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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2000
COMMISSION FILE NUMBER 0-6159
REGIONS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 63-0589368
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
417 NORTH 20TH STREET, BIRMINGHAM, ALABAMA 35203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 944-1300
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK -- PAR VALUE $.625
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant as of February 28, 2001.
COMMON STOCK, $.625 PAR VALUE -- $6,147,966,056*
*Excludes as shares held by affiliates only shares held by the registrant's
Employees' Stock Ownership Plan, Directors' Stock Investment Plan and executive
officers who are directors without prejudice to a determination of control.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of February 28, 2001.
Common Stock, $.625 Par Value -- 208,077,159 shares issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement to be dated approximately April 10,
2001 are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
(a) The Registrant, Regions Financial Corporation (the "Registrant" or
"Regions"), is a regional bank holding company headquartered in Birmingham,
Alabama, which operated 729 full-service banking offices in Alabama, Arkansas,
Florida, Georgia, Louisiana, South Carolina, Tennessee and Texas as of December
31, 2000. At that date, Regions had total consolidated assets of approximately
$43.7 billion, total consolidated deposits of approximately $32.0 billion, and
total consolidated stockholders' equity of approximately $3.5 billion.
Regions was organized under the laws of the state of Delaware and commenced
operations in 1971 under the name First Alabama Bancshares, Inc. On May 2, 1994,
the name of First Alabama Bancshares, Inc. was changed to Regions Financial
Corporation. Regions' principal executive offices are located at 417 North 20th
Street, Birmingham, Alabama 35203, and its telephone number at such address is
(205) 944-1300.
At December 31, 2000, Regions operated Regions Bank, a state-chartered
commercial bank subsidiary (the "Subsidiary Bank") in Alabama, Arkansas,
Florida, Georgia, Louisiana, South Carolina, Tennessee and Texas and various
banking-related subsidiaries engaged in mortgage banking, credit life insurance,
leasing, commercial accounts receivable factoring, specialty mortgage financing
and securities brokerage activities with offices in various southeastern states.
Through its subsidiaries, Regions offers a broad range of banking and
banking-related services.
In Alabama, Regions operates through Regions Bank which operates 188
banking offices throughout the state. At December 31, 2000, these offices had
31% of Regions' total consolidated assets and total consolidated deposits.
In Arkansas, Regions Bank operates 132 banking offices throughout the
state. At December 31, 2000, these offices had 14% of Regions' total
consolidated assets and 15% of total consolidated deposits.
In Florida, Regions Bank operates through 69 banking offices in the
northwest and central regions of the state. At December 31, 2000, these offices
had 7% of Regions' total consolidated assets and 8% of total consolidated
deposits.
In Georgia, Regions Bank operates 141 banking offices throughout the state.
At December 31, 2000, these offices had 25% of Regions' total consolidated
assets and 21% of total consolidated deposits.
In Louisiana, Regions Bank operates 95 banking offices throughout the
state. At December 31, 2000, these offices had 10% of Regions' total
consolidated assets and 12% of total consolidated deposits.
In South Carolina, Regions Bank operates 36 banking offices throughout the
state. At December 31, 2000, these offices had 4% of Regions' total consolidated
assets and total consolidated deposits.
In Tennessee, Regions Bank operates 38 banking offices. At December 31,
2000, these offices had 5% of Regions' total consolidated assets and total
consolidated deposits.
In Texas, Regions Bank operates 30 banking offices throughout the eastern
portion of the state. At December 31, 2000, these offices had 4% of Regions'
total consolidated assets and total consolidated deposits.
In addition to the Subsidiary Bank, Regions provides additional financial
services through various banking-related subsidiaries, the most significant of
which provide mortgage banking, credit life insurance, securities brokerage
activities, commercial accounts receivable factoring, and specialty financing.
Regions Mortgage, Inc. (RMI), a subsidiary of Regions Bank, is engaged in
mortgage banking, with its primary business and source of income being the
origination and servicing of mortgage loans for long-term investors. RMI
serviced approximately $21.6 billion in real estate mortgages at December 31,
2000, and operates loan production offices in Alabama, Arkansas, Florida,
Georgia, Louisiana, South Carolina, and Tennessee.
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Regions Agency, Inc., a subsidiary of Regions, acts as an insurance agent
or broker with respect to credit life and accident and health insurance and
other types of insurance relating to extensions of credit by the Subsidiary Bank
or banking-related subsidiaries.
Regions Life Insurance Company, a subsidiary of Regions, acts as a
re-insurer of credit life and accident and health insurance in connection with
the activities of certain affiliates of Regions.
Regions Investment Company, Inc., a subsidiary of Regions Bank, engages in
securities underwriting and brokerage activities and operates offices in
Alabama, Arkansas, Florida, Georgia, Louisiana, South Carolina, Tennessee and
Texas.
Regions Interstate Billing Service, Inc. (RIBS), a subsidiary of Regions,
factors commercial accounts receivable and performs billing and collection
services. RIBS primarily serves clients related to the automotive service
industry.
EquiFirst, a subsidiary of EFC Holdings Corporation which is a wholly-owned
subsidiary of Regions Bank, provides specialty real estate financing to
consumers.
A substantial portion of the growth of Regions since commencing operations
in 1971 has been through the acquisition of other financial institutions,
including commercial banks and thrift institutions, and the assets and deposits
thereof. Since it began operations as a bank holding company, Regions has
completed 95 acquisitions of other financial institutions representing in
aggregate (at the time the acquisitions were completed) approximately $25.4
billion in assets. As part of its ongoing strategic plan, Regions continually
evaluates business combination opportunities. As a result, business combination
discussions and, in some cases, negotiations take place, and future business
combinations involving cash, debt, or equity securities can be expected. Any
future business combination or series of business combinations that Regions
might undertake may be material, in terms of assets acquired or liabilities
assumed, to Regions' financial condition. Recent business combinations in the
banking industry have typically involved the payment of a premium over book and
market values. This practice could result in dilution of book value and net
income per share for the acquirer.
Reference is made to Items 6 and 7 of this Annual Report on Form 10-K for
certain statistical (Guide 3) and other information.
This Annual Report on Form 10-K, other periodic reports filed by Regions
under the Securities Exchange Act of 1934, as amended, and any other written or
oral statements made by or on behalf of Regions may include forward looking
statements which reflect Regions' current views with respect to future events
and financial performance. Such forward looking statements are based on general
assumptions and are subject to various risks, uncertainties, and other factors
that may cause actual results to differ materially from the views, beliefs, and
projections expressed in such statements. These risks, uncertainties and other
factors include, but are not limited to the following:
Some factors are specific to Regions, including:
- The cost and other effects of material contingencies, including
litigation contingencies.
- Regions' ability to expand into new markets and to maintain profit
margins in the face of pricing pressures.
- Regions' ability to keep pace with technological changes.
- 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 effectively manage interest rate risk, credit risk
and operational risk.
- 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.
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- Regions' ability to achieve the earnings expectations related to the
businesses that were recently acquired or that may be acquired in the
future, which in turn depends on a variety of factors, including:
- Regions' ability to achieve the anticipated cost savings and revenue
enhancements with respect to the acquired operations.
- the assimilation of the acquired operations to Regions' corporate
culture, including the ability to instill Regions' credit practices
and efficient approach to the acquired operations.
- the continued growth of the markets that the acquired entities
serve, consistent with recent historical experience.
Other factors which may affect Regions apply to the financial services
industry more generally, including:
- The easing of restrictions on participants in the financial services
industry, such as banks, securities brokers and dealers, investment
companies and finance companies, may increase competitive pressures.
- Possible changes in interest rates may increase funding costs and reduce
earning asset yields, thus reducing margins.
- Possible changes in general economic and business conditions in the
United States and the Southeast in general and in the communities Regions
serves in particular may lead to a deterioration in credit quality,
thereby increasing provisioning costs, or a reduced demand for credit,
thereby reducing earning assets.
- Possible 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.
- Possible changes in consumer and business spending and saving habits
could effect Regions' ability to grow assets and to attract deposits.
The words "believe", "expect", "anticipate", "project", and similar
expressions signify forward looking statements. Readers are cautioned not to
place undue reliance on any forward looking statements made by or on behalf of
Regions. Any such statement speaks only as of the date the statement was made.
Regions undertakes no obligation to update or revise any forward looking
statements.
(b) The primary business conducted by Registrant's banking affiliates, in
each geographic region, is banking, which includes provision of commercial and
retail banking services and, in some cases, trust services. Registrant's
bank-related subsidiaries perform services incidental to the business of
banking.
Reference is made to Note W. "Business Segment Information" to the
consolidated financial statements included under Item 8 of this Annual Report on
Form 10-K for information required by this item.
(c)(1) General. The Registrant is a bank holding company, registered with
the Board of Governors of the Federal Reserve System ("Federal Reserve") under
the Bank Holding Company Act of 1956, as amended ("BHC Act"). As such, the
Registrant and its subsidiaries are subject to the supervision, examination, and
reporting requirements of the BHC Act and the regulations of the Federal
Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5.0% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (iii) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
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clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues includes the
parties' performance under the Community Reinvestment Act of 1977 (the "CRA"),
both of which are discussed below.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), which became effective in 1995, repealed the prior
statutory restrictions on interstate acquisitions of banks by bank holding
companies, such that the Registrant, and any other bank holding company located
in Alabama may now acquire a bank located in any other state, and any bank
holding company located outside Alabama may lawfully acquire any Alabama-based
bank, regardless of state law to the contrary, in either case subject to certain
deposit-percentage, aging requirements, and other restrictions. The Interstate
Banking Act also generally provided that, after June 1, 1997, national and
state-chartered banks may branch interstate through acquisitions of banks in
other states.
The BHC Act generally prohibits the Registrant from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices. For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance in connection with credit transactions, and performing certain
insurance underwriting activities all have been determined by the Federal
Reserve to be permissible activities of bank holding companies. The BHC Act does
not place territorial limitations on permissible nonbanking activities of bank
holding companies. Despite prior approval, the Federal Reserve has the power to
order a bank holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when it has reasonable
cause to believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.
The Gramm-Leach-Bliley Act, adopted in 1999, significantly relaxed
previously existing restrictions on the activities of banks and bank holding
companies. Under such 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 were not previously permissible for banks
and bank holding companies. For a bank holding company to be eligible for
financial holding company status, all of its subsidiary financial institutions
must be well-capitalized and well managed. A bank holding company may become a
financial holding company by filing a declaration with the Federal Reserve Board
that it elects to become a financial holding company. A financial holding
company may engage directly or through a subsidiary in the statutorily
authorized activities of securities dealing, underwriting, and market making,
insurance underwriting and agency activities, merchant banking, and insurance
company portfolio investments, and in any activity that the Federal Reserve
Board determines by rule or order to be financial in nature or incidental to
such financial activity. The Federal Reserve Board must deny expanded authority
to any bank holding company that received less than a satisfactory rating on its
most recent Community Reinvestment Act review as of the time it submits its
declaration.
The Gramm-Leach-Bliley Act also permits securities brokerage firms and
insurance companies to own banks and bank holding companies. The Act also seeks
to streamline and coordinate regulation of integrated financial holding
companies, providing generally for "umbrella" regulation of financial holding
companies by
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the Federal Reserve Board, and for functional regulation of banking activities
by bank regulators, securities activities by securities regulators, and
insurance activities by insurance regulators.
On December 22, 2000, Regions filed a declaration to become a financial
holding company, which was approved by the Federal Reserve on January 5, 2001.
The Subsidiary Bank of the Registrant is a member of the Federal Deposit
Insurance Corporation ("FDIC"), and as such, its deposits are insured by the
FDIC to the extent provided by law. The Subsidiary Bank is also subject to
numerous state and federal 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.
The Subsidiary Bank, which is a state-chartered bank and is not a member of
the Federal Reserve System, is subject to supervision and examination by the
FDIC and the state banking authorities of Alabama, the state in which it is
headquartered. The federal banking regulator of the Subsidiary Bank, as well as
the appropriate state banking authority for the Subsidiary Bank, regularly
examines the operations of the Subsidiary Bank and is given authority to approve
or disapprove mergers, consolidations, the establishment of branches, and
similar corporate actions. The federal and state banking regulators also have
the power to prevent the continuance or development of unsafe or unsound banking
practices or other violations of law.
The Subsidiary Bank is subject to the provisions of the CRA. Under the
terms of the CRA, the Subsidiary Bank has a continuing and affirmative
obligation consistent with its safe and sound operation to help meet the credit
needs of its entire communities, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires each appropriate federal bank regulatory agency, in connection with its
examination of a subsidiary depository institution, to assess such institution's
record in assessing and meeting the credit needs of the community served by that
institution, including low-and moderate-income neighborhoods. The regulatory
agency's assessment of the institution's record is made available to the public.
Further, such assessment is required of any institution which has applied to:
(i) charter a national bank; (ii) obtain deposit insurance coverage for a newly
chartered institution; (iii) establish a new branch office that will accept
deposits; (iv) relocate an office; or (v) merge or consolidate with, or acquire
the assets or assume the liabilities of, a federally regulated financial
institution. In the case of a bank holding company applying for approval to
acquire a bank or other bank holding company, the Federal Reserve will assess
the records of each subsidiary depository institution of the applicant bank
holding company, and such records may be the basis for denying the application.
The Subsidiary Bank received a "satisfactory" CRA rating in its most recent
examination.
Payment of Dividends. The Registrant is a legal entity separate and
distinct from its banking and other subsidiaries. The principal source of cash
flow of the Registrant, including cash flow to pay dividends to its
stockholders, is dividends from the Subsidiary Bank. There are statutory and
regulatory limitations on the payment of dividends by the Subsidiary Bank to the
Registrant as well as the Registrant to its stockholders.
As to the payment of dividends, the Subsidiary Bank is subject to the laws
and regulations of the state of Alabama and to the regulations of the FDIC.
If, in the opinion of a federal regulatory agency, an institution under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the institution, could
include the payment of dividends), such agency may require, after notice and
hearing, that such institution cease and desist from such practice. The federal
banking agencies have indicated that paying dividends that deplete an
institution's capital base to an inadequate level would be an unsafe and unsound
banking practice. Under the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"), an insured institution may not pay any dividend if
payment would cause it to become undercapitalized or if it already is
undercapitalized. See "Prompt Corrective Action." Moreover, the Federal Reserve
and the FDIC have issued policy statements which provide that bank holding
companies and insured banks should generally pay dividends only out of current
operating earnings.
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At December 31, 2000, under dividend restrictions imposed under federal and
state laws, the Subsidiary Bank, without obtaining governmental approvals, could
declare aggregate dividends to the Registrant of approximately $298 million.
The payment of dividends by the Registrant and the Subsidiary Bank may also
be affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
Capital Adequacy. The Registrant and the Subsidiary Banks are required to
comply with the capital adequacy standards established by the Federal Reserve in
the case of the Registrant and the FDIC in the case of the Subsidiary Bank.
There are two basic measures of capital adequacy for bank holding companies that
have been promulgated by the Federal Reserve: a risk-based measure and a
leverage measure. All applicable capital standards must be satisfied for a bank
holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items.
The minimum guideline for the ratio of total capital ("Total Capital") to
risk-weighted assets (including certain off-balance-sheet items, such as standby
letters of credit) is 8.0%. At least half of the Total Capital must be composed
of common equity, undivided profits, minority interests in the equity accounts
of consolidated subsidiaries, noncumulative perpetual preferred stock, and a
limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 Capital"). The remainder may consist of
subordinated debt, other preferred stock, and a limited amount of loan loss
reserves. The minimum guideline for Tier 1 Capital ratio is 4.0%. At December
31, 2000, the Registrant's consolidated Tier 1 Capital and Total Capital ratios
were 9.14% and 11.44%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and certain other
intangible assets (the "Leverage Ratio"), of 3.0% for bank holding companies
that meet certain specified criteria, including having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3.0%, plus an additional cushion of 100 to 200 basis
points. The Registrant's Leverage Ratio at December 31, 2000, was 6.90%. 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.
The Registrant's Subsidiary Bank is subject to risk-based and leverage
capital requirements adopted by the FDIC, which are substantially similar to
those adopted by the Federal Reserve. The Registrant's Subsidiary Bank was in
compliance with applicable minimum capital requirements as of December 31, 2000.
Neither the Registrant nor its Subsidiary Bank has been advised by any federal
banking agency of any specific minimum capital ratio requirement applicable to
it.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business. See "Prompt Corrective
Action."
Support of Subsidiary Bank. Under Federal Reserve policy, the Registrant
is expected to act as a source of financial strength to, and to commit resources
to support, the Subsidiary Bank. This support may be required at times when,
absent such Federal Reserve policy, the Registrant may not be inclined to
provide it. In addition, any capital loans by a bank holding company to the
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
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maintain the capital of a Subsidiary Bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
Prompt Corrective Action. FDICIA establishes a system of prompt corrective
action to resolve the problems of undercapitalized institutions. Under this
system, which became effective in December 1992, the federal banking regulators
are required to establish five capital categories ("well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized") and to take certain mandatory supervisory
actions, and are authorized to take other discretionary actions, with respect to
institutions in the three undercapitalized categories, the severity of which
will depend upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, FDICIA requires the banking regulator
to appoint a receiver or conservator for an institution that is critically
undercapitalized. The federal banking agencies have specified by regulation the
relevant capital level for each category.
Under the agency rule implementing the prompt corrective action provisions,
an institution that (i) has a Total Capital ratio of 10.0% or greater, a Tier 1
Capital ratio of 6.0% or greater, and a Leverage Ratio of 5.0% or greater and
(ii) is not subject to any written agreement, order, capital directive, or
prompt corrective action directive issued by the appropriate federal banking
agency is deemed to be "well capitalized." An institution with a Total Capital
ratio of 8.0% or greater, a Tier 1 Capital ratio of 4.0% or greater, and a
Leverage Ratio of 4.0% or greater is considered to be "adequately capitalized."
A depository institution that has a Total Capital ratio of less than 8.0%, a
Tier 1 Capital ratio of less than 4.0%, or a Leverage Ratio of less than 4.0% is
considered to be "undercapitalized." A depository institution that has a Total
Capital ratio of less than 6.0%, a Tier 1 Capital ratio of less than 3.0%, or a
Leverage Ratio of less than 3.0% is considered to be "significantly
undercapitalized," and an institution that has a tangible equity capital to
assets ratio equal to or less than 2.0% is deemed to be "critically
undercapitalized." For purposes of the regulation, the term "tangible equity"
includes core capital elements counted as Tier 1 Capital for purposes of the
risk-based capital standards plus the amount of outstanding cumulative perpetual
preferred stock (including related surplus), minus all intangible assets with
certain exceptions. A depository institution may be deemed to be in a
capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain limitations.
The obligation of a controlling bank holding company under FDICIA to fund a
capital restoration plan is limited to the lesser of 5.0% of an undercapitalized
subsidiary's assets and the amount required to meet regulatory capital
requirements. An undercapitalized institution is also generally prohibited from
increasing its average total assets, making acquisitions, establishing any
branches, or engaging in any new line of business, except in accordance with an
accepted capital restoration plan or with the approval of the FDIC. In addition,
the appropriate federal banking agency is given authority with respect to any
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.
For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan, the appropriate
federal banking agency must require the institution to take one or more of the
following actions: (i) sell enough shares, including voting shares, to become
adequately capitalized; (ii) merge with (or be sold to) another institution (or
holding company), but only if grounds exist for appointing a conservator or
receiver; (iii) restrict certain transactions with banking affiliates as if the
"sister bank" exception to the requirements of Section 23A of the Federal
Reserve Act did not exist; (iv) otherwise restrict transactions with bank or
nonbank affiliates; (v) restrict interest rates that the institution pays on
deposits to "prevailing rates" in the institution's "region"; (vi) restrict
asset growth or reduce total assets; (vii) alter, reduce, or terminate
activities; (viii) hold a new election of directors; (ix) dismiss any director
or senior executive officer who held office for more than 180 days immediately
before the institution became undercapitalized, provided that in requiring
dismissal of a director or senior officer, the agency must comply with certain
procedural require-
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ments, including the opportunity for an appeal in which the director or officer
will have the burden of proving his or her value to the institution; (x) employ
"qualified" senior executive officers; (xi) cease accepting deposits from
correspondent depository institutions; (xii) divest certain nondepository
affiliates which pose a danger to the institution; or (xiii) be divested by a
parent holding company. In addition, without the prior approval of the
appropriate federal banking agency, a significantly undercapitalized institution
may not pay any bonus to any senior executive officer or increase the rate of
compensation for such an officer without regulatory approval.
At December 31, 2000, the Registrant's Subsidiary Bank had the requisite
capital levels to qualify as well capitalized.
FDIC Insurance Assessments. Pursuant to FDICIA, the FDIC adopted a
risk-based assessment system for insured depository institutions that takes into
account the risks attributable to different categories and concentrations of
assets and liabilities. The risk-based system, which went into effect on January
1, 1994, assigns an institution to one of three capital categories: (i) well
capitalized; (ii) adequately capitalized; and (iii) undercapitalized. These
three categories are substantially similar to the prompt corrective action
categories described above, with the "undercapitalized" category including
institutions that are undercapitalized, significantly undercapitalized, and
critically undercapitalized for prompt corrective action purposes. An
institution is also assigned by the FDIC to one of three supervisory subgroups
within each capital group. The supervisory subgroup to which an institution is
assigned is based on a supervisory evaluation provided to the FDIC by the
institution's primary federal regulator and information which the FDIC
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor). An institution's
insurance assessment rate is then determined based on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, there are nine assessment risk classifications (i.e.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied.
Regions' Subsidiary Bank is assessed at the well-capitalized level where
the premium rate is currently zero. Like all insured banks, Regions' Subsidiary
Bank also must pay a quarterly assessment of approximately $.02 per $100 of
assessable deposits to pay off bonds that were issued in the late 1980's by a
government corporation, the financing corporation, to raise funds to cover costs
of the resolution of the savings and loan crisis.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
Safety and Soundness Standards. The FDIA, as amended by FDICIA and the
Riegle Community Development and Regulatory Improvement Act of 1994, requires
the federal bank regulatory agencies to prescribe standards, by regulations or
guidelines, relating to internal controls, information systems and internal
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, asset quality, earnings, stock valuation and
compensation, fees and benefits and such other operational and managerial
standards as the agencies deem appropriate. The federal bank regulatory agencies
adopted in 1995, a set of guidelines prescribing safety and soundness standards
pursuant to FDICIA, as amended. The guidelines establish general standards
relating to internal controls and information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth
and compensation, fees and benefits. In general, the guidelines require, among
other things, appropriate systems and practices to identify and manage the risk
and exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as
excessive when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director, or principal
stockholder. In addition, the agencies adopted regulations that authorize, but
do not require, an agency to order an institution that has been given notice by
an agency that it is not satisfying any of such safety and soundness standards
to submit a compliance plan. If, after being so notified, an institution fails
to submit an acceptable compliance plan or fails in any material respect to
implement an acceptable compliance plan, the agency must issue an order
directing action to correct the deficiency and may issue an order directing
other
8
10
actions of the types to which an undercapitalized institution is subject under
the "prompt corrective action" provisions of FDICIA. See "Prompt Corrective
Action." If an institution fails to comply with such an order, the agency may
seek to enforce such order in judicial proceedings and to impose civil money
penalties. The federal bank regulatory agencies also proposed guidelines for
asset quality and earnings standards.
Depositor Preference. The Omnibus Budget Reconciliation Act of 1993
provides that deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution would be
afforded a priority over other general unsecured claims against such an
institution in the "liquidation or other resolution" of such an institution by
any receiver.
Other. The United States Congress continues to consider a number of
wide-ranging proposals for altering the structure, regulation, and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or in what form further legislation may be adopted or the extent to
which the business of the Registrant may be affected thereby.
Registrant's broker/dealer subsidiary, Regions Investment Company, Inc., is
subject to regulation by the Securities and Exchange Commission, the National
Association of Securities Dealers, and certain state securities commissions.
(i) The following chart shows for the last three years the percentage
of total revenues contributed by each of the major categories of income.
2000 1999 1998
----- ----- -----
Interest and fees on loans.................................. 67.5% 64.9% 67.4%
Interest on securities...................................... 15.7 16.6 14.9
Interest on mortgage loans held for sale.................... 0.9 2.4 1.5
Interest on federal funds sold.............................. 0.1 0.1 0.6
Other interest income....................................... 0.1 0.1 0.2
Trust department income..................................... 1.5 1.6 1.8
Service charges on deposit accounts......................... 6.0 5.8 5.6
Mortgage servicing and origination fees..................... 2.2 3.0 3.6
Other non-interest income................................... 6.0 5.5 4.4
----- ----- -----
Total Revenues.................................... 100.0% 100.0% 100.0%
===== ===== =====
(ii) On December 18, 2000, Regions announced the signing of a
definitive agreement to acquire Morgan Keegan, Inc., a regional
broker/dealer firm headquartered in Memphis, Tennessee. Regions anticipates
the transaction to close during the first quarter of 2001.
(iii) The monetary policies of the Federal Reserve affect the
operations of Registrant's Subsidiary Banks. Through changes in the reserve
requirements against bank and thrift deposits, open market operations in
U.S. Government securities and changes in the discount rate on borrowings,
the Federal Reserve influences the cost and availability of funds obtained
for lending and investing.
The monetary policies of the Federal Reserve have had a significant
effect on the operating results of financial institutions in the past and
are expected to do so in the future. The impact of such policies on the
future business and earnings of the Registrant cannot be predicted.
(iv) The Registrant does not have any material patents, trademarks,
licenses, franchises, or concessions.
(v) No material portion of the Registrant's business is of a seasonal
nature.
(vi) The primary sources of funds for the Subsidiary Bank are deposits
and borrowed funds. The Registrant's primary sources of operating funds are
service fees, dividends, and interest which it receives from bank and
bank-related subsidiaries.
9
11
(vii) No material part of the business of the Registrant is dependent
upon a single customer or a few customers. No single customer or affiliated
group of customers accounts for 10% or more of Registrant's consolidated
revenues.
(viii) Information concerning backlog orders is not relevant to an
understanding of the business of the Registrant.
(ix) No material portion of the business of the Registrant is subject
to renegotiation of profits or termination of contracts or subcontracts by
governmental authorities.
(x) All aspects of the Registrant's business are highly competitive.
The Registrant's subsidiaries compete with other financial institutions
located in Alabama, Arkansas, northwest and central Florida, Georgia,
Louisiana, South Carolina, Tennessee, east Texas and other adjoining
states, as well as large banks in major financial centers and other
financial intermediaries, such as savings and loan associations, credit
unions, consumer finance companies, brokerage firms, insurance companies,
investment companies, mutual funds, other mortgage companies and financial
service operations of major commercial and retail corporations.
As of December 31, 2000, the Registrant was the second largest bank
holding company headquartered in Alabama based on assets. For information
with respect to the Registrant's markets and the size of the Subsidiary
Bank operating in such markets, see the information provided under
subsection (a) of this Item 1.
Customers for banking services are generally influenced by
convenience, quality of service, personal contacts, price of services, and
availability of products. Although the ranking of Registrant's position
varies in different markets, Registrant believes that its affiliates
effectively compete with other banks and thrifts in their relevant market
areas.
Under the provisions of the Interstate Banking Act, the Registrant and
any other bank holding company located in Alabama are now able to acquire a
bank located in any other state, and a bank holding company located outside
Alabama could acquire any Alabama-based bank, in either case subject to
certain deposit percentage and other restrictions. The Interstate Banking
Act also generally provided that national and state-chartered banks may
branch interstate through acquisitions of banks in other states. To the
extent that large bank holding companies making acquisitions in the markets
in which Regions operates, competition in the Registrant's markets could
further intensify.
(xi) There were no material expenditures during the last three fiscal
years on research and development activities by the Registrant.
(xii) Regulations of any governmental authority concerning the
discharge of materials into the environment are expected to have no
material effect on the Registrant or any of its subsidiaries.
(xiii) As of December 31, 2000, Registrant, its affiliate bank and
other subsidiaries had a total of 14,390 full-time-equivalent employees.
(d) Registrant neither engages in foreign operations nor derives a
significant portion of its business from customers in foreign countries.
ITEM 2. PROPERTIES
The corporate headquarters of the Registrant occupy several floors of the
main Birmingham banking facility of Regions Bank, located at 417 North 20th
Street, Birmingham, Alabama 35203.
The Registrant and its subsidiaries, including the Subsidiary Bank, operate
through 946 office facilities, of which 712 are owned by the Registrant or one
of its subsidiaries and 234 are subject to building or ground leases. Of the 729
branch office facilities operated by the Subsidiary Bank at December 31, 2000,
529 are wholly owned by the Subsidiary Bank and 200 are subject to building or
ground leases.
