<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 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-221,564,221 shares outstanding
as of October 31, 2000
<PAGE>
REGIONS FINANCIAL CORPORATION
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Condition -
September 30, 2000, December 31, 1999
and September 30, 1999 2
Consolidated Statements of Income -
Three months ended September 30, 2000 and
September 30, 1999 and Nine months ended
September 30, 2000 and September 30, 1999 3
Consolidated Statement of Stockholders' Equity -
Nine months ended September 30, 2000 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 2000 and
September 30, 1999 5
Notes to Consolidated Financial Statements -
September 30, 2000 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Qualitative and Quantitative Disclosures
about Market Risk 21
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
<PAGE>
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
September 30 December 31 September 30
2000 1999 1999
ASSETS
Cash and due from banks $ 1,076,869 $ 1,393,418 $ 1,249,061
Interest-bearing deposits in other banks 2,449 9,653 48,228
Investment securities 3,607,520 4,054,279 3,560,934
Securities available for sale 5,545,803 6,858,765 5,938,836
Trading account assets 21,317 14,543 19,929
Mortgage loans held for sale 251,063 567,131 1,227,275
Federal funds sold and securities
purchased under agreement to resell 246,556 66,078 90,462
Loans 31,299,305 28,221,240 27,587,448
Unearned income (95,242) (76,565) (75,976)
Loans, net of unearned income 31,204,063 28,144,675 27,511,472
Allowance for loan losses (373,699) (338,375) (330,679)
Net Loans 30,830,364 27,806,300 27,180,793
Premises and equipment 596,900 580,707 575,139
Interest receivable 333,294 306,707 293,467
Due from customers on acceptances 24,274 72,098 29,614
Other assets 1,090,687 984,716 1,015,426
$43,627,096 $42,714,395 $41,229,164
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 4,561,388 $ 4,419,693 $ 4,624,868
Interest-bearing 27,424,262 25,569,401 25,179,180
Total Deposits 31,985,650 29,989,094 29,804,048
Borrowed funds:
Short-term borrowings:
Federal funds purchased and securities
sold under agreement to repurchase 1,862,753 5,614,613 4,158,091
Commercial paper 38,750 56,750 59,250
Other short-term borrowings 1,620,673 1,953,622 3,436,292
Total Short-term Borrowings 3,522,176 7,624,985 7,653,633
Long-term borrowings 4,392,399 1,750,861 371,148
Total Borrowed Funds 7,914,575 9,375,846 8,024,781
Bank acceptances outstanding 24,274 72,098 29,614
Other liabilities 342,689 212,245 350,784
Total Liabilities 40,267,188 39,649,283 38,209,227
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 -
222,479,861; 220,635,661; and
224,170,794 shares, respectively 139,050 137,897 140,107
Surplus 1,058,291 1,022,825 1,169,324
Undivided profits 2,264,476 2,044,209 1,969,670
Treasury stock, at cost - 868,013; 0;
and 4,882,066 shares, respectively (18,988) -0- (172,056)
Unearned restricted stock (7,673) (4,719) (5,236)
Accumulated other comprehensive (loss) (75,248) (135,100) (81,872)
Total Stockholders' Equity 3,359,908 3,065,112 3,019,937
$43,627,096 $42,714,395 $41,229,164
</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>
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Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
Interest Income:
Interest and fees on loans $667,305 $562,484 $1,904,130 $1,615,154
Interest on securities:
Taxable interest income 136,452 135,346 428,623 385,881
Tax-exempt interest income 10,680 9,756 31,166 29,315
Total Interest on Securities 147,132 145,102 459,789 415,196
Interest on mortgage loans held for sale 8,176 22,506 27,818 60,690
Income on federal funds sold and securities
purchased under agreement to resell 1,672 1,046 4,171 2,921
Interest on time deposits in other banks 221 372 598 1,459
Interest on trading account assets 188 476 1,004 1,143
Total Interest Income 824,694 731,986 2,397,510 2,096,563
Interest Expense:
Interest on deposits 358,033 258,847 1,020,104 771,559
Interest on short-term borrowings 65,623 105,719 208,001 236,246
