
1998
Net interest income... $ 184,640 $ 1,324,818
Provision for loan
loss................. 5,570 60,505
Non-interest income... 55,756 474,697
Non-interest
expense.............. 345,332 1,103,708
Income taxes
(benefit)............ (71,474) 213,590
---------- -----------
Net income (loss).... $ (39,032) $ 421,712
========== ===========
Average assets........ $4,160,924 $34,057,041
1997
Net interest income... $ 214,203 $ 1,179,208
Provision for loan
loss................. 1,834 89,663
Non-interest income... 34,226 406,982
Non-interest
expense.............. 215,441 901,776
Income taxes
(benefit)............ (36,111) 197,222
---------- -----------
Net income........... $ 67,265 $ 397,529
========== ===========
Average assets........ $4,361,359 $29,538,586
</TABLE>
NOTE X. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the FASB issued Statement of Financial Accounting Standards
No. 137, "Deferral of Effective Date of Statement of Financial Accounting
Standards No. 133" (Statement 137). Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
(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, deferred by Statement 137, is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. Regions continues evaluating
the impact of Statement 133 on its financial position and results of operations.
NOTE Y. SUBSEQUENT EVENTS -- SALE OF CREDIT CARD PORTFOLIO
In March 2000, Regions announced the sale of its credit card portfolio with
balances totaling approximately $300 million. This transaction is expected to
result in a pre-tax gain of approximately $67 million.
80
<PAGE> 82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE Z. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS, COMMON STOCK MARKET PRICES
AND DIVIDENDS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1999
Total interest income................................. $666,441 $698,136 $731,986 $758,123
Total interest expense................................ 323,844 335,870 371,538 397,579
-------- -------- -------- --------
Net interest income................................. 342,597 362,266 360,448 360,544
Provision for loan losses........................... 20,738 23,944 30,707 38,269
-------- -------- -------- --------
Net interest income after provision for loan losses... 321,859 338,322 329,741 322,275
Total non-interest income, excluding securities
gains............................................... 143,099 121,769 133,269 138,844
Securities gains...................................... 16 22 3 119
Total non-interest expense............................ 262,575 260,224 265,220 276,293
Income taxes.......................................... 73,019 63,900 66,835 55,886
-------- -------- -------- --------
Net income............................................ $129,380 $135,989 $130,958 $129,059
======== ======== ======== ========
Per share:
Net income.......................................... .58 .61 .59 .59
Net income, diluted................................. .57 .60 .59 .59
Cash dividends declared............................. .25 .25 .25 .25
Market price:
Low.............................................. 34 9/16 34 3/8 29 5/8 23 3/16
High............................................. 41 5/8 39 1/8 39 31 13/16
1998
Total interest income................................. $628,097 $647,103 $657,306 $665,280
Total interest expense................................ 301,777 314,952 331,518 324,721
-------- -------- -------- --------
Net interest income................................... 326,320 332,151 325,788 340,559
Provision for loan losses............................. 14,419 14,516 12,547 19,023
-------- -------- -------- --------
Net interest income after provision for loan losses... 311,901 317,635 313,241 321,536
Total non-interest income, excluding securities
gains............................................... 108,253 118,405 114,177 126,860
Securities gains...................................... 104 2,938 85 3,875
Total non-interest expense, excluding merger and
consolidation expenses.............................. 242,022 248,497 234,692 257,059
Merger and consolidation expenses..................... -0- -0- 114,728 6,710
Income taxes.......................................... 61,172 64,124 26,799 61,495
-------- -------- -------- --------
Net income............................................ $117,064 $126,357 $ 51,284 $127,007
======== ======== ======== ========
Per share:
Net income.......................................... .53 .57 .23 .58
Net income, diluted................................. .52 .56 .23 .57
Cash dividends declared............................. .23 .23 .23 .23
Market price:
Low.............................................. 37 3/4 38 7/16 32 5/8 28 7/8
High............................................. 43 1/2 45 5/8 42 13/16 40 11/16
</TABLE>
Regions Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol RGBK. Market prices shown represent sales
prices as reported in the Nasdaq Monthly Summary of Activity Report. At December
31, 1999, there were 53,338 shareholders of record of Regions Financial
Corporation Common Stock.