10
12
For offices in premises leased by the Registrant and its subsidiaries,
annual rentals totaled approximately $16,932,000 as of December 31, 2000. During
2000, the Registrant and its subsidiaries received approximately $8,570,000 in
rentals for space leased to others. At December 31, 2000, encumbrances on the
offices, equipment and other operational facilities owned by the Registrant and
its subsidiaries totaled approximately $815,000 with a weighted average interest
rate of 4.9%.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note L "Commitments and Contingencies", to the
consolidated financial statements included under Item 8 of this Annual Report on
Form 10-K.
The Registrant continues to be concerned about the general trend in
litigation in Alabama state courts and other courts involving large damage
awards against financial service company defendants. Registrant directly or
through its subsidiaries is party to approximately 208 cases in the ordinary
course of business, some of which seek class action treatment or punitive
damages.
Notwithstanding these concerns, Registrant believes, based on consultation
with legal counsel, that the outcome of pending litigation will not have a
material effect on Registrant's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders for a vote during the fourth
quarter of 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Common Stock Market Prices and Dividend information for the year ended
December 31, 2000, is included under Item 8 of this Annual Report filed on Form
10-K in Note Z to the Consolidated Financial Statements.
11
13
ITEM 6. SELECTED FINANCIAL DATA
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
HISTORICAL FINANCIAL SUMMARY
COMPOUND
ANNUAL GROWTH
CHANGE RATE
2000 1999 1998 1997 1996 1995 1999-2000 1995-2000
---------- ---------- ---------- ---------- ---------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT RATIOS, YIELDS, AND PER SHARE AMOUNTS)
SUMMARY OF OPERATING RESULTS
Interest income:
Interest and fees on
loans.................... $2,588,143 $2,201,786 $2,072,204 $1,837,392 $1,554,478 $1,394,937 17.55% 13.16%
Income on federal funds
sold..................... 5,537 4,256 17,610 16,882 11,060 13,462 30.10 -16.28
Taxable interest on
securities............... 561,974 524,935 417,121 355,591 331,895 292,459 7.06 13.95
Tax-free interest on
securities............... 41,726 39,484 39,981 42,836 34,536 36,421 5.68 2.76
Other interest income...... 36,863 84,225 50,870 23,883 22,314 13,148 -56.23 22.90
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Total interest
income............... 3,234,243 2,854,686 2,597,786 2,276,584 1,954,283 1,750,427 13.30 13.06
Interest expense:
Interest on deposits....... 1,372,260 1,056,799 1,065,054 954,782 826,844 740,033 29.85 13.15
Interest on short-term
borrowings............... 276,243 329,518 174,906 108,617 75,827 69,056 -16.17 31.95
Interest on long-term
borrowings............... 196,943 42,514 33,008 33,977 39,788 52,153 363.24 30.44
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Total interest
expense.............. 1,845,446 1,428,831 1,272,968 1,097,376 942,459 861,242 29.16 16.46
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Net interest
income............... 1,388,797 1,425,855 1,324,818 1,179,208 1,011,824 889,185 -2.60 9.33
Provision for loan losses... 127,099 113,658 60,505 89,663 46,026 37,493 11.83 27.66
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Net interest income
after provision for
loan losses.......... 1,261,698 1,312,197 1,264,313 1,089,545 965,798 851,692 -3.85 8.18
Non-interest income:
Trust department income.... 57,675 53,434 55,218 44,227 41,660 38,328 7.94 8.52
Service charges on deposit
accounts................. 231,670 194,984 171,344 151,618 124,960 105,207 18.81 17.10
Mortgage servicing and
origination fees......... 82,732 103,118 111,555 93,327 92,757 65,920 -19.77 4.65
Securities gains
(losses)................. (39,928) 160 7,002 498 3,311 (697) NM NM
Other...................... 269,061 185,445 129,578 117,312 82,415 71,379 45.09 30.39
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Total non-interest
income............... 601,210 537,141 474,697 406,982 345,103 280,137 11.93 16.50
Non-interest expense:
Salaries and employee
benefits................. 588,857 551,569 528,409 480,842 413,768 373,754 6.76 9.52
Net occupancy expense...... 70,675 61,635 62,887 61,933 55,163 48,724 14.67 7.72
Furniture and equipment
expense.................. 74,213 72,013 68,595 56,304 49,971 41,719 3.06 12.21
Merger and consolidation
expense and SAIF
assessment............... 0 0 121,438 0 33,777 0 NM NM
Other...................... 387,437 379,095 322,379 302,697 284,355 256,628 2.20 8.59
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Total non-interest
expense.............. 1,121,182 1,064,312 1,103,708 901,776 837,034 720,825 5.34 9.24
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Income before income
taxes................ 741,726 785,026 635,302 594,751 473,867 411,004 -5.52 12.53
Applicable income taxes..... 214,203 259,640 213,590 197,222 156,008 134,529 -17.50 9.75
---------- ---------- ---------- ---------- ---------- ---------- ------ ------
Net income........... $ 527,523 $ 525,386 $ 421,712 $ 397,529 $ 317,859 $ 276,475 0.41% 13.79%
========== ========== ========== ========== ========== ========== ====== ======
Average number of shares
outstanding................ 220,762 221,617 220,114 209,781 194,241 190,896 -0.39% 2.95%
Average number of shares
outstanding -- diluted..... 221,989 223,967 223,781 213,750 197,751 193,579 -0.88 2.78
Per share:
Net income........... $ 2.39 $ 2.37 $ 1.92 $ 1.89 $ 1.64 $ 1.45 0.84% 10.51%
Net income,
diluted.............. 2.38 2.35 1.88 1.86 1.61 1.43 1.28 10.73
Cash dividends
declared............. 1.08 1.00 0.92 0.80 0.70 0.66 8.00 10.35
12
14
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
HISTORICAL FINANCIAL SUMMARY -- (CONTINUED)
2000 1999 1998 1997 1996 1995
----- ----- ----- ----- ----- -----
YIELDS AND COSTS (TAXABLE EQUIVALENT BASIS)
Earning assets:
Taxable securities..................................... 6.51% 6.35% 6.42% 6.50% 6.37% 6.27%
Tax-free securities.................................... 7.64 7.91 8.26 8.42 8.07 8.64
Federal funds sold..................................... 6.27 4.49 5.45 5.99 5.19 6.01
Loans (net of unearned income)......................... 8.63 8.33 8.88 8.98 8.99 8.94
Other earning assets................................... 8.95 7.06 6.59 7.32 8.10 7.23
Total earning assets........................... 8.15 7.83 8.27 8.42 8.35 8.30
Interest-bearing liabilities:
Interest-bearing deposits.............................. 5.03 4.32 4.61 4.63 4.58 4.55
Short-term borrowings.................................. 6.26 5.07 5.16 5.67 5.46 6.31
Long-term borrowings................................... 6.42 6.33 7.32 6.69 6.66 6.56
Total interest-bearing liabilities............. 5.31 4.52 4.73 4.76 4.70 4.74
Net yield on interest earning assets........... 3.55 3.94 4.25 4.41 4.36 4.27
RATIOS
Net income to:
Average stockholders' equity........................... 16.31%*** 17.13% 14.62%** 15.38% 14.71%* 14.30%
Average total assets................................... 1.23*** 1.33 1.24** 1.35 1.25* 1.19
Efficiency............................................... 54.35*** 53.60 60.82** 57.78 61.84* 61.61
Dividend payout.......................................... 45.19 42.19 47.92 42.33 42.68 45.52
Average loans to average deposits........................ 94.63 91.35 86.93 84.94 82.42 82.23
Average stockholders' equity to average total assets..... 7.54 7.74 8.47 8.75 8.50 8.36
Average interest-bearing deposits to average total
deposits............................................... 85.67 84.40 85.83 85.25 85.87 85.40
---------------
* Ratios for 1996 excluding $20.2 million in after-tax charges for SAIF
assessment and merger expenses are as follows: Return on average
stockholders' equity 15.64%, Return on average total assets 1.33%, and
Efficiency 60.93%.
** Ratios for 1998 excluding $80.7 million in after-tax charges for merger and
consolidation charges are as follows: Return on average stockholders' equity
17.42%, Return on average total assets 1.48%, and Efficiency 54.13%.
*** Ratios for 2000 excluding $44.0 million in after-tax gain from sale of
credit card portfolio and $26.2 million in after-tax loss from sale of
securities are as follows: Return on average stockholders' equity 15.76%,
Return on average total assets 1.19%, and Efficiency 56.19%.
13
15
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
HISTORICAL FINANCIAL SUMMARY -- (CONTINUED)
ANNUAL
CHANGE
2000 1999 1998 1997 1996 1995 1999-2000
----------- ----------- ----------- ----------- ----------- ----------- ---------
(AVERAGE DAILY BALANCES IN THOUSANDS)
ASSETS
Earning assets:
Taxable securities............... $ 8,651,052 $ 8,244,603 $ 6,473,392 $ 5,443,877 $ 5,151,154 $ 4,646,458 4.93%
Tax-exempt securities............ 801,330 745,064 728,511 769,516 665,685 616,960 7.55
Federal funds sold............... 88,361 94,875 323,293 282,006 213,280 224,136 -6.87
Loans, net of unearned income.... 30,130,808 26,478,349 23,379,317 20,535,989 17,329,462 15,666,565 13.79
Other earning assets............. 413,548 1,195,729 773,077 327,265 276,257 181,890 -65.41
----------- ----------- ----------- ----------- ----------- -----------
Total earning assets....... 40,085,099 36,758,620 31,677,590 27,358,653 23,635,838 21,336,009 9.05
Allowance for loan losses........ (360,353) (328,188) (313,521) (284,606) (244,012) (221,004) 9.80
Cash and due from banks.......... 1,094,874 1,237,318 981,930 1,003,864 811,790 918,010 -11.51
Other non-earning assets......... 2,069,717 1,940,182 1,711,042 1,460,675 1,222,811 1,107,953 6.68
----------- ----------- ----------- ----------- ----------- -----------
Total assets............... $42,889,337 $39,607,932 $34,057,041 $29,538,586 $25,426,427 $23,140,968 8.28%
=========== =========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits:
Non-interest-bearing............. $ 4,561,900 $ 4,520,405 $ 3,812,177 $ 3,565,848 $ 2,970,682 $ 2,781,575 0.92%
Interest-bearing................. 27,279,092 24,465,254 23,081,727 20,611,654 18,056,076 16,271,457 11.50
----------- ----------- ----------- ----------- ----------- -----------
Total deposits............. 31,840,992 28,985,659 26,893,904 24,177,502 21,026,758 19,053,032 9.85
Borrowed funds:
Short-term....................... 4,408,689 6,502,860 3,386,392 1,917,127 1,389,922 1,095,129 -32.20
Long-term........................ 3,069,465 671,665 450,808 507,775 597,034 794,576 356.99
----------- ----------- ----------- ----------- ----------- -----------
Total borrowed funds....... 7,478,154 7,174,525 3,837,200 2,424,902 1,986,956 1,889,705 4.23
Other liabilities................ 335,931 380,798 441,188 352,124 251,244 264,708 -11.78
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities.......... 39,655,077 36,540,982 31,172,292 26,954,528 23,264,958 21,207,445 8.52
Stockholders' equity............. 3,234,260 3,066,950 2,884,749 2,584,058 2,161,469 1,933,523 5.46
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity..... $42,889,337 $39,607,932 $34,057,041 $29,538,586 $25,426,427 $23,140,968 8.28%
=========== =========== =========== =========== =========== ===========
COMPOUND
GROWTH
RATE
1995-2000
---------
ASSETS
Earning assets:
Taxable securities............... 13.24%
Tax-exempt securities............ 5.37
Federal funds sold............... -16.99
Loans, net of unearned income.... 13.97
Other earning assets............. 17.85
Total earning assets....... 13.44
Allowance for loan losses........ 10.27
Cash and due from banks.......... 3.59
Other non-earning assets......... 13.31
Total assets............... 13.13%
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits:
Non-interest-bearing............. 10.40%
Interest-bearing................. 10.89
Total deposits............. 10.82
Borrowed funds:
Short-term....................... 32.12
Long-term........................ 31.03
Total borrowed funds....... 31.67
Other liabilities................ 4.88
Total liabilities.......... 13.33
Stockholders' equity............. 10.84
Total liabilities and
stockholders' equity..... 13.13%
14
16
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
HISTORICAL FINANCIAL SUMMARY -- (CONTINUED)
ANNUAL
CHANGE
2000 1999 1998 1997 1996 1995 1999-2000
----------- ----------- ----------- ----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR-END BALANCES
Assets........................... $43,688,293 $42,714,395 $36,831,940 $31,414,058 $26,993,344 $24,419,249 2.28%
Securities....................... 8,994,171 10,913,044 7,969,137 6,315,923 5,742,375 5,618,839 -17.58
Loans, net of unearned income.... 31,376,463 28,144,675 24,365,587 21,881,123 18,395,552 16,156,312 11.48
Non-interest-bearing deposits.... 4,512,883 4,419,693 4,577,125 3,744,198 3,143,968 3,086,166 2.11
Interest-bearing deposits........ 27,509,608 25,569,401 23,772,941 21,266,823 18,875,444 16,896,367 7.59
----------- ----------- ----------- ----------- ----------- -----------
Total deposits............. 32,022,491 29,989,094 28,350,066 25,011,021 22,019,412 19,982,533 6.78
Long-term debt................... 4,478,027 1,750,861 571,040 445,529 570,545 762,521 155.76
Stockholders' equity............. 3,457,944 3,065,112 3,000,401 2,679,821 2,274,563 2,047,398 12.82
Stockholders' equity per share... $ 15.73 $ 13.89 $ 13.61 $ 12.75 $ 11.82 $ 10.74 13.25%
Market price per share of common
stock.......................... $ 27.31 $ 25.13 $ 40.31 $ 42.19 $ 25.85 $ 21.50 8.67%
COMPOUND
GROWTH
RATE
1995-2000
---------
YEAR-END BALANCES
Assets........................... 12.34%
Securities....................... 9.87
Loans, net of unearned income.... 14.20
Non-interest-bearing deposits.... 7.90
Interest-bearing deposits........ 10.24
Total deposits............. 9.89
Long-term debt................... 42.48
Stockholders' equity............. 11.05
Stockholders' equity per share... 7.93%
Market price per share of common
stock.......................... 4.90%
---------------
Notes to Historical Financial Summary:
(1) Amounts in all periods have been restated to reflect significant business
transactions accounted for as poolings of interests, including significant
combinations through the year ended December 31, 2000.
(2) All per share amounts give retroactive recognition to the effect of stock
dividends and stock splits.
(3) Non-accruing loans, of an immaterial amount, are included in earning assets.
No adjustment has been made for these loans in the calculation of yields.
(4) Yields are computed on a taxable equivalent basis, net of interest
disallowance, using marginal federal income tax rates of 35% for 2000-1995.
(5) This summary should be read in conjunction with the related consolidated
financial statements and notes thereto under Item 8 on pages 46 to 79 of
this Annual Report on Form 10-K.
15
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion and financial information is presented to aid in
understanding Regions Financial Corporation's (Regions or the Company) financial
position and results of operations. The emphasis of this discussion will be on
the years 1998, 1999 and 2000; however, financial information for prior years
will also be presented when appropriate.
Regions' primary business is banking. In 2000, Regions' banking affiliates
contributed approximately $500 million to consolidated net income. Regions
operates one state-chartered (Alabama) bank with operations in Alabama,
Arkansas, Georgia, Louisiana, Florida, Texas, South Carolina and Tennessee. A
distribution of selected information as of December 31, 2000, on Regions'
banking operations, by state, is as follows:
FULL-SERVICE
ASSETS LOANS DEPOSITS OFFICES
------ ----- -------- ------------
Alabama.............................................. 31% 31% 31% 188
Arkansas............................................. 14 14 15 132
Georgia.............................................. 25 25 21 141
Louisiana............................................ 10 10 12 95
Florida.............................................. 7 7 8 69
Texas................................................ 4 4 4 30
South Carolina....................................... 4 4 4 36
Tennessee............................................ 5 5 5 38
--- --- --- ---
Totals..................................... 100% 100% 100% 729
=== === === ===
Supplementing the Company's banking operations are a mortgage banking
company, credit life insurance related companies, a registered broker/dealer
firm, specialty financing firm and a commercial accounts receivable financing,
billing and collection company. Regions has no foreign operations, although it
maintains an International Department to assist customers with their foreign
transactions. The mortgage banking company services approximately $21.6 billion
in mortgage loans and in 2000 contributed approximately $25.3 million to net
income.
The Company's principal market areas are located in the states of Alabama,
Arkansas, Florida, Georgia, Louisiana, South Carolina, Tennessee and Texas.
Because of significant business combinations with other companies in 1998,
which were accounted for as poolings of interest, Regions financial information
for all periods prior to 1998 was restated to present the combined financial
condition and results of operations of Regions and the other pooled companies as
if the business combinations had been in effect for all periods presented.
Regions financial information was restated to reflect the 1998 business
combinations with First Commercial Corporation of Little Rock, Arkansas (with
approximately $7.3 billion in assets), First State Corporation of Albany,
Georgia (with approximately $536 million in assets), First United Bancorporation
of Anderson, South Carolina (with approximately $305 million in assets) and
PALFED, Inc. of Aiken, South Carolina (with approximately $665 million in
assets).
The acquisitions of other banks and related institutions have contributed
significantly to Regions' growth during the last three years. Regions has
expanded into new markets and strengthened its presence in existing markets.
Regions' 1998 acquisition activity expanded its presence in Alabama,
Georgia, Florida, Louisiana, South Carolina, and Tennessee through ten
acquisitions with combined assets of $2.1 billion, combined loans of $1.3
billion and combined deposits of $1.8 billion.
In Alabama, Regions acquired Jacobs Bank, located in Scottsboro. The Jacobs
transaction added $186 million in assets.
16
18
Regions' expansion in Georgia included the acquisition of Etowah Bank
located in Canton, First Community Banking Services, Inc. located in Peachtree
City and branches purchased from First Union National Bank in Valdosta, adding
assets of $409 million, $125 million and $109 million, respectively.
Regions' acquisition activity in Florida added $416 million in combined
assets from transactions with two institutions; Key Florida Bancorp, Inc. and
Village Bankshares, Inc. These institutions added to Regions' existing central
Florida presence.
In Louisiana, Regions acquired two institutions: St. Mary Holding
Corporation in Franklin with assets of $111 million and St. James
Bancorporation, Inc. in Lutcher with assets of $172 million.
Also in 1998, Regions expanded its South Carolina market with the
acquisition of Greenville Financial Corporation. This transaction added $141
million in assets.
In Tennessee, First Commercial acquired a Federal Savings Bank subsidiary
of Kemmons Wilson, Inc. This transaction added $396 million in assets.
Additionally, Regions expanded its line of businesses and market area by
acquiring EFC Holdings Corporation (EFC), a Charlotte, North Carolina, specialty
financing institution. EFC, with $63 million in assets, originates and sells
consumer mortgage loans.
Acquisition activity in 1999 focused on strengthening several of Regions'
existing markets. In early 1999, Regions acquired two Georgia-based
institutions, VB&T Bancshares Corporation located in Valdosta and Bullsboro
BancShares, Inc. located in Newnan, which combined added approximately $176
million in assets. The VB&T transaction increased Regions' presence in Southwest
Georgia while the Bullsboro transaction increased Regions' suburban-Atlanta
franchise.
Also in early 1999, Regions increased its Tennessee presence with the
acquisition of Meigs County Bancshares, Inc., a $114 million institution located
in Decatur, a part of Regions' middle Tennessee market.
Regions' 1999 expansion activity in Arkansas was in the northeast portion
of the state. In March, Regions acquired Arkansas Banking Company located in
Jonesboro. This transaction, while adding $355 million in assets, significantly
increased Regions' presence in the Jonesboro market.
At the end of 1999, Regions acquired Minden Bancshares, Inc., which is
located in Minden, Louisiana. This transaction added $319 million in assets to
Regions' existing market in the northwest corner of the state.
Regions' acquisition activity in 2000 strengthened its presence in
Arkansas, Florida, Tennessee and Louisiana, while expanding into the rapidly
growing Austin, Texas market. These five acquisitions combined to add $885
million in assets, $494 million in loans and $753 million in deposits.
In Arkansas, Regions acquired five branches from Amsouth Bank located in
Fort Smith, Arkansas. The branch purchase added $186 million in assets.
In Florida, Regions expanded into Ormond Beach through the acquisition of
East Coast Bank Corporation with assets of $108 million.
Regions expanded its Tennessee presence through the acquisition of LCB
Corporation in Fayetteville with $173 million in assets.
In Louisiana, Regions continued to expand its market presence through the
acquisition of First National Bancshares of Louisiana, Inc. of Alexandria with
assets of $304 million.
Regions expansion in Texas consisted of an institution in the rapidly
expanding Austin market. The acquisition of Heritage Bancorp, Inc., of Hutto
Texas, added $114 million in assets.
Regions' and the pooled companies' business combinations over the last
three years are summarized in the following chart.
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19
ACCOUNTING
DATE COMPANY HEADQUARTERS LOCATION TOTAL ASSETS TREATMENT
---- ------- --------------------- ------------ ----------
(IN THOUSANDS)
2000
January LCB Corporation Fayetteville, $173,157 Purchase
Tennessee
May Five Branches of Amsouth Bank Fort Smith, Arkansas 186,361 Purchase
August Heritage Bancorp, Inc. Hutto, Texas 114,370 Purchase
August First National Bancshares of Alexandria, Louisiana 303,793 Purchase
Louisiana, Inc.
September East Coast Bank Corporation Ormond Beach, Florida 107,779 Purchase
1999
January VB&T Bancshares Corporation Valdosta, Georgia 75,733 Pooling
January Bullsboro BancShares, Inc. Newnan, Georgia 100,682 Pooling
January Meigs County Bancshares, Inc. Decatur, Tennessee 114,407 Pooling
March Arkansas Banking Company Jonesboro, Arkansas 354,981 Purchase
December Minden Bancshares, Inc. Minden, Louisiana 318,955 Purchase
1998
February Greenville Financial Corporation Greenville, South 141,294 Pooling
Carolina
March St. Mary Holding Corporation Franklin, Louisiana 111,498 Pooling
March Key Florida Bancorp, Inc. Bradenton, Florida 204,435 Pooling
March Federal Savings Bank Subsidiary of Memphis, Tennessee 395,629 Purchase
Kemmons Wilson, Inc.
August Village Bankshares, Inc. Tampa, Florida 211,469 Pooling
August Jacobs Bank Scottsboro, Alabama 185,939 Pooling
September Etowah Bank Canton, Georgia 409,139 Pooling
September First Community Banking Services, Peachtree City, 124,762 Pooling
Inc. Georgia
September Branches of First Union National Valdosta, Georgia 108,913 Purchase
Bank
November EFC Holdings Corporation Charlotte, North 63,147 Purchase
Carolina
December St. James Bancorporation, Inc. Lutcher, Louisiana 171,572 Purchase
As of December 31, 2000, Regions had one pending acquisition -- Morgan
Keegan, Inc., a regional broker/dealer firm headquartered in Memphis, Tennessee.
See Note Q to the consolidated financial statements for additional
information regarding the pending acquisition.
FINANCIAL CONDITION
Regions' financial condition depends primarily on the quality and nature of
its assets, liabilities and capital structure, the market and economic
conditions, and the quality of its personnel.
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20
LOANS AND ALLOWANCE FOR LOAN LOSSES
As a financial institution, Regions' primary investment is loans. At
December 31, 2000, loans represented 77% of Regions' earning assets.
Over the last four years loans increased a total of $13.0 billion, a
compound growth rate of 14%. Loans acquired in connection with acquisitions over
the last four years contributed $3.7 billion of this growth. Regions has
experienced significant loan growth in recent years, with loans increasing $2.5
billion, $3.8 billion and $3.2 billion in 1998, 1999 and 2000, respectively. In
1998 and 1999, respectively, acquisitions added $1.3 billion and $567 million in
loans. Five acquisitions in 2000 added approximately $494 million in loans.
During 1999, Regions securitized $1.3 billion in single-family residential
mortgage loans. These assets were transferred from the loan portfolio to the
available for sale securities portfolio. The securitization of these loans gives
Regions additional flexibility for funding purposes and results in a lower
risk-weighted capital allocation for these assets. In 2000, Regions sold its
credit card portfolio, which totaled $278 million. Adjusting for the effect of
the securitization and sale, loans would have increased $5.1 billion or 21% in
1999 and $3.5 billion or 12% in 2000.
All major categories of loans have shared in the growth in the loan
portfolio over the last four years, with the strongest growth occurring in
commercial and real estate construction loans. Over the last four years,
commercial, financial and agricultural loans increased $5.1 billion or 129%.
Real estate construction loans increased $2.0 billion or 168% over the same
period. Real estate mortgage loans increased $4.6 billion or 54%, and consumer
loans increased $1.2 billion or 26% over the last four years. The increase in
real estate mortgage loans and consumer loans, respectively, is net of the $1.3
billion single-family residential mortgage loan securitization and the $278
million credit card portfolio sale previously discussed.
Regions' real estate mortgage portfolio includes $6.7 billion of mortgage
loans secured by single-family residences that were originated by Regions'
mortgage subsidiary and are secured primarily by homes in Regions' geographic
footprint. These loans increased approximately $815 million in 1998, $1.9
billion in 1999 and $1.2 billion in 2000, accounting for approximately 33%, 49%,
and 38% respectively, of the growth in total loans in 1998, 1999, and 2000. The
increase in 1998 and 1999 is net of the securitization of the $534 million and
$1.3 billion, respectively, in single-family residential mortgages. Eighty-six
percent of the balance of these mortgage loans consists of adjustable-rate
mortgages (ARM's) that have rates approximately 275 basis points above one of
several money market indices when fully priced.
Regions' real estate portfolio also includes $1.5 billion of single-family
mortgage loans obtained in various acquisitions, which are being serviced by
Regions' mortgage subsidiary. Fixed-rate single-family mortgages with a weighted
average interest rate of 7.86% and a weighted average remaining term of 14.25
years comprise 43% of this portfolio. Single-family ARM's, which have rates
approximately 200 to 300 basis points above one of several money market indices
when fully priced, comprise the remaining 57% of the overall balance of these
loans.
Lending at Regions is generally organized along three functional lines:
commercial loans (including financial and agricultural), real estate loans and
consumer loans. The composition of the portfolio by these major categories is
presented below (with real estate loans further broken down between construction
and mortgage loans):
DECEMBER 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, NET OF UNEARNED INCOME)
Commercial...................... $ 9,039,818 $ 8,183,633 $ 7,119,093 $ 5,073,698 $ 3,951,766
Real estate -- construction..... 3,271,692 2,439,104 1,865,972 1,582,706 1,222,519
Real estate -- mortgage......... 13,114,655 11,728,601 9,608,147 10,072,195 8,496,603
Consumer........................ 5,950,298 5,793,337 5,772,375 5,152,524 4,724,664
----------- ----------- ----------- ----------- -----------
Total................. $31,376,463 $28,144,675 $24,365,587 $21,881,123 $18,395,552
=========== =========== =========== =========== ===========
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21
The amounts of total gross loans (excluding residential mortgages on 1-4
family residences and consumer loans) outstanding at December 31, 2000, based on
remaining scheduled repayments of principal, due in (1) one year or less, (2)
more than one year but less than five years and (3) more than five years, are
shown in the following table. The amounts due after one year are classified
according to sensitivity to changes in interest rates.
LOANS MATURING
---------------------------------------------------------
WITHIN AFTER ONE BUT AFTER
ONE YEAR WITHIN FIVE YEARS FIVE YEARS TOTAL
---------- ----------------- ---------- -----------
(IN THOUSANDS)
Commercial, financial and agricultural..... $3,840,795 $3,913,715 $1,315,739 $ 9,070,249
Real estate -- construction................ 1,762,340 1,343,193 173,504 3,279,037
Real estate -- mortgage.................... 709,277 1,844,764 1,154,947 3,708,988
---------- ---------- ---------- -----------
Total............................ $6,312,412 $7,101,672 $2,644,190 $16,058,274
========== ========== ========== ===========
SENSITIVITY OF LOANS TO
CHANGES IN INTEREST RATES
--------------------------
PREDETERMINED VARIABLE
RATE RATE
------------- ----------
(IN THOUSANDS)
Due after one year but within five years.................... $4,929,603 $2,172,069
Due after five years........................................ 1,244,277 1,399,913
---------- ----------
Total............................................. $6,173,880 $3,571,982
========== ==========
A sound credit policy and careful, consistent credit review are vital to a
successful lending program. All affiliates of Regions operate under written loan
policies which attempt to maintain a consistent lending philosophy, provide
sound traditional credit decisions, provide an adequate return and render
service to the communities in which the banks are located. Regions' lending
policy generally confines loans to local customers or to national firms doing
business locally. Credit reviews and loan examinations help confirm that
affiliates are adhering to these loan policies.