Interest on long-term borrowings 58,919 6,972 124,479 23,447
Total Interest Expense 482,575 371,538 1,352,584 1,031,252
Net Interest Income 342,119 360,448 1,044,926 1,065,311
Provision for loan losses 32,746 30,707 89,727 75,389
Net Interest Income After
Provision for Loan Losses 309,373 329,741 955,199 989,922
Non-Interest Income:
Trust department income 14,597 14,530 42,707 39,891
Service charges on deposit accounts 59,465 50,453 170,415 142,110
Mortgage servicing and origination fees 20,016 22,675 63,511 82,212
Securities gains (losses) 28 3 (39,923) 41
Other 52,641 45,611 214,479 133,924
Total Non-Interest Income 146,747 133,272 451,189 398,178
Non-Interest Expense:
Salaries and employee benefits 144,868 140,577 438,365 415,949
Net occupancy expense 18,583 16,422 51,252 45,412
Furniture and equipment expense 18,880 18,370 53,197 51,222
Other 91,008 89,851 274,447 275,436
Total Non-Interest Expense 273,339 265,220 817,261 788,019
Income Before Income Taxes 182,781 197,793 589,127 600,081
Applicable income taxes 54,922 66,835 189,970 203,754
Net Income $127,859 $130,958 $ 399,157 $ 396,327
Average number of shares outstanding 220,424 221,696 220,661 222,697
Average number of shares outstanding-diluted 221,615 223,715 221,862 225,350
Per share:
Net income $0.58 $0.59 $1.81 $1.78
Net income-diluted $0.58 $0.59 $1.80 $1.76
Cash dividends declared $0.27 $0.25 $0.81 $0.75
</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 Gain (Loss) 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 399,157 399,157
Other comprehensive income,
net of tax
Unrealized gains on available
for sale securities, net of
reclassification adjustment 59,852 59,852
Comprehensive income* 399,157 59,852 459,009
Cash dividends declared
($0.27 per Common share) (178,890) (178,890)
Purchase of treasury stock (100,972) (100,972)
Treasury stock retired and
reissued (2,342) (79,642) 81,984 -0-
Common stock transactions:
Stock issued for acquisitions 3,112 108,545 111,657
Stock issued to employees
under incentive plans 196 4,549 (5,158) (413)
Stock options exercised 187 2,014 2,201
Amortization of unearned
restricted stock 2,204 2,204
BALANCE AT SEPTEMBER 30, 2000 $139,050 $1,058,291 $2,264,476 $(18,988) $(7,673) $(75,248) $3,359,908
Disclosure of reclassification amount:
Unrealized holding gain on
available for sale securities
arising during period $ 33,902
Less:Reclassification adjustment,
net of tax, for gains and losses
realized in net income (25,950)
Net unrealized gains on available
for sale securities, net of tax $59,852
</TABLE>
*Comprehensive income as of September 30, 1999 was $289.5 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>
Nine Months Ended
September 30
2000 1999
Operating Activities:
Net income $ 399,157 $ 396,327
Adjustments to reconcile net cash provided by
operating activities
Gain on sale of credit card portfolio (67,220) -0-
Gain on sale of specialty finance division (4,113) -0-
Depreciation and amortization of premises and
equipment 46,924 43,922
Provision for loan losses 89,727 75,389
Net (accretion) of securities (2,575) (135)
Amortization of loans premium and other
assets 57,563 50,543
Amortization of deposits and borrowings
premium 477 490
Provision for losses on other real estate 561 325
Deferred income taxes 55,862 6,299
(Gain) on sale of premises and equipment (1,136) (1,447)
Realized securities losses (gains) 39,923 (41)
(Increase) Decrease in trading account assets (6,774) 29,458
Decrease (Increase) in mortgages held for
sale 316,068 (299,607)
(Increase) decrease in interest receivable (18,461) 4,728
(Increase) in other assets (137,770) (105,157)
Increase in other liabilities 29,422 51,714
Stock issued to employees 3,088 4,959
Other, net 2,204 1,719
Net Cash Provided By Operating Activities 802,927 259,486
Investing Activities:
Net (increase) in loans (2,905,025) (2,776,285)
Proceeds from sale of credit card portfolio 344,785 -0-
Proceeds from sale of specialty finance
division 8,093 -0-
Proceeds from sale of securities available
for sale 1,299,842 1,755
Proceeds from maturity of investment
