<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2000 COMMISSION FILE NUMBER
0-6159
REGIONS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 63-0589368
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
417 North 20th Street, Birmingham, Alabama 35203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 944-1300
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to the filing requirements for at least
the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common Stock, $.625 Par Value-218,841,161 shares outstanding
as of July 31, 2000
<PAGE>
REGIONS FINANCIAL CORPORATION
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Condition -
June 30, 2000, December 31, 1999
and June 30, 1999 2
Consolidated Statements of Income -
Three months ended June 30, 2000 and
June 30, 1999 and Six months ended
June 30, 2000 and June 30, 1999 3
Consolidated Statement of Stockholders' Equity -
Six months ended June 30, 2000 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 2000 and
June 30, 1999 5
Notes to Consolidated Financial Statements -
June 30, 2000 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 3. Qualitative and Quantitative Disclosures
about Market Risk 21
Item 4. Submission of Matters to a Vote of Security
Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
<PAGE>
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
June 30 December 31 June 30
2000 1999 1999
ASSETS
Cash and due from banks $ 1,140,766 $ 1,393,418 $ 1,350,476
Interest-bearing deposits in other banks 2,202 9,653 77,255
Investment securities 3,626,457 4,054,279 3,327,552
Securities available for sale 5,619,226 6,858,765 5,512,854
Trading account assets 18,652 14,543 23,982
Mortgage loans held for sale 356,801 567,131 1,266,412
Federal funds sold and securities
purchased under agreement to resell 72,108 66,078 58,192
Loans 30,479,546 28,221,240 26,621,557
Unearned income (88,556) (76,565) (68,872)
Loans, net of unearned income 30,390,990 28,144,675 26,552,685
Allowance for loan losses (363,475) (338,375) (326,982)
Net Loans 30,027,515 27,806,300 26,225,703
Premises and equipment 588,697 580,707 571,564
Interest receivable 326,815 306,707 302,125
Due from customers on acceptances 53,969 72,098 54,339
Other assets 1,068,306 984,716 1,016,127
$42,901,514 $42,714,395 $39,786,581
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 4,573,881 $ 4,419,693 $ 4,569,264
Interest-bearing 27,935,020 25,569,401 23,857,947
Total Deposits 32,508,901 29,989,094 28,427,211
Borrowed funds:
Short-term borrowings:
Federal funds purchased and securities
sold under agreement to repurchase 2,630,399 5,614,613 3,922,436
Commercial paper 36,750 56,750 56,750
Other short-term borrowings 1,816,220 1,953,622 3,457,604
Total Short-term Borrowings 4,483,369 7,624,985 7,436,790
Long-term borrowings 2,370,148 1,750,861 388,377
Total Borrowed Funds 6,853,517 9,375,846 7,825,167
Bank acceptances outstanding 53,969 72,098 54,339
Other liabilities 297,692 212,245 348,423
Total Liabilities 39,714,079 39,649,283 36,655,140
Stockholders' Equity:
Preferred Stock, par value $1.00 a share
Authorized 5,000,000 shares -0- -0- -0-
Common Stock, par value $.625 a share:
Authorized - 500,000,000 shares
Issued, including treasury stock -
222,445,291; 220,635,661; and
224,018,774 shares, respectively 139,028 137,897 140,012
Surplus 1,056,452 1,022,825 1,167,994
Undivided profits 2,196,513 2,044,209 1,893,778
Treasury stock, at cost - 3,350,000; 0;
and 888 shares, respectively (73,941) -0- (34)
Unearned restricted stock (8,088) (4,719) (5,765)
Accumulated other comprehensive (loss) (122,529) (135,100) (64,544)
Total Stockholders' Equity 3,187,435 3,065,112 3,131,441
$42,901,514 $42,714,395 $39,786,581
</TABLE>
See notes to consolidated financial statements.