81
<PAGE> 83
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements on accounting and financial disclosure
between Registrant and Ernst & Young LLP.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
All information presented under the captions "Information On Directors" and
"Section 16 Transactions" of the Registrant's proxy statement to be dated
approximately April 17, 2000, is incorporated by reference.
Executive officers of the Registrant as of December 31, 1999, are as
follows:
<TABLE>
<CAPTION>
POSITION AND
OFFICES HELD WITH OFFICER
EXECUTIVE OFFICER AGE REGISTRANT AND SUBSIDIARIES SINCE
- ----------------- --- --------------------------- -------
<S> <C> <C> <C>
J. Stanley Mackin......................... 67 Chairman and Director, Registrant and Regions 1983*
Bank;
Carl E. Jones, Jr......................... 59 Director, President and Chief Executive 1983*
Officer, Registrant and Regions Bank.
Director Regions Mortgage, Inc., Regions
Interstate Billing Service, Inc., and EFC
Holdings Corporation.
Richard D. Horsley........................ 57 Vice Chairman, Director and Executive 1972
Financial Officer, Registrant and Regions
Bank; Director and Vice President, Regions
Agency, Inc., Regions Asset Management
Company, Inc. and RAMCO -- FL Holding,
Inc.; Director, Regions Life Insurance
Company, Regions Mortgage, Inc., and EFC
Holdings Corporation.
Sam P. Faucett............................ 65 President/Southwest Region; Director, Regions 1983*
Bank and Regions Mortgage, Inc.
Jack Fleischauer.......................... 51 President/West Region; Director, Regions 1999*
Bank.
Joe M. Hinds, Jr.......................... 62 President/North Region; Director, Regions 1983*
Bank.
Wilbur B. Hufham.......................... 62 President/South Region; Director, Regions 1983*
Bank. Director Regions Mortgage, Inc.
William E. Jordan......................... 65 President/Central Region; Director, Regions 1990*
Bank.
Peter D. Miller........................... 53 President/Northeast Region; Director, Regions 1996*
Bank.
William E. Askew.......................... 50 Executive Vice President -- Retail Banking 1987
Division, Registrant and Regions Bank.
Robert P. Houston......................... 55 Executive Vice President and Comptroller, 1974
Registrant and Regions Bank; Director,
Secretary and Treasurer, Regions Life
Insurance Company and Regions Agency, Inc.;
Director and Vice President, Regions Asset
Management Company, Inc., RAMCO -- FL
Holding, Inc., Regions Assets Holding
Company, Inc., Regions Investment
Management Holding Company, Inc., Regions
Assets Company, Inc., Regions Licensing
Company, Inc., and Regions Investment
Management Company, Inc.
</TABLE>
82
<PAGE> 84
<TABLE>
<CAPTION>
POSITION AND
OFFICES HELD WITH OFFICER
EXECUTIVE OFFICER AGE REGISTRANT AND SUBSIDIARIES SINCE
- ----------------- --- --------------------------- -------
<S> <C> <C> <C>
E. Cris Stone............................. 57 Executive Vice President -- Corporate 1988
Banking, Registrant and Regions Bank;
Director and Vice President, Regions
Financial Leasing, Inc.; Director Regions
Interstate Billing Services, Inc.
Richard E. Wambsganss..................... 59 Executive Vice President -- Trust Group, 1987
Registrant and Regions Bank.
