Document
Table of Contents


 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
ý
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2018
or
¨
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from
 
to
                               
Commission File Number: 001-34034
 
 
 
Regions Financial Corporation
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
Delaware
 
63-0589368
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
1900 Fifth Avenue North
Birmingham, Alabama
 
35203
(Address of principal executive offices)
 
(Zip Code)
(800) 734-4667
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(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 (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.    ý  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company  ¨ 
Emerging growth company  ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    ý  No
The number of shares outstanding of each of the issuer’s classes of common stock was 1,123,148,818 shares of common stock, par value $.01, outstanding as of May 7, 2018.

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REGIONS FINANCIAL CORPORATION
FORM 10-Q
INDEX
 
 
 
 
 
Page
Part I. Financial Information
Item 1.
 
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
 
 
 
Part II. Other Information
 
 
Item 1.
 
 
Item 2.
 
 
Item 6.
 
 
 
 
 
 

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Glossary of Defined Terms
Agencies - collectively, FNMA, FHLMC and GNMA.
ALCO - Asset/Liability Management Committee.
AOCI - Accumulated other comprehensive income.
ASU - Accounting Standards Update.
ATM - Automated teller machine.
Basel I - Basel Committee's 1988 Regulatory Capital Framework (First Accord).
Basel III - Basel Committee's 2010 Regulatory Capital Framework (Third Accord).
Basel III Rules - Final capital rules adopting the Basel III capital framework approved by U.S. federal
regulators in 2013.
Basel Committee - Basel Committee on Banking Supervision.
BHC - Bank Holding Company.
BITS - Technology arm of the Financial Services Roundtable.
Bank - Regions Bank.
Board - The Company’s Board of Directors.
CAP - Customer Assistance Program.
CCAR - Comprehensive Capital Analysis and Review.
CD - Certificate of deposit.
CECL - Current expected credit loss.
CEO - Chief Executive Officer.
CET1 - Common Equity Tier 1.
CFPB - Consumer Financial Protection Bureau.
Company - Regions Financial Corporation and its subsidiaries.
CPR - Constant (or Conditional) Prepayment Rate.
CRA - Community Reinvestment Act of 1977.
Dodd-Frank Act - The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
DPD - Days Past Due.
DUS - Fannie Mae Delegated Underwriting & Servicing.
FASB - Financial Accounting Standards Board.
FDIC - Federal Deposit Insurance Corporation.
Federal Reserve - Board of Governors of the Federal Reserve System.
FHA - Federal Housing Administration.
FHLB - Federal Home Loan Bank.
FHLMC - Federal Home Loan Mortgage Corporation, known as Freddie Mac.
FNMA - Federal National Mortgage Association, known as Fannie Mae.
FRB - Federal Reserve Bank.
FS-ISAC - Financial Services - Information Sharing & Analysis Center.
GAAP - Generally Accepted Accounting Principles in the United States.
GCM - Guideline Public Company Method.
GDP - Gross Domestic Product.

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GNMA - Government National Mortgage Association.
GTM - Guideline Transaction Method.
HUD - U.S. Department of Housing and Urban Development.
IP - Intellectual Property.
IPO - Initial public offering.
LCR - Liquidity coverage ratio.
LIBOR - London InterBank Offered Rates.
LTIP - Long-term incentive plan.
LTV - Loan to value.
MBS - Mortgage-backed securities.
Morgan Keegan - Morgan Keegan & Company, Inc.
MSAs - Metropolitan Statistical Areas.
MSR - Mortgage servicing right.
NM - Not meaningful.
NPR - Notice of Proposed Rulemaking.
OAS - Option-Adjusted Spread.
OCC - Office of the Comptroller of the Currency.
OCI - Other comprehensive income.
OIS - Overnight indexed swap.
OTTI - Other-than-temporary impairment.
Raymond James - Raymond James Financial, Inc.
RICO - Racketeer Influenced and Corrupt Organizations Act.
SEC - U.S. Securities and Exchange Commission.
SERP - Supplemental Executive Retirement Plan.
SSFA - Simplified Supervisory Formula Approach.
Tax Reform - H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution
on the Budget for Fiscal Year 2018.
TDR - Troubled debt restructuring.
U.S. - United States.
U.S. Treasury - United States Department of the Treasury.
UTB - Unrecognized tax benefits.
VIE - Variable interest entity.