Every loan carries some degree of credit risk. This risk is reflected in
the consolidated financial statements by the allowance for loan losses, the
amount of loans charged off and the provision for loan losses charged to
operating expense. It is Regions' policy that when a loss is identified, it is
charged against the allowance for loan losses in the current period. The policy
regarding recognition of losses requires immediate recognition of a loss if
significant doubt exists as to principal repayment.
Regions' provision for loan losses is a reflection of actual losses
experienced during the year and management's judgment as to the adequacy of the
allowance for loan losses. Some of the factors considered by management in
determining the amount of the provision and resulting allowance include: (1)
detailed reviews of individual loans; (2) gross and net loan charge-offs in the
current year; (3) the current level of the allowance in relation to total loans
and to historical loss levels; (4) past due and non-accruing loans; (5)
collateral values of properties securing loans; (6) the composition of the loan
portfolio (types of loans); and (7) management's analysis of economic conditions
and the resulting impact on Regions' loan portfolio.
A coordinated effort is undertaken to identify credit risks in the loan
portfolio for management purposes and to establish the loan loss provision and
resulting allowance for accounting purposes. A regular, formal and ongoing loan
review is conducted to identify loans with unusual risks or possible losses. The
primary responsibility for this review rests with the management of the
individual banking offices. Their work is supplemented with reviews by Regions'
internal audit staff and corporate loan examiners. Bank regulatory agencies and
the Company's independent auditors provide additional levels of review. This
process provides information which helps in assessing the quality of the
portfolio, assists in the prompt identification of problems and potential
problems and aids in deciding if a loan represents a probable loss which should
be recognized or a risk for which an allowance should be maintained.
20
22
If, as a result of Regions' loan review and evaluation procedures, it is
determined that payment of interest on a loan is questionable, it is Regions'
policy to reverse interest previously accrued on the loan against interest
income. Interest on such loans is thereafter recorded on a "cash basis" and is
included in earnings only when actually received in cash and when full payment
of principal is no longer doubtful.
Although it is Regions' policy to immediately charge off as a loss all loan
amounts judged to be uncollectible, historical experience indicates that certain
losses exist in the loan portfolio which have not been specifically identified.
To anticipate and provide for these unidentifiable losses, the allowance for
loan losses is established by charging the provision for loan losses expense
against current earnings. No portion of the resulting allowance is in any way
allocated or restricted to any individual loan or group of loans. The entire
allowance is available to absorb losses from any and all loans.
Over the last five years, the year-end allowance for loan losses as a
percentage of loans ranged from a low of 1.20% in 2000 to a high of 1.39% in
1997. As previously discussed, the adequacy of the allowance for loan losses is
based on management's evaluation of various factors.
The ratio of non-performing assets (including loans past due 90 days or
more and other real estate) to loans and other real estate increased from 0.83%
at December 31, 1996 to 1.15% at December 31, 1998. The favorable effect on
non-performing assets levels from generally improving economic conditions in
Regions' markets were offset by the effect of non-performing assets added by
certain acquisitions, resulting in the unfavorable trend in this ratio. The
ratio of non-performing assets (including loans past due 90 days or more and
other real estate) to loans and other real estate declined to 0.93% at December
31, 1999, and to 0.87% at December 31, 2000 due primarily to decreases in
commercial and consumer loan delinquencies.
The allowance for loan losses as a percentage of non-performing loans
(including loans past due 90 days or more) was 153% at December 31, 2000,
compared to 135% at December 31, 1999, and to 120% at December 31, 1998.
Management considers the current level of the allowance for loan losses adequate
to absorb possible losses from loans in the portfolio. Management's
determination of the adequacy of the allowance for loan losses, which is based
on the factors and risk identification procedures previously discussed, requires
the use of judgments and estimations that may change in the future. Unfavorable
changes in the factors used by management to determine the adequacy of the
reserve or the availability of new information, could cause the allowance for
loan losses to be increased or decreased in future periods. In addition, bank
regulatory agencies, as part of their examination process, may require that
additions be made to the allowance for loan losses based on their judgments and
estimates.
The analysis of loan loss experience (see chart following) shows that net
loan losses, over the last five years, ranged from a high of $99.2 million in
1999 to a low of $30.4 million in 1996. Net loan losses were $94.1 million in
2000, $66.4 million in 1998 and $56.1 million in 1997. Over the last five years,
net loan losses averaged 0.29% of average loans and were 0.31% of average loans
in 2000. Regions' higher level of net loan losses in 1999 and 2000 resulted
primarily from charge-off of certain commercial credits and segments of consumer
credits, partially offset by recoveries of previously charged-off loans in the
commercial and consumer categories.
In order to assess the risk characteristics of the loan portfolio at
December 31, 2000, it is appropriate to consider the three major categories of
loans -- commercial, real estate and consumer.
Regions' commercial loan portfolio is highly diversified within the markets
served by the Company. Geographically, the largest concentration is the 26% of
the portfolio held by banking offices in the state of Alabama. Banking offices
in Georgia and Arkansas hold 25% and 20% respectively, of the commercial loan
portfolio, followed by Louisiana with 10%, Tennessee with 6%, Florida and Texas
with 5% each and South Carolina with 3%. A small portion of these loans is
secured by properties outside Regions' banking market areas.
The Alabama economy has experienced relatively stable growth over the last
several years. Industries important in the Alabama economy include vehicle and
vehicle parts manufacturing and assembly, lumber and wood products, and steel
production. High technology industries are important in the northern part of the
21
23
state. Service and health care industries have increased in importance and are
predicted to continue growing. Agriculture, particularly poultry, beef cattle
and cotton, are important to the state's economy.
The economy of the northern two-thirds of Georgia is diversified with a
strong presence in poultry production, carpet manufacturing, automotive
manufacturing related industries, tourism, and various service sector
industries. A well developed transportation system has contributed to the growth
in north Georgia. This area has experienced rapid population growth and has very
favorable household income characteristics, relative to many of Regions' other
markets. In recent years, Georgia's population has grown at twice the national
rate. Prospects are good for continued strong economic growth and development in
this area.
In the southern region of Georgia, while agriculture is important, other
industries play an important role in the economy. Albany and Valdosta, Regions'
primary market areas, are hubs for retail trade and health care for the entire
south Georgia market. These markets are also home to numerous Fortune 500
Company manufacturing and production facilities.
The Arkansas economy is supported in part by the forest products industry
due to the abundance of corporate owned forests and public lands. In recent
years, steel production has become increasingly important to the state's
economy.
Natural resources are very important to the Louisiana economy. Energy and
petrochemical industries play a significant role in the economy. Shipping,
shipbuilding, and other transportation equipment industries are strong in the
state's durable goods industries. Tourism, amusement and recreation, service,
and health care industries are also important to the Louisiana economy. Cotton,
rice and sugarcane are among Louisiana's most important agricultural
commodities.
The economy along the I-85 corridor in South Carolina continues to be among
the fastest growing in the country. This area is home to numerous multinational
manufacturers, resulting in one of the highest per capita foreign investment
areas in the nation. South Carolina has one of the highest growth rates in
personal income in the nation.
Tennessee's economy is heavily influenced by automobile manufacturing,
tourism, entertainment and recreation, health care and other service industries.
With one out of four Tennesseeans employed in service industries, the state's
economy is very dependent on this sector for continued good economic
performance.
The economy of the eastern portion of Texas remains healthy. A major
distribution center and a new telemarketing service center bode well for the
Tyler market while the Longview area benefits from manufacturing expansion and a
medical claims service center.
The northwestern part of Florida and the central Florida area have also
experienced excellent economic growth during the last several years. Tourism is
very important to the Florida economy, and military payrolls are significant in
the panhandle area. Florida has experienced strong in-migration, contributing to
strong construction activity and a growing retirement-age population. Population
growth rates in Florida are 50% higher than the national average. Citrus fruit
production is also important in the state.
From 1996 to 2000, net losses on commercial loans ranged from a low of
0.03% in 1997 to a high of 0.41% in 2000. The higher level of commercial loan
losses in 2000, resulted primarily from an $11.4 million charge-off of a single
loan to a customer in the steel industry. Excluding the loss associated with
this one credit, commercial loan losses would have been down slightly from 1999.
Future losses are a function of many variables, of which general economic
conditions are the most important. A continuation of moderate economic growth
during 2001 in Regions' market areas could result in 2001 net commercial loan
losses slightly below the 2000 level.
Regions' real estate loan portfolio consists of construction and land
development loans, loans to businesses for long-term financing of land and
buildings, loans on one-to-four family residential properties, loans to mortgage
banking companies (which are secured primarily by loans on one-to-four family
residential properties and are known as warehoused mortgage loans) and various
other loans secured by real estate.
22
24
Real estate construction loans increased $833 million in 2000 to $3.3
billion. At December 31, 2000, these loans represented 10.4% of Regions' total
loan portfolio, compared to 6.6% at the end of 1996. Strong economic growth and
new development in Regions' market areas have enabled Regions to steadily
increase construction loans. Most of the construction loans relate to shopping
centers, apartment complexes, commercial buildings and residential property
development. These loans are normally secured by land and buildings and are
generally backed by commitments for long-term financing from other financial
institutions. Real estate construction loans are closely monitored by
management, since these loans are generally considered riskier than other types
of loans and are particularly vulnerable in economic downturns and in periods of
high interest rates. Regions generally requires higher levels of borrower equity
investment in addition to other underwriting requirements for this type of
lending as compared to other real estate lending. Regions has not been an active
lender to real estate developers outside its market areas.
The loans to businesses for long-term financing of land and buildings are
primarily to commercial customers within Regions' markets. Total loans secured
by non-farm, non-residential properties totaled $5.2 billion at December 31,
2000. Although some risk is inherent in this type of lending, the Company
attempts to minimize this risk by generally making the majority of these type
loans only on owner-occupied properties, and by requiring collateral values
which exceed the loan amount, adequate cash flow to service the debt, and in
most cases, the personal guaranties of principals of the borrowers.
Regions also attempts to mitigate the risks of real estate lending by
adhering to standard loan underwriting policies and by diversifying the
portfolio both geographically within its market area and within industry groups.
Loans on one-to-four family residential properties, which total
approximately 72% of Regions' real estate mortgage portfolio, are principally on
single-family residences. These loans are geographically dispersed throughout
the southeastern states and some are guaranteed by government agencies or
private mortgage insurers. Historically, this category of loans has not produced
sizable loan losses; however, it is subject to some of the same risks as other
real estate lending. Warehoused mortgage loans, since they are secured primarily
by loans on one-to-four family residential properties, are similar to these
loans in terms of risk.
From 1996 to 1999, net losses on real estate loans ranged from a high of
0.11% of real estate loans in 1998 and 1999, to a low of 0.01% of real estate
loans in 1996. In 2000 real estate loan losses were 0.07% of average real estate
loans, primarily as a result of higher commercial real estate loan charge offs.
These losses depend, to a large degree, on the level of interest rates, economic
conditions and collateral values, and thus, are very difficult to predict.
Management expects 2001 net real estate loan losses to be near the 2000 level.
Regions' consumer loan portfolio consists of $5.1 billion in consumer loans
and $858 million in personal lines of credit (including home equity loans).
Consumer loans are primarily borrowings of individuals for home improvements,
automobiles and other personal and household purposes. Regions' consumer loan
portfolio includes $1.2 billion and $1.3 billion in indirect installment loans
at December 31, 2000 and 1999, respectively. During the past five years, the
ratio of net consumer loan losses to consumer loans ranged from a low of 0.64%
in 1996 to a high of 1.09% in 1999. Higher levels of personal bankruptcies in
Regions' market areas have contributed to the higher net consumer loan losses in
recent years. In 2000, net consumer loan losses declined to 0.82% of average
loans, primarily due to improved collection processes. Consumer loan losses are
difficult to predict, but historically have tended to increase during periods of
recession. Management expects net consumer loan losses in 2001 to be near the
2000 level assuming continued moderate economic growth.
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25
The following table presents information on non-performing loans and real
estate acquired in settlement of loans:
DECEMBER 31,
----------------------------------------------------
NON-PERFORMING ASSETS 2000 1999 1998 1997 1996
--------------------- -------- -------- -------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
Non-performing loans:
Loans accounted for on a non-accrual
basis.................................. $197,974 $169,904 $124,718 $138,149 $ 84,219
Loans contractually past due 90 days or
more as to principal or interest
payments (exclusive of non-accrual
loans)................................. 35,903 71,952 134,411 29,020 35,831
Loans whose terms have been renegotiated
to provide a reduction or deferral of
interest or principal because of a
deterioration in the financial position
of the borrower (exclusive of
non-accrual loans and loans past due 90
days or more).......................... 12,372 8,390 4,550 12,616 11,032
Real estate acquired in settlement of loans
("other real estate")..................... 28,443 12,662 17,273 20,511 21,099
-------- -------- -------- -------- --------
Total............................. $274,692 $262,908 $280,952 $200,296 $152,181
======== ======== ======== ======== ========
Non-performing assets as a percentage of
loans and other real estate............... .87% .93% 1.15% 0.91% 0.83%
The following analysis presents a five year history of the allowance for
loan losses and loan loss data:
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
Allowance for loan losses:
Balance at beginning of year.... $ 338,375 $ 315,412 $ 304,223 $ 253,248 $ 231,390
Loans charged off:
Commercial.................... 51,617 35,589 24,214 15,534 9,561
Real estate................... 13,673 15,781 13,366 7,174 4,217
Installment................... 66,456 77,867 56,159 65,571 38,198
----------- ----------- ----------- ----------- -----------
Total................. 131,746 129,237 93,739 88,279 51,976
Recoveries:
Commercial.................... 15,639 12,934 10,473 14,265 8,121
Real estate................... 2,750 1,109 1,655 3,879 3,484
Installment................... 19,249 16,006 15,201 14,027 9,933
----------- ----------- ----------- ----------- -----------
Total................. 37,638 30,049 27,329 32,171 21,538
Net loans charged off:
Commercial.................... 35,978 22,655 13,741 1,269 1,440
Real estate................... 10,923 14,672 11,711 3,295 733
Installment................... 47,207 61,861 40,958 51,544 28,265
----------- ----------- ----------- ----------- -----------
Total................. 94,108 99,188 66,410 56,108 30,438
Allowance of acquired banks..... 5,142 8,493 17,094 17,420 6,270
Provision charged to expense.... 127,099 113,658 60,505 89,663 46,026
----------- ----------- ----------- ----------- -----------
Balance at end of year.......... $ 376,508 $ 338,375 $ 315,412 $ 304,223 $ 253,248
=========== =========== =========== =========== ===========
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26
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
Average loans outstanding:
Commercial.................... $ 8,811,864 $ 7,661,595 $ 7,060,917 $ 4,536,710 $ 3,583,628
Real estate................... 15,595,695 13,144,153 10,479,084 10,768,271 9,318,457
Installment................... 5,723,249 5,672,601 5,839,316 5,231,008 4,427,377
----------- ----------- ----------- ----------- -----------
Total................. $30,130,808 $26,478,349 $23,379,317 $20,535,989 $17,329,462
=========== =========== =========== =========== ===========
Net charge-offs as percent of
average loans outstanding:
Commercial.................... .41% .30% .19% .03% .04%
Real estate................... .07 .11 .11 .03 .01
Installment................... .82 1.09 .70 .99 .64
Total................. .31 .37 .28 .27 .18
Net charge-offs as percent of:
Provision for loan losses..... 74.0% 87.3% 109.8% 62.6% 66.1%
Allowance for loan losses..... 25.0 29.3 21.1 18.4 12.0
Allowance as percentage of
loans, net of unearned
income........................ 1.20% 1.20% 1.29% 1.39% 1.38%
Provision for loan losses (net
of tax effect) as percentage
of net income................. 15.1% 13.5% 9.0% 14.1% 9.0%
At December 31, 2000, non-accrual loans totaled $198.0 million or 0.63% of
loans, compared to $169.9 million or 0.60% of loans at December 31, 1999. The
increase in non-accrual loans at December 31, 2000, was primarily due to
increased levels of commercial loans being placed on non-accrual status.
Commercial loans comprised $70.3 million of the 2000 total, with real estate
loans accounting for $111.4 million and consumer loans $16.3 million.
Loans contractually past due 90 days or more were 0.11% of total loans at
December 31, 2000, compared to 0.26% of total loans at December 31, 1999. Since
December 31, 1999, loan delinquencies have declined primarily due to
improvements in loan collection processes during 2000. Loans past due 90 days or
more at December 31, 2000, consisted of $18.1 million in commercial and real
estate loans and $17.8 million in consumer loans.
Renegotiated loans were 0.04% and 0.03% of loans at December 31, 2000 and
1999, respectively. Renegotiated loans have remained at relatively low levels
over the last five years, as a result of paydowns and payoffs on renegotiated
loans, which were added by acquisitions.
Other real estate declined from 1996 to 1999, but increased to $28.4
million at December 31, 2000, from $12.7 million at December 31, 1999. Other
real estate, added through the normal course of business and by acquisitions in
2000, was partially offset by sales of other real estate. From 1996 through
1999, other real estate declined due to increased sales of parcels of other real
estate, combined with fewer additions. Other real estate is recorded at the
lower of (1) the recorded investment in the loan or (2) the estimated net
realizable value of the collateral. Although Regions does not anticipate
material loss upon disposition of other real estate, sustained periods of
adverse economic conditions, substantial declines in real estate values in
Regions' markets, actions by bank regulatory agencies, or other factors, could
result in additional loss from other real estate.
The amount of interest income earned in 2000 on the $198.0 million of
non-accruing loans outstanding at year end was approximately $7.5 million. If
these loans had been current in accordance with their original terms,
approximately $21.1 million would have been earned on these loans in 2000.
Approximately $1.1 million in interest income would have been earned in 2000
under the original terms of the $12.4 million in renegotiated loans outstanding
at December 31, 2000. Approximately $846,000 in interest income was actually
earned in 2000 on these loans.
25
27
In the normal course of business, Regions makes commitments under various
terms to lend funds to its customers. These commitments include (among others)
revolving credit agreements, term loan agreements and short-term borrowing
arrangements, which are usually for working capital needs. Letters of credit are
also issued, which under certain conditions could result in loans. See Note L to
the consolidated financial statements for additional information on commitments.
The commercial, real estate and consumer loan portfolios are highly
diversified in terms of industry concentrations. The following table shows the
largest concentrations in terms of the customer's Standard Industrial
Classification Code at December 31, 2000:
2000 1999
--------------------------- ---------------------------
% %
% OF NON- % OF NON-
STANDARD INDUSTRIAL CLASSIFICATION AMOUNT TOTAL ACCRUAL AMOUNT TOTAL ACCRUAL
---------------------------------- --------- ----- ------- --------- ----- -------
(DOLLAR AMOUNTS IN MILLIONS)
Individuals............................... $17,560.1 55.8% 0.5% $15,181.7 53.8% 0.5%
Services:
Physicians.............................. 288.3 0.9 0.3 200.4 0.7 0.1
Business services....................... 209.8 0.7 0.0 149.5 0.5 1.4
Religious organizations................. 343.6 1.1 0.6 293.1 1.0 0.9
Legal services.......................... 98.9 0.3 0.7 89.3 0.3 0.6
All other services...................... 2,728.3 8.7 0.9 1,910.2 6.9 0.5
--------- ----- --------- -----
Total services.................. 3,668.9 11.7 0.8 2,642.5 9.4 0.6
Manufacturing:
Electrical equipment.................... 93.6 0.3 0.1 62.2 0.2 0.0
Food and kindred products............... 38.5 0.1 1.3 57.8 0.2 0.0
Rubber and plastic products............. 31.6 0.1 3.5 35.2 0.1 3.2
Lumber and wood products................ 188.4 0.6 0.4 129.1 0.5 0.0
Fabricated metal products............... 169.6 0.5 0.5 88.7 0.3 0.3
All other manufacturing................. 669.4 2.1 1.8 642.3 2.3 3.2
--------- ----- --------- -----
Total manufacturing............. 1,191.1 3.7 1.3 1,015.3 3.6 2.2
Wholesale trade........................... 689.9 2.2 0.6 649.6 2.3 0.3
Finance, insurance and real estate:
Real estate............................. 1,349.4 4.3 0.9 1,840.7 6.5 0.7
Banks and credit agencies............... 149.6 0.5 0.0 283.2 1.0 0.2
All other finance, insurance and real
estate............................... 2,402.4 7.6 0.1 1,249.6 4.4 0.4
--------- ----- --------- -----
Total finance, insurance and
real estate................... 3,901.4 12.4 0.3 3,373.5 11.9 0.5
Construction:
Residential building construction....... 576.6 1.8 0.7 541.5 1.9 0.3
General contractors and builders........ 764.7 2.4 1.8 486.9 1.7 0.1
All other construction.................. 348.5 1.1 1.6 324.2 1.1 1.6
--------- ----- --------- -----
Total construction.............. 1,689.8 5.3 1.4 1,352.6 4.7 0.6
Retail trade:
Automobile dealers...................... 514.8 1.6 0.1 251.8 0.9 0.1
All other retail trade.................. 706.8 2.3 0.9 805.5 2.9 0.6
--------- ----- --------- -----
Total retail trade.............. 1,221.6 3.9 0.5 1,057.3 3.8 0.5
Agriculture, forestry and fishing......... 527.9 1.7 1.4 510.3 1.8 1.5
Transportation, communication, electrical,
gas and sanitary........................ 448.5 1.4 0.9 408.4 1.4 0.1
Mining (including oil and gas
extraction)............................. 50.2 0.2 1.9 40.1 0.1 9.0
Public administration..................... 0.0 0.0 0.0 113.1 0.4 0.0
26
28
2000 1999
--------------------------- ---------------------------
% %
% OF NON- % OF NON-
STANDARD INDUSTRIAL CLASSIFICATION AMOUNT TOTAL ACCRUAL AMOUNT TOTAL ACCRUAL
---------------------------------- --------- ----- ------- --------- ----- -------
(DOLLAR AMOUNTS IN MILLIONS)
Revolving credit loans.................... 0.0 0.0 0.0 335.4 1.2 0.0
Other..................................... 523.3 1.7 1.5 1,541.4 5.6 0.3
--------- ----- --------- -----
Total........................... $31,472.7 100.0% 0.6% $28,221.2 100.0% 0.6%
========= ===== ========= =====
INTEREST-BEARING DEPOSITS IN OTHER BANKS
Interest-bearing deposits in other banks are used primarily as temporary
investments. These assets generally have short-term maturities. This category of
earning assets decreased from $144.0 million at December 31, 1998, to $9.7
million at December 31, 1999 and to $3.2 million at December 31, 2000. During
1999 and 2000, maturities from these assets were reinvested in alternative
investments, resulting in the declining balance over the past two years.
SECURITIES
The following table shows the carrying values of securities as follows:
DECEMBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS)
Investment securities:
U.S. Treasury & Federal agency securities................ $2,573,461 $2,639,214 $2,371,412
Obligations of states and political subdivisions......... 670,252 635,034 565,095
Mortgage-backed securities............................... 295,477 380,677 188,607
Other securities......................................... 12 399,354 -0-
---------- ---------- ----------
Total............................................ $3,539,202 $4,054,279 $3,125,114
========== ========== ==========
Securities available for sale:
U.S. Treasury & Federal agency securities................ $ 785,537 $ 568,561 $ 956,162
Obligations of states and political subdivisions......... 142,073 158,260 168,493
Mortgage-backed securities............................... 4,255,433 5,973,995 3,574,590
Other securities......................................... 1,294 3,336 6,592
Equity securities........................................ 270,632 154,613 138,186
---------- ---------- ----------
Total............................................ $5,454,969 $6,858,765 $4,844,023
========== ========== ==========
Total securities decreased $1.9 billion or 18% in 2000. This decline
resulted from the sale of $1.4 billion of available for sale securities in
addition to maturities of securities not being reinvested in this category of
earning assets. U.S. Treasury and Federal agency securities increased $151
million. Obligations of states and political subdivisions increased $19 million.
Mortgage-backed securities decreased $1.8 billion in 2000 due to the previously
discussed sale of securities and other maturities.
In 1999, total securities increased $2.9 billion or 37%. U.S. Treasury and
Federal agency securities decreased $120 million. Mortgage-backed securities
increased $2.6 billion due to acquisition activity and the $1.3 billion
securitization of mortgage loans previously discussed. Obligations of states and
political subdivisions increased $59.7 million or 8% in 1999. Other securities
were up significantly in 1999 due to the investing of excess liquidity in
various short-term securities.
Regions' investment portfolio policy stresses quality and liquidity. At
December 31, 2000, the average maturity of U.S. Treasury and Federal agency
securities was 4.1 years and that of obligations of states and political
subdivisions was 7.1 years. The average expected maturity of mortgage-backed
securities was 4.2 years and other securities had an average contractual
maturity of 5.2 years. Overall, the average maturity of the portfolio was 13.8
years using contractual maturities and 4.4 years using expected maturities.
Expected
27
29
maturities differ from contractual maturities because borrowers have the right
to call or prepay obligations with or without call or prepayment penalties.
The estimated fair market value of Regions' investment securities portfolio
at December 31, 2000, was $2.9 million below the amount carried on Regions'
books. Regions' securities available for sale portfolio at December 31, 2000,
included net unrealized gains of $1.4 million. Regions' investment securities
and securities available for sale portfolios included gross unrealized gains of
$36.5 million and gross unrealized losses of $38.0 million at December 31, 2000.
Market values of these portfolios vary significantly as interest rates change;
however, management expects normal maturities from the securities portfolios to
meet liquidity needs.
Of Regions' tax-free securities rated by Moody's Investors Service, Inc.,
97% are rated "A" or better. The portfolio is carefully monitored to assure no
unreasonable concentration of securities in the obligations of a single debtor,
and current credit reviews are conducted on each security holding.
The following table shows the maturities of securities (excluding equity
securities) at December 31, 2000, the weighted average yields and the taxable
equivalent adjustment used in calculating the yields:
SECURITIES MATURING
-----------------------------------------------------------
AFTER ONE AFTER FIVE
WITHIN BUT WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
-------- ---------- ---------- --------- ----------
(IN THOUSANDS)
Investment securities:
U.S. Treasury and Federal agency
securities..................... $ 26,429 $1,936,794 $ 610,018 $ 220 $2,573,461
Obligations of states and
political subdivisions......... 30,655 130,639 245,569 263,389 670,252
Mortgage-backed securities........ 6,493 48,795 240,189 -0- 295,477
Other securities.................. -0- 3 6 3 12
-------- ---------- ---------- -------- ----------
Total..................... $ 63,577 $2,116,231 $1,095,782 $263,612 $3,539,202
======== ========== ========== ======== ==========
Weighted average yield............ 7.99% 6.44% 6.65% 7.95% 6.64%
Securities available for sale:
U.S. Treasury and Federal agency
securities..................... $ 44,586 $ 671,114 $ 69,837 $ -0- $ 785,537
Obligations of states and
political subdivisions......... 18,005 61,399 42,787 19,882 142,073
Mortgage-backed securities........ 90,716 3,491,552 500,240 172,925 4,255,433
Other securities.................. 456 450 208 180 1,294
-------- ---------- ---------- -------- ----------
Total..................... $153,763 $4,224,515 $ 613,072 $192,987 $5,184,337
======== ========== ========== ======== ==========
Weighted average yield............ 6.50% 6.41% 6.57% 6.98% 6.61%
Taxable equivalent adjustment for
calculation of yield.............. $ 1,167 $ 4,606 $ 6,917 $ 6,795 $ 19,485
---------------
Note: The weighted average yields are calculated on the basis of the yield to
maturity based on the book value of each security. Weighted average
yields on tax-exempt obligations have been computed on a fully taxable
equivalent basis using a tax rate of 35%. Yields on tax-exempt
obligations have not been adjusted for the non-deductible portion of
interest expense used to finance the purchase of tax-exempt obligations.
28
30
LIQUIDITY
Liquidity is an important factor in the financial condition of Regions and
affects Regions' ability to meet the borrowing needs and deposit withdrawal
requirements of its customers. Assets, consisting principally of loans and
securities, are funded by customer deposits, purchased funds, borrowed funds and
stockholders' equity.