securities 519,277 409,550
Proceeds from maturity of securities
available for sale 722,668 1,702,888
Purchase of investment securities (41,530) (991,764)
Purchase of securities available for sale (504,472) (2,732,695)
Net decrease in interest-bearing deposits in
other banks 13,853 96,839
Proceeds from sale of premises and equipment 16,310 17,796
Purchase of premises and equipment (61,644) (85,829)
Net decrease in customers' acceptance
liability 47,824 27,432
Net cash received in acquisitions 218,764 130,150
Net Cash (Used) By Investing Activities (321,285) (4,200,163)
Financing Activities:
Net increase in deposits 1,243,116 880,208
Net (decrease) increase in short-term
borrowings (4,176,721) 3,153,347
Proceeds from long-term borrowings 3,392,966 733,472
Payments on long-term borrowings (751,590) (942,364)
Net increase in bank acceptance liability (47,824) (27,432)
Cash dividends (178,889) (167,408)
Purchase of treasury stock (100,972) (214,792)
Proceeds from exercise of stock options 2,201 12,222
Net Cash (Used) Provided By Financing
Activities (617,713) 3,427,253
(Decrease) in Cash and Cash Equivalents (136,071) (513,424)
Cash and Cash Equivalents, Beginning of Period 1,459,496 1,852,947
Cash and Cash Equivalents, End of Period $1,323,425 $1,339,523
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 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 $114 million in assets and generated $14.1 in
excess purchase price.
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 $304
million in assets and generated $33.2 million in excess purchase
price.
In September 2000, Regions issued 523,250 shares of common stock
in exchange for all the outstanding stock of East Coast Bank
Corporation of Ormond Beach, Florida. This transaction, accounted
for as a purchase, added approximately $108 million in assets and
generated $6.5 million of excess purchase price.
NOTE C -- Pending Acquisitions
As of September 30, 2000, Regions has no pending business
combinations.
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 continues to
evaluate the impact this statement has on its risk management
strategies and processes, and information systems. Regions expects
the statement to have no material impact on its results of
operations or financial position.
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>
Nine months ended September 30, 2000
(in thousands) Total
West Central East Treasury Other Company
Net interest income $285,129 $323,370 $312,800 $(30,679) $154,306 $1,044,926
Provision for loan loss 20,083 23,030 22,970 19,247 4,397 89,727
Non-interest income 73,291 96,974 63,366 171 217,387 451,189
Non-interest expense 171,148 163,665 163,479 16,280 302,689 817,261
Income taxes 66,202 92,959 76,429 (24,763) (20,857) 189,970
Net income $100,987 $140,690 $113,288 $(41,272) $ 85,464 $399,157
Average assets $6,883,615 $8,054,924 $7,883,264 $17,747,214 $2,112,077 $42,681,094
Nine months ended September 30, 1999
(in thousands) Total
West Central East Treasury Other Company
Net interest income $286,676 $303,476 $295,733 $76,978 $102,448 $1,065,311
Provision for loan loss 16,573 19,455 19,172 14,530 5,659 75,389
Non-interest income 65,604 84,356 59,260 7,572 181,386 398,178
Non-interest expense 160,576 151,374 156,240 11,364 308,465 788,019
Income taxes 68,956 86,649 71,646 27,505 (51,002) 203,754
Net income $106,175 $130,354 $107,935 $31,151 $ 20,712 $396,327
Average assets $6,257,500 $7,027,093 $6,961,266 $13,821,659 $4,887,937 $38,955,455
</TABLE>
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Regions' total assets at September 30, 2000, were $43.6 billion --
an increase of 6% over a year earlier. The increase in total
assets resulted from growth in loans, due to internal asset
generation and acquisition activity, partially offset by a decline
in the securities portfolio. Maturities from the securities
portfolio were used to reduce short-term funding and not
reinvested in this category of earning asset. Since year-end
1999, total assets increased 2%, 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, the branch purchase