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Forward-Looking Statements
This Quarterly Report on Form 10-Q, other periodic reports filed by Regions Financial Corporation under the Securities Exchange Act of 1934, as amended, and any other written or oral statements made by us or on our behalf to analysts, investors, the media and others, may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The terms “Regions,” the “Company,” “we,” “us” and “our” used herein mean collectively Regions Financial Corporation, a Delaware corporation, together with its subsidiaries when or where appropriate. The words “future,” “anticipates,” “assumes,” “intends,” “plans,” “seeks,” “believes,” “predicts,” “potential,” “objectives,” “estimates,” “expects,” “targets,” “projects,” “outlook,” “forecast,” “would,” “will,” “may,” “might,” “could,” “should,” “can,” and similar terms and expressions often signify forward-looking statements. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results or other developments. Forward-looking statements are based on management’s current expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, and because they also relate to the future they are likewise subject to inherent uncertainties and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. Therefore, we caution you against relying on any of these forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, those described below:
•
Current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of possible declines in property values, increases in unemployment rates and potential reductions of economic growth, which may adversely affect our lending and other businesses and our financial results and conditions.
•
Possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations, which could have a material adverse effect on our earnings.
•
The effects of a possible downgrade in the U.S. government’s sovereign credit rating or outlook, which could result in risks to us and general economic conditions that we are not able to predict.
•
Possible changes in market interest rates or capital markets could adversely affect our revenue and expense, the value of assets and obligations, and the availability and cost of capital and liquidity.
•
Any impairment of our goodwill or other intangibles, any repricing of assets, or any adjustment of valuation allowances on our deferred tax assets due to changes in law, adverse changes in the economic environment, declining operations of the reporting unit or other factors.
•
The effect of changes in tax laws, including the effect of Tax Reform and any future interpretations of or amendments to Tax Reform, which may impact our earnings, capital ratios and our ability to return capital to shareholders.
•
Possible changes in the creditworthiness of customers and the possible impairment of the collectability of loans and leases, including operating leases.
•
Changes in the speed of loan prepayments, loan origination and sale volumes, charge-offs, loan loss provisions or actual loan losses where our allowance for loan losses may not be adequate to cover our eventual losses.
•
Possible acceleration of prepayments on mortgage-backed securities due to low interest rates, and the related acceleration of premium amortization on those securities.
•
Loss of customer checking and savings account deposits as customers pursue other, higher-yield investments, which could increase our funding costs.
•
Possible changes in consumer and business spending and saving habits and the related effect on our ability to increase assets and to attract deposits, which could adversely affect our net income.
•
Our ability to effectively compete with other traditional and non-traditional financial services companies, some of whom possess greater financial resources than we do or are subject to different regulatory standards than we are.
•
Our inability to develop and gain acceptance from current and prospective customers for new products and services and the enhancement of existing products and services to meet customers’ needs and respond to emerging technological trends in a timely manner could have a negative impact on our revenue.
•
Our inability to keep pace with technological changes could result in losing business to competitors.
•
Changes in laws and regulations affecting our businesses, including legislation and regulations relating to bank products and services, as well as changes in the enforcement and interpretation of such laws and regulations by applicable governmental and self-regulatory agencies, which could require us to change certain business practices, increase compliance risk, reduce our revenue, impose additional costs on us, or otherwise negatively affect our businesses.
•
Our ability to obtain a regulatory non-objection (as part of the CCAR process or otherwise) to take certain capital actions, including paying dividends and any plans to increase common stock dividends, repurchase common stock under current

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or future programs, or redeem preferred stock or other regulatory capital instruments, may impact our ability to return capital to stockholders and market perceptions of us.
•
Our ability to comply with stress testing and capital planning requirements (as part of the CCAR process or otherwise) may continue to require a significant investment of our managerial resources due to the importance and intensity of such tests and requirements.
•
Our ability to comply with applicable capital and liquidity requirements (including, among other things, the Basel III capital standards and the LCR rule), including our ability to generate capital internally or raise capital on favorable terms, and if we fail to meet requirements, our financial condition could be negatively impacted.
•
The effects of any developments, changes or actions relating to any litigation or regulatory proceedings brought against us or any of our subsidiaries.
•
The costs, including possibly incurring fines, penalties, or other negative effects (including reputational harm) of any adverse judicial, administrative, or arbitral rulings or proceedings, regulatory enforcement actions, or other legal actions to which we or any of our subsidiaries are a party, and which may adversely affect our results.
•
Our ability to manage fluctuations in the value of assets and liabilities and off-balance sheet exposure so as to maintain sufficient capital and liquidity to support our business.
•
Our ability to execute on our strategic and operational plans, including our ability to fully realize the financial and non-financial benefits relating to our strategic initiatives.
•
The risks and uncertainties related to our acquisition or divestiture of businesses.
•
The success of our marketing efforts in attracting and retaining customers.
•
Our ability to recruit and retain talented and experienced personnel to assist in the development, management and operation of our products and services may be affected by changes in laws and regulations in effect from time to time.
•
Fraud or misconduct by our customers, employees or business partners.
•
Any inaccurate or incomplete information provided to us by our customers or counterparties.
•
Inability of our framework to manage risks associated with our business such as credit risk and operational risk, including third-party vendors and other service providers, which could, among other things, result in a breach of operating or security systems as a result of a cyber attack or similar act or failure to deliver our services effectively.
•
Dependence on key suppliers or vendors to obtain equipment and other supplies for our business on acceptable terms.
•
The inability of our internal controls and procedures to prevent, detect or mitigate any material errors or fraudulent acts.
•
The effects of geopolitical instability, including wars, conflicts and terrorist attacks and the potential impact, directly or indirectly, on our businesses.
•
The effects of man-made and natural disasters, including fires, floods, droughts, tornadoes, hurricanes, and environmental damage, which may negatively affect our operations and/or our loan portfolios and increase our cost of conducting business.
•
Changes in commodity market prices and conditions could adversely affect the cash flows of our borrowers operating in industries that are impacted by changes in commodity prices (including businesses indirectly impacted by commodities prices such as businesses that transport commodities or manufacture equipment used in the production of commodities), which could impair their ability to service any loans outstanding to them and/or reduce demand for loans in those industries.
•
Our ability to identify and address cyber-security risks such as data security breaches, malware, “denial of service” attacks, “hacking” and identity theft, a failure of which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information, disruption or damage to our systems, increased costs, losses, or adverse effects to our reputation.
•
Our ability to realize our adjusted efficiency ratio target as part of our expense management initiatives.
•
Possible downgrades in our credit ratings or outlook could increase the costs of funding from capital markets.
•
The effects of problems encountered by other financial institutions that adversely affect us or the banking industry generally could require us to change certain business practices, reduce our revenue, impose additional costs on us, or otherwise negatively affect our businesses.
•
The effects of the failure of any component of our business infrastructure provided by a third party could disrupt our businesses, result in the disclosure of and/or misuse of confidential information or proprietary information, increase our costs, negatively affect our reputation, and cause losses.
•
Our ability to receive dividends from our subsidiaries could affect our liquidity and ability to pay dividends to stockholders.

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•
Changes in accounting policies or procedures as may be required by the FASB or other regulatory agencies could materially affect how we report our financial results.
•
Other risks identified from time to time in reports that we file with the SEC.
•
Fluctuations in the price of our common stock and inability to complete stock repurchases in the time frame and/or on the terms anticipated.
•
The effects of any damage to our reputation resulting from developments related to any of the items identified above.
You should not place undue reliance on any forward-looking statements, which speak only as of the date made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible to predict all of them. We assume no obligation and do not intend to update or revise any forward-looking statements that are made from time to time, either as a result of future developments, new information or otherwise, except as may be required by law.
See also the reports filed with the Securities and Exchange Commission, including the discussion under the “Risk Factors” section of Regions’ Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the Securities and Exchange Commission and available on its website at www.sec.gov.