The securities portfolio is one of Regions' primary sources of liquidity.
Maturities of securities provide a constant flow of funds which are available
for cash needs (see previous table on Securities Maturing). Maturities in the
loan portfolio also provide a steady flow of funds (see previous table on Loans
Maturing). At December 31, 2000, commercial loans, real estate construction
loans and commercial mortgage loans with an aggregate balance of $6.3 billion,
as well as securities of $217 million, were due to mature in one year or less.
Additional funds are provided from payments on consumer loans and one-to-four
family residential mortgage loans. Historically, the Company's high levels of
net operating earnings have also contributed to cash flow. In addition,
liquidity needs can be met by the purchase of funds in state and national money
markets. Regions' liquidity also continues to be enhanced by a relatively stable
deposit base.
The loan to deposit ratio increased from 85.95% at December 31, 1998, to
93.85% at December 31, 1999, and 97.98% at December 31, 2000, due to strong
internal loan growth and acquisitions.
As shown in the Consolidated Statement of Cash Flows, operating activities
provided significant levels of funds in 1999 and 2000, due primarily to high
levels of net income. Operating activities were a net user of funds in 1998 as
net income, mortgage loans held for sale and other assets increased and other
liabilities decreased. Investing activities, primarily in loans and securities,
were a net user of funds in all three years. Strong loan growth over the last
three years has required a significant amount of funds for investing activities.
Funds needed for investing activities were provided primarily by deposits,
purchased funds, and borrowings. Financing activities provided more funds in
1999 due to more reliance on short and long-term borrowings. In 2000, a
significant portion of the short-term borrowings were repaid using proceeds from
the sale of securities available for sale and from deposit growth. Cash
dividends and the open-market purchase of the Company's common stock, a portion
of which was reissued in connection with specific purchase acquisitions, also
required funds in 1998, 1999 and 2000. Funds needed for the pending acquisition
as of December 31, 2000, are expected to be provided by short-term and long-term
borrowings.
Standard & Poor's Corporation has assigned high quality ratings to Regions
Bank's certificates of deposit. Regions Bank's short-term certificates of
deposit are rated "A-1" by Standard & Poor's Corporation and long-term
certificates of deposit are rated "A+".
Moody's Investors Service has also given similar quality ratings to Regions
Bank's short- and long-term debt and certificates of deposit. Short-term debt
and certificates of deposit are rated "P-1" and long-term debt and certificates
of deposit are rated "Aa3".
Fitch IBCA has rated Regions Bank's short-term debt and certificates of
deposits "F1+" and Regions Bank's long-term debt and certificates of deposits
"AA-".
The $200 million in subordinated debt issued by Regions and outstanding at
December 31, 2000, is rated "A-" by Standard & Poor's Corporation, "A2" by
Moody's Investors Service, and "A" by Fitch IBCA.
Regions' and its banking subsidiary's high quality ratings from nationally
recognized rating agencies enhance the Company's ability to raise funds in
national money markets. The high ratings also help to attract both loan and
deposit customers in local markets.
Historically, Regions has found short- and intermediate-term credit readily
available on reasonable terms from money center or regional banks. Regions'
management places constant emphasis on the maintenance of adequate liquidity to
meet conditions which might reasonably be expected to occur.
29
31
DEPOSITS
Deposits are Regions' primary source of funds, providing funding for 79% of
average earning assets in 2000 and 1999. During the last four years, average
total deposits grew at a compound annual rate of 11%. Average deposits grew $2.7
billion or 11% in 1998, $2.1 billion or 8% in 1999 and $2.9 billion or 10% in
2000. Acquisitions contributed average deposit growth of $1.5 billion in 1998,
$495 million in 1999 and $427 million in 2000.
Regions faces stiff competition from other banking and financial services
companies for a share of the deposit market. Regions' ability to compete in the
deposit market depends heavily on how effectively the company meets customers'
needs. Regions employs both traditional and non-traditional means to meet
customers' needs and enhance competitiveness. The traditional means include:
providing well-designed products, providing a high level of customer service,
providing attractive pricing and expanding the traditional branch network to
provide convenient branch locations for customers throughout the Southern United
States. Regions also employs non-traditional approaches to enhance its
competitiveness. These include: providing centralized, high quality telephone
banking services and alternative product delivery channels like internet
banking. Regions' success at competing for deposits is discussed below.
Average non-interest bearing deposits have grown at a compound growth rate
of 9% since 1997. This category of deposits grew 7% in 1998 and 19% in 1999 but
only 1% in 2000. Despite minimal growth in 2000, non-interest bearing deposits
continue to be a significant funding source for Regions, accounting for 14%, 16%
and 14% of average total deposits in 1998, 1999 and 2000 respectively.
During 1998, 1999 and 2000, the rate paid on savings accounts was less
attractive to customers, relative to other investment alternatives. As a result,
savings accounts have decreased at a 4% compound growth rate since 1997. Savings
increased 3% in 1998, but declined 4% in 1999 and 10% in 2000. Management
expects savings accounts to continue to be a stable funding source, but does not
expect any significant growth given the current interest rate environment. In
2000, savings accounts accounted for 4% of average total deposits.
During 1998, 1999 and 2000, interest-bearing transaction accounts decreased
3%, 49% and 12%, respectively due to less attractive rates relative to other
investment alternatives. During 1999 and 2000, interest-bearing transaction
accounts accounted for 2% and 1%, respectively, of average total deposits.
Money market savings products continue to be Regions' fastest growing
deposits, increasing at a compound annual rate of 20% since 1997. Customers have
responded to Regions' competitive money market savings products by continuing to
invest in these accounts. The results are increases in average balances of 28%
in 1998, 20% in 1999 and 12% in 2000. Money market savings products are one of
Regions' most significant funding sources, accounting for 28% of average total
deposits in 1998, 31% of average total deposits in 1999 and 32% of average total
deposits in 2000.
Certificates of deposit of $100,000 or more increased only 2% in 1998, but
increased 20% in 1999 due to their increased use as a funding source. In 2000,
certificates of deposit of $100,000 or more increased 6%. Since 1997,
certificates of deposit of $100,000 or more have increased at a compound annual
rate of 9%, and in 2000 accounted for 14% of average total deposits.
Other interest-bearing deposits (certificates of deposit of less than
$100,000 and time open accounts) increased 8% in 1998, declined 3% in 1999 but
increased 18% in 2000. This category of deposits continues to be one of Regions'
primary funding sources; it accounted for 34% of average total deposits in 2000,
up from 32% of average total deposits in 1999. Wider pricing spreads in 1998
made this category of deposits attractive relative to other investment
alternatives; however, those spreads narrowed in 1999 resulting in a balance
decline. In 2000, new deposit products and higher rates resulted in higher
balances in this category.
The sensitivity of Regions' deposit rates to changes in market interest
rates is reflected in the Company's average interest rate paid on
interest-bearing deposits (see table following on Average Rates Paid). During
1998 and early 1999, market interest rates generally declined but increased in
the last half of 1999 and throughout 2000. While Regions' average interest rate
paid on interest-bearing deposits follows these trends, a lag period exists
between the change in market rates and the repricing of the deposits. The rate
paid on
30
32
interest-bearing deposits decreased from 4.63% in 1997, to 4.61% in 1998 and
4.32% in 1999 but increased to 5.03% in 2000.
A detail of interest-bearing deposit balances at December 31, 2000 and
1999, and the interest expense on these deposits for the three years ended
December 31, 2000, is presented in Note H to the consolidated financial
statements.
The following table presents the detail of interest-bearing deposits and
maturities of the larger time deposits:
DECEMBER 31,
-------------------------
2000 1999
----------- -----------
(IN THOUSANDS)
Interest-bearing deposits of less than $100,000............. $22,848,236 $20,341,509
Time deposits of $100,000 or more, maturing in:
3 months or less.......................................... 1,116,456 2,079,337
over 3 through 6 months................................... 704,118 1,012,082
over 6 through 12 months.................................. 1,700,906 1,523,715
over 12 months............................................ 1,139,892 612,758
----------- -----------
Total.................................................. 4,661,372 5,227,892
----------- -----------
Total............................................. $27,509,608 $25,569,401
=========== ===========
The following table presents the average amounts of deposits outstanding by
category for the three years ended December 31, 2000:
AVERAGE AMOUNTS OUTSTANDING
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
(IN THOUSANDS)
Non-interest-bearing demand deposits.............. $ 4,561,900 $ 4,520,405 $ 3,812,177
Interest-bearing transaction accounts............. 405,404 458,094 890,911
Savings accounts.................................. 1,329,580 1,477,688 1,546,737
Money market savings accounts..................... 10,160,829 9,095,569 7,590,604
Certificates of deposit of $100,000 or more....... 4,464,330 4,218,828 3,524,889
Other interest-bearing deposits................... 10,918,949 9,215,075 9,528,586
----------- ----------- -----------
Total interest-bearing deposits......... 27,279,092 24,465,254 23,081,727
----------- ----------- -----------
Total deposits.......................... $31,840,992 $28,985,659 $26,893,904
=========== =========== ===========
The following table presents the average rates paid on deposits by category
for the three years ended December 31, 2000:
AVERAGE RATES PAID
--------------------
2000 1999 1998
---- ---- ----
Interest-bearing transaction accounts....................... 4.04% 4.22% 3.47%
Savings accounts............................................ 1.51 1.61 2.17
Money market savings accounts............................... 4.20 3.27 3.48
Certificates of deposit of $100,000 or more................. 6.08 5.36 5.70
Other interest-bearing deposits............................. 5.84 5.32 5.62
Total interest-bearing deposits................... 5.03% 4.32% 4.61%
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33
BORROWED FUNDS
Regions' short-term borrowings consist of federal funds purchased and
security repurchase agreements, commercial paper, Federal Home Loan Bank
borrowings and other short-term borrowings.
Federal funds purchased and security repurchase agreements are used to
satisfy daily funding needs and, when advantageous, for rate arbitrage. Federal
funds purchased and security repurchase agreements totaled $2.0 billion and $5.6
billion at December 31, 2000 and 1999, respectively. Balances in these accounts
can fluctuate significantly on a day-to-day basis. The average daily balance of
federal funds purchased and security repurchase agreements, net of federal funds
sold and security reverse repurchase agreements, increased $2.2 billion in 1999
but decreased $456 million in 2000. The 1999 increase resulted from increased
reliance on purchased funds to support earning asset growth. The decline in 2000
resulted from paydowns of purchased fund positions funded by the sale of the
credit card portfolio, the sale of available for sale securities and increased
utilization of alternative longer term funding.
Throughout 1999 and 2000, Regions utilized Federal Home Loan Bank
structured notes as a short-term funding source, primarily due to their
favorable interest rate. These structured notes have a stated ten year maturity
but are callable, at the option of the Federal Home Loan Bank, at various times
less than one year. Because of the call feature, the structured notes are
considered short term. As of December 31, 2000, $1.1 billion of structured notes
were outstanding compared to $950 million as of December 31, 1999.
Historically, Regions has utilized traditional Federal Home Loan Bank
advances as a short-term funding source, in addition to the structured notes. As
of December 31, 1999, $600 million of Federal Home Loan Bank advances were
outstanding. The average rate on these borrowings in 1999, was 6.1%. No advances
were outstanding as of December 31, 2000.
During 1999, Regions' mortgage banking affiliate established a line of
credit with an unaffiliated bank. As of December 31, 1999, $400 million was
outstanding under this agreement with an interest rate of 8.5%. This line of
credit expired in 2000 and thus no balance was outstanding as of December 31,
2000. Regions' broker/dealer subsidiary maintains a line of credit with an
unaffiliated bank. As of December 31, 2000, $7.8 million was outstanding under
this agreement with an interest rate of 6.9%.
At December 31, 2000, $27.8 million in commercial paper was outstanding,
compared to $56.8 million at December 31, 1999 and 1998. The Company issues
commercial paper through its private placement commercial paper program. Company
policy limits total commercial paper outstanding, at any time, to $75 million.
The level of commercial paper outstanding depends on the funding requirements of
the Company and the cost of commercial paper compared to alternative borrowing
sources.
Other short-term borrowings decreased $2.8 million from December 31, 1999
to December 31, 2000, primarily due to a decline in Treasury tax and loan notes.
The remaining balance in other short-term borrowings consists of a short sale
liability, which is frequently used by Regions' broker/dealer subsidiary to
offset other market risks, which are undertaken in the normal course of
business.
Regions' long-term borrowings consist primarily of subordinated notes,
Federal Home Loan Bank borrowings and other long-term notes payable.
Federal Home Loan Bank long-term advances increased $344 million in 2000
due to favorable rates as compared to other funding sources with similar terms.
Membership in the Federal Home Loan Bank system provides access to an additional
source of lower-cost funds.
During 1999 and 2000, Regions utilized Federal Home Loan Bank structured
notes with call periods in excess of one year. These structured notes have a
stated ten year maturity but are callable, at the option of the Federal Home
Loan Bank, between one and two years. As of December 31, 2000, $3.6 billion of
long-term Federal Home Loan Bank advances were outstanding as compared to $1.2
billion in 1999
Other long-term notes payable consist of notes payable on certain of the
Company's low-income housing partnership investments, redeemable trust preferred
securities, notes issued to former stockholders of acquired banks, notes for
equipment financing, and miscellaneous notes payable. Other long-term borrowings
declined $17.0 million in 2000 as certain notes payable of acquired companies
matured.
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34
STOCKHOLDERS' EQUITY
Over the past three years, stockholders' equity has increased at a compound
annual growth rate of 8.9%. Stockholders' equity has grown from $2.7 billion at
the beginning of 1998 to $3.5 billion at year-end 2000. Internally generated
retained earnings contributed $823 million of this growth and $58 million was
attributable to the exercise of stock options and to the issuance of stock for
employee incentive plans. Offsetting these increases were treasury stock
repurchases net of equity issued in connection with acquisitions totaling $88
million and $14 million attributable to decreases in other components of equity.
The internal capital generation rate (net income less dividends as a percentage
of average stockholders' equity) was 8.9% in 2000, compared to 9.9% in 1999 and
8.0% in 1998.
Regions' ratio of stockholders' equity to total assets was 7.92% at
December 31, 2000, compared to 7.18% at December 31, 1999, and 8.15% at December
31, 1998. Regions' capital level is a source of strength and provides
flexibility for future growth.
Regions and its bank subsidiary are required to comply with capital
adequacy standards established by banking regulatory agencies. Currently, there
are two basic measures of capital adequacy: a risk-based measure and a leverage
measure.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance sheet exposure and interest rate
risk, and to minimize disincentives for holding liquid assets. Assets and
off-balance sheet items are assigned to broad risk categories, each with
specified risk-weighting factors. The resulting capital ratios represent capital
as a percentage of total risk-weighted assets and off-balance sheet items.
Banking organizations that are considered to have excessive interest rate risk
exposure are required to hold additional capital.
The minimum standard for the ratio of total capital to risk-weighted assets
is 8%. At least 50% of that capital level must consist of common equity,
undivided profits and non-cumulative perpetual preferred stock, less goodwill
and certain other intangibles ("Tier 1 capital"). The remainder ("Tier 2
capital") may consist of a limited amount of other preferred stock, mandatory
convertible securities, subordinated debt and a limited amount of the allowance
for loan losses. The sum of Tier 1 capital and Tier 2 capital is "total
risk-based capital."
The banking regulatory agencies also have adopted regulations which
supplement the risk-based guidelines to include a minimum ratio of 3% of Tier 1
capital to average assets less goodwill (the "leverage ratio"). Depending upon
the risk profile of the institution and other factors, the regulatory agencies
may require a leverage ratio of 1% to 2% above the minimum 3% level.
The following chart summarizes the applicable bank regulatory capital
requirements. Regions' capital ratios at December 31, 2000, substantially
exceeded all regulatory requirements.
BANK REGULATORY CAPITAL REQUIREMENTS
MINIMUM
REGULATORY REGIONS AT
REQUIREMENT DECEMBER 31, 2000
----------- -----------------
Tier 1 capital to risk-adjusted assets...................... 4.00% 9.14%
Total risk-based capital to risk-adjusted assets............ 8.00 11.44
Tier 1 leverage ratio....................................... 3.00 6.90
At December 31, 2000, Tier 1 capital totaled $3.0 billion, total risk-based
capital totaled $3.7 billion, and risk-adjusted assets totaled $32.6 billion.
Total capital at the bank affiliate also has an important effect on the
amount of FDIC insurance premiums paid. Institutions not considered well
capitalized can be subject to higher rates for FDIC insurance. As of December
31, 2000, Regions' banking affiliate had the requisite capital levels to qualify
as well capitalized.
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35
Regions attempts to balance the return to stockholders through the payment
of dividends, with the need to maintain strong capital levels for future growth
opportunities. In 2000, Regions returned 45% of earnings to its stockholders in
the form of dividends. Total dividends declared by Regions in 2000 were $238.4
million or $1.08 per share, an increase of 8% from the $1.00 per share in 1999.
In January 2001, the Board of Directors declared a 4% increase in the
quarterly cash dividend from $.27 to $.28 per share. This is the 30th
consecutive year that Regions has increased cash dividends.
The following table shows the percentage distribution of Regions'
consolidated average balances of assets, liabilities and stockholders' equity
for the five years ended December 31, 2000:
2000 1999 1998 1997 1996
----- ----- ----- ----- -----
ASSETS
Earning assets:
Taxable securities................................... 20.1% 20.8% 19.0% 18.4% 20.3%
Non-taxable securities............................... 1.9 1.9 2.1 2.6 2.6
Federal funds sold................................... 0.2 0.2 0.9 1.0 0.8
Loans (net of unearned income):
Commercial........................................ 20.5 19.3 20.7 15.4 14.2
Real estate....................................... 36.4 33.2 30.8 36.5 36.6
Installment....................................... 13.3 14.4 17.1 17.7 17.4
----- ----- ----- ----- -----
Total loans.................................. 70.2 66.9 68.6 69.6 68.2
Allowance for loan losses......................... (0.8) (0.8) (0.9) (1.0) (1.0)
----- ----- ----- ----- -----
Net loans.................................... 69.4 66.1 67.7 68.6 67.2
Other earning assets.............................. 1.0 3.0 2.3 1.1 1.1
----- ----- ----- ----- -----
Total earning assets......................... 92.6 92.0 92.0 91.7 92.0
Cash and due from banks................................ 2.6 3.1 3.0 3.4 3.2
Other non-earning assets............................... 4.8 4.9 5.0 4.9 4.8
----- ----- ----- ----- -----
Total assets................................. 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing................................. 10.6% 11.4% 11.2% 12.1% 11.7%
Interest-bearing..................................... 63.6 61.8 67.8 69.8 71.0
----- ----- ----- ----- -----
Total deposits............................... 74.2 73.2 79.0 81.9 82.7
Borrowed funds:
Short-term........................................... 10.3 16.4 9.9 6.5 5.5
Long-term............................................ 7.2 1.7 1.3 1.7 2.3
----- ----- ----- ----- -----
Total borrowed funds......................... 17.5 18.1 11.2 8.2 7.8
Other liabilities...................................... 0.8 1.0 1.3 1.2 1.0
----- ----- ----- ----- -----
Total liabilities............................ 92.5 92.3 91.5 91.3 91.5
Stockholders' equity................................... 7.5 7.7 8.5 8.7 8.5
----- ----- ----- ----- -----
Total liabilities and stockholders' equity... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
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36
OPERATING RESULTS
Net income increased less than 1% in 2000 but increased 25% in 1999.
Operating income, net income excluding the merger and consolidation expenses
incurred in 1998 (see Note U to the consolidated financial statements) and the
net gain recognized on the sale of the credit card portfolio and available for
sale securities (see Notes D and C to the consolidated financial statements) in
2000, increased 5% in 1999 but declined 3% in 2000. The accompanying table
presents the dollar amount and percentage change in the important components of
income that occurred in 1999 and 2000.
SUMMARY OF CHANGES IN OPERATING RESULTS
INCREASE (DECREASE)
-----------------------------------
2000 COMPARED 1999 COMPARED
TO 1999 TO 1998
--------------- ----------------
AMOUNT % AMOUNT %
-------- --- --------- ---
(DOLLAR AMOUNTS IN THOUSANDS)
Net interest income................................... $(37,058) (3)% $ 101,037 8%
Provision for loan losses........................... 13,441 12 53,153 88
-------- ---------
Net interest income after provision for loan losses... (50,499) (4) 47,884 4
Non-interest income:
Trust department income............................. 4,241 8 (1,784) (3)
Service charges on deposit accounts................. 36,686 19 23,640 14
Mortgage servicing and origination fees............. (20,386) (20) (8,437) (8)
Securities transactions............................. (40,088) NM (6,842) NM
Other............................................... 83,616 45 55,867 43
-------- ---------
Total non-interest income................... 64,069 12 62,444 13
Non-interest expense:
Salaries and employee benefits...................... 37,288 7 23,160 4
Net occupancy expense............................... 9,040 15 (1,252) (2)
Furniture and equipment expense..................... 2,200 3 3,418 5
FDIC insurance expense.............................. (1,487) (23) 740 13
Merger and consolidation expenses................... -0- NM (121,438) NM
Other............................................... 9,829 3 55,976 18
-------- ---------
Total non-interest expense.................. 56,870 5 (39,396) (4)
-------- ---------
Income before income taxes.................. (43,300) (6) 149,724 24
Applicable income taxes............................... (45,437) (18) 46,050 22
-------- ---------
Net income.................................. $ 2,137 0% $ 103,674 25%
======== =========
Operating income............................ $(15,665) (3)% $ 22,962 5%
======== =========
NET INTEREST INCOME
Net interest income (interest income less interest expense) is Regions'
principal source of income. Net interest income decreased 3% in 2000 but
increased 8% in 1999. On a taxable equivalent basis, net interest income
decreased 2% in 2000 but increased 8% in 1999. The table on page 39 provides
additional information to analyze the changes in net interest income.
In 1999, growth in interest-earning assets and interest-bearing liabilities
contributed to the increase in net interest income. During 1999, average
interest-earning assets grew 16% and average interest-bearing liabilities grew
18%. Growth in earning assets typically increases net interest income due to the
positive spread between earning asset yields and interest-bearing liability
rates. However in 2000, with earning asset growth of only 2%, unfavorable
changes in interest-bearing liability rates resulted in lower net interest
income.
Regions measures its ability to produce net interest income with a ratio
called the interest margin. The interest margin is net interest income (on a
taxable equivalent basis) as a percentage of average earning assets.
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37
The interest margin decreased from 4.25% in 1998 to 3.94% in 1999 and to 3.55%
in 2000. Changes in the interest margin occur primarily due to two factors: (1)
the interest rate spread (the difference between the taxable equivalent yield on
earning assets and the rate on interest-bearing liabilities) and (2) the
percentage of earning assets funded by interest-bearing liabilities.
The first factor affecting Regions' interest margin is the interest rate
spread. Regions' average interest rate spread was 3.54% in 1998, 3.31% in 1999
and 2.84% in 2000. Market interest rates, both the level of rates and the slope
of the yield curve (the spread between short-term rates and longer-term rates),
affect the interest rate spread by influencing the pricing on most categories of
Regions' interest-earning assets and interest-bearing liabilities.
In 1998, the Fed reduced the Federal Funds rate to 4.75% in a series of
rate reductions in the second half of the year. There were three 25 basis point
rate increases by the Fed in the last half of 1999 resulting in a 5.50% Federal
funds rate at the end of 1999. Throughout the first six months of 2000, the Fed
raised the Federal Funds rate three times totaling 100 basis points resulting in
a rate of 6.50%.
Regions' interest-earning asset yields and interest-bearing liability rates
were both higher in 2000 compared to 1999 reflecting the rising market interest
rates experienced in 2000. As market interest rates rose in 2000, Regions'
interest-bearing liabilities rates increased faster than did interest-earning
assets yields. The interest rate spread contracted in 2000 because
interest-earning asset yields increased 47 basis points less than did
interest-bearing liability rates.
The mix of earning assets can also affect the interest rate spread. During
2000, loans, which are typically Regions' highest yielding earning asset,
increased as a percentage of earning assets partially mitigating the effects of
changing earning asset yields and interest-bearing liability rates. Average
loans as a percentage of earning assets were 72% in 1999 and 75% in 2000.
The second factor affecting the interest margin is the percentage of
earning assets funded by interest-bearing liabilities. Funding for Regions'
earning assets comes from interest-bearing liabilities, non-interest-bearing
liabilities and stockholders' equity. The net spread on earning assets funded by
non-interest-bearing liabilities and stockholders' equity is higher than the net
spread on earning assets funded by interest-bearing liabilities. The percentage
of earning assets funded by interest-bearing liabilities was 85% in 1998, 86% in
1999 and 87% in 2000. The changes in the percentage of earning assets funded by
interest-bearing liabilities had a negative effect on net interest income in
1999 and 2000. The trend has been for a greater percentage of new funding for
earning assets to come from interest-bearing sources. Management expects this
trend to continue.
MARKET RISK -- INTEREST RATE SENSITIVITY
Market risk is the risk of loss arising from adverse changes in the fair
value of financial instruments due to a change in interest rates, exchange rates
and equity prices. Regions' primary market risk is interest rate risk.
The primary objective of Asset/Liability Management at Regions is to manage
interest rate risk and achieve reasonable stability in net interest income
throughout interest rate cycles. This is achieved by maintaining the proper
balance of rate sensitive earning assets, rate sensitive liabilities and
off-balance sheet interest rate hedges. The relationship of rate sensitive
earning assets to rate sensitive liabilities, adjusted for the effect of
off-balance sheet hedges (interest rate sensitivity), is the principal factor in
projecting the effect that fluctuating interest rates will have on future net
interest income. Rate sensitive earning assets and interest-bearing liabilities
are those that can be repriced to current market rates within a relatively short
time period. Management monitors the rate sensitivity of earning assets and
interest-bearing liabilities over the entire life of these instruments, but
places particular emphasis on the first year. At December 31, 2000,
approximately 52% of earning assets and 60% of the funding for these earning
assets are scheduled to be repriced to current market rates at least once during
2001.
The accompanying table shows Regions' rate sensitive position at December
31, 2000, as measured by gap analysis (the difference between the earning asset
and interest-bearing liability amounts scheduled to be repriced to current
market rates in subsequent periods). Over the next 12 months approximately $3.3
billion more interest-bearing liabilities than earning assets can be repriced to
current market rates at least once. As a
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38
result, the one-year cumulative gap (the ratio of rate sensitive assets to rate
sensitive liabilities) at December 31, 2000, was 0.86, indicating a "liability
sensitive" position. However, this ratio is only one of the tools that
management uses to measure rate sensitivity.
Historically, Regions has not experienced the level of net interest income
volatility indicated by gap analysis. The primary reason for the lack of
volatility is that Regions has a relatively large base of core deposits that do
not reprice on a contractual basis. These deposit products include regular
savings, interest-bearing transaction accounts and a portion of money market
savings accounts. Balances for these accounts are reported in the one to three
month repricing category. However, the rates paid are typically not directly
related to market interest rates, since management exercises some discretion in
adjusting these rates as market rates change.
Another reason for the lack of volatility in net interest income is that
Regions' loan and security portfolios contain fixed-rate mortgage-related
products, including whole loans, mortgage-backed securities and collateralized
mortgage obligations having amortization and cash flow characteristics that vary
with the level of market interest rates. These earning assets are generally
reported in the non-sensitive category. In fact, a portion of these earning
assets may pay-off within one year or less because their cash flow
characteristics are materially impacted by mortgage refinancing activity. If
deposit accounts that are not sensitive to market interest rate changes were
redistributed based on expected cash flows and probable repricing intervals,
Regions' one-year cumulative gap ratio would be approximately 1.00 -- indicating
a balanced position.
Regions uses additional tools to monitor and manage interest rate
sensitivity. One of the primary tools used is simulation analysis. Simulation
analysis is the primary method of estimating earnings at risk and capital at
risk under varying interest rate conditions. Simulation analysis is used to test
the sensitivity of Regions' net interest income and stockholders' equity to both
the level of interest rates and the slope of the yield curve. Simulation
analysis uses a more detailed version of the information shown in the
accompanying table and adds adjustments for the expected timing and magnitude of
asset and liability cash flows, as well as the expected timing and magnitude of
repricings of deposits that do not reprice on a contractual basis. In addition,
simulation analysis includes adjustments for the lag between movements in market
interest rates and the movement of administered rates on prime rate loans,
interest-bearing transaction accounts, regular savings and money market savings
accounts. These adjustments are made to reflect more accurately possible future
cash flows, repricing behavior and ultimately net interest income. Simulation
analysis indicates that Regions is slightly "liability sensitive" given modest
movements in interest rates.
