Eurazeo
Annual Report 2008

Plain-text annual report

FORM 10-K REGIONS FINANCIAL CORP - RF Filed: February 25, 2009 (period: December 31, 2008) Annual report which provides a comprehensive overview of the company for the past year Table of Contents 10-K - FORM 10-K PART I Item 1. 2 PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. PART II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. PART III Item 10. Item 11. Item 12. Item 13. Item 14. PART IV Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Submission of Matters to a Vote of Security Holders Market For Registrant s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management s Discussion and Analysis of Financial Condition and Results of Operation Quantitative and Qualitative Disclosures about Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services Item 15. Exhibits, Financial Statement Schedules SIGNATURES EX-10.27 (AMENDED AND RESTATED DIRECTORS' DEFERRED STOCK INVESTMENT PLAN) EX-10.30 (AMENDED AND RESTATED DEFERRED COMPENSATION PLAN FOR FORMER DIRECTORS OF AMSOUTH) EX-10.36 (AMENDMENT NUMBER 2 TO AMSOUTH BANCORPORATION DEFERRED COMPENSATION PLAN) EX-10.47 (FORM OF LETTER AGREEMENT AND WAIVER) EX-10.58 (AMENDED AND RESTATED SUPPLEMENTAL 401(K) PLAN) EX-10.62 (AMENDED AND RESTATED POST 2006 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN) EX-10.65 (MORGAN KEEGAN COMPANY AMENDED AND RESTATED DEFERRED COMPENSATION PLAN) EX-12 (COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES) EX-21 (LIST OF SUBSIDIARIES) EX-23 (CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM) EX-24 (POWERS OF ATTORNEY) EX-31.1 (SECTION 302 CERTIFICATION OF CEO) EX-31.2 (SECTION 302 CERTIFICATION OF CFO) EX-32 (SECTION 906 CERTIFICATIONS) Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K � ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2008 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 000-50831 REGIONS FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 63-0589368 (I.R.S. Employer Identification No.) 1900 Fifth Avenue North, Birmingham, Alabama 35203 (Address of principal executive offices) Registrant’s telephone number, including area code: (205) 944-1300 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, $.01 par value 8.875% Trust Preferred Securities of Regions Financing Trust III Name of each exchange on which registered New York Stock Exchange New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes � No � Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes � No � Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes � No � Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. � Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer � Non-accelerated filer � (Do not check if a smaller reporting company) Accelerated filer � Smaller reporting company � Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes � No � State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. Common Stock, $.01 par value—694,631,959 shares issued and outstanding as of February 17, 2009 Common Stock, $.01 par value—$7,294,300,055 as of June 30, 2008. Portions of the proxy statement for the Annual Meeting to be held on April 16, 2009 are incorporated by reference into Part III. DOCUMENTS INCORPORATED BY REFERENCE Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents REGIONS FINANCIAL CORPORATION Form 10-K INDEX PART I Forward-Looking Statements Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Submission of Matters to a Vote of Security Holders PART II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. PART III Item 10. Item 11. Item 12. Item 13. Item 14. PART IV Item 15. SIGNATURES Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operation Quantitative and Qualitative Disclosures about Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services Exhibits, Financial Statement Schedules i PAGE 1 2 15 23 23 23 24 25 26 27 27 90 155 155 155 156 157 158 158 158 159 165 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents PART I FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K, other periodic reports filed by Regions Financial Corporation (“Regions”) under the Securities Exchange Act of 1934, as amended, and any other written or oral statements made by or on behalf of Regions may include forward-looking statements. The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a safe harbor for forward-looking statements which are identified as such and are accompanied by the identification of important factors that could cause actual results to differ materially from the forward-looking statements. For these statements, we, together with our subsidiaries, unless the context implies otherwise, claim the protection afforded by the safe harbor in the Act. 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 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, uncertainties and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. These risks, uncertainties and other factors include, but are not limited to, those described below: • • • • • • • • • • • • • In October of 2008, Congress enacted, and President Bush signed into law, the Emergency Economic Stabilization Act of 2008, and on February 17, 2009 the American Recovery and Reinvestment Act of 2009 was signed into law. Additionally, the U.S. Treasury and federal banking regulators are implementing a number of programs to address capital and liquidity issues in the banking system, all of which may have significant effects on Regions and the financial services industry, the exact nature and extent of which cannot be determined at this time. Possible changes in interest rates may affect funding costs and reduce earning asset yields, thus reducing margins. Possible changes in general economic and business conditions in the United States in general and in the communities Regions serves in particular. Possible changes in the creditworthiness of customers and the possible impairment of collectibility of loans. Possible other changes in trade, monetary and fiscal policies, laws and regulations, and other activities of governments, agencies, and similar organizations, including changes in accounting standards, may have an adverse effect on business. The current stresses in the financial and real estate markets, including possible continued deterioration in property values. Regions’ 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 Regions’ business. Regions’ ability to achieve the earnings expectations related to businesses that have been acquired or that may be acquired in the future. Regions’ ability to expand into new markets and to maintain profit margins in the face of competitive pressures. Regions’ ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by Regions’ customers and potential customers. Regions’ ability to keep pace with technological changes. Regions’ ability to effectively manage credit risk, interest rate risk, market risk, operational risk, legal risk, liquidity risk, and regulatory and compliance risk. The cost and other effects of material contingencies, including litigation contingencies. 1 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents • • • • The effects of increased competition from both banks and non-banks. The effects of geopolitical instability and risks such as terrorist attacks. Possible changes in consumer and business spending and saving habits could affect Regions’ ability to increase assets and to attract deposits. The effects of weather and natural disasters such as droughts and hurricanes. The words “believe,” “expect,” “anticipate,” “project” and similar expressions often signify forward-looking statements. You should not place undue reliance on any forward-looking statements, which speak only as of the date made. We assume no obligation to update or revise any forward-looking statements that are made from time to time. See also Item 1A. “Risk Factors” of this Annual Report on Form 10-K. Item 1. Business Regions Financial Corporation (together with its subsidiaries on a consolidated basis, “Regions” or “Company”) is a financial holding company headquartered in Birmingham, Alabama, which operates throughout the South, Midwest and Texas. Regions provides traditional commercial, retail and mortgage banking services, as well as other financial services in the fields of investment banking, asset management, trust, mutual funds, securities brokerage, insurance and other specialty financing. At December 31, 2008, Regions had total consolidated assets of approximately $146.2 billion, total consolidated deposits of approximately $90.9 billion and total consolidated stockholders’ equity of approximately $16.8 billion. Regions is a Delaware corporation that, on July 1, 2004, became the successor by merger to Union Planters Corporation and the former Regions Financial Corporation. Its principal executive offices are located at 1900 Fifth Avenue North, Birmingham, Alabama 35203, and its telephone number at that address is (205) 944-1300. Banking Operations Regions conducts its banking operations through Regions Bank, an Alabama chartered commercial bank that is a member of the Federal Reserve System. At December 31, 2008, Regions operated approximately 2,300 ATMs and 1,900 banking offices in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia. The following chart reflects the distribution of branch locations in each of the states in which Regions conducts its banking operations. Alabama Arkansas Florida Georgia Illinois Indiana Iowa Kentucky Louisiana Mississippi Missouri North Carolina South Carolina Tennessee Texas Virginia Totals 2 Branches 251 114 420 155 72 66 18 19 129 155 68 9 37 300 84 3 1,900 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Other Financial Services Operations In addition to its banking operations, Regions provides additional financial services through the following subsidiaries: Morgan Keegan & Company, Inc. (“Morgan Keegan”), a subsidiary of Regions Financial Corporation, is a full-service regional brokerage and investment banking firm. Morgan Keegan offers products and services including securities brokerage, asset management, financial planning, mutual funds, securities underwriting, sales and trading, and investment banking. Morgan Keegan also manages the delivery of trust services, which are provided pursuant to the trust powers of Regions Bank. Morgan Keegan, one of the largest investment firms in the South, employs over 1,200 financial advisors offering products and services from over 300 offices located in Alabama, Arkansas, Florida, Georgia, Illinois, Kentucky, Louisiana, Massachusetts, Mississippi, New York, North Carolina, South Carolina, Tennessee, Texas and Virginia. Regions Insurance Group, Inc., a subsidiary of Regions Financial Corporation, is an insurance broker that offers insurance products through its subsidiaries Regions Insurance, Inc. (formerly Rebsamen Insurance, Inc.), headquartered in Little Rock, Arkansas, and Regions Insurance Services, Inc., headquartered in Memphis, Tennessee. Through its insurance brokerage operations in Alabama, Arkansas, Indiana, Louisiana, Missouri, Mississippi, Tennessee and Texas, Regions Insurance, Inc. offers insurance coverage for various lines of personal and commercial insurance, such as property, casualty, life, health and accident insurance. Regions Insurance Services, Inc. offers credit-related insurance products, such as title, term life, credit life, environmental, crop and mortgage insurance, as well as debt cancellation products to customers of Regions. With $117.1 million in annual revenues and 27 offices in eight states, Regions Insurance Group, Inc. is one of the largest insurance brokers in the United States. Regions has several subsidiaries and affiliates which are agents or reinsurers of credit life insurance products relating to the activities of certain affiliates of Regions. Regions Equipment Finance Corporation, a subsidiary of Regions Bank, provides domestic and international equipment financing products, focusing on commercial clients. Acquisition Program A substantial portion of the growth of Regions from its inception as a bank holding company in 1971 has been through the acquisition of other financial institutions, including commercial banks and thrift institutions, and the assets and deposits of those financial institutions. As part of its ongoing strategic plan, Regions continually evaluates business combination opportunities. Any future business combination or series of business combinations that Regions might undertake may be material, in terms of assets acquired or liabilities assumed, to Regions’ financial condition. Historically, business combinations in the financial services industry have typically involved the payment of a premium over book and market values. This practice could result in dilution of book value and net income per share for the acquirer. Segment Information Reference is made to Note 24 “Business Segment Information” to the consolidated financial statements included under Item 8. of this Annual Report on Form 10-K for information required by this item. Supervision and Regulation Regions and its subsidiaries are subject to the extensive regulatory framework applicable to bank holding companies and their subsidiaries. Regulation of financial institutions such as Regions and its subsidiaries is intended primarily for the protection of depositors, the deposit insurance fund of the Federal Deposit Insurance 3 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Corporation (“FDIC”) and the banking system as a whole, and generally is not intended for the protection of stockholders or other investors. Described below are the material elements of selected laws and regulations applicable to Regions and its subsidiaries. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described. Changes in applicable law or regulation, and in their application by regulatory agencies, cannot be predicted, but they may have a material effect on the business and results of Regions and its subsidiaries. General. Regions is a bank holding company, registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and a financial holding company under the Bank Holding Company Act of 1956, as amended (“BHC Act”). As such, Regions and its subsidiaries are subject to the supervision, examination and reporting requirements of the BHC Act and the regulations of the Federal Reserve. Under the BHC Act, an eligible bank holding company may elect to be a “financial holding company” and thereafter may engage in a range of activities that are financial in nature and that are not permissible for bank holding companies that are not financial holding companies. A financial holding company may engage directly or through a subsidiary in the statutorily authorized activities of securities dealing, underwriting and market making, insurance underwriting and agency activities, merchant banking and insurance company portfolio investments. A financial holding company also may engage in any activity that the Federal Reserve determines by rule or order to be financial in nature, incidental to such financial activity, or complementary to a financial activity and that does not pose a substantial risk to the safety and soundness of an institution or to the financial system generally. In addition to these activities, a financial holding company may engage in those activities permissible for a bank holding company that has not elected to be treated as a financial holding company, including factoring accounts receivable, acquiring and servicing loans, leasing personal property, performing certain data processing services, acting as agent or broker in selling credit life insurance and certain other types of insurance in connection with credit transactions and conducting certain insurance underwriting activities. The BHC Act does not place territorial limitations on permissible non-banking activities of bank holding companies. The Federal Reserve has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when the Federal Reserve has reasonable grounds to believe that continuation of such activity or such ownership or control constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of the bank holding company. The BHC Act provides generally for “umbrella” regulation of financial holding companies by the Federal Reserve, and for functional regulation of banking activities by bank regulators, securities activities by securities regulators, and insurance activities by insurance regulators. For a bank holding company to be eligible for financial holding company status, all of its subsidiary insured depository institutions must be well capitalized and well managed. A bank holding company may become a financial holding company by filing a declaration with the Federal Reserve that it elects to become a financial holding company. The Federal Reserve must deny expanded authority to any bank holding company with a subsidiary insured depository institution that received less than a satisfactory rating on its most recent Community Reinvestment Act of 1977 (the “CRA”) review as of the time it submits its declaration. If, after becoming a financial holding company and undertaking activities not permissible for a bank holding company that is not a financial holding company, the company fails to continue to meet any of the prerequisites for financial holding company status, the company must enter into an agreement with the Federal Reserve to comply with all applicable capital and management requirements. If the company does not return to compliance within 180 days, the Federal Reserve may order the company to divest its subsidiary banks or the company may discontinue or divest investments in companies engaged in activities permissible only for a bank holding company that has elected to be treated as a financial holding company. The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve before: (1) it may acquire direct or indirect ownership or control of any voting shares of any bank or savings and 4 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents loan association, if after such acquisition, the bank holding company will directly or indirectly own or control more than 5.0% of the voting shares of the institution; (2) it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank or savings and loan association; or (3) it may merge or consolidate with any other bank holding company. The BHC Act further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any section of the United States, or the effect of which may be substantially to lessen competition or to tend to create a monopoly in any section of the country, or that in any other manner would be in restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. Consideration of financial resources generally focuses on capital adequacy, and consideration of convenience and needs issues includes the parties’ performance under the CRA, both of which are discussed below. In addition, the Federal Reserve must take into account the institutions’ effectiveness in combating money laundering. Regions Bank is a member of the FDIC, and, as such, its deposits are insured by the FDIC to the extent provided by law. It is also subject to numerous statutes and regulations that affect its business activities and operations, and is supervised and examined by one or more state or federal bank regulatory agencies. See “FDIC Temporary Liquidity Guarantee Program” below. Regions Bank is a state bank, chartered in Alabama and is a member of the Federal Reserve System. Regions Bank is generally subject to supervision and examination by both the Federal Reserve and the Alabama Department of Banking. The Federal Reserve and the Alabama Department of Banking regularly examine the operations of Regions Bank and are given authority to approve or disapprove mergers, consolidations, the establishment of branches and similar corporate actions. The federal and state banking regulators also have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law. Various consumer laws and regulations also affect the operations of Regions Bank. In addition, commercial banks are affected significantly by the actions of the Federal Reserve as it attempts to control money and credit availability in order to influence the economy. Community Reinvestment Act. Regions Bank is subject to the provisions of the CRA. Under the terms of the CRA, Regions Bank has a continuing and affirmative obligation consistent with safe and sound operation to help meet the credit needs of its communities, including providing credit to individuals residing in low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires each appropriate federal bank regulatory agency, in connection with its examination of a depository institution, to assess such institution’s record in assessing and meeting the credit needs of the community served by that institution, including low- and moderate-income neighborhoods. The regulatory agency’s assessment of the institution’s record is made available to the public. The assessment also is part of the Federal Reserve’s consideration of applications to acquire, merge or consolidate with another banking institution or its holding company, to establish a new branch office that will accept deposits or to relocate an office. In the case of a bank holding company applying for approval to acquire a bank or other bank holding company, the Federal Reserve will assess the records of each subsidiary depository institution of the applicant bank holding company, and such records may be the basis for denying the application. Regions Bank received a “satisfactory” CRA rating in its most recent examination. USA PATRIOT Act. A major focus of governmental policy relating to financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA PATRIOT Act of 2001 (the “USA PATRIOT Act”) broadened the application of anti-money laundering regulations to apply to additional 5 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents types of financial institutions such as broker-dealers, investment advisors and insurance companies, and strengthened the ability of the U.S. Government to help prevent, detect and prosecute international money laundering and the financing of terrorism. The principal provisions of Title III of the USA PATRIOT Act require that regulated financial institutions, including state member banks: (i) establish an anti-money laundering program that includes training and audit components; (ii) comply with regulations regarding the verification of identity of any person seeking to open an account; (iii) take additional required precautions with non-U.S. owned accounts; and (iv) perform certain verification and certification of money laundering risk for their foreign correspondent banking relationships. Failure of a financial institution to comply with the USA PATRIOT Act’s requirements could have serious legal and reputational consequences for the institution. Regions’ banking, broker-dealer and insurance subsidiaries have augmented their systems and procedures to meet the requirements of these regulations and will continue to revise and update their policies, procedures and controls to reflect changes required by the USA PATRIOT Act and implementing regulations. U.S. Treasury Capital Purchase Program. Pursuant to the U.S. Department of the Treasury’s (the “U.S. Treasury”) Capital Purchase Program (the “CPP”), on November 14, 2008, Regions issued and sold to the U.S. Treasury in an offering exempt from registration under Section 4(2) of the Securities Act of 1933, (i) 3.5 million shares of Regions’ Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $1.00 and liquidation preference $1,000 per share ($3.5 billion aggregate liquidation preference) (the “Series A Preferred Stock”) and (ii) a warrant (the “Warrant”) to purchase 48,253,677 shares of Regions’ common stock, at an exercise price of $10.88 per share, subject to certain anti-dilution and other adjustments for an aggregate purchase price of $3.5 billion in cash. The securities purchase agreement, dated November 14, 2008, pursuant to which the securities issued to the U.S. Treasury under the CPP were sold, limits the payment of dividends on Regions’ common stock to the current quarterly dividend of $0.10 per share without prior approval of the U.S. Treasury, limits Regions’ ability to repurchase shares of its common stock (with certain exceptions, including the repurchase of our common stock to offset share dilution from equity-based compensation awards), grants the holders of the Series A Preferred Stock, the Warrant and the common stock of Regions to be issued under the Warrant certain registration rights, and subjects Regions to certain of the executive compensation limitations included in the Emergency Economic Stabilization Act of 2008. FDIC Temporary Liquidity Guarantee Program. Regions and Regions Bank have chosen to participate in the FDIC’s Temporary Liquidity Guarantee Program (the “TLGP”), which applies to, among others, all U.S. depository institutions insured by the FDIC and all United States bank holding companies, unless they have opted out. Under the TLGP, the FDIC guarantees certain senior unsecured debt of Regions and Regions Bank, as well as non-interest bearing transaction account deposits at Regions Bank. Under the transaction account guarantee component of the TLGP, all non-interest bearing transaction accounts maintained at Regions Bank are insured in full by the FDIC until December 31, 2009, regardless of the standard maximum deposit insurance amounts. Under the debt guarantee component of the TLGP, the FDIC will pay the unpaid principal and interest on an FDIC-guaranteed debt instrument upon the uncured failure of the participating entity to make a timely payment of principal or interest. On December 11, 2008, Regions Bank issued and sold $3.5 billion aggregate principal amount of its senior bank notes guaranteed under the TLGP. Regions Bank issued and sold an additional $250 million aggregate principal amount of guaranteed senior bank notes on December 16, 2008. Neither Regions nor Regions Bank is permitted to use the proceeds from the sale of securities guaranteed under the TLGP to prepay any of its other debt that is not guaranteed by the FDIC. Comprehensive Financial Stability Plan of 2009. On February 10, 2009, Treasury Secretary Timothy Geithner announced a new comprehensive financial stability plan (the “Financial Stability Plan”), which builds upon existing programs and earmarks the second $350 billion of unused funds originally authorized under the Emergency Economic Stabilization Act of 2008. The major elements of the Financial Stability Plan include: (i) a capital assistance program that will invest in convertible preferred stock of certain qualifying institutions, (ii) a consumer and business lending initiative to fund new consumer loans, small business loans and commercial mortgage asset-backed securities issuances, 6 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents (iii) a new public-private investment fund that will leverage public and private capital with public financing to purchase up to $500 billion to $1 trillion of legacy “toxic assets” from financial institutions, and (iv) assistance for homeowners by providing up to $75 billion to reduce mortgage payments and interest rates and establishing loan modification guidelines for government and private programs. In addition, all banking institutions with assets over $100 billion, such as Regions, will be required to undergo a comprehensive “stress test” to determine if they have sufficient capital to continue lending and to absorb losses that could result from a more severe decline in the economy than projected. Institutions receiving assistance under the Financial Stability Plan going forward will be subject to higher transparency and accountability standards, including restrictions on dividends, acquisitions and executive compensation and additional disclosure requirements. Regions cannot predict at this time the effect that the Financial Stability Plan may have on it or its business, financial condition or results of operations. Payment of Dividends. Regions is a legal entity separate and distinct from its banking and other subsidiaries. The principal source of cash flow of Regions, including cash flow to pay dividends to its stockholders and principal and interest on any debt of Regions, is dividends from Regions Bank. There are statutory and regulatory limitations on the payment of dividends by Regions Bank to Regions, as well as by Regions to its stockholders. As to the payment of dividends, Regions Bank is subject to the laws and regulations of the state of Alabama and to the regulations of the Federal Reserve. The payment of dividends by Regions and Regions Bank may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. If, in the opinion of a federal regulatory agency, an institution under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the institution, could include the payment of dividends), such agency may require, after notice and hearing, that such institution cease and desist from such practice. The federal banking agencies have indicated that paying dividends that deplete an institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Act (“FDIA”), an insured institution may not pay any dividend if payment would cause it to become “undercapitalized” or if it already is “undercapitalized.” See “Regulatory Remedies under the FDIA” below. Moreover, the Federal Reserve and the FDIC have issued policy statements stating that bank holding companies and insured banks should generally pay dividends only out of current operating earnings. Under the Federal Reserve’s Regulation H, Regions Bank may not, without the approval of the Federal Reserve, declare or pay a dividend to Regions if the total of all dividends declared in a calendar year exceeds the total of (a) Regions Bank’s net income for that year and (b) its retained net income for the preceding two calendar years, less any required transfers to additional paid-in capital or to a fund for the retirement of preferred stock. As a result of our $5.6 billion loss in 2008, Regions Bank cannot, without approval from the Federal Reserve, declare or pay a dividend to Regions until such time as Regions Bank is able to satisfy the criteria discussed in the preceding sentence. Given the loss in 2008, Regions Bank does not expect to be able to pay dividends to Regions in the near term without obtaining regulatory approval. Under Alabama law, a bank may not pay a dividend in excess of 90 percent of its net earnings until the bank’s surplus is equal to at least 20 percent of capital. Regions Bank is also required by Alabama law to obtain approval of the Superintendent of Banking prior to the payment of dividends if the total of all dividends declared by Regions Bank in any calendar year will exceed the total of (a) Regions Bank’s net earnings (as defined by statute) for that year, plus (b) its retained net earnings for the preceding two years, less any required transfers to surplus. Also, no dividends may be paid from Regions Bank’s surplus without the prior written approval of the Superintendent of Banking. However, the ability of Regions to pay dividends to its stockholders is not totally dependent on the receipt of dividends from Regions Bank, as Regions has other cash available to make such payment. As of December 31, 2008, Regions had $4.8 billion of cash and cash equivalents, which is available for corporate purposes, including 7 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents debt service and to pay dividends to its stockholders. This is compared to an anticipated common dividend requirement, assuming current dividend payment levels, of approximately $277 million and preferred cash dividends of approximately $175 million for the full year 2009. Expected debt maturities in 2009 are approximately $425 million. Although Regions currently has capacity to make common dividend payments in 2009, the payment of dividends by Regions and the dividend rate are subject to management review and approval by Regions’ Board of Directors on a quarterly basis. Preferred dividends are to be paid in accordance with the terms of the CPP. See Item 1A. “Risk Factors” of this Annual Report on Form 10-K for additional information. In the current financial and economic environment, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong. Prior to November 14, 2011, unless Regions has redeemed all of the Series A Preferred Stock issued to the U.S. Treasury on November 14, 2008 or unless the U.S. Treasury has transferred all the preferred securities to a third party, the consent of the U.S. Treasury will be required for Regions to declare or pay any dividend or make any distribution on common stock other than (i) regular quarterly cash dividends of not more than the current level of $0.10 per share, as adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction, (ii) dividends payable solely in shares of common stock and (iii) dividends or distributions of rights or junior stock in connection with a stockholders’ rights plan. Capital Adequacy. Regions and Regions Bank are required to comply with the applicable capital adequacy standards established by the Federal Reserve. There are two basic measures of capital adequacy for bank holding companies that have been promulgated by the Federal Reserve: a risk-based measure and a leverage measure. The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in credit and market risk profiles among banks and financial holding companies, to account for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. The minimum guideline for the ratio of total capital (“Total Capital”) to risk-weighted assets (including certain off-balance sheet items, such as standby letters of credit) is 8.0%. At least half of the Total Capital must be composed of qualifying common equity, qualifying noncumulative perpetual preferred stock, including related surplus, and senior perpetual preferred stock issued to the U.S. Treasury under the CPP, minority interests relating to qualifying common or noncumulative perpetual preferred stock issued by a consolidated U.S. depository institution or foreign bank subsidiary, and certain “restricted core capital elements”, as discussed below, less goodwill and certain other intangible assets (“Tier 1 Capital”). Tier 2 Capital may consist of, among other things, qualifying subordinated debt, mandatorily convertible debt securities, other preferred stock and trust preferred securities and a limited amount of the allowance for loan losses. Non-cumulative perpetual preferred stock, trust preferred securities and other so-called “restricted core capital elements” are currently limited to 25% of Tier 1 Capital. The minimum guideline for Tier 1 Capital is 4.0%. At December 31, 2008, Regions’ consolidated Tier 1 Capital ratio was 10.38% and its Total Capital ratio was 14.64%. In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average total assets, less goodwill and certain other intangible assets (the “Leverage Ratio”), of 3.0% for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies generally are required to maintain a Leverage Ratio of at least 4%. Regions’ Leverage Ratio at December 31, 2008 was 8.47%. 8 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve has indicated that it will consider a “tangible Tier 1 Capital leverage ratio” (deducting all intangibles) and other indicators of capital strength in evaluating proposals for expansion or new activities. A subsidiary bank is subject to substantially similar risk-based and leverage capital requirements as those applicable to Regions. Regions Bank was in compliance with applicable minimum capital requirements as of December 31, 2008. Neither Regions nor Regions Bank has been advised by any federal banking agency of any specific minimum capital ratio requirement applicable to it as of December 31, 2008. In 2004, the Basel Committee on Banking Supervision published a new set of risk-based capital standards (“Basel II”) in order to update the original international capital standards that had been put in place in 1988 (“Basel I”). Basel II provides two approaches for setting capital standards for credit risk—an internal ratings-based approach tailored to individual institutions’ circumstances and a standardized approach that bases risk-weighting on external credit assessments to a much greater extent than permitted in the existing risk-based capital guidelines. Basel II also would set capital requirements for operational risk and refine the existing capital requirements for market risk exposures. The U.S. banking and thrift agencies are developing proposed revisions to their existing capital adequacy regulations and standards based on Basel II. A definitive final rule for implementing the advanced approaches of Basel II in the United States, which applies only to internationally active banking organizations, or “core banks” (defined as those with consolidated total assets of $250 billion or more or consolidated on-balance sheet foreign exposures of $10 billion or more) became effective on April 1, 2008. Other U.S. banking organizations may elect to adopt the requirements of this rule (if they meet applicable qualification requirements), but are not required to comply. The rule also allows a banking organization’s primary Federal supervisor to determine that application of the rule would not be appropriate in light of the bank’s asset size, level of complexity, risk profile or scope of operations. Regions Bank is currently not required to comply with Basel II. In July 2008, the agencies issued a proposed rule that would provide banking organizations that do not use the advanced approaches with the option to implement a new risk-based capital framework. This framework would adopt the standardized approach of Basel II for credit risk, the basic indicator approach of Basel II for operational risk, and related disclosure requirements. While this proposed rule generally parallels the relevant approaches under Basel II, it diverges where United States markets have unique characteristics and risk profiles, most notably with respect to risk weighting residential mortgage exposures. Comments on the proposed rule were due to the agencies by October 27, 2008, but a definitive final rule had not been issued as of December 31, 2008. The proposed rule, if adopted, will replace the agencies’ earlier proposed amendments to existing risk-based capital guidelines to make them more risk sensitive (formerly referred to as the “Basel I-A” approach) Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business. See “Regulatory Remedies under the FDIA” below. Support of Subsidiary Banks. Under Federal Reserve policy, Regions is expected to act as a source of financial strength to, and to commit resources to support, its subsidiary bank. This support may be required at times when, absent such Federal Reserve policy, Regions may not be inclined to provide it. In addition, any capital loans by a bank holding company to its subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. Cross-Guarantee Provisions. Each insured depository institution “controlled” (as defined in the BHC Act) by the same bank holding company can be held liable to the FDIC for any loss incurred, or reasonably expected 9 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents to be incurred, by the FDIC due to the default of any other insured depository institution controlled by that holding company and for any assistance provided by the FDIC to any of those banks that is in danger of default. Such a “cross-guarantee” claim against a depository institution is generally superior in right of payment to claims of the holding company and its affiliates against that depository institution. At this time, Regions Bank is the only insured depository institution controlled by Regions for this purpose. If in the future, however, Regions were to control other insured depository institutions, such cross-guarantee would apply to all such insured depository institutions. Transactions with Affiliates. There are various legal restrictions on the extent to which Regions and its non-bank subsidiaries may borrow or otherwise obtain funding from Regions Bank. Under Sections 23A and 23B of the Federal Reserve Act and the Federal Reserve’s Regulation W, Regions Bank (and its subsidiaries) may only engage in lending and other “covered transactions” with non-bank and non-savings bank affiliates to the following extent: (a) in the case of any single such affiliate, the aggregate amount of covered transactions of Regions Bank and its subsidiaries may not exceed 10% of the capital stock and surplus of Regions Bank; and (b) in the case of all affiliates, the aggregate amount of covered transactions of Regions Bank and its subsidiaries may not exceed 20% of the capital stock and surplus of Regions Bank. Covered transactions also are subject to certain collateralization requirements. “Covered transactions” are defined by statute to include a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve) from the affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. All covered transactions, including certain additional transactions, (such as transactions with a third party in which an affiliate has a financial interest) must be conducted on market terms. Regulatory Remedies under the FDIA. The FDIA establishes a system of regulatory remedies to resolve the problems of undercapitalized institutions. The federal banking regulators have established five capital categories (“well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized”) and must take certain mandatory supervisory actions, and are authorized to take other discretionary actions, with respect to institutions in the three undercapitalized categories, the severity of which will depend upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the FDIA requires the banking regulator to appoint a receiver or conservator for an institution that is critically undercapitalized. The federal banking agencies have specified by regulation the relevant capital level for each category. Under the agencies’ rules implementing the FDIA’s remedy provisions, an institution that (1) has a Total Capital ratio of 10.0% or greater, a Tier 1 Capital ratio of 6.0% or greater, and a Leverage Ratio of 5.0% or greater and (2) is not subject to any written agreement, order, capital directive or regulatory remedy directive issued by the appropriate federal banking agency is deemed to be “well capitalized.” An institution with a Total Capital ratio of 8.0% or greater, a Tier 1 Capital ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or greater is considered to be “adequately capitalized.” A depository institution that has a Total Capital ratio of less than 8.0%, a Tier 1 Capital ratio of less than 4.0%, or a Leverage Ratio of less than 4.0% is considered to be “undercapitalized.” An institution that has a Total Capital ratio of less than 6.0%, a Tier 1 Capital ratio of less than 3.0%, or a Leverage Ratio of less than 3.0% is considered to be “significantly undercapitalized,” and an institution that has a tangible equity capital to assets ratio equal to or less than 2.0% is deemed to be “critically undercapitalized.” For purposes of the regulation, the term “tangible equity” includes core capital elements counted as Tier 1 Capital for purposes of the risk-based capital standards plus the amount of outstanding cumulative perpetual preferred stock (including related surplus), minus all intangible assets with certain exceptions. A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating. An institution that is categorized as undercapitalized, significantly undercapitalized or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. Under the FDIA, in order for the capital restoration plan to be accepted by the appropriate federal 10 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents banking agency, a bank holding company must guarantee that a subsidiary depository institution will comply with its capital restoration plan, subject to certain limitations. The bank holding company must also provide appropriate assurances of performance. The obligation of a controlling bank holding company under the FDIA to fund a capital restoration plan is limited to the lesser of 5.0% of an undercapitalized subsidiary’s assets or the amount required to meet regulatory capital requirements. An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except in accordance with an accepted capital restoration plan or with the approval of the FDIC. In addition, the appropriate federal banking agency is given authority with respect to any undercapitalized depository institution to take any of the actions it is required to or may take with respect to a significantly undercapitalized institution as described below if it determines “that those actions are necessary to carry out the purpose” of the FDIA. Institutions that are significantly undercapitalized or undercapitalized and either fail to submit an acceptable capital restoration plan or fail to implement an approved capital restoration plan may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized depository institutions are subject to appointment of a receiver or conservator. At December 31, 2008, Regions Bank had the requisite capital levels to qualify as well capitalized. FDIC Insurance Assessments. Regions Bank pays deposit insurance premiums to the FDIC based on an assessment rate established by the FDIC. In 2006, the FDIC enacted various rules to implement the provisions of the Federal Deposit Insurance Reform Act of 2005 (the “FDI Reform Act”). Pursuant to the FDI Reform Act, in 2006 the FDIC merged the Bank Insurance Fund with the Savings Association Insurance Fund to create a newly named Deposit Insurance Fund (the “DIF”) that covers both banks and savings associations. Effective January 1, 2007, the FDIC revised the risk-based premium system under which the FDIC classifies institutions based on the factors described below and generally assesses higher rates on those institutions that tend to pose greater risks to the DIF. For most banks and savings associations, including Regions Bank, FDIC rates will depend upon a combination of CAMELS component ratings and financial ratios. CAMELS ratings reflect the applicable bank regulatory agency’s evaluation of the financial institution’s capital, asset quality, management, earnings, liquidity and sensitivity to risk. For large banks and savings associations that have long-term debt issuer ratings, assessment rates will depend upon such ratings and CAMELS component ratings. Initially, assessment rates for institutions such as Regions Bank, which are in the lowest risk category, generally varied from five to seven basis points per $100 of insured deposits. On December 16, 2008, however, the FDIC adopted a final rule, effective as of January 1, 2009, increasing risk-based assessment rates uniformly by seven basis points (on an annual basis) for the first quarter of 2009. In October 2008, the FDIC also proposed changes to take effect beginning in the second quarter of 2009 that would require riskier institutions to pay a larger share. The comment period for these proposed changes expired on December 17, 2008, and the FDIC has announced its intention to discuss the proposed rule in early 2009. The FDIA, as amended by the FDI Reform Act, requires the FDIC to set a ratio of deposit insurance reserves to estimated insured deposits, the designated reserve ratio (the “DRR”), for a particular year within a range of 1.15% to 1.50%. For 2009, the FDIC has set the DRR at 1.25%, which is unchanged from 2008 levels. Under the FDI Reform Act and the FDIC’s revised premium assessment program, every FDIC-insured institution will pay some level of deposit insurance assessments regardless of the level of the DRR. We cannot predict whether, as a result of an adverse change in economic conditions or other reasons, the FDIC will be required in the future to increase deposit insurance assessments above current levels. The FDIC also adopted rules providing for a one-time credit assessment to each eligible insured depository institution based on the assessment base of the institution on December 31, 1996. The credit may be applied against the institution’s 2007 assessment, and for the three years thereafter the institution may apply the credit against up to 90% of its assessment. Regions 11 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Bank qualified for a credit of approximately $110 million, of which $34 million was applied in 2007, $41 million in 2008, and the remaining balance of $35 million will be applied in 2009, thereby exhausting the credit. For more information, see the “Bank Regulatory Capital Requirements” section of Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation” of this Annual Report on Form 10-K. In addition, the Deposit Insurance Funds Act of 1996 authorized the Financing Corporation (“FICO”) to impose assessments on DIF applicable deposits in order to service the interest on FICO’s bond obligations from deposit insurance fund assessments. The amount assessed on individual institutions by FICO will be in addition to the amount, if any, paid for deposit insurance according to the FDIC’s risk-related assessment rate schedules. FICO assessment rates may be adjusted quarterly to reflect a change in assessment base. The FICO annual assessment rate for the fourth quarter of 2008 was 1.10 cents per $100 deposits and will rise to 1.14 cents per $100 deposits for the first quarter of 2009. Regions Bank had a FICO assessment of $10.0 million in FDIC deposit premiums in 2008. Under the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. Safety and Soundness Standards. The FDIA requires the federal bank regulatory agencies to prescribe standards, by regulations or guidelines, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial standards as the agencies deem appropriate. Guidelines adopted by the federal bank regulatory agencies establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal stockholder. In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of FDIA. See “Regulatory Remedies under the FDIA” above. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties. Depositor Preference. The Omnibus Budget Reconciliation Act of 1993 provides that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution in the “liquidation or other resolution” of such an institution by any receiver. Regulation of Morgan Keegan. As a registered investment adviser and broker-dealer, Morgan Keegan is subject to regulation and examination by the Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority (“FINRA”), the New York Stock Exchange (“NYSE”) and other self-regulatory organizations (“SROs”), which may affect its manner of operation and profitability. Such regulations cover a broad range of subject matter. Rules and regulations for registered broker-dealers cover such issues as: capital requirements; sales and trading practices; use of client funds and securities; the conduct of directors, officers and employees; record-keeping and recording; supervisory procedures to prevent improper trading on material non-public information; qualification and licensing of sales personnel; and limitations on the extension of credit in securities transactions. Rules and regulations for registered investment advisers include limitations on the 12 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents ability of investment advisers to charge performance-based or non-refundable fees to clients, record-keeping and reporting requirements, disclosure requirements, limitations on principal transactions between an adviser or its affiliates and advisory clients, and anti-fraud standards. Morgan Keegan is subject to the net capital requirements set forth in Rule 15c3-1 of the Securities Exchange Act of 1934. The net capital requirements measure the general financial condition and liquidity of a broker-dealer by specifying a minimum level of net capital that a broker-dealer must maintain, and by requiring that a significant portion of its assets be kept liquid. If Morgan Keegan failed to maintain its minimum required net capital, it would be required to cease executing customer transactions until it came back into compliance. This could also result in Morgan Keegan losing its FINRA membership, its registration with the SEC or require a complete liquidation. The SEC’s risk assessment rules also apply to Morgan Keegan as a registered broker-dealer. These rules require broker-dealers to maintain and preserve records and certain information, describe risk management policies and procedures, and report on the financial condition of affiliates whose financial and securities activities are reasonably likely to have a material impact on the financial and operational condition of the broker-dealer. Certain “material associated persons” of Morgan Keegan, as defined in the risk assessment rules, may also be subject to SEC regulation. In addition to federal registration, state securities commissions require the registration of certain broker-dealers and investment advisers. Morgan Keegan is registered as a broker-dealer with every state, the District of Columbia, and Puerto Rico. Morgan Keegan is registered as an investment adviser in over 40 states and the District of Columbia. Violations of federal, state and SRO rules or regulations may result in the revocation of broker-dealer or investment adviser licenses, imposition of censures or fines, the issuance of cease and desist orders, and the suspension or expulsion of officers and employees from the securities business firm. In addition, Morgan Keegan’s business may be materially affected by new rules and regulations issued by the SEC or SROs as well as any changes in the enforcement of existing laws and rules that affect its securities business. Regulation of Insurers and Insurance Brokers. Regions’ operations in the areas of insurance brokerage and reinsurance of credit life insurance are subject to regulation and supervision by various state insurance regulatory authorities. Although the scope of regulation and form of supervision may vary from state to state, insurance laws generally grant broad discretion to regulatory authorities in adopting regulations and supervising regulated activities. This supervision generally includes the licensing of insurance brokers and agents and the regulation of the handling of customer funds held in a fiduciary capacity. Certain of Regions’ insurance company subsidiaries are subject to extensive regulatory supervision and to insurance laws and regulations requiring, among other things, maintenance of capital, record keeping, reporting and examinations. Financial Privacy. The federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications. Beginning October 1, 2008, consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services. Office of Foreign Assets Control Regulation. The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others. These are typically known as the 13 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents “OFAC” rules based on their administration by the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”). The OFAC-administered sanctions targeting countries take many different forms. Generally, however, they contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging in financial transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (e.g., property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences. Other. The U.S. Congress and state lawmaking bodies continue to consider a number of wide-ranging proposals for altering the structure, regulation and competitive relationships of the nation’s financial institutions. It cannot be predicted whether or in what form further legislation may be adopted or the extent to which Regions’ business may be affected thereby. Competition All aspects of Regions’ business are highly competitive. Regions’ subsidiaries compete with other financial institutions located in the states in which they operate and other adjoining states, as well as large banks in major financial centers and other financial intermediaries, such as savings and loan associations, credit unions, consumer finance companies, brokerage firms, insurance companies, investment companies, mutual funds, mortgage companies and financial service operations of major commercial and retail corporations. Regions expects competition to intensify among financial services companies due to the recent consolidation of certain competing financial institutions and the conversion of certain investment banks to bank holding companies. Customers for banking services and other financial services offered by Regions’ subsidiaries are generally influenced by convenience, quality of service, personal contacts, price of services and availability of products. Although Regions’ position varies in different markets, Regions believes that its affiliates effectively compete with other financial services companies in their relevant market areas. Employees As of December 31, 2008, Regions and its subsidiaries had 30,784 employees. 14 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Available Information Regions maintains a website at www.regions.com. Regions makes available on its website free of charge its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports which are filed with or furnished to the SEC pursuant to Section 13(a) of the Securities Exchange Act of 1934. These documents are made available on Regions’ website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Also available on the website are Regions’ (i) Corporate Governance Principles, (ii) Code of Business Conduct and Ethics, (iii) Code of Ethics for Senior Financial Officers and (iv) the charters of its Nominating and Corporate Governance Committee, Audit Committee, Compensation Committee and Risk Committee. You may also request a copy of any of these documents, at no cost, by writing or telephoning Regions at the following address: ATTENTION: Investor Relations Regions Financial Corporation 1900 Fifth Avenue North Birmingham, Alabama 35203 (205) 581-7890 Item 1A. Risk Factors Making or continuing an investment in securities issued by Regions, including our common stock, involves certain risks that you should carefully consider. The risks and uncertainties described below are not the only risks that may have a material adverse effect on Regions. Additional risks and uncertainties also could adversely affect our businesses, financial condition and results of operations. If any of the following risks actually occur, our businesses, financial condition or results of operations could be negatively affected, the market price for your securities could decline, and you could lose all or a part of your investment. Further, to the extent that any of the information contained in this Annual Report on Form 10-K constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause Regions’ actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of Regions. Our businesses have been and may continue to be adversely affected by current conditions in the financial markets and economic conditions generally. The capital and credit markets have been experiencing unprecedented levels of volatility and disruption for more than a year. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. As a consequence of the recession that the United States now finds itself in, business activity across a wide range of industries face serious difficulties due to the lack of consumer spending and the extreme lack of liquidity in the global credit markets. Unemployment has also increased significantly. A sustained weakness or weakening in business and economic conditions generally or specifically in the principal markets in which we do business could have one or more of the following adverse effects on our businesses: • • • • A decrease in the demand for loans and other products and services offered by us; A decrease in the value of our loans held for sale or other assets secured by consumer or commercial real estate; An impairment of certain intangible assets, such as goodwill; An increase in the number of clients and counterparties who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to us. An increase in the number of delinquencies, bankruptcies or defaults could result in a higher level of nonperforming assets, net charge-offs, provision for loan losses, and valuation adjustments on loans held for sale. 15 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Overall, during the past year, the general business environment has had an adverse effect on our business, and there can be no assurance that the environment will improve in the near term. Until conditions improve, we expect our businesses, financial condition and results of operations to be adversely affected. Current market developments may adversely affect our industry, businesses and results of operations. Dramatic declines in the housing market during the prior year, with falling home prices and increasing foreclosures and unemployment, have resulted in, and may continue to result in, significant write-downs of asset values by us and other financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps and other derivative securities, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced, and in some cases, ceased to provide funding to borrowers including financial institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could materially and adversely affect our business, financial condition and results of operations. Further negative market developments may affect consumer confidence levels and may cause adverse changes in payment patterns, causing increases in delinquencies and default rates, which may impact our charge-offs and provisions for credit losses. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial services industry. The soundness of other financial institutions could adversely affect us. Since mid-2007, the financial services industry as a whole, as well as the securities markets generally, have been materially and adversely affected by very significant declines in the values of nearly all asset classes and by a very serious lack of liquidity. Financial institutions in particular have been subject to increased volatility and an overall loss in investor confidence. Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. There is no assurance that any such losses would not materially and adversely affect our businesses, financial condition or results of operations. There can be no assurance that the Emergency Economic Stabilization Act of 2008 and other recently enacted government programs will help stabilize the U.S. financial system. On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008, as amended (the “EESA”). The legislation was the result of a proposal by Treasury Secretary Henry Paulson to the U.S. Congress on September 20, 2008 in response to the financial crises affecting the banking system and 16 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents financial markets and going concern threats to investment banks and other financial institutions. The U.S. Treasury and federal banking regulators are implementing a number of programs under this legislation and otherwise to address capital and liquidity issues in the banking system, including the CPP, in which Regions participated. In addition, other regulators have taken steps to attempt to stabilize and add liquidity to the financial markets, such as the FDIC’s TLGP. On February 10, 2009, Treasury Secretary Timothy Geithner announced the Financial Stability Plan, which earmarks the second $350 billion originally authorized under the EESA. The Financial Stability Plan is intended to, among other things, make capital available to financial institutions, purchase certain legacy loans and assets from financial institutions, restart securitization markets for loans to consumers and businesses and relieve certain pressures on the housing market, including the reduction of mortgage payments and interest rates. In addition, the American Recovery and Reinvestment Act of 2009 (the “ARRA”), which was signed into law on February 17, 2009, includes, among other things, extensive new restrictions on the compensation arrangements of financial institutions participating in TARP. There can be no assurance, however, as to the actual impact that the EESA, as supplemented by the Financial Stability Plan, the ARRA and other programs will have on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced. The failure of the EESA, the ARRA, the Financial Stability Plan and other programs to stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our businesses, financial condition, results of operations, access to credit or the trading price of our common stock. The EESA, ARRA and the Financial Stability Plan are relatively new initiatives and, as such, are subject to change and evolving interpretation. There can be no assurances as to the effects that any further changes will have on the effectiveness of the government’s efforts to stabalize the credit markets or on our businesses, financial condition or results of operations. The limitations on incentive compensation contained in the ARRA may adversely affect Regions’ ability to retain its highest performing employees. In the case of a company such as Regions that received CPP funds, the ARRA contains restrictions on bonus and other incentive compensation payable to the five executives named in a company’s proxy statement and the next twenty highest paid employees. Depending upon the limitations placed on incentive compensation by the final regulations issued under the ARRA, it is possible that Regions may be unable to create a compensation structure that permits Regions to retain its highest performing employees. If this were to occur, Regions’ businesses and results of operations could be adversely affected, perhaps materially. We are subject to extensive governmental regulation, which could have an adverse impact on our operations. The banking industry is extensively regulated and supervised under both federal and state law. We are subject to the regulation and supervision of the Federal Reserve, the FDIC and the Superintendent of Banking of the State of Alabama. These regulations are intended primarily to protect depositors, the public and the FDIC insurance fund, and not our shareholders. These regulations govern matters ranging from the regulation of certain debt obligations, changes in the control of bank holding companies and state-chartered banks, and the maintenance of adequate capital to the general business operations and financial condition of Regions Bank, including permissible types, amounts and terms of loans and investments, to the amount of reserves against deposits, restrictions on dividends, establishment of branch offices, and the maximum interest rate that may be charged by law. Additionally, certain subsidiaries of Regions and Regions Bank, such as Morgan Keegan, are subject to regulation, supervision and examination by other regulatory authorities, such as the SEC, FINRA and state securities and insurance regulators. We are subject to changes in federal and state law, as well as regulations and governmental policies, income tax laws and accounting principles. Regulations affecting banks and other 17 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents financial institutions are undergoing continuous change, and the ultimate effect of such changes cannot be predicted. Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us, Regions Bank and our subsidiaries. Given the current disruption in the financial markets and regulatory initiatives that are likely to be proposed by the new administration and Congress, new regulations and laws that may affect us are increasingly likely. Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities. Also, participation in specific programs may subject us to additional restrictions. We cannot assure you that such modifications or new laws will not adversely affect us. Our regulatory position is discussed in greater detail under Item 1. “Business—Supervision and Regulation” of this Annual Report on Form 10-K. In addition, Regions will be required to pay significantly higher FDIC premiums because market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits. We may need to raise additional capital in the future and such capital may not be available when needed or at all. We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance. The ongoing liquidity crisis and the loss of confidence in financial institutions may increase our cost of funding and limit our access to some of our customary sources of capital, including, but not limited to, inter-bank borrowings, repurchase agreements and borrowings from the discount window of the Federal Reserve. We cannot assure you that such capital will be available to us on acceptable terms or at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers, depositors of Regions Bank or counterparties participating in the capital markets, or a downgrade of our debt rating, may adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our businesses, financial condition and results of operations. We are a holding company and depend on our subsidiaries for dividends, distributions and other payments. We are a legal entity separate and distinct from our banking and other subsidiaries. Our principal source of cash flow, including cash flow to pay dividends to our stockholders and principal and interest on our outstanding debt, is dividends from Regions Bank. There are statutory and regulatory limitations on the payment of dividends by Regions Bank to us, as well as by us to our stockholders. Regulations of both the Federal Reserve and the State of Alabama affect the ability of Regions Bank to pay dividends and other distributions to us and to make loans to us. Given the loss recorded at Regions Bank during the fourth quarter of 2008, under the Federal Reserve’s rules, Regions Bank does not expect to be able to pay dividends to us in the near term without first obtaining regulatory approval. If Regions Bank is unable to make dividend payments to us and sufficient capital is not otherwise available, we may not be able to make dividend payments to our common stockholders or principal and interest payments on our outstanding debt. See “Supervision and Regulation—Payment of Dividends” of this Annual Report on Form 10-K. In addition, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. 18 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Any reduction in our credit rating could increase the cost of our funding from the capital markets. The major rating agencies regularly evaluate us and their ratings of our long-term debt based on a number of factors, including our financial strength as well as factors not entirely within our control, including conditions affecting the financial services industry generally. On February 2, 2009, Moody’s Investors Service (“Moody’s”) downgraded our long-term senior debt from A2 to A3, and downgraded the ratings of certain of our subsidiaries, including Regions Bank. Moody’s downgraded its rating of Regions Bank’s financial strength from B- to C+ and its rating of Regions Bank’s long-term deposits from A1 to A2 and all of our debt and deposit ratings remain on negative outlook. In light of the difficulties in the financial services industry and the housing and financial markets, there can be no assurance that we will not be subject to further downgrades. Credit ratings measure a company’s ability to repay its obligations and directly affect the cost and availability to that company of unsecured financing. Further downgrades could adversely affect the cost and other terms upon which we are able to obtain funding and increase our cost of capital. We may not pay dividends on your common stock. Holders of shares of our common stock are only entitled to receive such dividends as our board of directors may declare out of funds legally available for such payments. Although we have historically declared cash dividends on our common stock, we are not required to do so and may reduce or eliminate our common stock dividend in the future. This could adversely affect the market price of our common stock. Also, participation in the CPP limits our ability to increase our dividend or to repurchase our common stock for so long as any securities issued under such program remain outstanding, as discussed in greater detail below. If we experience greater credit losses than anticipated, our earnings may be adversely affected. As a lender, we are exposed to the risk that our customers will be unable to repay their loans according to their terms and that any collateral securing the payment of their loans may not be sufficient to assure repayment. Credit losses are inherent in the business of making loans and could have a material adverse effect on our operating results. Our credit risk with respect to our real estate and construction loan portfolio will relate principally to the creditworthiness of corporations and the value of the real estate serving as security for the repayment of loans. Our credit risk with respect to our commercial and consumer loan portfolio will relate principally to the general creditworthiness of businesses and individuals within our local markets. We make various assumptions and judgments about the collectibility of our loan portfolio and provide an allowance for estimated credit losses based on a number of factors. We believe that our allowance for credit losses is adequate. However, if our assumptions or judgments are wrong, our allowance for credit losses may not be sufficient to cover our actual credit losses. We may have to increase our allowance in the future in response to the request of one of our primary banking regulators, to adjust for changing conditions and assumptions, or as a result of any deterioration in the quality of our loan portfolio. The actual amount of future provisions for credit losses cannot be determined at this time and may vary from the amounts of past provisions. Further disruptions in the residential real estate market could adversely affect our performance. As of December 31, 2008, residential homebuilder loans, home equity loans secured by second liens in Florida and condominium loans represented approximately 9.3% of our total loan portfolio. These portions of our loan portfolio have been under stress for over a year and, due to weakening credit quality, we increased our loan loss provision and our total allowance for credit losses. In addition, we have implemented several measures to support the management of these portions of the loan portfolio, including reassignment of experienced, key relationship managers to focus on work-out strategies for distressed borrowers. While we expect that these actions will help mitigate the overall effects of the credit down cycle, the weakness in these portions of our loan portfolio is expected to continue well into 2009. Accordingly, it is anticipated that our non-performing asset and charge-off levels will remain elevated. 19 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Further, the effects of recent mortgage market challenges, combined with the ongoing decrease in residential real estate market prices and demand, could result in further price reductions in home values, adversely affecting the value of collateral securing the residential real estate and construction loans that we hold, as well as loan originations and gains on sale of real estate and construction loans. Specifically, a significant portion of our residential mortgages and commercial real estate loan portfolios are composed of borrowers in the Southeastern United States, in which certain markets have been particularly adversely affected by declines in real estate value, declines in home sale volumes, and declines in new home building. For example, prices of Florida properties remain under significant pressure, with rising unemployment levels and the impact of the real estate downturn on the general economy. These factors could result in higher delinquencies and greater charge-offs in future periods, which would materially adversely affect our financial condition and results of operations. A decline in home values or overall economic weakness could also have an adverse impact upon the value of real estate or other assets which we own upon foreclosing a loan. Our profitability and liquidity may be affected by changes in economic conditions in the areas where our operations or loans are concentrated. Our success depends to a certain extent on the general economic conditions of the geographic markets served by Regions Bank in the states of Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia. The local economic conditions in these areas have a significant impact on Regions Bank’s commercial, real estate and construction loans, the ability of borrowers to repay these loans and the value of the collateral securing these loans. Adverse changes in the economic conditions of these geographical areas for over a year have had a negative impact on the financial results of our banking operations and may continue to have a negative effect on our businesses, financial condition and results of operations. We are exposed to intangible asset risk; specifically, our goodwill may become impaired. We have determined that a portion of our goodwill was impaired and recorded a non-cash goodwill impairment charge of $6.0 billion in the fourth quarter of 2008. In addition, a further significant and sustained decline in our stock price and market capitalization, a significant decline in our expected future cash flows, a significant adverse change in the business climate or slower growth rates could result in further impairment of goodwill. If we were to conclude that a future write-down of our goodwill is necessary, then we would record the appropriate charge, which could be materially adverse to our operating results and financial position. For further discussion, see Notes 1 and 10, “Summary of Significant Accounting Policies” and “Intangible Assets”, to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K. Rapid and significant changes in market interest rates may adversely affect our performance. Most of our assets and liabilities are monetary in nature and subject us to significant risks from changes in interest rates. Our profitability depends to a large extent on our net interest income, and changes in interest rates can impact our net interest income as well as the valuation of our assets and liabilities. Our current one-year interest rate sensitivity position is asset sensitive, meaning that an immediate increase in interest rates would likely have a positive cumulative impact on Regions’ twelve-month net interest income. Alternatively, a gradual decrease in rates over a twelve-month period would likely have a negative impact on twelve-month net interest income. However, like most financial institutions, our results of operations are affected by changes in interest rates and our ability to manage interest rate risks. Changes in market interest rates, or changes in the relationships between short-term and long-term market interest rates, or changes in the relationships between different interest rate indices, can affect the interest rates charged on interest-earning assets differently than the interest rates paid on interest-bearing liabilities. This difference could result in an increase in interest expense relative to interest income, or a decrease in our interest rate spread. For a more detailed discussion of these risks and our management strategies for these risks, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” of this Annual Report on Form 10-K. 20 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Our net interest margin depends on many factors that are partly or completely out of our control, including competition, federal economic monetary and fiscal policies, and general economic conditions. Despite our strategies to manage interest rate risks, changes in interest rates can still have a material adverse impact on our businesses, financial condition and results of operations. The performance of our investment portfolio is subject to fluctuations due to changes in interest rates and market conditions. Changes in interest rates can negatively affect the performance of most of our investments. Interest rate volatility can reduce unrealized gains or create unrealized losses in our portfolios. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions, and other factors beyond our control. Fluctuations in interest rates affect our returns on, and the market value of, our investment securities. The fair market value of the securities in our portfolio and the investment income from these securities also fluctuate depending on general economic and market conditions. In addition, actual net investment income and/or cash flows from investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, may differ from those anticipated at the time of investment as a result of interest rate fluctuations. See the “Securities” section of Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation” of this Annual Report on Form 10-K. Hurricanes and other weather-related events could cause a disruption in our operations or other consequences that could have an adverse impact on our results of operations. A significant portion of our operations are located in the areas bordering the Gulf of Mexico and the Atlantic Ocean, regions that are susceptible to hurricanes. Such weather events can cause disruption to our operations and could have a material adverse effect on our overall results of operations. We maintain hurricane insurance, including coverage for lost profits and extra expense; however, there is no insurance against the disruption to the markets that we serve that a catastrophic hurricane could produce. Further, a hurricane in any of our market areas could adversely impact the ability of borrowers to timely repay their loans and may adversely impact the value of any collateral held by us. Some of the states in which we operate have in recent years experienced extreme droughts. The effects of past or future hurricanes, droughts and other weather-related events are difficult to predict, but could have an adverse effect on our businesses, financial condition and results of operations. Our participation in the U.S. Treasury’s CPP imposes restrictions and obligations on us that limit our ability to increase dividends, repurchase shares of our common stock and access the equity capital markets. On November 14, 2008, we issued and sold preferred stock and a warrant to purchase our common stock to the U.S. Treasury as part of its CPP. Prior to November 14, 2011, unless we have redeemed all of the preferred stock or the U.S. Treasury has transferred all of the preferred stock to a third party, the agreement pursuant to which such securities were sold, among other things, limits the payment of dividends on our common stock to the current quarterly dividend of $0.10 per share without prior regulatory approval, limits our ability to repurchase shares of our common stock (with certain exceptions, including the repurchase of our common stock to offset share dilution from equity-based compensation awards), and grants the holders of such securities certain registration rights which, in certain circumstances, impose lock-up periods during which we would be unable to issue equity securities. In addition, unless we are able to redeem the preferred stock during the first five years, the dividends on of this capital will increase substantially at that point, from 5% ($175 million annually) to 9% ($315 million annually). Depending on market conditions at the time, this increase in dividends could significantly impact our liquidity. See “Regulation and Supervision—U.S. Treasury Capital Purchase Program.” 21 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The market price of shares of our common stock will fluctuate. The market price of our common stock could be subject to significant fluctuations due to a change in sentiment in the market regarding our operations or business prospects. Such risks may be affected by: • • • • • • • Operating results that vary from the expectations of management, securities analysts and investors; Developments in our businesses or in the financial sector generally; Regulatory changes affecting our industry generally or our businesses and operations; The operating and securities price performance of companies that investors consider to be comparable to us; Announcements of strategic developments, acquisitions and other material events by us or our competitors; Changes in the credit, mortgage and real estate markets, including the markets for mortgage-related securities; and Changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity, credit or asset valuations or volatility. Stock markets in general and our common stock in particular have, over the past year, and continue to be experiencing significant price and volume volatility. As a result, the market price of our common stock may continue to be subject to similar market fluctuations that may be unrelated to our operating performance or prospects. Increased volatility could result in a decline in the market price of our common stock. Industry competition may have an adverse effect on our success. Our profitability depends on our ability to compete successfully. We operate in a highly competitive environment. Certain of our competitors are larger and have more resources than we do. In our market areas, we face competition from other commercial banks, savings and loan associations, credit unions, internet banks, finance companies, mutual funds, insurance companies, brokerage and investment banking firms, and other financial intermediaries that offer similar services. Some of our non-bank competitors are not subject to the same extensive regulations that govern Regions or Regions Bank and may have greater flexibility in competing for business. Regions expects competition to intensify among financial services companies due to the recent consolidation of certain competing financial institutions and the conversion of certain investment banks to bank holding companies. Should competition in the financial services industry intensify, Regions’ ability to market its products and services may be adversely affected. Changes in the policies of monetary authorities and other government action could adversely affect our profitability. The results of operations of Regions are affected by credit policies of monetary authorities, particularly the Federal Reserve. The instruments of monetary policy employed by the Federal Reserve include open-market operations in U.S. government securities, changes in the discount rate or the federal funds rate on bank borrowings, and changes in reserve requirements against bank deposits. In view of changing conditions in the national economy and in the money markets, we cannot predict possible future changes in interest rates, deposit levels, and loan demand on our businesses and earnings. Furthermore, ongoing military operations in the Middle East or elsewhere around the world, including those in response to terrorist attacks, may result in currency fluctuations, exchange controls, market disruption and other adverse effects. Anti-takeover laws and certain agreements and charter provisions may adversely affect share value. Certain provisions of state and federal law and our certificate of incorporation may make it more difficult for someone to acquire control of us without our Board of Directors’ approval. Under federal law, subject to certain exemptions, a person, entity or group must notify the federal banking agencies before acquiring control of 22 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents a bank holding company. Acquisition of 10% or more of any class of voting stock of a bank holding company or state member bank, including shares of our common stock, creates a rebuttable presumption that the acquiror “controls” the bank holding company or state member bank. Also, as noted under “Supervision and Regulation—General,” a bank holding company must obtain the prior approval of the Federal Reserve before, among other things, acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank, including Regions Bank. There also are provisions in our certificate of incorporation that may be used to delay or block a takeover attempt. As a result, these statutory provisions and provisions in our certificate of incorporation could result in Regions being less attractive to a potential acquiror. Future issuances of additional securities could result in dilution of your ownership. We may determine from time to time to issue additional securities to raise additional capital, support growth, or to make acquisitions. Further, we may issue stock options or other stock grants to retain and motivate our employees. These issuances of our securities will dilute the ownership interests of our stockholders. We need to stay current on technological changes in order to compete and meet customer demands. The financial services market, including banking services, is undergoing rapid changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and may enable us to reduce costs. Our future success may depend, in part, on our ability to use technology to provide products and services that provide convenience to customers and to create additional efficiencies in our operations. Item 1B. Unresolved Staff Comments None. Item 2. Properties Regions’ corporate headquarters occupy the main banking facility of Regions Bank, located at 1900 Fifth Avenue North, Birmingham, Alabama 35203. Regions Bank, Regions’ banking subsidiary, operates 1,900 banking offices. Regions provides investment banking and brokerage services from over 300 offices of Morgan Keegan. At December 31, 2008, there were no significant encumbrances on the offices, equipment and other operational facilities owned by Regions and its subsidiaries. See Item 1. “Business” of this Annual Report on Form 10-K for a list of the states in which Regions Bank branches and Morgan Keegan’s offices are located. Item 3. Legal Proceedings Reference is made to Note 25 “Commitments, Contingencies and Guarantees,” to the consolidated financial statements under Item 8. of this Annual Report on Form 10-K. Regions and its affiliates are subject to litigation, including the litigation discussed below, and claims arising in the ordinary course of business. Punitive damages are routinely claimed in these cases. Regions continues to be concerned about the general trend in litigation involving large damage awards against financial service company defendants. Regions evaluates these contingencies based on information currently available, including advice of counsel and assessment of available insurance coverage. Although it is not possible to predict the ultimate resolution or financial liability with respect to these litigation contingencies, management is currently of the opinion that the outcome of pending and threatened litigation would not have a material effect on Regions’ consolidated financial position or results of operations, except to the extent indicated in the discussion below. 23 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents In late 2007 and during 2008, Regions and certain of its affiliates were named in class-action lawsuits filed in federal and state courts on behalf of investors who purchased shares of certain Regions Morgan Keegan Select Funds (the “Funds”) and shareholders of Regions. The complaints contain various allegations, including claims that the Funds and the defendants misrepresented or failed to disclose material facts relating to the activities of the Funds. No class has been certified, and at this stage of the lawsuits Regions cannot determine the probability of a material adverse result or reasonably estimate a range of potential exposures, if any. However, it is possible that an adverse resolution of these matters may be material to Regions’ consolidated financial position or results of operations. In addition, the Company has received requests for information from the SEC Staff regarding the matters subject to the litigation described above. Certain of the shareholders in these Funds and other interested parties have entered into arbitration proceedings and individual civil claims, in lieu of participating in the class actions. Although it is not possible to predict the ultimate resolution or financial liability with respect to these contingencies, management is currently of the opinion that the outcome of these proceedings would not have a material effect on Regions’ consolidated financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders None. Executive Officers of the Registrant. Information concerning the Executive Officers of Regions is set forth under Item 10. “Directors, Executive Officers and Corporate Governance” of this Annual Report on Form 10-K. 24 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents PART II Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Regions’ common stock, par value $.01 per share, is listed for trading on the New York Stock Exchange under the symbol RF. Quarterly high and low sales prices of and cash dividends declared on Regions’ common stock are set forth in Table 25 “Quarterly Results of Operations” of “Management’s Discussion and Analysis”, which is included in Item 7. of this Annual Report on Form 10-K. As of February 17, 2009, there were 83,232 holders of record of Regions’ common stock (including participants in the Computershare Investment Plan for Regions Financial Corporation). Restrictions on the ability of Regions Bank to transfer funds to Regions at December 31, 2008, are set forth in Note 15 “Regulatory Capital Requirements and Restrictions” to the consolidated financial statements, which are included in Item 8. of this Annual Report on Form 10-K. A discussion of certain limitations on the ability of Regions Bank to pay dividends to Regions and the ability of Regions to pay dividends on its common stock is set forth in Item 1. “Business” under the heading “Supervision and Regulation—Payment of Dividends” of this Annual Report on Form 10-K. The following table presents information regarding issuer purchases of equity securities during the fourth quarter of 2008. Period October 1, 2008—October 31, 2008 November 1, 2008—November 30, 2008 December 1, 2008—December 31, 2008 Total Total Number of Shares Purchased — — — Average Price Paid Per Share $ — — — $ — Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs — — — Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs 23,072,300 23,072,300 23,072,300 23,072,300 On January 18, 2007, Regions’ Board of Directors assessed the repurchase authorization of Regions and authorized the repurchase of an additional 50 million shares of Regions’ common stock through open market or privately negotiated transactions and announced the authorization of this repurchase. As indicated in the table above, approximately 23.1 million shares remain available for repurchase under the existing plan. As discussed in the “Supervision and Regulation” section of Item 1. “Business” of this Annual Report on Form 10-K, the Company’s ability to repurchase its common stock is limited by the terms of the Purchase Agreement between Regions and the U.S. Treasury. Under the CPP, prior to the earlier of (i) November 14, 2011, or (ii) the date on which the Series A Preferred Stock is redeemed in whole or the U.S. Treasury has transferred all of the Series A Preferred Stock to unaffiliated third parties, the consent of the U.S. Treasury is required to repurchase any shares of common stock except in connection with benefit plans in the ordinary course of business and certain other limited exceptions. 