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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
March 31, 2018
 
December 31, 2017
 
(In millions, except share data)
Assets
 
 
 
Cash and due from banks
$
1,766

 
$
2,012

Interest-bearing deposits in other banks
1,419

 
1,899

Federal funds sold and securities purchased under agreements to resell
—

 
70

Debt securities held to maturity (estimated fair value of $1,585 and $1,667, respectively)
1,611

 
1,658

Debt securities available for sale
23,085

 
23,403

Loans held for sale (includes $282 and $325 measured at fair value, respectively)
452

 
348

Loans, net of unearned income
79,822

 
79,947

Allowance for loan losses
(840
)
 
(934
)
Net loans
78,982

 
79,013

Other earning assets
1,640

 
1,891

Premises and equipment, net
2,065

 
2,064

Interest receivable
328

 
337

Goodwill
4,904

 
4,904

Residential mortgage servicing rights at fair value
356

 
336

Other identifiable intangible assets
167

 
177

Other assets
6,138

 
6,182

Total assets
$
122,913

 
$
124,294

Liabilities and Stockholders’ Equity
 
 
 
Deposits:
 
 
 
Non-interest-bearing
$
36,935

 
$
36,127

Interest-bearing
60,055

 
60,762

Total deposits
96,990

 
96,889

Borrowed funds:
 
 
 
Short-term borrowings:
 
 
 
Other short-term borrowings
—

 
500

Total short-term borrowings
—

 
500

Long-term borrowings
7,949

 
8,132

Total borrowed funds
7,949

 
8,632

Other liabilities
2,108

 
2,581

Total liabilities
107,047

 
108,102

Stockholders’ equity:
 
 
 
Preferred stock, authorized 10 million shares, par value $1.00 per share
 
 
 
Non-cumulative perpetual, liquidation preference $1,000.00 per share, including related surplus, net of issuance costs; issued—1,000,000 shares
820

 
820

Common stock, authorized 3 billion shares, par value $.01 per share:
 
 
 
Issued including treasury stock—1,163,817,064 and 1,175,327,565 shares, respectively
12

 
12

Additional paid-in capital
15,639

 
15,858

Retained earnings
1,923

 
1,628

Treasury stock, at cost—41,259,320 and 41,259,320 shares, respectively
(1,377
)
 
(1,377
)
Accumulated other comprehensive income (loss), net
(1,151
)
 
(749
)
Total stockholders’ equity
15,866

 
16,192

Total liabilities and stockholders’ equity
$
122,913

 
$
124,294


See notes to consolidated financial statements.

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended March 31
 
2018
 
2017
 
(In millions, except per share data)
Interest income, including other financing income on:
 
 
 
Loans, including fees
$
851

 
$
773

Debt securities - taxable
154

 
147

Loans held for sale
3

 
4

Other earning assets
19

 
15

Operating lease assets
20

 
27

Total interest income, including other financing income
1,047

 
966

Interest expense on:
 
 
 
Deposits
49

 
35

Short-term borrowings
1

 
—

Long-term borrowings
72

 
50

Total interest expense
122

 
85

Depreciation expense on operating lease assets
16

 
22

Total interest expense and depreciation expense on operating lease assets
138

 
107

Net interest income and other financing income
909

 
859

Provision (credit) for loan losses
(10
)
 
70

Net interest income and other financing income after provision (credit) for loan losses
919

 
789

Non-interest income:
 
 
 
Service charges on deposit accounts
171

 
168

Card and ATM fees
104

 
104

Investment management and trust fee income
58

 
56

Mortgage income
38

 
41

Other
136

 
105

Total non-interest income
507

 
474

Non-interest expense:
 
 
 
Salaries and employee benefits
495

 
461

Net occupancy expense
83

 
83

Furniture and equipment expense
81

 
79

Other
225

 
220

Total non-interest expense
884

 
843

Income from continuing operations before income taxes
542

 
420

Income tax expense
128

 
127

Income from continuing operations
414

 
293

Discontinued operations:
 
 
 
Income (loss) from discontinued operations before income taxes
—

 
13

Income tax expense (benefit)
—

 
5

Income (loss) from discontinued operations, net of tax
—

 
8

Net income
$
414

 
$
301

Net income from continuing operations available to common shareholders
$
398

 
$
277

Net income available to common shareholders
$
398

 
$
285

Weighted-average number of shares outstanding:
 
 
 
Basic
1,127

 
1,209

Diluted
1,141

 
1,224

Earnings per common share from continuing operations:
 
 
 
Basic
$
0.35

 
$
0.23

Diluted
0.35

 
0.23

Earnings per common share:
 
 
 
Basic
$
0.35

 
$
0.24

Diluted
0.35

 
0.23

Cash dividends declared per common share
0.09

 
0.065

See notes to consolidated financial statements.