FORWARD-LOOKING STATEMENTS
The section that follows, "Exposure to Interest Rate Shifts", contains
certain forward-looking statements (as defined in the Private Securities
Litigation Reform Act of 1995). These forward-looking statements may involve
significant risk and uncertainties. Although Regions believes that the
expectations reflected in such forward-looking statements are reasonable, actual
results may differ materially from the results discussed in these
forward-looking statements.
Exposure to Interest Rate Shifts. Based on the aforementioned discussion,
management can estimate the effect shifts in interest rates may have upon the
Company's net interest income, Regions' principal source of income.
The following table demonstrates the expected effect a given parallel
interest rate shift would have on Regions net interest income.
CHANGE IN INTEREST RATES $ CHANGE IN NET % CHANGE IN NET
(IN BASIS POINTS) INTEREST INCOME INTEREST INCOME
------------------------ --------------- ---------------
(DOLLAR AMOUNTS IN THOUSANDS)
+200...................................................... $(95,162) (6.7)%
+100...................................................... (39,750) (2.8)
--100..................................................... (729) (0.1)
--200..................................................... (47,620) (3.4)
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In the event of a shift in interest rates, management would attempt to take
certain actions to mitigate the negative impact to net interest income. These
actions include but are not limited to, restructuring of interest-earning
assets, seeking alternative funding sources and entering into interest rate swap
agreements.
INTEREST RATE SENSITIVITY ANALYSIS
DECEMBER 31, 2000
RATE SENSITIVE PERIOD
--------------------------------------------------------------------
OVER 1
YEAR OR
1-3 4-6 7-12 NON-
MONTHS MONTHS MONTHS TOTAL SENSITIVE TOTAL
--------- -------- --------- --------- --------- ---------
(DOLLAR AMOUNTS IN MILLIONS)
Earning Assets:
Loans, net of unearned
income................. $11,484.3 $2,571.5 $ 4,029.7 $18,085.5 $13,291.0 $31,376.5
Investment securities..... 228.6 477.5 103.5 809.6 2,729.6 3,539.2
Securities available for
sale................... 696.4 380.3 789.7 1,866.4 3,588.6 5,455.0
Interest bearing deposits
in other banks......... 3.2 -- -- 3.2 -- 3.2
Federal funds sold and
securities purchased
under agreements to
resell................. 95.6 -- -- 95.6 -- 95.6
Mortgage loans held for
sale................... 222.9 -- -- 222.9 -- 222.9
Trading account assets.... 13.4 -- -- 13.4 -- 13.4
--------- -------- --------- --------- --------- ---------
Total earning
assets.......... $12,744.4 $3,429.3 $ 4,922.9 $21,096.6 $19,609.2 $40,705.8
========= ======== ========= ========= ========= =========
Percent of total
earning
assets.......... 31.3% 8.4% 12.1% 51.8% 48.2% 100.0%
Funding Sources:
Non-interest-bearing
deposits............... -- -- -- -- $ 4,512.9 $ 4,512.9
Savings deposits.......... $ 1,239.7 -- -- $ 1,239.7 -- 1,239.7
Other time deposits....... 8,312.6 $2,885.4 $ 6,919.5 18,117.5 8,152.5 26,270.0
Short-term borrowings..... 2,304.2 800.0 28.9 3,133.1 -- 3,133.1
Long-term borrowings...... 1,224.8 100.2 627.1 1,952.1 2,525.9 4,478.0
--------- -------- --------- --------- --------- ---------
Total
interest-bearing
liabilities..... 13,081.3 3,785.6 7,575.5 24,442.4 10,678.4 35,120.8
Stockholders' equity...... -- -- -- -- 1,072.1 1,072.1
--------- -------- --------- --------- --------- ---------
Total funding
sources......... $13,081.3 $3,785.6 $ 7,575.5 $24,442.4 $16,263.4 $40,705.8
========= ======== ========= ========= ========= =========
Percent of total
funding
sources......... 32.1% 9.3% 18.6% 60.0% 40.0% 100.0%
Interest sensitive gap...... $ (336.9) $ (356.3) $(2,652.6) $(3,345.8) $ 3,345.8 --
Cumulative interest
sensitive gap............. $ (336.9) $ (693.2) $(3,345.8) $(3,345.8) -- --
As percent of total earning
assets.................... (0.8)% (1.7)% (8.2)% (8.2)% -- --
Ratio of earning assets to
funding sources........... 0.97 0.91 0.65 0.86 1.21 1.00
Cumulative ratio............ 0.97 0.96 0.86 0.86 1.00 1.00
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ANALYSIS OF CHANGES IN NET INTEREST INCOME
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2000 OVER 1999 1999 OVER 1998
-------------------------------- --------------------------------
VOLUME YIELD/RATE TOTAL VOLUME YIELD/RATE TOTAL
-------- ---------- -------- -------- ---------- --------
(IN THOUSANDS)
Increase (decrease) in:
Interest income on:
Loans....................... $311,802 $ 74,555 $386,357 $263,099 $(133,517) $129,582
Federal funds sold.......... (309) 1,590 1,281 (10,685) (2,669) (13,354)
Taxable securities.......... 26,250 10,789 37,039 112,830 (5,016) 107,814
Non-taxable securities...... 2,940 (698) 2,242 896 (1,393) (497)
Other earning assets........ (65,500) 18,138 (47,362) 29,547 3,808 33,355
-------- --------- -------- -------- --------- --------
Total.................. 275,183 104,374 379,557 395,687 (138,787) 256,900
Interest expense on:
Savings deposits............ (2,289) (1,403) (3,692) (1,439) (8,336) (9,775)
Other interest-bearing
deposits.................. 142,597 176,556 319,153 67,334 (65,814) 1,520
Borrowed funds.............. 16,303 84,851 101,154 173,422 (9,304) 164,118
-------- --------- -------- -------- --------- --------
Total.................. 156,611 260,004 416,615 239,317 (83,454) 155,863
Increase (decrease) in net
interest income................ $118,572 $(155,630) $(37,058) $156,370 $ (55,333) $101,037
======== ========= ======== ======== ========= ========
---------------
Note: The change in interest due to both rate and volume has been allocated to
change due to volume and change due to rate in proportion to the absolute
dollar amounts of the change in each.
PROVISION FOR LOAN LOSSES
The provision for loan losses is used to fund the allowance for loan
losses. Actual loan losses, net of recoveries, are charged directly to the
allowance. The expense recorded each year is a reflection of management's
judgment as to the adequacy of the allowance. For an analysis and discussion of
the allowance for loan losses, refer to the section entitled "Loans and
Allowance for Loan Losses." In 1998, the provision for loan losses totaled $60.5
million and acquisition activity added $17.1 million to the allowance for loan
losses. The provision for loan losses declined $29.2 million in 1998, even with
higher net charge-offs, because a significant portion of the 1998 charge-offs
had been identified and provided for in the prior years. The 1999 provision for
loan losses increased to $113.7 million due to higher charge-offs, primarily
consumer and commercial, and strong internal loan growth. During 2000, the
provision for loan losses increased to $127.1 million (.42% of average loans)
due to inherent losses associated with the loan portfolio and management's
evaluation of current economic factors. The resulting year-end allowance for
loan losses increased $38.1 million to $376.5 million. Unfavorable changes in
the previously discussed factors considered by management in determining the
adequacy of the provision for loan losses and the resulting allowance could
require significantly higher provisions for loan losses in the future.
TRUST INCOME
Trust income increased 25% in 1998 and 8% in 2000 but declined 3% in 1999.
The strength of the securities markets during recent years particularly 1998,
had a favorable impact on trust income. Regions has in place an aggressive sales
program as a means of increasing trust revenue. Trust sales efforts are promoted
throughout the company by strong sales goals and cash incentives. In addition to
increased sales efforts, trust income is also affected by the securities
markets, because most trust fees are calculated as a percentage of trust asset
values. However in 1999, these sales initiatives were offset by a decrease in
trust fees due to customer attrition in certain newly entered markets.
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SERVICE CHARGES ON DEPOSIT ACCOUNTS
Service charge income increased 13% in 1998, 14% in 1999 and 19% in 2000,
due to increases in the number of deposit accounts, improved management
initiatives and standardization in the pricing of certain deposit accounts and
related services. In addition, several strategies have been put in place to
improve the collection rate of fees charged for deposit services.
MORTGAGE SERVICING AND ORIGINATION FEES
The primary source of this category of income is Regions' mortgage banking
affiliate -- Regions Mortgage, Inc. (RMI). RMI's primary business and source of
income is the origination and servicing of mortgage loans for long-term
investors.
In 2000, mortgage servicing and origination fees decreased 20%, from $103.1
million in 1999 to $82.7 million in 2000. Origination fees were lower due to a
decrease in the number of loans closed as the result of higher interest rates.
Servicing fees were also lower in 2000 as compared to 1999 due to lower number
of loans serviced. At December 31, 2000, Regions' servicing portfolio totaled
$21.6 billion and included approximately 277,000 loans. At December 31, 1999 and
1998, the servicing portfolio totaled $24.1 billion and $22.3 billion,
respectively. The decline in the servicing portfolio during 2000 resulted from
reduced mortgages originated in-house and the sale of servicing rights to
mortgages that were not a proper strategic fit with Regions long-term mortgage
servicing operations.
In 1999, mortgage servicing and origination fees decreased 8%, from $111.6
million in 1998 to $103.1 million in 1999. Origination fees were lower due to a
decrease in the number of loans closed as a result of an increase in interest
rates. Servicing fees were also lower due to narrowing servicing margins on 1999
loan production.
In 1998, mortgage servicing and origination fees increased 20%, from $93.3
million in 1997 to $111.6 million in 1998. Origination fees were significantly
higher due to an increase in the number of loans closed and the dollar amount of
loans closed. Servicing fees were also higher in 1998 than in 1997.
RMI, through its retail and correspondent lending operations, produced
mortgage loans totaling $2.4 billion, $5.6 billion, and $5.0 billion in 2000,
1999 and 1998, respectively. RMI produces loans from 73 offices in Alabama,
Arkansas, Florida, Georgia, Louisiana, South Carolina, and Tennessee, and from
other correspondent offices located throughout the United States.
A summary of mortgage servicing rights, which are included in other assets
in the consolidated statement of condition, is presented as follows. The
balances shown represent the original amounts capitalized, less accumulated
amortization and valuation adjustments, for the right to service mortgage loans
that are owned by other investors. The carrying values of mortgage servicing
rights are affected by various factors, including prepayments of the underlying
mortgages. A significant change in prepayments of mortgages in the servicing
portfolio could result in significant changes in the valuation adjustments.
MORTGAGE SERVICING RIGHTS
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Balance at beginning of year................................ $144,276 $141,926 $124,087
Net additions.......................................... 18,912 37,545 49,671
Amortization........................................... (33,620) (35,195) (31,832)
-------- -------- --------
Balance at end of year...................................... $129,568 $144,276 $141,926
======== ======== ========
SECURITIES GAINS (LOSSES)
The $7.0 million in net gains recognized in 1998 from the sale of available
for sale securities were the result, primarily, of the sale of odd-lot high
coupon mortgage-backed securities and odd-lot municipal securities obtained
through various acquisitions. These securities had characteristics which were
not consistent with Regions overall securities portfolio management strategy.
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42
In 1999, net gains of $160,000 were reported from sale of available for
sale securities. These gains were primarily related to the sale of government
and agency securities.
During 2000, Regions recognized net losses of $39.9 million related to the
disposition of securities available for sale. This loss primarily related to the
sale of $1.2 billion in lower-yielding mortgage related securities as part of a
first quarter balance sheet repositioning.
OTHER INCOME
Refer to Note O to the consolidated financial statements for an analysis of
the significant components of other income. Increases in fee and commission
income during 2000 and 1998 resulted primarily from revisions in charges for
certain services, an increased emphasis on charging customers for services
performed and an increased customer base due to internal growth and
acquisitions. During 1999, fee and commission income was lower than the prior
year due to lower safe deposit fees and credit card fees. These decreases were
partially offset by higher international department income, brokerage fees and
automated teller machine fees.
Insurance premium and commission income increased in 2000, 1999, and 1998.
This income originates primarily from the sale of credit life and accident and
health insurance to consumer loan customers. Increased consumer loan volumes
resulted in increased income in 2000, 1999 and 1998.
Trading account income increased in 2000, 1999 and 1998 due to expanded
trading activities, increased underwriting fees, and larger profits from trading
in the portfolio.
During 2000, Regions recognized a pre-tax gain of $67.2 million in
connection with the sale of its $278 million credit card portfolio.
In 2000 and 1999, Regions sold blocks of mortgage servicing assets that did
not fit into Regions' long-term strategy for mortgage servicing operations.
These sales resulted in pre-tax gains of $19.9 and $7.5 million, respectively.
Also during 1999, Regions sold its joint venture banking interests, which
was acquired in connection with an acquisition and was not a strategic fit.
SALARIES AND EMPLOYEE BENEFITS
Total salaries and benefits increased 10% in 1998, 4% in 1999 and 7% in
2000. These increases resulted from normal merit and promotional adjustments,
increased incentive payments tied to performance, the effects of inflation and
higher benefit costs.
At December 31, 2000, Regions had 14,390 full-time equivalent employees,
compared to 14,606 at December 31, 1999 and 14,632 at December 31, 1998. The
decline in employees in 2000 resulted primarily from reduced staffing needs at
Regions' mortgage subsidiary due to lower levels of mortgage activity.
Salaries, excluding benefits, totaled $382.4 million in 1998, compared to
$410.1 million in 1999 and $433.0 million in 2000. Higher employment levels in
1999, due to acquisitions and increased business activity, resulted in higher
salaries. Increased salaries in 2000 were primarily the result of normal merit
and promotional adjustments.
Regions provides employees who meet established employment requirements
with a benefits package which includes pension, profit sharing, stock purchase,
and medical, life and disability insurance plans. The total cost to Regions for
fringe benefits, including payroll taxes, equals approximately 25% of salaries.
The contribution to the profit sharing plan was equal to approximately 6%
of after-tax income in 1998 and 5% in 1999 and 2000.
The contribution to the employee stock ownership plan (ESOP) equaled
approximately 1% of after-tax income in each of the last three years.
Commissions and incentives expense decreased to $46.3 million in 2000,
compared to $53.2 million in 1999 and $47.0 million in 1998. The decline in
commissions and incentives were primarily the result of
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decreased commissions paid at Regions' mortgage subsidiary due to lower levels
of personnel and decreased mortgage activity and lower expense levels associated
with Regions long-term incentive plan. In general, incentives continue to be
used to reward employees for selling products and services, for productivity
improvements and for achievement of other corporate goals. Regions' long-term
incentive plan provides for the granting of stock options, restricted stock and
performance shares (see Note R to the consolidated financial statements). The
long-term incentive plan is intended to assist the Company in attracting,
retaining, motivating and rewarding employees who make a significant
contribution to the Company's long-term success, and to encourage employees to
acquire and maintain an equity interest in the Company. Regions also uses cash
incentive plans to reward employees for achievement of various goals.
Payroll taxes increased 18% in 1998, 5% in 1999 and 4% in 2000. Increases
in the Social Security tax base, combined with increased salary levels were the
primary reasons for increased payroll taxes.
Group insurance expense increased 54% and 17% in 2000 and 1998,
respectively. These increases were the result of higher claims cost. In 1999, as
a result of reduced claims costs, group insurance expense decreased 13%.
NET OCCUPANCY EXPENSE
Net occupancy expense includes rents, depreciation and amortization,
utilities, maintenance, insurance, taxes and other expenses of premises occupied
by Regions and its affiliates. Regions' affiliates operate offices throughout
Alabama, Arkansas and parts of Texas, Louisiana, Florida, Georgia, Tennessee and
South Carolina.
Net occupancy expense increased 2% in 1998 and 15% in 2000 due to new and
acquired branch offices, rising price levels, and increased business activity.
In 1999, occupancy expense declined as costs savings were realized from certain
1998 acquisitions.
FURNITURE AND EQUIPMENT EXPENSE
Furniture and equipment expense increased 22% in 1998, 5% in 1999, and 3%
in 2000. These increases resulted from acquisitions, rising price levels,
expenses related to equipment for new branch offices, and increased depreciation
and service contract expenses associated with other new back office and branch
equipment.
FDIC INSURANCE EXPENSE
FDIC insurance expense decreased 23% in 2000. In 2000, the FDIC issued a
refund of a portion of the premiums on Savings Association Insurance Fund (SAIF)
deposits assessed in prior years. FDIC insurance expense increased 13% in 1999
and 1998, respectively, as a result of increased deposits from acquisitions and
growth.
MERGER AND CONSOLIDATION EXPENSES
In 1998, Regions incurred a pre-tax, non-recurring merger and consolidation
charge of $121.4 million related primarily to the merger of First Commercial and
four other institutions with Regions. The charge, recognized in the third
($114.7 million) and fourth ($6.7 million) quarters, consisted primarily of
employee-related obligations ($33.6 million), elimination of duplicate
facilities, obsolete equipment and other assets ($47.6 million), contract
terminations ($6.0 million), cost to exit certain lines of business ($5.1
million), and professional fees and contractual payments associated with the
mergers ($29.1 million). During 1998, merger-and consolidation-related costs
incurred or charged against the accrual totaled $117.0 million, resulting in a
balance in the merger and consolidation accrual of $4.4 million at December 31,
1998, which was primarily associated with certain employee related obligations.
These employee-related obligations were paid out in early 1999, resulting in the
merger and consolidation accrual being reduced to zero.
42
44
OTHER EXPENSES
Refer to Note O to the consolidated financial statements for an analysis of
the significant components of other expense. Increases in this category of
expense generally resulted from acquisitions, expanded programs, increased
business activity and rising price levels.
Other non-credit losses increased in 2000 as well as in 1998 but declined
in 1999. Other non-credit losses primarily include charges for items unrelated
to the extension of credit such as fraud losses, litigation losses, write-downs
of other real estate and insurance claims.
Amortization of mortgage servicing rights increased in 1998 and 1999, but
declined in 2000. The retention of servicing rights on much of Regions mortgage
subsidiary's production resulted in additional amortization expense in 1998 and
1999. Mortgage servicing rights amortization expense declined in 2000 due to
slower prepayment activity on the underlying mortgages than in other years.
Gains or losses on sales of mortgages result from changes in the fair
market value of mortgages held in inventory while awaiting sale to long-term
investors. Purchased commitments covering the sale of mortgages held in
inventory are used to mitigate market losses. (See Note M to the consolidated
financial statements for additional information.)
The increase in other miscellaneous expenses in 2000 resulted primarily
from increases in regulatory fees, sales and use taxes, and equity asset line
fees paid to third parties.
APPLICABLE INCOME TAX
Regions' provision for income taxes decreased 18% in 2000. This decrease
was caused primarily by a 6% decrease in income before taxes and the realization
of tax benefits related to the recapitalization of a subsidiary. The Company's
effective income tax rates for 2000, 1999, and 1998 were 28.9%, 33.1%, and
33.6%, respectively. The effective tax rate declined in 2000, primarily due to
realization of a portion of the tax benefits associated with the
recapitalization of one of Regions' subsidiaries. During the fourth quarter of
2000, Regions recapitalized this subsidiary, raising Tier 2 capital, which
resulted in a reduction in taxable income of this subsidiary attributable to
Regions. The benefit to Regions of reduced taxable income of this subsidiary
attributable to Regions is expected to result in a lower effective tax rate
applicable to consolidated income before taxes of Regions for future periods.
Regions' effective tax rate applicable to consolidated income before taxes for
future periods will be dependent upon a number of factors, including, but not
limited to, the amount of assets in the subsidiary, the yield of the assets in
the subsidiary, the cost of funding the subsidiary, possible loan losses in the
subsidiary, the level of expenses of the subsidiary, the level of income
attributable to obligations of states and political subdivisions, and various
other factors. Note P to the consolidated financial statements provides
additional information about the provision for income taxes.
Regions' 1997, 1998, 1999 and 2000 consolidated federal income tax returns
are open for examination. The Company believes adequate provisions for income
tax have been recorded for all years open for review.
Management's determination of the realization of the deferred tax asset is
based upon management's judgment of various future events and uncertainties,
including the timing and amount of future income earned by certain subsidiaries
and the implementation of various tax planning strategies to maximize
realization of the deferred tax asset. Management believes that the subsidiaries
will generate sufficient operating earnings to realize the deferred tax
benefits.
43
45
EFFECTS OF INFLATION
The majority of assets and liabilities of a financial institution are
monetary in nature; therefore, a financial institution differs greatly from most
commercial and industrial companies, which have significant investments in fixed
assets or inventories. However, inflation does have an important impact on the
growth of total assets in the banking industry and the resulting need to
increase equity capital at higher than normal rates in order to maintain an
appropriate equity to assets ratio. Inflation also affects other expenses which
tend to rise during periods of general inflation.
Management believes the most significant impact of inflation on financial
results is the Company's ability to react to changes in interest rates. As
discussed previously, management is attempting to maintain an essentially
balanced position between rate sensitive assets and liabilities in order to
protect net interest income from being affected by wide interest rate
fluctuations.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to page 36 through 37 "Market Risk -- Interest Rate
Sensitivity" and to pages 37 through 38 "Forward Looking Statements" included in
Management's Discussion and Analysis under Item 7 of this Annual Report on Form
10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and report of independent auditors of
Regions Financial Corporation and subsidiaries are set forth in the pages listed
below.
Report of Independent Auditors.............................. 45
Consolidated Statements of Condition -- December 31, 2000
and 1999.................................................. 46
Consolidated Statements of Income -- Years ended December
31, 2000, 1999 and 1998................................... 47
Consolidated Statements of Cash Flows -- Years ended
December 31, 2000, 1999 and 1998.......................... 48
Consolidated Statements of Changes in Stockholders'
Equity -- Years ended December 31, 2000, 1999 and 1998.... 49
Notes to Consolidated Financial Statements -- December 31,
2000...................................................... 51
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
44
46
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Regions Financial Corporation
We have audited the accompanying consolidated statements of condition of
Regions Financial Corporation and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Regions
Financial Corporation and subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Birmingham, Alabama
January 24, 2001, except for Note Y
as to which the date is March 5, 2001
45
47
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31,
-------------------------
2000 1999
----------- -----------
(DOLLAR AMOUNTS IN
THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
Cash and due from banks..................................... $ 1,210,872 $ 1,393,418
Interest-bearing deposits in other banks.................... 3,246 9,653
Investment securities (aggregate estimated market value of
$3,536,283 in 2000 and $3,934,047 in 1999)................ 3,539,202 4,054,279
Securities available for sale............................... 5,454,969 6,858,765
Trading account assets...................................... 13,437 14,543
Mortgage loans held for sale................................ 222,902 567,131
Federal funds sold and securities purchased under agreements
to resell................................................. 95,550 66,078
Loans....................................................... 31,472,656 28,221,240
Unearned income............................................. (96,193) (76,565)
----------- -----------
Loans, net of unearned income...................... 31,376,463 28,144,675
Allowance for loan losses................................... (376,508) (338,375)
----------- -----------
Net loans.......................................... 30,999,955 27,806,300
Premises and equipment...................................... 598,632 580,707
Interest receivable......................................... 349,637 306,707
Due from customers on acceptances........................... 107,912 72,098
Other assets................................................ 1,091,979 984,716
----------- -----------
$43,688,293 $42,714,395
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing...................................... $ 4,512,883 $ 4,419,693
Interest-bearing.......................................... 27,509,608 25,569,401
----------- -----------
Total deposits..................................... 32,022,491 29,989,094
Borrowed funds:
Short-term borrowings:
Federal funds purchased and securities sold under
agreements to repurchase............................... 1,996,812 5,614,613
Commercial paper........................................ 27,750 56,750
Other short-term borrowings............................. 1,108,580 1,953,622
----------- -----------
Total short-term borrowings........................ 3,133,142 7,624,985
Long-term borrowings...................................... 4,478,027 1,750,861
----------- -----------
Total borrowed funds............................... 7,611,169 9,375,846
Bank acceptances outstanding................................ 107,912 72,098
Other liabilities........................................... 488,777 212,245
----------- -----------
Total liabilities.................................. 40,230,349 39,649,283
Stockholders' equity:
Preferred stock, par value $1.00 a share:
Authorized 5,000,000 shares............................. -0- -0-
Common stock, par value $.625 a share:
Authorized 500,000,000 shares, issued 222,567,831 shares
in 2000 and 220,635,661 shares in 1999................. 139,105 137,897
Surplus................................................... 1,058,733 1,022,825
Undivided profits......................................... 2,333,285 2,044,209
Treasury stock, at cost -- 2,798,813 shares in 2000 and 0
shares in 1999.......................................... (67,135) -0-
Unearned restricted stock................................. (6,952) (4,719)
Accumulated other comprehensive income (loss)............. 908 (135,100)
----------- -----------
Total stockholders' equity......................... 3,457,944 3,065,112
----------- -----------
$43,688,293 $42,714,395
=========== ===========
---------------
( ) Indicates deduction.
See notes to consolidated financial statements.
46
48
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
Interest income:
Interest and fees on loans............................... $2,588,143 $2,201,786 $2,072,204
Interest on securities:
Taxable interest income............................... 561,974 524,935 417,121
Tax-exempt interest income............................ 41,726 39,484 39,981
---------- ---------- ----------
Total interest on securities..................... 603,700 564,419 457,102
Interest on mortgage loans held for sale................. 34,511 81,002 44,954
Income on federal funds sold and securities purchased
under agreements to resell............................ 5,537 4,256 17,610
Interest on time deposits in other banks................. 1,096 1,741 4,804
Interest on trading account assets....................... 1,256 1,482 1,112
---------- ---------- ----------
Total interest income............................ 3,234,243 2,854,686 2,597,786
Interest expense:
Interest on deposits..................................... 1,372,260 1,056,799 1,065,054
Interest on short-term borrowings........................ 276,243 329,518 174,906
Interest on long-term borrowings......................... 196,943 42,514 33,008
---------- ---------- ----------
Total interest expense........................... 1,845,446 1,428,831 1,272,968
---------- ---------- ----------
Net interest income.............................. 1,388,797 1,425,855 1,324,818
Provision for loan losses.................................. 127,099 113,658 60,505
---------- ---------- ----------
Net interest income after provision for loan
losses......................................... 1,261,698 1,312,197 1,264,313
Non-interest income:
Trust department income.................................. 57,675 53,434 55,218
Service charges on deposit accounts...................... 231,670 194,984 171,344
Mortgage servicing and origination fees.................. 82,732 103,118 111,555
Securities (losses) gains................................ (39,928) 160 7,002
Other.................................................... 269,061 185,445 129,578
---------- ---------- ----------
Total non-interest income........................ 601,210 537,141 474,697
Non-interest expense:
Salaries and employee benefits........................... 588,857 551,569 528,409
Net occupancy expense.................................... 70,675 61,635 62,887
Furniture and equipment expense.......................... 74,213 72,013 68,595
FDIC insurance expense................................... 5,059 6,546 5,806
Merger and consolidation expenses........................ -0- -0- 121,438
Other.................................................... 382,378 372,549 316,573
---------- ---------- ----------
Total non-interest expense....................... 1,121,182 1,064,312 1,103,708
---------- ---------- ----------
Income before income taxes....................... 741,726 785,026 635,302
Applicable income taxes.................................... 214,203 259,640 213,590
---------- ---------- ----------
Net income....................................... $ 527,523 $ 525,386 $ 421,712
========== ========== ==========
Average number of shares outstanding....................... 220,762 221,617 220,114
Average number of shares outstanding, diluted.............. 221,989 223,967 223,781
Per share:
Net income............................................... $ 2.39 $ 2.37 $ 1.92
Net income, diluted...................................... 2.38 2.35 1.88
Cash dividends declared.................................. 1.08 1.00 0.92
See notes to consolidated financial statements.