Samuel E. Upchurch Jr..................... 48 Executive Vice President, General Counsel and 1994
Corporate Secretary, Registrant and Regions
Bank; Director Regions Investment Company,
Inc., Regions Interstate Billing Services,
Inc., and EFC Holdings Corporation;
Director and Secretary, Regions Assets
Holding Company, Inc., Regions Investment
Management Holding Company, Inc., Regions
Assets Company, Inc., Regions Licensing
Company, Inc., and Regions Investment
Management Company, Inc.
</TABLE>
- ---------------
* The years indicated are those in which the individual was first deemed to be
an executive officer of Registrant, although in every case the individual had
been an executive officer of a subsidiary of Registrant for a number of years.
ITEM 11. EXECUTIVE COMPENSATION
All information presented under the caption "Executive Compensation and
Other Transactions", excluding the information under the subheading
"Compensation Committee Executive Compensation Report" of the Registrant's proxy
statement to be dated approximately April 17, 2000, is incorporated herein by
reference. All information presented under the caption "Executive Compensation
Report", of the Registrant's proxy statement to be dated approximately April 17,
2000, is specifically not incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All information presented under the captions "Voting Securities and
Principal Holders Thereof" and "Information on Directors" of the Registrant's
proxy statement to be dated approximately April 17, 2000, is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All information presented under the caption "Other Transactions", of the
Registrant's proxy statement to be dated approximately April 17, 2000, is
incorporated herein by reference.
83
<PAGE> 85
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14(a)(1) and (2) Financial Statement Schedules.
The following consolidated financial statements and report of independent
auditors of Regions Financial Corporation and subsidiaries are included in Item
8 of this Annual Report on Form 10-K:
Report of Independent Auditors
Consolidated Statements of Condition -- December 31, 1999 and 1998
Consolidated Statements of Income -- Years ended December 31, 1999, 1998
and 1997
Consolidated Statements of Cash Flows -- Years ended December 31, 1999,
1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity -- Years ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements -- December 31, 1999
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
14(a)(3) Listing of Exhibits:
<TABLE>
<CAPTION>
SEC ASSIGNED
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<C> <C> <S>
3. -- Bylaws as last amended on March 17, 1999, incorporated
herein by reference from the Exhibits to the Registration
Statement filed with the Commission and assigned file number
333-86975.
-- Certificate of Incorporation as last amended on June 18,
1999, incorporated herein by reference from the Exhibits to
the Registration Statement filed with the Commission and
assigned file number 333-86975.
4. -- a. Subordinated Notes Indenture Agreement dated as of
December 1, 1992, incorporated by reference from the
Exhibits to the Registration Statement filed with the
Commission and assigned registration number 33-45714.
10. -- *a. Regions Amended and Restated 1991 Long-Term Incentive
Plan incorporated by reference from Exhibit B to the
Registrant's proxy statement filed with the Commission
and dated March 16, 1995.
-- *b. Regions Management Incentive Plan Amended and Restated
as of January 1, 1999, incorporated by reference from
Appendix B to the Registrant's proxy statement filed
with the Commission and dated April 7, 1999.
-- *c. Regions 1999 Long-Term Incentive Plan incorporated by
reference from Appendix C to the Registrant's proxy
statement filed with the Commission and dated April 7,
1999.
</TABLE>
84
<PAGE> 86
<TABLE>
<CAPTION>
SEC ASSIGNED
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<C> <C> <S>
21. -- List of Subsidiaries of the Registrant.
23. -- Consent of Independent Auditors.
24.1 -- Power of Attorney.
27. -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* Represents a compensatory plan agreement that is required to be filed under
this item.
14(b)Reports on Form 8-K filed in the fourth quarter of 1999: Report on
Form 8-K, dated October 18, 1999, was filed under items 5 and 7 and
related to the Registrant's results of operation for the quarter and
nine months ended September 30, 1999.
14(c)The Exhibits not incorporated herein by reference are submitted as a
separate part of this report.
Note: Copies of the aforementioned exhibits are available to stockholders upon
request to:
Stockholder Assistance
417 North 20th Street
P. O. Box 10247
Birmingham, Alabama 35202-10247
14(d) Financial statement schedules:
None.