<PAGE>
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
Interest Income:
Interest and fees on loans $633,868 $540,192 $1,236,825 $1,052,670
Interest on securities:
Taxable interest income 137,104 128,773 292,171 250,535
Tax-exempt interest income 10,325 9,761 20,486 19,559
Total Interest on Securities 147,429 138,534 312,657 270,094
Interest on mortgage loans held
for sale 9,329 17,548 19,642 38,184
Income on federal funds sold and
securities purchased under agreement
to resell 1,370 937 2,499 1,875
Interest on time deposits in other banks 184 573 377 1,087
Interest on trading account assets 407 352 816 667
Total Interest Income 792,587 698,136 1,572,816 1,364,577
Interest Expense:
Interest on deposits 342,894 255,257 662,071 512,712
Interest on short-term borrowings 64,422 72,928 142,378 130,527
Interest on long-term borrowings 36,580 7,685 65,560 16,475
Total Interest Expense 443,896 335,870 870,009 659,714
Net Interest Income 348,691 362,266 702,807 704,863
Provision for loan losses 27,804 23,944 56,981 44,682
Net Interest Income After Provision
for Loan Losses 320,887 338,322 645,826 660,181
Non-Interest Income:
Trust department income 14,059 12,610 28,110 25,361
Service charges on deposit accounts 57,542 46,845 110,950 91,657
Mortgage servicing and origination fees 21,539 26,453 43,495 59,537
Securities gains (losses) 67 22 (39,951) 38
Other 44,443 35,861 161,838 88,313
Total Non-Interest Income 137,650 121,791 304,442 264,906
Non-Interest Expense:
Salaries and employee benefits 146,244 138,723 293,497 275,372
Net occupancy expense 16,811 14,334 32,669 28,990
Furniture and equipment expense 17,320 16,322 34,317 32,852
Other 92,412 90,845 183,439 185,585
Total Non-Interest Expense 272,787 260,224 543,922 522,799
Income Before Income Taxes 185,750 199,889 406,346 402,288
Applicable income taxes 60,457 63,900 135,048 136,919
Net Income $125,293 $135,989 $271,298 $265,369
Average number of shares outstanding 220,264 223,995 220,782 223,206
Average number of shares outstanding-diluted 221,426 226,887 221,987 226,181
Per share:
Net income $0.57 $0.61 $1.23 $1.19
Net income-diluted $0.57 $0.60 $1.22 $1.17
Cash dividends declared $0.27 $0.25 $0.54 $0.50
</TABLE>
See notes to consolidated financial statements.
<PAGE>
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<TABLE> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Unearned Other
Common Undivided Treasury Restricted Comprehensive
Stock Surplus Profits Stock Stock Income Total
BALANCE AT JANUARY 1, 2000 $137,897 $1,022,825 $2,044,209 $ -0- $(4,719) $(135,100) $3,065,112
Comprehensive Income:
Net Income 271,298 271,298
Other comprehensive income,
net of tax
Unrealized gains on available
for sale securities, net of
reclassification adjustment 12,571 12,571
Comprehensive income* 271,298 12,571 283,869
Cash dividends declared
($0.54 per common share) (118,994) (118,994)
Purchase of treasury stock (73,941) (73,941)
Common stock transactions:
Stock issued for
acquisitions 770 27,172 27,942
Stock issued to employees
under incentive plans 195 4,805 (4,672) 328
Stock options exercised 166 1,650 1,816
Amortization of unearned
restricted stock 1,303 1,303
BALANCE AT JUNE 30, 2000 $139,028 $1,056,452 $2,196,513 $(73,941) $(8,088) $(122,529) $3,187,435
Disclosure of reclassification amount:
Unrealized holding (losses)
on available for sale securities
arising during period $(13,397)
Less:Reclassificationadjustment,
net of tax, for gains and losses
realized in net income (25,968)
Net unrealized gains on
available for sale securities,
net of tax $ 12,571
</TABLE>
*Comprehensive income as of June 30, 1999 was $225.8 million.
See notes to consolidated financial statements.