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended March 31
 
2018
 
2017
 
(In millions)
Net income
$
414

 
$
301

Other comprehensive income (loss), net of tax:
 
 
 
Unrealized losses on securities transferred to held to maturity:
 
 
 
Unrealized losses on securities transferred to held to maturity during the period (net of zero and zero tax effect, respectively)
—

 
—

Less: reclassification adjustments for amortization of unrealized losses on securities transferred to held to maturity (net of ($1) and ($1) tax effect, respectively)
(2
)
 
(2
)
Net change in unrealized losses on securities transferred to held to maturity, net of tax
2

 
2

Unrealized gains (losses) on securities available for sale:
 
 
 
Unrealized holding gains (losses) arising during the period (net of ($104) and $1 tax effect, respectively)
(310
)
 
1

Less: reclassification adjustments for securities gains (losses) realized in net income (net of zero and zero tax effect, respectively)
—

 
—

Net change in unrealized gains (losses) on securities available for sale, net of tax
(310
)
 
1

Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
 
 
 
Unrealized holding gains (losses) on derivatives arising during the period (net of ($31) and ($1) tax effect, respectively)
(92
)
 
(4
)
Less: reclassification adjustments for gains (losses) on derivative instruments realized in net income (net of $3 and $12 tax effect, respectively)
8

 
19

Net change in unrealized gains (losses) on derivative instruments, net of tax
(100
)
 
(23
)
Defined benefit pension plans and other post employment benefits:
 
 
 
Net actuarial gains (losses) arising during the period (net of zero and zero tax effect, respectively)
(1
)
 
(1
)
Less: reclassification adjustments for amortization of actuarial loss and prior service cost realized in net income (net of ($2) and ($3) tax effect, respectively)
(7
)
 
(6
)
Net change from defined benefit pension plans and other post employment benefits, net of tax
6

 
5

Other comprehensive income (loss), net of tax
(402
)
 
(15
)
Comprehensive income
$
12

 
$
286

See notes to consolidated financial statements.

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
 
 
Preferred Stock
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
(Deficit)
 
Treasury
Stock,
At Cost
 
Accumulated
Other
Comprehensive
Income (Loss), Net
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
(In millions, except per share data)
BALANCE AT JANUARY 1, 2017
1

 
$
820

 
1,214

 
$
13

 
$
17,092

 
$
666

 
$
(1,377
)
 
$
(550
)
 
$
16,664

Net income
—

 
—

 
—

 
—

 
—

 
301

 
—

 
—

 
301

Other comprehensive income (loss), net of tax
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(15
)
 
(15
)
Cash dividends declared—$0.065 per share
—

 
—

 
—

 
—

 
—

 
(78
)
 
—

 
—

 
(78
)
Preferred stock dividends
—

 
—

 
—

 
—

 
—

 
(16
)
 
—

 
—

 
(16
)
Common stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact of share repurchases
—

 
—

 
(10
)
 
(1
)
 
(149
)
 
—

 
—

 
—

 
(150
)
Impact of stock transactions under compensation plans, net and other
—

 
—

 
1

 
—

 
16

 
—

 
—

 
—

 
16

BALANCE AT MARCH 31, 2017
1

 
$
820

 
1,205

 
$
12

 
$
16,959

 
$
873

 
$
(1,377
)
 
$
(565
)
 
$
16,722

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT JANUARY 1, 2018
1

 
$
820

 
1,133

 
$
12

 
$
15,858

 
$
1,628

 
$
(1,377
)
 
$
(749
)
 
$
16,192

Cumulative effect from change in accounting guidance
—

 
—

 
—

 
—

 
—

 
(2
)
 
—

 
—

 
(2
)
Net income
—

 
—

 
—

 
—

 
—

 
414

 
—

 
—

 
414

Other comprehensive income (loss), net of tax
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(402
)
 
(402
)
Cash dividends declared—$0.09 per share
—

 
—

 
—

 
—

 
—

 
(101
)
 
—

 
—

 
(101
)
Preferred stock dividends
—

 
—

 
—

 
—

 
—

 
(16
)
 
—

 
—

 
(16
)
Common stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact of share repurchases
—

 
—

 
(12
)
 
—

 
(235
)
 
—

 
—

 
—

 
(235
)
Impact of stock transactions under compensation plans, net and other
—

 
—

 
1

 
—

 
16

 
—

 
—

 
—

 
16

BALANCE AT MARCH 31, 2018
1

 
$
820

 
1,122

 
$
12

 
$
15,639

 
$
1,923

 
$
(1,377
)
 
$
(1,151
)
 
$
15,866


See notes to consolidated financial statements.

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Three Months Ended March 31
 
2018
 
2017
 
(In millions)
Operating activities:
 
 
 
Net income
$
414

 
$
301

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Provision (credit) for loan losses
(10
)
 
70

Depreciation, amortization and accretion, net
121

 
140

Deferred income tax expense
103

 
62

Originations and purchases of loans held for sale
(690
)
 
(650
)
Proceeds from sales of loans held for sale
587

 
876

(Gain) loss on sale of loans, net
(14
)
 
(24
)
Net change in operating assets and liabilities:
 
 
 
Other earning assets
235

 
51

Interest receivable and other assets
(61
)
 
(28
)
Other liabilities
(529
)
 
(79
)
Other
(2
)
 
13

Net cash from operating activities
154

 
732

Investing activities:
 
 
 
Proceeds from maturities of debt securities held to maturity
46

 
49

Proceeds from sales of debt securities available for sale
7

 
429

Proceeds from maturities of debt securities available for sale
798

 
889

Net proceeds from bank-owned life insurance
1

 
(2
)
Purchases of debt securities available for sale
(876
)
 
(1,138
)
Purchases of debt securities held to maturity
—

 
(437
)
Proceeds from sales of loans
272

 
7

Purchases of loans
(70
)
 
(4
)
Purchases of mortgage servicing rights
(2
)
 
(8
)
Net change in loans
(164
)
 
103

Net purchases of other assets
(56
)
 
(13
)
Net cash from investing activities
(44
)
 
(125
)
Financing activities:
 
 
 
Net change in deposits
101

 
389

Net change in short-term borrowings
(500
)
 
—

Proceeds from long-term borrowings
4,350

 
—

Payments on long-term borrowings
(4,500
)
 
(1,750
)
Cash dividends on common stock
(102
)
 
(157
)
Cash dividends on preferred stock
(16
)
 
(16
)
Repurchases of common stock
(235
)
 
(150
)
Taxes paid related to net share settlement of equity awards
(1
)
 
—

Other
(3
)
 
—

Net cash from financing activities
(906
)
 
(1,684
)
Net change in cash and cash equivalents
(796
)
 
(1,077
)
Cash and cash equivalents at beginning of year
3,981

 
5,451

Cash and cash equivalents at end of period
$
3,185

 
$
4,374


See notes to consolidated financial statements.