85
<PAGE> 87
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REGIONS FINANCIAL CORPORATION
By: /s/ Samuel E. Upchurch, Jr.
------------------------------------
Samuel E. Upchurch, Jr.
Executive Vice President, General
Counsel
and Corporate Secretary
Date: 3/15/00
By: /s/ Robert P. Houston
------------------------------------
Robert P. Houston
Executive Vice President and
Comptroller
Date: 3/15/00
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* J. Stanley Mackin Chairman and Director 3/15/00
- -----------------------------------------------------
J. Stanley Mackin
* Carl E. Jones, Jr. Chief Executive Officer, 3/15/00
- ----------------------------------------------------- President and Director
Carl E. Jones, Jr.
* Richard D. Horsley Vice Chairman, Executive 3/15/00
- ----------------------------------------------------- Financial Officer and Director
Richard D. Horsley
* Sheila S. Blair Director 3/15/00
- -----------------------------------------------------
Sheila S. Blair
* James B. Boone, Jr. Director 3/15/00
- -----------------------------------------------------
James B. Boone, Jr.
* James S. M. French Director 3/15/00
- -----------------------------------------------------
James S. M. French
* Olin B. King Director 3/15/00
- -----------------------------------------------------
Olin B. King
* Michael W. Murphy Director 3/15/00
- -----------------------------------------------------
Michael W. Murphy
* Henry E. Simpson Director 3/15/00
- -----------------------------------------------------
Henry E. Simpson
* W. Woodrow Stewart Director 3/15/00
- -----------------------------------------------------
W. Woodrow Stewart
</TABLE>
86
<PAGE> 88
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Lee J. Styslinger, Jr. Director 3/15/00
- -----------------------------------------------------
Lee J. Styslinger, Jr.
* John H. Watson Director 3/15/00
- -----------------------------------------------------
John H. Watson
* Robert J. Williams Director 3/15/00
- -----------------------------------------------------
Robert J. Williams
* C. Kemmons Wilson, Jr. Director 3/15/00
- -----------------------------------------------------
C. Kemmons Wilson, Jr.
*By: /s/ Samuel E. Upchurch, Jr. 3/15/00
-------------------------------------------------
Samuel E. Upchurch, Jr.
</TABLE>
as attorney-in-fact pursuant to a power of attorney
87
<PAGE> 89
ANNUAL REPORT ON FORM 10-K
ITEM 14(C)
EXHIBITS
<PAGE> 90
EXHIBITS INDEX
<TABLE>
<CAPTION>
SEC ASSIGNED
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<C> <C> <S>
3. -- Bylaws as last amended on March 17, 1999, incorporated
herein by reference from the Exhibits to the Registration
Statement filed with the Commission and assigned file number
333-86975.
Certificate of Incorporation as last amended on June 18,
1999, incorporated herein by reference from the Exhibits to
the Registration Statement filed with the Commission and
assigned file number 333-86975.
4. -- a. Subordinated Notes Indenture Agreement dated as of
December 1, 1992, incorporated by reference from the
Exhibits to the Registration Statement filed with the
Commission and assigned registration number 333-37361.
10. -- a. Regions Amended and Restated 1991 Long-Term Incentive
Plan incorporated by reference from Exhibit B to the
Registrant's proxy statement filed with the Commission
and dated March 16, 1995.
b. Regions Management Incentive Plan Amended and Restated as
of January 1, 1999, incorporated by reference from Appendix
B to the Registrant's proxy statement filed with the
Commission and dated April 7, 1999.
c. Regions 1999 Long-Term Incentive Plan incorporated by
reference from Appendix C to the Registrant's proxy
statement filed with the Commission and dated April 7,
1999.
21. -- List of Subsidiaries of the Registrant.
23. -- Consent of Independent Auditors.