25 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents PERFORMANCE GRAPH Set forth below is a graph comparing the yearly percentage change in the cumulative total return of Regions’ common stock against the cumulative total return of the S&P 500 Index and the S&P Banks Index for the past five years. This presentation assumes that the value of the investment in Regions’ common stock and in each index was $100 and that all dividends were reinvested. Regions S&P 500 Index S&P Banks Index Period Ending 12/31/2003 100.00 $ 100.00 100.00 12/31/2004 123.30 $ 110.88 114.95 12/31/2005 123.34 $ 116.32 116.74 12/31/2006 141.74 $ 134.69 134.99 12/31/2007 94.06 $ 142.09 104.37 12/31/2008 33.88 $ 89.52 66.10 Item 6. Selected Financial Data The information required by Item 6. is set forth in Table 1 “Financial Highlights” of “Management’s Discussion and Analysis of Financial Condition and Results of Operation”, which is included in Item 7. of this Annual Report on Form 10-K. 26 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation Item 7A. Quantitative and Qualitative Disclosures about Market Risk INTRODUCTION GENERAL The following discussion and financial information is presented to aid in understanding Regions Financial Corporation’s (“Regions” or the “Company”) financial position and results of operations. The emphasis of this discussion will be on the years 2008, 2007 and 2006; in addition, financial information for prior years will also be presented when appropriate. Certain amounts in prior year presentations have been reclassified to conform to the current year presentation, except as otherwise noted. Regions’ profitability, like that of many other financial institutions, is dependent on its ability to generate revenue from net interest income and non-interest income sources. Net interest income is the difference between the interest income Regions receives on interest-earning assets, such as loans and securities, and the interest expense Regions pays on interest-bearing liabilities, principally deposits and borrowings. Regions’ net interest income is impacted by the size and mix of its balance sheet components and the interest rate spread between interest earned on its assets and interest paid on its liabilities. Non-interest income includes fees from service charges on deposit accounts, brokerage, investment banking, capital markets, and trust activities, mortgage servicing and secondary marketing, insurance activities, and other customer services which Regions provides. Results of operations are also affected by the provision for loan losses and non-interest expenses such as salaries and employee benefits, occupancy and other operating expenses, including income taxes. In addition, in 2008 Regions non-interest expense was impacted by a non-cash goodwill impairment charge. Economic conditions, competition, and the monetary and fiscal policies of the Federal government significantly affect most financial institutions, including Regions. Lending and deposit activities and fee income generation are influenced by levels of business spending and investment, consumer income, consumer spending and savings, capital market activities, and competition among financial institutions, as well as customer preferences, interest rate conditions and prevailing market rates on competing products in Regions’ market areas. Other factors, including the Company’s balance sheet capacity, capital levels and its liquidity management efforts also influence Regions’ lending and deposit taking activities as well as its overall profitability. Regions’ business strategy has been and continues to be focused on providing a competitive mix of products and services, delivering quality customer service and maintaining a branch distribution network with offices in convenient locations. Regions delivers this business with the personal attention and feel of a community bank and with the service and product offerings of a large regional bank. Acquisitions The acquisitions of banks and other financial services companies have historically contributed significantly to Regions’ growth. The acquisitions of other financial services companies have also allowed Regions to better diversify its revenue stream and to offer additional products and services to its customers. From time to time, Regions evaluates potential bank and non-bank acquisition candidates. On January 1, 2008, Regions Insurance Group, Inc., a subsidiary of Regions Financial Corporation, acquired certain assets of Barksdale Bonding and Insurance, Inc., a multi-line insurance agency headquartered in Jackson, Mississippi. During the third quarter of 2008, the Company assumed approximately $900 million of deposits from a failed Atlanta-area bank in a Federal Deposit Insurance Corporation (“FDIC”)-assisted transaction. In addition, in December 2008, Morgan Keegan & Company, Inc. (“Morgan Keegan”) a subsidiary of Regions Financial Corporation, acquired Revolution Partners, LLC, a Boston-based investment banking boutique specializing in mergers and acquisitions and private capital advisory services for the technology industry. 27 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents On February 6, 2009, Regions acquired from the FDIC approximately $285 million in total deposits from a failed bank headquartered in Henry County, Georgia. Under the terms of the agreement with the FDIC, Regions assumed operations of the bank’s four branches and provides banking services to its former customers. During 2007, Regions acquired two financial services entities. On January 2, 2007, Regions Insurance Group, Inc. acquired certain assets of Miles & Finch, Inc., a multi-line insurance agency headquartered in Kokomo, Indiana, with annual revenues of approximately $10 million. On June 15, 2007, Morgan Keegan acquired Shattuck Hammond Partners LLC (“Shattuck Hammond”), an investment banking and financial advisory firm headquartered in New York, New York. On November 4, 2006, Regions merged with AmSouth Bancorporation (“AmSouth”), headquartered in Birmingham, Alabama. In the stock-for-stock merger, 0.7974 shares of Regions were exchanged, on a tax-free basis, for each share of AmSouth common stock. AmSouth had total assets of approximately $58 billion (including goodwill) and operated in 6 states at the time of the merger. This transaction was accounted for as a purchase of 100 percent of the voting interests of AmSouth by Regions and, accordingly, financial results for periods prior to November 4, 2006 have not been restated. The Company completed the operational integration of AmSouth into Regions during 2007. As part of the integration process, Regions converted its mortgage, brokerage, trust, and payroll and benefits platforms, as well as its entire network of branches to a common operating platform. Concurrent with the branch conversions, 160 branches in close proximity to one another were consolidated into the remaining branch system. Also related to the merger, during the first quarter of 2007, Regions divested 52 branches, which is discussed later in the “Dispositions” section of this report. Regions incurred approximately $822 million in one-time pre-tax merger-related costs to bring the two companies together. Regions recorded $185.4 million of such costs in goodwill during 2006. This amount was subsequently adjusted down by $2.9 million in 2007. The majority of merger costs flowed directly through the income statement. These included $200.2 million, $350.9 million, and $88.7 million in pre-tax merger expenses during 2008, 2007 and 2006, respectively. No merger expenses related to the AmSouth transaction were recorded after the third quarter of 2008. Anticipated cost savings are an important driver of any merger transaction. Regions estimates that it achieved an ongoing annual cost savings run-rate in excess of $800 million as of year-end 2008, as a result of the merger. These savings were primarily recognized in areas such as personnel, occupancy and equipment, operations and technology, and corporate functions. Dispositions During the first quarter of 2007, through sales to three separate buyers, Regions completed the divestiture of 52 former AmSouth branches having approximately $2.7 billion in deposits and $1.7 billion in loans. These divestitures were required in markets where the merger may have affected competition. On March 30, 2007, Regions sold its wholly-owned non-conforming mortgage origination subsidiary, EquiFirst Corporation (“EquiFirst”) for an initial sales price of approximately $76 million. The business related to EquiFirst has been accounted for as discontinued operations and the results are presented separately on the consolidated statements of operations for all periods presented. Resolution of the sales price was completed in October 2008, and resulted in an after-tax loss of approximately $10 million. See Note 4 “Discontinued Operations” to the consolidated financial statements for further details. Business Segments Regions provides traditional commercial, retail and mortgage banking services, as well as other financial services in the fields of investment banking, asset management, trust, mutual funds, securities brokerage, insurance and other specialty financing. Regions carries out its strategies and derives its profitability from the following business segments: 28 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents General Banking/Treasury Regions’ primary business is providing traditional commercial, retail and mortgage banking services to its customers. Regions’ banking subsidiary, Regions Bank, operates as an Alabama state-chartered bank with branch offices in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia. The Treasury function includes the Company’s securities portfolio and other wholesale funding activities. In 2008, Regions’ general banking and treasury operations reported a loss of approximately $5.6 billion, primarily the result of a $6.0 billion non-cash goodwill impairment charge. Investment Banking, Brokerage and Trust Regions provides investment banking, brokerage and trust services in approximately 332 offices of Morgan Keegan, a subsidiary of Regions and one of the largest investment firms based in the South. Morgan Keegan contributed $128.3 million of income in 2008. Its lines of business include private client, retail brokerage services, fixed-income capital markets, equity capital markets, trust, and asset management. Insurance Regions provides insurance-related services through Regions Insurance Group, Inc., a subsidiary of Regions and a full-line insurance brokerage firm. Regions Insurance Group is one of the 25 largest insurance brokers in the country. The insurance segment includes all business associated with insurance coverage for various lines of personal and commercial insurance, such as property, casualty, life, health and accident insurance. The insurance segment also offers credit-related insurance products, such as term life, credit life, environmental, crop and mortgage insurance, as well as debt cancellation products to customers of Regions. Insurance activities contributed approximately $20.1 million of income in 2008. See Note 24 “Business Segment Information” to the consolidated financial statements for further information on Regions’ business segments. 29 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Table 1—Financial Highlights EARNINGS SUMMARY Interest income Interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Non-interest income Non-interest expense Income (loss) before income taxes from continuing operations Income taxes (benefits) Income (loss) from continuing operations Income (loss) from discontinued operations before income taxes Income tax expense (benefit) Income (loss) from discontinued operations Net income (loss) Income (loss) from continuing operations available to common shareholders Net income (loss) available to common shareholders Earnings (loss) per common share from continuing operations— basic Earnings (loss) per common share from continuing operations—diluted Earnings (loss) per common share—basic Earnings (loss) per common share—diluted Return on average tangible common stockholders’ equity Return on average common stockholders’ equity Return on average total assets BALANCE SHEET SUMMARY At year end Loans, net of unearned income Assets Deposits Long-term debt Stockholders’ equity Average balances Loans, net of unearned income Assets Deposits Long-term debt Stockholders’ equity SELECTED RATIOS Tangible common stockholders’ equity to tangible assets Allowance for loan losses as a percentage of loans, net of unearned income Allowance for credit losses as a percentage of loans, net of unearned income COMMON STOCK DATA Cash dividends declared per common share Stockholders’ common equity per share Market value at year end Market price range: High Low Total trading volume Dividend payout ratio Shareholders of record at year end Weighted-average number of common shares outstanding Basic Diluted 2008 2007 2006 2005 2004 (In thousands, except per share data) $ $ $ $ $ $ $ $ $ $ 6,563,390 2,720,434 3,842,956 2,057,000 1,785,956 3,073,231 10,791,614 (5,932,427) (348,114) (5,584,313) (18,405) (6,944) (11,461) (5,595,774) (5,610,549) (5,622,010) (8.07) (8.07) (8.09) (8.09) (74.32)% (28.81) (3.90) $ $ $ $ $ 8,074,663 3,676,297 4,398,366 555,000 3,843,366 2,855,835 4,660,351 2,038,850 645,687 1,393,163 (217,387) (75,319) (142,068) 1,251,095 1,393,163 1,251,095 1.97 1.95 1.77 1.76 15.82% 6.24 0.90 $ $ $ $ $ 5,649,118 2,340,816 3,308,302 142,373 3,165,929 2,029,720 3,204,028 1,991,621 619,100 1,372,521 (32,606) (13,230) (19,376) 1,353,145 1,372,521 1,353,145 2.74 2.71 2.70 2.67 22.86% 10.94 1.41 4,271,145 1,489,756 2,781,389 166,746 2,614,643 1,686,820 2,942,895 1,358,568 395,861 962,707 63,527 25,690 37,837 1,000,544 962,707 1,000,544 2.09 2.07 2.17 2.15 18.80% 9.37 1.18 $ $ $ $ $ 2,918,405 842,651 2,075,754 124,215 1,951,539 1,484,230 2,315,548 1,120,221 330,478 789,743 55,361 21,339 34,022 823,765 783,723 817,745 2.13 2.10 2.22 2.19 18.97% 10.91 1.23 $ 97,418,685 146,247,810 90,903,890 19,231,277 16,812,837 97,601,272 143,947,025 90,077,002 13,509,689 19,939,407 $ 95,378,847 141,041,717 94,774,968 11,324,790 19,823,029 94,372,061 138,756,619 95,725,101 9,697,823 20,036,459 $ 94,550,602 143,369,021 101,227,969 8,642,649 20,701,454 64,765,653 95,800,277 67,466,447 6,855,601 12,368,632 $ 58,404,913 84,785,600 60,378,367 6,971,680 10,614,283 58,002,167 85,096,467 59,712,895 7,175,075 10,677,831 $ 57,526,954 84,106,438 58,667,023 7,239,585 10,749,457 44,667,472 66,838,148 45,015,279 6,519,193 7,548,207 5.23% 1.87 1.95 5.88% 1.39 1.45 6.53% 1.12 1.17 6.64% 1.34 1.34 $ $ 0.96 19.53 7.96 25.84 6.41 3,410,723 NM 83,600 695,003 695,003 $ $ 1.46 28.58 23.65 38.17 22.84 911,981 82.49 85,060 707,981 712,743 1.40 28.36 37.40 39.15 32.37 301,488 51.85 84,877 501,681 506,989 $ 1.36 23.26 34.16 35.54 29.16 227,380 62.67 72,140 461,171 466,183 6.86% 1.31 1.31 1.33 23.06 35.59 35.97 27.26 194,916 59.91 77,715 368,656 373,732 Note: Periods prior to November 4, 2006 do not include the effect of Regions’ acquisition of AmSouth. Periods prior to July 1, 2004 do not include the effect of Regions’ acquisition of Union Planters Corporation. 30 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents 2008 OVERVIEW The year ended December 31, 2008 was an extremely tumultuous year for the U.S. economy and, more specifically, for the financial services industry. Deteriorating home values, among other factors, provided a catalyst for declining valuations across nearly all asset classes, including loans and securities. The property value declines, which began in late 2007, continued to build throughout 2008. While Regions did not have material exposure to many of the issues that plagued the industry (e.g., sub-prime loans, structured investment vehicles, collateralized debt obligations), the Company’s exposure to the residential housing sector, primarily within its commercial real estate and construction loan portfolios, pressured its loan portfolio, resulting in increased credit costs and other real estate expenses. In another significant event, the results of goodwill impairment testing in the fourth quarter of 2008 indicated that the estimated fair value of Regions’ General Banking/Treasury reporting unit goodwill was less than its book value, requiring a $6.0 billion non-cash charge to earnings. As a result of these factors, Regions reported a net loss from continuing operations of $5.6 billion or $8.07 per diluted common share in 2008. Not included in this amount was an $11.5 million after-tax loss related to EquiFirst, which was accounted for as discontinued operations. Included in the 2008 net loss was a $6.0 billion goodwill impairment charge ($8.63 per diluted share) and $124.1 million in after-tax merger-related expenses ($0.18 per diluted share). Net income from continuing operations was $1.95 per diluted share in 2007, including a reduction of $0.31 per diluted share related to $217.5 million in after-tax merger-related expenses. Excluding merger-related charges and goodwill impairment charges, annual earnings per common share from continuing operations was $0.74 in 2008 as compared to $2.26 in 2007. Significant drivers of 2008 results include a much higher provision for loan losses and lower net interest income. Offsetting to some extent was Regions’ solid fee income, including revenues from Morgan Keegan. See Table 2 “GAAP to Non-GAAP Reconciliation” for additional details. As a result of the large earnings impact from the goodwill impairment charge, return measures, such as return on average tangible common stockholders’ equity, were not meaningful for 2008 on a generally accepted accounting principles (“GAAP”) basis. Excluding the goodwill impairment charge, merger-related charges and discontinued operations, return on average tangible common stockholders’ equity was 6.79 percent for the year ended December 31, 2008, compared to 20.43 percent for the year ended December 31, 2007. See Table 2 “GAAP to Non-GAAP Reconciliation” for additional details and Table 1 “Financial Highlights” for additional ratios. Net interest income was $3.8 billion in 2008 compared to $4.4 billion in 2007. The decrease resulted in a lower net interest margin, which declined to 3.23 percent during 2008 compared to 3.79 percent in 2007. The net interest margin was negatively impacted primarily by factors directly and indirectly associated with the erosion of economic and industry conditions in late 2007 and throughout 2008. These factors include an unfavorable variation in the general level and shape of the yield curve (exemplified by recent Federal Reserve interest rate reductions), intensification of price-based competition for retail deposits, disintermediation of deposits into other non-bank asset classes, rate increases for new debt issuances, and rising non-performing asset levels. Moreover, the costs of maintenance of the Company’s liquidity profile in the presently stressed environment (including maintaining prudent levels of excess liquidity) have increased, further pressuring the net interest margin. Net charge-offs totaled $1.5 billion, or 1.59 percent of average loans in 2008 compared to $270.5 million, or 0.29 percent of average loans in 2007. The increased loss rate resulted from deteriorating economic conditions during 2008, especially related to the housing sector. More specifically, approximately $639.0 million of 2008 net charges-offs were related to non-performing loan dispositions or transfers to held for sale as compared to none in 2007. Non-performing assets increased $853.9 million between December 31, 2007 and December 31, 2008 to $1.7 billion, primarily due to continued weakness in the Company’s residential homebuilder portfolio, which began experiencing significant pressure toward the end of 2007. This pressure was due to a combination of declining residential real estate demand and resulting price and collateral value declines in certain of the Company’s markets, particularly areas of Florida and Atlanta, Georgia. Condominium loans, mainly in Florida, 31 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents were also a driver of the increase in non-performing assets. Regions aggressively managed its exposure to its most stressed assets by selling or transferring to held for sale approximately $1.3 billion of non-performing loans during 2008. Non-performing assets held for sale totaled $423.3 million at December 31, 2008. The provision for loan losses is used to maintain the allowance for loan losses at a level that, in management’s judgment, is adequate to cover losses inherent in the loan portfolio as of the balance sheet date. During 2008, the provision for loan losses from continuing operations increased to $2.1 billion compared to $555.0 million in 2007. The provision rose due to weakening conditions in the broad economy and, more specifically, in the residential housing market, which most significantly impacted management’s estimate of inherent losses in the residential homebuilder, condominium, home equity and residential mortgage portfolios. As a result of the increased provision for loan losses and despite significantly higher loan charge-offs, which increased $1.3 billion, Regions increased its allowance for credit losses to 1.95 percent of total loans, net of unearned income, at December 31, 2008, as compared to 1.45 percent at December 31, 2007. Non-interest income from continuing operations (excluding securities gains/losses) totaled $3.0 billion or 43 percent of total revenue (fully taxable-equivalent basis) in 2008 compared to $2.9 billion or 39 percent in 2007, and continued to reflect Regions’ diversified revenue stream. The increase in non-interest income is primarily due to strong brokerage, investment banking and capital markets income, especially during the first half of the year. As the year progressed, however, brokerage and equity capital markets revenue streams were affected by declining market activity and transaction flow, resulting from increasing overall market uncertainty. Despite the difficulties, 2008 was a solid year for Morgan Keegan, recording net income of $128.3 million as compared to $165.9 million in 2007. In addition, Regions recorded $62.8 million of other income due to proceeds from a sale of Class B common stock ownership interest in Visa. Offsetting these increases were decreases in service charges on deposit accounts and trust income in 2008. Non-interest expense from continuing operations totaled $10.8 billion in 2008 compared to $4.7 billion in 2007, impacted most significantly by the $6.0 billion non-cash goodwill impairment charge. Also reflected in non-interest expenses were merger charges totaling $200.2 million and $350.9 million in 2008 and 2007, respectively. Merger costs consist mainly of personnel expenses, the cost of integrating AmSouth systems with those of Regions and the consolidation of branches. Excluding the goodwill impairment and merger-related expenses, non-interest expense increased $282.0 million or 6.5 percent in 2008 compared to 2007. The largest drivers were mortgage servicing rights impairment charges, increased professional fees due to litigation, occupancy expense reflecting continued investment in the branch franchise, and higher other real estate owned expenses driven by losses related to the continued decline in the housing market. In addition, 2008 non-interest expense was impacted by a $65.4 million loss on the early extinguishment of debt related to the redemption of subordinated notes and $49.4 million in write-downs on the investment in two Morgan Keegan mutual funds. See Table 8 “Non-Interest Expense (including Non-GAAP Reconciliation)” for further details. Salaries and employee benefit cost were lower in 2008, mainly due to merger-related cost savings. Regions’ commission-driven revenues such as brokerage, investment banking and mortgage did, and will continue to, impact the salaries and employee benefits component of non-interest expense in direct correlation to revenue trends. In December 2008, Regions reached an agreement with the Internal Revenue Service (“IRS”) that resolves a broad range of tax issues for Regions and all of its predecessor companies. The agreement covers and effectively closes Regions’ federal tax returns for tax years 1999 through 2006. As a result of the agreement, Regions recorded a $275 million earnings benefit from a reduction in the Company’s income tax expense during the fourth quarter of 2008. Refer to “Income Taxes” under “Operating Results” for additional details. Total loans increased by 2.1 percent in 2008, driven mainly by commercial and industrial and home equity lending. Partially offsetting this growth, demand for residential-related real estate lending softened during the year, primarily a result of the challenging economic backdrop and industry-wide tightening of credit. Deposits declined 4.1 percent in 2008 as compared to 2007, driven by a decline in foreign deposits utilized as an alternative to overnight funding. Customer deposits, defined as total deposits less deposits used for corporate 32 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents treasury purposes (e.g. overnight funding sources), increased by 4.6 percent during 2008, driven largely by higher certificate of deposit balances. Table 2 “GAAP to Non-GAAP Reconciliation” presents computations of earnings and certain other financial measures excluding discontinued operations, merger and goodwill impairment charges (“non-GAAP”). Merger and goodwill impairment charges are included in financial results presented in accordance with generally accepted accounting principles (“GAAP”). Regions believes the exclusion of merger and goodwill impairment charges in expressing earnings and certain other financial measures, including “earnings per common share from continuing operations, excluding merger and goodwill impairment charges” and “return on average tangible equity, excluding discontinued operations, merger and goodwill impairment charges” provides a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in analyzing the operating results of the Company and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of Regions’ business, because management does not consider merger and goodwill impairment charges to be relevant to ongoing operating results. Management and the Board of Directors utilize these non-GAAP financial measures for the following purposes: • • • • • • Preparation of Regions’ operating budgets Calculation of performance-based annual incentive bonuses for certain executives Calculation of performance-based multi-year incentive bonuses for certain executives Monthly financial performance reporting, including segment reporting Monthly close-out “flash” reporting of consolidated results (management only) Presentations to investors of Company performance Regions believes that presenting these non-GAAP financial measures will permit investors to assess the performance of the Company on the same basis as that applied by management and the Board of Directors. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. To mitigate these limitations, Regions has policies in place to address expenses that qualify as merger and goodwill impairment charges and procedures in place to approve and segregate merger and goodwill impairment charges from other normal operating expenses to ensure that the Company’s operating results are properly reflected for period-to-period comparisons. Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. In particular, a measure of earnings that excludes merger and goodwill impairment charges does not represent the amount that effectively accrues directly to stockholders (i.e., merger and goodwill impairment charges are a reduction to earnings and stockholders’ equity). See Table 2 “GAAP to Non-GAAP Reconciliation” below for computations of earnings and certain other GAAP financial measures and the corresponding reconciliation to non-GAAP financial measures, which exclude discontinued operations, merger and goodwill impairment charges for the periods presented. 33 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Table 2—GAAP to Non-GAAP Reconciliation INCOME Income (loss) from continuing operations (GAAP) Preferred stock expense (GAAP) Income (loss) from continuing operations available to common shareholders (GAAP) Loss from discontinued operations, net of tax (GAAP) Income (loss) available to common shareholders (GAAP) Income (loss) from continuing operations available to common shareholders (GAAP) Merger-related charges, pre-tax Salaries and employee benefits Net occupancy expense Furniture and equipment expense Other Total merger-related charges, pre-tax Merger-related charges, net of tax Goodwill impairment Income from continuing operations available to common shareholders, excluding merger and goodwill impairment charges (non-GAAP) Weighted-average diluted shares Earnings (loss) per common share – diluted (GAAP) Earnings per common share from continuing operations, excluding merger and goodwill impairment charges—diluted (non-GAAP) RETURN ON AVERAGE TANGIBLE COMMON EQUITY Average equity (GAAP) Average intangible assets (GAAP) Average preferred equity Average tangible common equity Average equity, excluding discontinued operations Average intangible assets, excluding discontinued operations Average preferred equity Average tangible common equity, excluding discontinued operations Return on average tangible common equity Return on average tangible common equity, excluding discontinued operations, merger and goodwill impairment charges (non-GAAP) 34 A B C A/C B/C D E A/D B/E 2008 For Years Ended December 31 2007 (In thousands, except per share data) 2006 $ (5,584,313) (26,236) (5,610,549) (11,461) $ (5,622,010) $ (5,610,549) 133,401 3,331 4,985 58,454 200,171 124,106 6,000,000 $ $ $ 513,557 695,003 (8.09) 0.74 $ 19,939,407 11,949,657 424,850 $ 7,564,900 $ 19,939,407 11,949,657 424,850 $ 7,564,900 $ 1,393,163 — 1,393,163 (142,068) $ 1,251,095 $ 1,372,521 — 1,372,521 (19,376) $ 1,353,145 $ 1,393,163 $ 1,372,521 158,613 33,834 4,856 153,564 350,867 217,537 — 65,693 3,473 427 19,066 88,659 60,320 — $ 1,610,700 $ 1,432,841 712,743 1.76 2.26 $ $ $ 20,036,459 12,130,417 — $ 7,906,042 $ 20,013,170 12,130,417 — $ 7,882,753 506,989 2.67 2.83 $ $ $ 12,368,632 6,449,657 — $ 5,918,975 $ 12,215,207 6,449,657 — $ 5,765,550 (74.32)% 15.82% 6.79% 20.43% 22.86% 24.85% Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents CRITICAL ACCOUNTING POLICIES In preparing financial information, management is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses for the periods shown. The accounting principles followed by Regions and the methods of applying these principles conform with accounting principles generally accepted in the U.S. and general banking practices. Estimates and assumptions most significant to Regions are related primarily to the allowance for credit losses, intangible assets (goodwill and other identifiable intangible assets), mortgage servicing rights and income taxes, and are summarized in the following discussion and in the notes to the consolidated financial statements. Allowance for Credit Losses The allowance for credit losses (“allowance”) consists of the allowance for loan losses and the reserve for unfunded credit commitments. Management evaluates the adequacy of the allowance based on the total of these two components. Determining the appropriate level of the allowance is one of the most critical and complex accounting estimates for any financial institution. Accounting guidance requires Regions to make a number of estimates related to the level of credit losses inherent in the portfolio at year-end. A full discussion of these estimates and other factors can be found in the “Allowance for Credit Losses” section within the discussion of credit risk, found in a later section of this report. The allowance is sensitive to a variety of internal factors, such as portfolio performance and assigned risk ratings, and external factors, such as interest rates and the general health of the economy. Management reviews scenarios having different assumptions for variables that could result in increases or decreases in probable inherent credit losses, which may materially impact Regions’ estimate of the allowance and results of operations. Management’s estimate of the allowance for commercial products, which includes commercial, construction, and commercial real estate mortgage loans, could be affected by risk rating upgrades or downgrades as a result of fluctuations in the general economy, developments within a particular industry, or changes in an individual’s credit due to factors particular to that credit, such as competition, management or business performance. A reasonably possible scenario would be an estimated 20 percent migration of lower risk-related pass credits to criticized status, which could increase estimated inherent losses by approximately $218.2 million. A 20 percent reduction in the level of criticized credits is also a reasonably possible scenario, which would result in an approximate $111.8 million decrease in estimated inherent losses. For residential real estate mortgages, home equity lending and other consumer-related loans, individual products are reviewed on a group basis or in loan pools (e.g., residential real estate mortgage pools). The total of all residential loans, including residential real estate mortgages and home equity lending, represents approximately 32 percent of total loans. Losses can be affected by such factors as collateral value, loss severity, the economy and other uncontrollable factors. A 20-basis-point increase or decrease in the estimated loss rates on these residential loans would change estimated inherent losses by approximately $61.7 million. The loss analysis related to other consumer-related loans includes reasonably possible scenarios with estimated loss rates increasing or decreasing by 50 basis points, which would increase or decrease the related estimated inherent losses by approximately $30.8 million, respectively. Additionally, the estimate of the allowance for credit losses for the entire portfolio may change due to modifications in the mix and level of loan balances outstanding and general economic conditions, as evidenced by changes in real estate demand and values, interest rates, unemployment or employment rates, bankruptcy filings, used car prices, real estate demand and values, and the effects of weather and natural disasters such as droughts and hurricanes. While no one factor is dominant, each has the ability to result in actual loan losses that could differ materially from originally estimated amounts. The pro forma inherent loss analysis presented above demonstrates the sensitivity of the allowance to key assumptions. This sensitivity analysis does not reflect an expected outcome. 35 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Intangible Assets Regions’ intangible assets consist primarily of the excess of cost over the fair value of net assets of acquired businesses (goodwill) and other identifiable intangible assets (primarily core deposit intangibles). Regions’ goodwill is tested for impairment annually or more often if events or circumstances indicate impairment may exist. Adverse changes in the economic environment, declining operations of the business unit, or other factors could result in a decline in the estimated implied fair value of goodwill. If the estimated implied fair value is less than the carrying amount, a loss would be recognized to reduce the carrying amount to the estimated implied fair value. For purposes of testing goodwill for impairment, Regions uses both the income and market approaches to value its reporting units. The income approach consists of discounting long-term projected future cash flows, which are derived from internal forecasts and economic expectations for the respective reporting units. The projected future cash flows are discounted using cost of capital metrics for Regions’ peer group or a build-up approach (such as the capital asset pricing model). The market approach applies a market multiple, based on observed purchase transactions and/or price/earnings of Regions’ peer group for each reporting unit, to the last twelve months of net income or earnings before income taxes, depreciation and amortization or price/tangible book value. One of the critical assumptions in determining the estimated fair value of a reporting unit is the discount rate, which can change based on changes in the business climate. A decrease in the discount rate by one percentage point would result in an increase in fair value of approximately $1.0 billion for all reporting units and an increase of approximately $600 million for the General Banking/Treasury reporting unit. An increase in the discount rate by one percentage point would result in a decline in fair value of approximately $800 million for all reporting units and a decline of approximately $500 million for the General Banking/Treasury reporting unit. A variation in the discount rate may result in or from changes to other assumptions used in determining the estimated fair value; these changes could materially affect the sensitivities described above. If the estimated implied fair value of goodwill is less than the carrying amount, a loss would be recognized to reduce the carrying amount to the estimated implied fair value. The changes or factors mentioned above, when or if they occur, could be material to Regions’ operating results for any particular reporting period. As previously discussed, Regions incurred a $6.0 billion impairment charge in 2008. See Note 1 “Summary of Significant Accounting Policies” to the consolidated financial statements for additional information. Other identifiable intangible assets, primarily core deposit intangibles, are reviewed at least annually for events or circumstances which could impact the recoverability of the intangible asset, such as loss of core deposits, increased competition or adverse changes in the economy. To the extent an other identifiable intangible asset is deemed unrecoverable, an impairment loss would be recorded to reduce the carrying amount. These events or circumstances, when they occur, could be material to Regions’ operating results for any particular reporting period; the potential impact cannot be reasonably estimated. Mortgage Servicing Rights For purposes of evaluating mortgage servicing impairment, Regions must estimate the fair value of its mortgage servicing rights (“MSRs”). MSRs do not trade in an active market with readily observable market prices. Although sales of MSRs do occur, the exact terms and conditions of sales may not be readily available. Specific characteristics of the underlying loans greatly impact the value of the related MSRs. As a result, Regions stratifies its mortgage servicing portfolio on the basis of certain risk characteristics, including loan type and contractual note rate, and values its MSRs using discounted cash flow modeling techniques. These techniques require management to make estimates regarding future net servicing cash flows, taking into consideration historical and forecasted mortgage loan prepayment rates and discount rates. Changes in interest rates, prepayment speeds or other factors could result in impairment of the servicing asset and a charge against earnings. Based on a hypothetical sensitivity analysis, Regions estimates that a reduction in primary mortgage market rates of 25 basis points and 50 basis points would reduce the December 31, 2008 fair value of MSRs by 36 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents approximately 9.5 percent ($11.3 million) and 16.8 percent ($20.1 million), respectively. Conversely, 25 basis point and 50 basis point increases in these rates would increase the December 31, 2008 fair value of MSRs by approximately 10.1 percent ($12.0 million) and 23.0 percent ($27.5 million), respectively. The pro forma fair value analysis presented above demonstrates the sensitivity of fair values to hypothetical changes in primary mortgage rates. This sensitivity analysis does not reflect an expected outcome. Refer to “Mortgage Servicing Rights” discussion in the “Balance Sheet” analysis. Income Taxes Accrued taxes represent the estimated amount payable to or receivable from taxing jurisdictions, either currently or in the future, and are reported, on a net basis, as a component of “other assets” in the consolidated balance sheets. The calculation of Regions’ income tax expense is complex and requires the use of many estimates and judgments in its determination. Management’s determination of the realization of the net deferred tax asset is based upon management’s judgment of various future events and uncertainties, including the timing and amount of future income earned by certain subsidiaries and the implementation of various tax plans to maximize realization of the deferred tax asset. Management believes that the subsidiaries will generate sufficient operating earnings to realize the deferred tax benefits. From time to time, for certain business plans enacted by Regions, management bases the estimates of related tax liabilities on its belief that future events will validate management’s current assumptions regarding the ultimate outcome of tax-related exposures. While Regions has obtained the opinion of advisors that the anticipated tax treatment of these transactions should prevail and has assessed the relative merits and risks of the appropriate tax treatment, examination of Regions’ income tax returns, changes in tax law and regulatory guidance may impact the tax treatment of these transactions and resulting provisions for income taxes. OPERATING RESULTS GENERAL Regions reported a net loss available to common shareholders of $5.6 billion in 2008, compared to net income of $1.3 billion in 2007. Results in 2008 were significantly impacted by a $6.0 billion non-cash goodwill impairment charge recorded in the fourth quarter of 2008. After-tax merger-related expenses of approximately $124.1 million and $217.5 million were incurred during 2008 and 2007, respectively. Excluding the impact of merger-related charges and goodwill impairment, earnings from continuing operations were $513.6 million in 2008 compared to $1.6 billion in 2007. Refer to Table 2 “GAAP to Non-GAAP Reconciliation” for additional details. NET INTEREST INCOME AND MARGIN Net interest income (interest income less interest expense) is Regions’ principal source of income and is one of the most important elements of Regions’ ability to meet its overall performance goals. Net interest income on a taxable-equivalent basis decreased 13 percent to $3.9 billion in 2008 from $4.4 billion in 2007, resulting in a decline in the net interest margin, which declined from 3.79 percent in 2007 to 3.23 percent in 2008. The net interest margin was impacted substantially by developments in the aforementioned economic and operating environment in 2008. More specifically, changes in market interest rates and the yield curve were closely connected with economic developments during the year. Regions’ balance sheet was in an asset sensitive position during 2008, meaning that decreases in interest rates cause contraction in the Company’s net interest margin. As such, falling rates in 2008 led to an unfavorable change in the yield curve and, in turn, the net interest margin. However, changes in the level and shape of the yield curve were largely symptomatic of the pervasive disturbances in the financial markets and the broader economy, observed particularly during the second half of 37 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents 2008. Amidst the many complex implications of this recent financial turmoil, these forces intensified price-based competition in the retail deposit space (increasing the interest cost of maintaining and acquiring deposits), raised wholesale funding costs (increasing the costs of liquidity management), prompted a disintermediation out of conventional bank deposits into other asset classes, and increased the level of non-performing assets. During 2008, the Federal Reserve lowered the Federal funds rate by approximately 400 basis points in response to mounting concerns of a recession. As indicated above, Regions was asset sensitive at year-end 2008 and anticipates this positioning to continue to pressure net interest income during 2009. Table 3 “Consolidated Average Daily Balances and Yield/Rate Analysis Including Discontinued Operations” presents a detail of net interest income, on a fully taxable-equivalent basis, the net interest margin, and the net interest spread. 38 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Table 3—Consolidated Average Daily Balances and Yield/Rate Analysis Including Discontinued Operations Assets Interest-earning assets: Federal funds sold and securities purchased under agreements to resell Trading account assets Securities: Taxable Tax-exempt Loans held for sale Loans held for sale—divestitures Loans, net of unearned income(1)(2) Other interest-earning assets Total interest-earning assets Allowance for loan losses Cash and due from banks Other non-earning assets Liabilities and Stockholders’ Equity Interest-bearing liabilities: Savings accounts Interest-bearing transaction accounts Money market accounts Money market accounts—foreign Time deposits—customer Interest-bearing deposits— divestitures Total customer deposits—interest-bearing Time deposits—non customer Other foreign deposits Total treasury deposits—interest-bearing Total interest-bearing deposits Federal funds purchased and securities sold under agreements to repurchase Other short-term borrowings Long-term borrowings Total interest-bearing liabilities Net interest spread Customer deposits— non-interest-bearing Other liabilities Stockholders’ equity Net interest income/margin on a taxable-equivalent basis(3) Notes: Average Balance 2008 Income/ Expense 2007 Yield/ Rate (Dollars in thousands; yields on taxable-equivalent basis) Income/ Expense Average Balance Yield/ Rate Average Balance 2006 Income/ Expense Yield/ Rate $ 867,868 $ 1,472,922 18,623 65,769 2.15% $ 4.47 1,020,994 $ 1,441,565 50,801 72,199 4.98% $ 5.01 961,127 $ 1,133,966 39,269 67,917 4.09% 5.99 $ $ 16,897,189 753,700 664,456 — 97,601,272 1,872,964 120,130,371 (1,413,085) 2,522,344 22,707,395 143,947,025 827,622 61,065 35,733 4.90 8.10 5.38 — — 5.70 1.55 5.49 5,562,261 29,042 6,600,115 16,981,646 736,762 1,538,813 283,697 94,372,061 588,141 116,963,679 (1,063,011) 2,848,590 20,007,361 138,756,619 $ 856,043 62,751 110,950 21,521 6,900,007 38,500 8,112,772 5.04 8.52 7.21 7.59 7.31 6.55 6.94 12,638,833 470,003 2,286,604 262,884 64,765,653 589,794 83,108,864 (833,691) 2,153,838 11,371,266 95,800,277 $ 608,171 4.81 50,961 10.84 7.73 7.64 7.42 6.86 6.99 176,672 20,087 4,805,931 40,441 5,809,449 3,743,595 $ 15,057,653 18,269,092 2,827,806 28,301,406 4,350 127,123 326,219 46,343 1,099,090 0.12% $ 0.84 1.79 1.64 3.88 3,797,413 $ 15,553,355 19,455,402 3,821,607 28,524,600 — 68,199,552 2,082,891 2,074,274 4,157,165 72,356,717 — — 2.35 3.59 2.23 2.91 2.38 1,603,125 74,714 46,231 120,945 1,724,070 7,697,505 8,703,601 13,509,689 102,267,512 170,993 198,395 626,976 2,720,434 2.22 2.28 4.64 2.66 2.83 374,179 71,526,556 1,338,340 3,857,657 5,195,997 76,722,553 8,080,179 1,901,897 9,697,823 96,402,452 10,879 311,672 629,187 154,806 1,282,132 12,091 2,400,767 69,961 193,155 263,116 2,663,883 377,595 81,872 552,947 3,676,297 0.29% $ 2.00 3.23 4.05 4.49 3,205,123 $ 10,664,995 11,442,827 2,714,183 22,129,808 12,356 168,320 325,398 111,061 899,208 0.39% 1.58 2.84 4.09 4.06 3.23 3.36 5.23 5.01 5.06 3.47 4.67 4.30 5.70 3.81 3.13 365,642 50,522,578 896,835 2,081,440 2,978,275 53,500,853 5,162,196 1,089,223 6,855,601 66,607,873 11,974 1,528,317 45,673 106,177 151,850 1,680,167 233,208 42,289 385,152 2,340,816 3.27 3.03 5.09 5.10 5.10 3.14 4.52 3.88 5.62 3.51 3.48 17,720,285 4,019,821 19,939,407 143,947,025 $ 19,002,548 3,315,160 20,036,459 138,756,619 $ 13,965,594 2,858,178 12,368,632 95,800,277 $ $ 3,879,681 3.23% $ 4,436,475 3.79% $ 3,468,633 4.17% (1) Loans, net of unearned income include non-accrual loans for all periods presented. (2) Interest income includes loan fees of $33,800,000, $65,673,000 and $78,360,000 for the years ended December 31, 2008, 2007 and 2006, respectively. (3) The computation of taxable-equivalent net interest income is based on the stautory federal income tax rate of 35%, adjusted for applicable state income taxes net of the related federal tax benefit. 39 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Table 4—Volume and Yield/Rate Variances Interest income on: Federal funds sold and securities purchased under agreements to resell Trading account assets Securities: Taxable Tax-exempt Loans held for sale Loans held for sale—divestitures Loans, net of unearned income Other interest-earning assets Total interest-earning assets Interest expense on: Savings accounts Interest-bearing transaction accounts Money market accounts Money market accounts—foreign Time deposits—customer Interest-bearing deposits— divestitures Total customer deposits—interest-bearing Time deposits—non customer Other foreign deposits Total treasury deposits—interest-bearing Total interest-bearing deposits Federal funds purchased and securities sold under agreements to repurchase Other short-term borrowings Long-term borrowings Total interest-bearing liabilities Increase (decrease) in net interest income Notes: 2008 Compared to 2007 Change Due to 2007 Compared to 2006 Change Due to Volume Yield/ Rate Net Volume Yield/ Rate Net (Taxable-equivalent basis—in thousands) $ (6,715) $ 1,542 (25,463) $ (7,972) (32,178) $ (6,430) 2,564 $ 16,542 8,968 $ (12,260) 11,532 4,282 (4,239) 1,420 (51,972) (21,521) 229,110 36,539 184,164 (152) (9,633) (36,306) (32,971) (9,958) (12,091) (101,111) 31,112 (66,776) (35,664) (136,775) (24,182) (3,106) (23,245) — (1,566,856) (45,997) (1,696,821) (28,421) (1,686) (75,217) (21,521) (1,337,746) (9,458) (1,512,657) (6,377) (174,916) (266,662) (75,492) (173,084) — (696,531) (26,359) (80,148) (106,507) (803,038) (6,529) (184,549) (302,968) (108,463) (183,042) (12,091) (797,642) 4,753 (146,924) (142,171) (939,813) 217,710 24,422 (54,572) 1,580 2,165,675 (113) 2,373,808 2,038 90,250 254,001 44,871 280,020 277 671,457 23,049 88,971 112,020 783,477 30,162 (12,632) (11,150) (146) (71,599) (1,828) (70,485) (3,515) 53,102 49,788 (1,126) 102,904 (160) 200,993 1,239 (1,993) (754) 200,239 247,872 11,790 (65,722) 1,434 2,094,076 (1,941) 2,303,323 (1,477) 143,352 303,789 43,745 382,924 117 872,450 24,288 86,978 111,266 983,716 (17,106) 171,058 189,898 207,075 (22,911) $ $ (189,496) (54,535) (115,869) (1,162,938) 144,387 39,583 167,795 1,335,481 (533,883) $ (556,794) $ 1,257,710 $ (289,868) $ 967,842 136,100 34,547 161,974 1,116,098 (206,602) 116,523 74,029 (955,863) 8,287 5,036 5,821 219,383 1. 2. The change in interest not due solely to volume or yield/rate has been allocated to the volume column and yield/rate column in proportion to the relationship of the absolute dollar amounts of the change in each. The computation of taxable net interest income is based on the statutory federal income tax rate of 35%, adjusted for applicable state income taxes net of the related federal tax benefit. 40 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Comparing 2008 to 2007, interest-earning asset yields were lower, decreasing 145 basis points on average. While interest-bearing liability rates were also lower, declining by 115 basis points, this improvement in funding cost was not enough to offset the drop in interest-earning asset yields. As a result, the net average interest rate spread declined 30 basis points to 2.83 percent in 2008 as compared to 3.13 percent in 2007. Changes in market interest rates, an increase in competition for deposits, and Regions’ asset sensitive position were the most significant drivers of changes in Regions’ rates and yields. In terms of changes in the broad interest rate environment, the Federal Funds rate, which is an influential driver of loan and deposit pricing on the shorter end of the yield curve, declined approximately 400 basis points during 2008, ending the year at approximately 0.25 percent. Longer-term rates experienced similar movement, with the yield on the benchmark 10-year U.S. Treasury note declining 166 basis points over the same period and ending the year at 2.25 percent. Both interest-earning assets and interest-bearing liabilities were impacted by these changes in market rates. More specifically, these rate declines immediately impact loan yields in a downward fashion, since approximately 55 percent of the Company’s interest-earning assets are tied to the prime rate or London Inter-Bank Offered Rate (“LIBOR”). The mix of interest-earning assets can also affect the interest rate spread. Regions’ primary types of interest-earning assets are loans and investment securities. Certain types of interest-earning assets have historically generated larger spreads. For example, loans typically generate larger spreads than other assets, such as securities, Federal funds sold or securities purchased under agreement to resell. However, in 2008, the spread on loans decreased due to lower interest rates and higher levels of assets on non-accrual status. Average interest-earning assets at December 31, 2008 totaled $120.1 billion, an increase of $3.2 billion as compared to the prior year. On an average basis, interest-earning assets were 2.7 percent higher in 2008. The proportion of average interest-earning assets to average total assets measures the effectiveness of management’s efforts to invest available funds into the most profitable interest-earning vehicles and represented 83 percent and 84 percent for 2008 and 2007, respectively. Average loans as a percentage of average interest-earning assets were 81 percent in 2008 and 2007. The categories which comprise interest-earning assets are shown in Table 3 “Consolidated Average Daily Balances and Yield/Rate Analysis Including Discontinued Operations”. Another significant factor affecting the net interest margin is the percentage of interest-earning assets funded by interest-bearing liabilities. Funding for Regions’ interest-earning assets comes from interest-bearing and non-interest-bearing sources. The percentage of average interest-earning assets funded by average interest-bearing liabilities was 85 percent in 2008 and 82 percent in 2007. Table 4 “Volume and Yield/Rate Variances” provides additional information with which to analyze the changes in net interest income. Provision for Loan Losses The provision for loan losses is used to maintain the allowance for loan losses at a level that in management’s judgment is adequate to cover losses inherent in the portfolio at the balance sheet date. During 2008, the provision for loan losses from continuing operations was $2.1 billion and net charge-offs were $1.5 billion. This compares to a provision for loan losses from continuing operations of $555.0 million and net charge-offs of $270.5 million in 2007. Net charge-offs as a percent of average loans were 1.59 percent in 2008 compared to 0.29 percent in 2007. The significant increase in the provision and net charge-offs in 2008 is related to losses on non-performing loans sold or moved to held for sale. In 2008, these losses accounted for $639.0 million of the increase in the net charge-offs. The remaining increase in the loan loss provision was primarily due to an increase in management’s estimate of losses inherent in its residential homebuilder, condominium, home equity and residential mortgage portfolios, all of which are closely tied to the housing market slowdown. Losses were also impacted by the disposition of problem loans, as well as generally weaker economic conditions in the broader economy. During the second half of the year, Regions’ provision was $1.6 billion compared to net charge-offs of $1.2 billion, as the loan portfolio experienced increasing incremental stress. 41 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents For further discussion of the total allowance for credit losses, see the “Risk Management” section found later in this report and Note 7 “Allowance for Credit Losses” to the consolidated financial statements. NON-INTEREST INCOME The following section contains a discussion of non-interest income from continuing operations and excludes EquiFirst, which is reported separately as discontinued operations in the consolidated statements of operations. Non-interest income represents fees and income derived from sources other than interest-earning assets. Table 5 “Non-Interest Income” provides a detail of the components of non-interest income. Non-interest income totaled $3.1 billion in 2008 compared to $2.9 billion in 2007. The increase in non-interest income is primarily due to stronger brokerage results, mainly from fixed-income and equity markets at Morgan Keegan, as well as an increase in income derived from insurance commissions and fees and bank-owned life insurance. In addition, non-interest income was aided by a $101 million increase in securities gains. Offsetting these increases, service charge income declined as a result of lower insufficient funds fees. In addition, trust income decreased due to the disarray in the markets during the latter half of the year, which affected valuations of assets under management. Non-interest income (excluding securities transactions) as a percent of total revenue (on a fully taxable-equivalent basis) equaled 43 percent in 2008 compared to 39 percent in 2007. The increase is due mainly to lower total revenues in 2008 resulting from a decline in net interest income. Table 5—Non-Interest Income Service charges on deposit accounts Brokerage, investment banking and capital markets Trust department income Mortgage income Net securities gains (losses) Insurance commissions and fees Bank-owned life insurance Other miscellaneous income Service Charges on Deposit Accounts 2008 $ 1,147,959 1,027,468 233,522 137,676 92,495 110,069 78,341 245,701 $ 3,073,231 Year Ended December 31 2007 (In thousands) $ 1,162,740 894,621 251,319 135,704 (8,553) 99,365 62,021 258,618 $ 2,855,835 2006 $ 721,998 716,983 158,161 178,688 8,123 85,547 11,853 148,367 $ 2,029,720 Income from service charges on deposit accounts decreased 1 percent to $1.1 billion in 2008 from $1.2 billion in 2007. This decline was the result of a decrease in consumer insufficient funds and overdraft fees, due to policy changes which were enacted to retain customers. Also, the Company’s new LifeGreen ® checking accounts, which generated new account openings, had a lower associated fee structure. Brokerage, Investment Banking and Capital Markets and Trust Department Income Regions’ primary source of brokerage, investment banking, capital markets and trust revenue is its subsidiary, Morgan Keegan. Morgan Keegan’s revenues are predominantly recorded in the brokerage, investment banking, capital markets and trust income lines of the consolidated statements of operations, while a smaller portion is reported in other non-interest income. Morgan Keegan contributed $1.3 billion in total revenues in 2008 and 2007. Total brokerage, investment banking, and capital markets revenues increased 15 percent to $1.0 billion in 2008 from $894.6 million in 2007, reflecting stronger capital markets income. Despite the overall year-over-year increase in revenues, results for 2008 reflect the impact of the effective closure of credit markets and general upheaval in domestic and foreign 42 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents markets. In addition, private client revenues were influenced by a reluctance of retail investors to make investment decisions in the market, due to increasing unemployment, declining property values, and declining personal wealth. As a result, brokerage, investment banking, and capital markets income began to decline during the latter part of 2008. Higher revenues from Morgan Keegan’s fixed income business offset this decrease to some extent, however, as institutional investors seeking safety invested heavily in municipal, mortgage-backed, and treasury securities. As of December 31, 2008, Morgan Keegan employed approximately 1,285 financial advisors. Customer and trust assets under management were approximately $63 billion and $62 billion, respectively, at year-end 2008 compared to approximately $80 billion and $81 billion, respectively, at year-end 2007. The reduction in assets under management is primarily driven by lower asset valuations from declining markets during the year. Revenues from the private client division, which were affected by market disarray, declined 14 percent to $339.4 million, or 26 percent of Morgan Keegan’s total revenue in 2008 compared to $393.5 million or 30 percent in 2007. Fixed-income capital markets revenues were up in 2008, totaling $369.9 million, as compared to $244.4 million in 2007, the result of higher trading volumes due to investors change in preference to safe-haven investments, including treasuries and highly rated municipal securities. Equity markets revenue was solid early in 2008, but increasingly gave way to financial market turmoil as the capital markets became more dislocated. Equity capital markets revenues totaled $127.9 million in 2008, compared to $103.3 million in 2007. Trust revenues increased 2 percent to $230.6 million in 2008, driven higher by revenues generated from the negotiation of natural lease drilling rights on customer properties. The asset management division produced $177.4 million of revenue in 2008 compared to $188.9 million in 2007 and was pressured by the decreasing value of managed assets during the year. Morgan Keegan’s pre-tax income was negatively affected during 2008 by $49.4 million in losses on investments in two open-end mutual funds managed by Morgan Keegan. These losses totaled $42.8 million in 2007. The Company, through Morgan Keegan, purchased fund shares in order to provide liquidity to the funds. The carrying value of these investments, which is equal to their estimated market value, was approximately $8.4 million as of December 31, 2008. Professional fees, primarily legal costs, also increased at Morgan Keegan from $21.1 million in 2007 to $85.5 million in 2008. Table 6 “Morgan Keegan” details the components of Morgan Keegan’s contribution to the Company’s revenue and earnings for the years ended December 31, 2008, 2007 and 2006. Table 7 “Morgan Keegan Revenue by Division” illustrates Morgan Keegan’s revenues by division for the years ended December 31, 2008, 2007 and 2006. 43 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Table 6—Morgan Keegan Revenues: Commissions Principal transactions Investment banking Interest Trust fees and services Investment advisory Other Total revenues Expenses: Interest expense Non-interest expense Total expenses Income before income taxes Income taxes Net income Table 7—Morgan Keegan Revenue by Division 2008 Gross revenue Percent of gross revenue 2007 Gross revenue Percent of gross revenue 2006 Gross revenue Percent of gross revenue Mortgage Income 2008 Year Ended December 31 2007 (In thousands) 2006 $ 249,216 267,417 209,898 95,136 230,553 206,536 41,426 1,300,182 45,828 1,051,813 1,097,641 202,541 74,200 128,341 $ $ 314,541 181,567 191,479 149,011 225,845 184,194 53,555 1,300,192 90,609 947,673 1,038,282 261,910 96,038 165,872 $ $ 242,872 156,019 152,858 139,745 131,215 149,174 56,788 1,028,671 87,046 702,913 789,959 238,712 87,625 151,087 $ Private Client Fixed-Income Capital Markets Year Ended December 31 Equity Capital Markets Regions MK Trust (Dollars in thousands) $ 339,438 26.1% $ 393,511 30.3% $ 305,098 29.7% $ $ $ 369,887 $ 127,929 $ 230,553 28.5% 9.8% 17.7% 244,407 $ 103,289 $ 225,845 18.8% 7.9% 17.4% 187,425 $ 103,282 $ 131,215 18.2% 10.0% 12.8% Asset Management Interest and Other $ $ $ 177,352 $ 55,023 13.6% 4.3% 188,905 $ 144,235 14.5% 11.1% 149,511 $ 152,140 14.5% 14.8% Mortgage income is generated through the origination and servicing of mortgage loans for long-term investors and sales of mortgage loans in the secondary market. Although mortgage income was affected by the increasingly challenging mortgage industry environment (see “Economic Environment in Regions’ Banking Markets” later in this report) which deteriorated throughout the year, mortgage income increased 1 percent, from $135.7 million in 2007 to $137.7 million in 2008 due in part to the recognition of $10.0 million in loan servicing value during the first quarter of 2008 related to the adoption of FAS 159. See Note 23 “Fair Value of Financial Instruments” to the consolidated financial statements for further detail. Falling mortgage interest rates in December, however, did produce a significant increase in refinancing activity during late 2008 and into 2009. 44 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents During 2008, the Company sold mortgage servicing rights on approximately $3.4 billion of GNMA loans and recognized a loss of $14.9 million, including transaction costs. At December 31, 2008, Regions’ servicing portfolio totaled $36.6 billion and included 306,153 loans. Of this portfolio, $21.2 billion were serviced for third parties. At December 31, 2007, the servicing portfolio totaled $43.1 billion, $26.9 billion of which were serviced for third parties. Regions’ mortgage division, primarily through retail operations in its 16-state footprint, originated mortgage loans totaling $5.4 billion in 2008 compared to $6.9 billion in 2007. The decrease is primarily related to lower demand and general stresses in the housing sector. During the first quarter of 2007, Regions sold its non-conforming mortgage origination subsidiary, EquiFirst, for an original sales price of approximately $76 million and recorded an after-tax gain of approximately $1 million at the time of sale. The sales price was subject to adjustment and was finalized during 2008 resulting in approximately $10 million of additional after-tax expense to Regions. See Note 4 “Discontinued Operations” to the consolidated financial statements for further detail. During the third quarter of 2007, Regions also exited the wholesale warehouse lending business as a result of risk and return considerations. In addition, Regions sold approximately $1.9 billion of its $4.5 billion out-of-market mortgage servicing portfolio in 2007, realizing a loss on the sale of approximately $4.4 million. Net Securities Gains (Losses) Regions reported net gains of $92.5 million from the sale of securities available for sale in 2008, as compared to net losses of $8.6 million in 2007. The 2008 net gains were primarily related to the sale of federal agency debentures and U.S. treasury securities in the first quarter of 2008. Insurance Commissions and Fees Insurance commissions and fees increased 11 percent to $110.1 million in 2008, compared to $99.4 million in 2007. This increase is primarily due to increased revenues from the mid-2007 acquisition of Miles & Finch and the acquisition of Barksdale Bonding and Insurance, Inc, which closed in early 2008. A general increase in commissions related to new business production and higher premiums were also a contributing factor in the year-over-year increase. Bank-Owned Life Insurance Bank-owned life insurance income increased 26 percent to $78.3 million in 2008, compared to $62.0 million in 2007. This increase is primarily due to additional purchases of bank-owned life insurance policies totaling $967 million in late 2007 and early 2008. Other Miscellaneous Income Other miscellaneous income decreased $12.9 million, or 5 percent, from $258.6 million in 2007 to $245.7 million in 2008. A significant driver of the decrease is due to a $26.2 million decrease in gains on the sale of loans in 2008 and a $21.3 million increase in losses related to write-downs of low income housing investments. In addition in 2007, Regions recognized a $9.1 million gain on the termination of Union Planters hybrid debt and a $13.3 million gain on disposal of residual interests in an acquired subsidiary. Also, in 2007, Regions recognized a $7.3 million gain related to a sale of certain mutual funds. Offsetting these events was a $62.8 million gain on the redemption of Visa shares in 2008. 45 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents NON-INTEREST EXPENSE The following section contains a discussion of non-interest expense from continuing operations. The largest components of non-interest expense are salaries and employee benefits, net occupancy expense and furniture and equipment expense. Total non-interest expense for 2008 also includes a $6.0 billion non-cash goodwill impairment charge. Non-interest expense, excluding the merger-related and goodwill impairment charges, increased $282.0 million, or 6.5 percent, to $4.6 billion in 2008. Included in non-interest expense are pre-tax merger-related expenses totaling $200.2 million in 2008 and $350.9 million in 2007. Table 8 “Non-Interest Expense (including Non-GAAP reconciliation)” presents major non-interest expense components, both including and excluding merger-related expenses and goodwill impairment, for the years ended December 31, 2008, 2007 and 2006. Management believes Table 8 is useful in evaluating trends in non-interest expense. Note that merger-related charges as shown in this table relate to Regions’ acquisition of AmSouth in November 2006. See Table 2 “GAAP to Non-GAAP Reconciliation,” and the text preceding it, for further discussion of non-GAAP financial measures. 46 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 2008 2,355,939 442,145 334,541 214,191 134,139 102,766 96,916 6,000,000 85,000 1,025,977 10,791,614 As Reported (GAAP) 2007 (In thousands) $ 2,471,869 413,711 301,330 151,991 155,346 15,862 134,050 — 6,000 1,010,192 $ 4,660,351 2006 $ 1,859,851 254,628 157,897 97,220 63,523 2,206 70,198 — 16,000 682,505 $ 3,204,028 Merger-Related Charges and Goodwill Impairment 2008 2007 2006 133,401 3,331 4,985 7,409 — — 12,692 6,000,000 — 38,353 6,200,171 (In thousands) $ 158,613 33,834 4,856 34,573 — — 42,897 — — 76,094 350,867 $ $ 65,693 3,473 427 6,083 — — 1,092 — — 11,891 88,659 $ 2008 As Adjusted (Non-GAAP) 2007 2006 2,222,538 438,814 329,556 206,782 134,139 102,766 84,224 85,000 987,624 4,591,443 (In thousands) $ 2,313,256 379,877 296,474 117,418 155,346 15,862 91,153 6,000 934,098 $ 4,309,484 $ 1,794,158 251,155 157,470 91,137 63,523 2,206 69,106 16,000 670,614 $ 3,115,369 Table of Contents Table 8—Non-Interest Expense (including Non-GAAP reconciliation) Salaries and employee benefits Net occupancy expense Furniture and equipment expense Professional fees Amortization of core deposit intangibles Other real estate owned expense Marketing Goodwill impairment Mortgage servicing rights impairment Other miscellaneous expenses Salaries and employee benefits Net occupancy expense Furniture and equipment expense Professional fees Amortization of core deposit intangibles Other real estate owned expense Marketing Goodwill impairment Mortgage servicing rights impairment Other miscellaneous expenses Salaries and employee benefits Net occupancy expense Furniture and equipment expense Professional fees Amortization of core deposit intangibles Other real estate owned expense Marketing Mortgage servicing rights impairment Other miscellaneous expenses $ $ $ $ $ $ 47 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Salaries and Employee Benefits Total salaries and employee benefits decreased $115.9 million, or 5 percent, in 2008. Included in total salaries and employee benefits are merger charges totaling $133.4 million in 2008 and $158.6 million in 2007. The year-over-year decrease in salaries and employee benefits cost is the result of ongoing merger-related and other personnel-related efficiencies, evidenced by reductions in headcount. At December 31, 2008, Regions had 30,784 employees compared to 33,161 at December 31, 2007. Lower incentives driven by a deteriorating business environment in 2008 were also a factor. Regions provides employees who meet established employment requirements with a benefits package that includes 401(k), pension, and medical, life and disability insurance plans. New enrollment in the Regions pension plan ended effective December 31, 2000. New enrollment in the legacy AmSouth pension plan ended effective with the merger date, November 4, 2006. Former AmSouth employees enrolled as of November 4, 2006 continue to be active in the plan, but no additional participants will be added. Effective September 30, 2007, the two pension plans merged into one plan. Regions’ 401(k) plan includes a company match of eligible employee contributions. At December 31, 2008, this match totaled 100 percent of the eligible employee contribution (up to six percent of compensation). See Note 19 “Pension and Other Employee Benefit Plans” to the consolidated financial statements for further details. There are various incentive plans in place in many of Regions’ lines of business that are tied to the performance levels of employees. At Morgan Keegan, commissions and incentives are a key component of compensation, which is typical in the brokerage and investment banking industry. In general, incentives are used to reward employees for selling products and services, for productivity improvements and for achievement of corporate financial goals. These achievements are determined through a review of profitability versus risk management. Regions’ long-term incentive plan provides for the granting of stock options, restricted stock, restricted stock units and performance shares. See Note 18 “Share-Based Payments” to the consolidated financial statements for further information. Net Occupancy Expense Net occupancy expense includes rents, depreciation and amortization, utilities, maintenance, insurance, taxes, and other expenses of premises occupied by Regions and its affiliates. Occupancy expense increased $28.4 million, or 7 percent, in 2008 due primarily to new branches opened and rising price levels. Included in net occupancy expense were merger charges of $3.3 million in 2008 and $33.8 million in 2007, reflecting costs to vacate leases due to the merger. Furniture and Equipment Expense Furniture and equipment expense increased $33.2 million to $334.5 million in 2008. This increase is due primarily to the increased depreciation and maintenance expense associated with capital additions, including new branches opened in 2007 and 2008. Included in furniture and equipment expense were merger charges of $5.0 million in 2008 and $4.9 million in 2007. Professional Fees Professional fees are comprised of amounts related to legal, consulting and other professional fees. Professional fees increased $62.2 million to $214.2 million in 2008. Included in professional fees during 2008 and 2007 were $7.4 million and $34.6 million, respectively, of merger-related charges. The 2008 increase is primarily due to higher legal expenses incurred at Morgan Keegan. Amortization of Core Deposit Intangibles The premium paid for core deposits in an acquisition is considered to be an intangible asset that is amortized on an accelerated basis over its useful life. As a result, amortization of core deposit intangibles decreased 14 percent to $134.1 million in 2008 compared to $155.3 million in 2007. 48 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Other Real Estate Owned Expense Other real estate owned (“OREO”) expenses include the cost of adjusting foreclosed properties to fair value after these assets have been classified as OREO, as well as other costs to maintain the property. OREO expense increased $86.9 million to $102.8 million in 2008 compared to $15.9 million in 2007, driven by steep valuation declines and losses on the sale of foreclosed properties resulting from continued decline of the housing market. Another contributing factor is increased costs related to operating and maintaining the foreclosed properties during the holding period. Despite Regions’ aggressive and successful efforts to sell foreclosed properties, balances increased $122.5 million to $243.0 million in 2008. See Note 11 “Other Real Estate” to the consolidated financial statements. Marketing Marketing expense decreased $37.1 million during 2008, including a reduction of $30.2 million of merger-related charges, to $96.9 million from $134.1 million in 2007. In 2007, marketing expense was higher due to post-merger rebranding initiatives and marketing campaigns which ran to coincide with branch conversions, as well as customer communications associated with branch conversions and consolidations. Goodwill Impairment Regions incurred a $6.0 billion non-cash goodwill impairment charge as a result of a goodwill evaluation performed in the fourth quarter of 2008. This evaluation indicated the estimated implied fair value of the General Banking/Treasury reporting unit’s goodwill was less than its book value, therefore requiring the impairment charge. Refer to Note 1 “Summary of Significant Accounting Policies” and Note 10 “Intangible Assets” to the consolidated financial statements for further discussion. Mortgage Servicing Rights Impairment Mortgage servicing rights impairment increased $79.0 million to $85.0 million in 2008. The increase was driven by the effects of changes in the interest rate environment in 2008. Other Miscellaneous Expenses Other miscellaneous expenses include communications, valuation impairment charges, business development services, and FDIC insurance. Other miscellaneous expenses increased slightly in 2008 compared to 2007. Included in other miscellaneous expenses are $49.4 million and $38.5 million write-downs on the investment in two Morgan Keegan mutual funds during 2008 and 2007, respectively. Also in 2008, Regions incurred a $65.4 million loss on early extinguishment of debt related to the redemption of subordinated notes. Other miscellaneous expenses benefited from the recognition of a $28.4 million litigation expense reduction related to Visa’s IPO during the first quarter of 2008. Regions had recorded a $51.5 million expense for Visa litigation during the fourth quarter of 2007. INCOME TAXES Regions’ 2008 provision for income taxes from continuing operations decreased $993.8 million to a tax benefit to $348.1 million compared to expense of $645.7 million in 2007, primarily due to lower consolidated earnings combined with the $275 million benefit from settlement of uncertain tax positions resulting from the resolution with the IRS of the Company’s federal uncertain tax positions for tax years 1999-2006. Periodically, Regions invests in pass-through investment vehicles that generate tax credits, principally low-income housing credits and non-conventional fuel source credits, which directly reduce Regions’ federal income tax liability. Congress has enacted these tax credit programs to encourage capital inflows to these 49 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents investment vehicles. The amount of tax benefit recognized from these tax credits was $56.3 million in 2008 compared to $81.3 million in 2007. The non-conventional fuel source credits, which totaled $39.6 million in 2007, expired at the end of 2007. Regions has segregated a portion of its investment securities and intellectual property into separate legal entities in order to, among other business purposes, maximize the return on such assets by the professional and focused management thereof. Regions has recognized state tax benefits related to these legal entities of $37.5 million in 2008 compared to $45.8 million in 2007. Management’s determination of the realization of deferred tax assets is based upon management’s judgment of various future events and uncertainties, including the timing, nature and amount of future income earned by certain subsidiaries, the level of taxable income in prior carryback years where carryback is permitted, and the implementation of various plans to maximize realization of deferred tax assets. Management believes that the subsidiaries will generate sufficient operating earnings to realize the deferred tax benefits. However, management does not believe that it is more-likely-than-not that all of its state net operating loss carryforwards will be realized. Accordingly, a valuation allowance has been established in the amount of $22.5 million against such benefits in 2008 compared to $19.2 million in 2007. Regions and its subsidiaries file income tax returns in the United States (“U.S.”), as well as in various state jurisdictions. As the successor of acquired taxpayers, Regions is responsible for the resolution of audits from both federal and state taxing authorities. The Company is no longer subject to U.S. federal income tax examinations for years before 2007, which would include audits of acquired entities. The Company is no longer subject to state and local income tax examinations for years before 2000. Certain states have proposed various adjustments to the Company’s previously filed tax returns. Management is currently evaluating those proposed adjustments and believes the Company to be adequately reserved for any potential exposures. During the third quarter of 2007 and first quarter of 2008, the Company made deposits with the IRS to stop the accrual of interest on all of its federal uncertain tax positions. In the first quarter of 2008, the Company settled a dispute with the IRS related to certain leveraged lease transactions. In addition, federal examinations for the 1998 and 1999 tax years were closed in the first quarter. As a result, the Company re-designated a portion of the deposits as an additional statutory payment of tax and interest to the IRS in the first quarter of 2008. In August of 2008, the IRS announced guidelines pursuant to which taxpayers could settle disputes relating to certain leveraged lease transactions. The deadline for notifying the IRS of a taxpayer’s intent to participate in the settlement initiative was early October 2008. The Company gave notice of the intent to participate in the settlement initiative in October 2008 and increased its reserves for interest on exposures related to leveraged lease transactions consistent with the settlement initiative guidelines as of September 30, 2008. Net interest income was reduced $43 million in accordance with Financial Accounting Standards Board Staff Position 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” (“FAS 13-2”), to reflect the pre-tax income impact of the leasing settlement. In December of 2008, the Company reached an agreement with the IRS Appeals Division on the federal tax treatment of a broad range of uncertain tax positions identified by the IRS. Regions had previously established reserves for the uncertain tax positions. The agreement resulted in a $275 million earnings benefit from a reduction of the Company’s income tax expense in the fourth quarter of 2008. The agreement covers the Federal tax returns of Regions and its previous acquisitions, including Union Planters Corporation and AmSouth Bancorporation, for tax years 1999 through 2006 and includes matters related to Regions’ real estate investment structures and acceptance of the IRS global settlement initiative on leasing transactions. As of December 31, 2008 and December 31, 2007, the liability for gross unrecognized tax benefits was approximately $54.6 million and $746.3 million, respectively. Of the Company’s liability for gross unrecognized tax benefits as of December 31, 2008, essentially all of the approximately $54.6 million would reduce the 50 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Company’s effective tax rate, if recognized. As of December 31, 2008, the Company recognized a liability of approximately $31 million for interest, on a pre-tax basis. During the year ended December 31, 2008, Regions recognized interest expense, on a pre-tax basis, on uncertain tax positions of approximately $39 million. See Note 1 “Summary of Significant Accounting Policies” and Note 21 “Income Taxes” to the consolidated financial statements for additional information about the provision for income taxes. BALANCE SHEET ANALYSIS At December 31, 2008, Regions reported total assets of $146.2 billion compared to $141.0 billion at the end of 2007, an increase of approximately $5.2 billion or 3.7 percent. The balance sheet growth reflects an increase in loans outstanding, primarily commercial and industrial and home equity balances, as well as an increase in interest-bearing deposits in other banks, primarily the Federal Reserve Bank. Offsetting these growth drivers, Regions’ assets were reduced by the goodwill impairment charge taken during the fourth quarter of 2008. Loans Average loans, net of unearned income, represented 81 percent of average interest-earning assets at December 31, 2008. Lending at Regions is generally organized along three functional lines: commercial and industrial loans (including financial and agricultural), real estate loans (commercial mortgage and construction loans) and consumer loans (residential first mortgage, home equity, indirect and other consumer loans). The composition of the portfolio by these major categories is presented in Table 9 “Loan Portfolio.” Regions manages loan growth with a focus on risk management and risk adjusted return on capital. Total loans, net of unearned income, increased at a relatively slow pace during 2008. A challenging economic environment, particularly in the real estate sector, was the primary factor leading to the modest growth. Regions is continuing to make credit available to consumers, small businesses and commercial companies as intended by Treasury and the Congress in establishing the government investment in banks (See “Stockholders’ Equity” section found later in this report). During the fourth quarter of 2008, the government’s investment of $3.5 billion strengthened Regions’ regulatory capital, which supported origination of approximately $16.5 billion in new and renewed loans and lines, including unfunded commitments. This lending production was during an economic environment when lending is typically flat or reduced. Table 9 shows a year-over-year comparison of loans by loan type. Table 9—Loan Portfolio Commercial and industrial Commercial real estate (1) Construction Residential first mortgage (1) Home equity Indirect Other consumer 2008 $ 23,595,418 26,208,325 10,634,063 15,839,015 16,130,255 3,853,770 1,157,839 $ 97,418,685 2005 2007 2006 (In thousands, net of unearned income) $ 24,145,411 19,646,423 14,121,030 15,583,920 14,888,599 4,037,539 2,127,680 $ 94,550,602 $ 20,906,617 23,107,176 13,301,898 16,959,545 14,962,007 3,938,113 2,203,491 $ 95,378,847 $ 14,728,006 24,773,539 7,362,219 n/a 7,794,684 1,353,929 2,392,536 $ 58,404,913 2004 $ 15,028,015 26,059,454 5,472,463 n/a 6,634,487 1,641,629 2,690,906 $ 57,526,954 (1) Breakout of residential first mortgage not available for 2005 and 2004 due to the AmSouth merger; residential first mortgage is included in commercial real estate for 2005 and 2004. 51 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Table 10—Selected Loan Maturities Commercial and industrial Commercial real estate Construction Due after one year but within five years Due after five years Loans Maturing Within One Year After One But Within Five Years After Five Years Total (In thousands) $ 7,631,231 7,750,421 5,531,291 $ 20,912,943 $ $ 12,278,452 12,684,320 3,960,550 28,923,322 $ 3,685,735 5,773,584 1,142,222 $ 10,601,541 $ 23,595,418 26,208,325 10,634,063 $ 60,437,806 Predetermined Rate Variable Rate (In thousands) $ $ 8,497,816 5,964,953 14,462,769 $ $ 20,425,506 4,636,588 25,062,094 Note: Table 10 excludes residential first mortgage, home equity, indirect and other consumer loans. Commercial and Industrial—Commercial and industrial loans represent loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. During 2008, commercial and industrial loan balances increased 13 percent, driven by a combination of new production, increased line utilization, selective market share gains, and higher funding under letters of credit supporting Variable Rate Demand Notes (“VRDNs”). Refer to “Off-Balance Sheet Arrangements” section for discussion of VRDNs found later in this report’s “Management’s Discussion and Analysis”. Commercial Real Estate—Commercial real estate loans consist of loans to operating businesses, loans for real estate development, and various other loans secured by real estate. Commercial real estate loans to operating businesses are for long-term financing of land and buildings, and are repaid by cash flow generated by business operations. These loans, sometimes referred to as “owner occupied commercial real estate”, are a subset of the commercial real estate category presented in Table 9, and totaled approximately $11.7 billion as of December 31, 2008. Loans for real estate development are repaid through cash flow related to the operation, sale or refinance of the property. These loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers. While loan production and pipeline activity declined in 2008, the commercial real estate portfolio grew $3.1 billion to $26.2 billion in 2008, largely attributable to a slow down in payoffs, draws on unfunded commitments, and transfers of construction lending to permanently financed commercial real estate. Regions’ focus in commercial real estate lending is to effectively manage its existing portfolio and to support those clients who have full relationships with the Company. In addition, Regions considers new projects with sound sponsorship and fundamentals and which meet the Company’s standards for risk-adjusted return on capital. Construction—Construction loans are loans to individuals, companies or developers used for the purchase or construction of a commercial property for which repayment will be generated by cash flows related to the operation, sale or refinance to permanent financing of the property. A significant portion of Regions’ real estate construction portfolio is comprised of residential product types (land, single-family and condominium loans) within Regions’ markets, and to a lesser degree retail and multi-family projects. Typically, these loans are for construction projects that have been presold, preleased or otherwise have secured permanent financing as well as loans to real estate companies that have significant equity invested in each project. During 2008, outstanding construction balances declined $2.7 billion to $10.6 billion as a result of Regions selling or transferring to held for sale many of these loans. In addition, outstanding balances declined as construction projects were completed and converted from construction to commercial real estate loans and new construction originations declined. 52 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents During late 2007, the residential homebuilder portfolio, which totaled $4.4 billion as of December 31, 2008, came under significant stress. In Table 9 “Loan Portfolio”, the majority of these loans are reported in the construction loan category, while a smaller portion is reported under the commercial real estate loan category. The residential homebuilder portfolio is geographically concentrated in Florida and North Georgia. Regions realigned its organizational structure in January 2008 to enable some of the Company’s most experienced bankers to concentrate their efforts on management of this portfolio. See the “Residential Homebuilder Portfolio” table in the “Credit Risk” section later in this report for further detail on the residential homebuilder portfolio. Residential First Mortgage—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. These loans experienced a $1.1 billion decline to $15.8 billion in 2008. Demand for this type of lending slowed during 2008 as property values declined, new and used home sales reached historically low levels, and credit markets contracted in general. However, due to declining mortgage rates, which became especially attractive late in 2008 and into early 2009, refinancing activity increased substantially as 2009 began. Loans to consumers with weak credit history, generally called sub-prime loans, became a cause for industry concern beginning in 2007 and the performance of these loans deteriorated significantly as 2008 progressed. Regions’ exposure to sub-prime loans is insignificant, at approximately $77.3 million at December 31, 2008, and continues to decline. This is a product that Regions does not currently originate. The credit loss exposure related to these loans is addressed in management’s periodic determination of the allowance for credit losses. Home Equity—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. During 2008, home equity balances increased $1.2 billion to $16.1 billion, driven by a slowing of paydowns and an increase in lending to creditworthy customers. The majority of Regions’ home equity lending balances was originated through its branch network and the Company has not purchased broker-originated or other third-party production. However, home equity losses still increased significantly in 2008, impacted by the unprecedented drop in real estate values coupled with a deteriorating economy. The main source of stress has been in Florida, where home values declined precipitously in 2007 and 2008. Further, losses on relationships in Florida where Regions is in a second lien position have been especially high; much higher, in fact, than the remaining areas of Regions geographic footprint. Indirect—Indirect lending, which is lending initiated through third-party business partners, is largely comprised of loans made through automotive dealerships. Loans of this type decreased $84.3 million, or 2.1 percent, during 2008 largely due to the Company’s decision to exit certain lines of business. Regions continually rationalizes the risk/reward characteristics of each of its lending lines and, as noted, ceased new originations within the indirect auto lending business in 2008 and the marine and recreational vehicle lending businesses in 2007. Each of these portfolios is a declining element in the overall loan portfolio and will continue to reduce as loans are repaid. Losses within the indirect portfolio increased during the year primarily driven by economic conditions, including high gasoline prices and rising unemployment levels. Other Consumer—Other consumer loans include direct consumer installment loans, overdrafts and other revolving credit, and educational loans. Other consumer loans decreased 47.5 percent in 2008 to $1.2 billion due to the sale or transfer to held for sale of student loans and a general contraction in credit markets. 