47
49
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
(AMOUNTS IN THOUSANDS)
Operating activities:
Net income................................................ $ 527,523 $ 525,386 $ 421,712
Adjustments to reconcile net cash provided by operating
activities:
Gain from divestiture of banking interests.............. -0- (18,399) -0-
Gain on sale of credit card portfolio................... (67,220) -0- -0-
Gain on sale of specialty finance division.............. (4,113) -0- -0-
Depreciation and amortization of premises and
equipment............................................. 63,838 60,424 78,514
Provision for loan losses............................... 127,099 113,658 60,505
Net (accretion) amortization of securities.............. (3,729) (775) 849
Amortization of loans and other assets.................. 78,218 71,148 58,646
Accretion of deposits and borrowings.................... 714 725 359
Provision for losses on other real estate............... 1,184 507 2,865
Deferred income taxes................................... 95,094 10,217 5,581
(Gain) on sale of premises and equipment................ (1,165) (1,416) (521)
Realized security losses (gains)........................ 39,928 (160) (7,002)
Decrease in trading account assets...................... 1,106 34,844 1,438
Decrease (increase) in mortgages held for sale.......... 344,229 360,537 (525,990)
(Increase) in interest receivable....................... (34,804) (5,648) (42,350)
(Increase) in other assets.............................. (160,253) (72,157) (209,887)
(Decrease) in other liabilities......................... (59,715) (86,591) (170,173)
Stock issued to employees under incentive plan.......... 3,088 4,959 14,717
Other................................................... 3,026 2,259 7,679
----------- ----------- -----------
Net cash provided (used) by operating activities... 954,048 999,518 (303,058)
Investing activities:
Net (increase) in loans................................... (3,112,075) (3,302,893) (1,228,740)
Proceeds from sale of credit card portfolio............... 344,785 -0- -0-
Proceeds from sale of specialty finance division.......... 8,063 -0- -0-
Proceeds from sale of securities available for sale....... 1,332,916 6,711 628,212
Proceeds from maturity of investment securities........... 588,846 454,979 3,649,446
Proceeds from maturity of securities available for sale... 883,401 1,924,258 2,440,959
Purchase of investment securities......................... (42,467) (1,529,850) (3,361,586)
Purchase of securities available for sale................. (484,469) (3,828,310) (4,588,572)
Net decrease (increase) in interest-bearing deposits in
other banks............................................. 13,056 158,521 (94,324)
Proceeds from sale of premises and equipment.............. 86,093 25,625 74,048
Purchase of premises and equipment........................ (150,044) (111,143) (177,378)
Net (increase) decrease in customers' acceptance
liability............................................... (35,814) (15,052) 100,216
Net cash received in acquisitions......................... 218,764 195,485 333,606
----------- ----------- -----------
Net cash (used) by investing activities............ (348,945) (6,021,669) (2,224,113)
Financing activities:
Net increase in deposits.................................. 1,279,720 794,881 1,515,891
Net (decrease) increase in short-term borrowings.......... (4,565,755) 3,111,469 1,786,640
Proceeds from long-term borrowings........................ 3,644,077 3,154,206 159,044
Payments on long-term borrowings.......................... (917,074) (1,983,385) (86,116)
Proceeds from recapitalization of subsidiary.............. 150,000 -0- -0-
Net increase (decrease) in bank acceptance liability...... 35,814 15,052 (100,216)
Cash dividends............................................ (238,447) (221,928) (191,643)
Purchase of treasury stock................................ (149,119) (255,271) (181,651)
Proceeds from exercise of stock options................... 2,607 13,676 8,416
----------- ----------- -----------
Net cash (used) provided by financing activities... (758,177) 4,628,700 2,910,365
----------- ----------- -----------
(Decrease) increase in cash and cash equivalents... (153,074) (393,451) 383,194
Cash and cash equivalents at beginning of year.............. 1,459,496 1,852,947 1,469,753
----------- ----------- -----------
Cash and cash equivalents at end of year.................... $ 1,306,422 $ 1,459,496 $ 1,852,947
=========== =========== ===========
See notes to consolidated financial statements.
48
50
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ACCUMULATED
OTHER TREASURY UNEARNED
COMMON UNDIVIDED COMPREHENSIVE STOCK, RESTRICTED
STOCK SURPLUS PROFITS INCOME AT COST STOCK TOTAL
-------- ---------- ---------- ------------- --------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE AT JANUARY 1, 1998............. $131,623 $1,089,089 $1,466,431 $ 15,943 $ (13,855) $(9,410) $2,679,821
Comprehensive income:
Net income........................... 421,712 421,712
Other comprehensive income, net of
tax:
Unrealized gains on available for
sale securities, net of
reclassification adjustment...... 9,009 9,009
---------- --------- ----------
Comprehensive income................. 421,712 9,009 430,721
Equity from immaterial poolings of
interests............................ 6,050 69,005 32,834 107,889
Cash dividends declared:
Regions-$.92 per share............... (170,059) (170,059)
Pooled companies..................... (21,584) (21,584)
Purchase of treasury stock............. (181,651) (181,651)
Treasury stock retired and reissued
relating to acquisitions accounted
for as purchases..................... (1,422) (114,987) 160,832 44,423
Retirement of treasury stock of pooled
company.............................. (10) (595) 2,071 1,466
Buyout of minority interest of pooled
company.............................. (320) (320)
Stock issued for acquisitions.......... 1,221 76,211 77,432
Stock issued to employees under
incentive plan, net.................. 337 21,055 (412) 20,980
Stock options exercised................ 517 7,899 8,416
Amortization of unearned restricted
stock................................ 2,867 2,867
-------- ---------- ---------- --------- --------- ------- ----------
BALANCE AT DECEMBER 31, 1998........... $138,316 $1,147,357 $1,729,334 $ 24,952 $ (32,603) $(6,955) $3,000,401
Comprehensive income:
Net income........................... 525,386 525,386
Other comprehensive income, net of
tax:
Unrealized losses on available for
sale securities, net of
reclassification adjustment...... (160,052) (160,052)
---------- --------- ----------
Comprehensive income................... 525,386 (160,052) 365,334
Equity from immaterial poolings of
interests............................ 1,085 12,410 11,417 24,912
Cash dividends declared:
Regions-$1.00 per share.............. (221,928) (221,928)
Purchase of treasury stock............. (255,271) (255,271)
Treasury stock retired relating to
acquisitions accounted for as
purchases............................ (2,786) (156,685) 159,471 -0-
Stock issued for acquisitions.......... 2,786 128,735 131,521
Retirement of treasury stock........... (2,331) (126,072) 128,403 -0-
Stock issued to employees under
incentive plan, net.................. 68 4,163 (24) 4,207
Stock options exercised................ 759 12,917 13,676
Amortization of unearned restricted
stock................................ 2,260 2,260
-------- ---------- ---------- --------- --------- ------- ----------
BALANCE AT DECEMBER 31, 1999........... $137,897 $1,022,825 $2,044,209 $(135,100) $ -0- $(4,719) $3,065,112
Comprehensive income:
Net income........................... 527,523 527,523
Other comprehensive income, net of
tax:
Unrealized gains on available for
sale securities, net of
reclassification adjustment...... 136,008 136,008
49
51
REGIONS FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED)
ACCUMULATED
OTHER TREASURY UNEARNED
COMMON UNDIVIDED COMPREHENSIVE STOCK, RESTRICTED
STOCK SURPLUS PROFITS INCOME AT COST STOCK TOTAL
-------- ---------- ---------- ------------- --------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Comprehensive income................... 527,523 136,008 663,531
Cash dividends declared:
Regions-$1.08 per share.............. (238,447) (238,447)
Purchase of treasury stock............. (149,119) (149,119)
Treasury stock retired relating to
acquisitions accounted for as
purchases............................ (2,342) (79,642) 81,984 -0-
Stock issued for acquisitions.......... 3,112 108,545 111,657
Stock issued to employees under
incentive plan, net.................. 198 4,638 (5,258) (422)
Stock options exercised................ 240 2,367 2,607
Amortization of unearned restricted
stock................................ 3,025 3,025
-------- ---------- ---------- --------- --------- ------- ----------
BALANCE AT DECEMBER 31, 2000........... $139,105 $1,058,733 $2,333,285 $ 908 $ (67,135) $(6,952) $3,457,944
======== ========== ========== ========= ========= ======= ==========
DISCLOSURE OF 2000 RECLASSIFICATION
AMOUNT:
Unrealized holding gains on
available for sale securities
arising during the period................................................ $ 110,055
Plus: Reclassification
adjustment, net of tax, for
net losses realized in net
income................................................................... 25,953
---------
Net unrealized gains on
available for sale securities,
net of taxes of $78,318.................................................. $ 136,008
=========
---------------
( ) Indicates deduction.
See notes to consolidated financial statements.
50
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Regions Financial Corporation
(Regions or the Company), conform with accounting principles generally accepted
in the United States and with general financial service industry practices.
Regions provides a full range of banking and bank-related services to individual
and corporate customers through its subsidiaries and branch offices located
primarily in Alabama, Arkansas, Florida, Georgia, Louisiana, South Carolina,
Tennessee and Texas. The Company is subject to intense competition from other
financial institutions and is also subject to the regulations of certain
government agencies and undergoes periodic examinations by those regulatory
authorities.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Regions and
its subsidiaries. Significant intercompany balances and transactions have been
eliminated. In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the statement of condition dates and revenues and expenses for
the periods shown. Actual results could differ from the estimates and
assumptions used in the consolidated financial statements.
Certain amounts in prior year financial statements have been reclassified
to conform to the current year presentation.
SECURITIES
The Company's policies for investments in debt and equity securities are as
follows. Management determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates such designations as of the
date of each statement of condition.
Debt securities are classified as investment securities when the Company
has the positive intent and ability to hold the securities to maturity.
Investment securities are stated at amortized cost.
Debt securities not classified as investment securities or trading account
assets, and marketable equity securities not classified as trading account
assets, are classified as securities available for sale. Securities available
for sale are stated at estimated fair value, with unrealized gains and losses,
net of taxes, reported as a component of other comprehensive income.
The amortized cost of debt securities classified as investment securities
or securities available for sale is adjusted for amortization of premiums and
accretion of discounts to maturity, or in the case of mortgage-backed
securities, over the estimated life of the security, using the effective yield
method. Such amortization or accretion is included in interest on securities.
Realized gains and losses are included in securities gains (losses). The cost of
the securities sold is based on the specific identification method.
Trading account assets, which are held for the purpose of selling at a
profit, consist of debt and marketable equity securities and are carried at
estimated market value. Gains and losses, both realized and unrealized, are
included in other income.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of aggregate cost or
estimated market value. Gains and losses on mortgages held for sale are included
in other expense.
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 market value plus accrued interest. It is
Regions' policy to take possession of securities purchased under resell
agreements.
51
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LOANS
Interest on loans is generally accrued based upon the principal amount
outstanding.
Through provisions charged directly to operating expense, Regions has
established an allowance for loan losses. This allowance is reduced by actual
loan losses and increased by subsequent recoveries, if any.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, historical loan loss experience, current economic conditions,
collateral values of properties securing loans, volume, growth, quality and
composition of the loan portfolio and other relevant factors. Unfavorable
changes in any of these, or other factors, or the availability of new
information, could require that the allowance for loan losses be increased in
future periods. The method used to determine the amount of loss inherent in the
loan portfolio and thereby assess the adequacy of the recorded balance of the
allowance for loan losses involves identifying portfolios of loans with similar
characteristics for which estimates of inherent probable losses can be made. The
estimates are based on historical loss factors as adjusted for current business
and economic conditions. The loss factors are applied to the respective
portfolios in order to determine the overall allowance adequacy.
On loans which are considered impaired, it is Regions' policy to reverse
interest previously accrued on the loan against interest income. Interest on
such loans is thereafter recorded on a "cash basis" and is included in earnings
only when actually received in cash and when full payment of principal is no
longer doubtful.
PREMISES AND EQUIPMENT
Premises and equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. The provision for depreciation is
computed using the straight-line and declining-balance methods over the
estimated useful lives of the assets. Leasehold improvements are amortized using
the straight-line method over the estimated useful lives of the improvements (or
the terms of the leases if shorter).
Estimated useful lives generally are as follows:
Premises and leasehold improvements......................... 10-40 years
Furniture and equipment..................................... 3-12 years
INTANGIBLE ASSETS
Intangible assets, consisting of (1) the excess of cost over the fair value
of net assets of acquired businesses and (2) amounts capitalized for the right
to service mortgage loans, are included in other assets. The excess of cost over
the fair value of net assets of acquired businesses, which totaled $473,807,000
(net of accumulated amortization of $145.7 million) at December 31, 2000, and
$409,371,000 (net of accumulated amortization of $116.5 million) at December 31,
1999, is being amortized over periods of 12 to 25 years, principally using the
straight-line method of amortization. Amounts capitalized for the right to
service mortgage loans, which totaled $129,568,000 at December 31, 2000 and
$144,276,000 at December 31, 1999, are being amortized over the estimated
remaining servicing life of the loans, considering appropriate prepayment
assumptions. The estimated fair values of capitalized mortgage servicing rights
were $266 million and $250 million at December 31, 2000 and 1999, respectively.
The fair value of mortgage servicing rights is calculated by discounting
estimated future cash flows from the servicing assets, using market discount
rates, and using expected future prepayment rates. In 2000, 1999 and 1998,
Regions capitalized $26.9 million, $37.5 million and $49.7 million in mortgage
servicing rights, respectively. In 2000, 1999 and 1998, Regions' amortization of
mortgage servicing rights was $33.6 million, $35.2 million and $31.8 million,
respectively. Intangible assets are evaluated periodically for impairment. For
purposes of evaluating impairment, the Company stratifies its mortgage servicing
portfolio on the basis of certain risk characteristics including loan type and
note rate. The Company's unamortized excess purchase price is periodically
reviewed to ensure that
52
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
there have been no events or circumstances to indicate that the recorded amount
is not recoverable from projected undiscounted net operating cash flows. If the
projected undiscounted net operating cash flows are less than the carrying
amount, a loss would be recognized to reduce the carrying amount to fair value.
PENSION, PROFIT-SHARING AND EMPLOYEE STOCK OWNERSHIP PLANS
Regions has pension, profit-sharing and employee stock ownership plans
covering substantially all employees. Annual contributions to the profit-sharing
and employee stock ownership plans are determined at the discretion of the Board
of Directors. Pension expense is computed using the projected unit credit
(service prorate) actuarial cost method and the pension plan is funded using the
aggregate actuarial cost method. Annual contributions to all the plans do not
exceed the maximum amounts allowable for federal income tax purposes.
INCOME TAXES
Regions and its subsidiaries file a consolidated federal income tax return.
Regions accounts for income taxes using the liability method pursuant to
Financial Accounting Standards Board Statement 109, "Accounting for Income
Taxes." Under this method, the Company's deferred tax assets and liabilities
were determined by applying federal and state tax rates currently in effect to
its cumulative temporary book/tax differences. Temporary differences occur when
income and expenses are recognized in different periods for financial reporting
purposes and for purposes of computing income taxes currently payable. Deferred
taxes are provided as a result of such temporary differences.
PER SHARE AMOUNTS
Earnings per share computations are based upon the weighted average number
of shares outstanding during the periods. Diluted earnings per share
computations are based upon the weighted average number of shares outstanding
during the period plus the dilutive effect of outstanding stock options and
stock performance awards.
TREASURY STOCK
The purchase of the Company's common stock is recorded at cost. At the date
of retirement or subsequent reissue, the treasury stock account is reduced by
the cost of such stock.
INSURANCE SUBSIDIARIES
Insurance premium and commission income and acquisition costs are
recognized over the terms of the related policies. Losses are recognized as
incurred.
STATEMENT OF CASH FLOWS
Cash equivalents include cash and due from banks and federal funds sold and
securities purchased under agreements to resell. Regions paid $1.8 billion in
2000, $1.4 billion in 1999, and $1.3 billion in 1998 for interest on deposits
and borrowings. Income tax payments totaled $278 million for 2000, $216 million
for 1999, and $187 million for 1998. Loans transferred to other real estate
totaled $58 million in 2000, $30 million in 1999, and $19 million in 1998. The
securitization of loans during 1999 and 1998 resulted in the transfer of $1.3
billion and $533.7 million, respectively, from loans to securities available for
sale. In December 1999, Regions retired 6.2 million shares of treasury stock,
with a cost of $212.5 million.
53
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B. RESTRICTIONS ON CASH AND DUE FROM BANKS
Regions' subsidiary banks are required to maintain reserve balances with
the Federal Reserve Bank. The average amount of the reserve balances maintained
for the year ended December 31, 2000 and 1999 was approximately $7,554,000 and
$414,245,000, respectively.
NOTE C. SECURITIES
The amortized cost and estimated fair value of investment securities and
securities available for sale at December 31, 2000, are as follows:
DECEMBER 31, 2000
-------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
INVESTMENT SECURITIES:
U.S. Treasury and Federal agency
securities............................... $2,573,461 $ 507 $(12,733) $2,561,235
Obligations of states and political
subdivisions............................. 670,252 11,220 -0- 681,472
Mortgage backed securities................. 295,477 656 (2,569) 293,564
Other securities........................... 12 -0- -0- 12
---------- ------- -------- ----------
Total............................ $3,539,202 $12,383 $(15,302) $3,536,283
========== ======= ======== ==========
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury and Federal agency
securities............................... $ 766,079 $19,466 $ (8) $ 785,537
Obligations of states and political
subdivisions............................. 139,814 2,374 (115) 142,073
Mortgage backed securities................. 4,276,363 1,651 (22,581) 4,255,433
Other securities........................... 1,262 34 (2) 1,294
Equity securities.......................... 270,018 614 -0- 270,632
---------- ------- -------- ----------
Total............................ $5,453,536 $24,139 $(22,706) $5,454,969
========== ======= ======== ==========
54
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The cost and estimated fair value of investment securities and securities
available for sale at December 31, 2000 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.
DECEMBER 31, 2000
-----------------------
ESTIMATED
FAIR
COST VALUE
---------- ----------
(IN THOUSANDS)
INVESTMENT SECURITIES:
Due in one year or less..................................... $ 57,085 $ 57,207
Due after one year through five years....................... 2,067,436 2,062,220
Due after five years through ten years...................... 855,591 856,334
Due after ten years......................................... 263,613 266,958
Mortgage backed securities.................................. 295,477 293,564
---------- ----------
Total............................................. $3,539,202 $3,536,283
========== ==========
SECURITIES AVAILABLE FOR SALE:
Due in one year or less..................................... $ 62,849 $ 63,048
Due after one year through five years....................... 714,700 732,963
Due after five years through ten years...................... 109,714 112,831
Due after ten years......................................... 19,890 20,063
Mortgage backed securities.................................. 4,276,364 4,255,433
Equity securities........................................... 270,019 270,631
---------- ----------
Total............................................. $5,453,536 $5,454,969
========== ==========
Proceeds from sales of securities available for sale in 2000, were $1.3
billion. Gross realized gains and losses were $768,000 and $40.7 million,
respectively. Proceeds from sales of securities available for sale in 1999 were
$6.7 million, with gross realized gains and losses of $167,000 and $7,000,
respectively. Proceeds from sales of securities available for sale in 1998 were
$628.2 million with gross realized gains and losses of $9.5 million and $2.5
million, respectively.
55
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated fair value of investment securities and
securities available for sale at December 31, 1999, are as follows:
DECEMBER 31, 1999
-------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
INVESTMENT SECURITIES:
U.S. Treasury and Federal agency securities....... $2,639,214 $ 258 $(105,032) $2,534,440
Obligations of states and political
subdivisions.................................... 635,034 228 (4,656) 630,606
Mortgage backed securities........................ 380,677 303 (11,333) 369,647
Other securities.................................. 399,354 -0- -0- 399,354
---------- ------ --------- ----------
Total................................... $4,054,279 $ 789 $(121,021) $3,934,047
========== ====== ========= ==========
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury and Federal agency securities....... $ 578,906 $ 232 $ (10,577) $ 568,561
Obligations of states and political
subdivisions.................................... 158,203 769 (712) 158,260
Mortgage backed securities........................ 6,175,090 1,423 (202,518) 5,973,995
Other securities.................................. 3,396 26 (86) 3,336
Equity securities................................. 154,258 355 -0- 154,613
---------- ------ --------- ----------
Total................................... $7,069,853 $2,805 $(213,893) $6,858,765
========== ====== ========= ==========
Securities with carrying values of $6,108,564,000 and $7,202,976,000 at
December 31, 2000, and 1999, respectively, were pledged to secure public funds,
trust deposits and certain borrowing arrangements.
NOTE D. LOANS
The loan portfolio at December 31, 2000 and 1999, consisted of the
following:
DECEMBER 31,
-------------------------
2000 1999
----------- -----------
(IN THOUSANDS)
Commercial.................................................. $ 9,070,249 $ 8,229,565
Real estate-construction.................................... 3,279,037 2,439,104
Real estate-mortgage........................................ 13,129,200 11,749,914
Consumer.................................................... 5,994,170 5,802,657
----------- -----------
31,472,656 28,221,240
Unearned income............................................. (96,193) (76,565)
----------- -----------
Total............................................. $31,376,463 $28,144,675
=========== ===========
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, 2000,
and 1999, were approximately $220 million and $182 million respectively. During
2000, $148 million of new loans were made, repayments totaled $113 million and
increases for changes in the composition of related parties totaled $3 million.
These loans were made in the ordinary course of business and on substantially
the same terms, including interest rates and collateral, as those prevailing at
the same time for comparable transactions with other persons and involve no
unusual risk of collectibility.
Loans sold with recourse totaled $1.5 billion and $1.4 billion at December
31, 2000, and 1999, respectively.
56
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The loan portfolio is diversified geographically, primarily within Alabama,
Arkansas, Louisiana, Georgia, South Carolina, northwest and central Florida,
eastern Texas, and western and middle Tennessee.
The recorded investment in impaired loans was $129 million at December 31,
2000, and $120 million at December 31, 1999. The average amount of impaired
loans during 2000 was $138 million.
In March 2000, Regions completed the sale of its $278 million credit card
portfolio. As a result of the transaction, Regions recognized a $67.2 million
pre-tax gain ($44.0 million after tax), which is included in other non-interest
income on the consolidated statement of income. For a summary of non-interest
income, refer to Note O of the consolidated financial statements.
NOTE E. ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses follows:
2000 1999 1998
--------- --------- --------
(IN THOUSANDS)
Balance at beginning of year................................ $ 338,375 $ 315,412 $304,223
Allowance of purchased institutions at acquisition date... 5,142 8,493 17,094
Provision charged to operating expense.................... 127,099 113,658 60,505
Loan losses:
Charge-offs............................................... (131,746) (129,237) (93,739)
Recoveries................................................ 37,638 30,049 27,329
--------- --------- --------
Net loan losses........................................... (94,108) (99,188) (66,410)
--------- --------- --------
Balance at end of year...................................... $ 376,508 $ 338,375 $315,412
========= ========= ========
NOTE F. PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
(IN THOUSANDS)
Land........................................................ $ 122,862 $ 110,997
Premises.................................................... 556,355 528,634
Furniture and equipment..................................... 393,716 434,399
Leasehold improvements...................................... 55,668 56,225
---------- ----------
1,128,601 1,130,255
Allowances for depreciation and amortization................ (529,969) (549,548)
---------- ----------
Total............................................. $ 598,632 $ 580,707
========== ==========
Net occupancy expense is summarized as follows:
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
Gross occupancy expense..................................... $79,245 $69,853 $72,221
Less rental income.......................................... 8,570 8,218 9,334
------- ------- -------
Net occupancy expense..................................... $70,675 $61,635 $62,887
======= ======= =======
57
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G. OTHER REAL ESTATE
Other real estate acquired in satisfaction of indebtedness ("foreclosure")
is carried in other assets at the lower of the recorded investment in the loan
or the estimated net realizable value of the collateral. Other real estate
totaled $28,443,000 at December 31, 2000, and $12,662,000 at December 31, 1999.
Gain or loss on the sale of other real estate is included in other expense.
NOTE H. DEPOSITS
The following schedule presents the detail of interest-bearing deposits:
DECEMBER 31,
-------------------------
2000 1999
----------- -----------
(IN THOUSANDS)
Interest-bearing transaction accounts....................... $ 438,644 $ 462,863
Interest-bearing accounts in foreign office................. 3,627,365 1,882,024
Savings accounts............................................ 1,239,748 1,384,326
Money market savings accounts............................... 7,469,967 7,704,243
Certificates of deposit ($100,000 or more).................. 4,153,204 4,695,432
Time deposits ($100,000 or more)............................ 508,168 532,460
Other interest-bearing deposits............................. 10,072,512 8,908,053
----------- -----------
Total............................................. $27,509,608 $25,569,401
=========== ===========
The following schedule details interest expense on deposits:
YEAR ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS)
Interest-bearing transaction accounts...................... $ 16,388 $ 19,343 $ 30,888
Interest-bearing accounts in foreign office................ 207,822 71,920 42,319
Savings accounts........................................... 20,051 23,743 33,518
Money market savings accounts.............................. 219,133 225,327 221,774
Certificates of deposit ($100,000 or more)................. 271,605 226,146 200,819
Other interest-bearing deposits............................ 637,261 490,320 535,736
---------- ---------- ----------
Total............................................ $1,372,260 $1,056,799 $1,065,054
========== ========== ==========
The aggregate amount of maturities of all time deposits in each of the next
five years is as follows: 2001-$8.6 billion; 2002-$1.9 billion; 2003-$1.9
billion; 2004-$76.3 million; and 2005-$431 million.
58
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I. BORROWED FUNDS
Following is a summary of short-term borrowings:
DECEMBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS)
Federal funds purchased.................................... $1,906,781 $4,596,540 $1,929,202
Securities sold under agreements to repurchase............. 90,031 1,018,073 138,076
Federal Home Loan Bank structured notes.................... 1,100,000 950,000 2,350,000
Federal Home Loan Bank advances............................ -0- 600,000 5,001
Notes payable to unaffiliated banks........................ 7,800 400,000 -0-
Commercial paper........................................... 27,750 56,750 56,750
Treasury tax and loan note................................. -0- 2,229 15,988
Short sale liability....................................... 780 1,393 1,711
---------- ---------- ----------
Total............................................ $3,133,142 $7,624,985 $4,496,728
========== ========== ==========
DECEMBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS)
Maximum amount outstanding at any month-end:
Federal funds purchased and securities sold under
agreements to repurchase.............................. $4,460,134 $5,614,613 $2,067,278
Aggregate short-term borrowings.......................... 5,722,597 8,475,717 4,496,728
Average amount outstanding (based on average of daily
balances)................................................ 4,408,689 6,502,860 3,386,392
Weighted average interest rate at year end................. 6.5% 5.6% 5.1%
Weighted average interest rate on amounts outstanding
during the year (based on average of daily balances)..... 6.3% 5.1% 5.2%
Federal funds purchased and securities sold under agreements to repurchase
had weighted average maturities of two, ten and six days at December 31, 2000,
1999 and 1998, respectively. Weighted average rates on these dates were 6.5%,
5.4%, and 5.4%, respectively.
Federal Home Loan Bank structured notes have a stated maturity ranging from
two to five years but are callable within one year. The structured notes had
weighted average rates of 6.4%, 5.0% and 4.8% at December 31, 2000, 1999 and
1998, respectively.
The Federal Home Loan Bank advances represent borrowings with original
stated maturities of less than one year. These notes had weighted average
interest rates on December 31, 1999, and 1998, of 6.1%, and 6.1%, respectively.
No Federal Home Loan Bank advances were outstanding as of December 31, 2000.
Regions has an unsecured short-term credit agreement with an unaffiliated
bank that provides for maximum borrowings of $100 million. As of December 31,
1999, no borrowings were outstanding under this agreement. No compensating
balances or commitment fees are required by this agreement. In addition to this
short-term credit agreement, a subsidiary of Regions has, as of December 31,
2000, a $50 million revolving credit line with an unaffiliated bank of which
$7.8 million was outstanding with a stated rate of 6.9%. No borrowings were
outstanding under this agreement as of December 31, 1999 or 1998.
Commercial paper maturities ranged from 218 to 718 days at December 31,
2000, from 4 to 689 days at December 31, 1999 and from 53 to 1,054 days at
December 31, 1998. Weighted average maturities were 422, 481 and 811 days at
December 31, 2000, 1999 and 1998, respectively. The weighted average interest
rates on these dates were 6.5%, 5.8% and 5.8%, respectively.
The short-sale liability represents Regions' trading obligation to deliver
certain government securities at a predetermined date and price. These
securities had weighted average interest rates of 5.4%, 4.4% and 5.0% at
December 31, 2000, 1999 and 1998, respectively.