<PAGE>
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)
<TABLE>
<S> <C> <C>
Six Months Ended
June 30
2000 1999
Operating Activities:
Net income $ 271,298 $ 265,369
Adjustments to reconcile net cash provided by
operating activities
Gain on sale of credit card portfolio (67,220) -0-
Depreciation and amortization of premises and
equipment 30,762 26,957
Provision for loan losses 56,981 44,682
Net (accretion) of securities (1,670) (89)
Amortization of loans premium and other
assets 38,566 35,242
Amortization of deposits and borrowings
premium 242 169
Provision for losses on other real estate 463 103
Deferred income taxes (15,382) 2,920
(Gain) on sale of premises and equipment (661) (1,025)
Realized securities losses (gains) 39,951 (38)
(Increase) Decrease in trading account assets (4,109) 25,405
Decrease (Increase) in mortgages held for
sale 210,330 (338,744)
(Increase) in interest receivable (16,677) (3,930)
(Increase) in other assets (100,181) (90,311)
Increase in other liabilities 91,969 42,841
Stock issued to employees 3,088 4,959
Other, net 1,303 1,191
Net Cash Provided By Operating Activities 539,053 15,701
Investing Activities:
Net (increase) in loans (2,328,638) (1,790,512)
Proceeds from sale of credit card portfolio 344,785 -0-
Proceeds from sale of securities available for
sale 1,141,059 1,752
Proceeds from maturity of investment
securities 491,566 352,421
Proceeds from maturity of securities available
for sale 480,629 1,440,976
Purchase of investment securities (62,970) (701,570)
Purchase of securities available for sale (369,823) (2,016,802)
Net decrease in interest-bearing deposits in
other banks 12,143 67,812
Proceeds from sale of premises and equipment 14,484 15,305
Purchase of premises and equipment (45,298) (63,221)
Net decrease in customers' acceptance
liability 18,129 2,707
Net cash received in acquisitions 69,269 130,150
Net Cash (Used) By Investing Activities (234,665) (2,560,982)
Financing Activities:
Net increase (decrease) in deposits 2,180,567 (496,308)
Net (decrease) increase in short-term
borrowings (3,141,616) 2,936,504
Proceeds from long-term borrowings 1,193,040 422,020
Payments on long-term borrowings (573,753) (613,683)
Net increase in bank acceptance liability (18,129) (2,707)
Cash dividends (118,994) (112,342)
Purchase of treasury stock (73,941) (42,770)
Proceeds from exercise of stock options 1,816 10,288
Net Cash (Used) Provided By Financing
Activities (551,010) 2,101,002
(Decrease) in Cash and Cash Equivalents (246,622) (444,279)
Cash and Cash Equivalents, Beginning of Period 1,459,496 1,852,947
Cash and Cash Equivalents, End of Period $1,212,874 $1,408,668
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE A -- Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions for Form 10-Q,
and, therefore, do not include all information and footnotes
necessary for a fair presentation of financial position, results
of operations and cash flows in conformity with accounting
principles generally accepted in the United States. For a summary
of significant accounting policies that have been consistently
followed, see NOTE A to the Consolidated Financial Statements
included under Item 8 of the Annual Report on Form 10-K. It is
management's opinion that all adjustments, consisting of only
normal and recurring items necessary for a fair presentation, have
been included.
Certain amounts in prior periods have been reclassified to conform
to the current period presentation.
NOTE B -- Business Combinations
In May 2000, Regions acquired six offices in Fort Smith, Arkansas
from AmSouth Bancorporation. This transaction, accounted for as a
purchase, added approximately $186 million in deposits and
generated approximately $18.6 million in excess purchase price.
In August 2000, Regions issued 819,689 shares of common stock in
exchange for all the outstanding stock of Heritage Bancorp, Inc.
of Hutto, Texas. This transaction, accounted for as a purchase,
added approximately $109 million in assets.
Also in August 2000, Regions issued 2,404,048 shares of common
stock in exchange for all the outstanding stock of First National
Bancshares of Louisiana, Inc. of Alexandria, Louisiana. This
transaction, accounted for as a purchase, added approximately $253
million in assets.
NOTE C -- Pending Acquisitions
Regions' pending acquisition is summarized in the following table.
This transaction is expected to be accounted for as purchase and
are subject to applicable shareholder and regulatory approval.
Expected
Number of
Shares of
Regions to
Approximate be
Asset Size Type of Exchange issued(1)
Institution (in millions) Consideration Ratio (in 000's)
East Coast
Bank
Corporation of Regions
Ormond Beach, Common
Florida $108 Stock 1,750.00 523
(1) - Based on the number of shares of outstanding stock of the
institution as of the announcement date.
NOTE D -- New Accounting Standards
In June 2000, the FASB issued Statement of Financial Accounting
Standards No. 138, "Accounting for Derivative Instruments and
Hedging Activities -- an amendment to FASB Statement No. 133,
(Statement 138). Statement 138 incorporated certain
interpretations of FASB Statement of Financial Accounting
Standards No. 133, "Accounting for Derivatives Instruments and
Hedging Activities" (Statement 133) to clarify certain aspects of
the statement. In June 1999, the FASB issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective
Date of FASB Statement No. 133" (Statement 137). Statement 137
defers for one year the effective date of Statement 133. Statement
133 requires all derivatives to be recorded on the balance sheet
at fair value and establishes "special accounting" for the
following three different types of hedges: hedges of changes in
the fair value of assets, liabilities or firm commitments
(referred to as fair value hedges); hedges of the variable cash
flows of forecasted transactions (cash flow hedges); and hedges of
foreign currency exposures of net investments in foreign
operations. As amended, Statement 133 is effective for quarters in
fiscal years beginning after June 15, 2000. Regions is currently
evaluating the impact this statement on its risk management
strategies and processes, information systems and financial
statements.