24.1 -- Power of attorney.
27. -- Financial Data Schedule (for SEC use only).
</TABLE>
<PAGE> 1
Exhibit 21 - List of Subsidiaries at December 31, 1999:
Regions Bank (1)
Minden Bank & Trust Company (2)
Regions Financial Leasing, Inc. (3)
Regions Agency, Inc. (3)
Regions Investment Company, Inc. (3)
Regions Mortgage, Inc. (3)
Regions Life Insurance Company (4)
Regions Agency, Inc. (Georgia) (5)
Regions Agency, Inc. (Louisiana) (7)
Knox Mortgage Company (5)
Regions Title Company, Inc. (6)
MCB Life Insurance Company (6)
Meigs Holding (6)
MCB Insurance, Inc. (6)
Credit Source, Inc. (6)
Regions Credit Corporation (3)
Regions Interstate Billing Service, Inc. (3)
Regions Asset Management Company, Inc. (3)
RAMCO - FL Holding, Inc. (3)
Regions Asset Holding Company, Inc. (3)
Regions Asset Company, Inc. (8)
Regions Licensing Company, Inc. (8)
Regions Investment Management Holding Company, Inc. (8)
Regions Investment Management Company, Inc. (8)
Commercial Capital Funding, Inc. (9)
Regions Insurance Agency of Arkansas (9)
Palmetto Service Corporation (10)
Palmetto Investment Services, Inc. (10)
Quick Credit Corporation (10)
EFC Holdings Corporation (11)
EquiFirst, Inc. (11)
EquiFirst Mortgage Inc. (11)
Money America, Inc. (11)
Regions Reinsurance Corporation (12)
KWB Holdings, Inc. (13)
<PAGE> 2
(1) Affiliate state bank in Alabama chartered under the banking laws of
Alabama.
(2) Affiliate state bank in Louisiana chartered under the banking laws of
Louisiana.
(3) Bank-related subsidiary organized under the Business Corporation Act of
the state of Alabama.
(4) Bank-related subsidiary incorporated under the laws of the state of
Arizona and doing business principally in the state of Alabama.
(5) Bank-related subsidiary incorporated under the laws of the state of
Georgia.
(6) Bank-related subsidiary incorporated under the laws of the state of
Tennessee.
(7) Bank-related subsidiary incorporated under the laws of the state of
Louisiana.
(8) Bank-related subsidiary incorporated under the laws of the state of
Delaware.
(9) Bank-related subsidiary incorporated under the laws of the state of
Arkansas.
(10) Bank-related subsidiary incorporated under the laws of the state of South
Carolina.
(11) Bank-related subsidiary incorporated under the laws of the state of North
Carolina.
(12) Bank-related subsidiary incorporated under the laws of the state of
Vermont.