from AmSouth Bancorporation, Heritage Bancorp, Inc., First
National Bancshares of Louisiana, and East Coast Bank Corporation
(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
August Heritage Bancorp, Hutto, Texas 114,370 Purchase
2000 Inc.
August First National Alexandria, 303,793 Purchase
2000 Bancshares of Louisiana
Louisiana, Inc.
September East Coast Bank Ormond Beach, 107,779 Purchase
2000 Corporation Florida
LOANS
Loans increased 13% versus September 30, 1999. In the first
quarter of 2000, Regions completed the sale of its $278 million
credit card portfolio. During the fourth quarter of 1999, Regions
securitized $874 million of mortgage loans. Adjusting for the
securitization, the sale of the credit card portfolio and
acquisitions, loans increased 15% over the prior year. The 15%
increase was attributable primarily to growth in the real estate
loan portfolio. Since December 31, 1999, total loans increased
11%, due to $494 million in acquired loans and $2.8 billion in
internal loan growth partially offset by the $278 million credit
card sale. The average yield on loans during the first nine months
of 2000 was 8.57%, compared to 8.34% 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):
Sept. 30, Dec. 31, Sept. 30,
2000 1999 1999
Non-accruing loans $200,419 $169,904 $161,837
Loans past due 90
days or more 36,543 71,952 77,918
Renegotiated loans 13,403 8,390 10,219
Other real estate 23,270 12,662 13,371
Total $273,635 $262,908 $263,345
Non-performing assets
as a percentage of
loans and other real
estate .88% .93% .96%
Non-accruing loans have increased $38.6 million since September
30, 1999 and $30.5 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 $41.4 million, compared to September 1999 and $35.4
million since year end due to charge-offs and collections of past
due loans. At September 30, 2000, real estate loans comprised
$115.1 million of total non-accruing loans, with commercial loans
accounting for $70.0 million and consumer loans $15.3 million.
Other real estate increased $10.6 million since year end and $9.9
million since September 1999 due to parcels added in connection
with acquisitions.
Activity in the allowance for loan losses is summarized as follows
(in thousands):
Nine months ended,
Sept.30, Sept. 30,
2000 1999
Balance at beginning of period $338,375 $315,412
Net loans charged-off:
Commercial 13,133 13,471
Real estate 8,923 9,550
Installment 37,489 42,635
Total 59,545 65,656
Allowance of acquired banks 5,142 5,534
Provision charged to expense 89,727 75,389
Balance at end of period $373,699 $330,679
Net loan losses in the first nine months of 2000 and 1999 were
0.27% and 0.34% of average loans (annualized), respectively. The
lower levels of loan losses in 2000 results from the sale of the
credit card portfolio in March of 2000 and slightly fewer charge-
offs in the real estate loan portfolio. At September 30, 2000 the
allowance for loan losses stood at 1.20% of loans. The allowance
for loan losses as a percentage of non-performing loans and
non-performing assets was 149% and 137%, respectively, at
September 30, 2000, compared to 132% and 126%, respectively, at
September 30, 1999.