NOTE E -- Year 2000 Compliance
In prior periods, 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 is
not aware of any material problems resulting from Year 2000
issues, either with its products, its internal systems, or its
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.
NOTE F -- Business Segment Information
Regions' segment information is presented geographically, based on Regions'
three 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 three reportable regions are West, Central, and
East. These regions represent the Company's branch banking functions and have
separate managements that are responsible for the operation of each business
unit. The West region consists of the states of Arkansas, Louisiana, and east
Texas. The Central region is made up of Alabama and Tennessee. Georgia, South
Carolina, and Florida comprise the East region. In addition, Regions has
included the activity of its treasury division, which includes its bond
portfolio, indirect mortgage lending division, and other wholesale activities.
The other reportable segments include activity of Regions' broker dealer and
insurance subsidiaries, the indirect consumer lending division, and the parent
company.
The accounting policies used by each reportable segment are the same as those
discussed in Note A to the Consolidated Financial Statements included under Item
8 of the Annual Report on Form 10-K. The following table presents financial
information for each reportable segment.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Six months ended June 30, 2000
(in thousands) Total
West Central East Treasury Other Company
Net interest income $188,021 $215,128 $206,756 $ (3,238) $ 96,140 $702,807
Provision for loan loss 12,453 14,765 14,528 12,112 3,123 56,981
Non-interest income 47,250 63,607 41,689 50 151,846 304,442
Non-interest expense 111,462 108,183 109,077 10,433 204,767 543,922
Income taxes 43,898 61,855 50,162 (9,649) (11,218) 135,048
Net income $67,458 $93,932 $ 74,678 $(16,084) $ 51,314 $271,298
Average assets $6,756,231 $7,946,015 $7,787,493 $17,446,466 $2,471,414 $42,407,619
Six months ended June 30, 1999
(in thousands) Total
West Central East Treasury Other Company
Net interest income $190,741 $200,255 $195,053 $53,206 $ 65,608 $704,863
Provision for loan loss 10,036 11,552 11,406 8,268 3,420 44,682
Non-interest income 42,829 55,437 38,744 7,572 120,324 264,906
Non-interest expense 104,441 100,961 105,246 6,886 205,265 522,799
Income taxes 46,538 56,786 46,282 20,258 (32,945) 136,919
Net income $72,555 $86,393 $70,863 $25,366 $ 10,192 $265,369
Average assets $6,216,533 $6,896,638 $6,867,261 $13,274,828 $4,910,787 $38,166,047
</TABLE>
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Regions' total assets at June 30, 2000, were $42.9 billion -- an
increase of 8% over a year earlier. The increase in total assets
resulted from growth in almost all categories of assets,
particularly loans, due to internal asset generation and
acquisition activity. Since year-end 1999, total assets increased
only slightly, due to strong internal loan growth offset by the
sale of approximately $1.2 billion of securities available for
sale and the sale of the credit card portfolio.
Comparisons with the prior year are affected by the acquisitions
of Minden Bancshares, Inc., LCB Corporation, and the branch
purchase from AmSouth Bancorporation (accounted for as purchases).
Relevant 1999 and 2000 acquisitions are summarized as follows:
Date Headquarters Total Assets Accounting
Acquired Company Acquired Location (in thousands) Treatment
December Minden Minden, $318,955 Purchase
1999 Bancshares, Inc. Louisiana
January LCB Corporation Fayetteville, 173,157 Purchase
2000 Tennessee
May 2000 Branches of Fort Smith, 186,361 Purchase
AmSouth Arkansas
Bancorporation
LOANS
Loans increased 14% versus June 30, 1999. During the third and
fourth quarters of 1999, Regions securitized $1.3 billion of
mortgage loans. Adjusting for the securitizations, the sale of the
credit card portfolio and acquisitions, loans increased 19% over
the prior year. The 19% increase was attributable primarily to
growth in the real estate loan portfolio. Since December 31,
1999, total loans increased 8%, due to $228 million in acquired
loans and $2.3 billion in internal loan growth partially offset by
the $278 million credit card sale. The average yield on loans
during the first six months of 2000 was 8.54%, compared to 8.38%
during the same period in 1999. This increase was primarily the
result of efforts to maintain net interest spreads in light of a
rising interest rate environment.