(13) Second-tier holding company subsidiary incorporated under the laws of the
state of Tennessee
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated February
22, 2000 (except Note Y, as to which the date is March 15, 2000), with respect
to the consolidated financial statements of Regions Financial Corporation and
subsidiaries included in this Annual Report (Form 10-K) for the year ended
December 31, 1999 in the following Registration Statements and in the related
Prospectuses:
Form S-8 No. 2-95291 pertaining to the 1983 Stock Option Plan;
Form S-8 No. 33-24370 pertaining to the 1988 Stock Option Plan;
Form S-8 No. 33-40728 pertaining to the 1991 Long-Term Incentive Plan;
Form S-8 No. 33-58469 pertaining to the stock options assumed in the
acquisition of First Community Bancshares, Inc. and the stock options
assumed in the acquisition of Union Bank and Trust Company;
Form S-8 No. 33-58979 pertaining to the 1991 Long-Term Incentive Plan;
Form S-3 No. 33-59735 pertaining to the registration of $200,000,000
subordinated debt securities;
Form S-8 No. 333-05281 pertaining to the stock options assumed in the
acquisition of Metro Financial Corporation;
Form S-8 No. 333-05335 pertaining to the stock options assumed in the
combination with First National Bancorp;
Form S-8 No. 333-10683 pertaining to the stock options assumed in the
acquisition of Rockdale Community Bank;
Form S-8 No. 333-10701 pertaining to the stock options assumed in the
acquisition of First Gwinnett Bancshares, Inc.;
Form S-8 No. 333-21651 pertaining to the stock options assumed in the
acquisition of Florida First Bancorp, Inc.;
Form S-8 No. 333-24265 pertaining to the Regions Financial Corporation
Profit Sharing Plan;
Form S-8 No. 333-28089 pertaining to the stock options assumed in the
acquisition of West Carroll Bancshares, Inc.;
Form S-8 No. 333-28091 pertaining to the stock options assumed in the
acquisition of First Mercantile National Bank;
Form S-8 No. 333-29685 pertaining to the stock options assumed in the
acquisition of First Bankshares, Inc.;
Form S-8 No. 333-30643 pertaining to the stock options assumed in the
acquisition of The New Iberia Bancorp, Inc.;
Form S-8 No. 333-43675 pertaining to the Regions Financial Corporation
Directors' Stock Investment Plan;
Form S-8 No. 333-43677 pertaining to the Regions Financial Corporation
Employee Stock Purchase Plan;
Form S-8 No. 333-43943 pertaining to the stock options assumed in the
acquisition of GF Bancshares, Inc.;
Form S-8 No. 333-49909 pertaining to the stock options assumed in the
acquisition of Greenville Financial Corporation;
Form S-8 No. 333-50665 pertaining to the stock options assumed in the
acquisition of PALFED, Inc.;
Form S-8 No. 333-53019 pertaining to the stock options assumed in the
acquisition of First State Corporation;
Form S-8 No. 333-53021 pertaining to the stock options assumed in the
acquisition of First United Bancorporation;
Form S-8 No. 333-60497 pertaining to the stock options assumed in the
combination with First Commercial Corporation;
Form S-8 No. 333-69759 pertaining to the stock options assumed in the
acquisition of First Community Banking Services, Inc.;
Form S-3 No. 333-70421 pertaining to shares issued in the acquisition of
EFC Holdings Corporation;
Form S-8 No. 333-72161 pertaining to the stock options assumed in the
acquisition of Bullsboro BancShares, Inc.;
<PAGE> 2
Form S-8 No. 333-72165 pertaining to the stock options assumed in the
acquisition of Meigs County Bancshares, Inc.;
Form S-8 No. 333-72389 pertaining to the stock options and warrants assumed
in the acquisition of VB&T Bancshares Corp.;
Form S-8 No. 333-76113 pertaining to the stock options assumed in the
acquisition of Arkansas Banking Corporation;
Form S-8 No. 333-86969 pertaining to the 1999 Long Term Incentive Plan;
Form S-3 No. 333-86975 pertaining to additional shares issued in connection
with the acquisition of EFC Holdings Corporation;
Form S-8 No. 333-86977 pertaining to additional stock options assumed in
the acquisition of PALFED, Inc.; and
Form S-8 No. 333-95325 pertaining to the stock options assumed in the
acquisition of Minden Bancshares, Inc.