12

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REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 2018 and 2017
NOTE 1. BASIS OF PRESENTATION
Regions Financial Corporation (“Regions” or the "Company”) provides a full range of banking and bank-related services to individual and corporate customers through its subsidiaries and branch offices located across the South, Midwest and Texas. The Company competes with other financial institutions located in the states in which it operates, as well as other adjoining states. Regions is subject to the regulations of certain government agencies and undergoes periodic examinations by certain regulatory authorities.
The accounting and reporting policies of Regions and the methods of applying those policies that materially affect the consolidated financial statements conform with GAAP and with general financial services industry practices. The accompanying interim financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and notes to the consolidated financial statements necessary for a complete presentation of financial position, results of operations, comprehensive income and cash flows in conformity with GAAP. In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the consolidated financial statements have been included. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in Regions’ Annual Report on Form 10-K for the year ended December 31, 2017. Regions has evaluated all subsequent events for potential recognition and disclosure through the filing date of this Form 10-Q. See Note 16.
On April 4, 2018, Regions entered into a stock purchase agreement to sell Regions Insurance Group, Inc. and related affiliates to BB&T Holdings, Inc. The transaction is expected to close in the third quarter of 2018, subject to regulatory approvals and customary closing conditions. Regions sold Morgan Keegan and related affiliates in April 2012. See Note 2, Note 13 and Note 16 for related disclosure.
Effective January 1, 2018, the Company adopted new guidance related to several accounting topics.The cumulative effect of the retrospective application was a total reduction to retained earnings of $2 million, of which the individual components were immaterial. All prior period amounts impacted by guidance that required retrospective application have been revised. See Note 15 for related disclosure.
NOTE 2. DISCONTINUED OPERATIONS
On April 4, 2018, Regions entered into a stock purchase agreement to sell Regions Insurance Group, Inc. and related affiliates to BB&T Insurance Holdings, Inc. The transaction is expected to generate an after-tax gain of approximately $200 million and Common Equity Tier 1 capital of approximately $300 million at closing, which is expected in the third quarter, subject to regulatory approvals and customary closing conditions. The transaction purchase price is not subject to any adjustment that would have a material impact to the consolidated financial statements. See Note 16 for related discussion.
In connection with the agreement, the results of the entities being sold are reported in the Company's consolidated statements of income separately as discontinued operations for all periods presented because the pending sale met all of the criteria for reporting as discontinuing operations at March 31, 2018.
On January 11, 2012, Regions entered into a stock purchase agreement to sell Morgan Keegan and related affiliates to Raymond James. The transaction closed on April 2, 2012. Regions Investment Management, Inc. (formerly known as Morgan Asset Management, Inc.) and Regions Trust were not included in the sale. In connection with the closing of the sale, Regions agreed to indemnify Raymond James for all litigation matters related to pre-closing activities. See Note 13 for related disclosure.
Results of operations for the Morgan Keegan entities sold are presented separately as discontinued operations for all periods presented on the consolidated statements of income. This presentation is consistent with the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2017.
The condensed balance sheets for the Regions Insurance Group, Inc. entities being sold are immaterial for disclosure as discontinued operations. The following table represents the condensed results of operations for the Regions Insurance Group, Inc. entities being sold as discontinued operations:

13

Table of Contents


 
Three Months Ended
March 31
 
2018
 
2017
 
(In millions)
Non-interest income:
 
 
 
Insurance commissions and fees
$
34

 
$
36

Total non-interest income
34

 
36

Non-interest expense:
 
 
 
Salaries and employee benefits
24

 
24

Net occupancy expense
1

 
2

Furniture and equipment expense
1

 
1

Other
7

 
7

Total non-interest expense
33

 
34

Income (loss) from discontinued operations before income taxes
1

 
2

Income tax expense (benefit)
—

 
1

Income (loss) from discontinued operations, net of tax
$
1

 
$
1


The following table represents the condensed results of operations for both the Regions Insurance Group, Inc. entities being sold and Morgan Keegan and Company, Inc. and related affiliates as discontinued operations:
 
Three Months Ended
March 31
 
2018
 
2017
 
(In millions, except per share data)
Income (loss) from discontinued operations before income taxes
$
—

 
$
13

Income tax expense (benefit)
—

 
5

Income (loss) from discontinued operations, net of tax
$
—

 
$
8

Earnings (loss) per common share from discontinued operations:
 
 
 
Basic
$
0.00

 
$
0.01

Diluted
$
0.00

 
$
0.01

 
 
 
 

14

Table of Contents


NOTE 3. SECURITIES
DEBT SECURITIES
The amortized cost, gross unrealized gains and losses, and estimated fair value of debt securities held to maturity and debt securities available for sale are as follows:
 
March 31, 2018
 
 
 
Recognized in OCI (1)
 
 
 
Not Recognized in OCI
 
 
 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Carrying Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
(In millions)
Debt securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
$
1,010

 
$
—

 
$
(38
)
 
$
972

 
$
1

 
$
(13
)
 
$
960

Commercial agency
642

 
—

 
(3
)
 
639

 
—

 
(14
)
 
625

 
$
1,652

 
$
—

 
$
(41
)
 
$
1,611

 
$
1

 
$
(27
)
 
$
1,585

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
333

 
$
—

 
$
(6
)
 
$
327

 
 
 
 
 
$
327

Federal agency securities
42

 
—

 
—

 
42

 
 
 
 
 
42

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
17,663

 
23

 
(534
)
 
17,152

 
 
 
 
 
17,152

Residential non-agency
2

 
—

 
—

 
2

 
 
 
 
 
2

Commercial agency
3,742

 
1

 
(82
)
 
3,661

 
 
 
 
 
3,661

Commercial non-agency
774

 
3

 
(11
)
 
766

 
 
 
 
 
766

Corporate and other debt securities
1,145

 
8

 
(18
)
 
1,135

 
 
 
 