The allowance for loan losses is maintained at a level deemed
adequate by management to absorb probable losses from loans in the
portfolio. In determining the adequacy of the allowance for loan
losses, management considers numerous factors, including but not
limited to: (1) management's estimate of future economic
conditions and the resulting impact on Regions, (2) management's
estimate of the financial condition and liquidity of certain loan
customers, and (3) management's estimate of collateral values of
property securing certain loans. Because all of these factors and
others involve the use of management's estimation and judgment,
the allowance for loan losses is inherently subject to adjustment
at future dates. At September 30, 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 decreased 4% since September 30, 1999 and
16% since year end. The decline since December 31, 1999, is the
result of the sale of $1.2 billion of securities available for
sale. On a yearly comparison, securities declined as the loan
securitizations in the fourth quarter of 1999, totaling $874
million, was offset by the aforementioned sale of securities. In
addition, security maturities in the portfolio have not been
reinvested, but have been used to reduce short-term borrowings. A
small balance of securities was added by acquisitions in late 1999
and 2000.
Mortgage loans held for sale have decreased $976 million since
September 30, 1999 and $316 million since year end as a result of
lower levels of residential mortgage loan production at Regions'
mortgage banking subsidiary compared to 1999, due to higher
interest rates. Residential mortgage loan production at Regions'
mortgage banking subsidiary was approximately $2.0 billion during
the first nine months of 2000, compared to $4.7 billion during the
same time period in 1999.
Interest-bearing deposits in other banks at September 30, 2000
totaled $2.4 million, a decrease of $45.8 million compared to a
year ago and $7.2 million compared to year end. These decreases
resulted from the utilization of alternative investments as
interest-bearing deposits matured.
Premises and equipment have increased $16.2 million since year end
and $21.8 million since September 30, 1999. These increases were
due primarily to the addition of premises and equipment obtained
through acquisitions since September 1999 and the installation of
new branch equipment.
Other assets have increased $106.0 million since year end, and
$75.3 million since the third 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 7% since September 30 of last year.
The deposits acquired in connection with acquisitions resulted in
a 3% increase, with the remaining 4% 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 4% after
adjusting for the deposits acquired in connection with
acquisitions during the first nine months of 2000.
BORROWINGS
Net federal funds purchased and security repurchase agreements
totaled $1.6 billion at September 30, 2000, $5.5 billion at year
end and $4.1 billion at September 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, proceeds from the
maturities in the securities portfolio and the increased
utilization of long-term borrowings. 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 nine
months of 2000 and 1999 net funds purchased averaged $3.1 billion.
Other short-term borrowings decreased $1.8 billion since September
30, 1999 and $332.9 million since year end. Long-term borrowings
have increased $2.6 billion since year end, and $4.0 billion since
September 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 $3.4 billion at September 30, 2000, an
increase of 11% over last year and an increase of 10% since year
end. These increases resulted primarily from internally generated
capital, equity added in connection with acquisitions and
increases in the estimated fair value of available for sale
securities (which are included in accumulated other comprehensive
(loss)), offset by treasury stock purchases totaling $141 million
since September 30, 1999. Accumulated other comprehensive (loss)
totaled $(75.2) million at September 30, 2000, compared to
$(135.1) million at year end and $(81.9) million at September 30,
1999. Regions' ratio of equity to total assets was 7.70% at
September 30, 2000, compared to 7.32% 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 maintain higher levels of 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 September 30,
2000, substantially exceeded all regulatory requirements.
Bank Regulatory Capital Requirements
Minimum Regions at
Regulatory Sept. 30,
Requirement 2000
Tier 1 capital to risk-adjusted assets 4.00% 9.49%
Total risk-based capital to
risk-adjusted assets 8.00 11.41
Tier 1 leverage ratio 3.00 6.95
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 September 30, 2000, the
loan to deposit ratio was 97.56%, compared to 92.31% 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 nine months of 2000 decreased
$20.4 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 3.56% in
the first nine months of 2000, compared to 4.01% 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 third quarter of 2000, net interest income
declined $18.3 million or 5% 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, not historically utilized by Regions. The
relationship of rate sensitive earning assets to rate sensitive
liabilities, adjusted for the effect of any 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 $(107,947) (7.79)%
+100 (50,518) (3.64)
-100 30,795 2.22
-200 (15,007) (1.08)
PROVISION
The provision for loan losses was $89.7 million (.40% annualized
of average loans) in the first nine months of 2000, $30.2 million
over net charge-offs for the same period. A provision for loan
losses in excess of charge-offs was recorded in the first nine
months of 2000 due to inherent losses associated with growth in
the loan portfolio and management's evaluation of current economic
factors. Acquisitions added $5.1 million to the allowance for loan
losses in 2000.