53 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Loans Held for Sale At December 31, 2008, loans held for sale totaled $1.3 billion, consisting of $420 million of non-performing commercial real estate and construction loans, $513 million of residential real estate mortgage loans, and $349 million of student loans. At December 31, 2007, loans held for sale totaled $720.9 million, consisting solely of residential real estate mortgage loans in the process of being sold to third parties. During 2008, in an effort to manage its exposure to non-performing assets, Regions made a strategic decision to intensify its efforts to sell certain portions of non-performing loans. During 2008, the Company sold or classified as loans held for sale $1.3 billion of non-performing loans through its efforts. Regions marks all loans to the lower of cost or market value at the time they are classified as held for sale and continues to evaluate valuation at each reporting period. Lower residential first origination volumes and tightening of the secondary market for residential mortgage production—a result of the weakening housing market in 2008—somewhat offset the increase in loans held for sale resulting from the increased commercial sales activity described above. Refer to the “Credit Risk” section later in this report for more discussion on asset quality and non-performing assets. Allowance for Credit Losses The allowance for credit losses represents management’s estimate of credit losses inherent in both the loan portfolio and unfunded credit commitments as of the balance sheet date. The allowance consists of two components: the allowance for loans losses, which is recorded as a contra-asset to loans, and the reserve for unfunded credit commitments, which is recorded in other liabilities. At December 31, 2008, the allowance for credit losses totaled $1.9 billion or 1.95 percent of loans, net of unearned income, compared to $1.4 billion or 1.45 percent at year-end 2007. See “Allowance for Credit Losses” in the “Risk Management” section found later in this report for a detailed discussion of the allowance. Securities Regions utilizes the securities portfolio to manage liquidity, interest rate risk, regulatory capital, and to take advantage of market conditions to generate a favorable return on investments without undue risk. The portfolio consists primarily of high-quality mortgage-backed and asset-backed securities, as well as U.S. Treasury and Federal agency securities. Securities represented 13 percent of total assets at December 31, 2008 compared with 12 percent at December 31, 2007. In 2008, total securities, which are almost entirely classified as available for sale, increased $1.5 billion, or 8.8 percent. Growth was largely the result of securities purchased as a part of Regions’ interest rate risk management activities. The “Interest Rate Risk” section, found later in this report, further explains Regions’ interest rate risk management practices. The weighted-average yield earned on securities, less equities, was 5.07 percent in 2008 and 5.03 percent in 2007. Table 11 “Securities” illustrates the carrying values of securities by category. Table 11—Securities U.S. Treasury securities Federal agency securities Obligations of states and political subdivisions Mortgage-backed securities Other debt securities Equity securities 2008 $ 900,303 1,705,686 756,694 14,349,342 21,495 1,163,268 $ 18,896,788 2007 (In thousands) $ 964,647 3,329,656 732,367 11,092,758 45,108 1,204,473 $ 17,369,009 2006 $ 400,065 3,752,216 788,736 12,777,358 80,980 762,705 $ 18,562,060 54 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents At December 31, 2008, securities available for sale included a net unrealized loss of $12.7 million, which represented the difference between the estimated fair value of these securities as of year-end and their amortized cost. The net unrealized loss represents $564.5 million in gross unrealized losses and $551.8 million in gross unrealized gains. At December 31, 2007, securities available for sale included a net unrealized gain of $149.6 million, which consisted of $199.5 million of gross unrealized gains and $49.9 million in gross unrealized losses. The net unrealized loss at December 31, 2008 reflects primarily the impact of lower interest rates and widening of credit and liquidity spreads related to U.S. Treasury securities, Federal agency securities and mortgage-backed securities. Regions evaluates securities in a loss position for other-than-temporary impairment, considering such factors as the length of time and the extent to which the market value has been below cost, the credit standing of the issuer, and Regions’ ability and intent to hold the security until its market value recovers. During 2008 and 2007, Regions recognized a write-down of securities within the General Banking/Treasury segment of approximately $28.3 million and $7.2 million, respectively, representing other-than-temporary impairment, related primarily to equity securities and retained interests on beneficial interests. Net unrealized gains and losses in the securities available for sale portfolio are included in stockholders’ equity as accumulated other comprehensive income or loss, net of tax. In January 2009, Regions sold approximately $656 million in available for sale U.S Treasury securities and recognized a gain of approximately $52.1 million. The proceeds were reinvested in U.S. government agency mortgage-backed securities classified as available for sale. Maturity Analysis—The average life of the securities portfolio at December 31, 2008 was estimated to be 3.0 years, with a duration of approximately 2.6 years. These metrics compare with an estimated average life of 3.8 years, with a duration of approximately 2.9 years for the portfolio at December 31, 2007. Table 12 “Relative Contractual Maturities and Weighted-Average Yields for Securities” provides additional details. Table 12—Relative Contractual Maturities and Weighted-Average Yields for Securities Securities: U.S. Treasury securities Federal agency securities Obligations of states and political subdivisions Mortgage-backed securities Other debt securities Within One Year $ 97,637 106,300 21,862 1,005 2,565 $ 229,369 Weighted-average yield Taxable-equivalent adjustment for calculation of yield $ 3.88% 606 Notes: After One But Within Five Years Securities Maturing After Five But Within Ten Years (Dollars in thousands) After Ten Years Total $ $ $ 59,519 144,333 201,592 230,240 1,524 637,208 $ 743,147 1,449,539 304,212 2,526,445 — $ 5,023,343 $ — 5,514 229,028 11,591,652 17,406 $ 11,843,600 $ 900,303 1,705,686 756,694 14,349,342 21,495 $ 17,733,520 5.34% 5,586 $ 4.60% 8,430 $ 5.25% 6,347 $ 5.07% 20,969 1. The weighted-average yields are calculated on the basis of the yield to maturity based on the book value of each security. Weighted-average yields on tax-exempt obligations have been computed on a fully taxable-equivalent basis using a tax rate of 35%. Yields on tax-exempt obligations have not been adjusted for the non-deductible portion of interest expense used to finance the purchase of tax-exempt obligations. 2. Federal Reserve Bank stock, Federal Home Loan Bank stock, and equity stock of other corporations held by Regions are not included in the table above. Portfolio Quality—Regions’ investment policy stresses credit quality and liquidity. Securities rated in the highest category by nationally recognized rating agencies and securities backed by the U.S. Government and 55 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents government sponsored agencies, both on a direct and indirect basis, represented approximately 98.5 percent of the investment portfolio at December 31, 2008. State, county, and local municipal securities rated below single A or which are non-rated represented only 1.5 percent of total securities at year-end 2008. Cash and Cash Equivalents Cash and cash equivalents include cash and cash due from banks, interest-bearing deposits in other banks (including the Federal Reserve Bank), and federal funds sold and securities purchased under agreements to resell (which have a life of 90 days or less). At December 31, 2008 these assets totaled $11.0 billion as compared to $4.7 billion at December 31, 2007. The year-over-year increase was primarily driven by Regions’ participation in the Term Auction Facility (“TAF”) auctions, which have provided excess balances in its Federal Reserve Bank account. The excess balances are held to provide additional insulation from unforeseen contingent funding needs. Trading Account Assets Trading account assets decreased $41.1 million to $1.1 billion at December 31, 2008. Trading account assets, which consist of U.S. Government agency and guaranteed securities and corporate and tax-exempt securities, are primarily held at Morgan Keegan for the purpose of selling at a profit. Also included in trading account assets are securities held in rabbi trusts related to deferred compensation plans. Trading account assets are carried at market value with changes in market value reflected in the consolidated statements of operations. Table 13 “Trading Account Assets” provides a detail by type of security. Table 13—Trading Account Assets Trading account assets: U.S. Treasury and Federal agency securities Obligations of states and political subdivisions Other securities December 31 2008 2007 (In thousands) $ 510,226 308,271 231,773 $ 1,050,270 $ 440,267 236,997 414,136 $ 1,091,400 Premises and Equipment Premises and equipment are stated at cost, less accumulated depreciation and amortization, as applicable. Premises and equipment at December 31, 2008 increased $175.2 million to $2.8 billion compared to year-end 2007. This increase primarily resulted from the continued investment in capital additions, including the opening of 20 new branches during 2008. Goodwill Goodwill at December 31, 2008 totaled $5.5 billion as compared to $11.5 billion at December 31, 2007. The decrease was driven by a $6.0 billion fourth quarter 2008 non-cash impairment charge to the asset carrying value. The impairment testing is performed on each of the Company’s reportable units on an annual basis, or more often if events or circumstances indicate that there may be impairment. As of December 31, 2008, Regions’ analysis indicated impairment for the General Banking/Treasury reporting unit’s goodwill, therefore resulting in the goodwill impairment charge. The primary cause of the goodwill impairment in the General Banking/Treasury reporting unit was the continued and significant decline in the estimated fair value of the unit. This was evidenced by rapid deterioration in credit costs, continued compression of the net interest margin, cost of 56 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents preferred stock investment by the U.S. Treasury and continued declines in the Company’s overall market capitalization, compounded by investor anxiety caused by the financial crises affecting the U.S. banking system. See Note 1 “Summary of Significant Accounting Policies” and Note 10 “Intangible Assets” to the consolidated financial statements for additional details. Mortgage Servicing Rights Mortgage servicing rights at December 31, 2008 totaled $160.9 million compared to $321.3 million at December 31, 2007. A summary of mortgage servicing rights is presented in Table 14 “Mortgage Servicing Rights.” The balances shown represent the right to service mortgage loans that are owned by other investors and include original amounts capitalized, less accumulated amortization and a valuation allowance. The carrying values of mortgage servicing rights are affected by various factors, including estimated prepayments of the underlying mortgages and market rates. A significant change in prepayments of mortgages in the servicing portfolio or market rates for mortgage loans could result in significant changes in the valuation adjustments, thus creating potential volatility in the carrying amount of mortgage servicing rights. The mortgage servicing rights valuation allowance increased by $72.4 million in 2008, primarily due to lower mortgage rates and corresponding increased estimated prepayment speeds. During 2008, the Company sold mortgage servicing rights on approximately $3.4 billion of GNMA loans and recognized a loss of $14.9 million, including transaction costs. On December 31, 2007, mortgage servicing rights on approximately $1.9 billion of loans in Regions’ out-of-market servicing portfolio were sold at a $4.4 million loss. On January 1, 2009, Regions made an election allowed by Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets” (“FAS 156”) and began accounting for mortgage servicing rights at fair market value with any changes to fair value being recorded within mortgage income on the consolidated statements of operations. Also, in early 2009, Regions entered into derivative transactions to mitigate the impact of market value fluctuations related to mortgage servicing rights. Table 14—Mortgage Servicing Rights Balance at beginning of year Amounts capitalized Sale of servicing assets Permanent impairment Amortization Valuation allowance Balance at end of year Other Identifiable Intangible Assets 2008 $ 368,654 58,632 (71,172) — (75,430) 280,684 (119,794) $ 160,890 2007 (In thousands) $ 416,217 56,931 (25,577) — (78,917) 368,654 (47,346) $ 321,308 2006 $ 441,508 53,777 (4,786) (3,719) (70,563) 416,217 (41,346) $ 374,871 Other identifiable intangible assets, consisting primarily of core deposit intangibles, totaled $638.4 million at December 31, 2008 compared to $759.8 million at December 31, 2007. The year-over-year decline is mainly the result of amortization. Regions noted no indicators of impairment for any other identifiable intangible assets. See Note 10 “Intangible Assets” to the consolidated financial statements for further information. Other Assets Other assets increased $1.2 billion to $8.0 billion as of December 31, 2008. This increase is primarily related to higher customer derivatives, a result of the low interest rate environment, as well as derivatives used by the Company for hedging purposes. 57 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents DEPOSITS Deposits are Regions’ primary source of funds, providing funding for 75 percent of average interest-earning assets in 2008 and 82 percent in 2007. Table 15 “Deposits” details year-over-year deposits on a period-ending basis. Total deposits as of year-end 2008 decreased $3.9 billion, or 4.1 percent, compared to year-end 2007, driven lower mainly by reduced use of wholesale deposit sources used for overnight funding purposes. More specifically, Regions reduced its usage of foreign deposits (which Regions uses as a source of short-term wholesale funding) in 2008, due to growth in customer deposits. Customer deposits, which are total deposits excluding deposits used for treasury management purposes as described above, increased by 4.6 percent to $90.8 billion on an ending basis during 2008. Time deposits (e.g., certificates of deposit) were the main source of growth, while non-interest bearing demand and domestic money market balances also grew slightly. Increases in time deposits were offset by decreases in interest-bearing transaction accounts and foreign money market accounts. Deposit disintermediation through a flight to quality, such as Treasury securities, exerted pressure on bank deposits industry-wide in 2008. Furthermore, during the year, Regions also experienced substantial pricing strain from both community banks and some larger competitors. However, during the fourth quarter of 2008, Regions’ time deposits and money market accounts grew in response to customers’ desire to lock-in rates in a falling rate environment. Also a factor in overall deposit growth, during the third quarter of 2008, Regions, in an FDIC-assisted transaction, assumed approximately $900 million of deposits, primarily time deposits, from Integrity Bank in Alpharetta, Georgia. Table 15—Deposits Non-interest bearing demand Non-interest bearing demand—divestitures Savings Interest-bearing transaction accounts Money market accounts Money market accounts—foreign Time deposits Interest bearing deposits—divestitures Customer deposits Time deposits Other foreign deposits Treasury deposits Total deposits Low cost deposits 2008 $ 18,456,668 — 3,662,949 15,022,207 19,470,886 1,812,446 32,368,498 — 90,793,654 110,236 — 110,236 $ 90,903,890 2007 (In thousands) $ 18,417,266 — 3,646,632 15,846,139 18,934,309 3,482,603 26,507,459 — 86,834,408 2,791,386 5,149,174 7,940,560 $ 94,774,968 2006 $ 20,175,482 533,295 3,882,533 15,899,812 18,764,873 4,037,384 30,015,375 2,238,072 95,546,826 1,170,033 4,511,110 5,681,143 $ 101,227,969 $ 58,425,156 $ 60,326,949 $ 65,531,451 Regions competes with other banking and financial services companies for a share of the deposit market. Regions’ ability to compete in the deposit market depends heavily on the pricing of its deposits and how effectively the Company meets customers’ needs. Regions employs various means to meet those needs and enhance competitiveness, such as providing a high level of customer service, competitive pricing and expanding the traditional branch network to provide convenient branch locations for its customers. Regions also services customers through providing centralized, high-quality telephone banking services and alternative product delivery channels such as internet banking. During 2008, the banking industry experienced very high deposit pricing due to liquidity concerns, thereby accentuating pricing pressure on Regions and the industry as a whole. 58 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Non-interest-bearing deposits remained relatively unchanged versus the prior year, increasing by $39.4 million in 2008. Movement of balances to interest-bearing offerings, including Regions’ money market accounts and time deposits, among other product types or investment alternatives was a factor in limiting growth. Non-interest-bearing deposits accounted for approximately 20 percent of total deposits at year-end 2008 as compared to 19 percent at year-end 2007. Savings balances were also consistent with prior year as they increased $16.3 million to $3.7 billion, generally reflecting customers’ preference for higher-paying accounts, including money market accounts. Interest-bearing transaction accounts declined 5.2 percent to $15.0 billion due to pricing pressure from community banks as well as larger competitors. Customers also migrated to time deposits in order to take advantage of higher rates. Domestic money market products, which exclude foreign money market accounts, are one of Regions’ most significant funding sources, accounting for 21 percent of total deposits in 2008, compared to 20 percent in 2007. These balances increased 2.8 percent in 2008 to $19.5 billion as compared to the prior year. Money market accounts were down most of the year; however, Regions experienced a significant increase in the fourth quarter of 2008 as customers moved into money market accounts and time deposits to take advantage of higher rates. Also, foreign money market accounts decreased $1.7 billion, or 48 percent, to $1.8 billion in 2008. Included in customer time deposits are certificates of deposit and individual retirement accounts. The balance of customer time deposits increased 22 percent in 2008 to $32.4 billion compared to $26.5 billion in 2007. The increase was primarily due to customers’ demand for higher-rate deposits. Customer time deposits accounted for 36 percent of total deposits in 2008 compared to 28 percent in 2007. Total treasury deposits, which are used mainly for overnight funding purposes, decreased by $7.8 billion during 2008, due to the Company’s use of other funding sources, including increased customer-based deposits and the additional funding provided through new governmental liquidity programs. The Company’s choice of overnight funding sources is dependent on the Company’s particular funding needs and the relative attractiveness of each offering. The sensitivity of Regions’ deposit rates to changes in market interest rates is reflected in Regions’ average interest rate paid on interest-bearing deposits. The rate paid on interest-bearing deposits decreased to 2.38 percent in 2008 from 3.47 percent in 2007. This decrease is largely due to the significant decrease in market rates as evidenced by the Federal Funds rate in 2008, somewhat offset by increased competitive pressures. Table 16 “Maturity of Time Deposits of $100,000 or More” presents maturities of time deposits of $100,000 or more at December 31, 2008 and 2007. Table 16—Maturity of Time Deposits of $100,000 or More Time deposits of $100,000 or more, maturing in: 3 months or less Over 3 through 6 months Over 6 through 12 months Over 12 months 59 2008 2007 (In thousands) $ 2,805,489 1,977,046 3,038,186 4,893,356 $ 12,714,077 $ 4,718,158 2,706,805 4,522,942 801,575 $ 12,749,480 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents SHORT-TERM BORROWINGS Regions’ short-term borrowings consist primarily of federal funds purchased, securities sold under agreements to repurchase, Federal Home Loan Bank (“FHLB”) advances, and TAF borrowings. See Note 13 “Short-Term Borrowings” to the consolidated financial statements for further detail and discussion. Federal funds purchased from downstream sources and securities sold under agreements to repurchase totaled $3.1 billion at December 31, 2008, compared to $8.8 billion at year-end 2007. Regions had zero balances in federal funds purchased from up-stream correspondents at December 31, 2008. The level of federal funds purchased and securities sold under agreements to repurchase can fluctuate significantly on a day-to-day basis, depending on funding requirements and which sources of funds are used to satisfy those needs. The balance of federal funds purchased and security repurchase agreements, net of federal funds sold and security reverse repurchase agreements, decreased $5.7 billion in 2008. As one source of funding, the Company utilized short-term borrowings through the issuance of FHLB advances. FHLB borrowings are used to satisfy short-term funding requirements and can fluctuate between periods. FHLB borrowings totaled $1.5 billion at December 31, 2008 compared to $100.0 million at December 31, 2007. The increase in FHLB borrowings reflects the opportunity during 2008 to reduce overnight funding and diversify into slightly longer-term maturities at preferable rates. During 2008, Regions was an active participant in the Federal Reserve’s TAF, which was designed to address pressures in short-term funding markets. Under the TAF, the Federal Reserve auctions term funds to depository institutions with maturities of 28 or 84 days. All depository institutions that are eligible to borrow under the primary credit program are eligible to participate in TAF auctions. All advances are fully collateralized using collateral values and margins applicable for other Federal Reserve lending programs. As of December 31, 2008, Regions had outstanding through the TAF, $10.0 billion at an average rate of 1.1 percent. Consistent with the Treasury’s purpose for TAF, Regions used TAF to provide additional liquidity at low rates and to build excess reserves in the Federal Reserve Bank account. This program provides Regions with an alternative source of short-term funding and aids in maintaining the stability of the financial markets by reducing uncertainty about the supply of reserves in the banking system and simplifying the Federal Reserve’s implementation of monetary policy. As of December 31, 2008, Regions had $125 thousand outstanding in the Federal Reserve’s Treasury, Tax, and Loan Program, compared to $1.2 billion at December 31, 2007. Regions maintains a liability for its brokerage customer position through Morgan Keegan. This liability represents liquid funds in customers’ brokerage accounts. Balances due to brokerage customers totaled $430.6 million at December 31, 2008 as compared to $505.5 million at December 31, 2007. The short-sale liability, which is primarily maintained at Morgan Keegan in connection with trading obligations related to customer accounts, was $628.7 million at December 31, 2008 compared to $451.3 million at December 31, 2007. The balance of this account fluctuates frequently based on customer activity. Other short-term borrowings increased by $27.0 million to $120.1 million at December 31, 2008. This balance includes certain lines of credit that Morgan Keegan maintains with unaffiliated banks and derivative collateral. The lines of credit had maximum borrowings of $585 million at December 31, 2008. Table 17 “Selected Short-Term Borrowings Data” provides selected information for short-term borrowing for years 2008, 2007, and 2006. 60 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Table 17—Selected Short-Term Borrowings Data Federal funds purchased and securities sold under agreements to repurchase: Balance at year end Average outstanding (based on average daily balances) Maximum amount outstanding at any month-end Weighted-average interest rate at year end Weighted-average interest rate on amounts outstanding during the year (based on average daily balances) Term Auction Facility: Balance at year end Average outstanding (based on average daily balances) Maximum amount outstanding at any month-end Weighted-average interest rate at year end Weighted-average interest rate on amounts outstanding during the year (based on average daily balances) LONG-TERM BORROWINGS 2008 2007 (In thousands) 2006 $ 3,142,493 $ 8,820,235 $ 7,676,254 7,697,505 10,879,818 8,080,179 9,984,206 5,162,196 7,676,254 0.5% 2.2% 3.3% 4.7% 4.6% 4.5% $ 10,000,000 $ — $ — 5,924,639 13,000,000 1.1% 2.0% — — — % — % — — — % — % Regions’ long-term borrowings consist primarily of FHLB borrowings, subordinated notes, senior notes and other long-term notes payable. Total long-term debt increased $7.9 billion to $19.2 billion at December 31, 2008. See Note 14 “Long-Term Borrowings” to the consolidated financial statements for further discussion. Membership in the FHLB system provides access to a source of lower-cost funds. Long-term FHLB advances totaled $8.1 billion at December 31, 2008, an increase of $4.3 billion compared to 2007. In October 2008, the FDIC announced its TLGP to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts, and certain holding companies, and by providing full coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount. Under the final rules, certain newly issued senior unsecured debt with maturities greater than 30 days issued on or before June 30, 2009, would be backed by the “full faith and credit” of the U.S. government through June 30, 2012. The FDIC’s payment obligation under the guarantee for eligible senior unsecured debt will be triggered by a payment default. The guarantee is limited to 125% of senior unsecured debt as of September 30, 2008 that is scheduled to mature before June 30, 2009. This includes federal funds purchased, promissory notes, commercial paper, and certain types of inter-bank funding. Participants will be charged a 50-100 basis point fee to protect their new debt issues which varies depending on the maturity date (amounts paid as a non-refundable fee will be applied to offset the guaranteed fee until the non-refundable fee is exhausted). Regions issued $3.75 billion of qualifying senior debt securities covered by the TLGP in December 2008, and has remaining capacity under the program to issue up to an additional $4 billion. Long-term borrowings also increased in 2008 as a result of the Company’s issuance of $750 million of subordinated notes and $345 million of trust preferred securities. The increase from these issuances was partially offset by the redemption of approximately $630 million in subordinated notes in 2008, resulting in a $65.4 million loss on early extinguishment of debt (see Table 8 “Non-Interest Expense (Including Non-GAAP Reconciliation)”), and the maturity of approximately $750 million of senior debt notes during the year. As of December 31, 2008, Regions had outstanding subordinated notes totaling $4.4 billion compared to $4.3 billion at December 31, 2007. Regions’ subordinated notes consist of 11 issues with interest rates ranging from 4.85 61 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents percent to 7.75 percent. Senior debt and bank notes totaled $4.8 billion at December 31, 2008 compared to $1.8 billion at December 31, 2007, reflecting the $3.75 billion TLGP issuance, offset by the maturity of $750 million of senior debt notes during the year. During 2007, Regions Financing Trust II issued $700 million of institutional enhanced trust preferred securities, which are reflected as junior subordinated notes. Also in 2007, $225.8 million of Union Planters trust preferred securities were called and the related 8.20 percent junior subordinated notes were redeemed. Other long-term debt at December 31, 2008 and 2007, had weighted-average interest rates of 2.9 percent and 6.1 percent, respectively, and a weighted-average maturity of 4.9 years at December 31, 2008. Regions has $62.8 million included in other long-term debt in connection with a seller-lessee transaction with continuing involvement. See Note 25 “Commitments, Contingencies and Guarantees” to the consolidated financial statements for further information. During 2007, Regions filed a shelf registration statement with the SEC. This shelf registration can be utilized by Regions to issue various debt and/or equity securities, and does not have a limit on the amount of securities that can be issued. Regions’ long-term debt includes $175 million of callable subordinated notes that mature in early 2009. See Note 14 “Long-Term Borrowings” to the consolidated financial statements for additional information regarding these transactions. RATINGS Table 18 “Credit Ratings” reflects the debt ratings of Regions Financial Corporation and Regions Bank by Standard & Poor’s Corporation, Moody’s Investors Service, Fitch IBCA and Dominion Bond Rating Service as of December 31, 2008. A security rating is not a recommendation to buy, sell or hold securities, and the ratings are subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. Table 18—Credit Ratings Regions Financial Corporation Senior notes Subordinated notes Junior subordinated notes Regions Bank Short-term debt Long-term bank deposits Long-term debt Subordinated debt Standard & Poor’s Moody’s Fitch Dominion A A- BBB+ A-1 A+ A+ A A2 A3 A3 P-1 A1 A1 A2 A+ A A F1+ AA- A+ A AH A A R-1M AAL AAL AH Table reflects ratings as of December 31, 2008. In February 2009, Regions Financial Corporation’s senior notes, subordinated notes, and junior subordinated notes were downgraded to A3, Baa1, and Baa1, respectively, by Moody’s, reflecting the Company’s concentration in residential homebuilder and home equity lending, particularly in Florida. Also, Moody’s downgraded Regions Bank’s long-term bank deposits, long-term debt, and subordinated debt to A2, A2, and A3, respectively. These downgrades are not expected to have a significant impact on Regions’ earnings in 2009. 62 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents STOCKHOLDERS’ EQUITY Stockholders’ equity decreased to $16.8 billion at year-end 2008 versus $19.8 billion at year-end 2007, primarily reflecting the Company’s $5.6 billion net loss due to the $6.0 billion goodwill impairment charge, offset by $3.5 billion related to the issuance of preferred stock and a warrant for 48.3 million shares of Regions’ common stock at an initial per share price of $10.88 under the Capital Purchase Program (“CPP”). The warrant expires ten years from the issuance date. Under the terms of the government’s investment in preferred stock of the Company, Regions must pay an annual dividend of 5 percent, or $175 million annually, for the first five years, and a 9 percent dividend thereafter, until the Company has redeemed the shares. In addition, as part of the Company’s participation in the program, Regions cannot repurchase shares or increase the dividend payment above the current rate of $0.10 per share without permission from the U.S. Treasury until November 14, 2011 or until the U.S. Treasury no longer owns any of Regions’ Series A Preferred Stock. As stated above, the government also received a 10-year warrant for common stock, which will give the U.S. Treasury the opportunity to benefit from an increase in the price of the Company’s common stock. Accrued dividends on preferred shares reduced retained earnings by $26.2 million in 2008. Common dividends declared reduced stockholders’ equity by $669.0 million. In addition, the net change in unrealized loss on securities available for sale and the net change from defined benefit pension plans decreased stockholders’ equity by $414.6 million. Offsetting these items was a $190.1 million increase from the net change in unrealized gains on derivative instruments. The internal capital generation rate (net income available to common shareholders less dividends as a percentage of average stockholders’ equity) was negative 31.6 percent in 2008 compared to 1.1 percent in 2007. Excluding the $6.0 billion non-cash goodwill impairment charge, the 2008 internal capital generation rate was negative 1.5 percent. During 2007, Regions repurchased 40.8 million common shares at a total cost of $1.4 billion. There were no treasury stock purchases in 2008. Although the Company has 23.1 million common shares available for repurchase under its current share repurchase authorization, under the terms of the CPP, Regions is not eligible to repurchase treasury shares without permission from the U.S. Treasury until November 14, 2011 or until the U.S. Treasury no longer owns any of Regions’ Series A Preferred Stock. Regions’ ratio of stockholders’ equity to total assets was 11.5 percent at December 31, 2008 compared to 14.1 percent at December 31, 2007. Regions’ ratio of tangible common stockholders’ equity (stockholders’ equity less goodwill and other identifiable intangibles) to total tangible assets was 5.23 percent at December 31, 2008 compared to 5.88 percent at December 31, 2007, mainly reflecting the reduced earnings and the increasing balance sheet, reflecting proceeds from the $3.5 billion CPP and the $3.75 billion TLGP issuances. Regions attempts to balance the return to stockholders through the payment of dividends with the need to maintain strong capital levels for future growth opportunities. After careful consideration of the current environment, Regions reduced its dividend in 2008. This decision will strengthen its capital ratios as the Company navigates the current economic environment. Regions’ total dividends in 2008 were $669.0 million, or $0.96 per share, a decrease of 34.2 percent from the $1.46 per share paid in 2007. Under the terms of the CPP, Regions is unable to increase its common dividend above the current rate of $0.10 per share without approval from the U.S. Treasury until November 14, 2011 or until the U.S. Treasury no longer owns any of Regions’ Series A Preferred Stock. Regions is a legal entity separate and distinct from its banking subsidiary Regions Bank. Regions’ principal source of cash flow, including cash flow to pay dividends to its stockholders, is dividends from Regions Bank. There are statutory and regulatory limitations on the payment of dividends by Regions Bank to Regions. Regulations of both the Federal Reserve and the State of Alabama affect the ability of Regions Bank to pay dividends and other distributions to Regions. Given the loss at Regions Bank during 2008, under the Federal Reserve’s rules, Regions Bank does not expect to be able to pay dividends to Regions in the near term without first obtaining regulatory approval. 63 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The ability of Regions to pay dividends to its shareholders, however, is not totally dependent on the receipt of dividends from Regions Bank, as Regions has other cash available to make such payment. As of December 31, 2008, Regions had $4.8 billion of cash and cash equivalents, which is available for corporate purposes, including debt service and to pay dividends to its shareholders. This compares to an anticipated common dividend requirement, assuming current dividend payment levels, of approximately $277 million and preferred cash dividends of approximately $175 million for the full-year 2009. Expected debt maturities in 2009 total approximately $425 million. Although Regions currently has capacity to make common dividend payments in 2009, the payment of dividends by Regions and the dividend rate are subject to management review and approval by Regions’ Board of Directors on a quarterly basis. Preferred dividends are to be paid in accordance with the terms of the CPP. See Item 1 “Business” and Item 1A. “Risk Factors” for additional information. BANK REGULATORY CAPITAL REQUIREMENTS Regions and Regions Bank 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 credit 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” or total capital. The banking regulatory agencies also have adopted regulations that 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. In October, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 in response to the financial crises affecting the banking system. The U.S. Treasury and banking regulators are implementing a number of programs under this legislation to address capital and liquidity issues in the banking system. Under the U. S. Treasury’s CPP, Regions received $3.5 billion through its issuance of preferred stock and a warrant for common stock to the U.S. Treasury. The preferred stock issuance and the related warrant both qualify for Tier 1 capital and added approximately 300 basis points to that measure. The fair value allocation of the $3.5 billion between the preferred shares and the warrant resulted in $3.304 billion allocated to the preferred shares and $196 million allocated to the warrant. Both the preferred securities and the warrant will be accounted for as components of Regions’ regulatory Tier 1 capital. See discussion of “Stockholders’ Equity” above for additional details. 64 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The following chart summarizes the applicable bank regulatory capital requirements. Regions’ capital ratios at December 31, 2008 and December 31, 2007 substantially exceeded all regulatory requirements. Table 19—Capital Ratios Risk-based capital: Stockholders’ equity Less: Accumulated other comprehensive income (loss) Qualifying minority interests in consolidated subsidiaries Qualifying trust preferred securities Less: Goodwill and other disallowed intangible assets Less: Disallowed servicing assets Tier 1 Capital Qualifying subordinated debt Adjusted allowance for loan losses* Other Tier 2 Capital Total capital Risk-adjusted assets Capital ratios: Tier 1 Capital to total risk-adjusted assets Total capital to total risk-adjusted assets Leverage Stockholders’ equity to total assets Tangible equity to tangible assets Common stockholders’ equity to total assets Tangible common equity to tangible assets 2008 2007 (In thousands) $ 16,812,837 (8,427) 90,649 1,036,448 5,864,243 16,089 12,068,029 3,337,280 1,458,722 150,000 4,946,002 $ 17,014,031 $ 19,823,029 202,753 90,002 691,342 11,933,193 27,462 8,440,965 3,056,994 1,381,713 150,000 4,588,707 $ 13,029,672 $ 116,250,704 $ 115,801,508 10.38% 14.64 8.47 11.50 7.59 9.23 5.23 7.29% 11.25 6.66 14.05 5.88 14.05 5.88 * Includes $79,654 and $60,469 in 2008 and 2007, respectively, associated with reserves recorded for off-balance sheet credit exposures, including derivatives. Total capital at Regions Bank also has an important effect on the amount of FDIC insurance premiums paid. Institutions not considered well capitalized can be subject to higher rates for FDIC insurance. Other requirements are needed in addition to total capital in order for a company to be considered well capitalized. See Note 15 “Regulatory Capital Requirements and Restrictions” to the consolidated financial statements for further details. As of December 31, 2008, Regions Bank had the requisite capital levels to qualify as well capitalized. Under the Federal Deposit Insurance Reform Act of 2005 and the FDIC’s revised premium assessment program, every FDIC-insured institution will pay some level of deposit insurance assessments regardless of the level of designated reserve ratio. Regions Bank had a FICO assessment of $10 million in FDIC deposit premiums in 2008 and $11 million in 2007, both of which were expensed in their respective years. The FDIC also has finalized rules providing for a one-time credit to each eligible insured depository institution based on the assessment base of the institution on December 31, 1996. Regions Bank qualified for a credit of approximately $110 million, of which $34 million was applied in 2007, $41 million in 2008, and the remaining balance of $35 million will be used in 2009, thereby exhausting the credit. On October 7, 2008, the Board of Directors of the FDIC adopted a restoration plan accompanied by a notice of proposed rulemaking that would increase the rates banks pay for deposit insurance, while at the same time 65 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents making adjustments to the system that determines what rate a bank pays the FDIC. Under this and additional proposals, the assessment rate schedule will be raised beginning on January 1, 2009. Also during 2009, Regions’ one-time assessment credit will expire. Based on certain assumptions regarding various assessment criteria, including future deposit levels, Regions estimates FDIC premiums will increase within a range of $90 million to $110 million (pre-tax) during 2009. Assessment rates, however, are subject to change by the FDIC throughout the year. OFF-BALANCE SHEET ARRANGEMENTS Regions’ primary off-balance sheet arrangements are financial instruments issued in connection with lending activities. These arrangements include commitments to extend credit, standby letters of credit and commercial letters of credit. A meaningful component of the off-balance sheet arrangements are facilities supporting Variable Rate Demand Notes (“VRDNs”), including certain standby letters of credit and standby bond purchase agreements (also referred to as “liquidity facilities”). Fundings under these letters of credit are largely related to redemption requests in money market mutual funds that invested in VRDNs as a result of the increased volatility in the financial markets. Late in 2008, disruption in market liquidity supporting VRDNs resulted in significant frequency of failed remarketing of VRDNs. As of December 31, 2008, Regions had funded $331.7 million in letters of credit backing VRDN’s. An additional $9 million had been tendered but not yet funded. The remaining unfunded VRDN letters of credit portfolio is approximately $4.9 billion (net of participations). See Note 25 “Commitments, Contingencies and Guarantees” to the consolidated financial statements for further discussion, including details of the contractual amounts outstanding at December 31, 2008. Regions has certain variable interests in unconsolidated variable interest entities (i.e., Regions is not the primary beneficiary). Regions owns the common stock of subsidiary business trusts, which have issued mandatorily redeemable preferred capital securities (“trust preferred securities”) in the aggregate of $1.0 billion at the time of issuance. These trusts meet the definition of a variable interest entity of which Regions is not the primary beneficiary; the trusts’ only assets are junior subordinated debentures issued by Regions, which were acquired by the trusts using the proceeds from the issuance of the trust preferred securities and common stock. The junior subordinated debentures are included in long-term borrowings and Regions’ equity interests in the business trusts are included in other assets. For regulatory reporting and capital adequacy purposes, the Federal Reserve Board has indicated that such trust preferred securities will continue to constitute Tier 1 Capital until further notice. Also, Regions periodically invests in various limited partnerships that sponsor affordable housing projects, which are funded through a combination of debt and equity with equity typically comprising 30% to 50% of the total partnership capital. Regions’ maximum exposure to loss as of December 31, 2008 was $710.0 million, which included $298.1 million in unfunded commitments to the partnerships. Additionally, Regions has short-term construction loans or letters of credit with the partnerships totaling $187.7 million as of December 31, 2008. The portion of the letters of credit which was funded was $114.8 million at December 31, 2008. The funded portion is included with loans on the consolidated balance sheets. See Note 2 “Variable Interest Entities” to the consolidated financial statements for further discussion. EFFECTS OF INFLATION The majority of assets and liabilities of a financial institution are monetary in nature; therefore, a financial institution differs greatly from most commercial and industrial companies, which have significant investments in fixed assets or inventories that are greatly impacted by inflation. However, inflation does have an important impact on the growth of total assets in the banking industry and the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity-to-assets ratio. Inflation also affects other expenses that tend to rise during periods of general inflation. Management believes the most significant potential impact of inflation on financial results is a direct result of Regions’ ability to react to changes in interest rates. Management attempts to maintain an essentially balanced 66 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents position between rate-sensitive assets and liabilities in order to minimize the impact of interest rate fluctuations on net interest income. This goal, however, can be difficult to completely achieve in times of rapidly changing rate structure, such as that experienced in 2008. EFFECTS OF DEFLATION A period of deflation would affect all industries, including financial institutions. Potentially, deflation could lead to lower profits, higher unemployment and deterioration in overall economic conditions. In addition, deflation could depress economic activity and impair bank earnings through increasing the value of debt while decreasing the value of collateral for loans. If the economy experienced a severe period of deflation, then it could depress loan demand, impair the ability of borrowers to repay loans and sharply reduce bank earnings. Management believes the most significant potential impact of deflation on financial results is a direct result of Regions’ ability to maintain a high amount of capital to cushion against future losses. In addition, the Company’s risk management can utilize certain tools to help the bank maintain its balance sheet strength even if a deflationary scenario were to develop. RISK MANAGEMENT Risk identification and risk management are key elements in the overall management of Regions. Management believes the primary risk exposures are interest rate and associated prepayment risk, liquidity risk, market and other brokerage-related risk associated with Morgan Keegan, counterparty risk, and credit risk. Interest rate risk is the risk to net interest income due to the impact of movements in interest rates. Prepayment risk is the risk that borrowers may repay their loans or securities earlier than at their stated maturities. Liquidity risk relates to Regions’ ability to fund present and future obligations. The Company, through Morgan Keegan, is also subject to various market-related risks associated with its brokerage and market-related activities. Counterparty risk represents the risk that a counterparty will not comply with its contractual obligations. Credit risk represents the possibility that borrowers may not be able to repay loans. External factors beyond management’s control may result in losses despite risk management efforts. Management follows a formal policy to evaluate and document the key risks facing each line of business, how those risks can be controlled or mitigated, and how management monitors the controls to ensure that they are effective. Regions’ Internal Audit Division performs ongoing, independent reviews of the risk management process and assures the adequacy of documentation. The results of these reviews are reported regularly to the Audit Committee of the Board of Directors. The Company also has a Risk Committee that assists the Board of Directors in overseeing the Company’s policies, procedures and practices relating to market, regulatory and operational risk. Some of the more significant processes used to manage and control these and other risks are described in the remainder of this report. INTEREST RATE RISK Regions’ primary market risk is interest rate risk, including uncertainty with respect to absolute interest rate levels as well as uncertainty with respect to relative interest rate levels, which is impacted by both the shape and the slope of the various yield curves that affect the financial products and services that the Company offers. To quantify this risk, Regions measures the change in its net interest income in various interest rate scenarios compared to a base case scenario. Net interest income sensitivity is a useful short-term indicator of Regions’ interest rate risk. Sensitivity Measurement—Financial simulation models are Regions’ primary tools used to measure interest rate exposure. Using a wide range of sophisticated simulation techniques provides management with extensive information on the potential impact to net interest income caused by changes in interest rates. Models are structured to simulate cash flows and accrual characteristics of Regions’ balance sheet. Assumptions are made 67 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents about the direction and volatility of interest rates, the slope of the yield curve, and the changing composition of the balance sheet that result from both strategic plans and from customer behavior. Among the assumptions are expectations of balance sheet growth and composition, the pricing and maturity characteristics of existing business and the characteristics of future business. Interest rate-related risks are expressly considered, such as pricing spreads, the lag time in pricing administered rate accounts, prepayments and other option risks. Regions considers these factors, as well as the degree of certainty or uncertainty surrounding their future behavior. Financial derivative instruments are used in hedging the values of selected assets and liabilities against changes in interest rates. The effect of these hedges is included in the simulations of net interest income. The primary objective of Asset/Liability Management at Regions is to coordinate balance sheet composition with interest rate risk management to sustain reasonable and stable net interest income throughout various interest rate cycles. A standard set of alternate interest rate scenarios is compared to the results of the base case scenario to determine the extent of potential fluctuations and to establish exposure limits. The standard set of interest rate scenarios includes the traditional instantaneous parallel rate shifts of plus and minus 100 and 200 basis points. However, for the purposes of analyzing the impact of further downward movement in the rate structure, in the down scenarios, whenever prevailing rates are less than 100 basis points (e.g. the Federal Funds Target rate is currently at 0 to 25 basis points) rates have been assumed to be zero. Accordingly, the Company has determined that the down 200 scenario that is typically calculated is not a meaningful measure. Refer to Table 20 “Interest Rate Sensitivity” for more information. In addition to instantaneous scenarios, Regions employs simulations of gradual interest rate movements that may more realistically mimic potential interest rate movements. The gradual scenarios include curve steepening, flattening and parallel movements of various magnitudes phased in over a six-month period. Exposure to Interest Rate Movements—As of December 31, 2008, Regions was asset sensitive in positioning to both gradual and instantaneous rate shifts. Table 20 “Interest Rate Sensitivity” demonstrates the estimated potential effects that gradual (over six months beginning at December 31, 2008 and 2007, respectively) and instantaneous parallel interest rate shifts would have on Regions’ net interest income. Table 20—Interest Rate Sensitivity Gradual Change in Interest Rates + 200 basis points + 100 basis points - 100 basis points - 200 basis points Instantaneous Change in Interest Rates + 200 basis points + 100 basis points - 100 basis points - 200 basis points Estimated % Change in Net Interest Income December 31 2008 4.9% 2.8 (1.4) NA Estimated % Change in Net Interest Income December 31 2008 5.0% 2.8 (1.0) NA 2007 1.7% 1.1 (1.1) (3.2) 2007 1.1% 1.0 (1.5) (4.5) Derivatives—Regions uses financial derivative instruments for management of interest rate sensitivity. The Asset and Liability Committee (“ALCO”), which consists of members of Regions’ senior management team, in its oversight role for the management of interest rate sensitivity, approves the use of derivatives in balance sheet hedging strategies. The most common derivatives Regions employs are forward rate contracts, Eurodollar futures 68 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents contracts, interest rate swaps, options on interest rate swaps, interest rate caps and floors, and forward sale commitments. Derivatives are also used to hedge the risks associated with customer derivatives, which include interest rate, credit and foreign exchange risks. Forward rate contracts are commitments to buy or sell financial instruments at a future date at a specified price or yield. A Eurodollar futures contract is a future on a three-month Eurodollar deposit. Eurodollar futures contracts subject Regions to market risk associated with changes in interest rates. Because futures contracts are cash settled daily, there is minimal credit risk associated with Eurodollar futures. Interest rate swaps are contractual agreements typically entered into to exchange fixed for variable (or vice versa) streams of interest payments. The notional principal is not exchanged but is used as a reference for the size of interest settlements. Interest rate options are contracts that allow the buyer to purchase or sell a financial instrument at a predetermined price and time. Forward sale commitments are contractual obligations to sell market instruments at a future date for an already agreed-upon price. Foreign currency contracts involve the exchange of one currency for another on a specified date and at a specified rate. These contracts are executed on behalf of the Company’s customers and are used to manage fluctuations in foreign exchange rates. The Company is subject to the credit risk that another party will fail to perform. Regions has made use of interest rate swaps to effectively convert a portion of its fixed-rate funding position to a variable-rate position and, in some cases, to effectively convert a portion of its variable-rate loan portfolio to fixed-rate. Regions also uses derivatives to manage interest rate and pricing risk associated with its mortgage origination business. In the period of time that elapses between the origination and sale of mortgage loans, changes in interest rates have the potential to cause a decline in the value of the loans in this held-for-sale portfolio. Futures contracts and forward sale commitments are used to protect the value of the loan pipeline and loans held for sale from changes in interest rates and pricing. Regions manages the credit risk of these instruments in much the same way as it manages credit risk of the loan portfolio by establishing credit limits for each counterparty and through collateral agreements for dealer transactions. For non-dealer transactions, the need for collateral is evaluated on an individual transaction basis and is primarily dependent on the financial strength of the counterparty. Credit risk is also reduced significantly by entering into legally enforceable master netting agreements. When there is more than one transaction with a counterparty and there is a legally enforceable master netting agreement in place, the exposure represents the net of the gain and loss positions with and collateral received from and/or posted to that counterparty. The “Credit Risk” section in this report contains more information on the management of credit risk. Regions also uses derivatives to meet the needs of its customers. Interest rate swaps, interest rate options and foreign exchange forwards are the most common derivatives sold to customers. Other derivatives instruments with similar characteristics are used to hedge the market risk and minimize volatility associated with this portfolio. Instruments used to service customers are held in the trading account, with changes in value recorded in the consolidated statements of operations. The primary objective of Regions’ hedging strategies is to mitigate the impact of interest rate changes, from an economic perspective, on net interest income and the net present value of its balance sheet. The overall effectiveness of these hedging strategies is subject to market conditions, the quality of Regions’ execution, the accuracy of its valuation assumptions, counterparty credit risk and changes in interest rates. As a result, Regions’ hedging strategies may be ineffective in mitigating the impact of interest rate changes on its earnings. See Note 22 “Derivative Financial Instruments and Hedging Activities” to the consolidated financial statements for a tabular summary of Regions’ year-end derivatives positions. On January 1, 2009 Regions made an election allowed by FAS 156 and began accounting for mortgage servicing rights at fair market value with any changes to fair value being recorded within mortgage income. Also, in early 2009, Regions entered into derivative transactions to mitigate the impact of market value fluctuations related to mortgage servicing rights. 69 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents PREPAYMENT RISK Regions, like most financial institutions, is subject to changing prepayment speeds on mortgage-related assets under different interest rate environments. Prepayment risk is a significant risk to earnings and specifically to net interest income. For example, mortgage loans and other financial assets may be prepaid by a debtor, so that the debtor may refinance its obligations at lower rates. As loans and other financial assets prepay in a falling rate environment, Regions must reinvest these funds in lower-yielding assets. Prepayments of assets carrying higher rates reduce Regions’ interest income and overall asset yields. Conversely, in a rising rate environment, these assets will prepay at a slower rate, resulting in opportunity cost by not having the cash flow to reinvest at higher rates. Regions’ greatest exposure to prepayment risks primarily rests in its mortgage-backed securities portfolio, the mortgage fixed-rate loan portfolio and the mortgage servicing asset, all of which tend to be sensitive to interest rate movements. Prepayments on mortgage-backed securities slowed during the latter half of 2008 due to various factors associated with the housing crisis. Tighter lending standards, decreased home prices, and uncertainty surrounding the economic environment created slower prepayment speeds on mortgage-backed securities. Regions also has prepayment risk that would be reflected in non-interest income in the form of servicing income on loans sold. In 2008, prepayment rates were lower compared to recent years; however the Company anticipates the rate of prepayments to increase in 2009, driven primarily by the high refinancing activity the Company has experienced since the start of the year. Regions actively monitors prepayment exposure as part of its overall net interest income forecasting and interest rate risk management. LIQUIDITY RISK Liquidity is an important factor in the financial condition of Regions and affects Regions’ ability to meet the borrowing needs and deposit withdrawal requirements of its customers. Table 21 “Contractual Obligations” summarizes Regions’ contractual cash obligations at December 31, 2008. Regions intends to fund contractual obligations primarily through cash generated from normal operations. In addition to these obligations, Regions has obligations related to potential litigation contingencies (see Note 25 “Commitments, Contingencies and Guarantees” to the consolidated financial statements). Assets, consisting principally of loans and securities, are funded by customer deposits, purchased funds, borrowed funds and stockholders’ equity. Regions’ goal in liquidity management is to satisfy the cash flow requirements of depositors and borrowers, while at the same time meeting its cash flow needs. This is accomplished through the active management of both the asset and liability sides of the balance sheet. The liquidity position of Regions is monitored on a daily basis by Regions’ Treasury Division. In addition, the ALCO, which consists of members of Regions’ senior management team, reviews liquidity on a regular basis and approves any changes in strategy that are necessary as a result of asset/liability composition or anticipated cash flow changes. Management also compares Regions’ liquidity position to established corporate liquidity policies on a monthly basis. Table 21—Contractual Obligations Long-term borrowings Time deposits Lease obligations Purchase obligations Other Payments Due By Period 1-3 Years $ 10,875,851 10,430,575 256,635 35,558 — $ 21,598,619 4-5 Years (In thousands) $ 1,955,924 1,647,223 205,559 2,339 — $ 3,811,045 More than 5 Years $ 3,728,479 39,286 644,845 — 354,343 $ 4,766,953 Total $ 19,231,277 32,478,734 1,261,685 76,103 354,343 $ 53,402,142 Less than 1 Year $ 2,671,023 20,361,650 154,646 38,206 — $ 23,225,525 70 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The challenges of the current market environment demonstrate the importance of having and using various sources of liquidity to satisfy the Company’s funding requirements. In 2008, the financial industry was presented with unprecedented challenges. Those challenges included but were not limited to government-assisted transactions, failure of major Wall Street firms, government “bailouts”, and government-guided transactions. All of these events contributed to severely disrupted short-term money markets. The U.S. Treasury introduced several programs in the fall of 2008 to aid in the liquidity normally generated in these markets. TAF was introduced in late 2007, but expanded in size and duration in 2008. The securities portfolio is one of Regions’ primary sources of liquidity. Maturities of securities provide a constant flow of funds available for cash needs (see Table 12 “Relative Contractual Maturities and Weighted-Average Yields for Securities”). Maturities in the loan portfolio also provide a steady flow of funds (see Table 10 “Selected Loan Maturities”). At December 31, 2008, commercial loans, real estate construction loans and commercial real estate mortgage loans with an aggregate balance of $20.9 billion, as well as securities of $229.4 million, were due to mature in one year or less. Additional funds are provided from payments on consumer loans and one-to-four family residential first mortgage loans. In addition, liquidity needs can be met by the borrowing of funds in state and national money markets. Historically, Regions’ liquidity has been enhanced by a relatively stable customer deposit base. While this deposit base is significant in size, during most of 2008, deposit disintermediation through a flight to quality, such as Treasury securities, and increased pricing competition from community banks and some large competitors pressured overall customer deposit balances. However, during the fourth quarter of 2008, Regions’ customer deposit base grew substantially in response to competitive offers and customers’ desire to lock-in rates in the falling rate environment, as well as the introduction of new consumer and business checking products. Regions’ financing arrangement with the FHLB adds additional flexibility in managing its liquidity position. The maximum amount that could be borrowed under the current borrowing agreement is approximately $1.1 billion (see Note 14 “Long-Term Borrowings” to the consolidated financial statements). However, the actual borrowing capacity is contingent on the amount of collateral pledged to the FHLB. At December 31, 2008, approximately $11.6 billion of first mortgage loans on one-to-four family dwellings and home equity lines of credit held by Regions Bank and its subsidiaries were pledged to secure borrowings from the FHLB. Investment in FHLB stock is required in relation to the level of outstanding borrowings. Regions held $458.2 million in FHLB stock at December 31, 2008. As of December 31, 2008, Regions’ borrowings from the FHLB totaled $9.6 billion. The FHLB has been and is expected to continue to be a reliable and economical source of funding. As mentioned previously in the “Long-Term Borrowings” section of this report, Regions has on file with the SEC, a shelf registration statement, which allows for the issuance of an indeterminate amount of various debt and/or equity securities and does not have a limit on the amount of securities that can be issued. As of December 31, 2008, Regions Bank had issued the maximum amount of $5 billion under its previously approved bank note program. In July 2008, the Board of Directors approved a new bank note program that allows Regions Bank to issue up to $20 billion aggregate principal amount of bank notes that can be outstanding at any one time. Notes issued under the new program may be senior notes with maturities of from 30 days to 15 years and subordinated notes with maturities of from 5 years to 30 years. This program had not been drawn upon as of December 31, 2008. The issuance of additional bank notes could provide a significant source of liquidity and funding to meet future needs. Investor demand for bank notes had ceased in the current market environment. However, the new TLGP recently enacted by the FDIC, which is discussed later in this section, has reopened this market due to the government’s guarantee backing and has to some extent renewed optimism that this platform will reopen investor demand for unguaranteed issuances. In particular, Regions issued, from the $5 billion bank note program described above, $3.75 billion in guaranteed bank notes during the fourth quarter of 2008 through the TLGP. The Company has remaining capacity under the TLGP to issue up to an additional $4 billion. At year-end 2008, based on assets available for collateral as of this date, Regions can borrow an additional $9.0 billion with terms of less than 29 days, or $7.2 billion with terms of greater than 29 days, from the Federal 71 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Reserve Bank through its discount window and/or the TAF program. As of December 31, 2008, Regions had outstanding through the TAF, $7.0 billion at a rate of 1.39 percent that matured in January 2009 (84 days), $2.0 billion at a rate of 0.60 percent that also matured in January 2009 (28 days), and $1.0 billion at a rate of 0.42 percent that matures at the end of February 2009 (56 days). After the January 2009 TAF borrowings matured, Regions rebid on TAF funds to maintain excess reserve balances to meet potential liquidity needs. The TAF borrowings continue to provide the opportunity to carry excess liquidity at very low rates. Future fundings under commitments to extend credit would increase Regions’ borrowing capacity under these programs. In October 2008, the FDIC announced its TLGP to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts, and certain holding companies, and by providing full coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount. Regions issued $3.75 billion of qualifying senior debt securities covered by the TLGP in December 2008, and has remaining capacity under the program to issue up to an additional $4 billion. See “Long-Term Borrowings”, found earlier in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, for additional details. Morgan Keegan maintains certain lines of credit with unaffiliated banks to manage liquidity in the ordinary course of business. See Note 13 “Short-Term Borrowings” to the consolidated financial statements for further details. If Regions is unable to maintain or renew its financing arrangements, obtain funding in the capital markets on reasonable terms or experiences a decrease in earnings, it may be required to slow or reduce the growth of the assets on its balance sheet, which may adversely impact its earnings. BROKERAGE AND MARKET MAKING ACTIVITY RISK Morgan Keegan’s business activities, including its securities inventory positions and securities held for investment, expose it to market risk. Morgan Keegan trades for its own account in corporate and tax-exempt securities and U.S. Government agency and government-sponsored securities. Most of these transactions are entered into to facilitate the execution of customers’ orders to buy or sell these securities. In addition, it trades certain equity securities in order to “make a market” in these securities. Morgan Keegan’s trading activities require the commitment of capital. All principal transactions place the subsidiary’s capital at risk. Profits and losses are dependent upon the skills of employees and market fluctuations. In order to mitigate the risks of carrying inventory and as part of other normal brokerage activities, Morgan Keegan assumes short positions on securities. In the normal course of business, Morgan Keegan enters into underwriting and forward and future commitments. At December 31, 2008, the contract amounts of futures contracts were $494 thousand to purchase and $60.8 million to sell U.S. Government and municipal securities. Morgan Keegan typically settles its position by entering into equal but opposite contracts and, as such, the contract amounts do not necessarily represent future cash requirements. Settlement of the transactions relating to such commitments is not expected to have a material effect on Regions’ consolidated financial position. Transactions involving future settlement give rise to market risk, which represents the potential loss that can be caused by a change in the market value of a particular financial instrument. Regions’ exposure to market risk is determined by a number of factors, including the size, composition and diversification of positions held, the absolute and relative levels of interest rates, and market volatility. Additionally, in the normal course of business, Morgan Keegan enters into transactions for delayed delivery, to-be-announced securities, which are recorded in trading account assets on the consolidated balance sheets at fair value. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from unfavorable changes in interest rates or the market values of the securities underlying the instruments. The credit 72 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents risk associated with these contracts is typically limited to the cost of replacing all contracts on which Morgan Keegan has recorded an unrealized gain. For exchange-traded contracts, the clearing organization acts as the counterparty to specific transactions and, therefore, bears the risk of delivery to and from counterparties. Interest rate risk at Morgan Keegan arises from the exposure of holding interest-sensitive financial instruments such as government, corporate and municipal bonds, and certain preferred equities. Morgan Keegan manages its exposure to interest rate risk by setting and monitoring limits and, where feasible, entering into offsetting positions in securities with similar interest rate risk characteristics. Securities inventories, recorded in trading account assets on the consolidated balance sheets, are marked-to-market and, accordingly, there are no unrecorded gains or losses in value. While a significant portion of the securities inventories have contractual maturities in excess of five years, these inventories, on average, turn over in excess of twelve times per year. Accordingly, the exposure to interest rate risk inherent in Morgan Keegan’s securities inventories is less than that of similar financial instruments held by firms in other industries. Morgan Keegan’s equity securities inventories are exposed to risk of loss in the event of unfavorable price movements. Also, Morgan Keegan is subject to credit risk arising from non-performance by trading counterparties, customers and issuers of debt securities owned. This risk is managed by imposing and monitoring position limits, monitoring trading counterparties, reviewing security concentrations, holding and marking to market collateral, and conducting business through clearing organizations that guarantee performance. Morgan Keegan regularly participates in the trading of some derivative securities for its customers; however, this activity does not involve Morgan Keegan acquiring a position or commitment in these products and this trading is not a significant portion of Morgan Keegan’s business. To manage trading risks arising from interest rate and equity price risks, Regions uses a Value at Risk (“VAR”) model to measure the potential fair value the Company could lose on its trading positions given a specified statistical confidence level and time-to-liquidate time horizon. The end-of-period VAR was approximately $1.1 million as of December 31, 2008 and approximately $1.8 million as of December 31, 2007. Maximum daily VAR utilization during 2008 was $3.6 million and average daily VAR during the same period was $1.7 million. Morgan Keegan has been an underwriter and dealer in auction rate securities. Morgan Keegan has been contacted by securities regulators and is working on a plan to provide liquidity to customers holding these instruments. Other broker dealers have entered into settlements with regulators under which the broker dealers agreed to repurchase certain of the securities at par. As of December 31, 2008, approximately $462.1 million of auction rate securities were subject to repurchase, and Morgan Keegan held approximately $139.8 million of auction rate securities on the balance sheet. During 2008, Morgan Keegan recorded valuation adjustments related to those auction rate securities. Such valuation adjustments were not significant. On June 4, 2007, the Illinois Secretary of State, Securities Department (“ISD”) issued a Notice of Hearing alleging that Morgan Keegan failed to properly disclose limitations on transferability of shares of certain mutual funds advised by an affiliate of Morgan Keegan. On January 22, 2009, Morgan Keegan and the ISD entered into a settlement agreement requiring that Morgan Keegan (1) make a payment of fifty thousand dollars to an investor education fund; (2) reimburse investigation costs of thirty thousand dollars; (3) waive and/or refund contingent deferred sales charges to certain investors; (4) implement certain disclosures, training and compliance measures; and (5) report to ISD certain investor complaints for a period of one year. On January 23, 2009 the ISD dismissed the Notice with prejudice. COUNTERPARTY RISK Regions manages and monitors its exposure to other financial institutions, also known as counterparty exposure, on an ongoing basis. The objective is to ensure that Regions appropriately identifies and reacts to risks associated with counterparties in a timely manner. This exposure may be direct or indirect exposure that could create legal, reputational or financial risk to the Company. 73 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Counterparty exposure may result from a variety of transaction types and may include exposure to commercial banks, savings and loans, insurance companies, broker/dealers, institutions that provide credit enhancements, and corporate debt issuers. Because transactions with a counterparty may be generated in one or more departments, credit limits are established for use by various areas of the Company including treasury, capital markets, finance, the mortgage division and lines of business. To manage counterparty risk, Regions has a centralized approach to approval, management and monitoring of exposure. To that end, Regions has a dedicated counterparty credit group and credit officer, as well as a documented counterparty credit policy. Exposures to counterparties are regularly aggregated across departments and reported to senior management. CREDIT RISK Regions’ objective regarding credit risk is to maintain a high-quality credit portfolio that provides for stable credit costs with acceptable volatility through an economic cycle. Management Process Regions employs a credit risk management process with defined policies, accountability and regular reporting to manage credit risk in the loan portfolio. Credit risk management is guided by credit policies that provide for a consistent and prudent approach to underwriting and approvals of credits. Within the Credit Policy department, procedures exist that elevate the approval requirements as credits become larger and more complex. Generally, consumer credits and smaller commercial credits are centrally underwritten based on custom credit matrices and policies that are modified as appropriate. Larger commercial and commercial real estate transactions are individually underwritten, risk-rated, approved and monitored. Responsibility and accountability for adherence to underwriting policies and accurate risk ratings lies in the lines of business. For consumer and small business portfolios, the risk management process focuses on managing customers who become delinquent in their payments and managing performance of the credit scorecards, which are periodically adjusted based on credit performance. Commercial business units are responsible for underwriting new business and, on an ongoing basis, monitoring the credit of their portfolios, including a complete review of the borrower semi-annually or more frequently as needed. To ensure problem commercial credits are identified on a timely basis, several specific portfolio reviews occur each quarter to assess the larger adversely rated credits for accrual status and, if necessary, to ensure such individual credits are transferred to Regions’ Special Assets Group, which specializes in managing distressed credit exposures. Separate and independent commercial credit and consumer credit risk management organizational groups exist, which report to the Chief Credit Officer. These organizational units partner with the business line to assist in the processes described above, including the review and approval of new business and ongoing assessments of existing loans in the portfolio. Independent commercial and consumer credit risk management provides for more accurate risk ratings and the timely identification of problem credits, as well as oversight for the Chief Credit Officer on conditions and trends in the credit portfolios. Credit quality and trends in the loan portfolio are measured and monitored regularly and detailed reports, by product, business unit and geography, are reviewed by line of business personnel and the Chief Credit Officer. The Chief Credit Officer reviews summaries of these credit reports with executive management and the Board of Directors. Finally, the Credit Review department provides ongoing independent oversight of the credit portfolios to ensure policies are followed, credits are properly risk-rated and that key credit control processes are functioning as intended. 74 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Risk Characteristics of the Loan Portfolio In order to assess the risk characteristics of the loan portfolio, it is appropriate to consider the current U.S. economic environment and that of Regions’ primary banking markets, as well as risk factors within the major categories of loans. Economic Environment in Regions’ Banking Markets The largest factor influencing the credit performance of Regions’ loan portfolio is the overall economic environment in the U.S. and the primary markets in which it operates. The U.S. economy is in the midst of an official recession that began in December 2007. Overall output of goods and services is currently experiencing the sharpest decline since the early 1980s. Consumer spending, two-thirds of all recorded spending, has been hobbled by declining inflation-adjusted income, low additional credit capacity, historically high required monthly payments, a negative employment outlook and historically low consumer confidence. The business sector is struggling with weak domestic and foreign demand, and underutilized operating capacity. As 2008 evolved, the outlook shifted rapidly from general concern about inflation to general concern about deflation. The latter, if sustained, can lead to continuing declines in overall demand, and a deepening, prolonged recession. However, current and pending additional monetary and fiscal policy packages could prevent a period of sustained deflation. Housing continued to weaken considerably throughout 2008 and the risk of a deepening recession is significantly increasing due to the negative impact housing is having on the overall economy. Within the Regions footprint, the housing slowdown has been modest in some areas and severe in Florida and selected other geographical areas, including Atlanta, Georgia. Florida has experienced above-average price increases and construction activity in recent years. The slowdown is evident in many areas, including steeply declining sales and prices, and high levels of excess unsold inventory on the market. Management anticipates that the housing industry will remain weak throughout 2009. Housing-related issues have been exacerbated by a sharp increase in unemployment across Regions’ footprint, particularly in Florida. Portfolio Characteristics Regions has a well-diversified loan portfolio, in terms of product type, collateral and geography. At December 31, 2008, commercial and industrial loans represented 24 percent of total loans, net of unearned income, commercial real estate loans represented 27 percent, construction loans were 11 percent, residential first mortgage loans totaled 16 percent and consumer loans, largely home equity lending, comprised the remaining 22 percent. Commercial and Industrial—The commercial and industrial loan portfolio totaled $23.6 billion at year-end 2008 and primarily consists of loans to middle market commercial customers doing business in Regions’ geographic footprint. Loans in this portfolio are generally underwritten individually and usually secured with the assets of the company and/or the personal guarantee of the business owners. Net charge-offs on commercial and industrial loans were 0.92 percent of average commercial loans in 2008 compared to 0.33 percent in 2007. Regions expects that losses on these types of loans will continue to be at elevated levels during 2009. Commercial Real Estate—The commercial real estate portfolio totaled $26.2 billion at year-end 2008 and includes various loan types. A large portion is owner-occupied loans to businesses for long-term financing of land and buildings. These loans are generally underwritten and managed in the commercial business line. Regions attempts to minimize risk on owner-occupied properties by requiring collateral values that exceed the loan amount, adequate cash flow to service the debt, and, in many cases, the personal guarantees of principals of the borrowers. Another large component of commercial real estate loans is loans to real estate developers and investors for the financing of land or buildings, where the repayment is generated from the sale of the real estate or income 75 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents generated by the real estate property. Net charge-offs on commercial real estate loans rose substantially, from 0.15 percent in 2007 to 1.52 percent in 2008 in reaction to the dramatic slowdown in demand for real estate properties and an associated drop in property valuations. Losses on sales or transfers to held for sale of non-performing commercial real estate loans also contributed to the year-over-year increase in net charge-offs. In addition, the implications of a recession further pressured borrowers and contributed to higher losses. Regions expects that losses on these types of loans will continue to be at elevated levels during 2009. Construction—Construction loans are primarily 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 construction loan may also be made to a commercial business for the development of land or construction of a building where the repayment is usually derived from revenues generated from the business of the borrower (e.g., the sale or refinance of completed properties). These loans are generally underwritten and managed by a specialized real estate group that also manages loan disbursements during the construction process. As of December 31, 2008, real estate construction loans were $10.6 billion. Most construction credits were to finance shopping centers, apartment complexes, condominiums, commercial buildings and residential property development. Overall losses in the construction portfolio increased to 4.67 percent in 2008 as compared to 0.22 percent in 2007. The 2008 loss rate reflects the Company’s aggressive efforts to dispose of non-performing loans within the construction portfolio. Included in the construction loan category are loans to residential homebuilders. The chart and table that follow provide details related to this residential homebuilder portfolio, which totaled $4.4 billion at December 31, 2008. Further details about this portfolio are also provided in the “Balance Sheet Analysis” section, found earlier in this report. Credit quality of the construction portfolio is sensitive to risks associated with construction loans such as cost overruns, project completion risk, general contractor credit risk, environmental and other hazard risks, and market risks associated with the sale or rental of completed properties. While losses within this portfolio were influenced by stresses described previously above, the most significant driver of losses was the severe decline in demand for residential real estate. Portfolio stresses are expected to continue throughout 2009 and, accordingly, losses on real estate construction loans are expected to continue at elevated levels. 76 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents RESIDENTIAL HOMEBUILDER PORTFOLIO (In millions) Non-accruing Accruing Total Outstanding Central 118 $ 1,316 1,434 Florida 64 $ 979 1,043 Midsouth 49 $ 1,071 1,120 Midwest 31 $ 411 442 Southwest 11 $ 246 257 Other 23 $ 83 106 Total $ 296 4,106 4,402 1 2 3 4 Central consists of Alabama, Georgia, and South Carolina Midsouth consists of North Carolina, Virginia and Tennessee Midwest consists of Arkansas, Illinois, Indiana, Iowa, Kentucky, Missouri, and Texas Southwest consists of Louisiana and Mississippi Residential First Mortgage—The residential first mortgage portfolio contains one-to-four family residential properties, which are secured principally by single-family residences. Loans of this type are generally smaller in size and are geographically dispersed throughout Regions’ market areas, with some guaranteed by government agencies or private mortgage insurers. Losses on the residential loan portfolio depend, to a large degree, on the level of interest rates, the unemployment rate, economic conditions and collateral values. During 2008, losses on single-family residences totaled 0.50 percent, 38 basis points higher than in the previous year, primarily driven by declining property values and other influential economic factors, such as the unemployment rate, which deteriorated substantially as the year progressed. Deterioration of the Company’s residential first mortgage portfolio was most apparent in Florida, where property valuations declined significantly and unemployment rose at a rapid pace. Regions expects losses on loans of this type to continue to increase during 2009, further driven by continued rising unemployment and the continued housing slowdown throughout the U.S., including areas within Regions’ operating footprint. Home Equity—This portfolio contains home equity loans and lines of credit totaling $16.1 billion as of year-end 2008. Substantially all of this portfolio was originated through Regions’ branch network. As a percentage of outstanding home equity loans and lines, losses increased in 2008 to 1.46 percent from 0.27 percent in 2007. The deteriorating economic environment as described above, particularly with respect to housing, caused the significant increase in loss rate. Florida real estate markets have been particularly affected. Slightly more than one-third of Regions’ home equity portfolio is located in Florida and has suffered losses reflective of the falling property values and demand in that geography. Regions has been proactive in its management of its home equity and residential first mortgage portfolios, focusing heavily on loss mitigation efforts, including providing comprehensive workout solutions to borrowers. Evidence of these efforts is reflected in the balance of these lines and loans classified as troubled debt restructurings (“TDRs”), which grew substantially in 2008. See Note 6 “Loans” to the consolidated financial statements for further discussion. While the Company believes these efforts are having a beneficial effect, it also expects home equity losses to remain at elevated levels in 2009 as slowing economic conditions and continued anticipated pressure on home values are expected to continue to impact borrowers. 77 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The chart below provides details related to the home equity lending portfolio for the year-ended 2008. (In millions) Balance Net Charge-offs Net Charge-off % (1) $ $ 1st Lien 2,121.6 24.3 1.28% $ $ Florida 2nd Lien 3,662.9 127.7 3.67% Total $ 5,784.5 152.0 $ 2.83% 1st Lien $ 4,624.0 19.7 $ 0.44% All Other States 2nd Lien 5,721.7 54.6 0.97% $ $ Total $ 10,345.7 74.3 $ 0.73% $ $ Total 1st Lien 6,745.6 44.0 0.69% $ $ 2nd Lien 9,384.6 182.3 2.00% Total $ 16,130.2 226.3 $ 1.46% (1) Net charge-off percentages are calculated as a percent of average balances. Indirect and Other Consumer Lending—Loans within the indirect portfolio, which consist mainly of automobile, marine and recreational vehicle loans originated through third-party business relationships, totaled $3.9 billion as of year-end 2008. Other consumer loans, which consist primarily of borrowings for home improvements, student loans, automobiles, overdrafts and other personal household purposes, totaled $1.2 billion as of year end. During the fourth quarter of 2008, Regions ceased originating automobile loans through the retail indirect lending channel. Therefore, loans in this category will begin to decline during 2009. Losses on indirect and other consumer lending increased in 2008 due to deterioration of general economic conditions, including rising unemployment rates, falling home values and rising gasoline costs. These portfolios will continue to be impacted by rising unemployment, among other factors, which Regions believes will remain elevated in 2009. The Company expects losses to increase during 2009 because of these factors. Allowance for Credit Losses The allowance for credit losses represents management’s estimate of credit losses inherent in the portfolio as of year-end. The allowance for credit losses consists of two components: the allowance for loan losses and the reserve for unfunded credit commitments. Management’s assessment of the adequacy of the allowance for credit losses is based on a combination of both of these components. Regions determines its allowance for credit losses in accordance with regulatory guidance, Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan” (“FAS 114”) and Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (“FAS 5”). Binding unfunded credit commitments include items such as letters of credit, financial guarantees and binding unfunded loan commitments. At December 31, 2008, the allowance for credit losses totaled $1.9 billion or 1.95 percent of total loans, net of unearned income compared to $1.4 billion or 1.45 percent at year-end 2007. The increase in the allowance for credit loss ratio reflects management’s estimate of the level of inherent losses in the portfolio, which management believes increased during 2008 due to a slowing economy and a weakening housing market. The increase in non-performing assets, driven largely by residential homebuilder and condominium loans, was a key determining dynamic in the assessment of inherent losses and, as a result, was an important factor in determining the allowance level. Deterioration of the Company’s home equity and residential first mortgage portfolios, especially Florida-based credits, was also a factor. Non-performing assets increased from $864.1 million at December 31, 2007 to $1.7 billion at December 31, 2008. Excluding loans held for sale, non-performing assets increased $430.7 million to $1.3 billion at December 31, 2008. Net charge-offs as a percentage of average loans were 1.59 percent and 0.29 percent in 2008 and 2007, respectively. The majority of the year-over-year increase in net charge-offs relates to the residential homebuilder portfolio, which is discussed earlier in this report, and the disposition of non-performing loans. During 2008, a total of $1.3 billion in non-performing loans were sold or designated as held for sale with associated charge-offs of approximately $639.0 million. Net charge-offs on home equity credits were also a driver of the increase, rising to 1.46 percent in 2008 versus 0.27 percent in 2007. Losses from Florida-based credits were particularly high, as property valuations in certain markets continued to experience ongoing deterioration. These loans and lines represent approximately $5.8 billion of Regions’ total home equity portfolio at December 31, 2008. Of that balance, approximately $2.1 billion represents first liens; second liens, which total $3.7 billion, were the main source of losses. Florida second lien losses were 3.67 percent in 2008. Total home equity losses in Florida amounted to 2.83 percent of loans and lines versus 0.73 percent across the remainder of Regions’ footprint. 78 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The Company has taken a number of measures to aggressively manage the portfolios and mitigate losses, particularly in the more problematic portfolios, including the residential homebuilder portfolio, a subset of the commercial real estate and construction loan portfolios. Significant action in the management of the home equity portfolio has also been taken. A home equity portfolio evaluation was completed during 2008, which provided detailed property level information to assist in workout strategies. Also, the Company has a strong Customer Assistance Program in place, designed to educate customers about their loans and, as necessary, discuss options and solutions. As a result of the unfavorable trends in credit quality previously described, including the expectation of a challenging economy and rising non-performing asset levels driven largely by deterioration in the Company’s residential homebuilder and condominium portfolios, management expects that net loan charge-offs will continue at an elevated level during the year ended December 31, 2009. Reflecting the difficult credit environment as described above, the provision for loan losses rose significantly during 2008, totaling $2.1 billion, as compared to $555.0 million in the previous year. Details regarding the allowance for credit losses, including an analysis of activity from the previous year’s total, are included in Table 22 “Allowance for Credit Losses.” Management expects the allowance for credit losses to total loans ratio to vary over time due to changes in economic conditions, loan mix and collateral values, or variations in other factors that may affect inherent losses. Also, refer to Table 23 “Allocation of the Allowance for Loan Losses” for details pertaining to management’s allocation of the allowance for loan losses to each loan category. Allowance Process Factors considered by management in determining the adequacy of the allowance include, but are not limited to: (1) detailed reviews of individual loans; (2) historical and current trends in gross and net loan charge-offs for the various portfolio segments evaluated; (3) the Company’s policies relating to delinquent loans and charge-offs; (4) the level of the allowance in relation to total loans and to historical loss levels; (5) levels and trends in non-performing and past due loans; (6) collateral values of properties securing loans; (7) the composition of the loan portfolio, including unfunded credit commitments; and (8) management’s analysis of current economic conditions. Various departments, including Credit Review, Commercial and Consumer Credit Risk Management, Collections, and Special Assets are involved in the credit risk management process to assess the accuracy of risk ratings, the quality of the portfolio and the estimation of inherent credit losses in the loan portfolio. This comprehensive process also assists in the prompt identification of problem credits. For the majority of the loan portfolio, management uses information from its ongoing review processes to stratify the loan portfolio into pools sharing common risk characteristics. Loans that share common risk characteristics are assigned a portion of the allowance for credit losses based on the assessment process described above. Credit exposures are categorized by type and assigned estimated amounts of inherent loss based on several factors, including current and historical loss experience for each pool and management’s judgment of current economic conditions and their expected impact on credit performance. Loans deemed to be impaired include non-accrual loans, excluding consumer loans, and TDRs. Impaired loans, excluding consumer loans, with outstanding balances greater than $2.5 million are evaluated individually. For these loans, Regions measures the level of impairment based on the present value of the estimated projected cash flows, the estimated value of the collateral or, if available, the observable market price. For consumer TDRs, Regions measures the level of impairment based on pools of loans stratified by common risk characteristics. If current valuations are lower than the current book balance of the credit, the negative differences are reviewed for possible charge-off. In instances where management determines that a charge-off is 79 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents not appropriate, a FAS 114 Specific Reserve is established for the individual loan in question. That Specific Reserve is incorporated as a part of the overall allowance for credit losses. The recorded investment in impaired loans was $1,421.1 million at December 31, 2008 and $660.4 million at December 31, 2007. The allowance allocated to impaired loans, excluding TDRs, totaled $129.8 million and $103.9 million at December 31, 2008 and 2007, respectively. Loans that were characterized as TDRs totaled $532.7 million and $11.0 million at December 31, 2008 and 2007, respectively, and the allowance allocated to TDRs at December 31, 2008 and 2007 totaled $9.3 million and zero, respectively. The average amount of impaired loans was $1,262.2 million during 2008 and $396.0 million during 2007. No material amount of interest income was recognized on impaired loans for the years ended December 31, 2008, 2007 and 2006. Management considers the current level of allowance for credit losses adequate to absorb losses inherent in the loan portfolio and unfunded commitments. Management’s determination of the adequacy of the allowance for credit losses, which is based on the factors and risk identification procedures previously discussed, requires the use of judgments and estimations that may change in the future. Changes in the factors used by management to determine the adequacy of the allowance or the availability of new information could cause the allowance for credit losses to be increased or decreased in future periods. In addition, bank regulatory agencies, as part of their examination process, may require changes in the level of the allowance based on their judgments and estimates. 