59
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term borrowings consist of the following:
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
(IN THOUSANDS)
7.80% subordinated notes.................................... $ 75,000 $ 75,000
7.65% subordinated notes.................................... 25,000 25,000
7.75% subordinated notes.................................... 100,000 100,000
Federal Home Loan Bank structured notes..................... 3,555,000 1,155,000
Federal Home Loan Bank advances............................. 656,382 311,997
Industrial development revenue bonds........................ 2,600 2,800
Other notes payable......................................... 64,045 81,064
---------- ----------
Total............................................. $4,478,027 $1,750,861
========== ==========
In July 1994, Regions issued $25 million of 7.65% subordinated notes, due
August 15, 2001, and in September 1994, Regions issued $100 million of 7.75%
subordinated notes, due September 15, 2024. The $100 million of 7.75%
subordinated notes may be redeemed in whole or in part at the option of the
holders thereof on September 15, 2004, at 100% of the principal amount to be
redeemed, together with accrued interest. In December 1992, Regions issued $75
million of 7.80% subordinated notes, due December 1, 2002. All issues of these
notes are subordinated and subject in right of payment of principal and interest
to the prior payment in full of all senior indebtedness of the Company,
generally defined as all indebtedness and other obligations of the Company to
its creditors, except subordinated indebtedness. Payment of the principal of the
notes may be accelerated only in the case of certain events involving
bankruptcy, insolvency proceedings or reorganization of the Company. The
subordinated notes described above, qualify as "Tier 2 capital" under Federal
Reserve guidelines.
Federal Home Loan Bank structured notes have a stated ten year maturity but
are callable within one to two years. The structured notes had a weighted
average interest rate of 6.3% at December 31, 2000.
Federal Home Loan Bank advances represent borrowings with fixed interest
rates ranging from 5.4% to 7.7% and with maturities of one to seventeen years.
These borrowings, as well as the short-term borrowings from the Federal Home
Loan Bank, are secured by Federal Home Loan Bank stock (carried at cost of
$269.0 million) and by first mortgage loans on one-to-four family dwellings held
by the bank subsidiary (approximately $5.7 billion at December 31, 2000). The
maximum amount that could be borrowed from Federal Home Loan Banks under the
current borrowing agreements and without further investment in Federal Home Loan
Bank stock is approximately $7 billion.
The industrial development revenue bonds mature on July 1, 2008, with
principal of $200,000 payable annually and interest at a tax effected prime rate
payable monthly.
Other notes payable at December 31, 2000, had a weighted average interest
rate of 7.7% and a weighted average maturity of 12.4 years.
The aggregate amount of maturities of all long-term debt in each of the
next five years is as follows: 2001 -- $559,064,373; 2002 -- $179,536,113;
2003 -- $76,132,911; 2004 -- $101,619,721; 2005 -- $1,396,407.
Substantially all of the consolidated net assets are owned by the
subsidiaries and dividends paid by Regions are substantially provided by
dividends from the subsidiaries. Statutory limits are placed on the amount of
dividends the subsidiary bank can pay without prior regulatory approval. In
addition, regulatory authorities require the maintenance of minimum capital to
asset ratios at banking subsidiaries. At December 31, 2000, the banking
subsidiary could pay approximately $298 million in dividends without prior
approval.
Management believes that none of these dividend restrictions will
materially affect Regions' dividend policy. In addition to dividend
restrictions, federal statutes also prohibit unsecured loans from banking
subsidiaries to the parent company. Because of these limitations, substantially
all of the net assets of Regions' subsidiaries are restricted, except for the
amount which can be paid to the parent in the form of dividends.
60
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J. EMPLOYEE BENEFIT PLANS
Regions has a defined benefit pension plan covering substantially all
employees employed at or before December 31, 2000. Beginning January 1, 2001, no
new entrants will be admitted into the plan. The benefits are based on years of
service and the employee's highest five years of compensation during the last
ten years of employment. Regions' funding policy is to contribute annually at
least the amount required by IRS minimum funding standards. Contributions are
intended to provide not only for benefits attributed to service to date, but
also for those expected to be earned in the future.
The Company also sponsors a supplemental executive retirement program,
which is a non-qualified plan that provides certain senior executive officers
defined pension benefits in relation to their compensation.
The following table sets forth the plans' funded status and amounts
recognized in the consolidated statement of condition:
DECEMBER 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
CHANGE IN BENEFIT OBLIGATION
Projected benefit obligation, beginning of year............. $199,116 $209,552
Service cost................................................ 8,861 10,572
Interest cost............................................... 15,557 14,791
Actuarial losses (gains).................................... 1,166 (29,274)
Obligations assumed through acquisitions.................... -0- 5,276
Benefit payments............................................ (10,520) (11,801)
-------- --------
Projected benefit obligation, end of year................... $214,180 $199,116
======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets, beginning of year................ $257,180 $226,823
Actual return on plan assets................................ 30,017 30,059
Assets assumed through acquisitions......................... -0- 7,465
Company contributions....................................... 399 4,634
Benefit payments............................................ (10,520) (11,801)
-------- --------
Fair value of plan assets, end of year...................... $277,076 $257,180
======== ========
Funded status of plan....................................... $ 62,896 $ 58,064
Unrecognized net actuarial (gain)........................... (25,168) (20,872)
Unamortized prior service cost.............................. (3,875) (4,406)
-------- --------
Prepaid pension cost........................................ $ 33,853 $ 32,786
======== ========
Net pension cost included the following components:
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Service cost-benefits earned during the period......... $ 8,861 $ 10,572 $ 8,861
Interest cost on projected benefit obligation.......... 15,557 14,791 13,058
Expected (return) on plan assets....................... (24,003) (22,026) (17,455)
Net (deferral)......................................... (1,083) (1,146) (844)
-------- -------- --------
Net periodic pension (benefit) expense................. $ (668) $ 2,191 $ 3,620
======== ======== ========
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 8.25% and 4.50%, respectively, at December 31,
2000; 8.00% and 4.50%, respectively, at December 31, 1999; and 7.00% and 4.50%,
61
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively, at December 31, 1998. The expected long-term rate of return on
plan assets was 9.5% at December 31, 2000 and 1999 and 9.0% in 1998.
Contributions to employee profit sharing plans totaled $28,125,000,
$24,300,000 and $23,764,000 for 2000, 1999 and 1998, respectively.
The 2000 contribution to the employee stock ownership plan totaled
$3,125,000, compared to $2,700,000 in 1999, and $2,650,000 in 1998.
Contributions are used to purchase Regions common stock for the benefit of
participating employees.
Contributions to the employee stock purchase plan in 2000, 1999 and 1998
were $2,197,000, $2,171,000 and $1,838,000, respectively.
Regions sponsors a defined benefit postretirement health care plan that
covers certain retired employees. Currently the Company pays a portion of the
costs of certain health care benefits for all eligible employees that retired
before January 1, 1989. No health care benefits are provided for employees
retiring at normal retirement age after December 31, 1988. For employees
retiring before normal retirement age, the Company currently pays a portion
(based upon length of active service at the time of retirement) of the costs of
certain health care benefits until the retired employee becomes eligible for
Medicare. The plan is contributory and contains other cost-sharing features such
as deductibles and co-payments. Retiree health care benefits, as well as similar
benefits for active employees, are provided through a group insurance program in
which premiums are based on the amount of benefits paid. The Company's policy is
to fund the Company's share of the cost of health care benefits in amounts
determined at the discretion of management.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated statement of condition:
DECEMBER 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
CHANGE IN BENEFIT OBLIGATION
Projected benefit obligation, beginning of year............. $ 15,494 $ 16,944
Service cost................................................ 1,106 1,234
Interest cost............................................... 1,208 1,219
Actuarial losses (gains).................................... 1,446 (4,037)
Acquisitions................................................ -0- 839
Benefit payments............................................ (989) (705)
-------- --------
Projected benefit obligation, end of year................... $ 18,265 $ 15,494
======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets, beginning of year................ $ 182 $ 159
Actual return on plan assets................................ -0- -0-
Company contributions....................................... 1,054 729
Benefit payments............................................ (989) (706)
-------- --------
Fair value of plan assets, end of year...................... $ 247 $ 182
======== ========
Funded status of plan....................................... $(18,018) $(15,312)
Recognized net actuarial loss............................... 5,774 4,856
-------- --------
Accrued postretirement benefit cost......................... $(12,244) $(10,456)
======== ========
62
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic postretirement benefit cost included the following components:
YEAR ENDED DECEMBER 31,
------------------------
2000 1999 1998
------ ------ ------
(IN THOUSANDS)
Service cost-benefits earned during the period.............. $1,106 $1,234 $ 892
Interest cost on benefit obligation......................... 1,208 1,219 962
Net amortization............................................ 590 591 590
Recognized (gain)........................................... (126) -0- (114)
------ ------ ------
Net periodic postretirement benefit cost.................... $2,778 $3,044 $2,330
====== ====== ======
The assumed health care cost trend rate was 8.1% for 2001 and is assumed to
decrease gradually to 5.1% by 2007 and remain at that level thereafter.
Increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation at
December 31, 2000, by $1,754,415 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 2000 by
$292,269. Decreasing the assumed health care cost trend rates by one percentage
in each year would decrease the accumulated postretirement benefit obligation at
December 31, 2000, by $1,549,328 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 2000 by
$252,654. The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.25% at December 31, 2000, and 8.00% at
December 31, 1999.
NOTE K. LEASES
Rental expense for all leases amounted to approximately $19,241,000,
$16,523,000 and $19,537,000 for 2000, 1999 and 1998, respectively. The
approximate future minimum rental commitments as of December 31, 2000, for all
noncancelable leases with initial or remaining terms of one year or more are
shown in the following table. Included in these amounts are all renewal options
reasonably assured of being exercised.
EQUIPMENT PREMISES TOTAL
--------- -------- -------
(IN THOUSANDS)
2001........................................................ $ 601 $12,901 $13,502
2002........................................................ 483 11,081 11,564
2003........................................................ 383 9,779 10,162
2004........................................................ 245 7,745 7,990
2005........................................................ 123 6,608 6,731
2006-2010................................................... 69 16,654 16,723
2011-2015................................................... 67 9,101 9,168
2016-2020................................................... 67 5,222 5,289
2021-End.................................................... 67 3,988 4,055
------ ------- -------
Total............................................. $2,105 $83,079 $85,184
====== ======= =======
NOTE L. COMMITMENTS AND CONTINGENCIES
To accommodate the financial needs of its customers, Regions makes
commitments under various terms to lend funds to consumers, businesses and other
entities. These commitments include (among others) revolving credit agreements,
term loan commitments and short-term borrowing agreements. Many of these loan
commitments have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of these commitments are expected to expire
without being funded, the total commitment amounts do not necessarily represent
future liquidity requirements. Standby letters of credit are also issued, which
commit Regions to make payments on behalf of customers if certain specified
future events occur. Historically, a large percentage of standby letters of
credit also expire without being funded.
63
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Both loan commitments and standby letters of credit have credit risk
essentially the same as that involved in extending loans to customers and are
subject to normal credit approval procedures and policies. Collateral is
obtained based on management's assessment of the customer's credit.
Loan commitments totaled $6.3 billion at December 31, 2000, and $7.4
billion at December 31, 1999. Standby letters of credit were $762.7 million at
December 31, 2000, and $602.6 million at December 31, 1999. Commitments under
commercial letters of credit used to facilitate customers' trade transactions
were $48.1 million at December 31, 2000, and $46.6 million at December 31, 1999.
The Company and its affiliates are defendants in litigation and claims
arising from the normal course of business. Based on consultation with legal
counsel, management is of the opinion that the outcome of pending and threatened
litigation will not have a material effect on Regions' consolidated financial
statements.
NOTE M. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the normal course of business, Regions enters into financial instrument
transactions with off-balance sheet risk. These financial instrument agreements
help the Company manage its exposure to interest rate fluctuations and help
customers manage exposure to foreign currency fluctuations.
Forward contracts represent commitments to sell money market instruments at
a future date at a specified price or yield. These contracts are utilized by the
Company to hedge interest rate risk positions associated with the origination of
mortgage loans held for sale. The amount of hedging gains and losses deferred,
which is reflected in gains and losses on mortgage loans held for sale as
realized, was not material to the results of operations for the years ended
December 31, 2000, 1999 or 1998. The Company is subject to the market risk
associated with changes in the value of the underlying financial instrument as
well as the risk that the other party will fail to perform. The gross contract
amount of forward contracts, which totaled $157 million and $158 million at
December 31, 2000, and 1999, respectively, represents the extent of Regions'
involvement. However, those amounts significantly exceed the future cash
requirements, as the Company intends to close out open positions prior to
settlement, and thus is subject only to the change in the value of the
instruments. The gross amount of contracts represents the Company's maximum
exposure to off-balance sheet credit risk.
The Company utilizes put and call option contracts to hedge mortgage loan
originations in process. Option contracts represent rights to purchase or sell
securities or other money market instruments at a specified price and within a
specified period of time at the option of the holder. There were no option
contracts outstanding as of December 31, 2000 or December 31, 1999. The
commitment fees paid for option contracts reflect the maximum exposure to the
Company.
Foreign currency exchange contracts involve the trading of one currency for
another on a specified date and at a specified rate. These contracts are
executed on behalf of the Company's customers and are used to facilitate the
management of fluctuations in foreign exchange rates. The notional amount of
forward foreign exchange contracts totaled $44 million and $24 million at
December 31, 2000 and 1999, respectively. The Company is subject to the risk
that another party will fail to perform and the gross amount of the contracts
represents the Company's maximum exposure to credit risk.
Regions operates a broker-dealer subsidiary, which in the normal course of
trading inventory and clearing customers' securities transactions, is a party to
certain financial instruments with off-balance-sheet risk. The aggregate
off-balance-sheet risk from these financial instruments is not material to the
consolidated financial statements.
64
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
Cash and cash equivalents: The carrying amount reported in the
consolidated statements of condition and cash flows approximates the estimated
fair value.
Interest-bearing deposits in other banks: The carrying amount reported in
the consolidated statement of condition approximates the estimated fair value.
Investment securities: Estimated fair values are based on quoted market
prices, where available. If quoted market prices are not available, estimated
fair values are based on quoted market prices of comparable instruments.
Securities available for sale: Estimated fair values, which are the
amounts recognized in the consolidated statements of condition, are based on
quoted market prices, where available. If quoted market prices are not
available, estimated fair values are based on quoted market prices of comparable
instruments.
Trading account assets: Estimated fair values, which are the amounts
recognized in the consolidated statements of condition, are based on quoted
market prices, where available. If quoted market prices are not available,
estimated fair values are based on quoted market prices of comparable
instruments.
Mortgage loans held for sale: Estimated fair values, which are the amounts
recognized in the consolidated statements of condition, are based on quoted
market prices of comparable instruments.
Loans: Estimated fair values for variable rate loans, which reprice
frequently and have no significant credit risk, are based on carrying value.
Estimated fair values for all other loans are estimated using discounted cash
flow analyses, based on interest rates currently offered on loans with similar
terms to borrowers of similar credit quality. The carrying amount of accrued
interest reported in the consolidated statements of condition approximates the
fair value.
Deposit liabilities: The fair value of non-interest bearing demand
accounts, interest-bearing transaction accounts, savings accounts, money market
accounts and certain other time open accounts is the amount payable on demand at
the reporting date (i.e., the carrying amount). Fair values for certificates of
deposit are estimated by using discounted cash flow analyses, using the interest
rates currently offered for deposits of similar maturities.
Short-term borrowings: The carrying amount reported in the consolidated
statements of condition approximates the estimated fair value.
Long-term borrowings: Fair values are estimated using discounted cash flow
analyses, based on the current rates offered for similar borrowing arrangements.
Loan commitments, standby and commercial letters of credit: Estimated fair
values for these off-balance-sheet instruments are based on standard fees
currently charged to enter into similar agreements.
65
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
DECEMBER 31, 2000 DECEMBER 31, 1999
------------------------- -------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
Financial assets:
Cash and cash equivalents......... $ 1,306,422 $ 1,306,422 $ 1,459,496 $ 1,459,496
Interest-bearing deposits in other
banks.......................... 3,246 3,246 9,653 9,653
Investment securities............. 3,539,202 3,536,283 4,054,279 3,934,047
Securities available for sale..... 5,454,969 5,454,969 6,858,765 6,858,765
Trading account assets............ 13,437 13,437 14,543 14,543
Mortgage loans held for sale...... 222,902 222,902 567,131 567,131
Loans, net (excluding leases)..... 30,496,577 31,036,366 27,448,765 27,531,111
Financial liabilities:
Deposits.......................... 32,022,491 32,134,570 29,989,094 29,929,116
Short-term borrowings............. 3,133,142 3,133,142 7,624,985 7,624,985
Long-term borrowings.............. 4,478,027 4,707,750 1,750,861 1,635,304
Off-balance-sheet instruments:
Loan commitments.................. -0- (59,358) -0- (69,176)
Standby letters of credit......... -0- (11,440) -0- (9,039)
Commercial letters of credit...... -0- (120) -0- (117)
NOTE O. OTHER INCOME AND EXPENSE
Other income consists of the following:
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Fees and commissions........................................ $ 59,376 $ 49,357 $ 52,073
Insurance premiums and commissions.......................... 14,505 13,432 10,231
Trading account income...................................... 32,843 29,977 21,915
Gain on sale of credit card portfolio....................... 67,220 -0- -0-
Gain on sale of mortgage servicing rights................... 19,888 7,526 839
Divestiture of banking interest............................. -0- 18,399 -0-
Other miscellaneous income.................................. 75,229 66,754 44,520
-------- -------- --------
Total............................................. $269,061 $185,445 $129,578
======== ======== ========
Other expense consists of the following:
Stationery, printing and supplies........................... $ 14,415 $ 20,533 $ 20,625
Advertising and business development........................ 20,762 22,052 20,084
Postage and freight......................................... 17,846 20,503 18,727
Telephone................................................... 34,243 26,951 24,480
Legal and other professional fees........................... 29,741 32,374 20,423
Other non-credit losses..................................... 43,520 30,872 34,426
Outside computer services................................... 19,942 24,078 17,433
Amortization of mortgage servicing rights................... 33,619 35,195 31,832
Amortization of excess purchase price....................... 29,164 23,995 19,776
Loss on sale of mortgages by affiliate mortgage companies... 3,991 9,521 13,981
Other miscellaneous expenses................................ 135,135 126,475 94,786
-------- -------- --------
Total............................................. $382,378 $372,549 $316,573
======== ======== ========
66
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE P. INCOME TAXES
At December 31, 2000, Regions has net operating loss carryforwards for
federal tax purposes of $7.1 million that expire in years 2003 through 2013.
These carryforwards resulted from various acquired financial institutions.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Regions' deferred tax assets and liabilities as of December 31, 2000 and 1999
are listed below.
DECEMBER 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
Deferred tax assets:
Loan loss allowance....................................... $136,316 $120,405
Net operating loss carryforwards.......................... 2,498 3,825
Mark to market securities available for sale.............. -0- 75,988
Other..................................................... 56,925 64,097
-------- --------
Total deferred tax assets......................... 195,739 264,315
Deferred tax liabilities:
Tax over book depreciation................................ 8,503 9,481
Accretion of bond discount................................ 12,704 10,631
Direct lease financing.................................... 63,663 44,187
Pension................................................... 13,692 13,172
Mark to market securities available for sale.............. 525 -0-
Originated mortgage servicing rights...................... 17,391 16,771
Other..................................................... 18,468 19,081
-------- --------
Total deferred tax liabilities.................... 134,946 113,323
-------- --------
Net deferred tax assets before valuation allowance.......... 60,793 150,992
Valuation allowance......................................... -0- (2,802)
-------- --------
Net deferred tax asset...................................... $ 60,793 $148,190
======== ========
Applicable income taxes for financial reporting purposes differs from the
amount computed by applying the statutory federal income tax rate of 35% for the
reasons below:
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Tax on income computed at statutory federal income tax
rate...................................................... $259,604 $274,759 $222,356
Increases (decreases) in taxes resulting from:
Tax exempt income from obligations of states and political
subdivisions........................................... (17,082) (15,634) (15,571)
State income tax, net of federal tax benefit.............. 2,291 2,605 7,818
Effect of recapitalization of subsidiary.................. (24,000) -0- -0-
Other, net................................................ (6,610) (2,090) (1,013)
-------- -------- --------
Total............................................. $214,203 $259,640 $213,590
======== ======== ========
Effective tax rate.......................................... 28.9% 33.1% 33.6%
During the fourth quarter of 2000, Regions recapitalized one of its
subsidiaries by raising Tier 2 capital through issuance of a new class of
preferred stock of this subsidiary. Regions is not subject to tax on the portion
of the subsidiary's income allocated to the holders of the preferred stock for
federal income tax purposes.
67
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provisions for income taxes in the consolidated statements of income
are summarized below. Included in these amounts are income taxes of
($13,975,000) $56,000, and $2,644,000 in 2000, 1999 and 1998, respectively,
related to securities transactions.
CURRENT DEFERRED TOTAL
-------- -------- --------
(IN THOUSANDS)
2000
Federal..................................................... $199,974 $10,705 $210,679
State....................................................... 3,345 179 3,524
-------- ------- --------
Total............................................. $203,319 $10,884 $214,203
======== ======= ========
1999
Federal..................................................... $259,422 $(3,790) $255,632
State....................................................... 4,067 (59) 4,008
-------- ------- --------
Total............................................. $263,489 $(3,849) $259,640
======== ======= ========
1998
Federal..................................................... $196,296 $ 5,267 $201,563
State....................................................... 11,713 314 12,027
-------- ------- --------
Total............................................. $208,009 $ 5,581 $213,590
======== ======= ========
NOTE Q. BUSINESS COMBINATIONS
During 2000 Regions completed the following business combinations:
ACCOUNTING
DATE COMPANY HEADQUARTERS LOCATION TOTAL ASSETS TREATMENT
---- ------- --------------------- -------------- ----------
(IN THOUSANDS)
January LCB Corporation Fayetteville, $173,157 Purchase
Tennessee
May Branches of Amsouth Bank Fort Smith, Arkansas 186,361 Purchase
August Heritage Bancorp, Inc. Hutto, Texas 114,370 Purchase
August First National Bancshares of Louisiana, Inc. Alexandria, Louisiana 303,793 Purchase
September East Coast Bank Corporation Ormond Beach, Florida 107,779 Purchase
The total consideration paid for these business combinations was
approximately 5.0 million shares of Regions' common stock (including treasury
stock reissued) valued at $112 million. Total intangible assets recorded in
connection with the purchase transactions totaled approximately $85 million.
During 1999 Regions completed the following additional business
combinations:
ACCOUNTING
DATE COMPANY HEADQUARTERS LOCATION TOTAL ASSETS TREATMENT
---- ------- --------------------- -------------- ----------
(IN THOUSANDS)
January Meigs County Bancshares, Inc. Decatur, Tennessee $114,407 Pooling
January VB&T Bancshares Corporation Valdosta, Georgia 75,733 Pooling
January Bullsboro BancShares, Inc. Newnan, Georgia 100,682 Pooling
March Arkansas Banking Company Jonesboro, Arkansas 354,981 Purchase
December Minden Bancshares, Inc. Minden, Louisiana 318,955 Purchase
Because certain of the 2000 and 1999 business combinations were accounted
for as purchases, Regions' consolidated financial statements include the results
of operations of those companies only from their respective dates of
acquisition. The following unaudited summary information presents the
consolidated results of operations of Regions on a pro forma basis, as if all
the above companies had been acquired on
68
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
January 1, 1999. The pro forma summary information does not necessarily reflect
the results of operations that would have occurred, if the acquisitions had
occurred at the beginning of the periods presented, or of results which may
occur in the future.
2000 1999
---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
(UNAUDITED)
Interest income............................................. $3,253,082 $2,920,835
Interest expense............................................ 1,854,115 1,460,418
---------- ----------
Net interest income....................................... 1,398,967 1,460,417
Provision for loan losses................................... 127,434 116,265
Non-interest income......................................... 604,345 547,117
Non-interest expense........................................ 1,142,669 1,106,548
---------- ----------
Income before income taxes................................ 733,209 784,721
Applicable income taxes..................................... 213,189 261,415
---------- ----------
Net income.................................................. $ 520,020 $ 523,306
========== ==========
Net income per share........................................ $2.36 $2.36
Net income per share, diluted............................... 2.34 2.34
The following chart summarizes the assets acquired and liabilities assumed
in connection with business combinations in 2000 and 1999.
2000 1999
-------- --------
(IN THOUSANDS)
Cash and due from banks..................................... $156,263 $114,549
Investment securities....................................... 31,084 5,982
Securities available for sale............................... 150,086 213,672
Loans, net.................................................. 490,403 566,821
Other assets................................................ 32,852 63,734
Deposits.................................................... 752,963 843,422
Borrowings.................................................. 74,074 25,788
Other liabilities........................................... 9,269 5,598
As of December 31, 2000, Regions' had the following pending business
combination:
APPROXIMATE
----------------- ANTICIPATED
ASSET ACCOUNTING
INSTITUTION SIZE VALUE(1) CONSIDERATION TREATMENT
----------- ------ -------- ------------- -----------
(IN MILLIONS)
Morgan Keegan, Inc., headquartered in
Memphis, Tennessee.................. $2,058 $789 Cash/Regions Common Stock Purchase
---------------
(1) Computed as of the date of announcement of the transaction.
NOTE R. STOCK OPTION AND LONG-TERM INCENTIVE PLANS
Regions has stock option plans for certain key employees that provide for
the granting of options to purchase up to 5,720,000 (excluding options assumed
in connection with acquisitions) shares of Regions' common stock. The terms of
options granted are determined by the personnel committee of the Board of
Directors; however, no options may be granted after ten years from the plans'
adoption and no options may be exercised beyond ten years from the date granted.
The option price per share of incentive stock options can not be less than the
fair market value of the common stock on the date of the grant; however, the
option price of non-qualified options may be less than the fair market value of
the common stock on the date of the grant. The
69
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plans also permit the granting of stock appreciation rights to holders of stock
options. Stock appreciation rights were attached to 24,694; 81,755 and 116,713
of the shares under option at December 31, 2000, 1999 and 1998, respectively.
Regions' long-term incentive plan provides for the granting of up to
10,000,000 shares of common stock in the form of stock options, stock
appreciation rights, performance awards or restricted stock awards. The terms of
stock options granted under the long-term incentive plan are generally subject
to the same terms as options granted under Regions' stock option plans. A
maximum of 3,000,000 shares of restricted stock and 5,000,000 shares of
performance awards may be granted. During 2000 and 1999, Regions granted 256,042
and 700 shares, respectively, as restricted stock and during 1999 and 1998,
granted 411,372 and 311,393 shares, respectively, as performance awards. No
performance awards were granted in 2000. Grantees of restricted stock must
remain employed with Regions for certain periods from the date of the grant at
the same or a higher level in order for the shares to be released. However,
during this period the grantee is eligible to receive dividends and exercise
voting privileges on such restricted shares. In 2000, 1999, and 1998, 59,216;
150,384 and 99,013 restricted shares, respectively, were released. Issuance of
performance awards is dependent upon achievement of certain performance criteria
and is, therefore, deferred until the end of the performance period. In 1999,
199,091 performance awards were issued. No performance awards were issued in
2000. Total expense for restricted stock was $2,753,000 in 2000, $2,117,000 in
1999, and $2,693,000 in 1998. Total expense for performance shares was
$3,274,000 in 1999 and $18,424,000 in 1998. In 2000, a decline in Regions'
common stock price resulted in a benefit of $1,212,000.
In connection with the business combinations in 2000, Regions assumed stock
options, which were previously granted by those companies and converted those
options, based on the appropriate exchange ratio, into options to acquire
Regions' common stock. The common stock for such options has been registered
under the Securities Act of 1933 by Regions and is not included in the maximum
number of shares that may be granted by Regions under its existing stock option
plans.