 
1,135

 
$
23,701

 
$
35

 
$
(651
)
 
$
23,085

 
 
 
 
 
$
23,085

 
December 31, 2017
 
 
 
Recognized in OCI (1)
 
 
 
Not Recognized in OCI
 
 
 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Carrying Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
(In millions)
Debt securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
$
1,051

 
$
—

 
$
(40
)
 
$
1,011

 
$
12

 
$
(4
)
 
$
1,019

Commercial agency
651

 
—

 
(4
)
 
647

 
5

 
(4
)
 
648

 
$
1,702

 
$
—

 
$
(44
)
 
$
1,658

 
$
17

 
$
(8
)
 
$
1,667

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
333

 
$
—

 
$
(2
)
 
$
331

 
 
 
 
 
$
331

Federal agency securities
28

 
—

 
—

 
28

 
 
 
 
 
28

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential agency
17,622

 
53

 
(244
)
 
17,431

 
 
 
 
 
17,431

Residential non-agency
3

 
—

 
—

 
3

 
 
 
 
 
3

Commercial agency
3,739

 
5

 
(30
)
 
3,714

 
 
 
 
 
3,714

Commercial non-agency
787

 
4

 
(3
)
 
788

 
 
 
 
 
788

Corporate and other debt securities
1,093

 
20

 
(5
)
 
1,108

 
 
 
 
 
1,108

 
$
23,605

 
$
82

 
$
(284
)
 
$
23,403

 
 
 
 
 
$
23,403

_________
(1) The gross unrealized losses recognized in OCI on securities held to maturity resulted from a transfer of securities available for sale to held to maturity in the second quarter of 2013.

15

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Debt securities with carrying values of $8.3 billion and $8.1 billion at March 31, 2018 and December 31, 2017, respectively, were pledged to secure public funds, trust deposits and certain borrowing arrangements. Included within total pledged securities is approximately $49 million and $50 million of encumbered U.S. Treasury securities at March 31, 2018 and December 31, 2017, respectively.
The amortized cost and estimated fair value of debt securities held to maturity and debt securities available for sale at March 31, 2018, 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.
 
Amortized
Cost
 
Estimated
Fair Value
 
(In millions)
Debt securities held to maturity:
 
 
 
Mortgage-backed securities:
 
 
 
Residential agency
$
1,010

 
$
960

Commercial agency
642

 
625

 
$
1,652

 
$
1,585

Debt securities available for sale:
 
 
 
Due in one year or less
$
48

 
$
48

Due after one year through five years
964

 
952

Due after five years through ten years
418

 
414

Due after ten years
90

 
90

Mortgage-backed securities:
 
 
 
Residential agency
17,663

 
17,152

Residential non-agency
2

 
2

Commercial agency
3,742

 
3,661

Commercial non-agency
774

 
766

 
$
23,701

 
$
23,085

The following tables present gross unrealized losses and the related estimated fair value of debt securities held to maturity and debt securities available for sale at March 31, 2018 and December 31, 2017. For debt securities transferred to held to maturity from available for sale, the analysis in the tables below is comparing the securities' original amortized cost to its current estimated fair value. These securities are segregated between investments that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more.
 
March 31, 2018
 
Less Than Twelve Months
 
Twelve Months or More
 
Total
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
(In millions)
Debt securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
$
—

 
$
—

 
$
960

 
$
(51
)
 
$
960

 
$
(51
)
Commercial agency
485

 
(8
)
 
140

 
(9
)
 
625

 
(17
)
 
$
485

 
$
(8
)
 
$
1,100

 
$
(60
)
 
$
1,585

 
$
(68
)
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
223

 
$
(3
)
 
$
87

 
$
(3
)
 
$
310

 
$
(6
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
7,524

 
(169
)
 
7,739

 
(365
)
 
15,263

 
(534
)
Commercial agency
2,600

 
(50
)
 
856

 
(32
)
 
3,456

 
(82
)
Commercial non-agency
536

 
(9
)
 
59

 
(2
)
 
595

 
(11
)
Corporate and other debt securities
643

 
(14
)
 
84

 
(4
)
 
727

 
(18
)
 
$
11,526

 
$
(245
)
 
$
8,825

 
$
(406
)
 
$
20,351

 
$
(651
)

16

Table of Contents



 
December 31, 2017
 
Less Than Twelve Months
 
Twelve Months or More
 
Total
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
(In millions)
Debt securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
$
—

 
$
—

 
$
1,019

 
$
(32
)
 
$
1,019

 
$
(32
)
Commercial agency
—

 
—

 
150

 
(7
)
 
150

 
(7
)
 
$
—

 
$
—

 
$
1,169

 
$
(39
)
 
$
1,169

 
$
(39
)
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
221

 
$
(1
)
 
$
84

 
$
(1
)
 
$
305

 
$
(2
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Residential agency
5,157

 
(40
)
 
8,195

 
(204
)
 
13,352

 
(244
)
Commercial agency
1,666

 
(10
)
 
904

 
(20
)
 
2,570

 
(30
)
Commercial non-agency
393

 
(2
)
 
61

 
(1
)
 
454

 
(3
)
Corporate and other debt securities
306

 
(2
)
 
105

 
(3
)
 
411

 
(5
)
 
$
7,743

 
$
(55
)
 
$
9,349

 
$
(229
)
 
$
17,092

 
$
(284
)
The number of individual debt positions in an unrealized loss position in the tables above increased from 1,059 at December 31, 2017 to 1,364 at March 31, 2018. The increase in the number of securities and the total amount of unrealized losses from year-end 2017 was primarily due to changes in market interest rates. In instances where an unrealized loss existed, there was no indication of an adverse change in credit on the underlying positions in the tables above. As it relates to these positions, management believes no individual unrealized loss, other than those discussed below, represented an OTTI as of those dates. The Company does not intend to sell, and it is not more likely than not that the Company will be required to sell, the positions before the recovery of their amortized cost basis, which may be at maturity.
As part of the Company's normal process for evaluating OTTI, management did identify a limited number of positions where an OTTI was believed to exist as of March 31, 2018. For the three months ended March 31, 2018, such impairments were immaterial.
Gross realized gains and gross realized losses on sales of debt securities available for sale are shown in the table below. The cost of securities sold is based on the specific identification method.
 