80 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Table 22—Allowance for Credit Losses Allowance for loan losses at January 1 Loans charged-off: Commercial and industrial Commercial real estate(1) Construction Residential first mortgage(1) Equity Indirect Other consumer Recoveries of loans previously charged-off: Commercial and industrial Commercial real estate(1) Construction Residential first mortgage(1) Equity Indirect Other consumer Net charge-offs: Commercial and industrial Commercial real estate(1) Construction Residential first mortgage(1) Equity Indirect Other consumer Allowance of purchased institutions at acquisition date Allowance allocated to sold loans and loans transferred to loans held for sale Transfer to/from reserve for unfunded credit commitments(2) Provision for loan losses from continuing operations Provision (credit) for loan losses from discontinued operations Allowance for loan losses at December 31 Reserve for unfunded credit commitments at January 1 Transfer from/to allowance for loan losses(2) Provision for unfunded credit commitments Reserve for unfunded credit commitments at December 31 Allowance for credit losses 2008 2007 2006 2005 2004 (In thousands) $ 1,321,244 $ 1,055,953 $ 783,536 $ 754,721 $ 454,057 234,637 387,679 568,093 83,578 243,553 56,099 65,835 1,639,474 102,890 39,248 32,582 20,169 54,010 36,242 82,424 367,565 72,035 49,214 9,986 1,800 37,434 18,419 30,591 92,610 39,078 5,620 n/a 6,273 13,574 31,217 219,479 211,730 188,372 93,206 62,534 7,365 n/a 3,675 17,925 27,025 25,595 8,749 5,599 2,131 17,307 14,944 18,064 92,389 29,537 8,932 2,035 1,144 13,336 15,704 26,355 97,043 34,495 9,778 2,999 3 7,714 7,878 16,671 79,538 36,753 13,112 1,318 n/a 1,558 6,800 16,004 75,545 18,701 8,450 7,610 n/a 1,333 5,776 15,522 57,392 56,453 49,422 6,047 n/a 2,117 11,125 11,021 37,540 39,436 6,987 1,797 29,720 10,541 13,920 73,353 30,316 30,547 19,025 40,674 20,538 56,069 270,522 — (19,369) — 555,000 182 209,042 378,930 562,494 81,447 226,246 41,155 47,771 1,547,085 — (5,010) — 2,057,000 — 73,909 30,628 (1,990) n/a 4,940 7,798 15,695 139,941 136,185 130,980 — 303,144 335,833 — (14,140) — — — (51,835) 142,373 166,746 124,215 4,285 $ 1,826,149 $ 1,321,244 $ 1,055,953 $ 783,536 $ 754,721 — $ — — $ — $ 1,899,679 $ 1,379,498 $ 1,107,788 $ 783,536 $ 754,721 58,254 $ — 15,276 73,530 $ 51,835 $ — 6,419 58,254 $ — $ 51,835 — 51,835 $ — $ — — — $ (1,746) 127 (1) Breakout of residential first mortgage not available for 2005 and 2004 due to the AmSouth merger; residential first mortgage is included in commercial real estate for 2005 and 2004. (2) During the fourth quarter of 2006, Regions transferred the portion of the allowance for loan losses related to unfunded credit commitments to other liabilities. 81 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Loans, net of unearned income, outstanding at end of period Average loans, net of unearned income outstanding for the period Ratios: Allowance for loan losses at end of period to loans, net of unearned income Allowance for credit losses at end of period to loans, net of unearned income Allowance for loan losses at end of period to non-performing loans, excluding loans held for sale Allowance for credit losses at end of period to non-performing loans, excluding loans held for sale Net charge-offs as percentage of: Average loans, net of unearned income Provision for loan losses Allowance for credit losses Table 23—Allocation of the Allowance for Loan Losses Commercial and industrial Commercial real estate Construction Residential first mortgage Home equity Indirect Other consumer 2008 2007 $ 97,418,685 $ 95,378,847 2006 (In thousands) $ 94,550,602 2005 2004 $ 58,404,913 $ 57,526,954 $ 97,601,272 $ 94,372,061 $ 64,765,653 $ 58,002,167 $ 44,667,472 1.87% 1.39% 1.12% 1.34% 1.31% 1.95 1.74 1.81 1.59 75.2 81.4 1.45 1.78 1.86 0.29 48.7 19.6 1.17 3.45 3.61 0.22 98.2 12.6 1.34 2.29 2.29 0.23 82.5 17.4 1.31 1.94 1.94 0.29 101.9 17.4 2008 2007 $ 466,430 574,935 416,978 86,888 235,369 27,442 18,107 $ 1,826,149 $ 295,384 410,587 348,214 89,346 94,823 51,762 31,128 $ 1,321,244 2006 (In thousands) 324,539 $ 306,717 189,450 58,419 95,089 49,526 32,213 $ 1,055,953 2005 2004 $ $ 218,957 212,794 108,722 121,385 67,874 19,444 34,360 783,536 $ $ 237,699 217,282 87,955 119,734 40,136 19,671 32,244 754,721 The increase between 2007 and 2008 in the allowance for loan losses related primarily to the commercial and industrial, commercial real estate and construction portfolios. Drivers of the increase include higher year-end 2008 loan outstandings in the commercial and industrial and commercial real estate sectors, combined with higher reserve allocation rates for all three loan portfolios. The higher allocation rates are reflective of increased loan losses and adverse quality migration within the portfolio, both of which resulted primarily from the economic recession and the prolonged housing slump. The increased allowance for consumer products relates primarily to home equity lending, where year-to-year outstandings have increased and a higher reserve allocation rate has been applied. The increased allocation rate is reflective of increased loan losses and deteriorating delinquency trends which have been caused by deterioration in the housing markets, falling home equity values, and rising unemployment. 82 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents NON-PERFORMING ASSETS Non-performing assets consists of loans on non-accrual status and foreclosed properties. Loans are placed on non-accrual status when management has determined that payment of all contractual principal and interest is in doubt, or the loan is past due 90 days or more as to principal and interest unless well-secured and in the process of collection. Uncollected interest income accrued on non-accrual loans in the current year is reversed and charged to interest income. Uncollected interest accrued from prior years on loans placed on non-accrual status in the current year is charged against the allowance for loan losses. At December 31, 2008, non-performing assets totaled $1.7 billion, or 1.76 percent of ending loans, compared to $864.1 million, or 0.90 percent of loans, at December 31, 2007. Non-performing assets, excluding loans held for sale, increased $430.7 million to $1.3 billion, or 1.33 percent, compared to $864.1 million, or 0.90 percent in 2007. The increase in non-performing assets during the year ended December 31, 2008 was primarily driven by construction and commercial real estate loans, including the residential homebuilder portfolio, due to the widespread decline in residential property values. Of the $4.4 billion residential homebuilder portfolio, approximately $296.2 million was on non-accrual status as of December 31, 2008. During 2008, Regions disposed of or designated as held for sale approximately $1.6 billion of loans and foreclosed properties, partially offsetting the otherwise higher level of non-performing assets. Foreclosed properties, a subset of non-performing assets, totaled $264.6 million at December 31, 2008 and $120.5 million at December 31, 2007. Regions’ foreclosed properties are composed primarily of a number of small to medium-size properties that are diversified geographically throughout the franchise. Foreclosed properties are recorded at the lower of the recorded investment in the loan or fair value less the estimated cost to sell. Table 24 “Non-Performing Assets” presents information on non-performing loans and foreclosed properties acquired in settlement of loans. Changes in economic conditions and real estate demand in Regions’ markets are likely to keep the level of non-performing assets elevated during 2009. 83 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Table 24—Non-Performing Assets Non-performing loans: Commercial and industrial Commercial real estate Construction Residential first mortgage Home equity Indirect Other consumer Total non-performing loans Foreclosed properties Total non-performing assets* excluding loans held for sale Non-performing loans held for sale Total non-performing assets* Non-performing loans* to loans, net of unearned income Non-performing assets* excluding loans held for sale, to loans, net of unearned income and foreclosed properties Non-performing assets* to loans, net of unearned income and foreclosed properties Accruing loans 90 days past due: Commercial and industrial Commercial real estate Construction Residential first mortgage Home equity Indirect Other consumer Restructured loans not included in the categories above * Exclusive of accruing loans 90 days past due 2008 2007 2006 (In thousands) 2005 2004 $ 175,472 448,908 298,604 125,381 3,238 1 166 1,051,770 242,961 1,294,731 423,255 $ 1,717,986 $ 92,029 263,188 310,052 71,700 6,611 9 — 743,589 120,465 864,054 — $ 864,054 $ 57,343 128,301 56,625 54,396 9,537 1 268 306,471 72,663 379,134 — $ 379,134 $ n/a n/a n/a n/a n/a n/a n/a 341,418 65,459 406,877 — $ 406,877 $ n/a n/a n/a n/a n/a n/a n/a 388,658 63,598 452,256 — $ 452,256 1.08% 1.33% 1.76% 0.78% 0.90% 0.90% 0.32% 0.40% 0.40% 0.58% 0.70% 0.70% 0.68% 0.79% 0.79% $ $ $ 14,067 21,405 14,416 275,236 214,437 7,854 6,943 554,358 454,731 $ 12,055 12,363 18,930 154,951 146,809 6,002 5,575 $ 356,685 $ — $ 9,920 26,132 15,174 43,721 40,760 3,207 4,954 $ 143,868 $ — $ n/a n/a n/a n/a n/a n/a n/a $ 87,523 $ — $ n/a n/a n/a n/a n/a n/a n/a $ 74,777 $ — Note: Non-accrual loans and accruing loans 90 days past due by loan category are not available for periods prior to 2006. Loans past due 90 days or more and still accruing totaled $554.4 million as of year-end 2008, an increase of $197.7 million from year-end 2007 levels, and reflected weaker economic conditions and general market deterioration. The increase was primarily due to increases in home equity and residential first mortgages, particularly in Florida, as well as commercial real estate loans being managed by the Special Assets Department and in the process of collection. Restructured loans at December 31, 2008, as disclosed above, were primarily comprised of $406.0 million of residential first mortgage loans and $47.8 million of home equity lines and loans with modified terms and/or rates. To address the growing needs of borrowers, as well as minimize losses, management instituted a Customer 84 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Assistance Program to help borrowers struggling with their mortgage payments and alerting them sooner about available options. Restructurings were primarily due to modification of rates below market and extensions of maturities. At December 31, 2008 and December 31, 2007, Regions had approximately $812.6 million and $221.5 million, respectively, of potential problem commercial and commercial real estate loans that were not included in non-accrual loans or in the accruing loans 90 days past due categories, but for which management had concerns as to the ability of such borrowers to comply with their present loan repayment terms. At December 31, 2008, $11.9 million of the $221.5 million from 2007 remained categorized as potential problem loans. The remaining loans either migrated to non-performing status or were no longer considered potential problem loans. FINANCIAL DISCLOSURE AND INTERNAL CONTROLS Regions has always maintained internal controls over financial reporting, which generally include those controls relating to the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. Regions’ process for evaluating internal controls over financial reporting starts with understanding the risks facing each of its functions and areas; how those risks are controlled or mitigated; and how management monitors those controls to ensure that they are in place and effective. These risks, control procedures and monitoring tools are documented in a standard format. This format not only documents the internal control structures over all significant accounts, but also places responsibility on management for establishing feedback mechanisms to ensure that controls are effective. These monitoring procedures are also part of management’s testing of internal controls. At least quarterly, each area updates and assesses the adequacy of its documented internal controls. If changes are necessary, updates are made more frequently. Regions also has established processes to ensure appropriate disclosure controls and procedures are maintained. These controls and procedures as defined by the SEC are generally designed to ensure that financial and non-financial information required to be disclosed in reports filed with the SEC is reported within the time periods specified in the SEC’s rules and forms, and that such information is communicated to management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Regions’ Disclosure Review Committee, which includes representatives from the legal, risk management, accounting, investor relations and audit departments, meets quarterly to review recent internal and external events to determine whether all appropriate disclosures have been made in reports filed with the SEC. In addition, the CEO and CFO meet quarterly with the SEC Filings Review Committee, which includes senior representatives from accounting, legal, risk management, audit, operations and technology, as well as from the core business segments. The SEC Filings Review Committee reviews certain reports to be filed with the SEC, including Forms 10-K and 10-Q, and Proxy filings, and evaluates the adequacy and accuracy of the disclosures. As part of this process, certifications of internal control effectiveness are obtained from all core business segments, accounting, legal, risk management, and operations and technology. These certifications are reviewed and presented to the CEO and CFO as evidence of the Company’s assessment of internal controls over financial reporting. The Forms 10-K and 10-Q are presented to the Audit Committee of the Board of Directors for approval. Financial results and other financial information are also reviewed with the Audit Committee on a quarterly basis. As required by applicable regulatory pronouncements, the CEO and the CFO review and make various certifications regarding the accuracy of Regions’ periodic public reports filed with the SEC, as well as the effectiveness of disclosure controls and procedures and internal controls over financial reporting. With the assistance of the financial review committees, Regions will continue to assess and monitor disclosure controls and procedures and internal controls over financial reporting, and will make refinements as necessary. 85 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Regions’ common stock is listed on the New York Stock Exchange (“NYSE”) and, therefore, Regions is required to comply with NYSE corporate governance listing standards. During 2008, Regions submitted to the NYSE the CEO certification required under Section 303A of the NYSE corporate governance listing standards. In addition, the CEO and CFO certifications that are required under Section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibits 31.1 and 31.2, respectively. COMPARISON OF 2007 WITH 2006 Earnings in 2007 were affected by integration and merger-related charges related to the acquisition of AmSouth, which closed on November 4, 2006. Comparisons of 2007 to 2006 are therefore significantly impacted by the merger. Primary drivers of 2007 earnings, other than a full-year impact of the AmSouth merger, were Regions’ solid fee income, record performance at Morgan Keegan and overall expense control. However, certain valuation-related and other charges during the fourth quarter of 2007, as well as a higher provision for loan losses resulting from rapid deterioration of credit quality, contributed to lower earnings per share for 2007. Net income from continuing operations in 2007 was $1.4 billion, or $1.95 per diluted share, representing a 28 percent decrease from 2006 diluted earnings per share of $2.71. Not included in this amount, Regions incurred a $217.4 million pre-tax loss related to EquiFirst resulting in an after-tax net loss for the year of $142.1 million, which was accounted for as discontinued operations. Net income in 2007 includes after-tax merger charges of $217.5 million, or $0.31 per diluted share, compared to 2006 after-tax merger charges of $60.3 million, or $0.12 per diluted share. Return on average stockholders’ equity was 6.24 percent for 2007 as compared to 10.94 percent for 2006, while return on average assets was 0.90 percent for 2007, down from the 2006 level of 1.41 percent. Return on average tangible stockholders’ equity was 15.82 percent for the year ended December 31, 2007, compared to 22.86 percent for the year ended December 31, 2006 (20.43 percent and 24.85 percent, respectively, excluding discontinued operations and merger charges). See Table 2 “GAAP to Non-GAAP Reconciliation” for additional details and Table 1 “Financial Highlights” for additional ratios. Net interest income was $4.4 billion in 2007 compared to $3.3 billion in 2006. The increase was driven by a larger balance sheet for the full year, resulting from the merger with AmSouth in late 2006. However, negatively impacting net interest income was a lower net interest margin, which declined to 3.79 percent during 2007 compared to 4.17 percent in 2006. Primary drivers of the reduced net interest margin include the impact of integrating AmSouth’s balance sheet into Regions, a decline in low-cost deposit balances, and the negative effects of a lower tax-equivalent adjustment resulting from the first quarter 2007 adoption of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). The following discussion of non-interest income and expense is from continuing operations and excludes EquiFirst, which is reported separately as discontinued operations in the consolidated statements of operations. Non-interest income (excluding securities gains/losses) totaled $2.9 billion, or 39 percent of total revenue (on a fully taxable-equivalent basis) in 2007, compared to $2.0 billion, or 37 percent of total revenue (on a fully taxable-equivalent basis) in 2006, and continued to reflect Regions’ diversified revenue stream. Non-interest income increased due to the full-year inclusion of AmSouth’s operations. Service charges on deposit accounts increased 61 percent to $1.2 billion, due primarily to an increase in the number of total deposit accounts and the addition of new accounts in connection with the AmSouth merger. In addition to the increased number of accounts related to the merger, 2007 results were affected by the implementation of a tiered non-sufficient funds (“NSF”) pricing structure, as well as volume-related increases in NSF fees and interchange income. Brokerage, investment banking and capital markets income, and trust department income increased in 2007 to $894.6 million and $251.3 million, respectively, compared to $717.0 million and $158.2 million, respectively in 2006. Part of this increase is attributable to the AmSouth merger, as 2006 only included approximately two months of combined results compared to a full year for 2007. Merger benefits were realized mainly through an expanded customer base, primarily through additional Morgan Keegan offices opened in the former AmSouth 86 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents retail branches. In addition, the increase was attributable to strong private client revenues, healthy fixed-income capital markets activity aided by the second quarter 2007 acquisition of Shattuck Hammond Partners LLC and higher trust and asset management fees. In 2007, mortgage income decreased 24 percent to $135.7 million compared to $178.7 million in 2006, primarily due to the increasingly challenging mortgage industry environment, which deteriorated as the year progressed. During the first quarter of 2007, Regions sold its non-conforming mortgage origination subsidiary, EquiFirst, for a sales price of approximately $76 million and recorded an after-tax gain of approximately $1 million. During the third quarter of 2007, Regions also exited the wholesale mortgage warehouse lending business as a result of risk and return considerations. Regions reported net losses of $8.6 million from the sale of securities available for sale in 2007, compared to net gains of $8.1 million in 2006. The 2007 losses were primarily related to the sale of federal agency securities in conjunction with balance sheet management activities. Other income increased 71 percent to $420.0 million in 2007, primarily due to higher gains on sales of student loans and an increase in bank-owned life insurance income. Gains on the sale of loans increased in 2007 to $32.1 million compared to $0.7 million in 2006, reflecting a bulk sale of student loans and related servicing in early 2007. Bank-owned life insurance income increased $50.2 million due to the AmSouth acquisition and, to a lesser extent, the purchase of $896.6 million of additional life insurance late in 2007. Non-interest expense totaled $4.7 billion in 2007 compared to $3.2 billion in 2006. Included in non-interest expense are pre-tax merger-related charges of $350.9 million in 2007 and $88.7 million in 2006. The 2007 overall expense level was impacted due to the inclusion of a full twelve months of former AmSouth operations. Salaries and employee benefits increased 33 percent to $2.5 billion in 2007 compared to $1.9 billion in 2006, primarily due to the November 2006 addition of approximately 12,000 legacy AmSouth associates, as well as normal annual compensation adjustments and higher incentive payouts at Morgan Keegan. Excluding $158.6 million of pre-tax merger-related charges in 2007 and $65.7 million in 2006, salaries and benefits increased 29 percent in 2007. See Table 8 “Non-Interest Expense (including Non-GAAP reconciliation)” for further details. Net occupancy expense increased 62 percent to $413.7 million in 2007, primarily attributable to expenses added in connection with the AmSouth acquisition, new and acquired branch offices and rising price levels. Furniture and equipment expense in 2007 totaled $301.3 million, a 91 percent increase over the prior year. In addition to the higher merger-related expense base, furniture and equipment associated with the addition of new branch offices was also a factor. Other non-interest expense increased 58 percent to $1.5 billion in 2007 primarily due to a $54.8 million increase in professional fees related to higher consulting fees in connection with the merger integration, legal fees related to special assets litigation, a $63.9 million increase in marketing fees related to post-merger rebranding and branch conversion initiatives, a $51.5 million charge related to the Visa antitrust lawsuit settlement, and $38.5 million in losses related to investments in two Morgan Keegan mutual funds. Offsetting these costs, non-interest expenses were positively affected by the realization of merger cost savings, which continued to build throughout 2007. Regions’ provision for income taxes from continuing operations in 2007 increased $26.6 million to $645.7 million due to the full-year inclusion of AmSouth results and the adoption of FIN 48. As a result of the adoption of FIN 48, Regions recorded a cumulative reduction in equity of $259.0 million as of January 1, 2007. During 2007, the adoption of FIN 48 increased income tax expense and decreased after-tax net income by approximately $65 million. The effective tax rate from continuing operations was 31.7 percent in 2007 compared to 31.1 percent in 2006. 87 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents At December 31, 2007, non-performing assets totaled $864.1 million, or 0.90 percent of ending loans, compared to $379.1 million, or 0.40 percent of loans, at December 31, 2006. The increase in non-performing assets was largely influenced by growth in non-performing loans in the fourth quarter of 2007 due to weakness in the residential homebuilder portfolio. This pressure was due to a combination of declining residential demand and resulting price and collateral value declines in certain of the Company’s markets, particularly areas of Florida and Atlanta, Georgia. Net charge-offs totaled $270.5 million, or 0.29 percent of average loans, in 2007 compared to 0.22 percent in 2006. The increased loss rate resulted from deteriorating economic conditions during 2007, especially as related to the housing sector. The provision for loan losses from continuing operations increased $412.6 million to $555.0 million. Two primary factors led to the increase. Most notably, 2006 included just two months of provision for loan losses added to the portfolio as a result of the November 2006 merger with AmSouth, while the provision recorded in 2007 reflected the results of the newly merged Regions for the full year. In addition, the provision rose due to an increase in management’s estimate of inherent losses in its residential homebuilder portfolio. The allowance for credit losses increased $271.7 million to $1.4 billion or 1.45 percent of total loans in 2007, compared to $1.1 billion or 1.17 percent at year-end 2006. The increase in the allowance for credit losses was due to the general economic environment and the deteriorating credit conditions. 88 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Table 25—Quarterly Results of Operations Fourth Quarter Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter Second Quarter First Quarter 2008 2007 (In thousands, except per share data) Total interest income Total interest expense Net interest income Provision for loan losses Net interest income after provision $ for loan losses Total non-interest income, excluding securities gains (losses) Securities gains (losses) Total non-interest expense Income (loss) before income taxes from continuing operations Income tax expense (benefit) Income (loss) from continuing 1,581,506 $ 1,568,405 $ 1,630,667 $ 1,782,812 $ 1,934,168 $ 2,013,120 $ 2,027,480 $ 2,099,895 930,857 1,169,038 47,000 889,956 1,044,212 358,000 922,145 1,105,335 60,000 933,339 1,079,781 90,000 765,327 1,017,485 181,000 657,347 924,159 1,150,000 646,803 921,602 417,000 650,957 979,710 309,000 (225,841) 504,602 670,710 836,485 686,212 989,781 1,045,335 1,122,038 701,891 (105) 7,272,679 719,174 165 1,127,713 743,177 792 1,141,124 816,494 91,643 1,250,098 733,023 (45) 1,348,256 705,150 23,994 1,145,394 729,607 (32,806) 1,057,735 696,608 304 1,108,966 (6,796,734) (578,707) 96,228 5,870 273,555 66,909 494,524 157,814 70,934 (181) 573,531 179,291 684,401 230,669 709,984 235,908 operations (6,218,027) 90,358 206,646 336,710 71,115 394,240 453,732 474,076 Loss from discontinued operations before income taxes Income tax benefit from discontinued operations Loss from discontinued operations, net of tax Net income (loss) Income (loss) from continuing operations available to common shareholders Net income (loss) available to (431) (17,501) (406) (162) (6,604) (153) (67) (25) (765) (122) (682) (215,818) (291) (46) (259) (74,723) (269) $ (6,218,296) $ (10,897) 79,461 $ (253) 206,393 $ (42) 336,668 $ (474) 70,641 $ (76) 394,164 $ (423) 453,309 $ (141,095) 332,981 $ (6,244,263) $ 90,358 $ 206,646 $ 336,710 $ 71,115 $ 394,240 $ 453,732 $ 474,076 common shareholders $ (6,244,532) $ 79,461 $ 206,393 $ 336,668 $ 70,641 $ 394,164 $ 453,309 $ 332,981 Earnings (loss) per common share from continuing operations: Basic Diluted $ Earnings (loss) per common share: Basic Diluted Cash dividends declared per share Market price: High Low (8.97) $ (8.97) (9.01) (9.01) 0.10 14.50 6.85 0.13 $ 0.13 0.11 0.11 0.10 0.30 $ 0.30 0.30 0.30 0.38 0.48 $ 0.48 0.48 0.48 0.38 0.10 $ 0.10 0.10 0.10 0.38 0.56 $ 0.56 0.56 0.56 0.36 0.64 $ 0.63 0.64 0.63 0.36 0.65 0.65 0.46 0.45 0.36 19.80 6.41 24.31 10.31 25.84 17.90 31.23 22.84 34.44 28.90 36.66 32.87 38.17 33.83 Note: Quarterly amounts may not add to year-to-date amounts due to rounding. 89 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Item 8. Financial Statements and Supplementary Data REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING We, as members of the Management of Regions Financial Corporation (the “Company”), are responsible for establishing and maintaining effective internal control over financial reporting. Regions’ internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified. All internal controls systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements in the Company’s financial statements, including the possibility of circumvention or overriding of controls. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Regions’ management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its Internal Control—Integrated Framework. Based on our assessment, we believe and assert that, as of December 31, 2008, the Company’s internal control over financial reporting is effective based on those criteria. Regions’ independent registered public accounting firm has issued an audit report on the effectiveness of the Company’s internal control over financial reporting. This report appears on the following page. REGIONS FINANCIAL CORPORATION by by /s/ C. DOWD RITTER C. Dowd Ritter Chief Executive Officer /s/ IRENE M. ESTEVES Irene M. Esteves Chief Financial Officer 90 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD OF DIRECTORS AND SHAREHOLDERS OF REGIONS FINANCIAL CORPORATION We have audited Regions Financial Corporation’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Regions Financial Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Regions Financial Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Regions Financial Corporation and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008 of Regions Financial Corporation and our report dated February 24, 2009, expressed an unqualified opinion thereon. Birmingham, Alabama February 24, 2009 91 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD OF DIRECTORS AND SHAREHOLDERS OF REGIONS FINANCIAL CORPORATION We have audited the accompanying consolidated balance sheets of Regions Financial Corporation and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Regions Financial Corporation and subsidiaries at December 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, effective January 1, 2007 Regions Financial Corporation adopted Financial Accounting Standards Board Interpretation Number 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement Number 109. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Regions Financial Corporation’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2009, expressed an unqualified opinion thereon. Birmingham, Alabama February 24, 2009 92 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Assets Cash and due from banks Interest-bearing deposits in other banks Federal funds sold and securities purchased under agreements to resell Trading account assets Securities available for sale Securities held to maturity (estimated fair value of $47,655 in 2008 and $51,790 in 2007) Loans held for sale (includes $506,260 measured at fair value at December 31, 2008) Loans, net of unearned income Allowance for loan losses Net loans Other interest-earning assets Premises and equipment, net Interest receivable Goodwill Mortgage servicing rights Other identifiable intangible assets Other assets Total assets Deposits: Non-interest-bearing Interest-bearing Total deposits Borrowed funds: Short-term borrowings: Liabilities and Stockholders’ Equity Federal funds purchased and securities sold under agreements to repurchase Other short-term borrowings Total short-term borrowings Long-term borrowings Total borrowed funds Other liabilities Total liabilities Stockholders’ equity: Preferred stock, cumulative perpetual participating, par value $1.00 (liquidation preference $1,000.00) per share, net of discount: Authorized—10,000,000 shares Issued—3,500,000 shares in 2008 Common stock, par value $.01 per share: Authorized—1,500,000,000 shares Issued, including treasury stock—735,667,650 shares in 2008 and 734,689,800 shares in 2007 Additional paid-in capital Retained earnings (deficit) Treasury stock, at cost—44,301,693 shares in 2008 and 41,054,113 shares in 2007 Accumulated other comprehensive income (loss), net Total stockholders’ equity Total liabilities and stockholders’ equity See notes to consolidated financial statements. 93 December 31 2008 2007 (In thousands, except share data) 2,642,509 7,539,787 790,097 1,050,270 18,849,482 47,306 1,282,437 97,418,685 (1,826,149) 95,592,536 896,906 2,786,043 458,120 5,548,295 160,890 638,392 7,964,740 146,247,810 18,456,668 72,447,222 90,903,890 3,142,493 12,679,469 15,821,962 19,231,277 35,053,239 3,477,844 129,434,973 $ $ $ 3,720,365 31,706 993,070 1,091,400 17,318,074 50,935 720,924 95,378,847 (1,321,244) 94,057,603 504,614 2,610,851 615,711 11,491,673 321,308 759,832 6,753,651 141,041,717 18,417,266 76,357,702 94,774,968 8,820,235 2,299,887 11,120,122 11,324,790 22,444,912 3,998,808 121,218,688 3,307,382 — 7,357 16,814,730 (1,868,752) (1,425,646) (22,234) 16,812,837 146,247,810 7,347 16,544,651 4,439,505 (1,370,761) 202,287 19,823,029 141,041,717 $ $ $ $ $ Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Table of Contents Interest income on: Loans, including fees Securities: Taxable Tax-exempt Total securities Loans held for sale Federal funds sold and securities purchased under agreements to resell Trading account assets Other interest-earning assets Total interest income Interest expense on: Deposits Short-term borrowings Long-term borrowings Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Non-interest income: Service charges on deposit accounts Brokerage, investment banking and capital markets Trust department income Mortgage income Securities gains (losses), net Other Total non-interest income Non-interest expense: Salaries and employee benefits Net occupancy expense Furniture and equipment expense Goodwill impairment Other Total non-interest expense Income (loss) before income taxes from continuing operations Income tax expense (benefit) Income (loss) from continuing operations Discontinued operations (Note 4): Loss from discontinued operations before income taxes Income tax benefit Loss from discontinued operations Net income (loss) Income (loss) from continuing operations available to common shareholders Net income (loss) available to common shareholders Weighted-average number of common shares outstanding: Basic Diluted Earnings (loss) per common share from continuing operations: Basic Diluted Earnings (loss) per common share: Basic Diluted Cash dividends declared per common share See notes to consolidated financial statements. 94 Years Ended December 31 2008 2007 (In thousands, except per share data) 2006 $ 5,549,871 $ 6,924,544 $ 4,792,906 827,622 40,096 867,718 35,733 18,623 62,403 29,042 6,563,390 1,724,070 369,388 626,976 2,720,434 3,842,956 2,057,000 1,785,956 1,147,959 1,027,468 233,522 137,676 92,495 434,111 3,073,231 2,355,939 442,145 334,541 6,000,000 1,658,989 10,791,614 (5,932,427) (348,114) (5,584,313) 856,043 41,260 897,303 92,097 50,801 71,418 38,500 8,074,663 2,663,883 459,467 552,947 3,676,297 4,398,366 555,000 3,843,366 1,162,740 894,621 251,319 135,704 (8,553) 420,004 2,855,835 2,471,869 413,711 301,330 — 1,473,441 4,660,351 2,038,850 645,687 1,393,163 606,665 33,679 640,344 69,444 45,650 60,333 40,441 5,649,118 1,680,167 275,497 385,152 2,340,816 3,308,302 142,373 3,165,929 721,998 716,983 158,161 178,688 8,123 245,767 2,029,720 1,859,851 254,628 157,897 — 931,652 3,204,028 1,991,621 619,100 1,372,521 (18,405) (6,944) (11,461) $ (5,595,774) (217,387) (75,319) (142,068) $ 1,251,095 (32,606) (13,230) (19,376) $ 1,353,145 $ (5,610,549) $ 1,393,163 $ 1,372,521 $ (5,622,010) $ 1,251,095 $ 1,353,145 695,003 695,003 707,981 712,743 501,681 506,989 $ (8.07) (8.07) $ (8.09) (8.09) 0.96 $ 1.97 1.95 1.77 1.76 1.46 2.74 2.71 2.70 2.67 1.40 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Common Stock Shares Amount Preferred Stock Additional Paid-In Capital Retained Earnings (Deficit) Treasury Stock, At Cost Accumulated Other Comprehensive Income (Loss), Net Unearned Restricted Stock Total 456,347 $ 4,738 $ — $ 7,323,483 $ 4,034,905 $ (581,890) $ (92,325) $ (74,628) $ 10,614,283 (In thousands, except share and per share data) — — — — — (74,628) — — — — — — — — 1,353,145 — — — — 74,628 — (64,130) — (64,130) — — 1,353,145 — — — — — — 15,527 — 15,527 BALANCE AT JANUARY 1, 2006 Reclassification for adoption of FAS 123R Cumulative effect of change in accounting principle due to adoption of FAS 158 Comprehensive income: Net income Net change in unrealized gains and losses on securities available for sale, net of tax and reclassification adjustment(1) Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment(1) — — — — — — 9,656 — — (13,764) — — — (310) 277,095 2,771 Comprehensive income Cash dividends declared—$1.40 per share Purchase of treasury stock Retirement of treasury stock Common stock transactions: Stock issued for acquisitions Stock issued to employees under incentive plans, net Stock options exercised, net Amortization of unearned restricted stock — BALANCE AT DECEMBER 31, 2006 730,076 Cumulative effect of change in accounting principles due to adoption of FIN 48 and FSP 13-2 — — — — — — — — — — — — — (1,064,402) 9,855,017 (7,314) 264,241 (894,805) — — — (490,370) 1,064,712 — — — 43,329 16,339,726 — 4,493,245 — — (269,403) 1,251,095 — — — — (7,548) — — 9,656 1,378,328 (894,805) (490,370) — — — — — 9,857,788 — — (7,304) 264,335 — — — — — — — (131,272) — — 43,329 20,701,454 — — — (269,403) — 1,251,095 — — — — — — 166,131 — 166,131 1,044 9,354 — — — — — (40,854) 10 94 — 7,303 — — — — — — — 7 37 Comprehensive income: Net income Net change in unrealized gains and losses on securities available for sale, net of tax and reclassification adjustment(1) Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment(1) Net change from defined benefit pension plans, net of tax(1) Comprehensive income Cash dividends declared—$1.46 per share Purchase of treasury stock Common stock transactions: Stock issued to employees under incentive plans, net Stock options exercised, net 666 3,748 Amortization of unearned restricted stock — 693,636 — 7,347 — — — — — — — — — — — — — — — — — — — — (1,035,432) — — (1,363,213) (16,972) 154,776 — — — — 95,464 71,964 — — — — — — — — — — — — 95,464 71,964 1,584,654 (1,035,432) (1,363,213) (16,965) 154,813 67,121 16,544,651 — 4,439,505 — (1,370,761) — 202,287 — — 67,121 19,823,029 95 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY—Continued Common Stock Shares Amount Preferred Stock Additional Paid-In Capital Retained Earnings (Deficit) Treasury Stock, At Cost Accumulated Other Unearned Comprehensive Income (Loss), Net Restricted Stock Total (In thousands, except share and per share data) BALANCE AT DECEMBER 31, 2007 693,636 7,347 — 16,544,651 4,439,505 (1,370,761) 202,287 — 19,823,029 Cumulative effect of change in accounting principles due to adoption of EITF 06-4, EITF 06-10 and FAS 158 Comprehensive income: Net loss Net change in unrealized gains and losses on securities available for sale, net of tax and reclassification adjustment(1) Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment(1) Net change from defined benefit pension plans, net of tax(1) Comprehensive loss Cash dividends declared — $0.96 per share Preferred dividends Preferred stock transactions: Proceeds from issuance of 3,500,000 shares of preferred stock Proceeds from issuance of 48,253,677 common stock warrant Dividend accretion Common stock transactions: Stock transactions with employees under compensation plans, net Stock options exercised, net Amortization of unearned restricted stock BALANCE AT DECEMBER 31, — — — — — — — (2,395) 125 — — — — — — — (17,246) — (5,595,774) — — — — — (17,246) — (5,595,774) — — — — — — (101,237) — (101,237) — — — — — — — — — — — — — — (669,001) (26,236) — 3,304,000 — — — 9 1 — 3,382 196,000 — — — — (2,844) 27,178 49,745 — — — — — — — — — — — — — — — (54,885) — — 190,079 (313,363) — — — — — — 190,079 (313,363) (5,820,295) (669,001) (26,236) — — 3,304,000 — — — — — — — — — — 196,000 3,382 (57,720) 27,179 49,745 2008 691,366 $ 7,357 $ 3,307,382 $ 16,814,730 $ (1,868,752) $ (1,425,646) $ (22,234) $ — $ 16,812,837 (1) See disclosure of reclassification adjustment amount and tax effect, as applicable, in Note 16 to consolidated financial statements. See notes to consolidated financial statements. 96 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS 2008 Years Ended December 31 2007 (In thousands) 2006 $ (5,595,774) $ 1,251,095 $ 1,353,145 2,057,000 6,000,000 286,381 85,000 87,836 (15,366) 122,092 (14,850) 3,382 (92,495) 2,426 65,405 (406,751) (61) (5,054,174) 5,823,723 (57,313) 14,857 88,491 (392,292) 157,591 (583,878) (764,266) 189,493 2,006,457 555,000 — 263,409 6,000 10,010 (26,173) 259,110 (58,504) — 8,553 (32,746) — (123,744) (8,484) (8,181,669) 11,537,812 (65,632) 4,429 439,094 65,449 44,899 (2,899,912) 189,813 48,787 3,286,596 142,500 — 144,038 16,000 5,698 (1,720) 178,347 (17,894) — (8,123) 8,522 6,532 61,099 (32,454) (15,990,331) 15,282,578 (81,088) — (510,696) (42,746) (46,451) 1,762,856 501,792 22,917 2,754,521 2,142,296 1,964,096 3,770,572 3,181,213 8,997 (6,847,899) (5,367) 1,247,378 43,763 (6,433,052) (463,999) — — 893,934 (6,232,736) (4,757,190) 4,701,840 11,605,418 (3,954,776) (669,001) — 3,500,000 27,179 61 10,453,531 6,227,252 4,745,141 $ 10,972,393 2,495,803 14,384 (2,237,529) (40,812) 1,049,881 21,148 (1,495,559) (453,832) — 5,700 — 1,323,280 (6,422,374) 1,453,051 6,933,828 (4,223,810) (1,035,432) (1,363,213) — 154,813 8,484 (4,494,653) 115,223 4,629,918 4,745,141 $ 2,608,866 151,939 (5,550,408) (161,796) 294,992 — (2,467,777) (94,661) 1,217,587 — — (230,686) 3,310,923 (944,956) 816,048 (3,204,486) (894,805) (490,370) — 264,335 32,454 (1,110,857) 1,412,978 3,216,940 4,629,918 $ Operating activities: Net income (loss) Adjustments to reconcile net cash provided by operating activities: Provision for loan losses Impairment of goodwill Depreciation and amortization of premises and equipment Impairment of mortgage servicing rights Provision for losses on other real estate, net Net accretion of securities Net amortization of loans and other assets Net accretion of deposits and borrowings Amortization of discount on preferred stock Net securities (gains) losses Net loss (gain) on sale of premises and equipment Loss on early extinguishment of debt Deferred income tax (benefit) expense Excess tax benefits from share-based payments Originations and purchases of loans held for sale Proceeds from sales of loans held for sale Gain on sale of loans, net Loss from sale of mortgage servicing rights Decrease (increase) in trading account assets (Increase) decrease in other interest-earning assets Decrease (increase) in interest receivable (Increase) decrease in other assets (Decrease) increase in other liabilities Other Net cash provided by operating activities Investing activities: Proceeds from sale of securities available for sale Proceeds from maturity of: Securities available for sale Securities held to maturity Purchases of: Securities available for sale Securities held to maturity Proceeds from sales of loans Proceeds from sales of mortgage servicing rights Net increase in loans Net purchase of premises and equipment Acquisitions, net of cash acquired Net cash received from disposition of business Net cash received from deposits assumed Net cash (used in) provided by investing activities Financing activities: Net (decrease) increase in deposits Net increase (decrease) in short-term borrowings Proceeds from long-term borrowings Payments on long-term borrowings Cash dividends on common stock Purchase of treasury stock Issuance of preferred stock and common stock warrant Proceeds from exercise of stock options Excess tax benefits from share-based payments Net cash provided by (used in) financing activities Increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year See notes to consolidated financial statements. 97 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 primarily in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia. The Company is subject to competition from other financial institutions, is subject to the regulations of certain government agencies and undergoes periodic examinations by those regulatory authorities. The accounting and reporting policies of Regions and the methods of applying those policies that materially affect the accompanying consolidated financial statements conform with accounting principles generally accepted in the United States (“GAAP”) and with general financial services industry practices. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet dates and revenues and expenses for the periods shown. Actual results could differ from the estimates and assumptions used in the consolidated financial statements including, but not limited to, the estimates and assumptions related to the allowance for credit losses, intangibles, mortgage servicing rights and income taxes. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Regions, its subsidiaries and certain variable interest entities (“VIEs”). Significant intercompany balances and transactions have been eliminated. Certain amounts in prior-year financial statements have been reclassified to conform to the current year presentation, except as otherwise noted. These reclassifications are immaterial and have no effect on net income (loss), total assets or stockholders’ equity. Regions considers a voting rights entity to be a subsidiary and consolidates it if Regions has a controlling financial interest in the entity. VIEs are consolidated if Regions is exposed to the majority of the VIEs’ expected losses and/or residual returns (i.e., Regions is considered to be the primary beneficiary). Unconsolidated investments in voting rights entities or VIEs in which Regions has significant influence over operating and financing decisions (usually defined as a voting or economic interest of 20% to 50%) are accounted for using the equity method. Unconsolidated investments in voting rights entities or VIEs in which Regions has a voting or economic interest of less than 20% are generally carried at cost. See Note 2 for further discussion of VIEs. CASH AND CASH FLOWS Cash equivalents include cash and due from banks, interest-bearing deposits in other banks, and federal funds sold and securities purchased under agreements to resell (which have a life of 90 days or less). Cash flows from loans, either originated or acquired, are classified at that time according to management’s original intent to either sell or hold the loan for the foreseeable future. When management’s intent is to sell the loan, the cash flows of that loan are presented as operating cash flows. When management’s intent is to hold the loan for the foreseeable future, the cash flows of that loan are presented as investing cash flows. 98 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The following table summarizes supplemental cash flow information for the years ended December 31: Cash paid during the period for: Interest Income taxes, net Loans transferred to other real estate Student loans transferred to loans held for sale Loans held for sale transferred to loans Nonperforming loans transferred to loans held for sale Properties transferred to held for sale TRADING ACCOUNT ASSETS 2008 2007 (In millions) 2006 $ 2,800 267 414 792 — 482 — $ 3,700 652 182 — 52 — 108 $ 2,200 445 128 625 — — — Trading account assets, which are primarily held for the purpose of selling at a profit, consist of debt and marketable equity securities and are carried at estimated fair value. Gains and losses, both realized and unrealized, are included in brokerage, investment banking and capital markets income. Trading account net gains (losses) totaled $(2.1) million (including $42.6 million of net unrealized losses), $32.0 million (including $2.2 million of net unrealized losses) and $40.1 million (including $169,000 of net unrealized losses) in 2008, 2007 and 2006, respectively. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Securities purchased under agreements to resell and securities sold under agreements to repurchase are generally treated as collateralized financing transactions and are recorded at estimated fair value plus accrued interest. It is Regions’ policy to take possession of securities purchased under resell agreements. SECURITIES Management determines the appropriate classification of debt and equity securities at the time of purchase and periodically re-evaluates such designations. Debt securities are classified as securities held to maturity when the Company has the intent and ability to hold the securities to maturity. Securities held to maturity are stated at amortized cost. Debt securities not classified as securities held to maturity or trading account assets and marketable equity securities not classified as trading account assets are classified as securities available for sale. Securities available for sale are stated at estimated fair value with changes in unrealized gains and losses, net of taxes, reported as a component of other comprehensive income (loss). See Note 23 for discussion of determining fair value. The amortized cost of debt securities classified as securities held to maturity and securities available for sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security, using the effective yield method. Such amortization or accretion is included in interest income on securities. Realized gains and losses are included in net securities gains (losses). The cost of securities sold is based on the specific identification method. The Company reviews its securities portfolio on a regular basis to determine if there are any conditions indicating that a security has other-than-temporary impairment. Factors considered in this determination include the length of time that the security has been in a loss position, the ability and intent to hold the security until such time as the value recovers or the security matures, and the credit quality of the issuer. When a security has impairment that is considered to be other-than-temporary, the security is written down to estimated fair value, a new cost basis is established, and a loss is reported in other non-interest expense. 99 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents LOANS HELD FOR SALE At December 31, 2008, loans held for sale included commercial real estate mortgage loans, residential real estate mortgage loans and student loans. Commercial real estate mortgage loans held for sale consist of certain non-performing loans for which management has the intent to sell in the near term. Regions primarily classifies new residential real estate mortgage loans as held for sale based on intent, retaining some of these loans based on available liquidity, interest rate risk management and other business purposes. Regions elected the fair value option for residential real estate mortgage loans held for sale originated after January 1, 2008. Student loans held for sale include certain loans for which management has the intent to sell in the near term. Commercial real estate mortgage loans held for sale are carried at the lower of cost or fair value, while certain residential real estate mortgage loans held for sale for which the fair value option was not elected and student loans held for sale are carried at the lower of aggregate cost or fair value. See Note 23 for discussion of determining fair value. Gains and losses on commercial real estate mortgage and student loans held for sale are included in other non-interest expense. Gains and losses on residential mortgage loans held for sale are included in mortgage income. At December 31, 2007, loans held for sale included only residential real estate mortgage loans. Prior to January 1, 2008, residential mortgage loans held for sale were designated as one of the hedged items in a fair value hedging relationship under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”). Therefore, changes in fair value attributable to interest rate risk were recognized in income as an adjustment to the carrying amount of residential mortgage loans held for sale. LOANS Loans are carried at the principal amount outstanding, net of premiums, discounts, unearned income and deferred loan fees and costs. Interest income on loans is accrued based on the principal amount outstanding, except for those loans classified as non-accrual. Non-refundable loan origination and commitment fees, net of direct costs of originating or acquiring loans, are deferred and recognized over the estimated lives of the related loans as an adjustment to the loans’ effective yield. Regions engages in both direct and leveraged lease financing. The net investment in direct financing leases is the sum of all minimum lease payments and estimated residual values, less unearned income. Unearned income is recognized over the terms of the leases to produce a level yield. The net investment in leveraged leases is the sum of all lease payments (less non-recourse debt payments), plus estimated residual values, less unearned income. Income from leveraged leases is recognized over the term of the leases based on the unrecovered equity investment. Loans are placed on non-accrual status when management has determined that full payment of all contractual principal and interest is in doubt, or the loan is past due 90 days or more as to principal and/or interest unless the loan is well-secured and in the process of collection. When a loan is placed on non-accrual status, uncollected interest accrued in the current year is reversed and charged to interest income. Uncollected interest accrued from prior years on loans placed on non-accrual status in the current year is charged against the allowance for loan losses. Charge-offs on commercial loans occur when available information confirms the loan is not fully collectible and the loss is reasonably quantifiable. Consumer loans are subject to mandatory charge-off at a specified delinquency date consistent with regulatory guidelines. Interest collections on non-accrual loans for which the ultimate collectability of principal is uncertain are applied as principal reductions. Regions determines past due or delinquency status of a loan based on contractual payment terms. 100 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents ALLOWANCE FOR CREDIT LOSSES Through provisions charged directly to expense, Regions has established an allowance for credit losses (“allowance”). This allowance is comprised of two components: the allowance for loan losses, which is a contra-asset to loans, and a reserve for unfunded credit commitments, which is recorded in other liabilities. The allowance is reduced by actual losses and increased by recoveries, if any. Regions charges losses against the allowance in the period the loss is confirmed. The allowance is maintained at a level believed adequate by management to absorb probable losses inherent in the loan portfolio. Management’s determination of the adequacy of the allowance is an ongoing, quarterly process and is based on an evaluation of the loan portfolio, historical loan loss experience, current economic conditions, collateral values of properties securing loans, volume, growth, quality and composition of the loan portfolio, regulatory guidance, and other relevant factors. Unfavorable changes in any of these, or other factors, or the availability of new information, could require that the allowance be adjusted in future periods. Actual losses could vary from management’s estimates. Except for allowance on loans subject to Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan” (“FAS 114”), no portion of the resulting allowance is allocated to any individual credits or group of credits. The remaining allowance is available to absorb losses from any and all loans. Regions’ assessment of allowance levels is determined in accordance with regulatory guidelines, FAS 114 and Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (“FAS 5”). In determining the allowance, management uses information to stratify the loan portfolio into loan pools with common risk characteristics. Loan pools in the portfolio are assigned estimated allowance amounts of loss based on various factors and analyses, including but not limited to, current and historical loss experience trends and levels of problem credits, current economic conditions, changes in product mix and underwriting. Loans deemed to be impaired include non-accrual loans, excluding consumer loans, and troubled debt restructurings (“TDRs”). Impaired loans, excluding consumer loans, with outstanding balances greater than $2.5 million are evaluated individually rather than on a pool basis as described above. For these loans, Regions measures the level of impairment based on the present value of the estimated projected cash flows, the estimated value of the collateral or, if available, the observable market price. For consumer TDRs, Regions measures the level of impairment based on pools of loans stratified by common risk characteristics. In order to estimate a reserve for unfunded commitments, Regions uses a process consistent with that used in developing the allowance for loan losses. Regions estimates future fundings, which are less than the total unfunded commitment amounts, based on historical funding experience. Allowance for loan loss factors, which are based on product and customer type and are consistent with the factors used for portfolio loans, are applied to these funding estimates to arrive at the reserve balance. Changes in the reserve for unfunded commitments are recognized in other non-interest expense. ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS Regions historically sold receivables, such as commercial loans, residential mortgage loans and dealer loans, in securitizations and to third parties, including conduits. When Regions sold these receivables, it retained a continuing interest in the form of interest-only strips, one or more subordinated tranches, servicing rights or cash reserve accounts. These retained interests were initially recognized based on their respective allocated cost basis on the date of transfer. Any gain or loss on the sale of the receivables depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative estimated fair value at the date of transfer. Retained interests in the subordinated tranches and interest-only strips were recorded at fair value and included in securities available for sale. Subsequent adjustments to fair value are recorded through other comprehensive income. Quoted market prices for these assets are generally not available, so Regions estimates fair value based on the present value of expected future cash flows using management’s best estimates of the key assumptions—expected credit losses, prepayment speeds, weighted-average life, and discount rates commensurate with the inherent risks of the asset. In 101 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents calculating prepayment rates, Regions utilizes a variety of prepayment models depending on the loan type and specific transaction requirements. The models used by Regions include the constant prepayment rate model (CPR) and the Bond Market Trade Association’s Mortgaged Asset-Backed Securities Division’s prepayment model (PSA). On a quarterly basis, Regions ensures that any retained interests are valued appropriately in the consolidated financial statements. Management reviews the historical performance of each retained interest and the assumptions used to project future cash flows. Assumptions are revised if past performance and future expectations dictate. The present value of cash flows is then recalculated based on the revised assumptions. Amounts capitalized for the right to service mortgage loans are amortized as a component of other non-interest expense over the estimated remaining lives of the loans, considering appropriate prepayment assumptions. Mortgage servicing rights are recorded at the lower of aggregate cost or estimated fair value on a stratified basis as further discussed in Note 23. The estimated fair value of mortgage servicing rights is estimated using various assumptions including future cash flows, market discount rates, as well as expected prepayment rates, servicing costs and other factors. Changes in these factors could result in impairment of the servicing asset and a charge against earnings. For purposes of evaluating impairment, the Company stratifies its mortgage servicing portfolio on the basis of certain risk characteristics, including loan type and interest rate. Impairment related to mortgage servicing rights is recorded in other non-interest expense. Contractually specified servicing fees, late fees and other ancillary income related to the servicing of mortgage loans are recorded in mortgage income. Refer to Note 8 for further discussion of mortgage servicing rights. Effective January 1, 2009, the Company made an election allowed by Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets, an Amendment of FASB Statement No. 140” (“FAS 156”) to prospectively change the policy for accounting for mortgage servicing rights from the amortization method to the fair value measurement method. The fair value measurement method requires the servicing assets and liabilities to be measured at fair value each period with an offset to income. The adoption did not have a material impact on the consolidated financial statements. PREMISES AND EQUIPMENT Premises and equipment are stated at cost, less accumulated depreciation and amortization, as applicable. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the improvements (or the terms of the leases, if shorter). Generally, premises and leasehold improvements are depreciated or amortized over 10-40 years. Furniture and equipment are generally depreciated or amortized over 3-12 years. Regions enters into lease transactions for the right to use assets. These leases vary in term and, from time to time, include incentives and/or rent escalations. Examples of incentives include periods of “free” rent and leasehold improvement incentives. Regions recognizes incentives and escalations on a straight-line basis over the lease term as a reduction of or increase to rent expense, as applicable, in net occupancy expense on the consolidated statements of operations. INTANGIBLE ASSETS Intangible assets include goodwill, which is the excess of cost over the fair value of net assets of acquired businesses, and other identifiable intangibles. Other identifiable intangible assets include the following: (1) core deposit intangible assets, which are amounts recorded related to the value of acquired indeterminate-maturity deposits, (2) amounts capitalized related to the value of acquired customer relationships and (3) amounts recorded related to employment agreements with certain individuals of acquired entities. Core deposit intangibles and most other identifiable intangibles are amortized on an accelerated basis over their expected useful lives. 102 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The Company’s goodwill is tested for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment. Adverse changes in the economic environment, declining operations, or other factors could result in a decline in the implied fair value of goodwill. If the implied fair value is less than the carrying amount, a loss would be recognized in other non-interest expense to reduce the carrying amount to implied fair value of goodwill. A goodwill impairment test includes two steps. Step One, used to identify potential impairment, compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. Step Two of the goodwill impairment test compares the implied estimated fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of goodwill for that reporting unit exceeds the implied fair value of that unit’s goodwill, an impairment loss is recognized in an amount equal to that excess. Regions tested goodwill for impairment several times during 2008 and recorded a $6 billion impairment charge within the General Bank/Treasury unit during the fourth quarter. For purposes of testing goodwill for impairment, Regions uses both the income and market approaches to value its reporting units. The income approach consists of discounting projected long-term future cash flows, which are derived from internal forecasts and economic expectations for the respective reporting units. The projected future cash flows are discounted using cost of capital metrics for Regions’ peer group or a build-up approach (such as the capital asset pricing model) applicable to each reporting group. The significant inputs to the income approach include the long-term target tangible equity to tangible assets ratio and the discount rate, which is determined in the build-up approach using the risk-free rate of return, adjusted equity beta, equity risk premium, and a company-specific risk factor. The company-specific risk factor is used to address the uncertainty of growth estimates and earnings projections of management. Regions uses the public company method and the transaction method as the two market approaches. The public company method applies a value multiplier derived from each reporting unit’s peer group to a financial metric of the reporting unit (e.g. last twelve months of net income, last twelve months of earnings before interest, taxes and depreciation, tangible book value, etc.) and an implied control premium to the respective reporting unit. The control premium is evaluated and compared to similar financial services transactions. The transaction method applies a value multiplier to a financial metric of the reporting unit based on comparable observed purchase transactions in the financial services industry for the reporting unit (where available). Regions uses the output from these approaches to determine estimated fair value. Below is a table of assumptions used in estimating the fair value of each reporting unit at December 31, 2008. The table includes the discount rate used in the income approach, the market multiplier used in the market approaches, and the implied control premium applied to all reporting units. Discount rate used in income approach Public company method market multiplier (a) Public company method control premium Transaction method market multiplier (b) General Banking/ Treasury 21% 0.6x 30% 0.8x Investment Banking/ Brokerage/ Trust 11% n/a 30% 3.32x Insurance 9% 8.7x 30% n/a (a) (b) For the General Bank/Treasury and Insurance reporting units, these multipliers are applied to tangible book value and the last twelve months of earnings before interest, taxes and depreciation, respectively. For the General Bank/Treasury and Investment Banking/Brokerage/Trust reporting units, these multipliers are applied to tangible book value and brokerage assets under management, respectively. Other identifiable intangible assets are reviewed at least annually for events or circumstances that could impact the recoverability of the intangible asset. These events could include loss of core deposits, increased competition or adverse changes in the economy. To the extent other identifiable intangible assets are deemed unrecoverable, impairment losses are recorded in other non-interest expense to reduce the carrying amount. 103 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Refer to Note 10 for further discussion of the results of the goodwill and other identifiable intangibles impairment tests. FORECLOSED PROPERTY AND OTHER REAL ESTATE Other real estate acquired in satisfaction of indebtedness (“foreclosure”) is carried in other assets at the lower of the recorded investment in the loan or fair value less estimated cost to sell the property. At the date of transfer, when the recorded investment in the loan exceeds the property’s fair value less cost to sell, write-downs are recorded as charge-offs in the allowance. Subsequent to transfer, additional write-downs are recorded as other non-interest expense. Gain or loss on the sale of foreclosed property and other real estate is included in other non-interest expense. See Note 11 for details. From time to time, assets classified as premises and equipment are transferred to held for sale for various reasons. These assets are carried in other assets at the lower of the recorded investment in the asset or fair value less estimated cost to sell based upon the property’s appraised value at the date of transfer. Any write-downs of property held for sale are recorded as other non-interest expense. At December 31, 2008 and 2007, the carrying values of premises and equipment held for sale were approximately $31.6 million and $81.8 million, respectively. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES The Company enters into derivative financial instruments to manage interest rate risk, facilitate asset/liability management strategies and manage other exposures. These instruments primarily include interest rate swaps, options on interest rate swaps, interest rate caps and floors, and forward sale commitments. All derivative financial instruments are recognized on the consolidated balance sheets as other assets or other liabilities at fair value as required by FAS 133. Regions enters into master netting agreements with counterparties and/or requires collateral based on counterparty credit ratings to cover exposures. Derivative financial instruments that qualify under FAS 133 in a hedging relationship are designated, based on the exposure being hedged, as either fair value or cash flow hedges. For derivative financial instruments not designated as fair value or cash flow hedges, gains and losses related to the change in fair value are recognized in earnings during the period of change in fair value as brokerage, investment banking and capital markets income. Fair value hedge relationships mitigate exposure to the change in fair value of an asset, liability or firm commitment. Under the fair value hedging model, gains or losses attributable to the change in fair value of the derivative instrument, as well as the gains and losses attributable to the change in fair value of the hedged item, are recognized in earnings in the period in which the change in fair value occurs. Hedge ineffectiveness is recognized to the extent the changes in fair value of the derivative do not offset the changes in fair value of the hedged item as other non-interest expense. The corresponding adjustment to the hedged asset or liability is included in the basis of the hedged item, while the corresponding change in the fair value of the derivative instrument is recorded as an adjustment to other assets or other liabilities, as applicable. Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. For cash flow hedge relationships, the effective portion of the gain or loss related to the derivative instrument is recognized as a component of other comprehensive income. The ineffective portion of the gain or loss related to the derivative instrument, if any, is recognized in earnings as other non-interest expense during the period of change. Amounts recorded in other comprehensive income are recognized in earnings in the period or periods during which the hedged item impacts earnings. The Company formally documents all hedging relationships between hedging instruments and the hedged items, as well as its risk management objective and strategy for entering into various hedge transactions. The Company performs periodic assessments to determine whether the hedging relationship has been highly effective in offsetting changes in fair values or cash flows of hedged items and whether the relationship is expected to continue to be highly effective in the future. 104 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents When a hedge is terminated or hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, or because it is probable that the forecasted transaction will not occur by the end of the specified time period, the derivative will continue to be recorded in the consolidated balance sheets at its fair value, with changes in fair value recognized currently in other non-interest income. Any asset or liability that was recorded pursuant to recognition of the firm commitment is removed from the consolidated balance sheets and recognized currently in other non-interest income. Gains and losses that were accumulated in other comprehensive income pursuant to the hedge of a forecasted transaction are recognized immediately in other non-interest income. Regions also enters into interest rate lock commitments, which are commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. Accordingly, such commitments are recorded at fair value with changes in fair value recorded in mortgage income. Fair value is based on fees currently charged to enter into similar agreements and, for fixed-rate commitments, considers the difference between current levels of interest rates and the committed rates. Regions also has corresponding forward sale commitments related to these interest rate lock commitments, which are recorded at fair value with changes in fair value recorded in mortgage income. Regions enters into various derivative agreements with customers desiring protection from possible future market fluctuations. Regions manages the market risk associated with these derivative agreements in a trading portfolio. The contracts in this portfolio do not qualify for hedge accounting and are marked-to-market through earnings and included in other assets and other liabilities. Customer derivatives are paired with offsetting derivative contracts that, when completed, are designed to eliminate market risk. INCOME TAXES Regions and its subsidiaries file various federal and state income tax returns, including some returns that are consolidated with subsidiaries. Regions accounts for the current and future tax effects of such returns using the asset and liability method, recording deferred tax assets and liabilities and applying federal and state tax rates currently in effect to its cumulative temporary differences. Temporary differences are differences between financial statement carrying amounts and the corresponding tax bases of assets and liabilities. From time to time, for certain business plans enacted by Regions, management bases the estimates of related tax liabilities on its belief that future events will validate management’s current assumptions regarding the ultimate outcome of tax-related exposures. If the tax effects of a plan are significant, Regions’ practice is to obtain the opinion of advisors that the tax effects of such plans should prevail if challenged. If the tax benefits associated with a plan are not more-likely-than-not of being sustained upon examination by weighing the facts and circumstances at the reporting date, Regions records a liability for the recognized income tax benefits associated with that plan. The examination of Regions’ income tax returns or changes in tax law may impact the tax benefits of these plans. Regions recognizes accrued interest and penalties related to unrecognized tax benefits as tax expense. Regions believes adequate provisions for income tax have been recorded for all years open for examination. In July 2006, Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) was issued, which requires that only benefits from tax positions that are more-likely-than-not of being sustained upon examination should be recognized in the financial statements. As a result of the implementation of FIN 48, the Company recognized an approximate $259.0 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007 balance of retained earnings. TREASURY STOCK The purchase of the Company’s common stock is recorded at cost. At the date of retirement or subsequent reissuance, treasury stock is reduced by the cost of such stock with differences recorded in additional paid-in capital or retained earnings, as applicable. 105 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents SHARE-BASED PAYMENTS Compensation cost for share-based payments is measured based on the fair value of the award, which most commonly includes restricted stock (i.e., unvested common stock) and stock options, at the grant date and is recognized in the consolidated financial statements on a straight-line basis over the requisite service period for service-based awards. Awards may also take the form of restricted stock units. The fair value of restricted stock or restricted stock units is determined based on the average of the high and low price of Regions’ common stock on the date of grant. The fair value of stock options is estimated at the date of grant using a Black-Scholes option pricing model and related assumptions. Expected volatility considers implied volatility from traded options on the Company’s stock and, primarily, historical volatility of the Company’s stock. Regions considers historical data to estimate future option exercise behavior, which is used to derive an option’s expected term. The expected term represents the period of time that options are expected to be outstanding from the grant date. Historical data is also used to estimate future employee attrition, which is used to calculate an expected forfeiture rate. Groups of employees that have similar historical exercise behavior are reviewed and considered for valuation purposes. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant and the weighted-average expected life of the grant. REVENUE RECOGNITION The largest source of revenue for Regions is interest revenue. Interest revenue is recognized on an accrual basis driven by nondiscretionary formulas based on written contracts, such as loan agreements or securities contracts. Credit-related fees, including letter of credit fees, are recognized in non-interest income when earned. Regions recognizes commission revenue and brokerage, exchange and clearance fees on a trade-date basis. Other types of non-interest revenues, such as service charges on deposits and trust revenues, are accrued and recognized into income as services are provided and the amount of fees earned are reasonably determinable. PER SHARE AMOUNTS Earnings (loss) per common share computations are based upon the weighted-average number of shares outstanding during the period. Diluted earnings (loss) per common share computations are based upon the weighted-average number of shares outstanding during the period, plus the dilutive effect of outstanding stock options and stock performance awards (referred to as common stock equivalents). RECENT ACCOUNTING PRONOUNCEMENTS AND ACCOUNTING CHANGES In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“FAS 158”). FAS 158 requires employers to fully recognize in their financial statements the obligations associated with single-employer defined benefit pension plans, retiree health care plans and other postretirement plans. Specifically, it requires a company to (1) recognize on its balance sheet an asset for a plan’s overfunded status or a liability for a plan’s underfunded status, (2) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year, and (3) recognize changes in the funded status of a plan through comprehensive income in the year in which the changes occur. Companies with publicly traded equity securities were required to prospectively adopt the recognition and disclosure provisions of FAS 158 effective for fiscal years ending after December 15, 2006. Regions adopted FAS 158 on December 31, 2006, and recorded an after-tax reduction to the ending balance of accumulated other comprehensive income of $64.1 million to recognize the funded status of Regions’ pension and other postretirement benefit plans. On January 1, 2008, Regions made a cumulative effect adjustment to reflect the transition to a fiscal year-end measurement date, which resulted in an after-tax reduction to beginning retained earnings of approximately $1.7 million. The first year-end measurement date for Regions was December 31, 2008. 106 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents In September 2006, the FASB ratified the consensus the Emerging Issues Task Force (“EITF”) reached regarding EITF Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (“EITF 06-4”), which provides accounting guidance for postretirement benefits related to endorsement split-dollar life insurance arrangements, whereby the employer owns and controls the insurance policies. The consensus concludes that an employer should recognize a liability for the postretirement benefit in accordance with Statement of Financial Accounting Standards No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (“FAS 106”) or Accounting Principles Board Opinion No. 12, “Omnibus Opinion – 1967” (“APB 12”). In addition, the consensus states that an employer should also recognize an asset based on the substance of the arrangement with the employee. EITF 06-4 is effective for fiscal years beginning after December 15, 2007, with early application permitted. In March 2007, the FASB ratified the consensus the EITF reached regarding EITF Issue No. 06-10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements” (“EITF 06-10”), which provides accounting guidance for postretirement benefits related to collateral assignment split-dollar life insurance arrangements, whereby the employee owns and controls the insurance policies. The consensus concludes that an employer should recognize a liability for the postretirement benefit in accordance with FAS 106 or APB 12, as well as recognize an asset based on the substance of the arrangement with the employee. EITF 06-10 is effective for fiscal years beginning after December 15, 2007, with early application permitted. Regions adopted EITF 06-4 and 06-10 on January 1, 2008, and the effect of adoption on the consolidated financial statements was an after-tax reduction in retained earnings of approximately $15.5 million. In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”), which provides guidance for using fair value to measure assets and liabilities, but does not expand the use of fair value in any circumstance. FAS 157 also requires expanded disclosures about the extent to which a company measures assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on an entity’s financial statements. This statement applies whenever other standards require or permit assets and liabilities to be measured at fair value. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. Regions adopted FAS 157 on January 1, 2008, and the effect of adoption on the consolidated financial statements was not material. Prospectively, Regions anticipates the adoption of FAS 157 will impact the valuation of derivatives, specifically the credit component of the valuation. In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”). FAS 159 allows entities to voluntarily choose, at specified election dates, to measure financial assets and financial liabilities (as well as certain non-financial instruments that are similar to financial instruments) at fair value (the “fair value option”). The election is made on an instrument-by-instrument basis and is irrevocable. If the fair value option is elected for an instrument, FAS 159 specifies that all subsequent changes in fair value for that instrument be reported in earnings. FAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, and earlier adoption is permitted. Regions adopted FAS 159 on January 1, 2008, for certain loans held for sale originated on or after January 1, 2008, and there was no material effect of adoption on the consolidated financial statements. Prospectively, Regions anticipates the adoption of FAS 159 will accelerate the timing of gain recognition on loans held for sale. In April 2007, the FASB issued FASB Staff Position FIN 39-1, “Amendment of FASB Interpretation No. 39” (“FSP FIN 39-1”), which permits a reporting entity that is party to a master netting agreement to offset fair value amounts recognized for rights and obligations relating to cash collateral against fair value amounts recognized for derivative instruments that have been offset under the same master netting arrangements. FSP FIN 39-1 requires entities to make an accounting policy election to carry collateral posted/received at fair value, netted against the corresponding derivative positions, or carry collateral posted/received presented separately at cost. FSP FIN 39-1 is effective for fiscal years beginning after November 15, 2007, requiring retrospective 107 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents application for all financial statements presented. Regions has elected not to present collateral posted/received under master netting arrangements at fair value and thus, has not netted such amounts against derivative amounts included in the consolidated balance sheets. Collateral posted/received is included in other interest-earning assets/short-term borrowings on the consolidated balance sheets. In November 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 109, “Application of Accounting Principles to Loan Commitments” (“SAB 109”), to inform registrants of the Staff’s view that the fair value of written loan commitments that are accounted for at fair value should include expected net future cash flows related to the associated servicing of the loan. Additionally, the Staff reaffirmed its previous views that internally-developed intangible assets (such as customer relationship intangible assets) should not be recorded as part of the fair value of such commitments. The Staff expects registrants to apply the views stated in SAB 109 on a prospective basis to written loan commitments recorded at fair value which were issued or modified in fiscal quarters beginning after December 15, 2007. Regions adopted SAB 109 on January 1, 2008. The adoption of SAB 109 did not have a material impact on Regions’ consolidated financial statements. In December 2008, the FASB issued FASB Staff Position No. FAS 140-4 and FIN 46(R)-8, “Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities” (“FSP 140-4 and 46(R)-8”). This FSP requires additional disclosures by public entities with continuing involvement in transfers of financial assets to special purpose entities and with variable interests in VIEs, including sponsors that have a variable interest in a VIE. Additionally, this FSP requires certain disclosures to be provided by a public entity that is (1) a sponsor of a qualifying special-purpose entity (“SPE”) that holds a variable interest in the qualifying SPE but was not the transferor (nontransferor) of financial assets to the qualifying SPE, and (2) a servicer of a qualifying SPE that holds a significant variable interest in the qualifying SPE but was not the transferor (nontransferor) of financial assets to the qualifying SPE. This FSP is effective for the first reporting period (interim or annual) that ends after December 15, 2008. Regions adopted FSP 140-4 and 46(R)-8 as of December 31, 2008, and the applicable disclosures are contained in Note 2, “Variable Interest Entities” to the consolidated financial statements. In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payments Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 requires that instruments granted in share-based payment transactions, that are considered to be participating securities, should be included in the earnings allocation in computing earnings per share (“EPS”) under the two-class method described in FASB Statement No. 128, “Earnings per Share”. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008 with all prior period EPS data being adjusted retrospectively. Early adoption is not permitted. Regions adopted FSP EITF 03-6-1 as of December 31, 2008, and the effect of adoption on the consolidated financial statements was not material. In October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP 157-3”). FSP 157-3 clarifies the application of FAS 157 in a market that is not active. The FSP is intended to address the following application issues: (a) how the reporting entity’s own assumptions (that is, expected cash flows and appropriately risk-adjusted discount rates) should be considered when measuring fair value when relevant observable inputs do not exist; (b) how available observable inputs in a market that is not active should be considered when measuring fair value; and (c) how the use of market quotes (for example, broker quotes or pricing services for the same or similar financial assets) should be considered when assessing the relevance of observable and unobservable inputs available to measure fair value. FSP 157-3 is effective on issuance, including prior periods for which financial statements have not been issued. Regions adopted FSP 157-3 for the quarter ended September 30, 2008 and the effect of adoption on the consolidated financial statements was not material. 108 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents FUTURE APPLICATION OF ACCOUNTING STANDARDS In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“FAS 141(R)”). FAS 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. FAS 141(R) is effective for fiscal years beginning after December 15, 2008. Regions is in the process of reviewing the potential impact of FAS 141(R). The adoption of FAS 141(R) could have a material impact to the consolidated financial statements for business combinations entered into after the effective date of FAS 141(R). Also, any tax contingencies related to acquisitions prior to the effective date of FAS 141(R) that are resolved after the adoption of FAS 141(R) would be recorded through current earnings, and also could have a material impact to the consolidated financial statements. In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“FAS 160”), which requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. Additionally, FAS 160 requires that transactions between an entity and noncontrolling interests be treated as equity transactions. FAS 160 is effective for fiscal years beginning after December 15, 2008. Regions is in the process of reviewing the potential impact of FAS 160; however, the adoption of FAS 160 is not expected to have a material impact to the consolidated financial statements. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires entities to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”) and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, and early adoption is permitted. Regions is in the process of reviewing the potential impact of FAS 161; however, the adoption of FAS 161 is not expected to have a material impact to the consolidated financial statements. In December 2008, the FASB issued FASB Staff Position No. 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP 132(R)-1”). This FSP amends FASB Statement No. 132(R), “Employer’s Disclosures about Pensions and Other Postretirement Benefits” (“FAS 132(R)”), to require additional disclosures about assets held in an employer’s defined benefit pension or other postretirement plan. This FSP is applicable to an employer that is subject to the disclosure requirements of FAS 132(R) and is generally effective for fiscal years ending after December 15, 2009. Regions is in the process of reviewing the potential impact of FSP 132(R)-1; however, the adoption of FSP 132(R)-1 is not expected to have a material impact to the consolidated financial statements. NOTE 2. VARIABLE INTEREST ENTITIES Regions is involved in various entities that are considered to be VIEs, as defined by FASB Interpretation No. 46(R) (“FIN 46 (R)). Generally, a VIE is a corporation, partnership, trust or other legal structure that either does not have equity investors with substantive voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities. Regions owns the common stock of subsidiary business trusts, which have issued mandatorily redeemable preferred capital securities (“trust preferred securities”) in the aggregate of approximately $1 billion at the time of issuance. These trusts meet the definition of a VIE of which Regions is not the primary beneficiary; the trusts’ only assets are junior subordinated debentures issued by Regions, which were acquired by the trusts using the proceeds from the issuance of the trust preferred securities and common stock. The junior subordinated debentures are included in long-term borrowings and Regions’ equity interests in the business trusts are included 109 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents in other assets. Interest expense on the junior subordinated debentures is reported in interest expense on long-term borrowings. For regulatory reporting and capital adequacy purposes, the Federal Reserve Board has indicated that such trust preferred securities will continue to constitute Tier 1 Capital until further notice. Regions periodically invests in various limited partnerships that sponsor affordable housing projects, which are funded through a combination of debt and equity with equity typically comprising 30% to 50% of the total partnerships’ capital. These partnerships meet the definition of a VIE. Due to the nature of the management activities of the general partner, Regions is not the primary beneficiary of these partnerships. Regions’ equity method investments as of December 31, 2008 and 2007 were $710.0 million and $457.3 million, respectively, which are included in other assets. Regions reports its equity share of the partnership gains and losses as an adjustment to non-interest income. The Company also receives credits toward its federal income tax liabilities, which are reported as a reduction of income tax expense (or increase to income tax benefit) and a reduction of federal income taxes payable. Unfunded commitments to the partnerships included in other liabilities were $298.1 million and $156.8 million, respectively. Additionally, Regions has short-term construction loans or letters of credit with certain of the partnerships totaling $187.7 million and $68.9 million as of December 31, 2008 and 2007, respectively. The portion of the letters of credit which was funded was $114.8 million and $49.6 million, at December 31, 2008 and 2007, respectively. The funded portion is classified with commercial loans on the consolidated balance sheets. NOTE 3. BUSINESS COMBINATIONS AND ASSETS HELD FOR SALE On November 4, 2006, Regions completed its merger with AmSouth Bancorporation (“AmSouth”), headquartered in Birmingham, Alabama. Regions’ consolidated financial statements include the results of operations of acquired companies only from their respective dates of acquisition. The following unaudited summary information presents the consolidated results of operations of Regions on a pro forma basis for the year ended December 31, 2006 as if AmSouth had been acquired on January 1, 2006. The pro forma summary information does not necessarily reflect the results of operations that would have occurred if the acquisition had occurred at the beginning of the period presented, or of results which may occur in the future. Net interest income Provision for loan losses Net interest income after provision for loan losses Non-interest income Non-interest expense Income before income taxes from continuing operations Income taxes Income from continuing operations Discontinued operations (Note 4): Loss from discontinued operations before income taxes Income tax benefit Loss from discontinued operations, net of taxes Net income Weighted-average number of shares outstanding: Basic Diluted Earnings per share from continuing operations: Basic Diluted Earnings per share: Basic Diluted 110 Unaudited Amounts as of December 31, 2006 (In thousands, except per share data) $ $ $ 4,809,582 235,173 4,574,409 2,625,456 4,524,482 2,675,383 849,071 1,826,312 (32,606) (13,230) (19,376) 1,806,936 732,594 737,902 2.49 2.48 2.47 2.45 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents ASSETS HELD FOR SALE In February 2007, Regions listed more than 100 branch and land properties for sale related to the AmSouth merger. These properties exist in areas where the merger created an overlapping presence. During 2008, additional properties were listed for sale. Regions classified these properties as held for sale at December 31, 2008 and 2007 in other assets on the balance sheet. During 2008 and 2007, Regions sold approximately $43.9 million and $35.4 million, respectively, of properties recorded as held for sale. A net gain of approximately $5.3 million and $32.7 million was recognized in other non-interest expense from continuing operations on the consolidated statements of operations during the years ended December 31, 2008 and 2007, respectively. BRANCH DIVESTITURES During the first quarter of 2007, Regions completed the divestiture of 52 former AmSouth branches. These divestitures were required by the Department of Justice and Board of Governors of the Federal Reserve in markets where the merger may have affected competition. The premium received from the divestitures is reflected in goodwill. NOTE 4. DISCONTINUED OPERATIONS On March 30, 2007, Regions sold EquiFirst Corporation (“EquiFirst”), a wholly owned non-conforming mortgage origination subsidiary. Consequently, the business related to EquiFirst has been accounted for as discontinued operations and the results are presented separately on the consolidated statements of operations for all periods presented. Resolution of the sales price was completed in October 2008, resulting in an after-tax loss of approximately $10 million. Prior to the sale of EquiFirst and excluding the loss on the sale, Regions recorded, during 2007, approximately $142 million in after-tax losses related to the operations of EquiFirst. The primary factor in the recognition of these losses was the significant and rapid deterioration of the sub-prime market during the first three months of 2007. The results from discontinued operations for the years ended December 31 are as follows: Net interest income Provision for loan losses Net interest income after provision for loan losses Total non-interest income, excluding gain on sale of discontinued operations Total non-interest expense Loss from discontinued operations before income taxes Gain on sale of discontinued operations before income taxes Loss from discontinued operations before income taxes Income tax benefit Loss from discontinued operations, net of tax 111 2008 $ — — — — 18,405 (18,405) — (18,405) (6,944) $ (11,461) 2007 (In thousands) 11,968 $ 182 11,786 (188,658) 52,492 (229,364) 11,977 (217,387) (75,319) $ (142,068) 2006 $ 45,140 127 45,013 32,384 110,003 (32,606) — (32,606) (13,230) $ (19,376) Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents NOTE 5. SECURITIES The amortized cost and estimated fair value of securities available for sale and securities held to maturity at December 31 are as follows: Securities available for sale: U.S. Treasury securities Federal agency securities Obligations of states and political subdivisions Mortgage-backed securities Other debt securities Equity securities Securities held to maturity: U.S. Treasury securities Federal agency securities Obligations of states and political subdivisions Mortgage-backed securities Other debt securities Securities available for sale: U.S. Treasury securities Federal agency securities Obligations of states and political subdivisions Mortgage-backed securities Other debt securities Equity securities Securities held to maturity: U.S. Treasury securities Federal agency securities Obligations of states and political subdivisions Mortgage-backed securities Other debt securities Gross Unrealized Gains 2008 Gross Unrealized Losses (In thousands) 83,726 175,375 8,827 283,303 105 427 551,763 1,120 274 20 58 10 1,482 $ $ $ $ — (53) (8,048) (539,231) (2,551) (14,609) (564,492) — (876) — (257) — (1,133) Gross Unrealized Gains 2007 Gross Unrealized Losses (In thousands) 5,611 93,972 7,585 91,124 91 1,052 199,435 586 219 16 33 12 866 $ $ $ $ (3,320) (2,089) (1,769) (40,337) (963) (1,395) (49,873) — — — — (11) (11) $ $ $ $ $ $ $ $ Cost $ 801,999 1,520,636 755,365 14,585,349 21,412 1,177,450 $ 18,862,211 $ $ 14,578 9,728 550 19,921 2,529 47,306 Cost $ 944,306 3,224,350 725,351 11,024,643 45,046 1,204,816 $ 17,168,512 $ $ 18,050 13,423 1,200 17,328 934 50,935 Estimated Fair Value 885,725 1,695,958 756,144 14,329,421 18,966 1,163,268 18,849,482 15,698 9,126 570 19,722 2,539 47,655 Estimated Fair Value 946,597 3,316,233 731,167 11,075,430 44,174 1,204,473 17,318,074 18,636 13,642 1,216 17,361 935 51,790 $ $ $ $ $ $ $ $ 112 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The following tables present the age of gross unrealized losses and estimated fair value by investment category for securities available for sale at December 31: Federal agency securities Mortgage-backed securities All other securities U.S. Treasury securities Federal agency securities Mortgage-backed securities All other securities Less Than Twelve Months Estimated Fair Value Unrealized Losses $ $ 3,184 $ 1,829,992 204,035 2,037,211 $ (22) $ (422,059) (20,946) (443,027) $ 2008 Twelve Months or More Estimated Fair Value Unrealized Losses Total Estimated Fair Value Unrealized Losses (In thousands) 1,155 $ 660,326 137,428 798,909 $ (31) $ (117,172) (4,262) (121,465) $ 4,339 $ 2,490,318 341,463 2,836,120 $ (53) (539,231) (25,208) (564,492) Less Than Twelve Months Estimated Fair Value Unrealized Losses 2007 Twelve Months or More Estimated Fair Value Unrealized Losses Total Estimated Fair Value Unrealized Losses $ $ 661,273 $ 401 729,973 135,536 1,527,183 $ (3,303) $ (1) (2,694) (1,524) (7,522) $ (In thousands) 9,983 $ 702,691 3,017,234 259,339 3,989,247 $ (17) $ (2,088) (37,643) (2,603) (42,351) $ 671,256 $ 703,092 3,747,207 394,875 5,516,430 $ (3,320) (2,089) (40,337) (4,127) (49,873) Regions evaluates securities in a loss position for other-than-temporary impairment, considering such factors as the length of time and the extent to which the market value has been below cost, the credit standing of the issuer, and Regions’ ability and intent to hold the security until its market value recovers. Management does not believe any individual unrealized loss, which was comprised of 1,065 securities and 1,021 securities as of December 31, 2008 and 2007, respectively, represented an other-than-temporary impairment as of those dates. The unrealized losses related primarily to the impact of lower interest rates and widening of credit and liquidity spreads related to U.S. Treasury securities, Federal agency securities and mortgage-backed securities. During 2008 and 2007, Regions recognized a write-down of securities of approximately $28.3 million and $7.2 million, respectively, representing other-than-temporary impairment, related primarily to equity securities and retained interests on beneficial interests. 