Non-performing assets were as follows (in thousands):
June 30, Dec. 31, June 30,
2000 1999 1999
Non-accruing loans $184,934 $169,904 $159,103
Loans past due 90
days or more 67,388 71,952 99,575
Renegotiated loans 12,616 8,390 5,849
Other real estate 16,837 12,662 13,942
Total $281,775 $262,908 $278,469
Non-performing assets
as a percentage of
loans and other real
estate .93% .93% 1.05%
Non-accruing loans have increased $25.8 million since June 30,
1999 and $15.0 million since year end. These increases are
principally in the commercial category but do not result from
geographic or industry concentrations. Loans past due 90 days or
more decreased $32.2 million, compared to June 1999 and $4.6
million since year end due to charge-offs and collections of past
due loans. At June 30, 2000, real estate loans comprised $113.0
million of total non-accruing loans, with commercial loans
accounting for $58.9 million and consumer loans $13.0 million.
Other real estate increased $4.2 million since year end and $2.9
million since June 1999 due to parcels added in connection with
acquisitions.
Activity in the allowance for loan losses is summarized as follows
(in thousands):
Six months ended,
June 30, June 30,
2000 1999
Balance at beginning of period $338,375 $315,412
Net loans charged-off:
Commercial 5,653 10,666
Real estate 4,042 1,171
Installment 24,045 26,809
Total 33,740 38,646
Allowance of acquired banks 1,859 5,534
Provision charged to expense 56,981 44,682
Balance at end of period $363,475 $326,982
Net loan losses in the first six months of 2000 and 1999 were
0.23% and 0.31% of average loans (annualized), respectively. The
lower levels of loan losses results from the sale of the credit
card portfolio in March of 2000 and fewer charge-offs in the
commercial loan portfolio partially offset by higher real estate
loan losses. At June 30, 2000 the allowance for loan losses stood
at 1.20% of loans, compared to 1.23% a year ago and 1.20% at year
end. The allowance for loan losses as a percentage of
non-performing loans and non-performing assets was 137% and 129%,
respectively, at June 30, 2000, compared to 124% and 117%,
respectively, at June 30, 1999.
The allowance for loan losses is maintained at a level deemed
adequate by management to absorb possible losses from loans in the
portfolio. In determining the adequacy of the allowance for loan
losses, management considers numerous factors, including but not
limited to: (1) management's estimate of future economic
conditions and the resulting impact on Regions, (2) management's
estimate of the financial condition and liquidity of certain loan
customers, and (3) management's estimate of collateral values of
property securing certain loans. Because all of these factors and
others involve the use of management's estimation and judgment,
the allowance for loan losses is inherently subject to adjustment
at future dates. At June 30, 2000, it is management's opinion
that the allowance for loan losses is adequate. However,
unfavorable changes in the factors used by management to determine
the adequacy of the allowance, including increased consumer loan
delinquencies and subsequent charge-offs, or the availability of
new information, could require additional provisions, in excess of
normal provisions, to the allowance for loan losses in future
periods. No portion of the resulting allowance is in any way
allocated or restricted to any individual loan or group of loans.
The entire allowance is available to absorb losses from any and
all loans.
Regions uses a systematic approach to determine the adequacy of
the allowance for loan losses. Regions' systematic approach
includes assigning loss factors, based on historical data as
adjusted for current business and economic conditions, to
portfolios of loans with similar characteristics for which
estimates of inherent probable losses can be made. The loss
factors are applied to the respective portfolios in order to
determine the overall allowance adequacy.
On loans which are considered impaired, it is Regions' policy to
reverse interest previously accrued on the loan against interest
income. Interest on such loans is thereafter recorded on a "cash
basis" and is included in earnings only when actually received in
cash and when full payment of principal is no longer doubtful.
INVESTMENTS AND OTHER ASSETS
Total securities have increased 5% since June 30, 1999 but
decreased 15% since year end. The decline since December 31, 1999,
is the result of the $1.2 billion sale of securities available for
sale. On a yearly comparison, securities showed only modest growth
as the loan securitizations in the third and fourth quarters of
1999, totaling $1.3 billion, were offset by the aforementioned
sale of securities. A small balance of securities was added by
acquisitions in late 1999 and early 2000.