Three Months Ended March 31
 
2018
 
2017
 
(In millions)
Gross realized gains
$
—

 
$
1

Gross realized losses
—

 
(1
)
Debt securities available for sale gains (losses), net
$
—


$
—


EQUITY INVESTMENTS
Effective January 1, 2018, Regions adopted new accounting guidance that requires equity investments to be recorded at fair value with changes in fair value reported in net income. Regions elected a measurement alternative to fair value for certain equity investments without a readily determinable fair value. See Note 15 for related disclosure.
Marketable equity securities carried at fair value, which primarily consist of assets held for certain employee benefits and money market funds, are reported in other earning assets in the consolidated balance sheets. Total marketable equity securities were $525 million and $414 million at March 31, 2018 and December 31, 2017, respectively. Unrealized holding gains and losses for equity securities were immaterial at March 31, 2018.

17

Table of Contents


Equity investments without a readily determinable fair value primarily consist of investments in strategic partners and certain CRA projects. The carrying amount of equity investments measured under the measurement alternative, downward and upward adjustments for impairments and price changes from observable transactions are as follows:
 
Three Months Ended March 31, 2018
 
(In millions)
Carrying value, December 31, 2017
$
31

Net additions
—

Downward adjustments for price changes and impairment
—

Upward adjustments for price changes(1)
7

Carrying value, March 31, 2018
$
38

_________
(1) Upward adjustments for the three months ended March 31, 2018 related to an observable transaction by the same issuer in an arm's length transaction for a similar ownership interest.
Total cumulative downward adjustments for equity investments without a determinable fair value for impairments and observable price changes were $4 million. Total cumulative upward adjustments for price changes from observable transactions were $7 million as of March 31, 2018.
NOTE 4. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES
LOANS
The following table presents the distribution of Regions' loan portfolio by segment and class, net of unearned income:
 
March 31, 2018
 
December 31, 2017
 
(In millions, net of unearned income)
Commercial and industrial
$
36,787

 
$
36,115

Commercial real estate mortgage—owner-occupied
6,044

 
6,193

Commercial real estate construction—owner-occupied
306

 
332

Total commercial
43,137

 
42,640

Commercial investor real estate mortgage
3,742

 
4,062

Commercial investor real estate construction
1,845

 
1,772

Total investor real estate
5,587

 
5,834

Residential first mortgage
13,892

 
14,061

Home equity
9,916

 
10,164

Indirect—vehicles
3,310

 
3,326

Indirect—other consumer
1,611

 
1,467

Consumer credit card
1,237

 
1,290

Other consumer
1,132

 
1,165

Total consumer
31,098

 
31,473

 
$
79,822

 
$
79,947

During the three months ended March 31, 2018 and 2017, Regions purchased approximately $70 million and $4 million in indirect-other consumer loans from third parties, respectively.
During the three months ended March 31, 2018, Regions sold $254 million of residential first mortgage loans consisting primarily of performing troubled debt restructured loans as well as certain non-restructured interest-only loans.
At March 31, 2018, $22.1 billion in securities and net eligible loans held by Regions were pledged to secure current and potential borrowings from the FHLB. At March 31, 2018, an additional $22.1 billion in net eligible loans held by Regions were pledged to the FRB for potential borrowings.

18

Table of Contents


ALLOWANCE FOR CREDIT LOSSES
Regions determines the appropriate level of the allowance on a quarterly basis. Refer to Note 1 “Summary of Significant Accounting Policies” to the consolidated financial statements to the Annual Report on Form 10-K for the year ended December 31, 2017, for a description of the methodology.
ROLLFORWARD OF ALLOWANCE FOR CREDIT LOSSES
The following tables present analyses of the allowance for credit losses by portfolio segment for the three months ended March 31, 2018 and 2017. The total allowance for loan losses and the related loan portfolio ending balances are disaggregated to detail the amounts derived through individual evaluation and collective evaluation for impairment. The allowance for loan losses related to individually evaluated loans is attributable to reserves for non-accrual commercial and investor real estate loans and all TDRs. The allowance for loan losses and the loan portfolio ending balances related to collectively evaluated loans is attributable to the remainder of the portfolio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2018
 
Commercial
 
Investor Real
Estate
 
Consumer
 
Total
 
(In millions)
Allowance for loan losses, January 1, 2018
$
591

 
$
64

 
$
279

 
$
934

Provision (credit) for loan losses
(24
)
 
(4
)
 
18

 
(10
)
Loan losses:
 
 
 
 
 
 
 
Charge-offs
(30
)
 
(8
)
 
(74
)
 
(112
)
Recoveries
10

 
2

 
16

 
28

Net loan losses
(20
)
 
(6
)
 
(58
)
 
(84
)
Allowance for loan losses, March 31, 2018
547

 
54

 
239

 
840

Reserve for unfunded credit commitments, January 1, 2018
49

 
4

 
—

 
53

Provision (credit) for unfunded credit losses
(4
)
 
—

 
—

 
(4
)
Reserve for unfunded credit commitments, March 31, 2018
45

 
4

 
—

 
49

Allowance for credit losses, March 31, 2018
$
592

 
$
58

 
$
239

 
$
889

Portion of ending allowance for loan losses:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
150

 
$
10

 
$
29

 
$
189

Collectively evaluated for impairment
397

 
44

 
210

 
651

Total allowance for loan losses
$
547

 
$
54

 
$
239

 
$
840

Portion of loan portfolio ending balance:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
700