113 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The cost and estimated fair value of securities available for sale and securities held to maturity at December 31, 2008, 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. Securities available for sale: Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Mortgage-backed securities Equity securities Securities held to maturity: Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Mortgage-backed securities Cost Estimated Fair Value (In thousands) $ 218,140 370,445 2,250,671 260,156 14,585,349 1,177,450 $ 18,862,211 $ $ 8,281 14,128 4,976 — 19,921 47,306 $ $ $ $ 220,083 392,840 2,491,922 251,948 14,329,421 1,163,268 18,849,482 8,442 14,060 5,431 — 19,722 47,655 Proceeds from sales of securities available for sale in 2008 were $2.1 billion, with gross realized gains and losses of $95.7 million and $3.2 million, respectively. Proceeds from sales of securities available for sale in 2007 were $2.0 billion, with gross realized gains and losses of $41.6 million and $50.2 million, respectively. Proceeds from sales of securities available for sale in 2006 were $3.8 billion, with gross realized gains and losses of $8.2 million and $50,000, respectively. Equity securities included $990.8 million and $738.0 million of amortized cost related to Federal Reserve Bank stock and Federal Home Loan Bank (“FHLB”) stock as of December 31, 2008 and 2007, respectively, whose estimated fair value approximates its carrying amount. Securities with carrying values of $16.1 billion and $15.1 billion at December 31, 2008 and 2007, respectively, were pledged to secure public funds, trust deposits and certain borrowing arrangements. In January 2009, Regions sold approximately $656 million in available for sale U.S. Treasury securities and recognized a gain of approximately $52.1 million. The proceeds will be reinvested in U.S. government agency mortgage-backed securities classified as available for sale. 114 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents NOTE 6. LOANS The loan portfolio at December 31 consisted of the following: Commercial and industrial Commercial real estate Construction Residential first mortgage Home equity Indirect Other consumer 2008 2007 (In thousands) $ $ 23,595,418 26,208,325 10,634,063 15,839,015 16,130,255 3,853,770 1,157,839 97,418,685 $ 20,906,617 23,107,176 13,301,898 16,959,545 14,962,007 3,938,113 2,203,491 $ 95,378,847 The loan portfolio is diversified geographically, primarily within Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia. Regions considers its residential homebuilder, home equity loans secured by second liens in Florida and condominium portfolios as concentrations due to the recent stresses from economic downturns and real estate market deterioration. The residential homebuilder portfolio was approximately $4.4 billion and $7.2 billion, respectively at December 31, 2008 and 2007, and represented extensions of credit to real estate developers where repayment is dependent on the sale of real estate. The majority of these loans are reported in the construction category while a smaller portion is reported as commercial real estate. The residential homebuilder portfolio is geographically concentrated in Florida and Atlanta, Georgia. The home equity portfolio, mainly second liens in Florida, was $3.7 billion and $3.3 billion at December 31, 2008 and 2007, respectively. The condominium portfolio was $0.9 billion and $1.6 billion at December 31, 2008 and 2007, respectively. At December 31, 2008, these stressed portfolios amounted to $9.0 billion, or 9.3% of the loan portfolio, down $3.1 billion from prior-year levels. Unearned income totaled $2.1 billion and $2.2 billion at December 31, 2008 and 2007, respectively. Included in loans, net of unearned income at December 31, 2008 and 2007, were $107.1 million and $98.2 million, respectively, of net deferred loan costs. Unamortized net discounts on loans net of unearned income totaled $25.7 million and $99.9 million at December 31, 2008 and 2007, respectively. Included in commercial loans were $2.4 billion of rentals receivable and $2.2 billion of unearned income on leveraged leases at both December 31, 2008 and 2007. Also, estimated residuals on leveraged leases were $481.4 million and $481.8 million at December 31, 2008 and 2007, respectively. Pre-tax income from leveraged leases for the years ending December 31, 2008, 2007 and 2006 was $66.6 million, $67.0 million and $12.2 million, respectively. The tax effect of this income was an expense of $61.7 million, $62.1 million and $8.6 million for the years ending December 31, 2008, 2007 and 2006, respectively. At December 31, 2008, non-accrual loans including loans held for sale totaled $1,475.0 million, compared to $743.6 million at December 31, 2007. The amount of interest income recognized in 2008, 2007 and 2006 on non-accrual loans was approximately $41.3 million, $24.5 million and $9.5 million, respectively. If these loans had been current in accordance with their original terms, approximately $116.5 million, $39.9 million and $29.0 million, respectively, would have been recognized on these loans in 2008, 2007 and 2006. At December 31, 2008 and 2007, Regions had loans contractually past due 90 days or more and still accruing of approximately $554.4 million and $356.7 million, respectively. Impaired loans are defined in Note 1. The recorded investment in impaired loans was $1,421.1 million at December 31, 2008 and $660.4 million at December 31, 2007. The allowance allocated to impaired loans, excluding TDRs which are detailed in the table below, totaled $129.8 million and $103.9 million at 115 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents December 31, 2008 and 2007, respectively. The allowance allocated to TDRs totaled $9.3 million and zero at December 31, 2008 and 2007, respectively. The average amount of impaired loans was $1,262.2 million during 2008, $396.0 million during 2007 and $212.3 million during 2006. No material amount of interest income was recognized on impaired loans for the years ended December 31, 2008, 2007 or 2006. In addition to the impaired loans discussed in the preceding paragraph, there were approximately $423.3 million in nonperforming loans classified as held for sale at December 31, 2008. There were none at December 31, 2007. The loans are larger balance credits, primarily commercial real estate. Management does not have the intent to hold these loans for the foreseeable future. The loans are carried at an amount approximating a price which will be recoverable through the loan sale market. Because the adjusted carrying value is lower than the outstanding principal, these loans are considered impaired under FAS 114. The following table summarizes TDRs for the years ended December 31: Accruing: Commercial and industrial Residential first mortgage Home equity Non-accrual status or 90 days past due: Commercial and industrial Residential first mortgage Home equity 2008 2007 (In thousands) 926 $ 406,017 47,788 454,731 10,383 66,961 593 77,937 $ 532,668 $ — — — — 10,952 — — 10,952 $ 10,952 Regions had approximately $77.3 million and $100.6 million in book value of sub-prime loans retained from the disposition of EquiFirst at December 31, 2008 and 2007, respectively. The credit loss exposure related to these loans is addressed in management’s periodic determination of the allowance for credit losses. As of December 31, 2008, Regions had funded $331.7 million in letters of credit backing Variable-Rate Demand Notes (“VRDNs”). These loans are included in the commercial category in the table above. An additional $9 million has been tendered but not yet funded. The remaining unfunded VRDN letters of credit portfolio is approximately $4.9 billion (net of participations). Regions’ recorded recourse liability, which primarily relates to residential mortgage loans, totaled $31.8 million and $29.8 million at December 31, 2008 and 2007, respectively. The recourse liability represents Regions’ estimated credit losses on contingent repurchases of loans or make-whole payments related to residential mortgage loans previously sold. This recourse arises when debtors fail to pay for an initial period of time after the loan is sold or due to defects in the underwriting of the sold loans. At December 31, 2008 and 2007, approximately $5.5 billion and $6.3 billion, respectively, of first mortgage loans on one-to-four family dwellings held by Regions were pledged to secure borrowings from the FHLB, as well as $6.0 billion of home equity loans at December 31, 2008 (see Note 14 for further discussion). At December 31, 2008, approximately $22.0 billion of commercial loans, $6.0 billion of home equity loans and $3.1 billion of other consumer loans held by Regions were pledged to the Federal Reserve Bank. At December 31, 2007, approximately $0.7 billion of commercial loans, $11.2 billion of home equity loans and $3.0 billion of other consumer loans held by Regions were pledged to the Federal Reserve Bank. 116 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Directors and executive officers of Regions and its principal subsidiaries, including the directors’ and officers’ families and affiliated companies, are loan and deposit customers and have other transactions with Regions in the ordinary course of business. Total loans to these persons (excluding loans which in the aggregate do not exceed $60,000 to any such person) at December 31, 2008 and 2007 were approximately $319 million and $367 million, respectively. These loans were made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other persons and involve no unusual risk of collectibility. NOTE 7. ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses consists of the allowance for loan losses, which is presented on the consolidated balance sheets as a contra-asset to loans, and the reserve for unfunded credit commitments, which is included in other liabilities in the consolidated balance sheets. An analysis of the allowance for credit losses for the years ended December 31 follows: Allowance for loan losses: Balance at beginning of year Allowance of purchased institutions at acquisition date Transfer to/from reserve for unfunded commitments (1) Allowance allocated to sold loans and loans transferred to loans held for sale Provision for loan losses—continuing operations Provision for loan losses—discontinued operations Loan losses: Charge-offs Recoveries Net loan losses Balance at end of year Reserve for unfunded credit commitments: Balance at beginning of year Transfer from allowance for loan losses (1) Provision for unfunded credit commitments Balance at end of year Total allowance for credit losses 2008 2007 (In thousands) 2006 $ 1,321,244 — — (5,010) 2,057,000 — (1,639,474) 92,389 (1,547,085) $ 1,826,149 58,254 — 15,276 $ 73,530 $ 1,899,679 $ 1,055,953 — — (19,369) 555,000 182 (367,565) 97,043 (270,522) $ 1,321,244 51,835 — 6,419 $ 58,254 $ 1,379,498 $ 783,536 335,833 (51,835) (14,140) 142,373 127 (219,479) 79,538 (139,941) $ 1,055,953 — 51,835 — $ 51,835 $ 1,107,788 (1) During the fourth quarter of 2006, Regions transferred a portion of the allowance for loan losses related to unfunded credit commitments to other liabilities. NOTE 8. TRANSFERS AND SERVICING OF FINANCIAL ASSETS Prior to the third quarter of 2008, Regions sold commercial loans to third-party multi-issuer conduits, of which Regions retained servicing responsibilities. As of December 31, 2008, Regions had discontinued the sale and securitization of commercial loans to conduits. As part of the sale and securitization of commercial loans to conduits, Regions provided credit enhancements to the conduits in the form of letters of credit totaling zero and $50.0 million at December 31, 2008 and 2007, respectively. Regions also provided liquidity lines of credit to support the issuance of commercial paper under 364-day loan commitments. These liquidity lines could be drawn upon in the unlikely event of a commercial paper market disruption or other factors, which could prevent the asset-backed commercial paper issuers from being able to issue commercial paper. Regions had liquidity lines of 117 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents credit supporting these conduit transactions of zero and $41.5 million at December 31, 2008 and 2007, respectively. No gains or losses were recognized on commercial loans sold to third-party conduits nor was any retained interest recorded due to the relatively short life of the commercial loans sold into the conduits. Also during 2008, Regions exercised a clean-up call on an indirect auto loan conduit that had approximately $3.2 million in securitized loans as of December 31, 2007. The following table summarizes amounts recognized in the consolidated financial statements related to securitization transactions for the years ended December 31: Proceeds from securitizations Net gains Servicing fees received Other cash (outflows) inflows An analysis of mortgage servicing rights for the years ended December 31 is presented below: Balance at beginning of year Amounts capitalized Sale of servicing assets Amortization Valuation allowance Balance at end of year 2008 $ 41,505 — 1,079 (88) 2007 (In thousands ) $ 423,230 2,178 3,130 (183) 2006 $ 47,557 — 4,229 336 2008 2007 (In thousands) $ 368,654 58,632 (71,172) (75,430) 280,684 (119,794) $ 160,890 $ 416,217 56,931 (25,577) (78,917) 368,654 (47,346) $ 321,308 The changes in the valuation allowance for mortgage servicing assets were as follows for the years ended December 31: Balance at beginning of year Release of impairment—sale of MSRs Impairment of mortgage servicing rights Balance at end of year 2008 2007 (In thousands) $ 47,346 (12,552) 85,000 $ 119,794 $ 41,346 — 6,000 $ 47,346 Data and assumptions used in the fair value calculation related to mortgage servicing rights for the years ended December 31 are as follows: Weighted-average prepayment speeds Weighted-average discount rate Weighted-average coupon interest rate Weighted-average remaining maturity (months) Weighted-average servicing fee (basis points) 2008 597 10.30% 6.13% 279 28.80 2007 393 9.80% 6.18% 278 30.96 The estimated fair values of capitalized mortgage servicing rights were $160.9 million and $321.3 million at December 31, 2008 and 2007, respectively. In 2008, 2007 and 2006, Regions’ amortization of mortgage servicing rights was $75.4 million, $78.9 million and $70.6 million, respectively. 118 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents During 2008, 2007 and 2006, Regions recognized $86.3 million, $102.2 million and $130.6 million, respectively, in contractually specified servicing fees, late fees and other ancillary income resulting from the servicing of mortgage loans. NOTE 9. PREMISES AND EQUIPMENT A summary of premises and equipment at December 31 is as follows: Land and land improvements Premises Furniture and equipment Software Leasehold improvements Construction in progress Accumulated depreciation and amortization NOTE 10. INTANGIBLE ASSETS GOODWILL Goodwill allocated to each reportable segment as of December 31 is presented as follows: General Banking/Treasury Investment Banking/Brokerage/Trust Insurance Balance at end of year A summary of goodwill activity at December 31 is presented as follows: Balance at beginning of year Acquisition of AmSouth Acquisitions of other businesses Impairment Disposition of EquiFirst Tax adjustments Balance at end of year 2008 2007 518,747 $ 1,619,124 1,145,818 151,314 317,067 327,409 4,079,479 (1,293,436) $ 2,786,043 (In thousands) 483,598 $ 1,371,822 985,277 111,214 239,690 480,401 3,672,002 (1,061,151) $ 2,610,851 2008 2007 (In thousands) $ 4,690,731 740,264 117,300 $ 5,548,295 $ 10,668,531 727,611 95,531 $ 11,491,673 2008 2007 (In thousands) $ 11,491,673 — 37,556 (6,000,000) — 19,066 5,548,295 $ $ 11,175,647 336,824 34,020 — (34,506) (20,312) $ 11,491,673 As stated in Note 1, Regions evaluates each reporting unit’s goodwill for impairment on an annual basis in the fourth quarter, or more often if events or circumstances indicate that there may be impairment. Due to the economic environment, Regions performed interim impairments tests during the second and third quarters of 2008. Step One of the interim impairment tests indicated that the fair value of the respective reporting units was greater than the carrying value (including goodwill) during those quarters. 119 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents In the fourth quarter of 2008, Regions’ Step One analysis indicated potential impairment for the General Banking/Treasury reporting unit. Therefore, Step Two was performed and resulted in the Company recording a goodwill impairment charge of $6.0 billion in the General Banking/Treasury reporting unit. The primary cause of the goodwill impairment in the General Banking/Treasury reporting unit was the continued and significant decline in the estimated fair value of the unit. This was evidenced by rapid deterioration in credit costs, continued compression of the net interest margin, costs of preferred stock investment by the U.S. Treasury and continued declines in the Company’s overall market capitalization compounded by investor anxiety caused by the financial crises affecting the U.S. banking system during the fourth quarter of 2008. The Investment Banking/Brokerage/Trust and Insurance reporting units’ Step One impairment tests indicated that the fair values of those reporting units were greater than the carrying values (including goodwill) during 2008; therefore, Step Two was not performed by the Company for these units. OTHER INTANGIBLES A summary of core deposit intangible assets at December 31 is presented as follows: Balance at beginning of year Amounts related to business combinations Accumulated amortization, beginning of year Amortization Accumulated amortization, end of year Balance at end of year 2008 2007 (In thousands) $ 715,196 2,336 (293,906) (134,139) (428,045) $ 583,393 $ 941,880 (71,338) (138,560) (155,346) (293,906) $ 715,196 Regions’ core deposit intangible assets are being amortized on an accelerated basis over a ten-year period. Other identifiable intangible assets are reviewed at least annually, usually in the fourth quarter, for events or circumstances that could impact the recoverability of the intangible asset. These events could include loss of core deposits, increased competition or adverse changes in the economy. To the extent other identifiable intangible assets are deemed unrecoverable, impairment losses are recorded in other non-interest expense to reduce the carrying amount. Regions has other intangible assets totaling $55.0 million and $44.6 million at December 31, 2008 and 2007, respectively. These other intangible assets resulted from customer relationships and employment agreements related to various acquisitions and are being amortized primarily on an accelerated basis over a period ranging from two to twelve years. In 2008 and 2007, Regions’ amortization of other intangibles was $15.6 million and $5.9 million, respectively. Regions noted no indicators of impairment for all other identifiable intangible assets. The aggregate amount of amortization expense for core deposit intangibles and other intangibles is estimated to be $133.3 million in 2009, $120.0 million in 2010, $101.6 million in 2011, $88.3 million in 2012, and $74.9 million in 2013. 120 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents NOTE 11. FORECLOSED PROPERTIES Other real estate acquired in foreclosure is carried at the lower of the recorded investment in the loan or fair value less estimated cost to sell. An analysis of foreclosed properties for the years ended December 31 follows: Balance at beginning of year Transfer from loans Foreclosed property sold Writedowns and partial liquidations Balance at end of year NOTE 12. DEPOSITS The following schedule presents a detail of interest-bearing deposits at December 31: Savings accounts Interest-bearing transaction accounts Money market accounts Money market accounts—foreign Time deposits Customer deposits Time deposits Other foreign deposits Treasury deposits 2008 2007 $ 120,465 414,202 (233,835) (57,871) 122,496 $ 242,961 (In thousands) $ 72,663 181,988 (119,211) (14,975) 47,802 $ 120,465 2008 2007 3,662,949 15,022,207 19,470,886 1,812,446 32,368,498 72,336,986 110,236 — 110,236 72,447,222 (In thousands) $ 3,646,632 15,846,139 18,934,309 3,482,603 26,507,459 68,417,142 2,791,386 5,149,174 7,940,560 $ 76,357,702 $ $ The aggregate amount of time deposits of $100,000 or more, including certificates of deposit of $100,000 or more, was $12.7 billion at both December 31, 2008 and 2007, respectively. The aggregate amount of maturities of all time deposits (deposits with stated maturities, consisting primarily of certificates of deposit and IRAs) in each of the next five years is as follows: 2009–$20.4 billion; 2010–$7.0 billion; 2011–$3.4 billion; 2012–$1.4 billion; 2013–$0.2 billion; and thereafter–$0.1 billion. During the third quarter of 2008, Regions, in an FDIC-assisted transaction, assumed approximately $900 million of deposits from Integrity Bank in Alpharetta, Georgia. 121 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents NOTE 13. SHORT-TERM BORROWINGS Following is a summary of short-term borrowings at December 31: Federal funds purchased Securities sold under agreements to repurchase Term Auction Facility Treasury, tax and loan notes Federal Home Loan Bank structured advances Short-sale liability Brokerage customer liabilities Other short-term borrowings $ $ 2008 2007 (In thousands) $ 34,502 3,107,991 10,000,000 125 1,500,000 628,666 430,626 120,052 15,821,962 5,182,649 3,637,586 — 1,150,000 100,000 451,344 505,487 93,056 $ 11,120,122 Federal funds purchased and securities sold under agreements to repurchase are used to satisfy daily funding needs. Federal funds purchased and securities sold under agreements to repurchase had weighted-average maturities of 2 days and 20 days at December 31, 2008 and 2007, respectively. Weighted-average rates on these dates were 0.5% and 3.3%, respectively. During 2008, the Company utilized short-term borrowings through participation in the Federal Reserve’s Term Auction Facility (“TAF”). These fundings were utilized primarily to repay other short-term borrowings or provide excess balances at the Federal Reserve. The majority of the excess balances Regions carried in the Federal Reserve cash account at year-end were generated through the TAF facility. The TAF was designed to address pressures in short-term funding markets. Under the TAF, the Federal Reserve auctions term funds to depository institutions with maturities of 28 or 84 days. All depository institutions that are eligible to borrow under the primary credit program are eligible to participate in TAF auctions. All advances are fully collateralized using collateral values and margins applicable for other Federal Reserve lending programs. Borrowings under the TAF had a weighted-average maturity of 13 days and a weighted-average interest rate of 1.14% at December 31, 2008. Treasury, tax and loan notes consist of borrowings from the Federal Reserve Bank. See Note 14 to the consolidated financial statements for further discussion of Regions’ borrowing capacity with the FHLB. The short-sale liability represents Regions’ trading obligation to deliver certain securities at a predetermined date and price. Through Morgan Keegan, Regions maintains a liability for its brokerage customer position, which represents liquid funds in the customers’ brokerage accounts. Morgan Keegan maintains certain lines of credit with unaffiliated banks that provide for maximum borrowings of $585 million and $485 million as of December 31, 2008 and 2007, respectively. Amounts outstanding under these lines of credit as of December 31, 2008 and 2007, are included in other short-term borrowings. At December 31, 2008, Regions can borrow a maximum amount of approximately $9.0 billion from the Federal Reserve Bank. Regions has pledged certain commercial, home equity and other consumer loans as discount window collateral. See Note 6 for loans pledged to the Federal Reserve Bank at December 31, 2008 and 2007. 122 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents NOTE 14. LONG-TERM BORROWINGS Long-term borrowings at December 31 consist of the following: Federal Home Loan Bank structured advances Other Federal Home Loan Bank advances 6.375% subordinated notes due 2012 7.75% subordinated notes due 2011 7.00% subordinated notes due 2011 7.375% subordinated notes due 2037 6.125% subordinated notes due 2009 6.75% subordinated debentures due 2025 7.75% subordinated notes due 2024 7.50% subordinated notes due 2018 (Regions Bank) 6.45% subordinated notes due 2037 (Regions Bank) 4.85% subordinated notes due 2013 (Regions Bank) 5.20% subordinated notes due 2015 (Regions Bank) 6.45% subordinated notes due 2018 (Regions Bank) 6.50% subordinated notes due 2018 (Regions Bank) 3.25% senior bank notes due 2011 2.75% senior bank notes due 2010 LIBOR floating rate senior bank notes due 2010 4.375% senior notes due 2010 LIBOR floating rate senior notes due 2012 LIBOR floating rate senior notes due 2009 LIBOR floating rate senior debt notes due 2008 4.50% senior debt notes due 2008 6.625% junior subordinated notes due 2047 8.875% junior subordinated notes due 2048 Other long-term debt Valuation adjustments on hedged long-term debt 2008 2007 (In thousands) $ 1,628,363 6,468,705 597,935 523,198 499,453 300,000 175,252 163,385 100,000 749,404 497,224 489,783 345,246 — — 2,000,616 999,329 750,000 494,816 350,000 249,985 — — 699,814 345,010 483,902 319,857 $ 19,231,277 $ 1,662,898 2,119,318 597,343 533,912 499,227 300,000 176,722 163,840 100,000 — 497,191 487,696 344,523 321,657 311,439 — — — 492,104 350,000 249,963 399,762 349,694 699,814 — 545,298 122,389 $ 11,324,790 Long-term FHLB structured advances have stated maturities ranging from 2009 to 2013, but are convertible quarterly at the option of the FHLB. The convertible feature provides that after a specified date in the future, the advances will remain at a fixed rate, or Regions will have the option to either pay off the advance or convert from a fixed rate to a variable rate based on the LIBOR index. The FHLB structured advances have a weighted-average interest rate of 5.4% at December 31, 2008 and 2007, and 5.3% at December 31, 2006. Other FHLB advances at December 31, 2008, 2007 and 2006 have a weighted-average interest rate of 3.8%, 4.8% and 4.3%, respectively, with maturities of one to twenty years. Under the Blanket Agreement for Advances and Security Agreement with the FHLB, Regions can borrow a maximum amount of approximately $1.1 billion from the FHLB. Borrowings are contingent upon collateral pledges to the FHLB. Regions has pledged certain residential first mortgage loans on one-to-four family dwellings as collateral for the FHLB advances outstanding. See Note 6 for loans pledged to the FHLB at December 31, 2008 and 2007. Additionally, membership in the FHLB requires an institution to hold FHLB stock. FHLB stock was $458.2 million at December 31, 2008 and $200.8 million at December 31, 2007. As of December 31, 2008, Regions has eleven issuances of subordinated notes of $4.4 billion, with stated interest rates ranging from 4.85% to 7.75%. In May 2008, Regions Bank issued $750 million of subordinated notes bearing an initial fixed rate of 7.50%, with a final maturity of May 15, 2018. All issuances of these notes are, by definition, subordinated and subject in right of payment of both principal and interest to the prior payment in full of all senior indebtedness of the Company, which is generally defined as all indebtedness and other obligations of the Company to its creditors, except subordinated indebtedness. Payment of the principal of the notes may be accelerated only in the case of certain events involving bankruptcy, insolvency proceedings or 123 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents reorganization of the Company. The subordinated notes described above qualify as Tier 2 capital under Federal Reserve guidelines. The 6.50% and the 6.45% subordinated notes due 2018 were called during 2008, with Regions recognizing a loss of approximately $65.4 million upon extinguishment in other non-interest expense. The 6.125% subordinated notes due 2009 may be redeemed by Regions prior to March 1, 2009, at the greater of 100% of the principal amount or an amount based on a preset formula. All other subordinated notes are not redeemable prior to maturity. As of December 31, 2008, Regions had senior notes totaling $4.8 billion. In October 2008, the Federal Deposit Insurance Corporation (“FDIC”) announced a new program – the Temporary Liquidity Guarantee Program (“TLGP”) – to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts and certain holding companies, and by providing full coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount. Under the final rules, certain newly issued senior unsecured debt with maturities greater than 30 days issued on or before June 30, 2009, would be backed by the “full faith and credit” of the U.S. government through June 30, 2012. The FDIC’s payment obligation under the guarantee for eligible senior unsecured debt would be triggered by a payment default. The guarantee is limited to 125% of senior unsecured debt as of September 30, 2008 that is scheduled to mature before June 30, 2009. This includes federal funds purchased, promissory notes, commercial paper and certain types of inter-bank funding. Participants will be charged a 50-100 basis point fee to protect their new debt issues which varies depending on the maturity date (amounts paid as a non-refundable fee will be applied to offset the guarantee fee until the non-refundable fee is exhausted). In December 2008, Regions Bank completed an offering of $3.75 billion of qualifying senior bank notes covered by the TLGP to include $2.0 billion of 3.25% senior notes due December 9, 2011; $1.0 billion of 2.75% senior notes due December 10, 2010; $500 million of floating rate senior notes due December 10, 2010 and $250 million of floating rate senior bank notes due June 11, 2010. Payment of principal and interest on the notes will be guaranteed by the full faith and credit of the United States pursuant to the TLGP. The Company has remaining capacity under the TLGP to issue up to an additional $4.0 billion. Approximately $750 million of senior debt notes matured during the third quarter of 2008. The $250 million of notes that mature on June 26, 2009 currently have an interest rate of LIBOR plus 3 basis points. None of the senior notes are redeemable prior to maturity. In April 2008, Regions issued $345 million of junior subordinated notes (“JSNs”) bearing an initial fixed interest rate of 8.875%. These junior subordinated notes have a scheduled maturity of June 15, 2048 and a final maturity of June 15, 2078, and are redeemable at Regions’ option on or after June 15, 2013. The JSNs were issued to affiliated trusts, which contemporaneously issued trust preferred securities which Regions guaranteed. Other long-term debt at December 31, 2008, 2007 and 2006 had weighted-average interest rates of 2.9%, 6.1% and 6.4%, respectively, and a weighted-average maturity of 4.9 years at December 31, 2008. Regions has $62.8 million included in other long-term debt in connection with a seller-lessee transaction with continuing involvement (see Note 25 to the consolidated financial statements for further information). Regions uses derivative instruments, primarily interest rate swaps, to manage interest rate risk by converting a portion of its fixed-rate debt to a variable-rate. The effective rate adjustments related to these hedges are included in interest expense on long-term borrowings. The weighted-average interest rate on total long-term debt, including the effect of derivative instruments, was 4.6%, 5.7% and 5.6% for the years ended December 31, 2008, 2007 and 2006, respectively. Further discussion of derivative instruments is included in Note 22 to the consolidated financial statements. The aggregate amount of contractual maturities of all long-term debt in each of the next five years and thereafter is as follows: 2009–$2.7 billion; 2010–$5.5 billion; 2011–$5.4 billion; 2012–$0.9 billion; 2013–$1.0 billion; and thereafter–$3.7 billion. In May 2007, Regions filed a new shelf registration statement with the U.S. Securities and Exchange Commission. This shelf registration does not have a capacity limit and can be utilized by Regions to issue various debt and/or equity securities. 124 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents At December 31, 2008, Regions Bank had issued the maximum amount of $5 billion under its previously approved Bank Note program. In July 2008, the Board of Directors approved a new Bank Note program that allows Regions Bank to issue up to $20 billion aggregate principal amount of bank notes that can be outstanding at any one time. No issuances had been made under this program as of December 31, 2008. Notes issued under the new program may be senior notes with maturities from 30 days to 15 years and subordinated notes with maturities from 5 years to 30 years. These notes are not deposits and they are not insured or guaranteed by the FDIC. NOTE 15. REGULATORY CAPITAL REQUIREMENTS AND RESTRICTIONS Regions and Regions Bank are subject to regulatory capital requirements administered by Federal banking agencies. These regulatory capital requirements involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items, and also qualitative judgments by the regulators. Failure to meet minimum capital requirements can subject the Company to a series of increasingly restrictive regulatory actions. As of December 31, 2008 and 2007, the most recent notification from Federal banking agencies categorized Regions and its significant subsidiaries as “well capitalized” under the regulatory framework. Minimum capital requirements for all banks are Tier 1 Capital of at least 4% of risk-weighted assets, Total Capital of at least 8% of risk-weighted assets and a Leverage Ratio of 3%, plus an additional 100 to 200 basis-point cushion in certain circumstances, of adjusted quarterly average assets. Tier 1 Capital consists principally of stockholders’ equity, excluding accumulated other comprehensive income, less goodwill and certain other intangibles. Total Capital consists of Tier 1 Capital plus certain debt instruments and the allowance for credit losses, subject to limitation. The Company believes that no changes in conditions or events have occurred since December 31, 2008, which would result in changes that would cause Regions or Regions Bank to fall below the well capitalized level. Regions’ and its banking subsidiaries’ capital levels at December 31 exceeded the “well capitalized” levels, as shown below: Tier 1 Capital: Regions Financial Corporation Regions Bank Total Capital: Regions Financial Corporation Regions Bank Leverage: Regions Financial Corporation Regions Bank Tier 1 Capital: Regions Financial Corporation Regions Bank Total Capital: Regions Financial Corporation Regions Bank Leverage: Regions Financial Corporation Regions Bank December 31, 2008 Amount Ratio To Be Well Capitalized (Dollars in thousands) $ 12,068,029 9,640,018 $ 17,013,531 13,233,313 $ 12,068,029 9,640,018 10.38% 8.41 14.64% 11.55 8.47% 6.91 6.00% 6.00 10.00% 10.00 5.00% 5.00 December 31, 2007 Amount Ratio To Be Well Capitalized (Dollars in thousands) $ 8,440,965 9,798,731 7.29% 8.65 $ 13,029,672 12,688,360 11.25% 11.20 $ 8,440,965 9,798,731 6.66% 7.94 6.00% 6.00 10.00% 10.00 5.00% 5.00 125 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Regions Bank is required to maintain reserve balances with the Federal Reserve Bank. The average amount of the reserve balances maintained for the years ended December 31, 2008 and 2007, was approximately $73.1 million and $28.2 million, respectively. Substantially all net assets are owned by subsidiaries. The primary source of operating cash available to Regions is provided by dividends from subsidiaries. Statutory limits are placed on the amount of dividends the subsidiary bank can pay without prior regulatory approval. In addition, regulatory authorities require the maintenance of minimum capital-to-asset ratios at banking subsidiaries. Under the Federal Reserve’s Regulation H, Regions Bank may not, without approval of the Federal Reserve, declare or pay a dividend to Regions if the total of all dividends declared in a calendar year exceeds the total of (a) Regions Bank’s net income for that year and (b) its retained net income for the preceding two calendar years, less any required transfers to additional paid-in capital or to a fund for the retirement of preferred stock. As a result of the loss incurred by Regions Bank in 2008, Regions Bank cannot, without approval from the Federal Reserve, declare or pay a dividend to Regions until such time as Regions Bank is able to satisfy the criteria discussed in the preceding sentence. Given the loss in 2008, Regions Bank does not expect to be able to pay dividends to Regions in the near term without obtaining regulatory approval. In addition to dividend restrictions, Federal statutes also prohibit unsecured loans from banking subsidiaries to the parent company. Because of these limitations, substantially all of the net assets of Regions’ subsidiaries are restricted. In addition, Regions must adhere to various U.S. Department of Housing and Urban Development (“HUD”) regulatory guidelines including required minimum capital to maintain their Federal Housing Administration approved status. Failure to comply with the HUD guidelines could result in withdrawal of this certification. As of December 31, 2008, Regions was in compliance with HUD guidelines. Regions is also subject to various capital requirements by secondary market investors. NOTE 16. STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS) On November 14, 2008, Regions completed the sale of 3.5 million shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $1.00 and liquidation preference $1,000.00 per share (and $3.5 billion liquidation preference in the aggregate) to the U.S. Treasury as part of the Capital Purchase Program (“CPP”). The U.S. Treasury’s investment in Regions is part of the government’s program to provide capital to the healthy financial institutions that are the core of the nation’s economy in order to increase the flow of credit to consumers and businesses and provide additional assistance to distressed homeowners facing foreclosure. Regions will pay the U.S. Treasury on a quarterly basis a 5% dividend, or $175 million annually, for each of the first five years of the investment, and 9% thereafter unless Regions redeems the shares. As part of its purchase of the preferred securities, the U.S. Treasury also received a warrant to purchase 48.3 million shares of Regions’ common stock at an exercise price of $10.88 per share, subject to certain anti-dilution and other adjustments. The warrant expires ten years from the issuance date. The fair value allocation of the $3.5 billion between the preferred shares and the warrant resulted in $3.304 billion allocated to the preferred shares and $196 million allocated to the warrant. Accrued dividends on the preferred shares reduced retained earnings by $26.2 million during 2008. The unamortized discount on the preferred shares at December 31, 2008 was $192.6 million. Both the preferred securities and the warrant will be accounted for as components of Regions’ regulatory Tier 1 Capital. On January 18, 2007, Regions’ Board of Directors approved the repurchase of 50 million shares of the Company’s outstanding common stock. The common shares may be repurchased in the open market or in privately negotiated transactions and will be taken into treasury. This authorization was in addition to the 13.8 million shares available for repurchase under previous authorizations. There were no treasury stock purchases through open market transactions during 2008. The Company, like many other financial institutions, is in a capital conservation mode and does not expect to repurchase shares in the near term. Regions’ ability to repurchase shares is limited under the terms of the CPP. Under that agreement, Regions cannot repurchase its shares without the approval of the U. S. Treasury until November 14, 2011 or until the U. S. Treasury no longer 126 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents owns any of the Series A Preferred Stock. Regions stock maintained within trust or brokerage accounts related to Company deferred compensation plans was recorded in treasury stock during 2008. During 2007, Regions repurchased 40.8 million shares, respectively, at a cost of $1.4 billion. At December 31, 2008, there were approximately 23.1 million shares remaining under this authorization. In April 2007, Regions entered into an agreement to repurchase approximately 14.2 million shares of its outstanding common stock for an initial purchase price of $500 million. These shares were accounted for as treasury stock on the date of purchase. Regions simultaneously entered into a forward contract indexed to these same shares. In August 2007, Regions received approximately 781,000 shares upon settlement of the forward contract. At December 31, 2008, there were 53,288,000 shares reserved for issuance under stock compensation plans. Stock options outstanding represent 52,955,000 shares and 333,000 shares are reserved for issuance under deferred compensation plans. In 2008, Regions decreased its dividend to $0.96 per common share, compared to $1.46 in 2007 and $1.40 in 2006. Also, the payment of dividends by Regions to its shareholders is limited to $0.10 per share per quarter until November 14, 2011 or until the U. S. Treasury no longer owns any of Regions Series A Preferred Stock. In 2006, Regions retired 31.0 million shares of treasury stock, with a cost of $1.1 billion. There were no retirements of treasury stock during 2008 and 2007. Comprehensive income (loss) is the total of net income (loss) and all other non-owner changes in equity. Items that are to be recognized under accounting standards as components of comprehensive income (loss) are displayed in the consolidated statements of changes in stockholders’ equity. In the calculation of comprehensive income (loss), certain reclassification adjustments are made to avoid double-counting items that are displayed as part of net income for a period that also had been displayed as part of other comprehensive income (loss) in that period or earlier periods. The disclosure of the reclassification amount for the years ended December 31 is as follows: 2008 Tax Effect (In thousands) $ 355,058 29,325 (32,373) 61,698 (170,696) (54,068) (116,628) 192,171 (993) 193,164 493,292 $ Net of Tax $ (5,595,774) (41,115) 60,122 (101,237) 278,149 88,070 190,079 (311,520) 1,843 (313,363) $ (5,820,295) Net income (loss) Net unrealized holding gains and losses on securities available for sale arising during the period Less: reclassification adjustments for net securities gains realized in net income (loss) Net change in unrealized gains and losses on securities available for sale Net unrealized holding gains and losses on derivatives arising during the period Less: reclassification adjustments for net gains realized in net income (loss) Net change in unrealized gains and losses on derivative instruments Net actuarial gains and losses arising during the period Less: amortization of actuarial loss and prior service credit realized in net income (loss) Net change from defined benefit plans Comprehensive income (loss) 127 Before Tax $ (5,950,832) (70,440) 92,495 (162,935) 448,845 142,138 306,707 (503,691) 2,836 (506,527) $ (6,313,587) Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Net income Net unrealized holding gains and losses on securities available for sale arising during the period Less: reclassification adjustments for net securities losses realized in net income Net change in unrealized gains and losses on securities available for sale Net unrealized holding gains and losses on derivatives arising during the period Less: reclassification adjustments for net gains realized in net income Net change in unrealized gains and losses on derivative instruments Net actuarial gains and losses arising during the period Less: amortization of actuarial loss and prior service credit realized in net income Net change from defined benefit plans Comprehensive income Net income Net unrealized holding gains and losses on securities available for sale arising during the period Less: reclassification adjustments for net securities gains realized in net income Net change in unrealized gains and losses on securities available for sale Net unrealized holding gains and losses on derivatives arising during the period Less: reclassification adjustments for net gains realized in net income Net change in unrealized gains and losses on derivative instruments Comprehensive income 128 Before Tax $ 1,821,463 256,546 (8,553) 265,099 154,965 6,066 148,899 123,044 6,815 116,229 $ 2,351,690 2007 Tax Effect (In thousands) $ (570,368) (95,974) 2,994 (98,968) (55,558) (2,123) (53,435) (46,650) (2,385) (44,265) $ (767,036) Net of Tax $ 1,251,095 160,572 (5,559) 166,131 99,407 3,943 95,464 76,394 4,430 71,964 $ 1,584,654 Before Tax $ 1,959,015 32,386 8,123 24,263 21,088 417 20,671 $ 2,003,949 2006 Tax Effect (In thousands) $ (605,870) (11,607) (2,871) (8,736) (11,161) (146) (11,015) $ (625,621) Net of Tax $ 1,353,145 20,779 5,252 15,527 9,927 271 9,656 $ 1,378,328 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents NOTE 17. EARNINGS PER COMMON SHARE The following table sets forth the computation of basic earnings per common share and diluted earnings per common share for the years ended December 31: Numerator: Income (loss) from continuing operations Less: Preferred stock dividends Income (loss) from continuing operations available to common shareholders Loss from discontinued operations, net of tax Net income (loss) available to common shareholders Denominator: Weighted-average common shares outstanding—basic Common stock equivalents Weighted-average common shares outstanding—diluted Earnings (loss) per common share from continuing operations(1): Basic Diluted Earnings (loss) per common share from discontinued operations(1): Basic Diluted Earnings (loss) per common share(1): Basic Diluted 2008 2007 (In thousands, except per share amounts) 2006 $ (5,584,313) (26,236) (5,610,549) (11,461) $ (5,622,010) $ 1,393,163 — 1,393,163 (142,068) $ 1,251,095 $ 1,372,521 — 1,372,521 (19,376) $ 1,353,145 695,003 — 695,003 707,981 4,762 712,743 501,681 5,308 506,989 $ $ (8.07) (8.07) (0.02) (0.02) (8.09) (8.09) $ 1.97 1.95 (0.20) (0.20) 1.77 1.76 2.74 2.71 (0.04) (0.04) 2.70 2.67 (1) Certain per share amounts may not appear to reconcile due to rounding. The effect from the assumed exercise of 52,955,000, 31,382,000 and 412,000 stock options was not included in the above computation of diluted earnings per common share for 2008, 2007 and 2006, respectively, because such amounts would have an antidilutive effect on earnings per common share. NOTE 18. SHARE-BASED PAYMENTS Regions has stock option and long-term incentive compensation plans, which permit the granting of incentive awards in the form of stock options, restricted stock, restricted stock units and stock appreciation rights. While Regions has the ability to issue stock appreciation rights, as of December 31, 2008, 2007 and 2006, there were no outstanding stock appreciation rights. The terms of all awards issued under these plans are determined by the Compensation Committee of the Board of Directors, but no options may be granted after the tenth anniversary of the plans’ adoption. Options and restricted stock granted usually vest based on employee service and generally vest within three years from the date of the grant. Grants of performance-based restricted stock typically have a one-year performance period, after which shares vest within three years after the grant date. Restricted stock units, which were granted in 2008 and 2007, have a vesting period of five years. Generally, the terms of these plans stipulate that the exercise price of options may not be less than the fair market value of Regions’ common stock at the date the options are granted; however, under prior stock option plans, non-qualified options could be granted with a lower exercise price than the fair market value of Regions’ common stock on the date of grant. The contractual life of options granted under these plans ranges from seven to ten years from the date of grant. Regions issues new shares from authorized reserves upon exercise. Grantees of restricted stock awards or units must either remain employed with the Company for certain periods from the date of grant in order for shares to be released or issued or retire after meeting the standards of a retiree, at which 129 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents time shares would be prorated and released. Upon adoption of a new long-term incentive plan in 2006, Regions amended all other open stock and long-term incentive plans, such that no new awards may be granted under those plans subsequent to the amendment date. The outstanding awards were unaffected by this plan amendment. The plan adopted in 2006 provides that 20,000,000 common share equivalents are subject to and available for distribution to recipients. Each share of restricted stock granted under the 2006 plan is assigned a share equivalent factor of 4.0, as compared to the stock option equivalent factor of 1.0. The number of remaining share equivalents authorized for issuance under Regions’ long-term compensation plans was approximately 9,160,000 share equivalents at December 31, 2008. In connection with the AmSouth acquisition, Regions assumed AmSouth’s long-term incentive plans. The awards issued under these plans are consistent with the awards issued under Regions’ plans described above. However, all unvested awards vest upon the employee’s retirement. Also, in determining shares authorized, restricted stock grants are equally weighted with stock options. At December 31, 2008, approximately 7,585,000 shares were authorized for issuance under these assumed plans. In other business combinations prior to 2006, Regions assumed stock options that were previously granted by those companies and converted those options, based on the appropriate exchange ratio, into options to acquire Regions’ common stock. The common stock for such options has been registered under the Securities Act of 1933 by Regions and is not included in the maximum number of shares that may be granted by Regions under its existing stock option plans. The following tables summarize the impact of adoption of FAS 123(R) and the elements of compensation costs recognized in the consolidated financial statements for the years ended December 31: Impact of Adoption Income before income taxes Net income Earnings per share—basic Earnings per share—diluted Cash flows from operating activities Cash flows from financing activities Elements of Compensation Cost 2006 (In thousands, except per share data) $ (3,842) (3,070) — — (32,454) 32,454 Compensation cost of share-based compensation awards: Restricted stock awards and units Stock options Tax benefits related to compensation cost Compensation cost of share-based compensation awards, net of tax 2008 2007 (In thousands) 2006 $ 49,745 15,820 (23,995) $ 41,570 $ 62,924 12,864 (28,410) $ 47,378 $ 53,389 3,842 (21,060) $ 36,171 The following table summarizes the weighted-average assumptions used and the weighted-average estimated fair values related to stock options granted during the years ended December 31: Expected dividend yield Expected volatility Risk-free interest rate Expected option life Fair value 2008 6.9% 26.4% 2.9% 5.8 yrs. $ 2.46 2007 4.1% 19.7% 4.5% 5.0 yrs. $ 5.23 2006 4.0% 19.5% 4.7% 4.0 yrs. $ 4.99 130 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Refer to Note 1 for a discussion of the methodologies used to derive the underlying assumptions used in the Black-Scholes option pricing model. The expected dividend yield increased in 2008 due to the decreased stock price on the date of the grant. During 2008, expected volatility increased based upon increases in the historical volatility of Regions’ stock price and the implied volatility measurements from traded options on the Company’s stock. The risk-free interest rate decreased in 2008 due to the lower interest rate environment in 2008. The expected option life has been impacted by the decrease in contractual life on new grants from ten years (historically) to seven years for grants issued between 2004 and 2006. Option grants issued in 2007 and 2008 have a contractual life of ten years and, therefore, the expected option life increased for these grants. The following table summarizes the activity for 2008, 2007 and 2006 related to stock options: Balance at December 31, 2005 Options assumed through acquisitions Granted Exercised Canceled/Forfeited Balance at December 31, 2006 Granted Exercised Canceled/Forfeited Outstanding at December 31, 2007 Granted Exercised Canceled/Forfeited Outstanding at December 31, 2008 Exercisable at December 31, 2008 Weighted- Average Exercise Price Aggregate Intrinsic Value (In Thousands) Weighted- Average Remaining Contractual Term $ $ $ $ $ 27.26 29.20 35.14 26.62 22.17 28.97 35.08 26.67 31.18 29.71 21.57 17.94 29.51 28.22 29.30 $ 413,288 6.02 yrs. $ $ $ 12,045 5.19 yrs. — — 5.53 yrs. 4.55 yrs. Number of Options 33,590,080 25,663,411 968,706 (10,981,946) (435,104) 48,805,147 4,916,960 (3,992,885) (1,685,015) 48,044,207 10,011,105 (90,801) (5,009,213) 52,955,298 41,238,392 For the years ended December 31, 2008, 2007 and 2006 the total intrinsic value of options exercised was zero, $33.3 million and $104.0 million, respectively. Restricted stock award and unit activity for 2008, 2007 and 2006 is summarized as follows: Non-vested at December 31, 2005 Granted Vested Forfeited Non-vested at December 31, 2006 Granted Vested Forfeited Non-vested at December 31, 2007 Granted Vested Forfeited Non-vested at December 31, 2008 131 Number of Shares/Units 3,362,995 1,740,227 (1,524,579) (288,054) 3,290,589 2,622,781 (1,823,098) (439,218) 3,651,054 1,704,599 (799,276) (432,466) 4,123,911 Weighted-Average Fair Value (Grant Date) $ $ $ $ 31.39 35.21 31.38 32.25 33.34 32.50 33.19 35.07 32.60 20.99 34.07 31.11 27.67 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents As of December 31, 2008, the amount of non-vested stock options and restricted stock awards and units not yet recognized was $102.3 million, which will be recognized over a weighted-average period of 1.7 years. No share-based compensation costs were capitalized during the years ended December 31, 2008, 2007 and 2006. NOTE 19. PENSION AND OTHER EMPLOYEE BENEFIT PLANS PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS Regions has a defined-benefit pension plan (the “Regions pension plan”) covering substantially all employees employed at or before December 31, 2000. After January 1, 2001, the Regions pension plan was closed to new entrants. Benefits under the Regions pension plan are based on years of service and the employee’s highest five years of compensation during the last ten years of employment. Regions’ funding policy is to contribute annually at least the amount required by Internal Revenue Service minimum funding standards. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The Company also sponsors a supplemental executive retirement program (the “Regions SERP”), which is a non-qualified plan that provides certain senior executive officers defined pension benefits in relation to their compensation. Regions also sponsors a defined-benefit postretirement health care plan that covers certain retired employees. Currently, the Company pays a portion of the costs of certain health care benefits for all eligible employees who retired before January 1, 1989. No health care benefits are provided for employees retiring at normal retirement age after December 31, 1988. For employees retiring before normal retirement age, the Company currently pays a portion of the costs of certain health care benefits until the retired employee becomes eligible for Medicare. Certain retirees, participating in plans of acquired entities, are offered a Medicare supplemental benefit. The plan is contributory and contains other cost-sharing features such as deductibles and co-payments. Retiree health care benefits, as well as similar benefits for active employees, are provided through a self-insured program in which Company and retiree costs are based on the amount of benefits paid. The Company’s policy is to fund the Company’s share of the cost of health care benefits in amounts determined at the discretion of management. As a result of the merger with AmSouth, Regions assumed the obligations related to AmSouth’s employee benefit plans. One of these assumed plans is a defined-benefit pension plan (the “AmSouth pension plan”) covering substantially all regular full-time employees and part-time employees who regularly work 1,000 hours or more each year and were employed at AmSouth at or before the merger. Subsequent to the merger, the AmSouth pension plan was closed to new participants. Regions also assumed AmSouth’s non-qualified supplemental executive retirement plan (the “AmSouth SERP”), which provides additional benefits to certain senior executives. Effective September 30, 2007, the Regions pension plan and AmSouth pension plan were merged into one plan. The benefit structures of each former plan remain intact. Regions also assumed postretirement medical plans from AmSouth. These plans provide postretirement medical benefits to all legacy AmSouth employees who retire between the ages of 55 and 65 with five or more calendar years of service and provide certain retired and grandfathered retired participants with postretirement benefits past age 65. Postretirement life insurance is also provided to a grandfathered group of employees and retirees. Actuarially determined pension expense is charged to current operations using the projected unit credit method. Expense associated with the SERP and postretirement benefit plans is charged to current operations based on actuarial calculations. As a result of adopting FAS 158 on December 31, 2006, Regions transitioned from a September 30 measurement date to a December 31 measurement date during 2008. The effect of this transition was not material to the consolidated financial statements. 132 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The following table sets forth the plans’ change in benefit obligation, plan assets and the funded status of the pension and other postretirement benefits plans, using a September 30 measurement date in 2007 and a December 31 measurement date in 2008, and amounts recognized in the consolidated balance sheets at December 31: Change in benefit obligation Projected benefit obligation, beginning of period AmSouth acquisition Service cost Interest cost Actuarial losses (gains) Benefit payments Settlement payment Curtailments Plan amendments Special termination benefits Projected benefit obligation, end of period Change in plan assets Fair value of plan assets, beginning of period AmSouth acquisition Actual return on plan assets Company contributions Benefit payments Settlement payment Administrative expenses Fair value of plan assets, end of period Funded status and prepaid (accrued) benefit cost at measurement date Curtailment gains Company contributions from October 1 to December 31 (Accrued) Prepaid benefit cost at December 31 Amounts recognized in the Consolidated Balance Sheets: Other assets Other liabilities Amounts recognized in Accumulated Other Comprehensive Income (Loss): Net actuarial loss (gain) Prior service cost (credit) Pension 2008 Other Postretirement Benefits 2007 2008 (In thousands) 2007 $ 1,413,803 — 50,603 108,948 31,115 (80,324) — (59,974) 10,094 472 $ 1,474,737 $ 1,423,585 — (380,221) 105,873 (80,324) — (2,564) $ 1,066,349 $ (408,388) — — $ (408,388) $ — (408,388) $ (408,388) $ $ 500,250 8,554 508,804 $ 467,002 956,467 38,828 76,886 (16,502) (60,349) (25,000) (28,136) 4,607 — $ 1,413,803 $ 404,885 902,482 175,602 27,929 (60,349) (25,000) (1,964) $ 1,423,585 $ 49,772 — 581 3,463 (3,299) (5,132) — (352) (9,280) — $ 35,753 $ $ 4,158 — 315 4,676 (5,132) — — 4,017 $ 37,159 18,948 881 2,976 (4,678) (5,514) — — — — $ 49,772 $ $ 4,040 4,141 324 1,167 (5,514) — — 4,158 $ $ $ $ $ $ 9,782 8,596 890 19,268 $ (31,736) — — $ (31,736) $ (45,614) — — $ (45,614) 160,034 (140,766) 19,268 $ — (31,736) $ (31,736) $ — (45,614) $ (45,614) (15,675) 4,607 (11,068) $ (4,466) (9,202) $ (13,668) $ (741) (826) $ (1,567) The curtailment gains during 2008 and 2007 resulted from merger-related employment terminations. The settlement payment during 2007 relates to the settlement of a liability under the Regions SERP for a certain executive officer. 133 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The accumulated benefit obligation for all defined-benefit pension plans was $1.4 billion and $1.3 billion as of December 31, 2008 and September 30, 2007, respectively. Information for the pension plans with an accumulated benefit obligation in excess of plan assets as of December 31 was as follows: Projected benefit obligation Accumulated benefit obligation Fair value of plan assets Net periodic benefit cost included the following components for the years ended December 31: 2008 2007 (In thousands) $ 1,474,737 1,377,324 1,066,349 $ 123,992 113,664 — Service cost Interest cost Expected return on plan assets Amortization of actuarial loss Amortization of prior service cost (credit) Settlement charge Curtailment gains Net periodic benefit cost 2008 $ 50,603 108,948 (148,068) 123 2,851 613 (2,741) 12,329 $ Pension 2007 2006 (In thousands) Other Postretirement Benefits 2008 2007 2006 $ 38,828 76,886 (102,510) 7,450 (266) 2,300 (17,389) 5,299 $ $ 16,493 26,023 (31,539) 13,202 (348) — — $ 23,831 $ 581 3,463 (242) — (839) — (65) $ 2,898 $ 881 2,976 (253) 48 (417) — — $ 3,235 $ 398 2,131 (246) 235 (416) — — $ 2,102 The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2009 are as follows: Pension Other Postretirement Benefits Actuarial loss (gain) Prior service cost (credit) $ 43,278 2,421 $ 45,699 (In thousands) $ (74) (1,465) (1,539) $ The weighted-average assumptions used to determine benefit obligations at December 31, 2008 and September 30, 2007 (the applicable measurement dates) follows: Discount rate Rate of annual compensation increase 134 Pension Other Postretirement Benefits 2008 6.15% 5.00 2007 6.34% 4.99 2008 6.20% N/A 2007 6.20% N/A Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31 are as follows: Discount rate Expected long-term rate of return on plan assets Rate of annual compensation increase Pension 2007 2006 2008 6.38% 6.02% 5.50% 6.20% 8.50 4.99 8.33 4.89 8.00 4.50 5.00 N/A 2008 Other Postretirement Benefits 2007 5.75% 5.00 N/A 2006 5.50% 4.00 N/A The assumed health care cost trend rate for postretirement medical benefits was 7.5% for 2008 and is assumed to decrease gradually to 5.0% by 2015 and remain at that level thereafter. A one-percentage point change in assumed health care cost trend rates would have the following effects: Effect on total of service cost and interest cost components Effect on postretirement benefit obligations 1-Percentage Point Increase $ 123 1,154 (In thousands) 1-Percentage Point Decrease $ (115) (1,081) The asset allocation for the Regions pension plan at the end of 2008 and 2007, and the target allocation for 2009, by asset category, are as follows: Asset Category Equity securities Debt securities Real estate Other Target Allocation 2009 Percentage of Plan Assets 2008 2007 55% 25% 10% 10% 45% 28% 9% 18% 57% 26% 6% 11% Regions’ investment strategy is to invest primarily in large-cap equity securities and intermediate term investment grade domestic fixed-income securities. Regions will invest in small-cap, mid-cap and international equities in smaller concentrations depending on the Company’s outlook for growth in those sectors. Further, the Company may diversify the holdings of the plan through investments in real estate, hedge funds, private equity funds and limited partnerships. The use of and allocation to these diversifying investments will depend largely on expected returns and the overall risk of the plan’s other assets. The expected long-term return on plan assets assumption is determined using the plan asset mix, historical returns and expert opinions. The Regions pension plan has a portion of its investments in Regions common stock. The number of shares held by the plan was 2,735,240, which represents approximately 2.1% of the plan assets, at December 31, 2008, for a total market value of $21.8 million. 135 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Information about the expected cash flows for the pension and other postretirement benefits plans is as follows: Expected Employer Contributions: 2009 Expected Benefit Payments: 2009 2010 2011 2012 2013 2014-2018 Pension Other Postretirement Benefits (In thousands) $ $ 12,156 75,072 102,253 79,201 81,696 84,951 505,077 $ $ 5,739 5,739 5,296 4,804 4,193 3,616 13,039 OTHER PLANS Regions has a defined-contribution 401(k) plan that includes a company match of eligible employee contributions. At December 31, 2008 and 2007, this match totaled 100% of the eligible employee pre-tax contribution (up to 6% of compensation) after one year of service and was initially invested in Regions common stock. Regions’ contribution to the 401(k) plan on behalf of employees totaled $55.3 million, $72.4 million and $36.6 million in 2008, 2007 and 2006, respectively. Regions’ 401(k) plan held 17.5 million and 13.3 million shares of Regions common stock at December 31, 2008 and 2007, respectively. For the years ended December 31, 2008, 2007 and 2006, the 401(k) plan received $11.6 million, $19.5 million and $12.8 million, respectively, in dividends on Regions common stock. Regions also assumed the AmSouth 401(k) plan as a result of the merger. Effective April 1, 2008, the Regions and AmSouth 401(k) plans were merged into one plan. NOTE 20. OTHER NON-INTEREST INCOME AND EXPENSE The following is a detail of other non-interest income for the years ended December 31: 2008 2007 (In thousands) 2006 Insurance commissions and fees Bank-owned life insurance Commercial credit fee income Bankcard income Other miscellaneous income The following is a detail of other non-interest expense for the years ended December 31: $ 110,069 $ 85,547 11,853 38,856 12,062 97,449 $ 434,111 $ 420,004 $ 245,767 99,365 $ 62,021 57,374 26,803 174,441 78,341 67,587 33,583 144,531 Professional fees Amortization of core deposit intangibles Other real estate expense Marketing Mortgage servicing rights impairment Other miscellaneous expenses 2008 $ 214,191 134,139 102,766 96,916 85,000 1,025,977 $ 1,658,989 2007 (In thousands) $ 151,991 155,346 15,862 134,050 6,000 1,010,192 $ 1,473,441 2006 $ 97,220 63,523 2,206 70,198 16,000 682,505 $ 931,652 136 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents NOTE 21. INCOME TAXES Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of Regions’ deferred tax assets and liabilities as of December 31 are listed below: Deferred tax assets: Loan loss allowance Other employee and director benefits Purchase accounting basis differences Net operating loss carryforwards Deferred compensation Unrealized losses included in equity adjustments Other Total deferred tax assets Less: valuation allowance on net operating loss carryforwards Total deferred tax assets less valuation allowance Deferred tax liabilities: Goodwill and intangibles Lease financing Originated mortgage servicing rights Unrealized gains included in equity adjustments Other Total deferred tax liabilities Net deferred tax asset 2008 2007 (In thousands) $ 719,319 111,374 95,982 66,895 58,689 16,403 273,135 1,341,797 (22,500) 1,319,297 302,672 233,520 72,742 — 49,554 658,488 660,809 $ $ 503,825 68,588 153,061 31,035 62,547 — 244,813 1,063,869 (19,248) 1,044,621 338,974 331,084 95,254 121,783 41,618 928,713 115,908 $ At December 31, 2008, Regions has state net operating loss carryforwards of $1.5 billion that expire in years 2010 through 2027. Management does not believe that it is more-likely-than-not to realize all of its state net operating loss carryforwards. Accordingly, a valuation allowance of $22.5 million has been established against such benefits. Income taxes from continuing operations for financial reporting purposes differs from the amount computed by applying the statutory federal income tax rate of 35% for the years ended December 31, for the reasons below: Tax on income computed at statutory federal income tax rate Increase (decrease) in taxes resulting from: Goodwill impairment Tax-exempt income from obligations of states and political subdivisions State income tax, net of federal tax benefit Effect of recapitalization of subsidiary Interest accrued related to uncertain tax positions Net release of uncertain tax position reserves Tax credits Other, net Effective tax rate 137 2008 $ (2,076,349) 2,100,000 (27,321) (37,908) — 11,612 (283,591) (56,335) 21,778 (348,114) $ 2007 (In thousands) $ 713,597 — (28,598) 7,454 — 39,203 — (81,268) (4,701) $ 645,687 2006 $ 697,068 — (20,642) 25,739 (59,150) — — (31,201) 7,286 $ 619,100 5.9% 31.7% 31.1% Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents From time to time Regions engages in business plans that may also have an effect on its tax liabilities. While Regions has obtained the opinion of advisors that the tax aspects of these strategies should prevail, examination of Regions’ income tax returns or changes in tax law may impact the tax benefits of these plans. The provisions for income taxes from continuing operations charged to earnings are summarized for the years ended December 31 as follows: 2008 Federal State 2007 Federal State 2006 Federal State Current expense Deferred tax (benefit) expense (In thousands) Total $ $ 31,667 26,970 58,637 $ 750,749 18,682 $ 769,431 $ 530,425 27,576 $ 558,001 $ $ $ $ $ $ (317,659) (89,092) (406,751) (119,970) (3,774) (123,744) $ (285,992) (62,122) $ (348,114) $ 630,779 14,908 $ 645,687 59,031 2,068 61,099 $ 589,456 29,644 $ 619,100 UNCERTAIN TAX POSITIONS Regions and its subsidiaries file income tax returns in the United States, as well as various state jurisdictions. As the successor of acquired taxpayers, Regions is responsible for the resolution of audits from both federal and state taxing authorities. In December 2008, the Company reached an agreement with the Internal Revenue Service (“IRS”) Appeals Division on the Federal tax treatment of a broad range of uncertain tax positions. The agreement covered the Federal tax returns of Regions Financial Corporation, Union Planters Corporation and AmSouth Bancorporation for tax years 1999-2006. With few exceptions in certain jurisdictions, the Company is no longer subject to state and local income tax examinations by tax authorities for years before 2000, which would include audits of acquired entities. Certain states have proposed various adjustments to the Company’s previously filed tax returns. Management is currently evaluating those proposed adjustments; however, the Company does not anticipate the adjustments would result in a material change to its financial position or results of operations. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows: Balance at beginning of year Additions based on tax positions taken in a prior period Additions based on tax positions related to the current year Settlements Balance at end of year 2008 2007 (In thousands) $ 746,314 1,516 75,808 (768,994) 54,644 $ $ 635,716 — 139,219 (28,621) $ 746,314 Essentially all of the Company’s liability for gross unrecognized tax benefits as of December 31, 2008 would reduce the Company’s effective tax rate, if recognized. Additionally, as of December 31, 2008, the Company recognized a liability of approximately $31 million for interest, on a pre-tax basis. During the year ended December 31, 2008, Regions recognized interest expense, on a pre-tax basis, on uncertain tax positions of 138 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents approximately $39 million. During 2009, the Company anticipates filing amended state and local income tax returns to reflect the agreement reached with the IRS for tax years 1999-2006. If completed and accepted by the states, the gross unrecognized tax benefits could decrease by approximately $55 million. NOTE 22. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES Regions maintains positions in derivative financial instruments to manage interest rate risk, to facilitate asset/liability management strategies and to serve the risk management needs of customers. These derivative instruments include forward rate contracts, Eurodollar futures, interest rate swaps, put and call option contracts, interest rate floors, and foreign currency contracts. For those derivative contracts that qualify for hedge accounting, according to FAS 133, Regions designates hedging instruments as either a fair value or cash flow hedge. Derivative contracts that do not qualify for hedge accounting are classified as trading. The accounting policies associated with derivative financial instruments are discussed further in Note 1 to the consolidated financial statements. Forward rate contracts are commitments to buy or sell financial instruments at a future date at a specified price or yield. Regions primarily enters into forward rate contracts on market instruments, which expose Regions to market risk associated with changes in the value of the underlying financial instrument, as well as the credit risk that the counterparty will fail to perform. Eurodollar futures are futures contracts on three-month Eurodollar deposits. Eurodollar futures subject Regions to market risk associated with changes in interest rates. Because futures contracts are cash settled daily, there is minimal credit risk associated with Eurodollar futures. Interest rate swaps are agreements to exchange interest payments based upon notional amounts. Interest rate swaps subject Regions to market risk associated with changes in interest rates, as well as the credit risk that the counterparty will fail to perform. Option contracts involve rights to buy or sell financial instruments on a specified date or over a period at a specified price. These rights do not have to be exercised. Some option contracts such as interest rate floors, involve the exchange of cash based on changes in specified indices. Interest rate floors are contracts to hedge interest rate declines based on a notional amount. Interest rate floors subject Regions to market risk associated with changes in interest rates, as well as the credit risk that the counterparty will fail to perform. Foreign currency contracts involve the exchange of one currency for another on a specified date and at a specified rate. These contracts are executed on behalf of the Company’s customers and are used to manage fluctuations in foreign exchange rates. The Company is subject to the credit risk that another party will fail to perform. HEDGING DERIVATIVES The following tables summarize the hedging derivative positions utilized by Regions to manage interest rate risk and facilitate asset/liability strategies as of December 31: Fair Value Hedges Interest rate swaps (a) Cash Flow Hedges Interest rate swaps (a) Interest rate options Eurodollar futures 2008 Notional Amount Fair Value Hedged Item Weighted- Average Maturity Pay Structure (Dollars in millions) $ 5,775 $ 292.0 Debt 2.6 yrs. Variable $ $ 7,350 $ 313.0 Loans 115.9 Loans 3,500 10,000 — Loans 20,850 $ 428.9 1.9 yrs. Variable 1.5 yrs. 0.3 yrs. n/a n/a (a) The weighted-average pay and receive rates on interest rate swaps were 2.45% and 4.58%, respectively. 139 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Fair Value Hedges Forward sale commitments Interest rate swaps (a) Cash Flow Hedges Interest rate swaps (a) Interest rate options Notional Amount Fair Value $ $ $ $ 905 $ (4.5) 3,125 122.4 4,030 $ 117.9 3,960 $ 133.1 2,000 41.5 5,960 $ 174.6 2007 Hedged Item (Dollars in millions) Weighted- Average Maturity Pay Structure Loans Held for Sale Debt 0.1 yrs. 4.0 yrs. n/a Variable Loans Loans 2.6 yrs. 1.6 yrs. Variable n/a (a) The weighted-average pay and receive rates on interest rate swaps were 5.76% and 6.05%, respectively. The ineffectiveness recognized on both fair value hedges and cash flow hedges was immaterial for years ending December 31, 2008, 2007 and 2006. Regions reported an after-tax gain of $25.8 million and an after-tax loss of $1.7 million in other comprehensive income at December 31, 2008, and 2007, respectively, related to terminated cash flow hedges of loan and debt instruments which will be amortized into earnings in conjunction with the recognition of interest payments through 2011. Regions recognized pre-tax income of $10.7 million during 2008 related to this amortization. During 2009, Regions expects to reclassify out of other comprehensive income and into earnings approximately $272.9 million in pre-tax income due to the receipt of interest payments on all cash flow hedges. Of this amount, $30.9 million relates to the amortization of discontinued cash flow hedges. TRADING AND OTHER DERIVATIVES The following table summarizes the trading and other derivative positions held by Regions as of December 31: 2008 Contract or Notional Amount 2007 Contract or Notional Amount Interest rate swaps Interest rate options Futures and forward commitments Other $ $ 60,210 3,761 9,164 903 74,038 30,952 3,484 6,193 424 41,053 $ (In millions) $ Credit risk, defined as all positive exposures not collateralized with cash or other assets, at December 31, 2008 and 2007, totaled approximately $1,617.3 million and $501.1 million, respectively. These amounts represent the net credit risk on all trading and other derivative positions held by Regions. Prior to 2008, Regions designated forward contracts to hedge the fair value of specific pools of residential mortgage loans held for sale against changes in interest rates. Beginning January 1, 2008, Regions elected the fair value option on new originations of residential mortgages held for sale (see Note 23) but continued to economically hedge these loans with forward rate commitments. At December 31, 2008, Regions had $1,492.1 million in notional amounts of forward rate commitments with a net negative fair value of ($12.1) million. In 140 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents addition to using forward contracts to economically hedge mortgage loans held for sale, Regions’ derivative portfolio also included forward contracts entered into to offset the impact of changes in interest rates on Regions’ mortgage loan pipeline designated for future sale, also referred to as interest rate lock commitments. At December 31, 2008 and 2007, Regions had $1,015.8 million and $251.2 million, respectively, in notional amounts of rate lock commitments with a fair value of $8.8 million and a net negative fair value of ($816,000), respectively. In the normal course of business, Morgan Keegan enters into underwriting and forward and future commitments on U.S. Government and municipal securities. For the years ended December 31, 2008 and 2007, the contractual amounts of future commitments to purchase such securities were approximately $494,000 and $3.1 million, respectively. For the years ended December 31, 2008 and 2007, the contractual amounts of future commitments to sell such securities were $60.8 million and $50.2 million, respectively. The brokerage subsidiary typically settles its position by entering into equal but opposite contracts and, as such, the contract amounts do not necessarily represent future cash requirements. Settlement of the transactions relating to such commitments is not expected to have a material effect on the subsidiary’s financial position. Transactions involving future settlement give rise to market risk, which represents the potential loss that can be caused by a change in the market value of a particular financial instrument. The exposure to market risk is determined by a number of factors, including size, composition and diversification of positions held, the absolute and relative levels of interest rates, and market volatility. Additionally, in the normal course of business, Morgan Keegan enters into transactions for delayed delivery, to-be-announced securities, which are recorded on the consolidated balance sheets at fair value. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from unfavorable changes in interest rates or the market values of the securities underlying the instruments. The credit risk associated with these contracts is typically limited to the cost of replacing all contracts on which the Company has recorded an unrealized gain. For exchange-traded contracts, the clearing organization acts as the counterparty to specific transactions and, therefore, bears the risk of delivery to and from counterparties. The Company also maintains a derivatives trading portfolio of interest rate swaps, option contracts, and futures and forward commitments used to meet the needs of its customers. The portfolio is used to generate trading profit and help clients manage market risk. The Company is subject to the credit risk that a counterparty will fail to perform. These trading derivatives are recorded in other assets and other liabilities. The net fair value of the trading portfolio at December 31, 2008 and 2007 was $145.6 million and $36.2 million, respectively. Regions has both bought and sold credit protection in the form of participations on interest rate swaps (swap participations). These swap participations, which meet the definition of credit derivatives, were entered into in the ordinary course of business to serve the credit needs of customers. Credit derivatives, whereby Regions has purchased credit protection, entitle Regions to receive a payment from the counterparty when the customer fails to make payment on any amounts due to Regions upon early termination of the swap transaction and have maturities between 2012 and 2026. Credit derivatives whereby Regions has sold credit protection have maturities between 2009 and 2015. For contracts where Regions sold credit protection, Regions would be required to make payment to the counterparty when the customer fails to make payment on any amounts due to the counterparty upon early termination of the swap transaction. Regions bases the current status of the prepayment/performance risk on bought and sold credit derivatives on recently issued internal risk ratings consistent with the risk management practices of unfunded commitments. Refer to Note 25 for additional information. Regions’ maximum potential amount of future payments under these contracts is approximately $62.1 million. This scenario would only occur if variable interest rates were at zero percent and all counterparties defaulted with zero recovery. The fair value of sold protection at December 31, 2008 was a liability of approximately $83,000. In transactions where Regions has sold credit protection, recourse to collateral associated with the original swap transaction is available to offset some or all of Regions’ obligation. 141 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents NOTE 23. FAIR VALUE OF FINANCIAL INSTRUMENTS Regions adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”), as of January 1, 2008. FAS 157 establishes a framework for using fair value to measure assets and liabilities and defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) as opposed to the price that would be paid to acquire the asset or received to assume the liability (an entry price). Under FAS 157, a fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability, including the assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. FAS 157 requires disclosures that stratify balance sheet amounts measured at fair value based on inputs the Company uses to derive fair value measurements. These strata include: • Level 1 valuations, where the valuation is based on quoted market prices for identical assets or liabilities traded in active markets (which include exchanges and over-the-counter markets with sufficient volume), • • Level 2 valuations, where the valuation is based on quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market, and Level 3 valuations, where the valuation is generated from model-based techniques that use significant assumptions not observable in the market, but observable based on Company-specific data. These unobservable assumptions reflect the Company’s own estimates for assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include option pricing models, discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability. ITEMS MEASURED AT FAIR VALUE ON A RECURRING BASIS Trading account assets, securities available for sale, mortgage loans held for sale, derivatives and certain short-term borrowings are recorded at fair value on a recurring basis. Below is a description of valuation methodologies for these assets and liabilities. Trading account assets and securities available for sale primarily consist of U.S. Treasuries, mortgage-backed and asset-backed securities (including agency securities), municipal bonds and equity securities (primarily common stock and mutual funds). Regions uses quoted market prices of identical assets on active exchanges, or Level 1 measurements. Where such quoted market prices are not available, Regions typically employs quoted market prices of similar instruments (including matrix pricing) and/or discounted cash flows to estimate a value of these securities, or Level 2 measurements. Level 2 discounted cash flow analyses are typically based on market interest rates, prepayment speeds and/or option adjusted spreads. Level 3 measurements include discounted cash flow analyses based on assumptions that are not readily observable in the market place. Such assumptions include projections of future cash flows, including loss assumptions, and discount rates. Mortgage loans held for sale consist of residential first mortgage loans held for sale. Mortgage loans held for sale primarily consist of loans that are valued based on traded market prices of similar assets where available and/or discounted cash flows at market interest rates, adjusted for securitization activities that include servicing value and market conditions, a Level 2 measurement. Regions has elected to measure mortgage loans held for sale at fair value by applying the fair value option (see additional discussion under “Fair Value Option” below). Derivatives primarily consist of interest rate contracts that include futures, options and swaps and are included in other assets and other liabilities on the consolidated balance sheet. For exchange-traded options and futures contracts, values are based on quoted market prices, or Level 1 measurements. For all other options and futures contracts traded in over-the-counter markets, values are determined using discounted cash flow analyses 142 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents and option pricing models based on market rates and volatilities, or Level 2 measurements. Interest rate lock commitments on loans intended for sale, treasury locks and credit derivatives are valued using option pricing models that incorporate significant unobservable inputs, and therefore are Level 3 measurements. Interest rate swaps are predominantly traded in over-the-counter markets and, as such, values are determined using widely accepted discounted cash flow models, or Level 2 measurements. These discounted cash flow models use projections of future cash payments/receipts that are discounted at mid-market rates. These valuations are adjusted for the unsecured credit risk at the reporting date, which considers collateral posted and the impact of master netting agreements. Short-term borrowings recognized at fair value represent short-sale liabilities to counterparties. Short-sale liabilities are valued based on the fair value of the underlying securities, which are determined in the same manner as trading account assets and securities available for sale. The following table presents financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2008: ASSETS: Trading account assets Securities available for sale Mortgage loans held for sale Derivative assets (a) LIABILITIES: Short-term borrowings Derivative liabilities (a) Level 1 Level 2 Level 3 Fair Value (In thousands) $ 338,133 2,658,994 — — $ 318,867 16,095,449 506,260 1,842,652 $ 393,270 95,039 — 54,847 $ 1,050,270 18,849,482 506,260 1,897,499 $ 421,799 — $ 88,743 895,841 $ 118,124 — $ 628,666 895,841 (a) Derivative assets and liabilities include approximately $1.6 billion related to legally enforceable master netting agreements that allow the Company to settle positive and negative positions. Derivative assets and liabilities are also presented excluding cash collateral received of $108.1 million and cash collateral posted of $450.9 million with counterparties. Assets and liabilities in all levels could result in volatile and material price fluctuations. Realized and unrealized gains and losses on Level 3 assets represent only a portion of the risk to market fluctuations in Regions’ balance sheets. Further, trading account assets, net derivatives and short-term borrowings included in Levels 1, 2 and 3 are used by the Asset and Liability Management Committee of the Company in a holistic approach to managing price fluctuation risks. The following table illustrates a rollforward for all assets and (liabilities) measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2008: Fair Value Measurements Using Significant Unobservable Inputs Year Ended December 31, 2008 (Level 3 measurements only) Trading Account Assets Securities Available for Sale Net Derivatives Short-Term Borrowings (In thousands) Beginning balance, January 1, 2008 $ 166,003 $ 73,003 $ 8,122 $ 57,456 Total gains (losses) realized and unrealized: Included in earnings Included in other comprehensive income Purchases and issuances Settlements Transfers in and/or out of Level 3, net Ending balance, December 31, 2008 (9,396) — 3,277,881 (3,020,867) (20,351) 393,270 $ (5,000) (3,428) 49,100 (23,716) 5,080 95,039 $ 81,336 — 459 (35,070) — 54,847 $ (429) — (8,450,525) 8,488,904 22,718 118,124 $ 143 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The following table details the presentation of both realized and unrealized gains and losses recorded in earnings for Level 3 assets and liabilities for the year ended December 31, 2008: Classifications of gains (losses) both realized and unrealized included in earnings for the period: Interest income Brokerage, investment banking and capital markets Mortgage income Other income Other comprehensive income Total realized and unrealized gains and (losses) Total Gains and Losses (Level 3 measurements only) Year Ended December 31, 2008 Trading Account Assets Securities Available for Sale Net Derivatives Short- Term Borrowings (In thousands) $ $ 958 (10,354) — — — (9,396) $ $ — — — (5,000) — (5,000) $ $ — — 44,223 37,113 — 81,336 $ $ — (429) — — — (429) The following table details the presentation of only unrealized gains and losses recorded in earnings for Level 3 assets and liabilities for the year ended December 31, 2008: The amount of total gains and losses for the period included in earnings, attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at December 31, 2008: Interest income Brokerage, investment banking and capital markets Mortgage income Other income Other comprehensive income Total unrealized gains and (losses) Year Ended December 31, 2008 Trading Account Assets Securities Available for Sale Net Derivatives Short- Term Borrowings (In thousands) $ 222 (1,761) — — — $ (1,539) $ $ — — — — — — $ $ — — — 37,037 — 37,037 $ $ — 218 — — — 218 ITEMS MEASURED AT FAIR VALUE ON A NON-RECURRING BASIS From time to time, certain assets may be recorded at fair value on a non-recurring basis. These non-recurring fair value adjustments typically are a result of the application of lower of cost or fair value accounting or a write-down occurring during the period. The following is a description of the valuation methodologies used for certain assets that are recorded at fair value. Loans held for sale for which the fair value option has not been elected are recorded at the lower of cost or fair value and therefore are reported at fair value on a non-recurring basis. The fair values for loans held for sale that are based on either observable transactions of similar instruments or formally committed loan sale prices or valuations performed using discounted cash flows with observable inputs are classified as a Level 2 measurement. In the event that neither of these measurements is available, valuations are performed using discounted cash flows with unobservable inputs and therefore such valuations are classified as a Level 3 measurement. 