/s/ ERNST & YOUNG LLP
Birmingham, Alabama
March 20, 2000
<PAGE> 1
EXHIBIT 24.1
REGIONS FINANCIAL CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers
of REGIONS FINANCIAL CORPORATION (the "Corporation") hereby constitute and
appoint Richard D. Horsley and Samuel E. Upchurch, Jr. and each of them, the
true and lawful agent and attorney-in-fact of the undersigned, with full power
of substitution and resubstitution, and with full power and authority in said
agents and attorneys-in-fact, and in one of them, to sign for the undersigned
and in their respective names as directors and officers of the Corporation, for
1999 Form 10-K.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------- --------------
/s/ Carl E. Jones President and Chief Executive March 15, 2000
- --------------------------- Officer and Director
Carl E. Jones (principal executive officer)
/s/ Richard D. Horsley Vice Chairman of the Board and March 15, 2000
- --------------------------- Executive Financial Officer
Richard D. Horsley and Director
(principal financial officer)
/s/ Robert P. Houston Executive Vice President and March 15, 2000
- --------------------------- Comptroller
Robert P. Houston (principal accounting officer)
/s/ Sheila S. Blair Director March 15, 2000
- ---------------------------
Sheila S. Blair
/s/ James B. Boone, Jr. Director March 15, 2000
- ---------------------------
James B. Boone, Jr.
/s/ James S.M. French Director March 15, 2000
- ---------------------------
James S.M. French
/s/ Olin B. King Director March 15, 2000
- ---------------------------
Olin B. King
/s/ J. Stanley Mackin Chairman of the Board March 15, 2000
- --------------------------- and Director
J. Stanley Mackin
/s/ Michael W. Murphy Director March 15, 2000
- ---------------------------
Michael W. Murphy
/s/ Henry E. Simpson Director March 15, 2000
- ---------------------------
Henry E. Simpson
/s/ Lee J. Styslinger, Jr. Director March 15, 2000
- ---------------------------
Lee J. Styslinger, Jr.
/s/ W. Woodrow Stewart Director March 15, 2000
- ---------------------------
W. Woodrow Stewart
/s/ John H. Watson Director March 15, 2000
- ---------------------------
John H. Watson
/s/ Robert J. Williams Director March 15, 2000
- ---------------------------
Robert J. Williams
/s/ C. Kemmons Wilson, Jr. Director March 15, 2000
- ---------------------------
C. Kemmons Wilson, Jr.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF REGIONS FINANCIAL CORPORATION FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,393,418,000
<INT-BEARING-DEPOSITS> 9,653,000
<FED-FUNDS-SOLD> 66,078,000
<TRADING-ASSETS> 14,543,000
<INVESTMENTS-HELD-FOR-SALE> 6,858,765,000
<INVESTMENTS-CARRYING> 4,054,279,000
<INVESTMENTS-MARKET> 3,934,047,000
<LOANS> 28,144,675,000
<ALLOWANCE> 338,375,000
<TOTAL-ASSETS> 42,714,395,000
<DEPOSITS> 29,989,094,000
<SHORT-TERM> 7,624,985,000
<LIABILITIES-OTHER> 284,343,000
<LONG-TERM> 1,750,861,000
0
0
<COMMON> 137,897,000
<OTHER-SE> 2,927,215,000
<TOTAL-LIABILITIES-AND-EQUITY> 42,714,395,000
<INTEREST-LOAN> 2,201,786,000
<INTEREST-INVEST> 564,419,000
<INTEREST-OTHER> 88,481,000
<INTEREST-TOTAL> 2,854,686,000
<INTEREST-DEPOSIT> 1,056,799,000
<INTEREST-EXPENSE> 1,428,831,000
<INTEREST-INCOME-NET> 1,425,855,000
<LOAN-LOSSES> 113,658,000
<SECURITIES-GAINS> 160,000
<EXPENSE-OTHER> 1,064,312,000
<INCOME-PRETAX> 785,026,000
<INCOME-PRE-EXTRAORDINARY> 785,026,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 525,386,000
<EPS-BASIC> 2.37
<EPS-DILUTED> 2.35
<YIELD-ACTUAL> 3.94
<LOANS-NON> 169,904,000
<LOANS-PAST> 71,952,000
<LOANS-TROUBLED> 8,390,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 315,412,000
<CHARGE-OFFS> 129,237,000
<RECOVERIES> 30,049,000
<ALLOWANCE-CLOSE> 338,375,000
<ALLOWANCE-DOMESTIC> 338,375,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 338,375,000
</TABLE>