NON-INTEREST INCOME
Total non-interest income increased $53.0 million or 13% over the
first nine months of 1999. On a quarterly basis, total non-
interest income increased $13.5 million or 10% over the third
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 20% in the first nine months of 2000
and 18% in the third quarter of 2000, compared to the same periods
in 1999. Mortgage servicing and origination fees decreased 23% in
the first nine months of 2000 and 12% in the third quarter of
2000, compared to 1999, primarily due to declining levels of loan
production in the first three quarters of 2000. The mortgage
company's servicing portfolio totaled $23.1 billion at September
30, 2000, compared to $23.4 billion at September 30, 1999.
Security losses totaling $40.0 million were recorded in the first
quarter of 2000 and related to the sale of $1.2 billion in lower
yielding mortgage related securities. Other non-interest income
increased $80.6 million in the first nine 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, a
$4.1 million gain related to the sale of a consumer finance
company, and a $7.7 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 $7.0 million or 15%
over the third quarter of 1999. The increase was the result of
increased income related to credit card fees, insurance premiums
and commissions, the $4.1 million gain related to the sale of a
consumer finance subsidiary, and a $2.0 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 $29.2 million or 4% in the
first nine months of 2000 and $8.1 million or 3% in the third
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 5% in the first nine months
of 2000 and 3% in the third quarter of 2000 compared to the same
periods in 1999. These increases are due to a higher number of
employees (14,594 FTE as of September 30, 2000) 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 three quarters of 2000 and in
the third 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 and assets acquired in connection
with acquisitions. Other non-interest expense decreased $1.0
million in the first nine 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 third quarter, other non-interest
expense increased $1.2 million or 1% 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 $13.8 million or 7% over the first
nine months of 1999. For the third quarter of 2000, income tax
expense decreased $11.9 million or 18% compared to the same period
of 1999. The declines resulted from lower levels of taxable income
and the realization of benefits from certain tax planning
strategies.
NET INCOME
Net income for the third quarter totaled $127.8 million or $.58 per
diluted share, a 2% decrease on a per share diluted basis compared
to the third quarter of 1999. Year-to-date net income totaled
$399.2 million or $1.80 per diluted share, a 2% increase on a per
share basis compared to the first nine 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 $381.4 million or $1.72 per diluted share,
a decrease of 2% on a per-share diluted basis from the first nine
months of last year. Annualized return on stockholders' equity
during the first nine months of 2000 was 16.79% based on net income
and 16.04% based on operating income. Annualized return on assets
during the first nine months of 2000 was 1.25% based on net income
and 1.19% based on operating income.
<PAGE>
Item 3. Qualitative and Quantitative Disclosures about Market Risk
Reference is made to pages 16 and 17 `Market Risk --
Interest Rate Sensitivity' and to page 18 `Forward-
Looking Statements' included in Management's Discussion
and Analysis.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27.1) Financial Data Schedule (SEC use only)
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the third
quarter of 2000. However, on October 18, 2000, a
report on Form 8-K was filed under items 5 and 7.
This report on Form 8-K related to the Registrants'
reporting of its financial position as of September
30, 2000, results of operations for the three and
nine months ended September 30, 2000.
Also, October 24, 2000, Registrant filed a report on
Form 8-K under item 9 (Regulation FD disclosure),
concerning a conference with analyst on that date.
<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: November 13, 2000 /s/ D. Bryan Jordan
D. Bryan Jordan
Executive Vice President and
Comptroller
(Chief Accounting Officer and
Duly Authorized Officer)