144 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Mortgage servicing rights are initially recorded at estimated fair value and are then periodically measured for impairment by projecting and discounting future cash flows associated with servicing at market rates. The projection of cash flows is a Level 3 measurement, incorporating assumptions of changes in cash flows due to estimated prepayments, estimated costs to service and estimates of other servicing income. Market assumptions, where available, are obtained from brokers and adjusted for Company-specific observations. These assumptions primarily include discount rates and expected prepayments. In addition to the assets currently measured at fair value mentioned above, Regions often uses fair value measurements in determining the period-end balance of certain financial instruments such as non-marketable investments. Typically, these assets use fair value measurements to determine the recorded lower of cost or fair value of the asset or to determine the losses incurred during the period. As of December 31, 2008, none of these assets were recognized at fair value on the consolidated balance sheet. The following table presents the carrying value of those assets measured at fair value on a non-recurring basis as of December 31, 2008, and gains and losses recognized during the year. The table does not reflect the change in fair value attributable to any related economic hedges the Company used to mitigate the interest rate risk associated with these assets. Loans Held for Sale Mortgage Servicing Rights Carrying Value as of December 31, 2008 Level 1 Level 2 Level 3 Total Fair value adjustments for the year ended December 31, 2008 (Dollars in thousands) $ — — $ 133,912 — $ 221,300 160,890 $ 355,212 160,890 $ (358,937) (85,000) Regions also uses fair value measurements on a non-recurring basis for certain non-financial instruments such as other real estate and foreclosed assets. However, the effective date for the FAS 157 requirements for these instruments was deferred until January 1, 2009. See Note 1 for further discussion. FAIR VALUE OPTION Regions also adopted FAS 159 as of January 1, 2008. FAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. FAS 159 requires the difference between the carrying value before election of the fair value option and the fair value of these financial instruments be recorded as an adjustment to beginning retained earnings in the period of adoption. There was no material effect of adoption on the consolidated financial statements. Regions elected the fair value option for residential mortgage loans held for sale originated after January 1, 2008. This election allows for a more effective offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting under FAS 133. Regions has not elected the fair value option for other loans held for sale primarily because they are not economically hedged using derivative instruments. Fair values of loans held for sale are based on traded market prices of similar assets where available and/or discounted cash flows at market interest rates, adjusted for securitization activities that include servicing values and market conditions. At December 31, 2008, loans held for sale for which the fair value option was elected had an aggregate fair value of $506.3 million and an aggregate outstanding principal balance of $492.3 million and were recorded in loans held for sale in the consolidated balance sheet. Interest income on mortgage loans held for sale is recognized based on contractual rates and reflected in interest income on loans held for sale in the consolidated statements of operations. Net gains (losses) resulting from changes in fair value of these loans of $16.2 million was recorded in mortgage income in the consolidated statement of operations for the year ended December 31, 2008. These changes in fair value are mostly offset by economic hedging activities. An immaterial portion of this amount was attributable to changes in instrument-specific credit risk. 145 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The election of the fair value option under FAS 159 impacts the timing and recognition of servicing value, as well as origination fees and costs. The servicing value of a loan was precluded from being recognized until the sale of the loan prior to the election of the fair value option. After adoption of the fair value option, this value is recognized in earnings at the time of origination. Origination fees and costs for mortgage loans held for sale, which had been previously deferred under Statement of Financial Accounting Standards No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases”, are now recognized in earnings at the time of origination. Prior to the election of the fair value option, net loan origination costs for mortgage loans held for sale were capitalized as part of the carrying amount of the loans and recognized as a reduction of mortgage income upon the sale of such loans. Approximately $10 million of loan servicing value was recognized in non-interest income during 2008 related to the adoption of FAS 159. The net impact of ceasing deferrals of origination fees and costs during 2008 related to the adoption of FAS 159 was not material. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating fair values of financial instruments that are not disclosed under FAS 157. Cash and cash equivalents: The carrying amounts reported in the consolidated balance sheets and cash flows approximate the estimated fair values. Securities held to maturity: Estimated fair values are based on quoted market prices, where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable instruments and/or discounted cash flow analyses. Other interest-earning assets: The carrying amounts reported in the consolidated balance sheets approximate the estimated fair values. Loans: The fair values of loans, excluding leases, are estimated based on groupings of similar loans by type, interest rate, and borrower creditworthiness. Discounted future cash flow analyses are performed for the groupings incorporating assumptions of current and projected prepayment speeds. Discount rates are determined using the Company’s current origination rates on similar loans, adjusted for changes in current liquidity and credit spreads (if necessary). Deposits: The fair value of non-interest-bearing demand accounts, interest-bearing transaction accounts, savings accounts, money market accounts and certain other time deposit accounts is the amount payable on demand at the reporting date (i.e., the carrying amount). Fair values for certificates of deposit are estimated by using discounted cash flow analyses, based on the interest rates currently offered for deposits of similar maturities. Short-term and long-term borrowings: The carrying amounts of short-term borrowings reported in the consolidated balance sheets approximate the estimated fair values. The fair values of long-term borrowings are estimated using quoted market prices. If quoted market prices are not available, fair values are estimated using discounted future cash flow analyses based on current interest rates, liquidity and credit spreads. Loan commitments, standby and commercial letters of credit: The estimated fair values for these off-balance sheet instruments are based on probabilities of funding to project expected future cash flows, which are discounted using the loan methodology described above. 146 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The estimated fair values of the Company’s financial instruments as of December 31, 2008 are consistent with the exit price concept under FAS 157. The carrying amounts and estimated fair values of the Company’s financial instruments as of December 31 are as follows: Financial assets: Cash and cash equivalents Trading account assets Securities available for sale Securities held to maturity Loans held for sale Loans, net (excluding leases) Other interest-earning assets Derivative assets Financial liabilities: Deposits Short-term borrowings Long-term borrowings Derivative liabilities Loan commitments and letters of credit 2008 2007 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value (In thousands) $ 10,972,393 1,050,270 18,849,482 47,306 1,282,437 94,888,010 896,906 1,897,499 90,903,890 15,821,962 19,231,277 895,841 108,722 $ 10,972,393 1,050,270 18,849,482 47,655 1,282,437 79,882,414 896,906 1,897,499 91,198,585 15,821,962 18,190,958 895,841 732,363 $ 4,745,141 1,091,400 17,318,074 50,935 720,924 93,028,223 504,614 841,795 94,774,968 11,120,122 11,324,790 513,969 75,030 $ 4,745,141 1,091,400 17,318,074 51,790 730,859 93,107,611 504,614 841,795 86,429,028 11,120,122 11,025,457 513,969 408,382 NOTE 24. BUSINESS SEGMENT INFORMATION Regions’ segment information is presented based on Regions’ key segments of business. Each segment is a strategic business unit that serves specific needs of Regions’ customers. The Company’s primary segment is General Banking/Treasury, which represents the Company’s branch network, including consumer and commercial banking functions, and has separate management that is responsible for the operation of that business unit. This segment also includes the Company’s Treasury function, including the Company’s securities portfolio and other wholesale funding activities. Prior to year-end 2008, Regions had reported an Other segment that included merger charges and the parent company. Regions realigned to include the parent company with General Banking/Treasury as parent company transactions essentially support the Treasury function. The remaining merger charges were combined with discontinued operations because management reviews the results of the reportable segments excluding these items. The 2007 and 2006 amounts presented below have been adjusted to conform to the current presentation. In addition to General Banking/Treasury, Regions has designated as distinct reportable segments the activity of its Investment Banking/Brokerage/Trust and Insurance divisions. Investment Banking/Brokerage/Trust includes trust activities and all brokerage and investment activities associated with Morgan Keegan. Insurance includes all business associated with commercial insurance and credit life products sold to consumer customers. The reportable segment designated Merger Charges and Discontinued Operations includes merger charges related to the AmSouth acquisition and the results of EquiFirst for the periods presented. 147 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The following tables present financial information for each reportable segment for the years ended December 31: 2008 Net interest income Provision for loan losses Non-interest income Goodwill impairment Other non-interest expense Income tax expense (benefit) Net income (loss) Net income (loss) available to common shareholders Average assets 2007 Net interest income Provision for loan losses Non-interest income Other non-interest expense Income tax expense (benefit) Net income (loss) Average assets 2006 Net interest income Provision for loan losses Non-interest income Other non-interest expense Income tax expense (benefit) Net income (loss) Average assets Investment Banking/ Brokerage/ Trust 49,308 — 1,205,046 — 1,051,813 74,200 128,341 128,341 3,623,160 Investment Banking/ Brokerage/ Trust 58,402 — 1,151,181 947,673 96,038 165,872 3,717,596 Investment Banking/ Brokerage/ Trust 52,699 — 888,926 702,913 87,625 151,087 3,314,361 $ $ $ $ $ $ $ $ $ $ Merger Charges and Discontinued Operations $ $ $ $ $ $ $ $ $ $ — — — — 218,576 (83,009) (135,567) (135,567) — Merger Charges and Discontinued Operations 11,968 182 (176,681) 403,359 (208,649) (359,605) 479,900 Merger Charges and Discontinued Operations 45,140 127 32,384 198,662 (41,569) (79,696) 1,577,105 Insurance (In thousands) $ $ $ $ 3,995 — 113,115 — 88,358 8,685 20,067 20,067 339,544 Insurance (In thousands) $ $ $ 5,889 — 103,348 82,358 9,082 17,797 275,243 Insurance (In thousands) $ $ $ 5,638 — 84,949 64,827 10,095 15,665 203,789 Total Company 3,842,956 2,057,000 3,073,231 6,000,000 4,810,019 (355,058) (5,595,774) (5,622,010) 143,947,025 Total Company 4,410,334 555,182 2,679,154 4,712,843 570,368 1,251,095 138,756,619 Total Company 3,353,442 142,500 2,062,104 3,314,031 605,870 1,353,145 95,800,277 $ $ $ $ $ $ $ $ $ $ General Banking/ Treasury 3,789,653 2,057,000 1,755,070 6,000,000 3,451,272 (354,934) (5,608,615) (5,634,851) 139,984,321 General Banking/ Treasury 4,334,075 555,000 1,601,306 3,279,453 673,897 1,427,031 134,283,880 General Banking/ Treasury 3,249,965 142,373 1,055,845 2,347,629 549,719 1,266,089 90,705,022 148 $ $ $ $ $ $ $ $ $ $ Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents NOTE 25. COMMITMENTS, CONTINGENCIES AND GUARANTEES COMMERCIAL COMMITMENTS Regions issues off-balance sheet financial instruments in connection with lending activities. The credit risk associated with these instruments is essentially the same as that involved in extending loans to customers and is subject to Regions’ credit policies. Regions measures inherent risk associated with these instruments by recording a reserve for unfunded commitments based on an assessment of the likelihood that the guarantee will be funded and the creditworthiness of the customer or counterparty. Collateral is obtained based on management’s assessment of the customer. Credit risk associated with these instruments as of December 31 is based upon the contractual amounts indicated in the following table: Unused commitments to extend credit Standby letters of credit Commercial letters of credit 2008 2007 (In millions) $ 37,271 8,012 20 $ 39,628 7,642 43 Unused commitments to extend credit—To accommodate the financial needs of its customers, Regions makes commitments under various terms to lend funds to consumers, businesses and other entities. These commitments include (among others) revolving credit agreements, term loan commitments and short-term borrowing agreements. Many of these loan commitments have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of these commitments are expected to expire without being funded, the total commitment amounts do not necessarily represent future liquidity requirements. However, the current lack of liquidity in the broader market and the current credit environment has resulted in increased fundings of commitments to extend credit. Standby letters of credit—Standby letters of credit are also issued to customers, which commit Regions to make payments on behalf of customers if certain specified future events occur. Regions has recourse against the customer for any amount required to be paid to a third party under a standby letter of credit. Historically, a large percentage of standby letters of credit expire without being funded. The current lack of liquidity in the broader market and the current credit environment has resulted in increased fundings of standby letters of credit. The contractual amount of standby letters of credit represents the maximum potential amount of future payments Regions could be required to make and represents Regions’ maximum credit risk. At December 31, 2008 and 2007, Regions had $118.4 million and $82.7 million, respectively, of liabilities associated with standby letter of credit agreements, with related assets of $107.6 million and $74.4 million, respectively. Commercial letters of credit—Commercial letters of credit are issued to facilitate foreign or domestic trade transactions for customers. As a general rule, drafts will be drawn when the goods underlying the transaction are in transit. The reserve for all of these off-balance sheet financial instruments was $73.5 million and $58.3 million at December 31, 2008 and 2007, respectively. LEASES Operating leases—Regions and its subsidiaries lease land, premises and equipment under cancelable and non-cancelable leases, some of which contain renewal options under various terms. The leased properties are used primarily for banking purposes. Total rental expense on operating leases for the years ended December 31, 2008, 2007 and 2006 was $193.9 million, $198.4 million and $111.4 million, respectively. 149 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents The approximate future minimum rental commitments as of December 31, 2008, for all non-cancelable leases with initial or remaining terms of one year or more are shown in the following table. Included in these amounts are all renewal options reasonably assured of being exercised. 2009 2010 2011 2012 2013 Thereafter Premises $ $ 137,564 129,058 113,857 102,810 91,848 605,983 1,181,120 $ Equipment (In thousands) 4,841 37 18 18 8 — 4,922 $ Total $ 142,405 129,095 113,875 102,828 91,856 605,983 $ 1,186,042 Sale-leaseback transaction—In 2005, Regions sold 111 properties to a third party with an agreement to lease back a portion of 99 of these properties. The remaining 12 properties were not leased back by Regions. For those properties with no associated leaseback, a gain of approximately $1.1 million was recorded at closing. Total sales proceeds were allocated to individual properties based on relative fair market value determined by independent third-party individual property appraisals at the time of the sale. Of the 99 properties that included a leaseback, 20 of the properties qualified for sale-leaseback accounting under Statement of Financial Accounting Standards No. 98 (“FAS 98”), “Accounting for Leases.” Accordingly, these transactions were also reflected as sales with $0.2 million of immediate gain and $2.6 million in gain to be amortized on a straight-line basis over the fifteen-year operating lease term. The $0.2 million represents the amount of gain that exceeded the present value of the future minimum rent payments. There were no losses recognized for any of the properties subject to the sale-leaseback. The other 79 properties included lease terms that require lease payments that are significantly more heavily weighted toward the early years of the fifteen-year lease term (approximately 60% in excess of the calculated straight-line rental amount). This constituted additional collateral or financing to the buyer-lessor and effectively resulted in Regions having a continuing involvement in these 79 properties, requiring Regions to account for these properties as a financing arrangement under FAS 98. Accordingly, the properties continue to be reflected on the Company’s balance sheet and depreciated based on their current carrying value. Proceeds of $83.1 million attributable to these properties were reflected as a financing obligation with monthly rental payments due, reflected as a component of principal reduction and interest expense at the Company’s incremental borrowing rate. The approximate total future minimum rental commitment as of December 31, 2008, for all leases related to this transaction is $75.6 million, including $12.2 million in 2009, $8.4 million in 2010, $5.2 million in 2011, $5.4 million in 2012 and $5.5 million in 2013. LEGAL Regions and its affiliates are subject to litigation, including the litigation discussed below, and claims arising in the ordinary course of business. Punitive damages are routinely claimed in these cases. Regions continues to be concerned about the general trend in litigation involving large damage awards against financial service company defendants. Regions evaluates these contingencies based on information currently available, including advice of counsel, and assessment of available insurance coverage. Although it is not possible to predict the ultimate resolution or financial liability with respect to these litigation contingencies, management is currently of the opinion that the outcome of pending and threatened litigation would not have a material effect on Regions’ consolidated financial position or results of operations, except to the extent indicated in the discussion below. In late 2007 and during 2008, Regions and certain of its affiliates were named in class-action lawsuits filed in federal and state courts on behalf of investors who purchased shares of certain Regions Morgan Keegan Select Funds (the “Funds”) and shareholders of Regions. The complaints contain various allegations, including claims 150 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents that the Funds and the defendants misrepresented or failed to disclose material facts relating to the activities of the Funds. No class has been certified and at this stage of the lawsuits Regions cannot determine the probability of a material adverse result or reasonably estimate a range of potential exposures, if any. However, it is possible that an adverse resolution of these matters may be material to Regions’ consolidated financial position or results of operations. In addition, the Company has received requests for information from the SEC Staff regarding the matters subject to the litigation described above. Certain of the shareholders in these Funds and other interested parties have entered into arbitration proceedings and individual civil claims, in lieu of participating in the class actions. Although it is not possible to predict the ultimate resolution or financial liability with respect to these contingencies, management is currently of the opinion that the outcome of these proceedings would not have a material effect on Regions’ consolidated financial position or results of operations. GUARANTEES As a member of the Visa USA network, Regions, along with other members, indemnified Visa USA against litigation. On October 3, 2007, Visa USA was restructured and acquired several Visa affiliates. In conjunction with this restructuring, Regions’ indemnification of Visa USA was modified to cover five specific cases (“covered litigation”). Certain of the covered litigation has been settled or Visa has recorded a liability for it, and, accordingly, Regions has recorded its pro-rata share. Additionally, this modification caused Regions’ indemnification to be included within the scope of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” requiring a liability to be recognized at fair value for Regions’ share of the indemnification for the covered litigation that has not been settled or accrued by Visa. As of December 31, 2008 and 2007, Regions’ liability recognized under this indemnification was approximately $50.9 million and $51.5 million, respectively. On March 25, 2008, Visa executed an initial public offering (“IPO”) of common stock and, in connection with the IPO, Regions’ ownership interest in Visa was converted into Class B common stock of approximately 3.8 million shares. On March 28, 2008, Visa redeemed approximately 1.5 million shares of the Class B common stock from Regions for proceeds of approximately $62.8 million, all of which was recorded as “Other Income” in the consolidated statements of operations. The Class B common stock is subject to a restriction period of the lesser of three years from the date of the IPO or settlement of all covered litigation. The number of shares of Class B common stock may also be adjusted by Visa, depending on the outcome of the covered litigation. A portion of Visa’s proceeds from the IPO, totaling $3.0 billion, was escrowed to fund the covered litigation. To the extent that the amount available under the escrow arrangement is insufficient to fully resolve the covered litigation, Visa will enforce the indemnification obligations of Visa USA’s members for any excess amount. During 2008, Visa settled its lawsuit with American Express for approximately $2.25 billion. Additionally, Visa agreed to settle litigation with Discover Financial, and the portion of the settlement funded from the escrow account is approximately $1.74 billion. As a result, Visa reduced the conversion rate applicable to Class B common stock outstanding and an additional $1.1 billion was deposited into the escrow account. As of December 31, 2008, Regions’ remaining investment totaled approximately 1.5 million shares with a cost basis of zero. As of December 31, 2008, Regions recognized an asset of and reduced 2008 expense by approximately $27.9 million, which represents the Company’s proportionate economic interest in the escrow account to settle the litigation liability. 151 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents NOTE 26. PARENT COMPANY ONLY FINANCIAL STATEMENTS Presented below are condensed financial statements of Regions Financial Corporation: Balance Sheets ASSETS Cash and due from banks Interest-bearing deposits in other banks Loans to subsidiaries Securities available for sale Trading assets Premises and equipment Investments in subsidiaries: Banks Non-banks Other assets LIABILITIES AND STOCKHOLDERS’ EQUITY Long-term borrowings Other liabilities Total liabilities Stockholders’ equity: Preferred stock Common stock Additional paid-in capital Retained earnings (deficit) Treasury stock Accumulated other comprehensive income (loss) Total stockholders’ equity 152 December 31 2008 2007 (In thousands) $ 783 4,766,741 90,625 67,241 19,399 78,181 14,559,177 1,760,573 16,319,750 491,315 $ 21,834,035 $ 4,686,925 334,273 5,021,198 3,307,382 7,357 16,814,730 (1,868,752) (1,425,646) (22,234) 16,812,837 $ 21,834,035 $ 2,162 2,003,660 90,625 35,522 — 79,878 21,297,176 1,473,856 22,771,032 525,389 $ 25,508,268 $ 5,003,946 681,293 5,685,239 — 7,347 16,544,651 4,439,505 (1,370,761) 202,287 19,823,029 $ 25,508,268 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Statements of Operations Income: Dividends received from subsidiaries Service fees from subsidiaries Interest from subsidiaries Other Expenses: Salaries and employee benefits Interest Net occupancy expense Furniture and equipment expense Legal and other professional fees Other Income before income taxes and equity in undistributed earnings (loss) of subsidiaries Income tax benefit Income before equity in undistributed earnings (loss) of subsidiaries and preferred dividends Equity in undistributed earnings (loss) of subsidiaries: Banks Non-banks Net income (loss) Preferred dividends Net income (loss) available to common shareholders 153 2008 Year Ended December 31 2007 (In thousands) 2006 $ 725,426 183,093 40,035 10,724 959,278 226,574 239,724 2,304 6,035 6,062 72,882 553,581 405,697 (127,178) 532,875 (6,239,753) 111,104 (6,128,649) (5,595,774) 26,236 $ (5,622,010) $ 2,250,386 237,624 46,995 23,915 2,558,920 224,516 257,165 2,824 8,361 3,112 81,194 577,172 1,981,748 (131,050) 2,112,798 (986,128) 124,425 (861,703) 1,251,095 — $ 1,251,095 $ 900,276 201,354 42,839 13,253 1,157,722 167,531 192,300 13,232 2,371 17,852 32,689 425,975 731,747 (57,060) 788,807 429,009 135,329 564,338 1,353,145 — $ 1,353,145 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Statements of Cash Flows Operating activities: Net income (loss) Adjustments to reconcile net cash provided by operating activities: Equity in undistributed earnings of subsidiaries Depreciation, amortization and accretion, net Amortization of discount on preferred stock Increase in trading assets (Decrease) increase in other liabilities Decrease (increase) in other assets Other Net cash (used in) provided by operating activities Investing activities: Investment in subsidiaries Principal payments (advances) on loans to subsidiaries Net purchases of premises and equipment Proceeds from sales and maturities of securities available for sale Purchases of securities available for sale Net cash provided by (used in) investing activities Financing activities: Proceeds from long-term borrowings Payments on long-term borrowings Cash dividends on common stock Issuance of preferred stock and common stock warrant Purchase of treasury stock Proceeds from exercise of stock options Net cash provided by (used in) financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 154 2008 Years Ended December 31 2007 (In thousands) 2006 $ (5,595,774) $ 1,251,095 $ 1,353,145 6,128,649 (4,552) 3,382 17,654 (373,256) (76,335) (127,762) (27,994) 861,703 57,368 — — 31,194 (44,879) — 2,156,481 (564,338) 38,156 — — 292,762 (33,407) 100 1,086,418 305,387 — (1,714) 34,966 (651) 337,988 13,687 124,375 (53,868) 109,057 (87,305) 105,946 (9,682) (100,000) (24,786) 87,426 (77,985) (125,027) 345,000 (751,470) (669,001) 3,500,000 — 27,179 2,451,708 2,761,702 2,005,822 $ 4,767,524 3,135,439 (1,691,638) (1,035,432) — (1,363,213) 154,813 (800,031) 1,462,396 543,426 $ 2,005,822 227,575 (524,051) (894,805) — (490,370) 264,335 (1,417,316) (455,925) 999,351 543,426 $ Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not Applicable. Item 9A. Controls and Procedures Based on an evaluation, as of the end of the period covered by this Form 10-K, under the supervision and with the participation of Regions’ management, including its Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and the Chief Financial Officer have concluded that Regions’ disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) are effective. During the fourth fiscal quarter of the year ended December 31, 2008, there have been no changes in Regions’ internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Regions’ control over financial reporting. The Report of Management on Internal Control Over Financial Reporting is included in Item 8. of this Annual Report on Form 10-K. Item 9B. Other Information Not Applicable. 155 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance Information about the Directors and Director nominees of Regions included in Regions’ Proxy Statement for the Annual Meeting of Shareholders to be held on April 16, 2009 (the “Proxy Statement”) under the caption “ELECTION OF DIRECTORS” and the information incorporated by reference pursuant to Item 13. below are incorporated herein by reference. Information on Regions’ executive officers is included below. Information regarding Regions’ Audit Committee included under the captions “ELECTION OF DIRECTORS—The Board of Directors—Audit Committee” and “—Audit Committee Financial Experts” of the Proxy Statement is incorporated herein by reference. Information regarding late filings under Section 16(a) of the Securities Exchange Act of 1934 included in the Proxy Statement under the caption “VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF—Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated herein by reference. Information regarding Regions’ Code of Ethics for Senior Financial Officers included in the Proxy Statement under the caption “ELECTION OF DIRECTORS—Code of Ethics for Senior Financial Officers” is incorporated herein by reference. Executive officers of the registrant as of December 31, 2008, are as follows: Executive Officer C. Dowd Ritter O.B. Grayson Hall, Jr. David B. Edmonds Irene M. Esteves Age 61 51 55 50 Position and Offices Held with Registrant and Subsidiaries Chairman, President and Chief Executive Officer and Director, registrant and Regions Bank. Previously Chairman, President and Chief Executive Officer of AmSouth Bancorporation and AmSouth Bank. Vice Chairman and Head of General Banking Group, registrant and Regions Bank. Previously Senior Executive Vice President and Head of General Banking Group, registrant and Regions Bank and Senior Executive Vice President and Lines of Business/Operations and Technology Group Head of AmSouth Bancorporation and AmSouth Bank. Director, Morgan Keegan & Company, Inc. and Regions Insurance Group, Inc. Senior Executive Vice President and Head of Human Resources Group, registrant and Regions Bank. Previously, Senior Executive Vice President and Head of Human Resources of AmSouth Bancorporation and AmSouth Bank. Chief Financial Officer and Senior Executive Vice President, registrant and Regions Bank. Previously Chief Financial Officer of The Capital Management Group of Wachovia Corporation and Chief Financial Officer and Chief of Human Resources at Putnam Investments. Director, Regions Insurance Group, Inc. Executive Officer Since* 1991 1993 1994 2008 156 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Executive Officer G. Timothy Laney John B. Owen** David H. Rupp William C. Wells, II Age 48 47 45 50 Position and Offices Held with Registrant and Subsidiaries Senior Executive Vice President and Head of Business Services Group, registrant and Regions Bank. Previously served in senior management roles at Bank of America in treasury, commercial banking, private banking, corporate marketing and change management. Director, Regions Equipment Finance Corporation, Regions Business Capital Corporation and Regions Insurance Group, Inc. Senior Executive Vice President and Head of Operations and Technology Group, registrant and Regions Bank. Previously Chief Executive Officer for Assurant Specialty Property. Director, Regions Insurance Group, Inc. Senior Executive Vice President and Head of Consumer Services Group, registrant and Regions Bank. Previously held various executive positions with Bank of America including serving as the Sales, Service and Execution executive, head of the home equity business line and Chief Financial Officer for consumer real estate. Senior Executive Vice President, Chief Risk Officer and Head of Risk Management Group, registrant and Regions Bank. Previously Senior Executive Vice President, Chief Risk Officer and Head of Risk Management Group, AmSouth Bancorporation and AmSouth Bank and Executive Vice President and Chief Risk Officer, SouthTrust Corporation. Executive Officer Since* 2007 2009 2008 2005 * The years indicated are those in which the individual was first deemed to be an executive officer of registrant, including its predecessor companies. ** Appointed to the Executive Council in January 2009. Item 11. Executive Compensation All information presented under the captions “COMPENSATION DISCUSSION AND ANALYSIS,” “2008 COMPENSATION,” “COMPENSATION COMMITTEE REPORT” and “ELECTION OF DIRECTORS—Compensation Committee Interlocks and Insider Participation” of the Proxy Statement are incorporated herein by reference. 157 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters All information presented under the caption “VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF” of the Proxy Statement is incorporated herein by reference. Equity Compensation Plan Information The following table gives information about the common stock that may be issued upon the exercise of options, warrants and rights under all of Regions’ existing equity compensation plans as of December 31, 2008. Plan Category Equity Compensation Plans Approved by Stockholders Equity Compensation Plans Not Approved by Stockholders Total Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights 19,287,799(a) 33,667,499(c) 52,955,298 Weighted Average Exercise Price of Outstanding Options, Warrants and Rights $ $ $ 28.62 27.98 28.22 Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in First Column) 9,159,869(b) 7,585,301(d) 16,745,170 (a) Does not include outstanding restricted stock awards. (b) Consists of shares available for future issuance under the Regions Financial Corporation 2006 Long Term Incentive Plan. (c) Consists of outstanding stock options issued under certain plans assumed by Regions in connection with business combinations, including 31,581,720 options issued under plans assumed in connection with the Regions-AmSouth merger, 29,322,537 of which were issued under plans previously approved by AmSouth stockholders but not pre-merger Regions stockholders. In each instance, the number of shares subject to option and the exercise price of outstanding options have been adjusted to reflect the applicable exchange ratio. See Note 18 “Share-Based Payments” to the consolidated financial statements. Does not include 332,845 shares issuable pursuant to outstanding rights under AmSouth deferred compensation plans. (d) This number of shares consists of shares reserved for future issuance under the AmSouth Stock Option Plan for Outside Directors and the AmSouth 2006 Long Term Incentive Compensation Plan. Item 13. Certain Relationships and Related Transactions, and Director Independence All information presented under the captions “ELECTION OF DIRECTORS—Other Transactions,” “—Review, Approval or Ratification of Transactions with Related Persons” and “—Director Independence” of the Proxy Statement are incorporated herein by reference. Item 14. Principal Accounting Fees and Services All information presented under the caption “RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” of the Proxy Statement is incorporated herein by reference. 158 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules (a) 1. Consolidated Financial Statements. The following reports of independent registered public accounting firm and consolidated financial statements of Regions and its subsidiaries are included in Item 8. of this Form 10-K: Reports of Independent Registered Public Accounting Firm; Consolidated Balance Sheets—December 31, 2008 and 2007; Consolidated Statements of Operations – Years ended December 31, 2008, 2007 and 2006; Consolidated Statements of Changes in Stockholders’ Equity—Years ended December 31, 2008, 2007 and 2006 ; and Consolidated Statements of Cash Flows—Years ended December 31, 2008, 2007 and 2006. Notes to Consolidated Financial Statements 2. Consolidated Financial Statement Schedules. The following consolidated financial statement schedules are included in Item 8. of this Form 10-K: None. The Schedules to consolidated financial statements are not required under the related instructions or are inapplicable. (b) Exhibits. The exhibits indicated below are either included or incorporated by reference as indicated. SEC Assigned Exhibit Number 2.1 3.1 3.2 3.3 4.1 4.2 4.3 10.1* Description of Exhibits Agreement and Plan of Merger, dated as of May 24, 2006, by and between Regions Financial Corporation and AmSouth Bancorporation, incorporated by reference to Annex A to the joint proxy statement/prospectus contained in Registration Statement No. 333-135732 filed July 12, 2006. Restated Certificate of Incorporation incorporated by reference to Exhibit 3.1 to Form 10-Q Quarterly Report filed by registrant on August 3, 2007. Certificate of Designations incorporated by reference to Exhibit 3.1 to Form 8-K Current Report filed by registrant on November 18, 2008. Bylaws as restated, incorporated by reference to Exhibit 3.2 to Form 8-K Current Report filed by registrant on April 17, 2008. Instruments defining the rights of security holders, including indentures. The registrant hereby agrees to furnish to the Commission upon request copies of instruments defining the rights of holders of long-term debt of the registrant and its consolidated subsidiaries; no issuance of debt exceeds 10% of the assets of the registrant and its subsidiaries on a consolidated basis. Warrant to purchase up to 48,253,677 shares of Common Stock, issued on November 14, 2008 to the United States Department of Treasury, incorporated by reference to Exhibit 4.1 to Form 8-K Current Report filed by registrant on November 18, 2008. Form of stock certificate for the class of Fixed Rate Cumulative Perpetual Preferred Stock Series A, incorporated by reference to Exhibit 4.2 to Form 8-K Current Report filed by registrant on November 18, 2008. AmSouth Bancorporation 2006 Long Term Incentive Compensation Plan, incorporated by reference to Appendix C to AmSouth Bancorporation’s Proxy Statement dated March 10, 2006, for the AmSouth Annual Meeting of Shareholders held April 20, 2006. 159 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents SEC Assigned Exhibit Number 10.2* 10.3* 10.4* 10.5* 10.6* 10.7* 10.8* 10.9* 10.10* 10.11* 10.12* 10.13* 10.14* 10.15* Description of Exhibits Form of stock option grant agreement under AmSouth Bancorporation 2006 Long Term Incentive Compensation Plan, incorporated by reference to Exhibit 99.3 to Form 8-K Current Report filed by registrant on April 30, 2007. Form of restricted stock grant agreement under AmSouth Bancorporation 2006 Long Term Incentive Compensation Plan, incorporated by reference to Exhibit 99.4 to Form 8-K Current Report filed by registrant on April 30, 2007. Form of performance unit agreement under AmSouth Bancorporation 2006 Long Term Incentive Compensation Plan and Regions Financial Corporation 2006 Long Term Incentive Plan, incorporated by reference to Exhibit 99.5 to Form 8-K Current Report filed by registrant on April 30, 2007. Form of stock option grant agreement, between Regions Financial Corporation and Alton E. Yother under AmSouth Bancorporation 2006 Long Term Incentive Compensation Plan, incorporated by reference to Exhibit 99.6 to Form 8-K Current Report filed by registrant on April 30, 2007. Form of restricted stock grant agreement between Regions Financial Corporation and Alton E. Yother under AmSouth Bancorporation 2006 Long Term Incentive Compensation Plan, incorporated by reference to Exhibit 99.7 to Form 8-K Current Report filed by registrant on April 30, 2007. Form of performance unit agreement between Regions Financial Corporation and Alton E. Yother under AmSouth Bancorporation 2006 Long Term Incentive Compensation Plan, incorporated by reference to Exhibit 99.8 to Form 8-K Current Report filed by registrant on April 30, 2007. Regions Financial Corporation 2006 Long Term Incentive Plan, incorporated by reference to Exhibit 99.1 to Form 8-K Current Report filed by registrant on May 23, 2006. Amendment to Regions Financial Corporation 2006 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.5 to Form 10-Q Quarterly Report filed by registrant on May 7, 2008. Form of stock option grant agreement under Regions Financial Corporation 2006 Long Term Incentive Plan, incorporated by reference to Exhibit 99.1 to Form 8-K Current Report filed by registrant on April 30, 2007. Form of restricted stock grant agreement under Regions Financial Corporation 2006 Long Term Incentive Plan, incorporated by reference to Exhibit 99.2 to Form 8-K Current Report filed by registrant on April 30, 2007. Form of director stock option grant agreement under Regions Financial Corporation 2006 Long Term Incentive Plan, incorporated by reference to Exhibit 10.46 to Form 10-K Annual Report filed by registrant on February 26, 2008. Regions 1999 Long Term Incentive Plan, incorporated by reference to Exhibit 10.3 to Form 10-K Annual Report filed by registrant on March 14, 2005. Form of award agreement for incentive stock options under Regions Financial Corporation 1999 Long Term Incentive Plan, incorporated by reference to Exhibit 99.9 to Form 8-K Current Report filed by registrant on December 23, 2005. Form of award agreement for nonqualified stock options under Regions Financial Corporation 1999 Long Term Incentive Plan, incorporated by reference to Exhibit 99.10 to Form 8-K Current Report filed by registrant on December 23, 2005. 160 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents SEC Assigned Exhibit Number 10.16* 10.17* 10.18* 10.19* 10.20* 10.21* 10.22* 10.23* 10.24* 10.25* 10.26* 10.27* 10.28* 10.29* 10.30* Description of Exhibits Form of award agreement for restricted stock awards under Regions Financial Corporation 1999 Long Term Incentive Plan, incorporated by reference to Exhibit 99.11 to Form 8-K Current Report filed by registrant on December 23, 2005. AmSouth Bancorporation 1996 Long Term Incentive Compensation Plan, as amended, incorporated by reference to Exhibit 10.2 to Form 10-Q Quarterly Report filed by AmSouth Bancorporation on November 9, 2004. Amendment Number 1 to the AmSouth Bancorporation 1996 Long Term Incentive Compensation Plan, incorporated by reference to Exhibit 10.1 to Form 10-Q Quarterly Report filed by AmSouth Bancorporation on May 9, 2006. Form of restricted stock grant agreement under AmSouth Bancorporation 1996 Long Term Incentive Compensation Plan, incorporated by reference to Exhibit 10.1 to Form 8-K Current Report filed by AmSouth Bancorporation on April 5, 2006. Form of stock option grant agreement under AmSouth Bancorporation 1996 Long Term Incentive Compensation Plan, incorporated by reference as Exhibit 10.2 to Form 8-K Current Report filed by AmSouth Bancorporation on February 11, 2005. AmSouth Bancorporation Amended and Restated 1991 Employee Stock Incentive Plan, incorporated by reference to attachment A to Proxy Statement of First American Corporation dated and filed March 20, 1997, File No. 0-6198. AmSouth Bancorporation Amended and Restated Stock Option Plan for Outside Directors, incorporated by reference to Appendix E to AmSouth Bancorporation’s Proxy Statement dated March 10, 2004, for the Annual Meeting of Shareholders held April 15, 2004. Form of stock option grant agreement under AmSouth Bancorporation Amended and Restated Stock Option Plan for Outside Directors, incorporated by reference to Exhibit 10.1 to Form 8-K Current Report filed by AmSouth Bancorporation on April 26, 2005. Regions Directors’ Deferred Stock Investment Plan, incorporated by reference to Exhibit 10.6 to Form 10-K Annual Report filed by former Regions Financial Corporation on March 24, 2003, File No. 01-31307. Amendment to Regions Directors’ Deferred Stock Investment Plan, incorporated by reference to Exhibit 10.13 to Form 10-K Annual Report filed by registrant on March 9, 2006. Amendment to Regions Financial Corporation Directors’ Deferred Stock Investment Plan, incorporated by reference to Exhibit 10.9 to Form 10-Q Quarterly Report filed by registrant on August 3, 2007. Amended and Restated Regions Financial Corporation Directors’ Deferred Stock Investment Plan. Amended and Restated Deferred Compensation Plan for Directors of AmSouth Bancorporation, incorporated by reference to Exhibit 10-q to Form 10-K Annual Report filed by AmSouth Bancorporation on March 30, 1998, File No. 1-7476. Amendment No. 1 to Amended and Restated Deferred Compensation Plan for Directors of AmSouth Bancorporation adopted effective November 4, 2006, incorporated by reference to Exhibit 10.50 to Form 10-K Annual Report filed by registrant on March 1, 2007. Amended and Restated Regions Financial Corporation Deferred Compensation Plan for Former Directors of AmSouth Bancorporation (formerly named Deferred Compensation Plan for Directors of AmSouth Bancorporation). 161 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents SEC Assigned Exhibit Number 10.31* 10.32* 10.33* 10.34* 10.35* 10.36* 10.37* 10.38* 10.39* 10.40* 10.41* 10.42* 10.43* 10.44* 10.45* 10.46* Description of Exhibits First American Corporation Directors’ Deferred Compensation Plan, incorporated by reference to Exhibit 10-a to Form 10-Q Quarterly Report filed by AmSouth Bancorporation on April 30, 2002, File No. 1-7476. Amendment Number 2 to First American Corporation Directors’ Deferred Compensation Plan, incorporated by reference to Exhibit 10.3 to Form 10-Q Quarterly Report filed by registrant on November 9, 2007. Form of deferred compensation agreement implementing deferred compensation arrangements with certain directors who were formerly directors of Union Planters Corporation, incorporated by reference to Exhibit 10.19 to Form 10-K Annual Report filed by registrant on March 14, 2005. AmSouth Bancorporation Deferred Compensation Plan, incorporated by reference to Exhibit 10.13 to Form 10-K Annual Report filed by AmSouth Bancorporation on March 15, 2005. Amendment Number 1 to AmSouth Bancorporation Deferred Compensation Plan effective November 4, 2006, incorporated by reference to Exhibit 10.59 to Form 10-K Annual Report filed by registrant on March 1, 2007. Amendment Number 2 to AmSouth Bancorporation Deferred Compensation Plan. Regions Financial Corporation Executive Bonus Plan, incorporated by reference to Exhibit 99 to Form 8-K Current Report filed by registrant on May 25, 2005. Amended and Restated AmSouth Bancorporation Management Incentive Plan, incorporated by reference to Exhibit 10.47 to Form 10-K Annual Report filed by registrant on February 26, 2008. Employment Agreement for C. Dowd Ritter, incorporated by reference to Exhibit 10-m to Form 10-K Annual Report filed by AmSouth Bancorporation on March 30, 2000, File No. 1-7476. Amendment to Employment Agreement for C. Dowd Ritter, incorporated by reference to Exhibit 10.2 to Form 10-Q Quarterly Report filed by AmSouth Bancorporation on May 3, 2004. Letter from C. Dowd Ritter to AmSouth Bancorporation dated May 24, 2006, incorporated by reference to Exhibit 10.1 to Form 8-K Current Report filed by AmSouth Bancorporation on May 31, 2006. Letter Agreement re: Termination of Employment Agreement, dated as of October 1, 2007, by and between Regions Financial Corporation and C. Dowd Ritter, incorporated by reference to Exhibit 10.1 to Form 8-K Current Report filed by registrant on October 3, 2007. Letter Agreement re: Supplemental Retirement Agreement dated as of October 1, 2007, by and between Regions Financial Corporation and C. Dowd Ritter, incorporated by reference to Exhibit 10.2 to Form 8-K Current Report filed by registrant on October 3, 2007. Life Insurance Agreements incorporated by reference to Exhibit 10.16 of Form 10-K Annual Report filed by AmSouth Bancorporation on March 10, 2006. Form of Change-in-Control Agreement for executive officers O.B. Grayson Hall, Jr., David B. Edmonds, Irene M. Esteves, G. Timothy Laney, John B. Owen, David H. Rupp and William C. Wells, II, incorporated by reference to Exhibit 10.3 of Form 8-K Current Report filed by registrant on October 3, 2007. Letter to Irene Esteves, incorporated by reference to Exhibit 10.84 to Form 10-K Annual Report filed by registrant on February 26, 2008. 162 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents SEC Assigned Exhibit Number 10.47* 10.48* 10.49* 10.50* 10.51* 10.52* 10.53* 10.54* 10.55* 10.56* 10.57* 10.58* 10.59* 10.60* 10.61* 10.62* Description of Exhibits Form of letter agreement and Waiver executed in favor of U.S. Treasury and signed by each of C. Dowd Ritter, O.B. Grayson Hall, Jr., Irene M. Esteves, David C. Edmonds, G. Timothy Laney, David H. Rupp and William C. Wells, II. Form of Retention RSU Award Notice, incorporated by reference to Exhibit 99.1 to Form 8-K Current Report filed by registrant on October 3, 2007. Form of Retention RSU Award Agreement, incorporated by reference to Exhibit 99.2 to Form 8-K Current Report filed by registrant on October 3, 2007. AmSouth Bancorporation Amended and Restated Supplemental Thrift Plan, incorporated by reference to Exhibit 10.2 to Form 10-Q Quarterly Report filed by AmSouth Bancorporation on August 9, 2004. Amendment Number One to the AmSouth Bancorporation Supplemental Thrift Plan, incorporated by reference to Exhibit 10.10 to Form 10-K Annual Report filed by AmSouth Bancorporation on March 10, 2006. Amendment Number Two to the AmSouth Bancorporation Supplemental Thrift Plan adopted November 3, 2006, incorporated by reference to Exhibit 10.53 to Form 10-K Annual Report filed by registrant on March 1, 2007. Amendment Number Three to the AmSouth Bancorporation Supplemental Thrift Plan executed January 31, 2007, incorporated by reference to Exhibit 10.1 to Form 10-Q Quarterly Report filed by registrant on May 7, 2007. Amendment Number Four to the AmSouth Bancorporation Supplemental Thrift Plan, incorporated by reference to Exhibit 10.2 to Form 10-Q Quarterly Report filed by registrant on November 9, 2007. Amendment Number Five to the AmSouth Bancorporation Supplemental Thrift Plan, incorporated by reference to Exhibit 10.2 to Form 10-Q Quarterly Report filed by registrant on May 7, 2008. Amendment Number Six to the AmSouth Bancorporation Supplemental Thrift Plan, incorporated by reference to Exhibit 10.3 to Form 10-Q Quarterly Report filed by registrant on May 7, 2008. Regions Financial Corporation Supplemental 401(k) Plan Amended and Restated as of April 1, 2008, incorporated by reference to Exhibit 10.1 to Form 10-Q Quarterly Report filed by registrant on August 6, 2008. Amended and Restated Regions Financial Corporation Supplemental 401(k) Plan (formerly named AmSouth Bancorporation Supplemental Thrift Plan). AmSouth Bancorporation Amended and Restated Supplemental Retirement Plan, incorporated by reference to Exhibit 10.1 to Form 10-Q Quarterly Report filed by AmSouth Bancorporation on August 9, 2004. Amendment Number One to the AmSouth Bancorporation Supplemental Retirement Plan adopted November 3, 2006, incorporated by reference to Exhibit 10.46 to Form 10-K Annual Report filed by registrant on March 1, 2007. Amendment Number Two to the AmSouth Bancorporation Supplemental Retirement Plan, incorporated by reference to Exhibit 10.4 to Form 10-Q Quarterly Report filed by registrant on May 7, 2008. Amended and Restated Regions Financial Corporation Post 2006 Supplemental Executive Retirement Plan (formerly named AmSouth Bancorporation Supplemental Retirement Plan). 163 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents SEC Assigned Exhibit Number 10.63* 10.64* 10.65* 10.66* 10.67 12 21 23 24 31.1 31.2 32 Description of Exhibits Form of Indemnification Agreement for Directors of AmSouth Bancorporation, incorporated by reference to Exhibit 10.2 to Form 8-K Current Report filed by AmSouth Bancorporation on April 20, 2006. Morgan Keegan & Company Deferred Compensation Plan and form of deferral agreement, incorporated by reference to Exhibit 10.71 to Form 10-K Annual Report filed by registrant on March 1, 2007. Morgan Keegan & Company Amended and Restated Deferred Compensation Plan. Employment agreement dated as of October 18, 2006 with G. Douglas Edwards, the President and Chief Executive Officer of Morgan Keegan & Company, Inc., incorporated by reference to Exhibit 99.2 to Form 8-K Current Report filed by registrant on October 27, 2006. Letter Agreement, dated November 14, 2008 including the Securities Purchase Agreement—Standard Terms incorporated by reference therein, between registrant and the U.S. Treasury, incorporated by reference to Exhibit 10.1 to Form 8-K Current Report filed November 18, 2008. Computation of Ratio of Earnings to Fixed Charges. List of subsidiaries of registrant. Consent of independent registered public accounting firm. Powers of Attorney. Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Compensatory plan or agreement. Copies of exhibits not included herein may be obtained free of charge, electronically through Regions website at www.regions.com or through the SEC’s website at www.sec.gov or upon request to: Investor Relations Regions Financial Corporation 1900 Fifth Avenue North Birmingham, Alabama 35203 (205) 581-7890 164 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REGIONS FINANCIAL CORPORATION By: /s/ C. DOWD RITTER C. Dowd Ritter Chairman, President and Chief Executive Officer Date: February 24, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ C. DOWD RITTER C. Dowd Ritter Chairman, President, Chief Executive Officer, and Director (principal executive officer) February 24, 2009 /s/ O. B. GRAYSON HALL, JR. O. B. Grayson Hall, Jr. Vice Chairman, Head of General Banking Group and Director February 24, 2009 /s/ IRENE M. ESTEVES Irene M. Esteves Senior Executive Vice President and Chief Financial Officer (principal financial officer) February 24, 2009 /s/ HARDIE B. KIMBROUGH, JR. Hardie B. Kimbrough, Jr. Executive Vice President and Controller (principal accounting officer) February 24, 2009 * Samuel W. Bartholomew, Jr. * George W. Bryan * David J. Cooper, Sr. * Earnest W. Deavenport, Jr. * Don DeFosset * James R. Malone Director Director Director Director Director Director 165 February 24, 2009 February 24, 2009 February 24, 2009 February 24, 2009 February 24, 2009 February 24, 2009 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Table of Contents Signature * Susan W. Matlock * John E. Maupin, Jr. * Charles D. McCrary * Claude B. Nielsen * John R. Roberts * Lee J. Styslinger III Director Director Director Director Director Director Title Date February 24, 2009 February 24, 2009 February 24, 2009 February 24, 2009 February 24, 2009 February 24, 2009 * John D. Buchanan, by signing his name hereto, does sign this document on behalf of each of the persons indicated above pursuant to powers of attorney executed by such persons and filed with the Securities and Exchange Commission. By: /s/ JOHN D. BUCHANAN John D. Buchanan Attorney in Fact 166 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 REGIONS FINANCIAL CORPORATION DIRECTORS’ DEFERRED STOCK INVESTMENT PLAN November, 2008 EXHIBIT 10.27 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 REGIONS FINANCIAL CORPORATION DIRECTORS’ DEFERRED STOCK INVESTMENT PLAN WHEREAS, Regions Financial Corporation (“Regions”) adopted, in 1996, the Regions Financial Corporation Directors’ Deferred Stock Investment Plan (the “Plan”) to enable Regions to provide to its Directors a convenient means of deferring compensation through the purchase of Common Stock of Regions, and thereby encourage stock ownership and promote interest in Regions’ success, growth, and development; WHEREAS, Regions recognizes the value to its Directors of a plan of deferred compensation; WHEREAS, the Plan allows such Directors to defer receipt of income through the purchase of Regions Common Stock; WHEREAS, the obligations under this Plan are an unfunded liability of Regions; WHEREAS, the Plan has been amended on several occasions; and WHEREAS, Regions now desires to amend the Plan to comply with the final regulations under Internal Revenue Code § 409A and to restate the Plan to incorporate all amendments; NOW, THEREFORE, in consideration of the premises and of the mutual covenants hereinafter set forth, the Regions Financial Corporation Directors’ Deferred Stock Investment Plan shall contain the following terms and conditions. ARTICLE I DEFINITIONS When used herein, the following words and phrases shall have the meanings set forth below, unless a different meaning is clearly required by the context of the Plan. “§ 409A” shall mean Section 409A of the Internal Revenue Code and shall include any amendments thereto or successor provisions as well as any applicable current and future regulations, rulings, IRS notices and other binding legal authority interpreting or modifying the legal requirements under Section 409A. “Authorization for Participation” shall mean the form that an individual must submit to the Secretary of the Board in order to participate in the Plan. Such form shall contain the individual’s election to defer receipt of future income, the amount of the deferred income or the percentage of deferred Director’s Fees, and shall set forth the Participant’s beneficiaries and contingent beneficiaries designated to receive any benefits to which the Participant may be entitled in the event of the Participant’s death. “Board” shall mean the Board of Directors of Regions. - 2 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 “Change of Control” shall mean: (i) an acquisition (other than directly from the Company) by an individual, entity or a group (excluding the Company or an employee benefit plan of the Company or a corporation controlled by the Company’s shareholders) of 20% or more of the Company’s Common Stock; (ii) a change in a majority of the current Board (the “Incumbent Board”) (excluding any persons approved by a vote of at least a majority of the Incumbent Board other than in connection with an actual or threatened proxy contest); (iii) consummation of a complete liquidation or dissolution of the Company or a merger, consolidation or sale of all or substantially all of the Company’s assets (collectively, a “Business Combination”) other than a Business Combination in which all or substantially all of the stockholders of the Company receive 50% or more of the stock of the company resulting from the Business Combination, at least a majority of the board of directors of the resulting corporation were members of the Incumbent Board, and after which no person owns 20% or more of the stock of the resulting corporation, who did not own such stock immediately before the Business Combination. Notwithstanding the above, the term “Change of Control” shall be limited to those events described above that also qualify as a payment event under § 409A. “Committee” shall mean the persons appointed by the Board pursuant to Article V to administer the Plan. “Common Stock” shall mean the shares of common stock, $.01 par value, of Regions and any shares which may, at any time prior to the date on which such term is applicable, be issued in exchange for shares of such Common Stock, whether in subdivision or in combination thereof and whether as part of a classification or reclassification thereof, or otherwise. “Company” or “Companies” shall include Regions and each affiliate, subsidiary, or local division thereof, and shall mean any one or more of such entities as the context requires. “Deferred Account” shall mean a separate bookkeeping account with respect to each Participant for the purpose of accounting for Participant deferrals, Company deferred contributions and cash dividends attributed to both, and any other amounts attributable to the Participant’s Deferred Account in accordance with the provisions of the Plan. The Deferred Account shall include the Stock Account and the Fractional Share Account as well as any other amounts credited to the Participant. “Director” shall mean any person serving on the Board. “Director’s Fees” shall mean the total amount to be paid by Regions to a Participant as retainer for services as a Director and fees for attending meetings of the Board, including any fees received by such Participant for attending meetings of any committee of the Board. “Fractional Share Account” shall mean the amount to be paid, as provided herein, for a Participant’s deferred fractional share interest in Common Stock attributable to such - 3 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Participant’s Stock Account, which said amount shall be calculated by multiplying the Participant’s deferred fractional share interest by the average price per share at which Common Stock is purchased by the Purchasing Agent in the purchase transaction immediately preceding payment to the Participant of such amount. “Participant” shall mean a person who is participating in the Plan pursuant to the provisions of Article II and whose participation in the Plan has not terminated. “Plan” shall mean the Regions Financial Corporation Directors’ Deferred Stock Investment Plan, as set forth herein, together with any amendments thereto. “Plan Year” shall mean the period commencing on the effective date of the Plan in 1996 and ending on December 31, 1996; and, thereafter, the period commencing January 1st of each year and ending on December 31 of such year. “Purchasing Agent” shall mean the person, or persons, or entity appointed by Regions from time to time to serve as Purchasing Agent for any Trust established by the Regions to help Regions fund its obligations under the Plan, which said Purchasing Agent shall not be an affiliate of Regions. “Regions” shall mean Regions Financial Corporation, or any successor thereto. “Specified Employee” shall mean a ‘specified employee’ as defined in § 409A and shall be determined in accordance with Regions’ general policy for determining specified employees under § 409A, as such policy may be amended from time to time. “Stock Account” shall mean the separate account maintained with respect to each Participant for the purpose of accounting for Common Stock promised to the Participant under the Plan. “Trust” shall mean any trust established by the Company to provide a source of funds to pay the amounts deferred through stock purchase under the Plan, such as a trust commonly referred to as a rabbi trust. “Trustee” shall mean the trustee originally appointed to hold and manage the Trust, or any successor thereto, or any successor duly appointed hereunder which is employed to hold and manage the Trust. ARTICLE II PARTICIPATION Any person who is a Director and who is not an employee of any Company is eligible to participate in the Plan. Such person’s participation in the Plan shall commence on the first day of the calendar year next following the date on which he has submitted an Authorization for Participation to the Secretary of the Board and the Trustee. Notwithstanding the above, in the first year in which a Director is eligible to participate in the Plan, the Director may submit an Authorization for Participation within 30 days of - 4 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 the date that he first becomes eligible to participate, and in that case the Director may specify that his participation shall commence on the first day of the calendar quarter following the submission of such Authorization, even if such participation date is not the first day of a calendar year. A Participant shall cease to be a Participant in the Plan when all amounts credited to the Participant’s Deferred Account have been distributed or forfeited in accordance with the terms of the Plan, and the Participant is no longer deferring any Director’s Fees or being credited with any other amounts under the Plan. ARTICLE III PARTICIPANT DEFERRALS A Participant may defer Director’s Fees under the Plan in amounts equal to all or any part of the Director’s Fees paid to such Participant. A Participant’s Authorization for Participation shall specify the periodic (monthly, quarterly or otherwise, according to the basis of payment) amount, in whole dollars or in specified percentages, of Director’s Fees which are to be deferred under the Plan on behalf of such Participant. The deferral specified by each Participant making monthly deferrals must be an equal amount or percentage for each month, except for the month, if any, for which the Participant has authorized deferral of all or part of his retainer. The amount each Participant defers under the Plan shall be deducted from the Director’s Fees such Participant would otherwise have received. If a Participant’s Director’s Fees for any deferral period are less than the amount the Participant has authorized to be deferred under the Plan for such deferral period, then, in such event, the actual amount of Director’s Fees to which such Participant is entitled for such deferral period shall be the maximum amount deferred to the Plan for such deferral period. The difference between the deferral authorized and the actual deferred amount for such deferral period for such Participant may shall be carried forward to the next deferral period (and as necessary each subsequent deferral period) but not beyond December 31 of the Plan Year for which the deferral was authorized. Participant deferrals may be initially authorized or the amount or percentage thereof altered at any time preceding the first day of the calendar year for which the authorization or alteration is to become effective, and only by the Participant’s submission of an original or revised Authorization for Participation under the terms of this Article III. Participant deferrals may be terminated by Participants pursuant to Article XII. Participant deferrals may be terminated by Regions pursuant to Articles XX and XXI herein. The Trustee will keep a separate accounting for each Participant of the amount of the Participant’s deferred Director’s Fees by crediting the Deferred Account. Deferred amounts shall be invested in Common Stock, and each Participant’s Stock Account shall be credited to reflect the number of shares or fractional share interests which have inured to the credit of such Participant. - 5 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 ARTICLE IV COMPANY CONTRIBUTIONS The Company promises to credit an additional amount (referred to herein as a “contribution”) to the Deferred Accounts of Participants who defer Director’s Fees under the Plan. The Company’s contribution for each Participant will be 25% of the amount of such Participant’s deferred Director’s Fees under the Plan. The Deferred Accounts of the Participants shall reflect such credit. Notwithstanding the above, there shall be no Company Contributions for Director’s Fees earned on or after May 1, 2007. ARTICLE V ADMINISTRATION OF PLAN The Plan will be administered by a Committee comprised of three or more members, who may or may not be members of the Board and who shall be appointed from time to time by the Board and shall serve at the pleasure of such Board. The Committee may, from time to time, adopt rules and regulations not inconsistent with the Plan for carrying out the Plan or for providing for matters not specifically covered herein. The Committee shall conduct its business and hold meetings as determined by it from time to time. The Committee may act without a meeting by unanimous consent, in writing, of the action so taken. Committee members may participate in a meeting of the Committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can communicate with each other at the same time. The Committee shall have all powers necessary or appropriate to enable it properly to carry out its duties in connection with the operation and administration of the Plan, including, but not limited to, the following powers and duties: (A) To construe and interpret the provisions of the Plan; (B) To authorize the execution on behalf of the Company of any documents required in the administration of the Plan; (C) To establish rules for the administration of the Plan; (D) To make determinations from the Company’s records of any facts concerning Participants which are pertinent to the operation of the Plan, such as Director’s Fees, eligibility to participate and other information; (E) To develop forms to be used in connection with the Plan; (F) To supervise the maintenance of records, including those with respect to Participant deferrals, Company contributions, stock purchased and distributed to Participants, and dividends paid to the Trust; - 6 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 (G) To file with the appropriate government agencies any and all reports and notifications required of the Plan and to provide all Participants and designated beneficiaries with any and all reports and notifications to which they are entitled by law; (H) To perform any and all other functions reasonably necessary to administer the Plan. The Committee may appoint a delegate to assume any one or more of the responsibilities set out above. The Company shall indemnify any person involved in the administration of the Plan against all costs, expenses and liabilities, including attorneys’ fees, incurred in connection with any action, suit or proceeding instituted against such person alleging any act of commission or omission performed by such person while acting in good faith in discharging his or her duties with respect to the Plan. This indemnification is limited to such costs and expenses that are not covered under insurance that may now or hereafter be provided by the Company. ARTICLE VI STOCK PURCHASE The purchase of Common Stock of Regions, as provided herein, shall be the responsibility of the Purchasing Agent, which shall not be an affiliate of any Company. The Trustee shall notify the Purchasing Agent of the amount attributed to the Participants’ Deferred Accounts to be invested as soon as practical after the amounts are determined. The Purchasing Agent shall exercise reasonable care in applying said amount to the purchase of shares of Common Stock of Regions and shall apply said amount promptly after such notification and, in any event, within thirty (30) days after such notification, unless a longer period is necessary to comply with federal securities laws. Common Stock of Regions may be purchased by the Purchasing Agent on the open market; in privately negotiated transactions; or upon exercise of any conversion privileges or other options with respect to any and all Common Stock held as part by the Trustee. Immediately upon the purchase of Common Stock of Regions, the Purchasing Agent shall notify the Trustee of the amount of funds invested in such Common Stock and the Trustee shall promptly remit said amount to the Purchasing Agent. Except as provided in the preceding paragraph, the Purchasing Agent shall have no authority over, or responsibility for, the management and investment of the assets of the Plan or any Trust. The Purchasing Agent shall have all powers necessary or appropriate to enable it to properly carry out its duties in connection with the purchase of Common Stock of Regions pursuant to this Plan, including, but not limited to, the following powers and duties: (A) To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments as may be necessary or appropriate to enable the Purchasing Agent to carry out the powers herein granted; - 7 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 (B) To employ suitable agents and counsel (who may be counsel for the Company), subject to the approval of Regions; and to pay the reasonable expenses and compensation of such agents and counsel; and (C) To exercise any conversion privileges or other options with respect to Common Stock of Regions held as a part of the Trust and to make any payments incidental thereto. The Purchasing Agent shall be paid by Regions such reasonable compensation as shall from time to time be agreed upon by Regions and the Purchasing Agent. In addition, the Purchasing Agent shall be reimbursed by Regions for any reasonable expenses incurred in connection with its duties herein. Neither the Committee, the Trustee, nor any Company shall have any direct or indirect control or influence over the times when, or the prices at which, the Purchasing Agent may purchase Common Stock of Regions, the amounts of such Common Stock to be purchased, the manner in which such Common Stock is to be purchased, or the selection of a broker or dealer through which purchases may be executed. Neither the Purchasing Agent, the Committee, the Trustee, nor any Company shall have any responsibility as to the value of Company Stock of Regions acquired by the Trust and attributable to any Participant’s Stock Account. If the Purchasing Agent reasonably believes that any purchase of shares of the Common Stock of Regions would violate any legal requirement, restriction, or limitation imposed at any time by any governmental authority, including, but not limited to, the Securities and Exchange Commission, the Purchasing Agent may request Regions to furnish an opinion of counsel that such purchase would be permissible under the applicable circumstances, and, in the absence of the receipt of a requested opinion, the Purchasing Agent will have no duty to purchase Common Stock under such circumstances. Accordingly, neither the Purchasing Agent, the Committee nor any Company shall be liable in any way, if, as a result of such restrictions or limitations, the whole amount of funds available in a Participant’s Deferred Stock Account for purchase of Common Stock of Regions is not applied to the purchase of such shares at the times herein otherwise provided or contemplated. ARTICLE VII STOCK ACCOUNTS After each purchase of Common Stock for the Plan by the Purchasing Agent, the Purchasing Agent will advise the Trustee of the number of shares purchased and of the average cost per share of such Common Stock. The Trustee will then make a bookkeeping charge against each Participant’s Deferred Account in the amount of the average cost of the Common Stock to be allocated to the Participant’s Stock Account. The accounting for the Stock Accounts shall include full shares and any fractional share interest in a share (to four decimal places). - 8 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 ARTICLE VIII ASSIGNMENTS No claim, right, or interest of any Participant under the Plan may be transferred or assigned by voluntary or involuntary act of the Participant or beneficiary hereunder, nor shall they be subject to anticipation, alienation, assignment, garnishment, attachment, receivership, execution, sale, transfer, pledge, encumbrance, or levy by creditors of the Participant or the Participant’s beneficiary hereunder. ARTICLE IX DIVIDENDS AND DISTRIBUTIONS Cash dividends attributable to the Common Stock attributable to a Participant’s Stock Account will be accounted for in such Participant’s Deferred Account for reinvestment in Common Stock. Stock dividends and stock splits attributable to the Common Stock attributable to a Participant’s Stock Account will be accounted for in such Participant’s Stock Account. The Trustee, subject to instructions by the Committee, shall have full discretion to sell or allow to expire, as the case may be, any stock rights, warrants, or other property applicable to Common Stock held in anticipation of payments under the Plan. The Purchasing Agent, in its discretion, may exercise any or all of such stock rights or warrants applicable to Common Stock held for payment under the Plan for which sufficient funds are available in the Trust, and the Trustee may sell or allow to expire the balance, if any, of such rights or warrants. Cash received by the Trustee from the sale of any stock rights, warrants or other property will be accounted for in each Participant’s Deferred Account to the extent such property is attributable to Common Stock in such Participant’s Stock Account. Notwithstanding any other provision in this Article IX or in the Plan, no Participant shall have any right to sell, allow to expire, or exercise, whichever is applicable, any rights, warrants, or other property relating to Common Stock held for payment under the Plan. ARTICLE X VOTING RIGHTS The Company shall vote any stock purchased by the Trust and held for purposes of satisfying the Company’s obligations under the Plan in any manner the Company deems advisable subject to the terms of the Trust. ARTICLE XI REPORTS TO PARTICIPANTS As soon as is practicable following the end of each Plan Year, or more often at the direction of the Committee, the Committee will send to each Participant a written report - 9 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 of any transactions attributable to such Participant’s Deferred Account and Stock Account and of the balance to the credit of such Participant’s Deferred Account and Stock Account as of the date of the report. ARTICLE XII WITHDRAWAL FROM PLAN A Participant may stop deferring Directors Fees to the Plan by giving written notice of withdrawal to the Secretary of the Board and to the Trustee. Such withdrawal will be effective on the first day of the calendar year following the date such notice is actually given to the Secretary. Such withdrawal will not affect the date of payment of any amount deferred or any Company contribution made prior to the effective date of such withdrawal. A Participant who has withdrawn may re-enter the Plan by submitting a revised Authorization for Participation to the Secretary in accordance with Article II of the Plan, provided such revised Authorization for Participation shall be effective as of the first day of the calendar year following the date the revised Authorization for Participation is actually delivered to the Secretary. ARTICLE XIII WITHHOLDING The Company or the Trustee of any Trust established to help the Company fund its obligations under the Plan shall make required reporting and withholding of any applicable federal, state or local taxes with respect to benefit distributions under the Plan, and shall pay such amounts to the appropriate taxing authorities. Not withstanding the preceding, to the extent that withholding of such taxes is not required for distributions of stock under the Plan, no such withholding shall be made. ARTICLE XIV TIME AND METHOD OF PAYMENT The payment of a Participant’s Deferred Account under the Plan will commence within 30 days after the close of the Plan Year in which the Participant ceases service as a Director, except as otherwise provided below. Solely with respect to a Participant who is a Specified Employee, payment of the Participant’s Deferred Account (or in the case of a distribution of installments, payment of the first installment) will be made on the later of: (a) the payment date specified in the preceding paragraph; or (b) on or within 30 days after the first day of the seventh month after the date of the Participant’s separation from service as a Director, as determined under § 409A. Notwithstanding the above, on or before December 31, 2008, any Participant may file a special one-time election (“Transition Election”) with the Secretary of the Board (or his designee) in such form as the Committee permits specifying that payment of the - 10 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Deferral Account shall be made in January, 2009; provided however that such Transition Election shall not permit any amount that is payable to a Specified Employee based on cessation of services as a Director to be paid before the first day of the seventh month following separation from service as a Director. Such Transition Election shall apply to the Participant’s Deferral Account as of the payment date, but in any event shall include any deferred Director’s Fees earned in 2008 but payable (but for a deferral election) in 2009 and to any dividends payable in January, 2009. The Transition Election shall not affect the Participant’s deferral election with respect to Directors Fees earned after December 31, 2008. Each Participant who is in service as a Director shall be given the opportunity to elect to have his Deferred Account paid either in the form of a single lump sum or in the form of annual installments for a specified number of years not to exceed five. Such election shall be known as the “Form Election” and shall be governed by the following rules. Each Participant shall file a Form Election no later than December 31, 2008 with the Secretary of the Board or his designee (the “2008 Form Election”). In the event that a Participant fails to file a 2008 Form Election by December 31, 2008, the Participant shall be deemed to have elected a single lump sum as his 2008 Form Election. Except as provided below, the 2008 Form Election shall apply to the entire Deferred Account as of December 31, 2008, plus any additional amounts credited to the Deferred Account in 2009 or with respect to services provided as a Director in 2009, plus any dividends, interest or investment earnings attributable to such amounts. However, the 2008 Form Election shall not apply to any amount payable in 2009 pursuant to a Transition Election. Amounts payable pursuant to a Transition Election shall be payable only in a single lump sum. The 2008 Form Election shall continue to apply to additional amounts deferred in subsequent years until the effective date of a subsequent Form Election. A subsequent Form Election shall be effective as of the first day of the calendar year following the year in which the Form Election is received by the Secretary of the Board or his designee, and shall be applicable to Directors Fees earned on or after such date and dividends, interest and investment earnings attributable to such deferred Directors Fees. In the event that installments are payable in accordance with this Section, the installments shall be calculated as follows. Each installment shall be equal to the Deferred Account (or the portion thereof payable in the form of installments) divided by the number of installments remaining as of the date of payment. By way of example, in the case of an election of installments for five years, the first installment shall be one-fifth of the Deferred Account, the second installment shall be one-fourth of the remaining Deferred Account, and so on. Notwithstanding the above, for a Participant who dies prior to the payment of the full Deferral Account, payment shall be made within 60 days after the Participant’s death. ARTICLE XV PAYMENT OF THE DEFERRED ACCOUNT At the time specified in Article XIV, a Participant shall receive a certificate for the number of full shares attributable to the Participant’s Stock Account and payable at - 11 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 such time, together with a check for any payable portion of the Fractional Share Account and any remaining amounts payable from his Deferred Account. If termination is by reason of death, settlement will be made with the Participant’s beneficiary or contingent beneficiary designated on such Participant’s Authorization for Participation. If the Participant has not so designated a beneficiary or contingent beneficiary, or if the designated beneficiary or contingent beneficiary does not survive the Participant, settlement will be made with the Participant’s duly appointed legal representative after satisfaction of any applicable legal requirements; or, if there is no duly appointed legal representative, settlement will be made with the Participant’s surviving spouse, if any; or if there is no surviving spouse, in equal shares to the Participant’s children, if any; and, if there are no surviving spouse or children, settlement will be made with the Participant’s next of kin. ARTICLE XVI GOVERNING LAW AND INTERPRETATION The provisions of this Plan shall be interpreted in accordance with, and governed by, the laws of the State of Alabama. The Plan is intended to comply with § 409A and any ambiguity hereunder shall be interpreted in such a way as to comply, to the extent necessary, with § 409A or to qualify for an exemption from § 409A. ARTICLE XVII EXPENSES Regions will bear the cost of administering the Plan, including any transfer taxes incurred in transferring Common Stock held for payment under the Plan to Participants. Expenses which an individual would normally pay upon the purchase of stock from a broker, including any broker’s fees, commissions, postage or other transaction costs actually incurred, will be included in the amount charged against the Participant’s Deferred Account for the purchase of the Common Stock. ARTICLE XVIII LIMITATION ON THE SALE OF STOCK No Common Stock will be sold under the Plan to any person in any state where the sale of such Common Stock is not permitted under the applicable law of such state. For purposes of this Article XVIII, the sale of Common Stock is not permitted under the applicable laws of a state if, inter alia, the securities laws of such state would require this Plan or the Common Stock offered pursuant hereto, to be registered in such state and the Plan or Common Stock is not registered therein. - 12 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 ARTICLE XIX CHANGE OF CONTROL Upon a Change of Control, the Common Stock attributable to a Participant’s Deferred Stock Account, any amounts attributable to the Participant’s Deferred Account, and any amounts attributable to the Participant’s Fractional Share Account shall be distributed to the Participant or to his beneficiary within 30 days after the Change of Control. ARTICLE XX AMENDMENT AND TERMINATION OF THE PLAN Regions reserves the right, by action of the Board, to amend the Plan at any time; provided (i) that no amendment shall affect or diminish any Participant’s right to the deferrals made by such Participant or contributions by the Company prior to the date of such amendment, and (ii) that no amendment shall affect a Participant’s deferral election at any time before January 1 of the calendar year following the year in which such amendment is adopted. Notwithstanding the above, the officers of Regions may amend the Plan without prior consent of the Board solely for the following purposes and subject to the following limitations: (1) for the purpose of compliance with § 409A or any other applicable law or the avoidance of any penalty or excise tax (either to the Company or the Participants) provided such amendment does not increase the cost to the Company or impair the Participant’s right to receive benefits accrued under the Plan; (2) for purposes of efficiently managing the Plan provided that such amendment is purely administrative in nature and does not affect the cost of the Plan or the substantive rights of Participants; and (3) for any other purpose provided such amendment is later ratified by the Board. Regions reserves the right, by action of the Board, to terminate the Plan as of any December 31 on or after the date of such Board action. In the event of such termination, there will be no further Participant deferrals and no further Company contributions to the Plan. Upon termination of the Plan, the Board may further specify that accounts under the Plan shall be paid to the Participants, provided that: (i) no such payment is made before the earlier of the date that is 12 months after the date of Plan termination or the date the payment would otherwise have been made; (ii) no such payment is made later than the date that is 24 months after the date of Plan termination; and (iii) all other requirements of Treasury Regulation Section 1.409A-3(j)(4)(ix)(C) and (D) (as they may be amended, or such other regulation or ruling that replaces such sections) are met. Effective May 1, 2007, there will be no Company contributions for Director’s Fees earned on or after May 1, 2007. - 13 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 ARTICLE XXI SUSPENSION OR TERMINATION IF STOCK PURCHASE IS PROHIBITED In the event it is determined by the Board, after obtaining the advice of legal counsel, that purchases of the Common Stock of Regions by the Trust would be prohibited under any federal or state law, then the Committee shall direct that Participant deferrals, Company contributions, dividends and any other sources of funds shall be invested as necessary in such other investments as the Committee determines to be most appropriate under the circumstances, and the accounts of the Participants will be credited with investment earnings in accordance with such investments (and amounts so invested shall not be credited with the returns applicable to amounts invested in Regions common stock). At such time as the Board determines that purchases of Common Stock of Regions may again be made legally, such alternate investments shall be liquidated and the proceeds used to purchase Common Stock, and the accounts of the affected Participants shall be credited with appropriate returns thereafter. ARTICLE XXII NATURE OF COMPANY’S OBLIGATION The Company’s obligations under this Plan shall be an unfunded and unsecured promise to pay benefits in the future. It is the intention of the Company that the Plan shall be unfunded for purposes of federal and state income tax and for purposes of ERISA. The Company shall not be obligated under any circumstances to fund its obligations under this Plan. The Company may, however, as its sole and exclusive option, elect to fund this Plan, in whole or in part. If the Company shall elect to fund the Plan, in whole or in part, the manner of such funding, and the continuance or discontinuance of such funding shall be the sole and exclusive decision of the Company. Any payments to Participants from such a funding source shall be made from a trust such as a trust commonly described as a rabbi trust and shall fully discharge, to the extent thereof, the Company’s obligations under the Plan. Any assets which the Company may acquire or set aside to help cover its financial liabilities under the Plan are and must remain general assets of the Company subject to the claims of its creditors. Neither the Company nor this Plan gives a Participant any beneficial ownership interest in any asset of the Company. All rights of ownership in any such assets are and remain in the Company. Participants in the Plan therefore have the status of general unsecured creditors of the Company. *** - 14 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 REGIONS FINANCIAL CORPORATION DEFERRED COMPENSATION PLAN FOR FORMER DIRECTORS OF AMSOUTH BANCORPORATION Article I History, Purpose, and Status of Deferred Compensation EXHIBIT 10.30 1.1History. The Plan was established, effective July 1 1986, by AmSouth Bancorporation prior to its merger with Regions Financial Corporation. The Plan was amended and restated in its entirety effective October 2, 1997 and named the Amended and Restated Deferred Compensation Plan for Directors of AmSouth Bancorporation. Following the Merger there were no further deferrals into the Plan. This amendment and restatement of the Plan is adopted November, 2008, but effective January 1, 2005, for the purpose of complying with § 409A of the Internal Revenue Code. The name of the plan is hereby changed to the Regions Financial Corporation Deferred Compensation Plan for Former Directors of AmSouth Bancorporation. 1.2Purpose. The Plan provides a method of deferring payment to a Director of AmSouth and any participating subsidiaries of certain compensation to which such person would otherwise be entitled and provides for distribution of all sums so deferred with earnings thereon in the manner and at the time hereinafter set forth. 1.3 Any sums due under the Plan to or for the benefit of a Participant shall not be funded by Regions or any subsidiary thereof nor shall any asset of Regions or any subsidiary thereof be otherwise pledged for, subjected to legal or equitable lien or encumbrance to secure, or set aside for, the payment of any sums hereunder. Sums due hereunder shall be payable solely from the general assets of Regions. 1.4 The Plan is intended to comply with § 409A and any ambiguity hereunder shall be interpreted in such a way as to comply, to the extent necessary, with § 409A or to qualify for an exemption from § 409A. Article II Effective Date; Manner of Participation 2.1Effective Date. The Plan went into effect on July 1, 1986, which shall be referred to as the “Effective Date.” However, this amendment and restatement is effective on January 1, 2005. 2.2Participation. A Director becomes a Participant in the Plan by delivering to the Administrator a duly executed election form in a form acceptable to the Administrator. For Directors who submit election forms prior to July 1, 1986, participation shall be effective July 1, 1986. For Directors who submit election forms on or after July 1, 1986, participation shall begin Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 on the first day of the calendar quarter following receipt of the election form by the Administrator. For Directors who submit election forms on or after December 31, 2004, participation shall begin on the first day of the calendar year following receipt of the election form by the Administrator. Effective on January 1 of the year following the Merger, no further deferrals are permitted, provided however that any amounts previously deferred shall remain in the Plan until distributed in accordance with the Plan. 2.3Termination of Participation. A Director may terminate participation in the Plan by delivering a signed written notice to that effect to the Administrator. Termination shall become effective as of the first day of the calendar year following the year in which the Administrator receives the notice. Termination of participation in the Plan shall not affect amounts previously deferred; said amounts shall continue to be deferred and shall be paid in accordance with the initial election form and the terms of the Plan. 2.4Participation after Termination. In no event shall a Director who has terminated participation in the Plan be entitled again to participate in the Plan for a period of three years after the termination became effective. Such a Director may then again participate in the manner described in Section 2.2, provided, however, that the Director may not alter the payment options selected pursuant to Article V. Article III Deferred Compensation 3.1Amounts Available for Deferral. A Director who is a Participant may choose to defer under the Plan: (a) all or any specified portion of the retainer (if any) earned by him or her from AmSouth Bancorporation from time to time, or (b) all (but not a portion of) meeting fees paid to him or her by AmSouth Bancorporation, or both. The amount chosen from time to time by a Director to be deferred is referred to in this Plan as “Deferred Compensation.” 