 
$
96

 
$
476

 
$
1,272

Collectively evaluated for impairment
42,437

 
5,491

 
30,622

 
78,550

Total loans evaluated for impairment
$
43,137

 
$
5,587

 
$
31,098

 
$
79,822


19

Table of Contents


 
Three Months Ended March 31, 2017
 
Commercial
 
Investor Real
Estate
 
Consumer
 
Total
 
(In millions)
Allowance for loan losses, January 1, 2017
$
753

 
$
85

 
$
253

 
$
1,091

Provision (credit) for loan losses
26

 
1

 
43

 
70

Loan losses:
 
 
 
 
 
 
 
Charge-offs
(58
)
 
(1
)
 
(65
)
 
(124
)
Recoveries
6

 
2

 
16

 
24

Net loan losses
(52
)
 
1

 
(49
)
 
(100
)
Allowance for loan losses, March 31, 2017
727

 
87

 
247

 
1,061

Reserve for unfunded credit commitments, January 1, 2017
64

 
5

 
—

 
69

Provision (credit) for unfunded credit losses
2

 
(1
)
 
—

 
1

Reserve for unfunded credit commitments, March 31, 2017
66

 
4

 
—

 
70

Allowance for credit losses, March 31, 2017
$
793

 
$
91

 
$
247

 
$
1,131

Portion of ending allowance for loan losses:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
228

 
$
17

 
$
56

 
$
301

Collectively evaluated for impairment
499

 
70

 
191

 
760

Total allowance for loan losses
$
727

 
$
87

 
$
247

 
$
1,061

Portion of loan portfolio ending balance:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
1,103

 
$
126

 
$
760

 
$
1,989

Collectively evaluated for impairment
41,139

 
6,356

 
30,385

 
77,880

Total loans evaluated for impairment
$
42,242

 
$
6,482

 
$
31,145

 
$
79,869


PORTFOLIO SEGMENT RISK FACTORS
The following describe the risk characteristics relevant to each of the portfolio segments.
Commercial—The commercial loan portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Commercial also includes owner-occupied commercial real estate mortgage loans to operating businesses, which are loans for long-term financing of land and buildings, and are repaid by cash flow generated by business operations. Owner-occupied construction loans are made to commercial businesses for the development of land or construction of a building where the repayment is derived from revenues generated from the business of the borrower. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers’ business operations, and the sensitivity to market fluctuations in commodity prices.
Investor Real Estate—Loans for real estate development are repaid through cash flow related to the operation, sale or refinance of the property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of real estate or income generated from the real estate collateral. A portion of Regions’ investor real estate portfolio segment consists of loans secured by residential product types (land, single-family and condominium loans) within Regions’ markets. Additionally, these loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers. Loans in this portfolio segment are particularly sensitive to the valuation of real estate.
Consumer—The consumer loan portfolio segment includes residential first mortgage, home equity, indirect-vehicles, indirect-other consumer, consumer credit card, and other consumer loans. Residential first mortgage loans represent loans to consumers to finance a residence. These loans are typically financed over a 15 to 30 year term and, in most cases, are extended to borrowers to finance their primary residence. Home equity lending includes both home equity loans and lines of credit. This type of lending, which is secured by a first or second mortgage on the borrower’s residence, allows customers to borrow against the equity in their home. Real estate market values as of the time the loan or line is secured directly affect the amount of credit extended and, in addition, changes in these values impact the depth of potential losses. Indirect-vehicles lending, which is lending initiated through third-party business partners, largely consists of loans made through automotive dealerships. Indirect-other consumer lending represents other point of sale lending through third parties. Consumer credit card includes Regions branded consumer credit card accounts. Other consumer loans include other revolving consumer accounts, direct consumer loans, and overdrafts. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.

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Table of Contents


CREDIT QUALITY INDICATORS
The following tables present credit quality indicators for the loan portfolio segments and classes, excluding loans held for sale, as of March 31, 2018, and December 31, 2017. Commercial and investor real estate loan portfolio segments are detailed by categories related to underlying credit quality and probability of default. Regions assigns these categories at loan origination and reviews the relationship utilizing a risk-based approach on, at minimum, an annual basis or at any time management becomes aware of information affecting the borrowers' ability to fulfill their obligations. Both quantitative and qualitative factors are considered in this review process. These categories are utilized to develop the associated allowance for credit losses.
•
Pass—includes obligations where the probability of default is considered low;
•
Special Mention—includes obligations that have potential weakness that may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date. Obligations in this category may also be subject to economic or market conditions that may, in the future, have an adverse effect on debt service ability;
•
Substandard Accrual—includes obligations that exhibit a well-defined weakness that presently jeopardizes debt repayment, even though they are currently performing. These obligations are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected;
•
Non-accrual—includes obligations where management has determined that full payment of principal and interest is in doubt.
Substandard accrual and non-accrual loans are often collectively referred to as “classified.” Special mention, substandard accrual, and non-accrual loans are often collectively referred to as “criticized and classified.” Classes in the consumer portfolio segment are disaggregated by accrual status.
 
March 31, 2018
 
Pass
 
Special  Mention
 
Substandard
Accrual
 
Non-accrual
 
Total
 
(In millions)
Commercial and industrial
$
35,216

 
$
609

 
$
598

 
$
364

 
$
36,787

Commercial real estate mortgage—owner-occupied
5,558

 
250

 
134

 
102

 
6,044

Commercial real estate construction—owner-occupied
288

 
3

 
10

 
5

 
306

Total commercial
$
41,062

 
$
862

 
$
742

 
$
471

 
$
43,137

Commercial investor real estate mortgage
$
3,646

 
$
48

 
$
34

 
$
14

 
$
3,742

Commercial investor real estate construction
1,793

 
15

 
37

 
—

 
1,845

Total investor real estate
$
5,439

 
$
63

 
$
71

 
$
14

 
$
5,587

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accrual
 
Non-accrual
 
Total
 
 
 
 
 
(In millions)
Residential first mortgage
 
 
 
 
$
13,845

 
$
47

 
$
13,892

Home equity
 
 
 
 
9,847

 
69

 
9,916

Indirect—vehicles
 
 
 
 
3,310

 
—