Stock option activity (including assumed options) over the last three years
is summarized as follows:
WEIGHTED
OPTION AVERAGE
SHARES UNDER PRICE EXERCISE
OPTION PER SHARE PRICES
------------ --------------- --------
Balance at January 1, 1998............................. 6,582,676 $3.39 -- $38.75 $17.44
Options assumed through acquisitions................. 281,891 5.50 -- 33.72 11.77
Granted.............................................. 1,150,257 39.47 -- 41.38 41.17
Exercised............................................ (1,166,575) 3.39 -- 36.42 12.17
Canceled............................................. (64,797) 9.03 -- 41.34 28.82
----------
Outstanding at December 31, 1998....................... 6,783,452 $3.39 -- $41.38 $22.05
Options assumed through acquisitions................. 498,625 6.06 -- 17.81 9.83
Granted.............................................. 1,242,172 34.66 -- 37.47 35.67
Exercised............................................ (1,292,088) 3.39 -- 37.85 12.61
Canceled............................................. (94,632) 8.01 -- 41.34 29.47
----------
Outstanding at December 31, 1999....................... 7,137,529 $4.35 -- $41.38 $25.16
Options assumed through acquisitions................. 21,133 10.00 10.00
Granted.............................................. 2,283,354 20.09 -- 24.26 20.14
Exercised............................................ (450,865) 4.35 -- 20.88 10.22
Canceled............................................. (200,718) 4.81 -- 41.38 33.28
----------
Outstanding at December 31, 2000....................... 8,790,433 $4.35 -- $41.38 $24.40
==========
Exercisable at December 31, 2000..................... 6,482,350 $4.35 -- $41.38 $25.80
70
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting and Disclosure of Stock-Based Compensation"
(Statement 123). Statement 123 is effective for fiscal years beginning after
December 15, 1995, and allows for the option of continuing to follow Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees", and the related Interpretations, or selecting the fair value method
of expense recognition as described in Statement 123. The Company has elected to
follow APB 25 in accounting for its employee stock options. Pro forma net income
and net income per share data as if the fair-value method had been applied in
measuring compensation costs is presented below for the years ended December 31:
2000 1999 1998
-------- -------- --------
Pro forma net income ($000's)............................... $517,931 $520,625 $412,701
Pro forma net income per share.............................. $2.35 $2.35 $1.87
Pro forma net income per share, diluted..................... 2.33 2.32 1.84
Regions' options outstanding have a weighted average contractual life of
6.6 years. The weighted average fair value of options granted was $3.52 in 2000,
$6.63 in 1999 and $8.77 in 1998. The fair value of each grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions used for grants in 2000: expected dividend yield of 3.9%;
expected option life of 5 years; expected volatility of 22.2%; and a risk free
interest rate of 5.0%. The 1999 assumptions used in the model included: expected
dividend yield of 4.0%; expected option life of 5 years; expected volatility of
20.7%; and a risk free interest rate of 6.3%. The 1998 assumptions were:
expected dividend yield of 2.3%; expected option life of 5 years; expected
volatility of 19.3%; and a risk free interest rate of 4.5%.
Since the exercise price of the Company's employee stock options equals the
market price of underlying stock on the date of grant, no compensation expense
is recognized.
The effects of applying Statement 123 for providing pro forma disclosures
are not likely to be representative of the effects on reported net income for
future years.
71
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE S. PARENT COMPANY ONLY FINANCIAL STATEMENTS
Presented below are condensed financial statements of Regions Financial
Corporation:
STATEMENTS OF CONDITION
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
(IN THOUSANDS)
ASSETS
Cash and due from banks..................................... $ 314,911 $ 122,457
Loans to subsidiaries....................................... -0- 6,200
Investment securities....................................... 3,121 3,914
Securities available for sale............................... 179 56
Premises and equipment...................................... 12,095 13,183
Investment in subsidiaries:
Banks..................................................... 3,419,775 3,124,962
Non-banks................................................. 15,749 112,382
---------- ----------
3,435,524 3,237,344
Other assets................................................ 47,121 36,257
---------- ----------
$3,812,951 $3,419,411
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper............................................ $ 27,750 $ 56,750
Long-term borrowings........................................ 219,839 213,446
Other liabilities........................................... 107,418 84,103
---------- ----------
Total liabilities........................................... 355,007 354,299
Stockholders' equity:
Common stock.............................................. 139,105 137,897
Surplus................................................... 1,058,733 1,022,825
Undivided profits......................................... 2,334,193 1,909,109
Treasury stock............................................ (67,135) -0-
Unearned restricted stock................................. (6,952) (4,719)
---------- ----------
Total stockholders' equity........................ 3,457,944 3,065,112
---------- ----------
$3,812,951 $3,419,411
========== ==========
72
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Income:
Dividends received from subsidiaries:
Banks.................................................. $568,533 $392,749 $246,164
Non-banks.............................................. -0- 3,000 -0-
-------- -------- --------
568,533 395,749 246,164
Service fees from subsidiaries............................ 47,049 32,826 91,647
Interest from subsidiaries................................ 4,144 3,694 3,622
Other..................................................... 6,213 19,345 7,161
-------- -------- --------
625,939 451,614 348,594
Expenses:
Salaries and employee benefits............................ 16,936 14,216 54,794
Interest.................................................. 19,557 21,556 20,783
Net occupancy expense..................................... 1,322 1,167 1,946
Furniture and equipment expense........................... 784 1,339 4,111
Legal and other professional fees......................... 11,976 7,326 8,979
Amortization of excess purchase price..................... 18,683 15,098 11,412
Other expenses............................................ 8,502 8,757 7,286
-------- -------- --------
77,760 69,459 109,311
Income before income taxes and equity in undistributed
earnings of subsidiaries.................................. 548,179 382,155 239,283
Applicable income taxes (credit)............................ (7,022) (694) (1,804)
-------- -------- --------
Income before equity in undistributed earnings of
subsidiaries.............................................. 555,201 382,849 241,087
Equity in undistributed earnings of subsidiaries:
Banks..................................................... (32,230) 138,787 169,689
Non-banks................................................. 4,552 3,750 10,936
-------- -------- --------
(27,678) 142,537 180,625
-------- -------- --------
Net Income........................................ $527,523 $525,386 $421,712
======== ======== ========
Aggregate maturities of long-term borrowings in each of the next five years
for the parent company only are as follows: $25,660,000 in 2001; $75,690,000 in
2002; $710,000 in 2003; $100,850,000 in 2004; and $870,000 in 2005. Standby
letters of credit issued by the parent company totaled $6.4 million at December
31, 2000. This amount is included in total standby letters of credit disclosed
in Note L.
73
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
(IN THOUSANDS)
Operating activities:
Net income................................................ $ 527,523 $ 525,386 $ 421,712
Adjustments to reconcile net cash provided by operating
activities:
Equity in undistributed earnings of subsidiaries....... 27,678 (142,537) (180,625)
Provision for depreciation and amortization............ 22,661 18,636 17,409
(Decrease) increase in other liabilities............... (58,569) 104,491 (32,424)
Loss on sale of premises and equipment................. 2 93 44
(Increase) in other assets............................. (29,547) (3,417) (17,069)
Stock issued to employees under incentive plan......... 3,088 4,959 14,717
--------- --------- ---------
Net cash provided by operating activities......... 492,836 507,611 223,764
Investing activities:
Investment in subsidiaries................................ 100,181 18,525 103,138
Principal payments (advances) on loans to subsidiaries.... 6,200 54,900 (1,103)
Sale and purchases of premises and equipment.............. 134 (3,778) 3,368
Maturity of investment securities......................... 793 15 34,519
Purchase of available for sale securities................. (123) (56) -0-
--------- --------- ---------
Net cash provided by investing activities......... 107,185 69,606 139,922
Financing activities:
(Decrease) increase in commercial paper borrowings........ (29,000) -0- 4,000
Cash dividends............................................ (238,447) (221,928) (191,643)
Purchase of treasury stock................................ (149,119) (255,271) (181,651)
Proceeds from long-term borrowings........................ 8,122 6,701 4,500
Principal payments on long-term borrowings................ (1,730) (13,428) (10,120)
Exercise of stock options................................. 2,607 13,676 8,416
--------- --------- ---------
Net cash (used) by financing activities........... (407,567) (470,250) (366,498)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents.......... 192,454 106,967 (2,812)
Cash and cash equivalents at beginning of year............ 122,457 15,490 18,302
--------- --------- ---------
Cash and cash equivalents at end of year.................. $ 314,911 $ 122,457 $ 15,490
========= ========= =========
74
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE T. REGULATORY CAPITAL REQUIREMENTS
Regions and its bank subsidiary 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,
2000, the most recent notification from federal banking agencies categorized
Regions and its significant subsidiary 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 unrealized gains and
losses on securities available for sale, less excess purchase price and certain
other intangibles. Total Capital consists of Tier 1 Capital plus certain debt
instruments and the allowance for loan losses, subject to limitation.
Regions' and its most significant subsidiary's capital levels at December
31, 2000 and 1999, exceeded the "well capitalized" levels, as shown below:
DECEMBER 31, 2000 TO BE
---------------------- WELL
AMOUNT RATIO CAPITALIZED
-------------- ----- -----------
(IN THOUSANDS)
Tier 1 Capital:
Regions Financial Corporation........................ $2,982,652 9.14% 6.00%
Regions Bank......................................... 2,951,565 9.27 6.00
Total Capital:
Regions Financial Corporation........................ $3,730,852 11.44% 10.00%
Regions Bank......................................... 3,524,765 11.07 10.00
Leverage:
Regions Financial Corporation........................ $2,982,652 6.90% 5.00%
Regions Bank......................................... 2,951,565 6.96 5.00
DECEMBER 31, 1999 TO BE
---------------------- WELL
AMOUNT RATIO CAPITALIZED
-------------- ----- -----------
(IN THOUSANDS)
Tier 1 Capital:
Regions Financial Corporation........................ $2,791,191 9.51% 6.00%
Regions Bank......................................... 2,917,543 9.79 6.00
Total Capital:
Regions Financial Corporation........................ $3,351,098 11.42% 10.00%
Regions Bank......................................... 3,298,864 11.07 10.00
Leverage:
Regions Financial Corporation........................ $2,791,191 6.95% 5.00%
Regions Bank......................................... 2,917,543 7.11 5.00
75
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE U. MERGER AND CONSOLIDATION EXPENSES
In 1998, Regions incurred a pre-tax, non-recurring merger and consolidation
charge of $121.4 million related primarily to the merger of First Commercial and
four other institutions with Regions. The charge, recognized in the third
($114.7 million) and fourth ($6.7 million) quarters, consisted primarily of
employee-related obligations ($33.6 million), elimination of duplicate
facilities, obsolete equipment and other assets ($47.6 million), contract
terminations ($6.0 million), costs to exit certain lines of business ($5.1
million), and professional fees and contractual payments associated with the
mergers ($29.1 million). During 1998, merger-and consolidation-related costs
incurred or charged against the accrual totaled $117.0 million, resulting in a
balance in merger and consolidation accrual of $4.4 million at December 31,
1998, which is primarily associated with certain employee-related obligations.
These employee-related obligations were paid out in early 1999, resulting in the
merger and consolidation accrual being reduced to zero.
The employee-related obligations primarily relates to termination payments
and payments under change of control provisions. The termination payments
related to the elimination of back office and administrative personnel. Excess
personnel were terminated during 1998 and all employee obligations were paid
during 1998, with the exception of the $4.4 million referred to above.
Regions recorded $47.6 million of write-downs related to facilities,
equipment and other assets that were impaired as a result of Regions'
consolidation of bank charters, consolidations of back office and certain branch
operations, and instituting efficiencies through alteration and elimination of
activities of the combining enterprises.
NOTE V. EARNINGS PER SHARE
The following table sets forth the computation of basic net income per
share and diluted net income per share.
2000 1999 1998
-------- -------- --------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
Numerator:
For basic net income per share and diluted net income per
share, net income...................................... $527,523 $525,386 $421,712
======== ======== ========
Denominator:
For basic net income per share --
Weighted average shares outstanding....................... 220,762 221,617 220,114
Effect of dilutive securities:
Stock options............................................. 1,015 2,138 2,951
Performance shares........................................ 212 212 716
-------- -------- --------
1,227 2,350 3,667
-------- -------- --------
For diluted net income per share............................ 221,989 223,967 223,781
======== ======== ========
Basic net income per share.................................. $ 2.39 $ 2.37 $ 1.92
======== ======== ========
Diluted net income per share................................ 2.38 2.35 1.88
======== ======== ========
76
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE W. BUSINESS SEGMENT INFORMATION
Regions' segment information is presented geographically, based on Regions'
three operating regions in the Southeastern United States. Each region is a
strategic business unit that serves a particular group of customers in a
specified area. The Company's three reportable regions are West, Central, and
East. These regions represent the Company's branch banking functions and have
separate managements that are responsible for the operation of each business
unit. The West region consists of the states of Arkansas, Louisiana, and east
Texas. The Central region is made up of Alabama and Tennessee. Georgia, South
Carolina, and Florida comprise the East region. In addition, Regions has
included the activity of its treasury division, which includes its bond
portfolio, indirect mortgage lending division, and other wholesale activities.
The other reportable segments include activity of Regions' broker dealer and
insurance subsidiaries, the indirect consumer lending division, and the parent
company.
The accounting policies used by each reportable segment are the same as
those discussed in Note A (summary of significant accounting policies). The
following table presents financial information for each reportable segment.
TOTAL
WEST CENTRAL EAST TREASURY OTHER COMPANY
---------- ---------- ---------- ----------- ---------- -----------
(IN THOUSANDS)
2000
Net interest income..... $ 380,978 $ 431,248 $ 417,642 $ (63,888) $ 222,817 $ 1,388,797
Provision for loan
loss.................. 27,788 32,770 32,651 27,126 6,764 127,099
Non-interest income..... 100,164 128,929 85,434 108 286,575 601,210
Non-interest expense.... 235,308 218,521 220,080 22,903 424,370 1,121,182
Income taxes
(benefit)............. 86,583 123,421 101,406 (42,678) (54,529) 214,203
---------- ---------- ---------- ----------- ---------- -----------
Net income (loss)..... $ 131,463 $ 185,465 $ 148,939 $ (71,131) $ 132,787 $ 527,523
========== ========== ========== =========== ========== ===========
Average assets.......... $6,946,972 $8,135,218 $7,978,958 $17,970,601 $1,857,588 $42,889,337
1999
Net interest income..... $ 375,296 $ 405,542 $ 392,586 $ 107,190 $ 145,241 $ 1,425,855
Provision for loan
loss.................. 25,474 29,317 29,017 21,576 8,274 113,658
Non-interest income..... 88,683 114,094 79,987 6,999 247,378 537,141
Non-interest expense.... 217,370 203,153 212,755 16,283 414,751 1,064,312
Income taxes
(benefit)............. 88,587 115,838 93,521 36,744 (75,050) 259,640
---------- ---------- ---------- ----------- ---------- -----------
Net income............ $ 132,548 $ 171,328 $ 137,280 $ 39,586 $ 44,644 $ 525,386
========== ========== ========== =========== ========== ===========
Average assets.......... $6,311,658 $7,137,094 $7,081,779 $14,352,431 $4,724,970 $39,607,932
1998
Net interest income..... $ 362,885 $ 395,874 $ 340,892 $ 100,832 124,335 $ 1,324,818
Provision for loan
loss.................. 15,406 16,806 14,472 8,860 4,961 60,505
Non-interest income..... 90,872 99,133 85,365 2,118 197,209 474,697
Non-interest expense.... 203,971 222,513 191,609 8,458 477,157 1,103,708
Income taxes
(benefit)............. 88,718 96,783 83,341 12,181 (67,433) 213,590
---------- ---------- ---------- ----------- ---------- -----------
Net income (loss)..... $ 145,662 $ 158,905 $ 136,835 $ 73,451 $ (93,141) $ 421,712
========== ========== ========== =========== ========== ===========
Average assets.......... $6,826,590 $7,447,189 $6,412,857 $10,358,212 $3,012,193 $34,057,041
77
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE X. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2000, the FASB issued Statement of Financial Accounting Standards
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of Statement of Financial Accounting Standards No. 133"
(Statement 138). Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," (Statement 133)
requires all derivatives to be recorded on the balance sheet at fair value and
establishes "special accounting" for the following three different types of
hedges: hedges of changes in the fair value of assets, liabilities or firm
commitments (referred to as fair value hedges); hedges of the variable cash
flows of forecasted transactions (cash flow hedges); and hedges of foreign
currency exposures of net investments in foreign operations. Statement 133,
deferred by Statement of Financial Accounting Standards No. 137, is effective
for all fiscal quarters of all fiscal years beginning after June 15, 2000.
Regions expects the impact of Statement 133 and Statement 138 to be immaterial
on its financial position and results of operations.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (Statement 140) that replaces, in its
entirety, Financial Accounting Standards No. 125. Statement 140 provides
guidance for determining whether a liability has been extinguished. Statement
140 also provides guidance for accounting for servicing of financial assets, the
receipt or pledging of collateral, and requires certain disclosures. Statement
140 is effective for transfers occurring after March 31, 2001. Regions is
currently evaluating the impact of Statement 140 on its financial statements.
NOTE Y. SUBSEQUENT EVENTS
In February 2001, Regions issued $288 million of trust preferred securities
at 8.00% with a 30 year life. In March 2001, Regions issued $500 million of
7.00% subordinated notes due 2011.
78
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE Z. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS, COMMON STOCK MARKET PRICES
AND DIVIDENDS (UNAUDITED)
THREE MONTHS ENDED
-----------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2000
Total interest income................................. $780,229 $792,587 $824,694 $836,733
Total interest expense................................ 426,113 443,896 482,575 492,862
-------- -------- -------- --------
Net interest income................................... 354,116 348,691 342,119 343,871
Provision for loan losses............................. 29,177 27,804 32,746 37,372
-------- -------- -------- --------
Net interest income after provision for loan losses... 324,939 320,887 309,373 306,499
Total non-interest income, excluding securities
gains............................................... 206,810 137,583 146,719 150,026
Securities (losses) gains............................. (40,018) 67 28 (5)
Total non-interest expense............................ 271,135 272,787 273,339 303,921
Income taxes.......................................... 74,591 60,457 54,922 24,233
-------- -------- -------- --------
Net income............................................ $146,005 $125,293 $127,859 $128,366
======== ======== ======== ========
Per share:
Net income.......................................... $ .66 $ .57 $ .58 $ .58
Net income, diluted................................. .66 .57 .58 .58
Cash dividends declared............................. .27 .27 .27 .27
Market price:
Low.............................................. 18 5/16 19 1/8 19 7/8 20 1/16
High............................................. 25 1/4 25 1/2 25 1/4 28
1999
Total interest income................................. $666,441 $698,136 $731,986 $758,123
Total interest expense................................ 323,844 335,870 371,538 397,579
-------- -------- -------- --------
Net interest income................................... 342,597 362,266 360,448 360,544
Provision for loan losses............................. 20,738 23,944 30,707 38,269
-------- -------- -------- --------
Net interest income after provision for loan losses... 321,859 338,322 329,741 322,275
Total non-interest income, excluding securities
gains............................................... 143,099 121,769 133,269 138,844
Securities gains...................................... 16 22 3 119
Total non-interest expense............................ 262,575 260,224 265,220 276,293
Income taxes.......................................... 73,019 63,900 66,835 55,886
-------- -------- -------- --------
Net income............................................ $129,380 $135,989 $130,958 $129,059
======== ======== ======== ========
Per share:
Net income.......................................... $ .58 $ .61 $ .59 $ .59
Net income, diluted................................. .57 .60 .59 .59
Cash dividends declared............................. .25 .25 .25 .25
Market price:
Low.............................................. 34 9/16 34 3/8 29 5/8 23 3/16
High............................................. 41 5/8 39 1/8 39 31 13/16
Regions Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol RGBK. Market prices shown represent sales
prices as reported in the Nasdaq Monthly Summary of Activity Report. At December
31, 2000, there were 52,049 shareholders of record of Regions Financial
Corporation Common Stock.
79
81
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements on accounting and financial disclosure
between Registrant and Ernst & Young LLP.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
All information presented under the captions "Information On Directors" and
"Section 16 Transaction" of the Registrant's proxy statement to be dated
approximately April 10, 2001, are incorporated by reference.
Executive officers of the Registrant as of December 31, 2000, are as
follows:
POSITION AND
OFFICES HELD WITH OFFICER
EXECUTIVE OFFICER AGE REGISTRANT AND SUBSIDIARIES SINCE
----------------- --- --------------------------- -------
J. Stanley Mackin......................... 68 Chairman and Director, Registrant and Regions 1983*
Bank; Director Regions Mortgage, Inc.
Carl E. Jones, Jr......................... 60 Director, President and Chief Executive 1983*
Officer, Registrant and Regions Bank.
Director Regions Mortgage, Inc., Regions
Interstate Billing Service, Inc., and EFC
Holdings Corporation.
Richard D. Horsley........................ 58 Vice Chairman, Director and Executive 1972
Financial Officer, Registrant and Regions
Bank; Director and Vice President, Regions
Agency, Inc., Regions Asset Management
Company, and RAMCO -- FL Holding, Inc.;
Director, Regions Life Insurance Company,
Regions Mortgage, Inc., and EFC Holdings
Corporation.
John I. Fleischauer, Jr................... 52 President/West Region; Director, Regions 1999*
Bank.
Wilbur B. Hufham.......................... 63 President/Central Region; Director, Regions 1983*
Bank; Director Regions Mortgage, Inc.
Peter D. Miller........................... 54 President/East Region; Director, Regions 1996*
Bank.
William E. Askew.......................... 51 Executive Vice President -- Retail Banking 1987
Division, Registrant and Regions Bank.
D. Bryan Jordan........................... 39 Executive Vice President and Comptroller, 2000
Registrant and Regions Bank; Director,
Regions Asset Management Company, Inc.
E. Cris Stone............................. 58 Executive Vice President -- Corporate 1988
Banking, Registrant and Regions Bank;
Director and Vice President, Regions
Financial Leasing, Inc.; Director Regions
Interstate Billing Service, Inc.
David C. Gordon........................... 52 Executive Vice President -- Bank Operations, 1999
Registrant and Regions Bank.
80
82
POSITION AND
OFFICES HELD WITH OFFICER
EXECUTIVE OFFICER AGE REGISTRANT AND SUBSIDIARIES SINCE
----------------- --- --------------------------- -------
J. Kenneth Alderman....................... 49 Executive Vice President -- Trust Group, 2000
Registrant and Regions Bank
Samuel E. Upchurch Jr..................... 49 Executive Vice President, General Counsel and 1994
Corporate Secretary, Registrant and Regions
Bank; Director Regions Investment Company,
Inc., Regions Interstate Billing Service,
Inc., and EFC Holdings Corporation;
Director and Secretary, Regions Asset
Holding Company, Inc., Regions Investment
Management Holding Company, Inc., Regions
Asset Company, Inc., Regions Licensing
Company, Inc., and Regions Investment
Management Company, Inc.
---------------
* The years indicated are those in which the individual was first deemed to be
an executive officer of Registrant, although in every case the individual had
been an executive officer of a subsidiary of Registrant for a number of years.
ITEM 11. EXECUTIVE COMPENSATION
All information presented under the caption "Executive Compensation and
Other Transaction", excluding the information under the subheading "Compensation
Committee Executive Compensation Report" of the Registrant's proxy statement to
be dated approximately April 10, 2001, are incorporated herein by reference. All
information presented under the caption "Executive Compensation Report" of the
Registrant's proxy statement to be dated approximately April 10, 2000, are
specifically not incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All information presented under the captions "Voting Securities and
Principal Holders Thereof" and "Information on Directors" of the Registrant's
proxy statement to be dated approximately April 10, 2001, are incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All information presented under the caption "Other Transactions", of the
Registrant's proxy statement to be dated approximately April 10, 2001, are
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14(a)(1) and (2) Financial Statement Schedules.
The following consolidated financial statements and report of independent
auditors of Regions Financial Corporation and subsidiaries are included in Item
8 of this Annual Report on Form 10-K:
Report of Independent Auditors
Consolidated Statements of Condition -- December 31, 2000 and 1999
Consolidated Statements of Income -- Years ended December 31, 2000, 1999
and 1998
Consolidated Statements of Cash Flows -- Years ended December 31, 2000,
1999 and 1998
81
83
Consolidated Statements of Changes in Stockholders' Equity -- Years ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements -- December 31, 2000
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
14(a)(3) Listing of Exhibits:
SEC ASSIGNED
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
3. -- Bylaws as last amended on March 17, 1999, incorporated
herein by reference from the Exhibits to the Registration
Statement filed with the Commission and assigned file number
333-86975.
Certificate of Incorporation as last amended on June 18,
1999, incorporated herein by reference from the Exhibits to
the Registration Statement filed with the Commission and
assigned file number 333-86975.
4. -- a. Subordinated Notes Indenture Agreement dated as of
December 1, 1992, incorporated by reference from the
Exhibits to the Registration Statement filed with the
Commission and assigned registration number 33-45714.
10. -- *a. Regions Amended and Restated 1991 Long-Term Incentive
Plan incorporated by reference from Exhibit B to the
Registrant's proxy statement filed with the Commission
and dated March 16, 1995.
-- *b. Regions Management Incentive Plan Amended and Restated
as of January 1, 1999, incorporated by reference from
Appendix B to the Registrant's proxy statement filed
with the Commission and dated April 7, 1999.
-- *c. Regions 1999 Long-Term Incentive Plan incorporated by
reference from Appendix C to the Registrant's proxy
statement filed with the Commission and dated April 7,
1999.
21. -- List of Subsidiaries of the Registrant.
23. -- Consent of Independent Auditors.
24.1 -- Power of Attorney
---------------
* Represents a compensatory plan agreement that is required to be filed under
this item.
14(b) Reports on Form 8-K filed in the fourth quarter of 2000:
Report on Form 8-K, dated October 19, 2000, was filed under items 5
and 7 and related to the Registrant's results of operations for the
quarter and nine months ended September 30, 2000.
Report on Form 8-K, dated December 17, 2000, was filed under items 5
and 7 and related to the Registrant's proposal to acquire Morgan
Keegan, Inc.
14(c) The Exhibits not incorporated herein by reference are submitted as a
separate part of this report.
Note: Copies of the aforementioned exhibits are available to stockholders upon
request to:
Stockholder Assistance
417 North 20th Street
P. O. Box 10247
Birmingham, Alabama 35202-10247
14(d) Financial statement schedules:
None.
82
84
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REGIONS FINANCIAL CORPORATION
By: /s/ Samuel E. Upchurch, Jr.
------------------------------------
Samuel E. Upchurch, Jr.
Executive Vice President, General
Counsel
and Corporate Secretary
Date: 3/21/01
By: /s/ D. Bryan Jordan
------------------------------------
D. Bryan Jordan
Executive Vice President and
Comptroller
Date: 3/21/01
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
--------- ----- ----
* J. Stanley Mackin Chairman and Director 3/21/01
-----------------------------------------------------
J. Stanley Mackin
* Carl E. Jones, Jr. Chief Executive Officer, 3/21/01
----------------------------------------------------- President and Director
Carl E. Jones, Jr.
* Richard D. Horsley Vice Chairman, Executive 3/21/01
----------------------------------------------------- Financial Officer and Director
Richard D. Horsley
* Sheila S. Blair Director 3/21/01
-----------------------------------------------------
Sheila S. Blair
* James B. Boone, Jr. Director 3/21/01
-----------------------------------------------------
James B. Boone, Jr.
* James S. M. French Director 3/21/01
-----------------------------------------------------
James S. M. French
* Olin B. King Director 3/21/01
-----------------------------------------------------
Olin B. King
* Michael W. Murphy Director 3/21/01
-----------------------------------------------------
Michael W. Murphy
* Henry E. Simpson Director 3/21/01
-----------------------------------------------------
Henry E. Simpson
* W. Woodrow Stewart Director 3/21/01
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W. Woodrow Stewart
83
85
SIGNATURE TITLE DATE
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* Lee J. Styslinger, Jr. Director 3/21/01
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Lee J. Styslinger, Jr.
* John H. Watson Director 3/21/01
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John H. Watson
* C. Kemmons Wilson, Jr. Director 3/21/01
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C. Kemmons Wilson, Jr.
*By: /s/ Samuel E. Upchurch, Jr. 3/21/01
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Samuel E. Upchurch, Jr.
as attorney-in-fact pursuant to a power of attorney
84
86
ANNUAL REPORT ON FORM 10-K
ITEM 14(C)
EXHIBITS
87
SEC ASSIGNED
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
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3. -- Bylaws as last amended on March 17, 1999, incorporated
herein by reference from the Exhibits to the Registration
Statement filed with the Commission and assigned file number
333-86975.
Certificate of Incorporation as last amended on June 18,
1999, incorporated herein by reference from the Exhibits to
the Registration Statement filed with the Commission and
assigned file number 333-86975.
4. -- a. Subordinated Notes Indenture Agreement dated as of
December 1, 1992, incorporated by reference from the
Exhibits to the Registration Statement filed with the
Commission and assigned registration number 33-45714.
10. -- *a. Regions Amended and Restated 1991 Long-Term Incentive
Plan incorporated by reference from Exhibit B to the
Registrant's proxy statement filed with the Commission
and dated March 16, 1995.
-- *b. Regions Management Incentive Plan Amended and Restated
as of January 1, 1999, incorporated by reference from
Appendix B to the Registrant's proxy statement filed
with the Commission and dated April 7, 1999.
-- *c. Regions 1999 Long-Term Incentive Plan incorporated by
reference from Appendix C to the Registrant's proxy
statement filed with the Commission and dated April 7,
1999.
21. -- List of Subsidiaries of the Registrant.
23. -- Consent of Independent Auditors.
24.1 -- Power of Attorney
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* Represents a compensatory plan agreement that is required to be filed under
this item.