3.2Manner of Specifying Amount. A Director shall, in the first election form submitted by him or her, specify the amount to be deferred within the limits set forth in Section 3.1. 3.3Changing the Amount to be Deferred. A Director may, at any time, submit to the Administrator a new election form changing, within the limits specified in Section 3.1, the amounts to be deferred; provided that the specified changes shall become effective at the beginning of the calendar quarter next following receipt of said election form by the Administrator; and further provided that, effective January 1, 2005, the specified changes shall become effective at the beginning of the calendar year next following receipt of said election form by the Administrator. - 2 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Article IV Deferred Compensation Accounts 4.1Earnings on Deferred Compensation. The Administrator shall maintain on its books and records an accurate account of all Deferred Compensation in a separate Account for each Participant, which shall, with respect to deferrals made on and after January 1, 1998, be deemed to be invested in “deferred” shares of AmSouth Stock. Accounting for deferred shares may include fractions, but no fractional share of AmSouth Stock will be distributed to a Participant. When dividends are paid on AmSouth Stock an equivalent per share amount shall be deemed to be paid on shares of deferred stock (including any fractional share) credited to a Participant’s Account (“Deemed Dividends”). Deemed Dividends on deferred shares will be reinvested in additional deferred stock as of the relevant dividend payment date. The number of shares of deferred stock shall be determined based on the closing price of AmSouth Stock on the day the retainer and/or meeting fees would otherwise be paid to a Director or the day the dividend is payable on shares of AmSouth Stock, as applicable. Effective with the Merger, all references to AmSouth Stock above shall refer to the common stock of Regions converted at the rate determined by the Administrator to be equitable. All references to Regions Stock hereafter shall mean AmSouth Stock with respect to periods of time before the Merger, and all references to AmSouth Stock hereafter shall mean Regions Stock with respect to periods of time after the Merger. 4.2Statements of Account. The Administrator shall prepare and distribute to each Participant a report reflecting the amounts in such Account once each calendar quarter. 4.3Prior Deferred Compensation. With respect to deferrals made prior to January 1, 1998, each Participant who had an Account in the Plan was given the opportunity to make a one-time written election with respect to deferrals credited to such Participant’s Account prior to December 31, 1997 (“Prior Deferred Compensation”) to either (i) continue to have his or her Prior Deferred Compensation deemed to be invested in “phantom” shares of AmSouth Stock and receive at the appropriate time a cash payment of such deferrals, or (ii) have such Prior Deferred Compensation classified as deferred shares of AmSouth Stock based on the closing price of AmSouth Stock on December 31, 1997 and receive (at the appropriate time) payment for such Prior Deferred Compensation in shares of AmSouth Stock. If a Participant elected to have his or her Prior Deferred Compensation deemed to be converted into shares of AmSouth Stock, the provisions of Section 5. 1(b) shall be applicable to such Prior Deferred Compensation notwithstanding the Participant’s original deferral election. The provisions of Section 5.1(b) shall not apply with respect to any Prior Deferred Compensation unless such Prior Deferred Compensation was deemed to be converted into shares of AmSouth Stock and payable solely in shares of AmSouth Stock. 4.4Adjustment of Accounts. In the event of any Regions Stock dividend, stock split, combination or exchange of shares, recapitalization or other change in the capital structure of Regions, corporate separation or division of Regions (including, but not limited to, a split-up, spin-off, split-off or distribution to Regions stockholders other than a normal cash dividend), sale by Regions of all or a substantial portion of its assets (measured on either a stand-alone or - 3 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 consolidated basis), reorganization, rights offering, a partial or complete liquidation, or any other corporate transaction, Regions share offering or event involving Regions and having an effect similar to any of the foregoing, the Administrator shall adjust the number of shares of deferred Regions Stock credited to an Account, as the Administrator may determine is equitable, and any other characteristics or terms as the Administrator shall deem necessary or appropriate to reflect equitably the effects of such changes to the Participant. Prior to the Merger this section shall apply to AmSouth and AmSouth Stock. Article V Payment of Deferred Compensation 5.1Commencement of Payment. (a) In the first election form submitted by a Director to the Administrator, a Director may choose between the following times for payment of Benefits (which shall consist of all Deferred Compensation and all accumulated earnings thereon) to begin: (i) on January 15 of the year following the year in which the Director retires from or his or her service or is otherwise terminated from the Board, or (ii) on January 15 of the year in which the Director attains any age selected by him or her in said first election form. In the event that a Director selects this option (ii) and continues in service as a Director after the date payments are to commence under this option (ii) (the “first commencement date”), the Director may continue to defer compensation but must file a new election form with respect to any compensation to be deferred in the year of the first commencement date and all subsequent years. Such new election form must be filed no later than December 31 of the year prior to the first year under which deferrals will be made under the new election form. The choice so made shall be final and binding on the Director and, except as otherwise provided herein, may not be changed on any subsequently submitted election form or otherwise. Payment shall commence on the date specified in accordance with this Section 5.1 or as soon as reasonably practicable (but in all cases within 30 days) thereafter. (b) Notwithstanding the terms of any election form made by a Participant, Benefits shall be payable immediately in a single lump sum upon a Change in Control of Regions, unless the Plan is maintained on substantially the same terms following a Change in Control. 5.2Period for Payment. In the first election form submitted by a Director to the Administrator, a Director may choose between the following time periods for payment of Deferred Compensation: (a) in a lump sum on the January 15 specified in accordance with the provisions of Section 5.1, or - 4 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 (b) in any specified number of annual installments commencing with the January 15 specified in accordance with the provisions of Section 5.1. The following limitations shall apply to the administration of any election under this Subsection (b): (i) each annual installment will be a minimum of 100 shares even if the minimum payment amount shortens the number of annual installments otherwise elected (for example, if the Benefits totaled 750 shares and the Director had elected to be paid in eight annual installments, the Director will receive six installments of 100 shares and a final seventh installment of 150 shares), sum, (ii) if at the time payment is due to commence, the amount of the Benefits is 500 shares or less, the entire amount shall be paid in a lump (iii) the provisions of Section 5.3 concerning death of the Director shall apply, and payable immediately in a single lump sum upon a Change in Control. (iv) if installment payments have begun at the time of a Change in Control of Regions, the remaining shares due to a Director shall be 5.3Effect of Death of a Participant. Despite any provision of the Plan or any election or other instruction of a Participant, all shares due to be distributed under the Plan shall be distributed to the beneficiary designated by the Participant (or, in the absence of a beneficiary, to the legal representative of a Participant) in a lump sum within 60 days of the death of the Participant. 5.4Calculation of Installment Payments. When annual installments are due to commence under this Article V, the Administrator shall calculate the total amount of the Benefits as of December 31 of the previous year and divide said total by the number of annual installments elected by the Participant to derive the Participant’s Annual Payment amount. On each January 15 until said total is completely paid, the Administrator shall pay to the Participant the Annual Payment plus such number of additional deferred shares as are attributable to Deemed Dividends credited to the Participant’s Account since the immediately preceding installment payment to the Participant. In all cases, the limitations provided in Section 5.2(b) shall apply. The Annual Payment amount shall be adjusted if the number of shares in the Participant’s Account is adjusted pursuant to Section 4.4. 5.5Form of Payment. All Deferred Compensation deferred on and after January 1, 1998 shall by payable only in the form of shares of AmSouth Stock which have been credited to the Participant’s Account. Prior Deferred Compensation shall be paid in the form specified in the Participant’s one-time written election described in Section 4.3. At the time the final payment is to be made to a Participant any fractional share remaining in such Participant’s Account shall be rounded up to the next highest whole number of shares. - 5 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 5.6409A Transition Election for 2008. Notwithstanding the above, any Participant who is a Director on October 29, 2008 may file an election (the “Transition Election”) with the Administrator to modify the time and form of payment of Benefits provided the requirements of this Section are met. The Transition Election must be filed with the Administrator no earlier than January 1, 2008 and no later than December 31, 2008. The Transition Election will not affect the time and form of payment with respect to any payment to be made before January 1, 2009. The Transition Election shall follow the time and forms permitted in Sections 5.1 and 5.2 and shall be subject to all the conditions to which such elections are subject, except as modified in this Section. The Transition Election must apply to all Benefits to be paid from the Plan. If a Participant who is eligible to do so does not file a valid Transition Election on or before December 31, 2008 with respect to the election in Section 5.2, the Participant will be deemed to have elected a lump sum under Section 5.2(a). 5.7409A Provisions for Specified Employees. In the event that a Participant is a Specified Employee on the day that he or she would otherwise have payment of Benefits commence, and if such Participant’s Benefit commencement date is determined by reference to the Participant’s date of termination of service as a Director, no such payment to such Director shall be made before the 409A date. The “409A date” is the first day of the seventh month following the Director’s separation from service as defined in § 409A. Any payment that, but for this Section, would be made before the 409A date, shall be held by AmSouth or Regions, as the case may be, and shall be paid to the Director on, or within 30 days after, the 409A date. All subsequent payments shall be made at the time scheduled without regard to this Section. Article VI Miscellaneous 6.1 Other than the Participant, beneficiary or the legal representative of the Participant’s estate, no person, whether a creditor or assignee of such person or otherwise, shall have an interest in the Plan, or the Deferred Compensation or earnings thereon; and no person, including the Participant, beneficiary or the estate of a Participant, shall have the right to demand or be entitled to payment of any sums under the Plan prior to the time payments are due in strict accordance with the terms of the Plan nor to a form of payment not otherwise due strictly in accordance with the provisions of the Plan. In amplification but not in limitation of the foregoing, before a Participant, beneficiary or estate of a deceased Participant actually receives any payment of any sum hereunder, no such Participant, beneficiary or estate has the right to assign, pledge, grant a security interest in, transfer or otherwise dispose of any interest under the Plan. 6.2 No Director will acquire any rights or entitlement to continue as such or to any other office by or as a result or consequence, directly or indirectly, of the establishment or operation of the Plan. 6.3 Regions reserves the right, by action of the Board, to amend the Plan at any time; provided that no amendment shall affect or diminish any Participant’s right to Deferred Compensation prior to the date of such amendment and all earnings thereon. Notwithstanding the above, the officers of Regions may amend the Plan without prior consent of the Board solely for - 6 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 the following purposes and subject to the following limitations: (1) for the purpose of compliance with § 409A or any other applicable law or the avoidance of any penalty or excise tax (either to Regions or the Participants) provided such amendment does not increase the cost to the Company or impair the Participant’s right to receive benefits accrued under the Plan; (2) for purposes of efficiently managing the Plan provided that such amendment is purely administrative in nature and does not affect the cost of the Plan or the substantive rights of Participants; and (3) for any other purpose provided such amendment is later ratified by the Board. Regions reserves the right, by action of the Board, to terminate the Plan as of any Date on or after the date of such Board action. In the event of such termination, there will be no further Participant deferrals and no further Company contributions to the Plan. Upon termination of the Plan, the Accounts under the Plan shall be paid to the Participants, provided that: (i) no such payment is made before the earlier of the date that is 12 months after the date of Plan termination or the date the payment would otherwise have been made; (ii) no such payment is made later than the date that is 24 months after the date of Plan termination; and (iii) all other requirements of Treasury Regulation Section 1.409A-3(j)(4)(ix)(C) and (D) (as they may be amended, or such other regulation or ruling that replaces such sections) are met. 6.4 The Plan is governed by and construed in accordance with the laws of the State of Alabama. 6.5 If, and to the extent that, any provision of the election form submitted by a Director is inconsistent with any provision of the Plan, the Plan provision shall be final and binding. 6.6 The Plan and the obligation to pay Benefits in accordance with its terms shall be and remain the obligation of Regions and its successors by operation of law, merger, consolidation or other reorganization or purchase of all or substantially all of its assets. Article VII Definitions Some of the terms used herein are defined in this Article; others are defined in context in the Plan. “§ 409A” means Section 409A of the Internal Revenue Code and shall include any amendments thereto or successor provisions as well as any applicable current and future regulations, rulings, IRS notices and other binding legal authority interpreting or modifying the legal requirements under Section 409A. “Account” means the bookkeeping account maintained by Regions for purposes of accounting for a Participant’s Deferred Compensation and earnings thereon. “Administrator” means the shall mean the persons appointed by the Board to administer the Plan. - 7 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 “AmSouth” means AmSouth Bancorporation until its merger with Regions. Any reference to AmSouth shall mean Regions with respect to any period of time after the Merger. “AmSouth Stock” means shares of AmSouth Bancorporation common stock. All references to AmSouth Stock shall refer to Regions Stock after the Merger. “Board” means Board of Directors of AmSouth until the merger, and after the Merger, means the Board of Directors of Regions. “Change in Control” means an event that qualifies as a “change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation” under § 409A. “Director” means any director of AmSouth Bancorporation or its successors and assigns or any director designated pursuant to Section 1.1; provided, however, that the term shall not include any officer or employee thereof nor any advisory director by whatever name such advisory position may be known. “Merger” (when capitalized) means the merger of Regions Financial Corporation and AmSouth Bancorporation. “Participant” means a person who has Deferred Compensation in the Plan. A person shall cease to be a Participant when all Deferred Compensation and earnings thereon have been distributed to such person pursuant to the terms of the Plan. “Plan” means this Deferred Compensation Plan as the same may be hereafter amended from time to time and shall, as to a specific Director, be deemed to include that person’s election form (provided for in Section 2.2 hereof), unless otherwise expressly provided to the contrary herein. “Regions” means Regions Financial Corporation and its successors and assigns. Unless otherwise required by context, any reference to Regions before the Merger shall refer to AmSouth. “Regions Stock” means shares of Regions Financial Corporation common stock. All references to Regions Stock shall refer to AmSouth Stock with respect to any period of time before the Merger. “Specified Employee” shall mean a ‘specified employee’ as defined in § 409A and shall be determined in accordance with Regions’ general policy for determining specified employees under § 409A, as such policy may be amended from time to time. ***** - 8 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Amendment Number 2 To the AmSouth Bancorporation Deferred Compensation Plan (the “Plan”) EXHIBIT 10.36 Regions Financial Corporation, successor to AmSouth Bancorporation, hereby amends the Plan effective retroactively to January 1, 2005, as follows. 1. Section 2.7 defining the term “Change in Control” is hereby amended to read as follows: 2.7 “Change in Control” of the Company shall have the meaning set forth in the Company’s Executive Employment Agreements as such agreements may be amended from time to time; provided however that no event shall be considered a “Change in Control” unless such event qualifies as a “change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation” under Section 409A of the Code. 2. Section 2.35 defining the term “Termination of Employment” is hereby amended to read as follows: 2.35 “Termination of Employment” shall mean a separation from service under Section 409A of the Code. 3. Section 4.3 (Coordination with Thrift Plan) is hereby deleted and Section 4.3 shall read: “Reserved.” 4. Section 8.1(a) is hereby amended by deleting the second, third and fourth paragraphs thereof and replacing them with the following: Within 30 days after a Payment Date described in Section 2.29(b) (Termination of Employment) the Company shall distribute to a Participant (i) the balance, if any, credited to the Participant’s Lump Sum Subaccount; plus (ii) one-fifth of the balance, if any, credited to the Participant’s 5-year Subaccount; plus-(iii) one-tenth of the balance, if any, credited to the Participant’s 10-year Subaccount. Subsequent annual distributions, if any, shall consist of the applicable portion of the 5-year Subaccount (1/4, 1/3, 1/2 and all, respectively) and the applicable portion of the 10-year Subaccount (1/9, 1/8, 1/7 and so forth, respectively). Notwithstanding the foregoing, effective January 1, 2005, if at any time a payment is due, and the Participant’s balance is $10,000 or less, the Account shall be distributed to the Participant in a lump sum. In the case of a Payment Date described in Section 2.29(a) (designated date) the Company shall, within 30 days, distribute to the Participant in one lump sum distribution such number of shares of Common Stock and the cash value of the Other Investments in the Participant’s Lump Sum Subaccount as corresponds to the Deferral Amount with respect to which the Participant elected the particular Payment Date. Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 In the case of a Payment Date described in Section 2.29(c) (Plan termination) or (d) (Change in Control) the Company shall, within 30 days, distribute to the Participant in one lump sum distribution the total value in the Participant’s Account without regard to any Subaccounts. 5. Section 8.2 (Death Benefit of Accounts) is hereby amended to read as follows: 8.2 Death Benefit of Accounts. Notwithstanding anything in Section 8.1, upon the death of a Participant, the remaining balance in his or her Account shall be paid to the Participant’s Beneficiary in a single distribution within 30 days after the Participant’s death. 6. Section 10.15 (Mitigation of Excise Tax) is hereby amended by adding the following after the first sentence thereof: In the event that a reduction is permitted in accordance with the preceding sentence, the reduction shall first be made ratably from all payments from this Plan that are subject to Section 409A of the Code (that is, that are not grandfathered), and then from any grandfathered payments; provided however that there shall be no reduction in any other plan of deferred compensation subject to Section 409A of the Code with respect to such participant until all amounts payable hereunder have been reduced; and provided further that no amount herein shall be reduced unless such amount is a parachute payment. - 2 - Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 EXHIBIT 10.47 [Date], 2008 [Senior Executive Officer], [Street Address], [City], [St] [Zip]. Dear [Senior Executive Officer], Regions Financial Corporation (the “Company”) has entered into a Securities Purchase Agreement (the “Participation Agreement”), with the United States Department of Treasury (“Treasury”) that provides for the Company’s participation in the Treasury’s TARP Capital Purchase Program (the “CPP”). For the Company to participate in the CPP and as a condition to the closing of the investment contemplated by the Participation Agreement, the Company is required to establish specified standards for incentive compensation to its senior executive officers and to make changes to its compensation arrangements. To comply with these requirements, and in consideration of the benefits that you will receive as a result of the Company’s participation in the CPP, you agree as follows: (1) No Golden Parachute Payments. The Company is prohibiting any golden parachute payment to you during any “CPP Covered Period”. A “CPP Covered Period” is any period during which (A) you are a senior executive officer and (B) Treasury holds an equity or debt position acquired from the Company in the CPP. Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 (2) (3) Recovery of Bonus and Incentive Compensation. Any bonus and incentive compensation paid to you during a CPP Covered Period is subject to recovery or “clawback” by the Company if the payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria. Compensation Program Amendments. Each of the Company’s compensation, bonus, incentive and other benefit plans, arrangements and agreements (including golden parachute, severance and employment agreements) (collectively, “Benefit Plans”) with respect to you is hereby amended to the extent necessary to give effect to provisions (1) and (2). In addition, the Company is required to review its Benefit Plans to ensure that they do not encourage senior executive officers to take unnecessary and excessive risks that threaten the value of the Company. To the extent any such review requires revisions to any Benefit Plan with respect to you, you and the Company agree to agree to execute such additional documents as the Company deems necessary to effect such revisions. (4) Definitions and Interpretation. This letter shall be interpreted as follows: • • • • • • “Senior executive officer” means the Company’s “senior executive officers” as defined in subsection 111(b)(3) of EESA. “Golden parachute payment” is used with the same meaning as in subsection 111(b)(2)(C) of EESA. “EESA” means the Emergency Economic Stabilization Act of 2008 as implemented by guidance or regulation that has been issued and is in effect as of the “Closing Date” as defined in the Participation Agreement. The term “Company” includes any entities treated as a single employer with the Company under 31 C.F.R. § 30.1(b) (as in effect on the Closing Date). You are also delivering a waiver pursuant to the Participation Agreement, and, as between the Company and you, the term “employer” in that waiver will be deemed to mean the Company as used in this letter. The term “CPP Covered Period” shall be limited by, and interpreted in a manner consistent with, 31 C.F.R. § 30.11 (as in effect on the Closing Date). Provisions (1) and (2) of this letter are intended to, and will be interpreted, administered and construed to, comply with Section 111 of EESA (and, to the maximum extent consistent with the preceding, to permit operation of the Benefit Plans in accordance with their terms before giving effect to this letter). Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 • This Agreement will be governed by and construed in accordance with the law of the State of Alabama applicable to contracts made and to be performed entirely within that state. To the extent permitted by law, you and the Company waive any and all rights to a jury trial with respect to this Agreement and the Benefit Plans. You and the Company further irrevocably submit to the exclusive jurisdiction of any state or federal court located in Birmingham, Alabama over any contest related to this Agreement and the Benefit Plans. This includes any action or proceeding to compel arbitration or to enforce an arbitration award. Both you and the Company acknowledge that (a) the forum stated in this Section has a reasonable relation to this Agreement and to the relationship between you and the Company and that the submission to the forum will apply even if the forum chooses to apply non-forum law, (b) waive, to the extent permitted by law, any objection to personal jurisdiction or to the laying of venue of any action or proceeding covered by this Section in the forum stated in this Section, (c) agree not to commence any such action or proceeding in any forum other than the forum stated in this Section and (d) agree that, to the extent permitted by law, a final and non-appealable judgment in any such action or proceeding in any such court will be conclusive and binding on you and the Company. However, nothing in this Agreement precludes you or the Company from bringing any action or proceeding in any court for the purpose of enforcing the provisions of this Section. The Board appreciates the concessions you are making and looks forward to your continued leadership during these financially turbulent times. Very truly yours, REGIONS FINANCIAL CORPORATION. By: Name: Title: Intending to be legally bound, I agree with and accept the foregoing terms. [Senior Executive Officer] Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 WAIVER In consideration for the benefits I will receive as a result of my employer’s participation in the United States Department of the Treasury’s TARP Capital Purchase Program, I hereby voluntarily waive any claim against the United States or my employer for any changes to my compensation or benefits that are required to comply with the regulation issued by the Department of the Treasury as published in the Federal Register on October 20, 2008. I acknowledge that this regulation may require modification of the compensation, bonus, incentive and other benefit plans, arrangements, policies and agreements (including so-called “golden parachute” agreements) that I have with my employer or in which I participate as they relate to the period the United States holds any equity or debt securities of my employer acquired through the TARP Capital Purchase Program. This waiver includes all claims I may have under the laws of the United States or any state related to the requirements imposed by the aforementioned regulation, including without limitation a claim for any compensation or other payments I would otherwise receive, any challenge to the process by which this regulation was adopted and any tort or constitutional claim about the effect of these regulations on my employment relationship. [Senior Executive Officer] [Date], 2008 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 REGIONS FINANCIAL CORPORATION SUPPLEMENTAL 401(k) PLAN Amended and Restated as of April 1, 2008 EXHIBIT 10.58 Article I. The Plan 1.1 Establishment of the Plan The AmSouth Bancorporation Supplemental Thrift Plan (“AmSouth Plan”) was established for eligible employees effective as of January 1, 1995. As a result of the Merger of AmSouth Bancorporation into Regions Financial Corporation effective November 4, 2006, Regions Financial Corporation (the “Company”) became the sponsor of the AmSouth Bancorporation Supplemental Thrift Plan. The Company also maintains the Regions Financial Corporation Supplemental 401(k) Plan (“Legacy Regions Plan”). The Company is hereby merging the Legacy Regions Plan into the AmSouth Plan effective April 1, 2008 and changing the name of the AmSouth Plan to the Regions Financial Corporation Supplemental 401(k) Plan (the “Plan”). 1.2 Purpose of the Plan Prior to April 1, 2008, the Company maintained the AmSouth Bancorporation Thrift Plan and the Regions Financial Corporation 401(k) Plan. The Company merged those plans effective April 1, 2008, with the surviving plan being known as the Regions Financial Corporation 401(k) Plan. This Plan is intended to restore benefits that are cut back as a result of certain legal limits that apply to the Regions Financial Corporation 401(k) Plan. The group of eligible employees shall be limited to a “select group of management or highly compensated employees” within the meaning of ERISA Section 201(2). Benefits provided under this Plan shall be paid solely from the general assets of the Company and participating Affiliates. This Plan, therefore, is exempt from the participation, vesting, funding and fiduciary requirements of Title I of ERISA. The Company may establish a rabbi trust (the “Trust”) which may be used to pay benefits arising under the Plan and all costs, charges and expenses relating thereto; except that, to the extent that the funds held in the Trust are insufficient to pay such benefits, costs, charges and expenses, the Company shall pay such benefits, costs, charges and expenses. 1.3 Applicability of the Plan This Plan applies only to eligible Employees who were in the active employment of the Company or a participating Affiliate on or after January 1, 1995. The Legacy Regions Plan applied only to employees who were identified as eligible under the terms of that plan on and after January 1, 2001. The provisions of this amended and restated Plan are effective April 1, 2008, unless a particular provision has a different effective date specified. Notwithstanding the 1 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 foregoing, the provisions of this Plan regarding compliance with Code Section 409A and the regulations thereunder are effective January 1, 2005 (or such other date as required for compliance with Section 409A). This amendment and restatement shall constitute an amendment of both the Plan and the Legacy Regions Plan for compliance with Code Section 409A. Article II. Definitions Whenever used in the Plan, the following terms shall have the meanings set forth below unless otherwise expressly provided. When the defined meaning is intended, the term is capitalized. The definition of any term in the singular shall also include the plural. 2.1 Account Account means the bookkeeping account for each Participant that represents the Participant’s total interest under the Plan. A Participant’s Account may consist of one or more of the following subaccounts: (a) Salary Reduction Contributions Account means the portion of the Participant’s Account attributable to salary reduction contributions made on the Participant’s behalf, including any gains and losses credited on such contributions. (b) Matching Contributions Account means the portion of the Participant’s Account attributable to matching contributions made by the Employer on the Participant’s behalf including any gains and losses credited on such contributions. (c) (d) (e) Employer Contributions Account means the portion of the Participant’s Account attributable to employer contributions made by the Employer on the Participant’s behalf, including any gains and losses credited on such contributions. Legacy Regions Plan Account means the portion of the Participant’s Account that is attributable to the Participant’s account balance in the Legacy Regions Plan. AmSouth Supplemental Thrift Plan Account means the portion of the Participant’s Account attributable to the Participant’s balance in the AmSouth Supplemental Thrift Plan as of March 31, 2008, including any gains and losses credited on such amount. A Participant’s Legacy Regions Plan Account shall include any amounts credited to a DC Restoration Plan Account under the Legacy Regions Plan as provided for herein. 2.2 Affiliate Affiliate means: (a) Regions Financial Corporation (prior to November 4, 2006 with regard to the AmSouth Plan, AmSouth Bancorporation), and 2 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 (b) any other entity which, along with the Company, is a member of a controlled group of employers under Code Section 414(b), (c), (m), or (o); provided, however, that Morgan Keegan & Company, Inc. shall not be considered to be an Affiliate for purposes of coverage under or participation in the Plan or the Legacy Regions Plan and shall only be considered to be an Affiliate to the extent specifically required by law (e.g., for compliance with the Code Section 409A requirement of separation from service with Affiliates for distributions). 2.3 Beneficiary Prior to April 1, 2008, a Participant’s Beneficiary under this Plan shall be the same person or entity designated as the Participant’s beneficiary under the Regions 401(k) Plan (AmSouth Bancorporation Thrift Plan). Effective April 1, 2008, a Participant shall designate a Beneficiary to receive any benefits due under the terms of this Plan as a result of the death of the Participant on a form and pursuant to the procedures established by the Plan Administrator (including any electronic procedures for such designation). Legacy Regions Plan participants shall redesignate a Beneficiary under this Plan. If a Legacy Regions Plan participant does not redesignate a Beneficiary, his or her prior designation under the Legacy Regions Plan shall continue in effect. In the event that either (i) a Participant dies without designating a Beneficiary under this Plan, (ii) no designated Beneficiary survives the Participant, or (iii) the designated Beneficiary(ies) cannot be located after reasonable efforts as determined by the Plan Administrator, the benefits will be paid to the person or entity designated as the Participant’s beneficiary under the Regions 401(k) Plan. 2.4 Board Board means the Company’s Board of Directors. 2.5 Change in Control Effective November 4, 2006, “Change in Control” means any of the following events: (a) the acquisition by any “Person” (as the term “person” is used for the purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of direct or indirect beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the combined voting power of the then-outstanding securities of the Company entitled to vote in the election of directors (the “Voting Securities”); or (b) individuals (the “Incumbent Directors”) who, as of the date hereof, constitute the Board of Directors of the Company (the “Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director 3 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 subsequent to the date hereof whose election, or nomination for election, was approved by a vote of at least two-thirds of the Incumbent Directors who are then on the Board (either by specific vote or by approval, without prior written notice to the Board objecting to the nomination, of a proxy statement in which the individual was named as nominee) shall be an Incumbent Director, unless such individual is initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to the election or removal of directors (“Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (“Proxy Contest”), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) consummation of a merger, consolidation, reorganization, statutory share exchange, or similar form of corporate transaction involving the Company or involving the issuance of shares by the Company, the sale or other disposition (including by way of a series of transactions or by way of merger, consolidation, stock sale or similar transaction involving one or more subsidiaries) of all or substantially all of the Company’s assets or deposits, or the acquisition of assets or stock of another entity by the Company (each a “Business Combination”), unless such Business Combination is a “Non-Control Transaction.” A “Non-Control Transaction” is a Business Combination immediately following which the following conditions are met: (i) the stockholders of the Company immediately before such Business Combination own, directly or indirectly, more than 55% of the combined voting power of the then-outstanding voting securities entitled to vote in the election of directors (or similar officials in the case of a non-corporation) of the entity resulting from such Business Combination (including, without limitation, an entity that as a result of such Business Combination owns the Company or all of substantially all of the Company’s assets, stock or ownership units either directly or through one or more subsidiaries) (the “Surviving Corporation”) in substantially the same proportion as their ownership of the company Voting Securities immediately before such Business Combination; (ii) at least a majority of the members of the board of directors of the Surviving Corporation were Incumbent Directors at the time of the Board’s approval of the execution of the initial Business Combination agreement; and (iii) no person other than (A) the Company or any of its subsidiaries, (B) the Surviving Corporation or its ultimate parent corporation, or (C) any employee benefit plan (or related trust) sponsored or maintained by the Company immediately before such Business Combination beneficially owns, directly or indirectly, 20% or more of the combined voting power of the Surviving Corporation’s then-outstanding voting securities entitled to vote in the election of directors; or (iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 4 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) and after such acquisition of Voting Securities by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities, then a Change in Control shall occur. Prior to November 4, 2006, a “Change in Control” shall mean: (a) (b) (c) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) or 20% or more of either (i) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) below of this section; or Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 5 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan or related trust of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that the such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 2.6 Code Code means the Internal Revenue Code of 1986, as amended, or as it may be amended from time to time. A reference to a particular section of the Code shall also be deemed to refer to the regulations under that Code section. 2.7 Company Company means Regions Financial Corporation or any successor thereto. Prior to November 4, 2006, with regard to the AmSouth Plan, Company means AmSouth Bancorporation, and with regard to the Legacy Regions Plan, Company means Regions Financial Corporation. 2.8 Compensation Compensation for any Plan Year means a Participant’s “Compensation” as defined under the Regions 401(k) Plan, without regard to any limits on such Compensation imposed by or for the purpose of complying with Code Section 401(a)(17). Effective January 1, 2009, Compensation does not include amounts paid by Morgan Keegan. 2.9 Employee Employee means any person who is employed by the Company or an Affiliate. 6 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 (a) (b) Special Provisions. Effective November 4, 2006, and prior to the merger of the Legacy Regions Plan into the Plan on April 1, 2008, notwithstanding the foregoing, employees of Regions Financial Corporation and its affiliates including, but not limited to, Morgan Keegan, hired prior to November 4, 2006, and employees hired on and after November 4, 2006 on the Regions PeopleSoft payroll system were not “Employees” eligible to participate in this Plan (i.e., the AmSouth Plan). Additionally, Participants transferring employment to Morgan Keegan as a result of the merger of AmSouth Bancorporation into Regions Financial Corporation ceased active participation in this Plan as of the date of the transfer to Morgan Keegan. Special Legacy Regions Plan Provisions. Effective November 4, 2006, and prior to the merger of the Legacy Regions Plan into the Plan on April 1, 2008, notwithstanding the foregoing, employees of Regions Financial Corporation who were employees of AmSouth Bancorporation and its affiliates as of the merger on November 4, 2006, and employees hired on and after November 4, 2006 on the AmSouth Cyborg payroll system, were not “Employees” eligible to participate in the Legacy Regions Plan. 2.10 Employer Employer means the Company and each Affiliate except for Morgan Keegan. 2.11 ERISA ERISA means the Employee Retirement Income Security Act of 1974, as amended, or as it may be amended from time to time. A reference to a particular section of ERISA shall also be deemed to refer to the regulations under such section. 2.12 Legacy Regions Plan Legacy Regions Plan means the Regions Financial Corporation Supplemental 401(k) Plan established by Regions Financial Corporation effective January 1, 2001, until its merger into this Plan on April 1, 2008. 2.13 Morgan Keegan Morgan Keegan means Morgan Keegan & Company, Inc., including any successors thereto. 2.14 Participant Participant means an Employee of an Employer who has met, and continues to meet, the eligibility requirements hereof. Participant shall also include any person who has accrued a benefit under the Plan that has neither been forfeited nor fully paid to him. 7 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 2.15 Plan Plan means this Plan, the Regions Financial Corporation Supplemental 401(k) Plan (formerly the AmSouth Bancorporation Supplemental Thrift Plan), as amended from time to time. 2.16 Plan Administrator Plan Administrator means the Benefits Management Committee and any successor to such Committee. The Benefits Management Committee may delegate any administrative functions to an individual or committee, and any reference to “Plan Administrator” shall refer to such individual or committee as appropriate. 2.17 Plan Year Plan Year means the calendar year. 2.18 Regions 401(k) Plan Regions 401(k) Plan means the Regions Financial Corporation 401(k) Plan (formerly the AmSouth Bancorporation Thrift Plan), which is a defined contribution profit sharing plan with a cash or deferred arrangement qualified under Code Sections 401(a), (k) and (m), as amended from time to time. 2.19 Section 409A. Section 409A means Section 409A of the Internal Revenue Code and shall include any amendments thereto or successor provisions as well as any applicable current and future regulations, rulings, IRS notices and other binding legal authority interpreting or modifying the legal requirements under Section 409A. 2.20 Specified Employee Specified Employee means a specified employee as defined in Section 409A and shall be determined in accordance with the Company’s general policy for determining specified employees, as such policy may be amended from time to time. 2.21 Termination of Service Termination of Service means separation from service as defined in Section 409A. 2.22 Valuation Date Valuation Date means the last day of each calendar quarter and any other date that the Plan Administrator selects in its sole discretion for the revaluation and adjustment of Accounts. 8 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Article III. Participation 3.1 Eligibility (a) AmSouth Plan Provisions Prior to January 1, 2008. This subsection shall apply only before January 1, 2008. Any Employee hired on or after January 1, 2007 was eligible to participate hereunder as of the first day of the month coinciding with or next following the later of the Employee’s date of hire and the date the Employee’s Base Salary equaled or exceeded $175,000. Any Employee hired prior to January 1, 2007 who was not a Participant on January 1, 2007 was eligible to participate hereunder as of the later of January 1, 2007 or the date the Employee’s Base Salary equaled or exceeded $175,000. Any other Employee became a Participant on the first day of the month immediately following the date he or she was designated in writing as a Participant in this Plan by the Chief Executive Officer of the Company or his designee. (b) Legacy Regions Plan Provisions Prior to January 1, 2008. Prior to January 1, 2008, an Employee hired by Regions Financial Corporation or its subsidiaries or affiliates was eligible if the Employee was offered by the Company the opportunity to participate in the Legacy Regions Plan. (c) With regard to the Plan and the Legacy Regions Plan, effective January 1, 2008 any Employee (other than an employee of Morgan Keegan) shall be eligible to participate as of the January 1 coinciding with or next following the date that the Employee has a base salary that equals or exceeds 200% of the amount set forth in Section 414(q)(1)(B)(i) of the Code, as indexed. Any other Employee shall be a Participant on the January 1 immediately following the date he or she is designated in writing as a Participant in this Plan by the Chief Executive Officer of the Company or his designee. (d) (i) Effective November 4, 2006, and prior to the merger of the Legacy Regions Plan into the Plan on April 1, 2008, notwithstanding the foregoing, Employees of Regions Financial Corporation and its Affiliates including, but not limited to, Morgan Keegan, hired prior to November 4, 2006 and Employees hired on and after November 4, 2006 on the Regions PeopleSoft payroll system were not eligible to participate in this Plan. Additionally, Participants transferring employment to Morgan Keegan as a result of the merger of AmSouth Bancorporation into Regions Financial Corporation ceased active participation in this Plan as of the date of the transfer to Morgan Keegan. (ii) Effective November 4, 2006, and prior to the merger of the Legacy Regions Plan into the Plan on April 1, 2008, notwithstanding the foregoing, Employees of Regions Financial Corporation who were employees of AmSouth Bancorporation and its affiliates as of the merger on November 4, 2006, and Employees hired on and after November 4, 2006 on the AmSouth Cyborg payroll system, were not eligible to participate in the Legacy Regions Plan. 9 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 3.2 Election of Form of Distribution (a) Upon a Participant’s initial participation in this Plan, a Participant shall make a one-time election of the form of distribution of benefits from the Plan on a form provided by the Plan Administrator. The election shall be irrevocable (except as otherwise specifically provided for herein). The election may include a different form of benefit to be paid in the event of Termination of Service within two years after a Change in Control. The Participant must choose to receive benefit distributions at his or her Termination of Service in (i) a lump sum cash payment; (ii) substantially equal annual installments over a period of five years; or (iii) substantially equal annual installments over a period of 10 years. In each case, payments shall commence within 60 days of the Participant’s Termination of Service (prior to April 1, 2008, within 90 days of the Valuation Date immediately following the Participant’s Termination of Service). Any Participant who fails to complete and return an election form will be deemed to have irrevocably elected to receive a lump sum distribution, unless the Participant had a prior election on file. All current Plan Participants may complete an election form by December 31, 2008 to select the form of distribution in effect beginning January 1, 2009 to comply with Section 409A of the Code. (b) Notwithstanding the Participant’s distribution election, if the Participant’s vested Account balance at the Participant’s Termination of Service does not exceed the applicable dollar amount under Code Section 402(g)(1)(B) ($15,500 for 2008), the Participant’s benefits will be paid in a lump sum payment within 60 days of the Participant’s Termination of Service (prior to April 1, 2008, within 90 days of the Valuation Date immediately following the Participant’s Termination of Service). This limit on lump sum payments shall apply to the Legacy Regions Plan effective January 1, 2009. This provision shall apply only if the payment results in the termination of and liquidation of the entirety of the Participant’s interest under the Plan and all other arrangements treated as a single plan under Treasury Regulation Section 1.409A-1(c)(2). (c) Notwithstanding the foregoing, if a Participant is a Specified Employee at the time of his or her termination of employment, any payments which would otherwise be made because of the Termination of Service during the first six months following Termination of Service shall not be paid in that period. Rather, any such payments shall be accumulated and paid to the recipient in a lump sum on the first payroll of the seventh month following the Termination of Service, with continued investment earnings/losses through the date of distribution. All subsequent payments (if any) shall be paid in the manner specified on the election form. Installment payments shall, for this purpose, be considered a series of separate payments. 10 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Article IV. Benefits 4.1 Salary Reduction Contributions. (a) Salary Reduction Agreement. Each Participant in this Plan may execute a supplemental salary reduction agreement on a form prescribed by the Plan Administrator (including electronic procedures for such agreements as may be established by the Plan Administrator). On this form the Participant may elect to reduce his or her Compensation for the Plan Year by a whole percentage that does not exceed 80% (25% for years prior to 2007). The supplemental salary reduction agreement shall be executed prior to the first day of the Plan Year for which it is to be effective, or in the case of a Participant who first becomes eligible to participate in the Plan during the Plan Year, the supplemental salary reduction agreement shall be executed within 30 days of initial eligibility under this Plan effective for Compensation earned subsequent to the election. The supplemental salary reduction agreement for any Plan Year shall be irrevocable for such Plan Year. Moreover, prior to January 1, 2008, an election for a Plan Year shall remain in full force and effect for all subsequent Plan Years unless modified or revoked by the Participant in writing to the Plan Administrator before the first day of the Plan Year for which such modification or revocation is to be effective. With regard to the Legacy Regions Plan, and effective January 1, 2008 with respect to this Plan, a Participant must make a new election each year (i.e., the prior year’s deferral election will not be deemed to continue in subsequent years). Prior to January 1, 2008, the provisions of the Legacy Regions Plan shall apply with regard to procedures for deferral elections for the Legacy Regions Plan. Effective January 1, 2007, with regard to “performance-based Compensation” as defined in the immediately following paragraph, a Participant may execute a supplemental bonus reduction agreement on a form prescribed by the Plan Administrator to elect to reduce his or her performance-based Compensation for the Plan Year by a whole percentage that does not exceed 80%. Such supplemental bonus reduction agreement must be executed on or before the date that is six months before the end of the performance period, and the Participant must have performed services continually from the later of (i) the beginning of the performance period, or (ii) the date the performance criteria are established through the date an election is made in accordance with this paragraph. “Performance-based Compensation” is Compensation the amount of which, or the entitlement to which, is contingent on the satisfaction of pre-established organizational or individual performance criteria (i.e., established in writing by not later than 90 days after the commencement of the period of service to which the criteria relates, provided that the outcome is substantially uncertain at the time the criteria are established) relating to a performance period of at least 12 consecutive months. Performance-based Compensation will not include any amount or portion of any amount that will be paid either (i) regardless of performance, or (ii) based upon a level of performance that is substantially certain to be met at the time the criteria are established. The determination of “performance-based Compensation” shall be made in accordance with Section 409A. 11 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 A Participant’s salary reduction agreement entered into for the 2008 Plan Year under the Legacy Regions Plan, prior to the merger, shall remain in effect for the full Plan Year as if made for the Plan. (b) Effectiveness of Salary Reduction Agreement. A Participant’s supplemental salary reduction agreement shall take effect and amounts specified in the supplemental salary reduction agreement shall begin to be credited to such Participant’s Salary Reduction Contributions Account at such time as the Participant has made the maximum pre-tax elective deferrals to the Regions 401(k) Plan allowed by Code Section 402(g) or by the provisions of the Regions 401(k) Plan. For this purpose, if the Participant’s deferral election under the Regions 401(k) Plan has changed at any time after the last day of the prior calendar year, the time at which the supplementary salary reduction agreement takes effect shall be determined as if such change had not been made. Prior to January 1, 2008 with regard to the Legacy Regions Plan, a Participant’s salary reduction agreement became effective on the first day of the Plan Year. (c) Allocation. Prior to April 1, 2008, salary reduction contributions shall be allocated to the Participant’s Salary Reduction Contributions Account as of the last day of each calendar quarter within the Plan Year. Effective April 1, 2008, salary reduction contributions shall be allocated to the Participant’s Salary Reduction Contributions Account as soon as practicable following the payroll period from which the salary reduction contributions are withheld from Compensation. 4.2 Employer Matching Contributions (a) Eligibility. A Participant shall be credited with matching contributions under this Plan for a Plan Year at such time as the Participant ceases to receive a matching contribution under the Regions 401(k) Plan, regardless of whether such Participant’s supplemental salary reduction agreement has become effective as provided in Section 4.1 above. Effective January 1, 2007, a Participant shall not be eligible to receive matching contributions under this Plan until the first day of the month following completion of one Year of Service as defined in the Regions 401(k) Plan. (b) Amount. The amount of matching contributions credited to a Participant’s account under this Plan shall be equal to 100% of the sum of (i) and (ii) below: (i) the Participant’s unmatched (determined on a per payroll basis) pre-tax elective deferrals made to the Regions 401(k) Plan; and (ii) salary reduction contributions credited to the Participant’s account under this Plan pursuant to the Participant’s supplemental salary reduction agreement. Provided, however, that (A) no matching contributions shall be made on salary reduction 12 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 contributions or deferrals under (i) or (ii) above to the extent that such salary reduction contributions or deferrals determined on an annual basis (but determined on a per payroll basis prior to January 1, 2007) exceed 6% of the Participant’s Compensation; and (B) nothing in this Section 4.2 shall entitle a Participant to be credited with a matching contribution under this Plan for any salary reduction contribution or deferral made to the Regions 401(k) Plan prior to the time such Participant has received the maximum matching contributions to the Regions 401(k) Plan allowed under the terms of the Regions 401(k) Plan. Effective January 1, 2007, matching contributions shall be calculated on an annual basis. In calculating matching contributions for a Plan Year, salary reduction contributions or deferrals made prior to the first day of the month after a Participant’s completion of one Year of Service (as defined in the Regions 401(k) Plan) shall not be matched. (c) Legacy Regions Plan. Matching contributions with regard to the Legacy Regions Plan prior to April 1, 2008 were made in accordance with such plan. (d) Allocations. Prior to April 1, 2008 with regard to the Plan, matching contributions shall be allocated to the Participant’s Matching Contributions Account as of the last day of each calendar quarter within the Plan Year. With regard to the Legacy Regions Plan prior to April 1, 2008 and to the Plan effective April 1, 2008, matching contributions are credited as soon as practicable following the payroll period from which the deferral was made. (e) Legacy Regions Plan Vesting. Amounts credited to a Participant’s Legacy Regions Account attributable to pay periods ending prior to January 1, 2005, and earnings thereon, shall be separately accounted for and shall be vested upon three years of vesting service determined in accordance with the Regions 401(k) Plan (prior to April 1, 2008, the Legacy Regions Financial Corporation 401(k) Plan). Forfeited matching contributions will be the property of the Company and will remain in the general assets of the Company. Matching contributions attributable to pay periods ending on or after January 1, 2005, and earnings thereon, shall be fully vested at all times. 4.3 Employer Contributions For Plan Years beginning on and after January 1, 2008, the Employer will make an annual employer contribution in accordance with the following. (a) Eligibility. A Participant who was eligible to receive matching contributions for the prior Plan Year, and who is employed by the Company on the first business day of the year of the employer contribution, shall be eligible to receive employer contributions in accordance with this Section. (b) Amount. The amount of the employer contribution credited to a Participant’s account under this Plan shall be in an amount that is equal to the difference between (i) and (ii) below: (i) the amount of matching contributions (up to 6% of Compensation) the Participant would have received under this Plan for the prior Plan Year if the Participant’s supplemental salary reduction agreement had been applied to all Compensation for the prior Plan Year earned subsequent to the election and earned on and after the date the supplemental salary reduction agreement became effective; and 13 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 (ii) the amount of matching contributions the Participant actually received for the prior Plan Year. (c) Allocations. Employer contributions shall be allocated to each Participant’s Employer Contribution Account as soon as administratively feasible, but in no event later than February 28 (or the next following business day) of the Plan Year. (d) Notwithstanding the foregoing provisions of this Section, no employer contributions will be made in 2008 with regard to Participants in the Legacy Regions Plan. 4.4 Forfeitability of Benefits Except as otherwise specifically provided for herein, Participants shall have a 100% vested and nonforfeitable right to the balance of their Account under this Plan at all times. 4.5 Special Provisions Regarding Legacy Regions Plan DC Restoration Plan Account Effective April 1, 2008, the Plan Administrator shall establish and maintain a separate account under the Legacy Regions Plan Account to hold amounts previously credited to the Participant’s DC Restoration Plan Account under the Legacy Regions Plan for amounts previously transferred from the Regions Financial Corporation Nonqualified Defined Contribution Restoration Plan (the “DC Restoration Plan”). Such accounts may be funded by a Company contribution in the amount credited to the bookkeeping accounts established and maintained under the DC Restoration Plan. If an account is funded, it may be held in a rabbi trust established and maintained by the Company for the purpose of setting aside Company assets to pay benefits under top-hat plans such as this Plan. Any such account may be designated a “Legacy Regions Plan DC Restoration Plan Account.” A Legacy Regions Plan DC Restoration Plan Account shall represent the final value of the DC Restoration Plan bookkeeping accounts, calculated as of May 13, 2002, including earnings thereon. Following establishment of a Legacy Regions Plan DC Restoration Plan Account, earnings on such account shall be determined in the same manner described herein with respect to a Participant’s Salary Reduction Contributions Account. A Participant’s Legacy Regions Plan DC Restoration Plan Account is an employer contribution account and shall be treated for all purposes not otherwise specified in this Section in the same manner as a Participant’s matching contributions account under the Legacy Regions Plan. Without otherwise limiting the meaning of the preceding sentence, this shall mean that (i) the 14 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Beneficiary of any amounts in a Participant’s Legacy Regions Plan DC Restoration Plan Account shall be the Beneficiary of the Participant as defined under the Plan; and (ii) in the event of death, disability, retirement or termination of the Participant’s employment with the Company for any reason, the vested portion of a Participant’s Legacy Regions Plan DC Restoration Plan Account established and maintained pursuant to this Section shall be distributed in accordance of the terms of this Plan. Article V. Accounts; Unsecured Benefits; Financing 5.1 Participant Accounts Each contribution credited to a Participant under Article IV shall be allocated to an individual bookkeeping Account maintained on behalf of that Participant by the Plan Administrator. Each Participant’s Account shall be adjusted for earnings in the manner described in Section 5.2. 5.2 Valuation of Participant Accounts (a) (b) Prior to April 1, 2008 with regard to the Plan, as of each Valuation Date, each Participant’s Account shall be adjusted to reflect earnings as follows: An average of the Participant’s Account (the “Average Account Balance”) shall be obtained by dividing (a) the sum of (i) the Participant’s Account as of the immediately preceding Valuation Date, and (ii) the Participant’s Account as of the immediately preceding Valuation Date plus all contributions since the immediately preceding Valuation Date, by (b) two. The Participant’s Average Account Balance shall be multiplied by the Applicable Interest Rate, and this product shall be added to or subtracted from the Participant’s Account. The. “Applicable Interest Rate” for a Participant shall be the Participant’s personal rate of return in the AmSouth Thrift Plan for the quarter as reflected on his or her AmSouth Thrift Plan statement for the quarter. If the Participant does not have a balance in the AmSouth Thrift Plan as of the Valuation Date, the Participant’s Account shall be adjusted to reflect earnings by multiplying the Participant’s Average Account Balance by the average rate of return for the “Stable Principal Fund” in the AmSouth Thrift Plan for the period. Prior to April 1, 2008, the Legacy Regions Plan and on and after April 1, 2008, the Plan, shall credit earnings on Accounts according to the direction of the Administrator. The Administrator may follow, in its discretion, investment requests of the Participant, although the Administrator is under no requirement to do so. Investment requests by a Participant must be made in a manner acceptable to the Administrator. Matching contributions credited to an Account shall be credited with earnings according to the earnings and losses experienced by the Company’s common stock. For this purpose, the experience of a unitized employer stock fund may be utilized to calculate earnings. Amounts contributed to a Trust may be actually invested in an employer stock fund or another fund requested by the Participant for the purpose of generating earnings to satisfy this Section. The investment choices under the Plan may be similar to the 15 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 investment choices available to participants in the Regions 401(k) Plan. The Participant may request a particular investment of the portion of the amounts credited to the Participant’s Account as matching contributions into any available investment fund under the Plan. 5.3 Unsecured Benefits; Financing The benefits under this Plan shall be paid out of the general assets of the Company (including assets held in the Trust as described in this Section). The Company may establish a rabbi Trust to provide benefits under the Plan. Effective April 1, 2008, in the event of a Change in Control (as defined in Section 2.5), which is not a Merger of Equals as defined below, a rabbi Trust shall be established. In the event a rabbi Trust is established, the Company shall select an entity to serve as Trustee for the Trust. No Participant or Beneficiary shall have any interest in any specific asset of any Employer. To the extent that any person acquires a right to receive payments under this Plan, such right shall be no greater than the right of any unsecured general creditor of any Employer. Nothing contained in this Plan, and no action taken pursuant to the provisions of this Plan, shall create a fiduciary relationship between an Employer and any Participant or Beneficiary or a right of continued employment for any Participant. Notwithstanding the above, no rabbi trust shall be established or funded if such establishment or funding would result in any property of such trust being treated as property transferred in connection with the performance of services under Section 409A(b)(3). For purposes of this Section, a “Merger of Equals” means any Change in Control transaction approved by the Company’s Incumbent Board and specifically designated by the Incumbent Board as a merger of equals. Article VI. Distributions 6.1 Termination of Service. (a) (b) Upon a Participant’s Termination of Service, the Participant shall be entitled to the vested balance of his or her Account. This balance shall be paid to the Participant pursuant to the Participant’s election of distribution form (in accordance with Section 3.2) except as specifically provided otherwise herein. Special temporary provision for Legacy Regions Plan Account. Upon a Participant’s Termination of Service, the Participant’s Legacy Regions Plan Account shall be distributed as follows. If the amount of the Legacy Regions Plan Account is less than $50,000, the entire amount shall be distributed to the Participant in a single lump sum within 60 days of Termination of Service. If the amount of the Legacy Regions Plan Account is equal to or greater than $50,000, it shall be distributed in ten annual installments, with the first installment paid within 60 days of Termination of Service, and the remaining installments paid on January 31 of each successive year. Notwithstanding 16 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 the above, if the Participant is a Specified Employee at the time of his Termination of Service, the first annual installment (and if applicable, the second annual installment) or the lump sum, as applicable, shall be paid on the first payroll of the seventh month following Termination of Service, with successive payments made on January 31 of each successive year. Effective January 1, 2009, payments of the Legacy Regions Plan Account shall be made in accordance with subsection (a) above rather than in accordance with this subsection. (c) Special temporary provision for MIP Deferred Compensation Account. Notwithstanding the above, amounts attributable to the Regions Financial Corporation Optional Deferred Compensation Plan for Management Incentive Plan Participants (the “MIP Plan”) shall be distributed in accordance with the Participants’ elections under the MIP Plan. Effective January 1, 2009, payments of the MIP Deferred Compensation Account shall be made in accordance with subsection (a) above rather than in accordance with this subsection. 6.2 Death of the Participant If the Participant dies before the distribution of his or her Account is completed, the balance in the Account shall be distributed to the Participant’s Beneficiary in a lump sum cash payment or in 5 or 10 year annual installments based on the form of distribution elected by the Participant, beginning within 60 days of the Participant’s death (prior to April 1, 2008, within 90 days of the Valuation Date immediately following the Participant’s death). Notwithstanding any election by the Participant, if the Participant’s balance at the time of his or her death does not exceed the applicable dollar amount under Code Section 402(g)(1)(B) ($15,500 for 2008), the Participant’s benefit shall be paid to his or her Beneficiary in a lump sum cash payment within 60 days of the Participant’s death (prior to April 1, 2008, within 90 days of the Valuation Date immediately following the Participant’s death). 6.3 No In-Service Withdrawals A Participant may not receive a distribution from his or her Account before incurring a Termination of Service. Article VII. Administration 7.1 Administration The Plan shall be administered by the Plan Administrator. The Plan Administrator shall have all powers necessary or appropriate to carry out the provisions of the Plan. It may, from time to time, establish rules for the administration of the Plan and the transaction of the Plan’s business. The Plan Administrator shall have absolute and complete discretionary authority to interpret and administer the Plan and shall have the exclusive right to make any finding of fact necessary or appropriate for any purpose under the Plan including, but not limited to, the determination of 17 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 eligibility for and amount of any benefit. The Plan Administrator shall have the exclusive right to interpret the terms and provisions of the Plan and to determine any and all questions arising under the Plan or in connection with its administration, including, without limitation, the right to remedy or resolve possible ambiguities, inconsistencies, or omissions by general rule or particular decision, all in its sole and absolute discretion. To the extent permitted by law, all findings of fact, determinations, interpretations, and decisions of the Plan Administrator shall be conclusive and binding upon all persons having or claiming to have any interest or right under the Plan. The Plan Administrator may, in its sole and absolute discretion, delegate any of its powers and duties under this Plan to one or more individuals or committees. In such a case, every reference in the Plan to the Plan Administrator shall be deemed to include such matters within their jurisdiction. The Plan Administrator shall have the right to consult with attorneys and other advisors regarding its duties under this Plan, and such attorney and advisors may be employed by the Company. 7.2 Claims Procedure All claims for benefits hereunder, including an application for a distribution, shall be in writing, signed by the claimant, and shall be mailed or delivered to the Plan Administrator or such individuals as the Plan Administrator has delegated the responsibility of receiving and deciding claims (hereinafter referred to as the “Claims Administrator”). The Claims Administrator shall make an initial decision on all claims for benefits within 90 days of receipt by the Claims Administrator (or if special circumstances require an extension of time and written notice thereof is given to the claimant within such 90-day period, then within 180 days of receipt), and except as provided for below with respect to appeals, such initial decision shall be binding. If a claim is wholly or partially denied, a notice of such decision shall be furnished to the claimant within the periods specified above and shall set forth: (A) the specific reason or reasons for denial; (B) a reference to pertinent Plan provisions upon which the denial is based; (C) description of information needed to perfect the claim and why such information is needed; and (D) an explanation of the claims review procedure herein. Appeal. If a claimant who has been denied a claim by the Claims Administrator files, within 60 days after his receipt of such denial, a written request for review, signed by the claimant and setting forth the alleged reasons why his claim was improperly denied, the Claims Administrator shall fully and fairly review such decision and advise the claimant in writing of its decision and the reasons therefor within 60 days after the Claims Administrator receives such request for review. In connection with such review, the claimant shall have the right to have representation, review pertinent plan documents and submit issues and comments in writing. In the event of special circumstances, the time for response may be delayed for an additional period of up to 60 days, but written notice thereof must be given to the claimant within the initial 60-day period. In the review process described above, the claimant shall produce all evidence, documents, information and arguments in favor of his position. The Claims Administrator shall not be required to consider any evidence, documents, information or arguments in favor of the claimant’s position in its review, other than those that have been brought forth by the claimant in the initial claim and the review process. No claimant may file a lawsuit or bring any other legal action against the Plan, the Company, or any fiduciary with respect to any claim until completing the review process. 18 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Review of Interpretations. If a Participant or other party believes himself or his Beneficiary to be adversely affected by an interpretation or construction of any provision of the Plan made by the Plan Administrator, other than the denial of a benefit claim, such Participant or other party may submit a written request for full and fair review of such interpretation or construction to the Claims Administrator. The Claims Administrator, or if appropriate, the Plan Administrator, shall within a reasonable time fully and fairly review such interpretation and construction and reach a decision thereon, following the procedures set forth above. All rules governing the claims review process shall apply to a request for review of an interpretation under this paragraph. 7.3 Tax Withholding The Employer may withhold from any payment under this Plan any federal, state, or local taxes required by law to be withheld with respect to the payment and any sum the Employer may reasonably estimate as necessary to cover any taxes for which it may be liable and that may be assessed with regard to the payment. 7.4 Expenses All expenses incurred in the administration of the Plan shall be paid by the Company. In determining investment returns from investment of funds that constitute employer general assets, expenses related to such investments may be deducted in determining such returns. Article VIII. Adoption by Affiliates, Amendment and Termination 8.1 Adoption of the Plan by Affiliate All Affiliates of the Company (but specifically excluding Morgan Keegan) are deemed to have adopted this Plan as of the later of (i) the effective date of this Plan, or (ii) the date of such Affiliate’s affiliation with the Company. 8.2 Amendment and Termination This Plan may at any time or from time to time be amended or terminated. No amendment, modification or termination shall adversely affect the Participant’s rights under this Plan to receive benefits already credited to his or her Account, except to the extent necessary to comply with any applicable law, and further provided that the Plan may be amended to change the time and form of payment of such benefits, or the investments available with respect to crediting of investment earnings or interest, as necessary for compliance with Section 409A or for other administrative reasons. 19 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Article IX. Miscellaneous Provisions 9.1 Nonalienation No benefit payable under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge. Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge shall be void. Benefits shall not be in any manner subject to the debts, contracts, liabilities, engagements, or torts of, or claims against, any Participant or Beneficiary, including claims of creditors, and any other like or unlike claims. The preceding shall not apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a Participant pursuant to a Qualified Domestic Relations Order. 9.2 Distribution For Minors and Incompetents In making any distribution to or for the benefit of any minor or incompetent person, the Plan Administrator, in its sole and absolute discretion, may, but need not, direct such distribution to a legal or natural guardian or other relative of such minor or court appointed committee of such incompetent, or to any adult with whom such minor or incompetent temporarily or permanently resides, and any such guardian, committee, relative or other person shall have full authority and discretion to expend such distribution for the use and benefit of such minor or incompetent. The receipt by such guardian, committee, relative or other person shall be a complete discharge to the Company without any responsibility on its part or on the part of the Plan Administrator to see to the application thereof. 9.3 Severability If any provision of this Plan shall be held illegal or invalid, the illegality or invalidity shall not affect its remaining parts. The Plan shall be construed and enforced as if it did not contain the illegal or invalid provision. 9.4 Applicable Law Except to the extent preempted by applicable federal law, this Plan shall be governed by and construed in accordance with the laws of the state of Alabama. The Plan is intended to comply with Section 409A and any ambiguity hereunder shall be interpreted in such a way as to comply, to the extent necessary, with Section 409A or to qualify for an exemption from Section 409A 20 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 APPENDIX A PRIOR ELIGIBILITY RULES FOR THE PLAN (AMSOUTH PLAN) (a) (b) Any Employee who was eligible to participate in the AmSouth Bancorporation Thrift Plan and whose annual base salary, including amounts not currently includible in gross income under Code Sections 125, 401(k) or 402(a)(8), but excluding special pay, bonuses, commissions or other incentive pay, reimbursement for expenses, special supplements for automobile or club dues, and the Prior Profit Sharing Plan Bonus (“Base Salary”) as of January 1, 1995 was equal to or greater than $150,000, became a Participant in this Plan as of January 1, 1995. Prior to July 1, 2004, any other Employee who was eligible to participate in the AmSouth Bancorporation Thrift Plan and whose annual base salary including amounts not currently includible in gross income under Code Sections 125, 401(k) or 402(a)(8), but excluding special pay, bonuses, commissions or other incentive pay, reimbursement for expenses, special supplements for automobile or club dues, and the Prior Profit Sharing Plan Bonus (“Base Salary”) was equal to or greater than $150,000 as of January 1 became a Participant in this Plan as of that January 1. Prior to July 1, 2004, any employee hired during the year whose Base Salary was equal to or greater than $150,000 on the date of hire became a Participant immediately. After January 1, 2004 and prior to July 1, 2004, any Employee who was employed prior to January 1, 2004 whose salary was equal to or greater than $150,000 but less than $175,000 and who was not a Participant in the Plan on January 1, 2004 became a Participant on January 1, 2005. Notwithstanding the foregoing, any person who became an Employee on or after July 1, 2004, and any person who was an Employee prior to July 1, 2004 who was eligible to participate in the AmSouth Bancorporation Thrift Plan as of July 1, 2004 and whose Base Salary (as defined above in this paragraph) was not equal to or greater than $150,000 as of July 1, 2004 became a Participant in this Plan as of the January 1 following the date that his or her Base Salary equaled or exceeded $175,000. Effective July 1, 2004, any employee hired during the year whose Base Salary was equal to or greater than $175,000 on the date of hire became a Participant immediately. Any Employee who was not a Participant on January 1, 2006 and any Employee hired on or after January 1, 2006 became eligible to participate hereunder as of the first day of the month coinciding with or next following the later of the Employee’s completion of one Year of Service and the date the Employee’s Base Salary equals or exceeds $175,000. Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 REGIONS FINANCIAL CORPORATION POST 2006 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN EXHIBIT 10.62 Regions Financial Corporation, successor to AmSouth Bancorporation, with its principal offices located at Birmingham, Alabama (“Sponsor”), is currently the sponsor of the Regions Financial Corporation Post 2006 Supplemental Retirement Plan (“Supplemental Plan”). The purpose of this amendment and restatement is to comply with Section 409A of the Internal Revenue Code of 1986, as amended (“Code”) and is made and executed to be effective as of January 1, 2005. Effective January 1, 1983 and pursuant to Section 3(36) of the Employee Retirement Income Security Act of 1974 (“ERISA”), AmSouth Bank N.A., an Employer under the AmSouth Bancorporation Retirement Plan (“Retirement Plan”), adopted a supplemental retirement benefit program solely for the purpose of providing benefits in excess of the limitations on benefits under the Retirement Plan imposed by Section 415 (“Section 415”) of the Internal Revenue Code of 1954, as amended and known as the Internal Revenue Code of 1986, as amended from time to time (the “Code”), to certain individuals under the Retirement Plan whose benefits under the Retirement Plan are limited by Section 415. Effective January 1, 1989, Section 401(a)(17) (“Section 401(a)(17)”) of the Code limited the amount of compensation which may be taken into account in determining benefits from the Retirement Plan. Therefore, AmSouth Bank N.A. amended and restated this supplemental retirement plan effective January 1, 1989, so that it provided benefits in excess of the limitations on benefits under the Retirement Plan imposed not only by Section 415, but also by Section 401(a)(17), to a select group of management or highly compensated employees whose benefits under the Retirement Plan are limited by Section 415 and/or Section 401(a)(17). Effective January 1, 1991, additional persons were added to this select group of management or highly compensated employees, some of whom were employees of subsidiaries of the Sponsor other than AmSouth Bank N.A. AmSouth Bank N.A. amended and restated its supplemental plan, AmSouth Bancorporation adopted the supplemental plan for itself and its subsidiaries who choose to have their eligible employees covered by the supplemental plan (“Electing Employers”), and AmSouth Bank N.A. became an Electing Employer under the supplemental plan. Effective January 1, 1994, additional persons were added to the select group of management or highly compensated employees. Effective January 1, 1995, the eligibility provisions of the plan were changed and a revised definition of compensation was added to the plan for certain participants. Effective January 1, 2001, the First American Corporation Supplemental Executive Retirement Program (the “FAC Program”) was merged with and into this supplemental plan to coincide with the merger of the First American Corporation Master Retirement Plan with and into the AmSouth Bancorporation Retirement Plan effective January 1, 2001. Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Effective May 24, 2001, the Plan was amended and restated, and the Plan was subsequently amended to clarify the claims procedures and to provide pre-retirement survivor benefits for certain Participants with regard to their accrued benefit from the FAC Program. Effective November 1, 2006, the Supplemental Plan was amended to freeze participation by new Participants and rehired employees and to address the calculation of benefits of those Participants who transfer employment to Morgan Keegan in connection with the merger of AmSouth Bancorporation into the Sponsor. Effective January 1, 2008, the Supplemental Plan was amended to reflect the actuarial assumptions used to determine benefits under the optional forms of benefit. The Sponsor hereby amends and restates the provisions of this Supplemental Plan regarding compliance with Code Section 409A and the regulations thereunder effective as of January 1, 2005, (or such other date as required for compliance with Code Section 409A). ARTICLE I TITLE; DEFINITIONS Section 1.01. The term “Average Monthly Earnings” shall mean, for a Participant who retires or has a Termination of Employment on or after January 1, 2004, the result obtained by dividing the Participant’s Monthly Earnings paid by an Employer during the three (3) highest consecutive Plan Years of earnings out of the ten (10) Plan Years immediately preceding the Participant’s Early Retirement Date, Normal Retirement Date, or date of calculation of Accrued Benefits, as the case may be, by thirty-six (36). If a Participant has fewer than three (3) Plan Years of earnings after applying the Break in Service rules of Section 4.07 of the Regions Financial Corporation Retirement Plan (“Retirement Plan”), if applicable, all of his or her Plan Years of earnings (less than three (3)) will be used and the divisor will be twelve (12) times the total number of such Plan Years. Section 1.02. The term “Committee” shall mean the Regions Benefits Management Committee. Section 1.03. The term “Compensation Committee” shall mean the Compensation Committee of the Board of Directors of the Sponsor. Section 1.04. The term “Credited Service” shall have the same meaning as defined in the Retirement Plan, but subject to a service cap of 35 years. Section 1.05. The term “Disability” shall mean that a Participant is “disabled” within the meaning of Section 409A(a)(2)(c) of the Code. -2- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Section 1.06. The term “Early Retirement” shall mean Termination of Employment at (i) age 55 for a Participant eligible to receive a Supplemental Benefit and (ii) age 60 for a designated Participant eligible to receive an Enhanced Benefit and (iii) age 62 for specified Participants eligible to receive an Enhanced Benefit but not eligible for the age 60 Early Retirement and (iv) such other age as may be otherwise provided for Participants under the Retirement Plan. Section 1.07. Effective on and after January 1, 2009, the term “Monthly Earnings” shall mean the sum of (i) the Participant’s regular monthly base salary prior to the effect of elections under (A) any plan or plans maintained by the Sponsor, an Electing Employer or any of their affiliates which are within the scope of Sections 125, 132(f) or 401(k) of the Code and (B) any “non-qualified deferred compensation plan” within the meaning of Section 409A of the Code, and (ii) one-twelfth of any bonus earned by a Participant for the particular Plan Year (whether paid in the Plan Year or within 2 1/2 month following the end of the Plan Year) under the Sponsor’s or any Electing Employer’s regular annual incentive plan(s) prior to the effect of elections under (A) and (B) above. Bonus will not include any one-time spot or other special or long-term bonus compensation. If a Participant retires, dies or experiences a Disability prior to the time when the amount of the bonus for the Plan Year has been determined, Monthly Earnings for the months in such Plan Year shall be calculated using an estimate of such bonus determined by the Committee or Compensation Committee, as appropriate, based on information regarding the Sponsor’s and Participant’s performance as of the date of determination. Prior to January 1, 2009, the term “Monthly Earnings” shall mean the sum of (i) the Participant’s regular monthly base salary prior to the effect of elections under any plan or plans maintained by the Sponsor, an Electing Employer or any of their affiliates which are within the scope of Sections 125 or 401(k) of the Code and (ii) one-twelfth of any bonus earned by a Participant for the particular Plan Year (whether paid in the Plan Year or within 2 1/2 months following the end of the Plan Year) under the Sponsor’s or any Electing Employer’s regular annual incentive plan(s) prior to the effect of elections under (i) above. Bonus will not include any one-time spot or other special or long-term bonus compensation. If a Participant retires, dies or experiences a Disability prior to the time when the amount of the bonus for the Plan Year has been determined, Monthly Earnings for the months in such Plan Year shall be calculated using an estimate of such bonus determined by the Committee or Compensation Committee, as appropriate, based on information regarding the Sponsor’s and Participant’s performance as of the date of determination. Section 1.08. The term “Participant” shall refer to a person who is a participant in the Supplemental Plan. Section 1.09. The term “Plan Year” shall mean a calendar year. -3- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Section 1.10. The term “Specified Employee” shall have the meaning set forth in Internal Revenue Code Section 409A and shall be determined in accordance with the Sponsor’s general policy for determining specified employees, as such policy may be amended from time to time. Section 1.11. The term “Supplemental Plan” shall mean the supplemental retirement plan set forth below, known as the Regions Financial Corporation Post 2006 Supplemental Executive Retirement Plan. Section 1.12. The term “Termination of Employment” shall mean separation from service as set forth in Code Section 409A and shall be determined in accordance with the Sponsor’s general policy for determining separation from service, as such policy may be amended from time to time. Section 1.13. The term “Years of Service” shall have the same meaning as under the Retirement Plan. ARTICLE II PARTICIPATION IN THE SUPPLEMENTAL PLAN Section 2.01. Participation. (a) A select group of management or highly compensated Participants who are selected to participate in this Supplemental Plan shall be participants in the Supplemental Plan. The term “Participant” shall include persons who are selected to participate in this Supplemental Plan and fit one or more of the following categories: (i) Participants who were employed by AmSouth Bancorporation or one of the Electing Employers on January 1, 1995, at an annual base salary, including amounts not currently includible in gross income under Code Sections 125, 401(k) or 402(a)(8), but excluding special pay, bonuses, commissions or other incentive pay, reimbursement for expenses, special supplements for automobiles or club dues, and the Prior Profit Sharing Plan Bonus (such compensation being referred to herein as the “Eligibility Compensation”) on such date of $150,000 or more; (ii) former Participants with an accrued Supplemental Benefit whose employment with AmSouth Bancorporation or one of the Electing Employers terminated on or before January 1, 1995; (iii) after January 1, 1995 and prior to July 1, 2004, other employees of the Sponsor or an Electing Employer who became Participants in this Supplemental Plan as of the first day of the month immediately following the date such employee’s Eligibility Compensation first equaled or exceeded $150,000 and such employees were selected to participate in this Supplemental Plan; (iv) employees who were in the FAC Program as of December 31, 2000; (v) effective from July 1, 2004 through October 31, 2006, employees of AmSouth who became Participants in this Supplemental Plan on the January 1 coinciding with or next following the occurrence of all three of the following eligibility criteria: (1) eligibility for entry into the Retirement Plan, (2) each such employee’s Eligibility Compensation equals or exceeds $175,000, and (3) each such employee is selected to participate in this Plan; and (vi) any employee of AmSouth, the Sponsor or an Electing Employer whose Compensation equaled or exceeded $150,000, but did not equal or -4- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 exceed $175,000 on July 1, 2004 or thereafter through October 31, 2006 became a participant in this Plan on the January 1 coinciding with or next following the occurrence of all three of the following eligibility criteria: (i) eligibility for entry into the Retirement Plan, (ii) such employee’s Eligibility Compensation equals or exceeds $150,000, and (iii) such employee is selected to participate in this Plan. A complete list of Participants eligible to participate in the Supplemental Plan and the type of benefits they are entitled to receive shall be maintained in the permanent records of the Regions Human Resources Division. (b) Effective November 1, 2006, this Supplemental Plan was frozen so that no employees or rehired former employees became Participants from such date unless selected to participate by the Compensation Committee (or its delegee) or unless such participant otherwise met the eligibility requirements for participation as of January 1, 2007. Such additional Participants shall be entitled to receive a regular Supplemental Plan benefit or an Enhanced Benefit (within the meaning of Section 3.01 below), or the greater of the two, as determined by the Compensation Committee (or its delegee) when such participation is authorized by the Compensation Committee (or its delegee). Effective November 4, 2006, Participants in this Supplemental Plan who transferred employment to Morgan Keegan on or prior to December 31, 2008, in connection with the merger of AmSouth Bancorporation into the Sponsor, shall continue to accrue benefits under this Supplemental Plan on and after the date of the transfer to Morgan Keegan. For such Participants transferring on or before December 31, 2008, service with Morgan Keegan shall count for benefit accrual and vesting purposes under this Supplemental Plan; however compensation, including but not limited to Average Monthly Earnings and Monthly Earnings, shall be frozen as of the date of such transfer. In the event a Participant in this Supplemental Plan transfers employment to Morgan Keegan on or after January 1, 2009, benefit accrual and credit for vesting in this Supplemental Plan shall cease as of the date of such transfer. Section 2.02. 