Mortgage loans held for sale have decreased $910 million since
June 30, 1999 and $210 million since year end as a result of lower
levels of residential mortgage loan production at Regions'
mortgage banking subsidiary compared to 1999. Residential mortgage
loan production at Regions' mortgage banking subsidiary was
approximately $1.5 billion during the first six months of 2000,
compared to $3.2 billion during the same time period in 1999.
Interest-bearing deposits in other banks at March 31, 2000 totaled
$2.2 million, a decrease of $75.1 million compared to a year ago
and $7.5 million compared to year end. These decreases resulted
from the utilization of alternative investments as interest
bearing deposits matured.
Premises and equipment have increased $8.0 million since year end
and $17.1 million since June 30, 1999. These increases were due
primarily to the addition of premises and equipment obtained
through acquisitions since June 1999 and the installation of new
branch equipment.
Other assets have increased $83.6 million since year end, and
$52.2 million since the second quarter of last year. These
increases were due primarily to increases in excess purchase price
due to acquisitions, as well as increased investments in low-
income housing partnerships.
DEPOSITS
Total deposits have increased 14% since June 30 of last year. The
deposits acquired in connection with acquisitions resulted in a 2%
increase, with the remaining 12% increase attributable to internal
growth. Deposit growth resulted primarily from increases in large
certificates of deposit and other wholesale deposit sources. Since
year end, total deposits have increased 7% after adjusting for the
deposits acquired in connection with acquisitions during the first
six months of 2000.
BORROWINGS
Net federal funds purchased and security repurchase agreements
totaled $2.6 billion at June 30, 2000, $5.5 billion at year end
and $3.9 billion at June 30, 1999. The decrease since year end
resulted primarily from the pay down of outstanding federal funds
purchased and security repurchase positions using the proceeds
from the sale of the $1.2 billion of available for sale securities
in the first quarter of 2000. These paydowns reduced interest rate
risk and should partially mitigate the unfavorable effect of
further interest rate increases. The level of federal funds and
security agreements can fluctuate significantly on a day-to-day
basis, depending on funding needs and which sources of funds are
used to satisfy those needs. During the first six months of 2000
net funds purchased averaged $3.6 billion compared to $2.4 billion
for the same period of 1999, indicating increased reliance on
purchased funds to support asset growth.
Other short-term borrowings decreased $1.6 billion since June 30,
1999 and $137.4 million since year end. Long-term borrowings have
increased $619.3 million since year end, and $2.0 billion since
June 30, 1999. These increases in long-term borrowings resulted
primarily from Regions' utilization of Federal Home Loan Bank
structured notes with call periods from one to five years. Regions
has increased its usage of long-term borrowings to partially
mitigate the unfavorable effect of rising interest rates by
repaying short-term borrowings subject to more frequent
repricings.
STOCKHOLDERS' EQUITY
Stockholders' equity was $3.2 billion at June 30, 2000, an
increase of 2% over last year and an increase of 4% since year
end. These increases resulted primarily from internally generated
capital and equity added in connection with acquisitions, offset
by treasury stock purchases totaling $292 million since June 30,
1999 and by declines in the estimated fair value of available for
sale securities (which are included in accumulated other
comprehensive (loss)). Accumulated other comprehensive (loss)
totaled $(122.5) million at June 30, 2000, compared to $(135.1)
million at year end and $(64.5) million at June of 1999. Regions'
ratio of equity to total assets was 7.43% at June 30, 2000,
compared to 7.87% a year ago and 7.18% at year end.
Regions and its subsidiaries are required to comply with capital
adequacy standards established by banking regulatory agencies.
Currently, there are two basic measures of capital adequacy: a
risk-based measure and a leverage measure.
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk
profiles among banks and bank holding companies, to account for
off-balance sheet exposure and interest rate risk, and to minimize
disincentives for holding liquid assets. Assets and off-balance
sheet items are assigned to broad risk categories, each with
specified risk-weighting factors. The resulting capital ratios
represent capital as a percentage of total risk-weighted assets
and off-balance sheet items. Banking organizations that are
considered to have excessive interest rate risk exposure are
required to hold additional capital.