2008 Termination Election. A Participant who was actively employed on December 1, 2008, and who has not yet received or commenced receiving a benefit under this Supplemental Plan may elect, no later than December 31, 2008, to cease accruing benefits under the Supplemental Plan and to terminate his or her participation in the Supplemental Plan, effective December 31, 2008, and to receive a lump sum cash payment of his or her accrued Supplemental Benefit or Enhanced Benefit, if applicable, as soon as practicable after January 1, 2009, but in no event later than March 15, 2009. -5- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 ARTICLE III BENEFITS UNDER THE SUPPLEMENTAL PLAN Section 3.01. Supplemental Benefits and Enhanced Benefits (a) Supplemental Benefits and Enhanced Benefits 1.Supplemental Benefits. Benefits payable under this Supplemental Plan to or on behalf of a Participant who retires, has a Termination of Employment, dies, suffers a Disability or has a Termination of Employment within two years after a Change in Control on or after January 1, 2004 shall be equal to the excess, if any, of (A) less (B) (the “Supplemental Benefits”) where (A) is such Participant’s benefits as a participant in the Retirement Plan calculated without reference to any provision of the Retirement Plan limiting the amount of benefits as provided by Section 415 of the Code; without limiting the amount of compensation taken into account as provided by Section 401(a)(17) of the Code; by substituting the definitions of “Monthly Earnings” and “Average Monthly Earnings” under this Supplemental Plan in place of the definition of each such term in the Retirement Plan; and by using a service cap of 35 Years of Credited Service; and (B) is the amount of benefits accrued under the Retirement Plan as of the date of benefit commencement under the Supplemental Plan, in each case, calculated as if the Participant elected a lump sum benefit payable on the date of benefit commencement under this Supplemental Plan. Lump sum benefits payable because of the death of the Participant shall be calculated using the present value of the benefit due the survivor. Any benefit reductions required shall be calculated using the reduction factors in the Retirement Plan at the time of benefit commencement under the Supplemental Plan. 2.Enhanced Benefit. Designated Participants who are selected by the Compensation Committee (or its delegee) shall receive the greater of (i) his or her Supplemental Benefits calculated pursuant to Section 3.01(a), or (ii) if eligible as provided under Section 3.01(c) below, an enhanced benefit based on a targeted formula for benefit accrual (“Enhanced Benefit”) calculated as the excess, if any, of (A) less (B), where (A) is a targeted sum of 4.0% of “Average Monthly Earnings” times Credited Service up to 10 years of Credited Service, plus 1.0% of Average Monthly Earnings times each year of Credited Service over 10 up to a combined total of 35 Years of Credited Service; and (B) is the sum of the Participant’s (1) monthly benefits accrued under the Retirement Plan as of the date of benefit commencement under the Supplemental Plan expressed as a single-life annuity, regardless of the form of payment actually elected under the Retirement Plan, and (2) estimated Social Security monthly benefit amount payable at age 65 (calculated using Social Security law in the Participant’s year of Termination of Employment and assuming zero future pay to age 65). Some Participants may be eligible for the Enhanced Benefit, but not the greater of the Supplemental Benefit or the Enhanced Benefit. A list of Participants and the type of benefits they are entitled to receive shall be maintained in the permanent records of the Regions Human Resources Division. -6- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 3. The actual targeted benefit under the Enhanced Benefit is illustrated as follows: Years of Credited Service 10 20 30 35 Targeted Benefit 40% 50% 60% 65% For Participants with a DAAB (as defined in the Retirement Plan) the targeted formula in (A) above will equal (i) plus (ii) where: (i) represents the DAAB and (ii) represents the targeted formula using only post-merger Credited Service. Post-merger Credited Service is limited to 35 years minus years of Credited Service used in determining the DAAB. In no event will this amount be less than the amount calculated under the targeted formula in (A) above based on post-merger Credited Service limited to 35 years. Any benefit reductions required shall be calculated using the reduction factors in the Retirement Plan at the time of benefit commencement under the Supplemental Plan. (b) Eligibility to Receive Supplemental Benefit and Enhanced Benefit 1.Eligibility to Receive Supplemental Benefit. A Participant must meet the eligibility requirements in Article II and participate in the Supplemental Plan to receive a Supplemental Benefit. 2.Eligibility to Receive Enhanced Benefit. Except as provided herein, a Participant must attain age 60 with at least 10 Years of Service while actively employed and while eligible to participate in this Supplemental Plan to be eligible to receive an Enhanced Benefit; provided, however, that in the event of a Participant’s death or Disability while actively employed, the Participant will be eligible to receive an Enhanced Benefit based on service through his or her date of death or Disability regardless of age or Years of Service. Notwithstanding the foregoing, in the event of a Change in Control resulting in a Participant’s Termination of Employment within 2 years following the Change in Control, the Participant will be eligible to receive an Enhanced Benefit based on service through his or her date of Termination of Employment regardless of age or Years of Service. Otherwise, if a Participant has a Termination of Employment or ceases participation in this Plan prior to attaining age 60 for certain designated Participants and age 62 for other specified Participants and completing 10 Years of Service, the Participant will not be entitled to receive an Enhanced Benefit. -7- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Notwithstanding the foregoing requirements of this paragraph, solely for purposes of determining a Participant’s eligibility for an Enhanced Benefit, the Committee has the discretion to count a Participant’s years of service with an entity acquired by Sponsor or an affiliate thereof in determining whether a Participant has completed 10 Years of Service to be eligible to receive an Enhanced Benefit. (c) Calculation of Enhanced Benefits in the Event of Disability or Change in Control for Certain Participants 1. In the event a Participant who is eligible to receive an Enhanced Benefit suffers a Disability prior to attaining age 60 and completing 10 Years of Service or there is a Change in Control resulting in a Participant’s Termination of Employment within 2 years following the Change in Control prior to the date such Participant attains age 60 and completes 10 Years of Service, the Participant shall receive his or her Enhanced Benefit, or if applicable, the greater of (i) his or her Supplemental Benefits calculated as provided above under Section 3.01(a) and (ii) an Enhanced Benefit calculated as the excess, if any, of (A) less (B), where (A) is a targeted sum of 4.0% of “Average Monthly Earnings” times Credited Service up to 10 years of Credited Service, plus 1.0% of Average Monthly Earnings times each year of Credited Service over 10 up to a combined total of 35 Years of Credited Service; and (B) is the sum of the Participant’s (1) estimated monthly Retirement Plan benefits payable as a life annuity beginning at age 60 for some designated Participants and at age 62 for other specified Participants, regardless of the form of payment actually elected under the Retirement Plan and (2) estimated Social Security monthly benefit amount payable at age 65 (calculated using Social Security law in the Participant’s year of Termination of Employment and assuming zero future pay to age 65), actuarially adjusted as provided in the definition of “Actuarial Equivalent” in the Retirement Plan (except that the 30-year Treasury rate then in effect shall be substituted for the interest rate under the Retirement Plan). 2. The Enhanced Benefit described in Section 3.01(c)(1) above shall be calculated as provided in the preceding paragraph and will be actuarially reduced for benefit commencement prior to attainment of age 60 for designated Participants and age 62 for other specified Participants by the early retirement reduction factors set out in the Retirement Plan, except that the 30-year Treasury rate then in effect shall be substituted for the interest rate under the Retirement Plan, the reduction factor will be determined from age 62 under the provisions of the Retirement Plan and such reduction factor will then be divided by .885. (d) Calculation of Enhanced Benefits in the Event of Death 1. In the event a Participant who is eligible to receive a benefit under this Supplemental Plan dies prior to attaining age 60 and completing 10 Years of Service, the Participant’s surviving spouse shall receive either (i) his or her Supplemental Benefits calculated as provided above under Section 3.01(a), (ii) an Enhanced Benefit calculated as the excess, if any, of (A) less (B), where (A) is a targeted sum of 4.0% of “Average -8- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Monthly Earnings” times Credited Service up to 10 years of Credited Service, plus 1.0% of Average Monthly Earnings times each year of Credited Service over 10 up to a combined total of 35 Years of Credited Service; and (B) is the sum of the Participant’s estimated Social Security monthly benefit amount payable at age 65 (calculated using Social Security law in the Participant’s year of Termination of Employment and assuming zero future pay to age 65), actuarially adjusted as provided in the definition of “Actuarial Equivalent” in the Retirement Plan (except that the 30-year Treasury rate then in effect shall be substituted for the interest rate under the Retirement Plan) or, if applicable, the greater of (i) or (ii) above. After calculating the Enhanced Benefit as provided in this paragraph above, the Enhanced Benefit will be reduced as follows: (i) for designated Participants who die before age 60, or age 62 for other specified Participants, to the age that the Participant would have attained at his or her benefit commencement date based on the early retirement reduction factors set forth in the Retirement Plan (except that the 30-year Treasury rate then in effect shall be substituted for the interest rate under the Retirement Plan); (ii) from the amount payable as a life annuity to the amount payable as a joint and 100% survivor annuity (if the Participant died as an active employee) or a joint and 50% survivor annuity (if the Participant died as a vested terminated employee), based on the actuarial factors set out in the Retirement Plan (except that the 30-year Treasury rate then in effect shall be substituted for the interest rate under the Retirement Plan, the reduction factor will be determined from age 62 and such reduction factor will then be divided by .885); and (iii) for any survivor benefit (calculated as a monthly benefit) payable under the Retirement Plan. Lump sum benefits payable because of the death of the Participant shall be calculated using the present value of the benefit due the survivor. (e) Participants Transferring to Morgan Keegan Effective November 4, 2006, Participants who transferred employment to Morgan Keegan on or before December 31, 2008 following the merger of AmSouth Bancorporation into the Sponsor shall have their compensation, including but not limited to Monthly Earnings and Average Monthly Earnings, as of the date of the transfer frozen for purposes of calculating benefits under this Supplemental Plan. 3.02Time and Form of Supplemental Benefit and Enhanced Benefit. (a) Time of Supplemental Benefit Payment For Participants who terminated on or before November 30, 2008, with a vested benefit, the Supplemental Benefit shall be distributed, or commence to be distributed, no later than 90 days (with the actual payment date to be determined by the Sponsor in its discretion) from the date selected by the Participant, provided the Participant selected a payment commencement date on or before December 31, 2008. In the event no such election was made, payment shall commence within 90 days (with the actual payment date to be determined by the Sponsor in its discretion) of the date the Participant reaches age 65. Such Participants shall not be eligible to receive a lump sum -9- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 distribution. In the event the Participant is a Specified Employee, such payment will not be made before the first payroll of the seventh month following Termination of Employment of the Specified Employee. For Participants who have a Termination of Employment on or after December 1, 2008, to the extent a Participant is eligible to receive a Supplemental Benefit, the Participant’s Supplemental Benefit shall be distributed, or commence to be distributed, to or with respect to the Participant no later than 90 days (with the actual payment date to be determined by the Sponsor in its discretion) following the earliest of (i) the Participant’s Termination of Employment after Early Retirement, (ii) the Participant’s Termination of Employment within 2 years following a Change in Control, or (iii) the Participant’s death. If a Participant has a Termination of Employment prior to Early Retirement, payments shall being at age 65. In the event the Participant is a Specified Employee, such payment will not be made before the first payroll of the seventh month following Termination of Employment of the Specified Employee. (b) Time of Enhanced Benefit Payment For Participants who terminated on or before November 30, 2008, with a vested benefit, the Enhanced Benefit shall be distributed, or commence to be distributed, no later than 90 days (with the actual payment date to be determined by the Sponsor in its discretion) from the date selected by the Participant, provided the Participant selected a payment commencement date on or before December 31, 2008. In the event no such election was made, payment shall commence within 90 days (with the actual payment date to be determined by the Sponsor in its discretion) of the date the Participant reaches age 65. Such Participants shall not be eligible to receive a lump sum distribution. In the event the Participant is a Specified Employee, such payment will not be made before the first payroll of the seventh month following Termination of Employment of the Specified Employee. For Participants who have a Termination of Employment on or after December 1, 2008, to the extent a Participant is eligible to receive an Enhanced Benefit, the Participant’s Enhanced Benefit shall be distributed, or commence to be distributed, to or with respect to the Participant no later than 90 days (with the actual payment date to be determined by the Sponsor in its discretion) following the earliest of (i) the Participant’s Termination of Employment with the Sponsor or an Electing Employer, (ii) the Participant’s Disability, and (iii) the Participant’s death. In the event the Participant is a Specified Employee, such payment will not be made before the first payroll of the seventh month following Termination of Employment of the Specified Employee. (c) Form of Supplemental Benefit and Enhanced Benefit Payment A Participant’s Supplemental Benefit or Enhanced Benefit, as applicable, shall be payable monthly in the form of a single life annuity, unless the Participant elects, and is eligible to elect, one of the optional forms of benefit set forth below: Option 1: A joint and survivor annuity payable during the Participant’s life, and after his death payable to his or her spouse at 50%, 75% or 100% of the annuity paid during the life of, and to, the Participant; -10- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Option 2: A single life annuity payable during the Participant’s life; Option 3: Lump Sum (Lump sum benefits payable because of the death of the Participant shall be calculated using the present value of the benefit due the survivor); or Option 4: Life Annuity with guaranteed monthly payments for 5, 10, 15 or 20 years. If a Participant dies before receiving all the annual payments, the remaining payments will be paid to the Participant’s beneficiary. A Participant may elect a different form of payment for each of the following payment events: (w) Termination of Employment with the Sponsor or an Electing Employer (other than due to death) prior to Early Retirement, (x) Termination of Employment with the Sponsor or an Electing Employer (other than due to death) at or after Early Retirement, (y) Termination of Employment within 2 years following a Change in Control, and (z) Termination of Employment due to death. For the avoidance of doubt, if a Participant either does not make the election described above by December 31, 2008, or becomes a Participant at any time after December 31, 2008, and does not make an election upon beginning participation in the Plan (as described below), the Participant’s Supplemental or Enhanced Benefit shall be payable as follows: Termination of Employment prior to Early Retirement: Payment begins at age 65 in the form of an annuity based on marital status at age 65 (single life annuity for single Participants and a 50% joint and survivor benefit for married Participants). Termination of Employment after Early Retirement: Payment begins within 90 days of Termination of Employment in the form of an annuity based on marital status at Termination of Employment (single life annuity for single Participants and a 50% joint and survivor benefit for married Participants). Termination of Employment for any reason within 2 years following a Change in Control: Payment begins within 90 days of Termination of Employment in the form of an annuity based on marital status at Termination of Employment (single life annuity for single Participants and a 50% joint and survivor benefit for married Participants). Termination of Employment due to death: Benefits are payable only to a surviving spouse within 90 days of death. Benefits are payable as a 100% joint and survivor annuity if the Participant died as an active employee, and as a 50% joint and survivor annuity of the Participant died as a vested terminated employee. Notwithstanding the foregoing or anything to the contrary herein, effective January 1, 2008, the determination of benefits under this Supplemental Plan under the -11- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 optional forms of payment shall continue to be based on the actuarial factors in effect in the Retirement Plan as of December 31, 2007. However, the modification of the change under the Retirement Plan in look-back month that becomes effective January 1, 2008 shall apply. Lump sums shall be calculated using the Pension Protection Act of 2006 mortality tables and the 30 year Treasury rate. Notwithstanding anything herein the contrary, for designated Participants who are selected by the Committee to be eligible for an Enhanced Benefit, the Enhanced Benefit will be actuarially reduced for early retirement prior to attainment of age 60 (but not for early retirement on or after attainment of age 60) based on the early retirement reduction factors in the Retirement Plan (except that the 30-year Treasury rate then in effect shall be substituted for the interest rate under the Retirement Plan). Notwithstanding anything herein the contrary, for Participants who are eligible for the Enhanced Benefit but not entitled to the age 60 early retirement reduced benefit, the Enhanced Benefit will be actuarially reduced for early retirement prior to attainment of age 62 (but not for early retirement on or after attainment of age 62) based on the early retirement reduction factors in the Retirement Plan (except that the 30-year Treasury rate then in effect shall be substituted for the interest rate under the Retirement Plan). (d) Initial Deferral Election. A Participant who first commences participation in the Supplemental Plan on or after January 1, 2009, may elect the form of benefit of his or her Supplemental Benefit or Enhanced Benefit, as applicable, as described above in Section 3.02(c) within thirty (30) days after the first day such Participant commences participation in the Supplemental Plan, provided, however, that, notwithstanding anything herein to the contrary, the Participant shall be required to continue to provide services for the Sponsor or an Electing Employer for a period of 13 months after the date the Participant commenced participation in the Supplemental Plan in order to be eligible to receive such Supplemental Benefit or Enhanced Benefit, as applicable. (e) Subsequent Change to Form of Payment. A Participant may change the form of payment of his or her Supplemental Benefit or Enhanced Benefit, as applicable, provided such subsequent election satisfies the requirements of Treasury Regulation Section 1.409A-2(b) as it may be amended from time to time. Section 3.03. FAC Program. Notwithstanding anything to the contrary herein, all benefits accrued to Participants in the FAC Program through December 31, 2000, shall be calculated using the FAC Program terms and conditions as in effect on December 31, 2000, and such benefits shall be subject to the terms and conditions of the FAC Program, including but not limited to the terms and conditions governing the distribution of such benefits; provided, however, that accrued benefits of $5,000 or less shall be paid in a lump sum, and payments made due to termination as a result of a Change in Control as defined in Section 3.04 below, shall be paid in a lump sum. Effective December 31, 2000, benefit accruals under the terms of the FAC Program shall cease. The FAC Program benefits shall not be less than the accrued benefits under the terms of the FAC Program immediately preceding the merger of the FAC Program into -12- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 this Supplemental Plan. A copy of the FAC Program as of December 31, 2000, is attached hereto as Exhibit A. Effective January 1, 2001, all benefits will be calculated under the terms and conditions of this Supplemental Plan. Notwithstanding the foregoing or anything to the contrary herein, effective January 1, 2004, any Participant who has an accrued benefit under the FAC Program and who terminates employment on or after January 1, 2001 shall be entitled to receive pre-retirement survivor benefits with regard to the accrued benefit under the FAC Program under the terms provided in Section 3.03 applicable to other benefits under this Supplemental Plan. Section 3.04. Change in Control. For purposes of this Plan, a “Change in Control” shall mean: (a) (b) (c) The acquisition by any “Person” (as the term “person” is used for the purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of direct or indirect beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the combined voting power of the then-outstanding securities of the Sponsor entitled to vote in the election of directors (the “Voting Securities”); or Individuals (the “Incumbent Directors”) who, as of the date hereof, constitute the Board of Directors of the Sponsor (the “Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election, was approved by a vote of at least two-thirds of the Incumbent Directors who are then on the Board (either by specific vote or by approval, without prior written notice to the Board objecting to the nomination, of a proxy statement in which the individual was named as nominee) shall be an Incumbent Director, unless such individual is initially elected or nominated as a director of the Sponsor as a result of an actual or threatened election contest with respect to the election or removal of directors (“Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (“Proxy Contest”), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or Consummation of a merger, consolidation, reorganization, statutory share exchange, or similar form of corporate transaction involving the Sponsor or involving the issuance of shares by the Sponsor, the sale or other disposition (including by way of a series of transactions or by way of merger, consolidation, stock sale or similar transaction involving one or more subsidiaries) of all or substantially all of the Sponsor’s assets or deposits, or the acquisition of assets or stock of another entity by the Sponsor (each a “Business Combination”), -13- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 unless such Business Combination is a “Non-Control Transaction.” A “Non-Control Transaction” is a Business Combination immediately following which the following conditions are met: (A) (B) (C) the stockholders of the Sponsor immediately before such Business Combination own, directly or indirectly, more than 55% of the combined voting power of the then-outstanding voting securities entitled to vote in the election of directors (or similar officials in the case of a non-corporation) of the entity resulting from such Business Combination (including, without limitation, an entity that as a result of such Business Combination owns the Sponsor or all of substantially all of the Sponsor’s assets, stock or ownership units either directly or through one or more subsidiaries) (the “Surviving Corporation”) in substantially the same proportion as their ownership of the Sponsor Voting Securities immediately before such Business Combination; at least a majority of the members of the board of directors of the Surviving Corporation were Incumbent Directors at the time of the Board’s approval of the execution of the initial Business Combination agreement; and no person other than (i) the Sponsor or any of its subsidiaries, (ii) the Surviving Corporation or its ultimate parent corporation, or (iii) any employee benefit plan (or related trust) sponsored or maintained by the Sponsor immediately before such Business Combination beneficially owns, directly or indirectly, 20% or more of the combined voting power of the Surviving Corporation’s then-outstanding voting securities entitled to vote in the election of directors; or (d) Approval by the stockholders of the Sponsor of a complete liquidation or dissolution of the Sponsor. Notwithstanding the foregoing and anything in the Supplemental Plan to the contrary, a Change in Control shall not be deemed to occur solely because any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Sponsor which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if -14- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 a Change in Control would occur (but for the operation of this sentence) and after such acquisition of Voting Securities by the Sponsor, the Subject Person becomes the Beneficial Owner of any additional Voting Securities, then a Change in Control shall occur. Section 3.05. Rabbi Trust. The Sponsor may establish a rabbi trust (“Trust”) which may be used to pay benefits arising under the Supplemental Plan and all costs, charges and expenses relating thereto; except that, to the extent that the funds held in the Trust are insufficient to pay such benefits, costs, charges and expenses, the Sponsor shall pay such benefits, costs, charges and expenses. ARTICLE IV PLAN ADMINISTRATOR Section 4.01. The plan administrator (“Plan Administrator”) for the Retirement Plan shall also administer the Supplemental Plan. In doing so, the Plan Administrator shall apply to the Participants’ claims for Supplemental Benefits and Enhanced Benefits hereunder the procedures as are set forth in Section 7.06 below. NATURE OF EMPLOYER OBLIGATION AND PARTICIPANT INTEREST ARTICLE V Section 5.01. The interest of the Participant and/or any person claiming by or through him under the Supplemental Plan shall be solely that of an unsecured general creditor of the Sponsor and the Electing Employers. The Supplemental and Enhanced Benefits payable under the Supplemental Plan shall be payable from the general assets of the Sponsor and the Electing Employers (including assets held in the Trust), and neither the Participant nor any person claiming by or through him shall have any right to look to any specific property separate from such general assets in satisfaction of any claim for payment of Supplemental or Enhanced Benefits. Section 5.02. In all respects any Supplemental or Enhanced Benefits shall be independent of, and in addition to, any other benefits or compensation of any sort, payable to or on behalf of the Participant under any other arrangement sponsored by the Sponsor or Electing Employers or any other arrangement between the Sponsor or Electing Employer and the Participant in any capacity. ARTICLE VI ADDITION OR WITHDRAWAL OF ELECTING EMPLOYERS Section 6.01. A subsidiary or affiliate of the Sponsor shall become an Electing Employer hereunder only upon approval by the Compensation Committee of the Sponsor’s Board of Directors (or its delegee). -15- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Section 6.02. An Electing Employer who wishes to withdraw from the Supplemental Plan shall deliver to the Sponsor a resolution from its Board of Directors which authorizes its withdrawal as an Electing Employer and which indicates the reason or reasons for such withdrawal. Withdrawal may only take place upon the approval of the Board of Directors of the Sponsor and with such amendments to the Supplemental Plan as the Sponsor shall deem necessary or desirable. Withdrawal shall be subject to the provisions of Section 7.01 below. ARTICLE VII MISCELLANEOUS Section 7.01. Amendment and Termination. (a) The Supplemental Plan may be amended or terminated by the Sponsor, and may be amended by the Committee at any time except as provided in paragraphs (b) and (c) below. The Sponsor may designate additional Participants under the Supplemental Plan or remove persons as Participants under the Supplemental Plan at any time except as provided in paragraphs (b) and (c) below. (b) Notwithstanding anything herein to the contrary, Supplemental Benefits and Enhanced Benefits which are in pay status shall not be discontinued under any circumstances prior to their natural termination pursuant to the terms of the Supplemental Plan at the time of the relevant amendment or termination of the Supplemental Plan, the removal of Participants or the withdrawal by an Electing Employer. (c) Notwithstanding anything herein to the contrary, Supplemental Benefits and Enhanced Benefits hereunder which have been accrued prior to the date of any amendment or termination of the Supplemental Plan, the removal of a Participant, or the withdrawal of an Electing Employer shall remain a binding obligation of the Sponsor and Electing Employer or any successor in interest to either of them, and no amendment or discontinuation of the Supplemental Plan, removal of a Participant or withdrawal by an Electing Employer shall deprive a Participant of said accrued Supplemental Benefit or Enhanced Benefit. Section 7.02. No Right to Employment. The Supplemental Plan shall not be deemed to constitute a contract between the Sponsor or the Electing Employer and any Participant or employee, or to be a consideration or an inducement for the employment of any Participant or employee. Nothing contained in the Supplemental Plan shall be deemed to give any Participant or employee the right to be retained in the service of the Sponsor or Electing Employer or to interfere with the right of the Sponsor or Electing Employer to discharge any Participant or employee at any time regardless of the effect which such discharge shall or may have upon him under the Supplemental Plan. -16- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Section 7.03. Rights of General Creditor. None of the Participant’s rights to Supplemental or Enhanced Benefits under the Supplemental Plan are subject to the claims of creditors of a Participant or any person claiming by or through him and will not be subject to attachment, garnishment or any other legal process. Neither a Participant nor any person claiming by or through him may assign, sell, borrow on or otherwise encumber any of his beneficial interest under the Supplemental Plan nor shall any such interest be in any manner liable for or subject to the deeds, contracts, liabilities, engagements or torts of a Participant or any person claiming by or through him. Section 7.04. Governing Law. The Supplemental Plan shall be construed and interpreted in accordance with the laws of the State of Alabama (without respect to conflict of laws), except where such laws are superseded by ERISA, in which case ERISA shall control. Section 7.05. Payment to Minor or Incompetent. In making any distribution to or for the benefit of any minor or incompetent person, the Plan Administrator, in its sole, absolute and uncontrolled discretion, may, but need not, direct such distribution to a legal or natural guardian or other relative of such minor or court appointed committee of such incompetent, or to any adult with whom such minor or incompetent temporarily or permanently resides, and any such guardian, committee, relative or other person shall have full authority and discretion to expend such distribution for the use and benefit of such minor or incompetent. The receipt of such guardian, committee, relative or other person shall be a complete discharge to the Sponsor and Electing Employer without any responsibility on its part or on the part of the Plan Administrator to see to the application thereof. Section 7.06. Claims for Benefits. (a) Any participant may file a claim for benefits. If the claim is denied, the claimant shall be provided written notice within 90 days with: (i) Specific reasons for the denial; (ii) Specific references to the Plan provisions on which the denial is based; (iii) A description of any additional information needed and why it is needed; and (iv) An explanation of (1) the procedures and time limits for an appeal, (2) the right to obtain information about the procedures, and (3) the right to sue in federal court. (b) If there are special circumstances delaying the determination of the claim, the claimant may be notified within the 90-day period explaining the special circumstances and stating that an answer will be provided within 90 more days. If an answer is not received within the 90 days (or 180 days if an extension notice has been provided), the claim shall be deemed denied. -17- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 (c) Any claimant for a benefit (or, as applicable, his or her estate or other representative or beneficiary) may, within sixty (60) days after receipt of a letter of denial, appeal to the Benefits Administration Committee, by writing to the Head of Human Resources of the plan sponsor and may request a review of the denial of the benefit, with opportunity to submit his or her position in writing. Appeals not timely filed shall be barred. The claimant is entitled to: (i) receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to his or her claim; (ii) submit written comments, documents, records and other information relating to the claim, which will be considered without regard to whether such information was submitted or considered in the initial determination. (d) The Benefits Administration Committee shall meet quarterly or such other time as the Benefits Administration Committee shall determine, provided that a claim is pending. If a claim is received by the Benefits Administration Committee at least thirty (30) days before a quarterly meeting, such appeal will be considered at that meeting; otherwise, such appeal will be considered at the first subsequent quarterly meeting. If there are special circumstances, the decision may be delayed until the third meeting following receipt of the request. If special circumstances require an extension, the claimant will be notified. (e) The Benefits Administration Committee will render a written decision, written in a manner calculated to be understood by the claimant, and mail the written decision to the claimant at the claimant’s last address known to the plan sponsor, specifying by reference to the Plan the reasons for denial of such part or all of the claimed benefit as it denies upon review. Such letter shall state that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of all documents, records and other information relevant to the claim; describe the Plan’s voluntary appeal procedures, if any; and notify the claimant of his or her right to bring an action under Section 502(a) of ERISA. Section 7.07. Modification. If any provision of the Supplemental Plan shall be held illegal or invalid for any reason or in any particular circumstance or instance, such illegality or invalidity shall not affect its remaining parts in such circumstance or instance nor the enforceability of such provision in any other circumstance or instance, and the Supplemental Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein for application to the particular circumstance or instance. -18- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Section 7.08. Section 409A of the Code. Notwithstanding any other provisions of the Supplemental Plan to the contrary and to the extent applicable, it is intended that the Supplemental Plan comply with the requirements of Section 409A, and the Supplemental Plan shall be interpreted, construed and administered in accordance with this intent. The Sponsor and the Electing Employers shall have no liability to any Participant, beneficiary or otherwise if the Supplemental Plan or any amounts paid or payable hereunder are subject to the additional tax and penalties under Section 409A of the Code. If and to the extent that any amount payable to the Participant pursuant to the Supplemental Plan is determined by the Company to constitute “non-qualified deferred compensation” subject to Section 409A of the Code and is payable to the Participant by reason of the Participant’s Termination of Employment, then (a) such payment shall be made to the Participant only upon a “separation from service” as defined for purposes of Section 409A under applicable regulations and (b) if the Participant is a “specified employee” (within the meaning of Section 409A as determined by the Company), such payment shall not be made before the date that is six months after the date of the Participant’s separation from service (or, if earlier than the expiration of such six month period, the date of death); provided, however, that any benefit that otherwise would have been payable to the Participant during such six-month period shall be paid to the Participant in a lump sum on the first payroll of the seventh month following separation from service. -19- Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 EXHIBIT 10.65 Article 1. Plan Establishment and Purpose MORGAN KEEGAN & COMPANY AMENDED AND RESTATED DEFERRED COMPENSATION PLAN 1.1 1.2 1.3 1.4 Background of Plan. Morgan Keegan & Company, successor to Morgan Keegan, Inc. for purposes of this plan (the “Company”) established, effective January 1, 2000, a deferred compensation plan that is now known as the Morgan Keegan & Company Deferred Compensation Plan (the “Plan”). The Plan became effective for Base Salary earned in 2000 and thereafter, and Incentive Awards earned in 2000 and thereafter. The Plan was most recently amended effective as of July 1, 2001, except as specifically provided otherwise (the “Prior Plan”). Effective as of January 1, 2009, the Prior Plan is amended and restated as set forth in this document to comply with Section 409A of the Code and for certain other purposes. Amounts earned and vested as of December 31, 2004 under the Prior Plan (“Grandfathered Amounts”) shall, except as otherwise expressly stated herein, remain subject to the terms and conditions of the Prior Plan. Amounts earned and vested under this Plan or the Prior Plan after December 31, 2004 (“Nongrandfathered Amounts”) shall be subject to the terms and conditions of this Plan as hereby amended and restated. Status of Plan. The Plan is intended to be an unfunded plan under the Internal Revenue Code of 1986, as amended, although the Company may establish a trust under Revenue Procedure 92-64 to provide benefits under the Plan, as described in Article 13. Purpose. The purpose of the Plan is to permit Participants to defer Base Salary and Incentive Awards they receive from the Company and to further align the objectives of key employees with the interests of the Company’s shareholders. Interpretation. The Plan is intended to comply with § 409A, and any ambiguity hereunder shall be interpreted in such a way as to comply, to the extent necessary, with § 409A or to qualify for an exemption from § 409A. Article 2. Definitions 2.1 Definitions. The following terms shall have their respective meanings set forth below: “§ 409A” means Section 409A of the Code and shall include any amendments thereto or successor provisions as well as any applicable current and future regulations, rulings, IRS notices and other binding legal authority interpreting or modifying the legal requirements under Section 409A. “Account” means the account established on behalf of the Participant pursuant to Section 5.9. Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 “Base Salary” means, with respect to a Participant, cash base salary payable by the Company to the Participant for service with the Company. Notwithstanding any provision in this Plan to the contrary, Base Salary shall not include bonuses or other incentive awards, but shall include any amount which would have been included in cash base salary but for the Participant’s election to defer payment of such amount under any provision of the Code. “Code” means the Internal Revenue Code of 1986, as amended. “Committee” means Regions Financial Corporation Benefits Management Committee. “Common Stock” means the common stock of Morgan Keegan, Inc. until March 31, 2001, as of which date “Common Stock” means the common stock of Regions Financial Corporation. “Company” means Morgan Keegan & Company. “Compensation” means a Participant’s Base Salary and Incentive Award with respect to a given Plan Year. “Compensation Conversion Date” means (i) with respect to an Incentive Award, the date as of which the value of such Incentive Award is calculated and payable; and (ii) with respect to Base Salary, the date as of which the Base Salary is payable. “Controlled Group” means the Company and any other business entity (including any parent company, subsidiary or sister company) that is aggregated with the Company under Sections 414(b), (c), (m) or (o) of the Code. “Deferral Election” means an annual, irrevocable written election, made in accordance with Section 5.1(b) on the form provided by the Committee, to defer the receipt of a stipulated amount of: (i) Incentive Awards (“Incentive Award Deferral Election”); and/or (ii) Base Salary, subject to the provisions of Sections 5.1 and 5.2 (“Base Salary Deferral Election”). “Deferred Amount Shares” has the meaning assigned in Section 5.3. “Disability” means a disability for which the Participant has qualified for and is receiving benefits under a long term disability plan sponsored by the Controlled Group for the benefit of employees of the Company. “Dividend” means the dividend paid on a share of Common Stock for the relevant period ending on the Dividend Date. Page 2 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 “Dividend Date” means the date on which a dividend is paid on a share of Common Stock for the relevant period. “Fair Market Value” means, on any date, (i) if the Common Stock is listed on a securities exchange or is traded over the NASDAQ National Market, the closing sales price on such exchange or over such system on such date or, in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported, or (ii) if the Common Stock is not listed on a securities exchange or traded over the NASDAQ National Market, the mean between the bid and offered prices as quoted by NASDAQ for such date; provided, however, that if it is determined that the fair market value is not properly reflected by such NASDAQ quotations, Fair Market Value will be determined by such other method as the Committee determines in good faith to be reasonable. “Forfeiture Period” means, with respect to any Matching Contribution, the period of time designated by the Committee which follows the last day of the Plan Year as of which the Matching Contribution is initially credited to a Participant’s Account. “Grandfathered Amount” means any benefit hereunder that was earned and no longer subject to a substantial risk of forfeiture on or before December 31, 2004, provided however that if there is a material modification with respect to a Grandfathered Amount that causes it to become subject to § 409A, such amount shall be a Nongrandfathered Amount. “Incentive Award” means, with respect to a Participant, the annual incentive bonus earned by the Participant. “Matching Contribution” has the meaning assigned in Section 5.5 and shall include any Matching Contributions made in cash, in Matching Contribution Shares, or otherwise. “Matching Contribution Shares” has the meaning assigned in Section 5.5. “Nongrandfathered Amount” means any benefit hereunder that is not a Grandfathered Amount. “Normal Retirement Date” means the date on which a Participant reaches age sixty-five (65) while in the employment of the Controlled Group. “Participant” means any individual designated to participate in the Plan pursuant to Section 4.1. “Performance Shares” means the number of shares determined in accordance with Sections 5.3 and 5.5 (as the case may be), and shall in the aggregate equal the number of Deferred Amount Shares and Matching Contribution Shares, if any, computed with respect to an Incentive Award or Base Salary deferral, in accordance with Sections 5.3 and 5.5 (as the case may be). Page 3 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 “Plan” means the Morgan Keegan & Company Deferred Compensation Plan. “Plan Year” means the calendar year. “Separation from Service” shall mean a separation from service as defined in § 409A. “Specified Employee” means a ‘specified employee’ as defined in § 409A and shall be determined in accordance with Regions’ general policy for determining specified employees under § 409A, as such policy may be amended from time to time. 2.2 Gender and Number. Except when otherwise indicated by the context, words in the masculine gender when used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular. Article 3. Administration 3.1 Administration. The Committee shall have the exclusive responsibility for the general administration of the Plan (including Grandfathered Amounts) according to the terms and provisions of the Plan and shall have all the powers necessary to accomplish these purposes, including but not by way of limitation, the right, power and authority: (a) To make rules and regulations for the administration of the Plan; (b) To construe all terms, provisions, conditions, and limitations of the Plan; (c) (d) To correct any defects, supply any omissions or reconcile any inconsistencies that may appear in the Plan in the manner and to the extent deemed expedient; To determine all controversies relating to the administration of the Plan, including but not limited to differences of opinion which may arise between the Company or the Committee and a Participant; and (e) To resolve any questions necessary to promote the uniform administration of the Plan. 3.2 Committee’s Discretion. The Committee, in exercising any power or authority granted under this Plan, or in making any determination under this Plan, shall perform or refrain from performing those acts in its sole and absolute discretion and judgment. Any decision made by the Committee, or any refraining to act or any act taken by the Committee, in good faith shall be final and binding on all parties. Except where the provisions of the Plan specifically grant the Committee the right to exercise discretion, the Committee shall be bound by the terms of the Plan. Page 4 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 3.3 Liability and Indemnity of Committee. The members of the Committee shall not be liable for any act done or any determination made in good faith. The Company shall, to the fullest extent permitted by law, indemnify and hold the members of the Committee harmless from any and all claims, causes of action, damages and expenses (including reasonable attorneys’ fees and expenses) incurred by the members of the Committee in connection with or otherwise related to his or her service in such capacity. 3.4 Nature of Interest. The granting of rights to Participants under the provisions of the Plan represents only a contracted right to receive deferred compensation. Accordingly, the Plan grants no right to, or interest in, either express or implied, any equity position or ownership in Regions Financial Corporation. Article 4. Eligibility and Participation 4.1 Eligibility and Participation. (a) (b) (c) First Plan Year. For the Plan Year beginning January 1, 2000 (the “Initial Plan Year”), employees eligible to participate in the Plan include those executive officers and broker/employees of the Company whose anticipated Compensation for the Initial Plan Year will meet or exceed the limit on compensation set forth in Section 401(a)(17) of the Code and whose prior year elective deferrals into the 401(k) plan sponsored by the Company were selected by the Participant to be the maximum amount permitted for such year by the Code, regardless of whether the actual amount of elective deferrals for such Participant was limited as a result of the application of the non-discrimination testing rules that apply to 401(k) plans and elective deferrals. Subsequent Plan Years. For each Plan Year commencing after the Initial Plan Year, employees eligible to participate in the Plan include (i) executive officers and broker/employees of the Company who were eligible to participate in the Plan in any prior Plan Year and who actually participated in the Plan in any prior Plan Year; and (ii) executive officers and broker/employees of the Company who have not been eligible to participate in the Plan in any prior Plan Year in accordance with this Section 4.1, whose anticipated Compensation for the applicable Plan Year will meet or exceed $180,000 (the “Compensation Minimum”). The Committee retains the discretion to modify the Compensation Minimum provided in this Section 4.1(b) for future Plan Years. Committee Discretion. Notwithstanding the provisions of subsections (a) and (b) of this Section, the Committee retains the discretion to determine whether an individual executive or broker/employee shall be permitted to participate, or continue to participate, in the Plan. Any revocation of eligibility shall have no effect on a Participant’s current year Deferral Elections which are irrevocable upon the commencement of such calendar year. Page 5 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 (d) Duration of Participation. A Participant shall continue to be a Participant until the date the Participant is no longer entitled to a benefit under this Plan. However, the Committee may, in its sole and absolute discretion, determine that a Participant will cease to be eligible to make subsequent year Base Salary or Bonus Deferral Elections as provided in Subsection (c) above. Article 5. Deferrals and Performance Shares 5.1 Voluntary Deferral of Incentive Award or Base Salary. (a) (b) Deferral Election. A Participant may make an annual, irrevocable election in a Deferral Election to defer any portion of an Incentive Award or Base Salary payable with respect to a Plan Year in accordance with this Section 5.1. Notwithstanding the preceding sentence, the Deferral Election (i) shall apply only to Base Salary and Incentive Awards that, in the aggregate, exceed the Compensation Minimum, and (ii) shall not exceed ninety percent (90%) of a Participant’s Compensation that would otherwise be payable in cash to the Participant absent the Participant’s Deferral Election. Timing of Deferral Election. The Committee, in the exercise of its discretion, may decide with respect to each Plan Year whether to offer eligible executives or broker/employees the option of making a Base Salary Deferral Election and/or an Incentive Award Deferral Election. The Participant shall make this election on a form prescribed by the Committee, and such completed form shall be returned to the appropriate individual in Human Resources and available to the Committee. For each Plan Year with respect to which Deferral Elections are permitted, the following procedures shall apply: (i) First Year of Participation. An executive or broker/employee shall have thirty (30) days following the date the executive or broker/employee first becomes eligible to participate in this Plan in which to execute and deliver to the Committee a Base Salary Deferral Election and/or an Incentive Award Deferral Election by which he or she elects to defer a stipulated percentage of Base Salary or Incentive Award to be earned during the portion of the Plan Year remaining after the Base Salary Deferral Election and/or Incentive Award Deferral Election is made and which, but for such deferral election, would be paid to the Participant. If an employee is already eligible to participate in a different defined compensation plan of the same type as determined under the plan aggregation rules in Treasury Regulation 1.409A-1(c)(2), the employee shall not be eligible to make a Base Salary Deferral Election or an Incentive Award Deferral Election until the next Plan Year in accordance with subparagraph (ii) below. (ii) Subsequent Years of Participation. Unless a longer period authorized under paragraph (i) above applies, an eligible executive or broker/employee Page 6 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 shall have until December 31 of each Plan Year to execute and deliver to the Committee a Base Salary Deferral Election and/or an Incentive Award Deferral Election providing for the deferral of a stipulated percentage of Base Salary and/or Incentive Award to be earned during the next Plan Year and which, but for such deferral election, would be paid to the Participant. If the Participant fails to deliver a new Base Salary Deferral Election prior to the commencement of the new Plan Year, no Base Salary Deferral will be in effect during the new Plan Year. (c) (d) (e) Investment Election Prior to July 1, 2001. A Participant shall select whether the amounts to be deferred in accordance with subsection (a) above shall be invested in shares of Common Stock or shall be invested in an interest-bearing account. An election as to investment shall be irrevocable with respect to the amounts subject to the election. Notwithstanding the foregoing, the Company shall have ultimate discretion in the manner in which actual deferred amounts shall be invested; the investment selection by a Participant shall be tracked in the Participant’s Account in the manner described in Article 5. Investment Election as of July 1, 2001 and Thereafter. Effective as of July 1, 2001, a Participant shall select whether to invest his or her deferred amounts in shares of Common Stock or investment funds that are made available by Committee for such investment election; provided, however, that the Company shall have ultimate discretion in the manner in which actual deferred amounts shall be invested. The selection of the investment of deferred amounts credited to a Participant’s Account prior to July 1, 2001 as described in Subsection (c) shall no longer be treated as irrevocable; provided, however, that the frequency with which a Participant may elect to change investments of amounts credited to his or her Account shall be established by the Committee. The investment selection by a Participant shall be tracked in the Participant’s Account in the manner described in Article 5. Special Distribution Election. Notwithstanding anything herein to the contrary, in connection with the amendment and restatement of this Plan, and as permitted under § 409A, each Participant shall be given the opportunity to submit an election prior to December 5, 2008, to receive a special payout with respect to all or less than all of his or her Account balance to the extent that such balances are vested (the “Special Distribution Election”). The amount designated for early distribution pursuant to the Special Distribution Election shall be payable in a lump sum in February, 2009. Such Special Distribution Election shall not be subject to the three-year deferral requirement provided under Section 6.3(a) hereof. If no Special Distribution Election form is timely submitted for Plan Year 2008, the Participant’s existing deferral election shall remain unchanged. 5.2 Commencement of Deferrals. An Incentive Award or Base Salary shall be deferred under this Plan beginning with the amount of Incentive Award or Base Salary that is earned in the first pay period which begins after a Participant’s cumulative Incentive Award and Base Salary payments equal the Compensation Minimum for the Plan Year to which the deferral relates. Page 7 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 5.3 5.4 5.5 5.6 5.6 Computation of Deferred Amount Shares. The amounts deferred under Section 5.1 that are to be invested in shares of Common Stock shall be converted to Deferred Amount Shares. The number of Deferred Amount Shares with respect to deferred amounts shall be determined by dividing (i) the amount deferred pursuant to Section 5.1 as of the Compensation Conversion Date, by (ii) the Fair Market Value of a share of Common Stock as of the Compensation Conversion Date. Crediting of Deferred Amount Shares. The number of Deferred Amount Shares computed in accordance with Section 5.3 shall be credited to each Participant’s Account as of the Compensation Conversion Date. Computation of Matching Contribution. No Matching Contribution Shares have been credited with respect to any Plan Year that begins on or after January 1, 2001. However, the Committee reserves the right, in its sole discretion, to make a Matching Contribution in cash or such other form as it determines, or, in future Plan Years, to reinstate the use of Matching Contribution Shares. The Matching Contribution to be credited to a Participant’s Account in connection with a Matching Contribution, if any, shall be determined by the Committee in its sole discretion. Crediting of Matching Contribution. The Matching Contribution computed in accordance with Section 5.5 shall be credited to each Participant’s Account as of the last day of the Plan Year to which the Matching Contribution relates. Payment of Dividends on Performance Shares. A Participant shall receive Dividends that are payable with respect to Performance Shares which have been credited to such Participant’s Account as of the applicable Dividend Date. Such Dividends shall be payable in accordance with the Participant’s election for his or her Account. 5.7 Deferred Amounts Invested in Investment Fund(s) and Crediting of Earnings on such Deferred Amounts. Any amounts that a Participant has selected to invest in the investment fund(s) made available pursuant to Section 5.1(d) shall be credited with earnings (gains or losses) based on the results of such investment fund(s) at such times as determined by the Committee. No Matching Contribution Shares will be credited to deferred amounts elected to be invested initially in accordance with this Section 5.7. 5.8 Participants’ Accounts. The Company will establish a separate bookkeeping account for each Participant. A Participant’s Account will be credited with: (i) the number of Deferred Amount Shares determined under Sections 5.3 and 5.4; (ii) the Matching Contribution determined under Section 5.5, if any; and (iii) the value of any amounts that a Participant has selected to invest in the investment fund(s), together with any investment fund(s) earnings (gains or losses) credited to such deferred amounts. All amounts credited to each Account are credited solely for accounting and computational Page 8 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 purposes. The amounts credited to the Accounts are at all times the assets of the Company subject to the claims of the Company’s general creditors. Participants shall not have any right to receive any amounts credited to their Accounts until such time as determined under Articles 6 and 7 of the Plan. Statements shall be sent at least annually to Participants showing the number of Deferred Amount Shares, Matching Contribution Shares, if any, and investment fund(s) amounts, credited to his or her Accounts. Article 6. Payment of Performance Shares and Deferred Amounts 6.1 Election Regarding Timing of Payment of Deferred Amount Shares. (a) (b) Initial Election. Each Participant shall elect on his Deferral Election to receive payment of the aggregate of the Deferred Amount Shares calculated with respect to the relevant Incentive Award or Base Salary on a specified date that is no earlier than the end of the Forfeiture Period to which Matching Contribution Shares, if any, are subject which are credited with respect to such Deferred Amount Shares. The Deferred Amount Shares subject to this initial election shall be considered fully vested and not subject to forfeiture. Subsequent Elections. A Participant may elect to delay the timing of any distribution with respect to Deferred Amount Shares. Such subsequent election shall not take effect for at least twelve (12) months after it is made, and the first payment with respect to such subsequent election must be deferred for at least five (5) years from the date such payment would otherwise have been made. Further, any subsequent election may not be made less than twelve (12) months prior to the date of the scheduled payment to which it relates. The Deferred Amount Shares subject to any election under this subsection (b) shall be considered fully vested and not subject to forfeiture. Notwithstanding the elections described above, a Participant shall receive any Deferred Amount Shares credited to his or her Account in accordance with the provisions of Article 7. 6.2 Election Regarding Timing of Payment of Matching Contribution Shares. (a) Initial Election. Each Participant shall elect on his Deferral Election to receive payment of the aggregate Matching Contribution Shares, if any, calculated with respect to the Plan Year to which the Deferral Election relates on a specified date, but in no event shall such specified payment date be earlier than the end of the Forfeiture Period. The Matching Contribution Shares subject to this initial election shall be subject to forfeiture during the Forfeiture Period, unless otherwise payable in accordance with Article 7. (b) Subsequent Elections. A Participant may elect to delay the timing of any distribution with respect to Matching Contribution Shares. Such subsequent election shall not Page 9 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 take effect for at least twelve (12) months after it is made, and the first payment with respect to such subsequent election must be deferred for at least five (5) years from the date such payment would otherwise have been made. Further, any subsequent election may not be made less than twelve (12) months prior to the date of the scheduled payment to which it relates. Matching Contribution Shares the payment of which is extended in accordance with this subsection (b) shall be considered fully vested and no longer subject to any forfeiture. Notwithstanding the elections described above, a Participant shall receive any Matching Contribution Shares credited to his or her Account in accordance with the provisions of Article 7. 6.3 Election Regarding Timing of Payment of Deferrals Invested in Investment Funds. (a) (b) Initial Election. Each Participant shall elect on his Deferral Election to receive payment of the aggregate deferred amounts invested in available investment fund(s) in accordance with Section 5.8 on a specified date that is no earlier than three years after the Plan Year in which the amounts were initially deferred (without regard to any earnings credited thereafter). These amounts subject to this initial election shall be considered fully vested and not subject to forfeiture. Subsequent Elections. A Participant may elect to delay the timing of any distribution with respect to deferred amounts invested in available investment fund(s) in accordance with Section 5.8. Such subsequent election shall not take effect for at least twelve (12) months after it is made, and the first payment with respect to such subsequent election must be deferred for at least five (5) years from the date such payment would otherwise have been made. Further, any subsequent election may not be made less than twelve (12) months prior to the date of the scheduled payment to which it relates. The deferred amounts (and earnings) subject to any election under this subsection (b) shall be considered fully vested and not subject to forfeiture. 6.4 6.5 Notwithstanding the election described above, a Participant shall receive any deferred amounts that are credited to his or her Account in accordance with the provisions of Article 7. Payment Election and Investment Selection. The initial election (or subsequent election) with respect to the timing of payment by a Participant pursuant to Section 6.1, 6.2 or 6.3, as the case may be, shall apply to all amounts subject to such election, regardless of whether the Participant changes, pursuant to Section 5.1(d), the investment in which the deferred amounts were initially invested. Form of Payment. All whole Performance Shares credited to a Participant’s Account will be paid in a single lump sum payment of shares of Common Stock of the Company. Any fractional Performance Shares shall be paid in cash. All deferred amounts plus earnings (gains or losses) credited to such Account that have been invested in available investment fund(s) and not converted to Performance Shares shall be paid in a lump sum in cash. Page 10 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 6.6 Payment Recipient. All amounts payable under this Plan shall be paid to the appropriate Participant; provided, however, that a payment made on account of the Participant’s death shall be paid to the Participant’s beneficiary. For purposes of this Plan, a Participant may, by written instruction during the Participant’s lifetime on a form prescribed by the Committee, designate one or more primary beneficiaries to receive the amount payable hereunder following the Participant’s death, and may designate the proportions in which such beneficiaries are to receive such payments. A Participant may change such designations from time to time, and the last written designation returned to the appropriate individual in Human Resources and available to the Committee prior to the Participant’s death shall control. If a Participant fails to designate a beneficiary, or if no designated beneficiary survives the Participant, payment shall be made by the Committee, in its sole discretion, in the following order of priority: (a) to the Participant’s surviving spouse, or if none; (b) to the Participant’s children, per stirpes, or if none; (c) to the Participant’s estate. A beneficiary designation shall not be considered effective unless made on a form prescribed by the Committee, returned to the appropriate individual in Human Resources and available to the Committee. Article 7. Effect of Certain Events on Distribution of Accounts 7.1 Matching Contribution Forfeited. Except as described in Section 7.2, a Participant who separates from employment with the Controlled Group for any reason prior to the completion of the applicable Forfeiture Period shall forfeit any Matching Contribution that relates to such Forfeiture Period. Notwithstanding the preceding sentences, the Committee in its sole discretion may determine that it is in the best interests of the Company to pay such forfeited Matching Contribution to the Participant. 7.2 Matching Contribution not Forfeited in Certain Circumstances. Notwithstanding the provisions of Section 7.1, a Participant who: (a) separates from employment with the Controlled Group on or after the Participant’s Normal Retirement Date; or (b) involuntarily separates from such employment on account of death or Disability, shall receive all Matching Contributions credited to his Account as of the separation date, regardless of whether the Forfeiture Period has been satisfied with respect to such Matching Contribution. Page 11 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 A Participant who separates from employment with the Controlled Group for any reason after satisfying the Forfeiture Period with respect to a Matching Contribution shall receive such Matching Contribution credited to his Account. 7.3 Deferred Amount Shares Never Forfeited. A Participant who separates from employment with the Company for any reason shall receive all Deferred Amount Shares credited to his Accounts as of the separation date. The preceding sentence shall apply with respect to any Deferred Amount Shares that are subsequently invested in investment fund(s) made available under Section 5.1(d). 7.4 Deferred Amounts Invested in Available Investment Fund(s) and Credited With Earnings Never Forfeited. A Participant who separates from employment with the Company for any reason shall receive all deferred amounts that have been invested in available investment fund(s) and credited with earnings (gains or losses) in accordance with Section 5.8 which are credited to such Participant’s Account as of the separation date; provided, however, that Matching Contribution Shares subsequently reinvested in Investment Fund(s) shall be governed by the provisions of Sections 7.1 and 7.2. 7.5 Time of Payment. All payments under Sections 7.1, 7.2, 7.3 and 7.4 shall be made upon the earlier of (i) the scheduled payment date elected by the Participant on his or her Deferral Election, or (ii) on the first payroll date scheduled for the seventh (7th) month following the date of the Participant’s Separation from Service. Notwithstanding the above, the effect of each subsequent election under Section 6.1, 6.2 or 6.3 shall be to delay the payment date under clause (ii) above by five years with respect to amounts for which the subsequent election applies. Payments shall be made pursuant to Section 6.5 to the appropriate individual according to Section 6.6. Article 8. Limitation of Rights 8.1 Limitation of Rights. Nothing in this Plan shall be construed: (a) To give any Participant any right to receive an Incentive Award or to be awarded Performance Shares, other than in accordance with the provisions of this Plan; (b) To limit in any way the right of the Company to terminate a Participant’s employment with the Company at any time; or (c) To evidence any agreement or understanding, expressed or implied, that the Company will employ a Participant in any particular capacity or for any particular remuneration. Article 9. Duration of Plan 9.1 Duration of Plan. The Plan shall remain in effect until terminated by the Company in accordance with Article 10. Page 12 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Article 10. Amendment, Modification and Termination of Plan 10.1 Amendment, Modification, and Termination of Plan. The Committee may at any time terminate the Plan, and from time to time, may amend or modify it (with respect to both Grandfathered Amounts and Nongrandfathered Amounts); provided, however, that except as set forth below, any action that is not a change to an administrative practice under the Plan, shall not adversely affect any right or obligation with respect to any Performance Shares or deferred amounts credited to a Participant’s Account as of the effective date of the termination, amendment or modification, unless the Participant consents to such change. Notwithstanding the foregoing, the Committee may, without the Participants’ consent, amend or modify the Plan in any manner that the Committee deems necessary or appropriate in order to comply with, or to preserve the intended tax deferral purposes of the Plan under, applicable laws, regulations or orders, or any changes thereto or judicial or administrative interpretations thereof. Upon termination of the Plan, the amounts credited to the Participant’s Accounts upon such termination shall become fully vested and shall be paid in a lump sum; provided that such termination and payment comply with the requirements for plan terminations under § 409A. Article 11. Alienation 11.1 Alienation. No benefit provided by this Plan shall be transferable by the Participant except on the Participant’s death, as provided in this Plan. No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge. Any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any right or benefit under this Plan shall be void. No right or benefit under this Plan shall, in any manner, be liable for or subject to any debts, contracts, liabilities or torts of the person entitled to the right or benefit. If any Participant becomes bankrupt or attempts to anticipate, alienate, assign, pledge, sell, encumber or charge any right or benefit under this Plan, then the right or benefit shall, in the discretion of the Committee, cease. In that event, the Company may hold or apply the right or benefit, or any part of the right or benefit, for the benefit of the Participant, his or her spouse, children, or dependents, the beneficiary or any of them, in the manner or in the proportion that the Committee shall deem proper, in his sole discretion, but is not required to do so. Article 12. Tax Withholding 12.1 Tax Withholding. An individual who receives payment of a Grandfathered Amount or a Nongrandfathered Amount from the Plan shall pay to the Company, or make arrangements satisfactory to the Committee, regarding the payment of any federal, state or local taxes of any kind required by law to be withheld with respect to such payment. Page 13 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 The individual shall make such payment or arrangement no later than the date as of which he is scheduled to receive such payment. The obligations of the Company under the Plan shall be conditioned on such payment or arrangement and the Company, to the extent permitted by law, shall have the right to deduct any such taxes from any distribution of any kind otherwise due to the individual (provided however that the amount payable before the application of such deduction shall be reported to the appropriate taxing authority as a taxable payment, to the extent that it would have been reported had there been no deduction). Unless otherwise determined by the Committee, any withholding obligation of the Company on amounts received under the Plan may be settled with shares of Common Stock that are part of the distribution that gives rise to the withholding requirement. Article 13. Authority to Establish Trust 13.1 Trust. The Company may establish, by the execution of a Trust agreement with one or more trustees, a Trust that, if established, is intended to be maintained as a “grantor trust” under Section 677 of the Code. The assets of the Trust will be held, invested and disposed of by the trustee, in accordance with the terms of the Trust, for the exclusive purpose of providing benefits for Participants and their beneficiaries. Notwithstanding any provision of the Plan or the Trust to the contrary, the assets of the Trust shall at all times be subject to the claims of the Company’s general creditors in the event of insolvency or bankruptcy. 13.2 Contributions and Expenses. The Company, from time to time, may make contributions to the Trust (if and when established). All amounts payable under the Plan and expenses chargeable to the Plan, to the extent not paid directly by the Company, shall be paid from the Trust. 13.3 Trustee Duties. The powers, duties and responsibilities of the trustee shall be as set forth in the Trust and nothing contained in the Plan, either expressly or by implication, shall impose any additional powers, duties or responsibilities upon the Trustee. 13.4 Reversion to the Company. The Company shall have no beneficial interest in the Trust and no part of the Trust shall ever revert or be repaid to the Company, directly or indirectly, except as otherwise provided in Section 13.1 above or in the Trust Agreement. 13.5 Plan Not Funded. Notwithstanding the provisions of this Article, the obligation of the Company to make payments under the Plan constitutes nothing more than the unsecured promise of the Company to make such payments. Until benefits are distributed in accordance with Article 6 or 7, all property and rights associated with deferred amounts under the Plan shall remain solely the property and rights of the Company subject only to claims of the Company’s general creditors. Page 14 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Article 14. Successor Organization 14.1 Successor Company. In the event of a merger, consolidation, combination or reorganization involving the Company and any other entity or corporation, the Company shall require the succeeding or continuing business entity after such merger, consolidation, combination or reorganization, to assume the obligations of the Company under this Plan. 14.2 Share Adjustment. If the number of outstanding shares of Common Stock is changed as a result of recapitalization, merger, consolidation, or other reorganization of the Company, the number of Performance Shares credited to a Participant’s Account shall be appropriately and equitably adjusted on the same basis. Article 15. Governing Law 15.1 Governing Law. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Tennessee except to the extent superseded by federal law. Article 16. Miscellaneous 16.1 Severability. If any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, but the Plan shall be construed and enforced as if such illegal or invalid provision had never been included herein. 16.2 Notification of Addresses. Each Participant and each beneficiary shall file with the Committee, from time to time, in writing, the post office address of the Participant, the post office address of each beneficiary, and each change of post office address. Any communication, statement or notice addressed to the last post office address filed with the Committee (or if no such address was filed with the Committee, then to the last post office address of the Participant or beneficiary as shown on the Company’s records) shall be binding on the Participant and each beneficiary for all purposes of the Plan and neither the Committee nor the Company shall be obliged to search for or ascertain the whereabouts of any Participant or beneficiary. 16.3 Bonding. The Committee and all agents and advisors employed by it shall not be required to be bonded. Article 17. Effective Date 17.1 Effective Date. The Plan shall be effective as of January 1, 2000, as amended effective as of July 1, 2001, and as further amended and restated effective as of January 1, 2009, except as specifically provided otherwise. Page 15 Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Regions Financial Corporation Computation of Ratio of Earnings to Fixed Charges (from continuing operations) (Unaudited) EXHIBIT 12 Excluding Interest on Deposits Income (loss) before income taxes from continuing operations Fixed charges excluding preferred stock dividends Income (loss) for computation excluding interest on deposits Interest expense excluding interest on deposits One-third of rent expense Preferred stock dividends Fixed charges including preferred stock dividends Ratio of earnings to fixed charges, excluding interest on deposits Including Interest on Deposits Income (loss) before income taxes from continuing operations Fixed charges excluding preferred stock dividends Income (loss) for computation including interest on deposits Interest expense including interest on deposits One-third of rent expense Preferred stock dividends Fixed charges including preferred stock dividends Ratio of earnings to fixed charges, including interest on deposits 2008 (1) 2007 (1) December 31 2006 (Amounts in thousands) 2005 2004 $ (5,932,427) 1,061,014 (4,871,413) 996,364 64,650 26,236 1,087,250 (4.48) $ 2,038,850 1,077,456 3,116,306 1,012,414 65,042 — 1,077,456 2.89 $ 1,991,621 696,060 2,687,681 660,649 35,411 — 696,060 3.86 $ 1,358,568 514,635 1,873,203 485,029 29,606 — 514,635 3.64 $ 1,120,221 366,574 1,486,795 346,024 20,550 — 366,574 4.06 $ (5,932,427) 2,785,084 (3,147,343) 2,720,434 64,650 26,236 2,811,320 (1.12) $ 2,038,850 3,741,339 5,780,189 3,676,297 65,042 — 3,741,339 1.54 $ 1,991,621 2,376,227 4,367,848 2,340,816 35,411 — 2,376,227 1.84 $ 1,358,568 1,519,362 2,877,930 1,489,756 29,606 — 1,519,362 1.89 $ 1,120,221 863,201 1,983,422 842,651 20,550 — 863,201 2.30 (1) For purposes of this computation, the recognized interest related to uncertain tax positions for the year ended December 31, 2008 and 2007 of approximately $31 million and $82 million, respectively, was excluded. Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Regions Financial Corporation Subsidiaries of the Registrant at December 31, 2008 EXHIBIT 21 Regions Bank (1) Morgan Keegan & Company, Inc. (11) MK Assets, Inc.(5) Southpoint Residential Mortgage Securities Corporation (11) MK Holding, Inc. (2) Athletic Resource Management, Inc. (11) Morgan Keegan Fund Management, Inc. (11) Morgan Asset Management, Inc. (11) Wealthtrust, Inc. (11) Merchant Bankers, Inc. (11) Morgan Keegan Mortgage Company, Inc. (11) Morgan Keegan Municipal Products, Inc. (5) Morgan Keegan Municipal Products II, Inc. (5) Morgan Properties, LLC (11) Morgan Keegan Financial Products, Inc. (11) Morgan Keegan Financial Services, LLC (5) MK Investment Management, Inc. (5) MK Louisiana Charitable Healthcare Facilities Fund LLC (5) MK Mezzanine Management, LLC (5) Morgan Keegan Funding Corporation (11) Cumberland Securities Company, Inc. (11) Albrecht & Associates, Inc. (5) Regions Agency, Inc. (2) Regions Acceptance, LLC (2) Regions Life Insurance Company (3) Regions Agency, Inc. (Louisiana) (9) Regions Title Company, Inc. (11) MCB Life Insurance Company (11) Regions Interstate Billing Service, Inc. (2) Regions Asset Management Company, Inc. (2) RAMCO – FL Holding, Inc. (2) Regions Asset Holding Company (2) Regions Asset Company (5) Regions Investment Management Holding Company (5) Regions Investment Management Company (5) Regions Insurance Agency of Arkansas (4) Regions Insurance Group, Inc. (11) Regions Insurance, Inc. (4) Crockett Adjustment, Inc. (4) Regions Insurance Services, Inc. (11) Regions Insurance Services of Alabama, Inc. (2) Regions Reinsurance Corporation (12) Union Planters Mortgage Finance Corporation (5) Magna Data Services, Inc. (8) UPTENCO, Inc. (11) UPARTCO, LP (11) UP Mortgages GP (6) UPBNA Holdings, Inc. (5) Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 UPB Holdings, Inc. (5) Union Planters Preferred Funding Corp. (5) UPB Investments, Inc. (11) MICB, Inc. (5) Regions Investment Services, Inc. (2) PFIC Securities Corporation (11) CID Holding Company (11) UP Investments LP (11) Union Planters Hong Kong, Inc. (11) Regions Hong Kong Limited (15) Capital Factors, Inc. (6) RB Affordable Housing, Inc. (2) Greenview Townhomes, LLC (11) Provence Place GP, Inc. (10) Provence Place, LP (7) Regions Provence Place, LLC (2) Regions Business Capital Corporation (5) AmSouth Finance Corporation (2) Regions Equipment Finance Corporation (2) Regions Equipment Finance, Ltd. (2) A-F Leasing, Ltd.(2) A-F Leasing, LLC (2) Cahaba Corporation (5) Cahaba International, Inc. (5) GTC Title, Inc. (2) AmSouth Reinsurance Company, Ltd. (16) Cahaba International, Ltd.(14) MCC Holdings, Inc. (2) Meriwether Capital Corporation (13) FMLS, Inc. (11) First AmTenn Life Insurance Company (3) Regions Community Development Corporation (non profit)(11) Revolution Partners, LLC (5) (1) Affiliate state bank chartered under the banking laws of Alabama. (2) Organized under the laws of Alabama. (3) Incorporated under the laws of Arizona. (4) Incorporated under the laws of Arkansas. (5) Incorporated under the laws of Delaware. (6) Incorporated under the laws of Florida. (7) Incorporated under the laws of Georgia. (8) Incorporated under the laws of Illinois. (9) Incorporated under the laws of Louisiana. (10) Incorporated under the laws of Massachusetts. (11) Incorporated under the laws of Tennessee. (12) Incorporated under the laws of Vermont. (13) Incorporated under the laws of Virginia. (14) Incorporated under the laws of Bermuda. (15) Incorporated under the laws of the Peoples’ Republic of China. (16) Incorporated under the laws of the Turks and Caicos Islands Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 Consent of Independent Registered Public Accounting Firm EXHIBIT 23 We consent to the incorporation by reference in the following Registration Statements of Regions Financial Corporation and in the related Prospectuses of our reports dated February 24, 2009, with respect to the consolidated financial statements of Regions Financial Corporation and subsidiaries, and the effectiveness of internal control over financial reporting of Regions Financial Corporation, included in this Annual Report (Form 10-K) for the year ended December 31, 2008: Form S-8 No. 333-135604 pertaining to the stock options and other equity interests issuable under the Regions Financial Corporation 2006 Long Term Incentive Plan; Form S-8 No. 333-138460 pertaining to the stock options and other equity interests issued, issuable, or assumed under: AmSouth Bancorporation 2006 Long Term Incentive Compensation Plan AmSouth Bancorporation 1996 Long Term Incentive Compensation Plan First American Corporation 1999 Broad-Based Employee Stock Option Plan Deposit Guaranty Corporation Long Term Incentive Plans First American Corporation 1991 Employee Stock Incentive Plan AmSouth Bancorporation Amended and Restated 1991 Employee Stock Incentive Plan Pioneer Bancshares, Inc. Long Term Incentive Plan AmSouth Bancorporation Stock Option Plan for Outside Directors AmSouth Bancorporation Thrift Plan AmSouth Bancorporation Deferred Compensation Plan and Amended and Restated Deferred Compensation Plan for Directors of AmSouth Bancorporation AmSouth Bancorporation Employee Stock Purchase Plan Form S-3 No. 33-59735 pertaining to the registration of $200,000,000 subordinated debt securities; Form S-3 No. 333-54552 pertaining to the registration of $1,000,000,000 debt and equity securities; Form S-3 No. 333-74102-01 pertaining to the registration of $1,500,000,000 debt and equity securities; Form S-8 No. 333-117272 pertaining to the stock options and other equity interests issued, issuable, or assumed under: Regions Financial Corporation 1999 Long-Term Incentive Plan Regions Financial Corporation Amended and Restated 1991 Long-Term Incentive Plan Regions Financial Corporation Amended and Restated Directors’ Stock Incentive Plan Regions Financial Corporation 401 (K) Plan Regions Financial Corporation Supplemental 401 (K) Plan First Alabama Bancshares, Inc. 1988 Stock Option Plan Union Planters Corporation 1998 Stock Incentive Plan for Officers and Employees Union Planters Corporation Amended and Restated 1992 Stock Incentive Plan Union Planters Corporation 401 (K) Retirement Savings Plan Union Planters Corporation Amended and Restated 1996 Deferred Compensation Plan For Executives Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 and pertaining to options assumed by Regions Financial resulting from the acquisitions by former Regions Financial Corporation of First Community Banking Services, Inc. First Bancshares, Inc. First Commercial Corporation Florida First Bancshares, Inc. First State Corporation First National Bancorp GF Bancshares, Inc. Greenville Financial Corporation Minden Bancshares, Inc. Morgan Keegan, Inc. PALFED, Inc. Park Meridian Financial Corporation Bullsboro Bancshares, Inc. VB&T Bancshares Corp. and pertaining to options assumed by Regions Financial resulting from the acquisitions by Union Planters Corporation of Capital Bancorporation, Inc. Capital Factors Holding, Inc. Capital Savings Bancorp, Inc. Grenada Sunburst System Corporation Leader Financial Corporation Magna Group, Inc. People’s First Corporation Ready State Bank Strategic Outsourcing, Inc. Valley Federal Savings Bank Form S-3 No. 333-124337 pertaining to the registration of $2,000,000,000 debt and equity securities; Form S-3 No. 333-126797 pertaining to the securities registered on Form S-3 No. 333-124337; and Form S-3 ASR No. 333-142839 pertaining to the registration of debt and equity securities. February 24, 2009 Birmingham, Alabama /s/ Ernst & Young LLP Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 DIRECTOR’S POWER OF ATTORNEY EXHIBIT 24 KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Regions Financial Corporation, a Delaware corporation (“Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Buchanan or Carl L. Gorday and either of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2008 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in-fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 12th day of February, 2009. /s/ Samuel W. Bartholomew, Jr. Samuel W. Bartholomew, Jr. Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 DIRECTOR’S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Regions Financial Corporation, a Delaware corporation (“Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Buchanan or Carl L. Gorday and either of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2008 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in-fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 13th day of February, 2009. /s/ George W. Bryan George W. Bryan Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 DIRECTOR’S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Regions Financial Corporation, a Delaware corporation (“Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Buchanan or Carl L. Gorday and either of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2008 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in-fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 13th day of February, 2009. /s/ David J. Cooper, Sr. David J. Cooper, Sr. Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 DIRECTOR’S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Regions Financial Corporation, a Delaware corporation (“Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Buchanan or Carl L. Gorday and either of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2008 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in-fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 13th day of February, 2009. /s/ Earnest W. Deavenport, Jr. Earnest W. Deavenport, Jr. Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 DIRECTOR’S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Regions Financial Corporation, a Delaware corporation (“Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Buchanan or Carl L. Gorday and either of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2008 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in-fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 15th day of February, 2009. /s/ Don DeFosset Don DeFosset Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 DIRECTOR’S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Regions Financial Corporation, a Delaware corporation (“Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Buchanan or Carl L. Gorday and either of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2008 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in-fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 13th day of February, 2009. /s/ James R. Malone James R. Malone Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 DIRECTOR’S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Regions Financial Corporation, a Delaware corporation (“Company”), by her execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Buchanan or Carl L. Gorday and either of them, her true and lawful attorney-in-fact and agent, for her and in her name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2008 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in-fact and agent which she may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 13th day of February, 2009. /s/ Susan W. Matlock Susan W. Matlock Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 DIRECTOR’S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Regions Financial Corporation, a Delaware corporation (“Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Buchanan or Carl L. Gorday and either of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2008 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in-fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 13th day of February, 2009. /s/ John E. Maupin, Jr. John E. Maupin, Jr. Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 DIRECTOR’S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Regions Financial Corporation, a Delaware corporation (“Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Buchanan or Carl L. Gorday and either of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2008 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in-fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 13th day of February, 2009. /s/ Charles D. McCrary Charles D. McCrary Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 DIRECTOR’S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Regions Financial Corporation, a Delaware corporation (“Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Buchanan or Carl L. Gorday and either of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2008 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in-fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 13th day of February, 2009. /s/ Claude B. Nielsen Claude B. Nielsen Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 DIRECTOR’S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Regions Financial Corporation, a Delaware corporation (“Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Buchanan or Carl L. Gorday and either of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2008 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in-fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 13th day of February, 2009. /s/ John R. Roberts John R. Roberts Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 DIRECTOR’S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Regions Financial Corporation, a Delaware corporation (“Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Buchanan or Carl L. Gorday and either of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2008 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in-fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 13th day of February, 2009. /s/ Lee J. Styslinger III Lee J. Styslinger III Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 EXHIBIT 31.1 I, C. Dowd Ritter, certify that: 1. I have reviewed this annual report on Form 10-K of Regions Financial Corporation; CERTIFICATIONS 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 24, 2009 /S/ C. DOWD RITTER C. Dowd Ritter Chairman, President and Chief Executive Officer Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 EXHIBIT 31.2 I, Irene M. Esteves, certify that: 1. I have reviewed this annual report on Form 10-K of Regions Financial Corporation; CERTIFICATIONS 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 24, 2009 /s/ IRENE M. ESTEVES Irene M. Esteves Senior Executive Vice President and Chief Financial Officer Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 EXHIBIT 32 In connection with the Annual Report of Regions Financial Corporation (the “Company”) on Form 10-K for the year ending December 31, 2008 (the “Report”), I, C. Dowd Ritter, Chief Executive Officer of the Company, and Irene M. Esteves, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge: 1) 2) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ C. DOWD RITTER C. Dowd Ritter Chairman, President and Chief Executive Officer DATE: February 24, 2009 /S/ IRENE M. ESTEVES Irene M. Esteves Senior Executive Vice President and Chief Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to Regions Financial Corporation and will be retained by Regions Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request. _______________________________________________ Created by 10KWizard www.10KWizard.com Source: REGIONS FINANCIAL CO, 10-K, February 25, 2009 

Continue reading text version or see original annual report in PDF format above