The minimum standard for the ratio of total capital to risk-
weighted assets is 8%. At least 50% of that capital level must
consist of common equity, undivided profits and non-cumulative
perpetual preferred stock, less goodwill and certain other
intangibles ("Tier 1 capital"). The remainder ("Tier 2 capital")
may consist of a limited amount of other preferred stock,
mandatory convertible securities, subordinated debt and a limited
amount of the allowance for loan losses. The sum of Tier 1
capital and Tier 2 capital is "total risk-based capital."
The banking regulatory agencies also have adopted regulations
which supplement the risk-based guidelines to include a minimum
ratio of 3% of Tier 1 capital to average assets less goodwill (the
"leverage ratio"). Depending upon the risk profile of the
institution and other factors, the regulatory agencies may require
a leverage ratio of 1% to 2% above the minimum 3% level.
The following chart summarizes the applicable bank regulatory
capital requirements. Regions' capital ratios at June 30, 2000,
substantially exceeded all regulatory requirements.
Bank Regulatory Capital Requirements
Minimum Regions at
Regulatory June 30,
Requirement 2000
Tier 1 capital to risk-adjusted assets 4.00% 9.76%
Total risk-based capital to
risk-adjusted assets 8.00 11.09
Tier 1 leverage ratio 3.00 7.19
LIQUIDITY
Regions' primary sources of liquidity are maturities from its loan
and securities portfolios. In addition to these sources of
liquidity, Regions has access to purchased funds in the state and
national money markets. Liquidity is further enhanced by a
relatively stable source of deposits. At June 30, 2000, the loan
to deposit ratio was 93.49%, compared to 93.41% a year ago and
93.85% at year end. Regions' management places constant emphasis
on the maintenance of adequate liquidity to meet conditions that
might reasonably be expected to occur.
NET INTEREST INCOME
Net interest income for the first six months of 2000 decreased
$2.1 million, compared to the same period in 1999. The decreased
net interest income resulted from higher costs of short-term
funding, partially offset by a higher level of earning assets.
The net interest margin (taxable equivalent basis) was 3.63% in
the first six months of 2000, compared to 4.09% in the same period
in 1999. This ratio declined as interest rates rose and interest
bearing liabilities repriced faster than interest earning assets.
For the second quarter of 2000, net interest income declined $13.6
million or 4% compared to the same level in 1999, due to lower
spreads on earning assets.
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.
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. 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.
In addition, 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.
Regions uses various 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 detailed schedule with the contractual
repricing characteristics of interest-earning assets and interest-
bearing liabilities 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.
FORWARD-LOOKING STATEMENTS
The following section 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.
Management estimates the effect shifts in interest rates may have
upon Regions' net interest income. The following table
demonstrates the expected effect a given interest rate shift would
have on net interest income.
Change in $ Change in Net
Interest Rates Interest Income % Change in Net
(in basis points) (in thousands) Interest Income
+200 $(176,830) (13.30)%
+100 (86,437) (6.50)
-100 54,632 4.11
-200 75,193 5.66
PROVISION
The provision for loan losses was $57.0 million (.39% annualized
of average loans) in the first six months of 2000, $23.2 million
over net charge-offs for the same period. A provision for loan
losses in excess of charge-offs was recorded in the first six
months of 2000 due to strong growth in the loan portfolio.
Acquisitions added $1.9 million to the allowance for loan losses
in the first quarter of 2000.
NON-INTEREST INCOME
Total non-interest income increased $39.5 million or 15% over the
first six months of 1999. On a quarterly basis, total non-interest
income increased $15.9 million or 13% over the second quarter
1999. Trust department income continued to increase as a result of
increasing mutual fund advisory fees. An increase in the number of
deposit accounts due to acquisitions and internal growth, and fee
standardization, resulted in service charges on deposit accounts
increasing 21% in the first half of 2000 and 23% in the second
quarter of 2000, compared to the same periods in 1999. Mortgage
servicing and origination fees decreased 27% in the first six
months of 2000 and 19% in the second quarter of 2000, compared to
1999, primarily due to declining levels of loan production in the
first half of 2000. The mortgage company's servicing portfolio
totaled $23.3 billion at June 30, 2000, compared to $23.2 billion
at June 30, 1999. The $40.0 million in securities losses in the
first half of 2000 resulted from the sale of $1.2 billion in lower
yielding mortgage related securities in March. Other non-interest
income increased $73.5 million in the first six months of 2000
over the same period in 1999. A significant portion of this
increase was the result of a $67.2 million gain in connection with
the sale of its credit card portfolio in the first quarter of
2000. Other non-interest income also increased due to higher
trading account income, brokerage income, insurance premiums and
commissions, and a $5.7 million gain on the sale of certain
mortgage servicing assets that were not considered a strategic fit
for Regions mortgage subsidiary. In addition, in the first quarter
of 1999, Regions recognized an $18.4 million gain in connection
with the sale of joint venture banking interests. On a quarterly
basis, other non-interest income increased $8.6 million or 24%
over the second quarter of 1999. The increase was the result of
increased income related to credit card fees, insurance premiums
and commissions, and a $1.3 million gain on the sale of certain
mortgage servicing assets that were not a strategic fit for
Regions' mortgage subsidiary.
NON-INTEREST EXPENSE
Total non-interest expense increased $21.1 million or 4% in the
first six months of 2000 and $1.6 million or 2% in the second
quarter of 2000 compared to the same periods in 1999. The company
has maintained its ongoing focus on cost control in 2000 and has
undertaken several initiatives to reduce certain ongoing costs.
Salaries and employee benefits were up 7% in the first six months
of 2000 and 5% in the second quarter of 2000 compared to the same
periods in 1999. These increases are due to a higher number of
employees (14,599 FTE) resulting from acquisitions, coupled with
normal merit increases and higher benefit costs. Net occupancy
expense and furniture and equipment expense increased 8% in the
first half of 2000 and 11% in the second quarter of 2000 over the
same periods in 1999. The increase is primarily the result of
higher levels of depreciation related to new branch equipment.
Other non-interest expense decreased $2.1 million or 1% in the
first six months of 2000 compared to the same period in 1999. The
decline resulted from decreases in postage, stationery,
professional fees and computer services partially offset by
increases in excess purchase price amortization and communication
costs. For the second quarter, other non-interest expense
increased $1.6 million or 2% compared to the same period in 1999.
The increase is due to increases in excess purchase price
amortization, communication costs and legal fees.
TAXES
Income tax expense decreased $1.9 million or 1% over the first six
months of 1999. The decline resulted from the realization of
benefits from certain tax planning strategies. For the second
quarter of 2000, income tax expense decreased $3.4 million or 5%
due to lower levels of taxable income.
NET INCOME
Net income for the second quarter totaled $125.3 million or $.57
per diluted share, a 5% decrease on a per share diluted basis
compared to the second quarter of 1999. Year-to-date net income
totaled $271.3 million or $1.22 per diluted share, a 4% increase on
a per share basis compared to the first six months of 1999.
Operating income, which excludes a net after-tax gain of $17.8
million resulting from the sale of the credit card portfolio and
the security sales, totaled $253.5 million or $1.14 per diluted
share, a decrease of 3% on a per-share diluted basis from the first
half of last year. Annualized return on stockholders' equity
during the first half of 2000 was 17.45% based on net income and
16.30% based on operating income. In the first half of 1999,
annualized return on stockholders' equity was 17.30%. Annualized
return on assets during the first half of 2000 was 1.29% based on
net income and 1.20% based on operating income. In the first half
of 1999, annualized return on assets was 1.40%.
<PAGE>
Part II. Other Information
Item 3. Qualitative and Quantitative Disclosures about Market Risk
Reference is made to pages 17 and 18 `Market Risk --
Interest Rate Sensitivity' and to page 18 `Forward-
Looking Statements' included in Management's Discussion
and Analysis.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held May 16, 2000,
five nominees were elected as directors of Regions to
serve three year terms. The directors elected at the 2000
Annual Meeting were James B. Boone, Jr. (164,306,519 votes
in favor and 7,249,691 votes withheld), James S.M. French
(152,805,879 votes in favor and 18,750,331 votes
withheld), Richard D. Horsley (164,284,535 votes in favor
and 7,271,675 votes withheld), J. Stanley Mackin
(164,229,687 votes in favor and 7,326,523 votes withheld)
and W. Woodrow Stewart (164,253,200 votes in favor and
7,303,010 votes withheld).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27.1) Financial Data Schedule (SEC use only)
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the second
quarter of 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by undersigned thereunto duly authorized.
Regions Financial Corporation
DATE: August 11, 2000 /s/ D. Bryan Jordan
D. Bryan Jordan
Executive Vice President and
Comptroller
(Chief Accounting Officer and
Duly Authorized Officer)
