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Article by DailyStocks_admin    (07-30-08 07:46 AM)

Regions Financial Corp. CEO DOWD C RITTER bought 50000 shares on 7-25-2008 at $9.66


Regions Financial Corporation (together with its subsidiaries on a consolidated basis, “Regions” or “Company”) is a financial holding company headquartered in Birmingham, Alabama, which operates throughout the South, Midwest and Texas. Regions provides traditional commercial, retail and mortgage banking services, as well as other financial services in the fields of investment banking, asset management, trust, mutual funds, securities brokerage, insurance and other specialty financing. At December 31, 2007, Regions had total consolidated assets of approximately $141.0 billion, total consolidated deposits of approximately $94.8 billion and total consolidated stockholders’ equity of approximately $19.8 billion.

Regions is a Delaware corporation that, on July 1, 2004, became the successor by merger to Union Planters Corporation and the former Regions Financial Corporation. Its principal executive offices are located at 1900 Fifth Avenue North, Birmingham, Alabama 35203, and its telephone number at that address is (205) 944-1300.

Banking Operations

Regions conducts its banking operations through Regions Bank, an Alabama chartered commercial bank that is a member of the Federal Reserve System. At December 31, 2007, Regions operated almost 2,000 banking offices in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia.

Other Financial Services Operations

In addition to its banking operations, Regions provides additional financial services through the following subsidiaries:

Morgan Keegan & Company, Inc. (“Morgan Keegan”), a subsidiary of Regions Financial Corporation, is a full-service regional brokerage and investment banking firm. Morgan Keegan offers products and services including securities brokerage, asset management, financial planning, mutual funds, securities underwriting, sales and trading, and investment banking. Morgan Keegan also manages the delivery of trust services, which are provided pursuant to the trust powers of Regions Bank. Morgan Keegan, one of the largest investment firms in the South, employs approximately 1,300 financial advisors offering products and services from over 400 offices located in Alabama, Arkansas, Florida, Georgia, Illinois, Kentucky, Louisiana, Massachusetts, Mississippi, New York, North Carolina, South Carolina, Tennessee, Texas and Virginia.

Regions Insurance Group, Inc., a subsidiary of Regions Financial Corporation, offers insurance products through the following subsidiaries: Regions Insurance, Inc. (formerly Rebsamen Insurance, Inc.), headquartered in Little Rock, Arkansas, and Regions Insurance Services, Inc., headquartered in Memphis, Tennessee. Through its insurance brokerage operations in Alabama, Arkansas, Indiana, Louisiana, Missouri, Mississippi, Tennessee and Texas, Regions Insurance Group offers all lines of personal and commercial insurance, including property, casualty, life, health and accident. Regions Insurance Services offers credit-related insurance products (title, term life, credit life, debt cancellation, environmental, crop and mortgage insurance) to customers of Regions. With $111 million in annual revenues and 30 offices in eight states, Regions Insurance Group, Inc. is one of the largest bank-owned insurance brokers in the United States.

Regions Agency, Inc., a subsidiary of Regions Financial Corporation, acts as an insurance agent or broker with respect to credit life insurance, accident and health insurance and other types of insurance relating to extensions of credit by Regions Bank or Regions’ banking-related subsidiaries.

Regions Life Insurance Company, a subsidiary of Regions Financial Corporation, acts as a re-insurer of credit life insurance and accident and health insurance in connection with the activities of certain affiliates of Regions.

Regions Interstate Billing Service, Inc., a subsidiary of Regions Bank, factors commercial accounts receivable and performs billing and collection services, focusing on clients in the heavy-duty truck and automotive business, but also serving other businesses that meet certain criteria.

Regions Equipment Finance Corporation, a subsidiary of Regions Bank, provides domestic and international equipment financing products, focusing on commercial clients.

Acquisition Program

A substantial portion of the growth of Regions from its inception as a bank holding company in 1971 through the November 2006 merger with AmSouth Bancorporation has been through the acquisition of other financial institutions, including commercial banks and thrift institutions, and the assets and deposits thereof. As part of its ongoing strategic plan, Regions continually evaluates business combination opportunities. Any future business combination or series of business combinations that Regions might undertake may be material, in terms of assets acquired or liabilities assumed, to Regions’ financial condition. Recent business combinations in the financial services industry have typically involved the payment of a premium over book and market values. This practice could result in dilution of book value and net income per share for the acquirer.

Segment Information

Reference is made to Note 22 “Business Segment Information” to the consolidated financial statements included under Item 8 of this Form 10-K for information required by this item.

Supervision and Regulation

Regions and its subsidiaries are subject to the extensive regulatory framework applicable to bank holding companies and their subsidiaries. Regulation of financial institutions such as Regions and its subsidiaries is intended primarily for the protection of depositors, the deposit insurance fund of the Federal Deposit Insurance Corporation (“FDIC”) and the banking system as a whole, and generally is not intended for the protection of stockholders or other investors. Described below are the material elements of selected laws and regulations applicable to Regions and its subsidiaries. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described. Changes in applicable law or regulation, and in their application by regulatory agencies, cannot be predicted, but they may have a material effect on the business and results of Regions and its subsidiaries.

General. Regions is a bank holding company, registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and a financial holding company under the Bank Holding Company Act of 1956, as amended (“BHC Act”). As such, Regions and its subsidiaries are subject to the supervision, examination and reporting requirements of the BHC Act and the regulations of the Federal Reserve.

The Gramm-Leach-Bliley Act, adopted in 1999 (“GLB Act”), significantly relaxed previously existing restrictions on the activities of banks and bank holding companies. Under such legislation, 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. A financial holding company may engage directly or through a subsidiary in the statutorily authorized activities of securities dealing, underwriting and market making, insurance underwriting and agency activities, merchant banking and insurance company portfolio investments. A financial holding company also may engage in any activity that the Federal Reserve determines by rule or order to be financial in nature, incidental to such financial activity, or complementary to a financial activity and that does not pose a substantial risk to the safety and soundness of an institution or to the financial system generally.

In addition to these activities, a financial holding company may engage in those activities permissible for a bank holding company that has not elected to be treated as a financial holding company, including factoring accounts receivable, acquiring and servicing loans, leasing personal property, performing certain data processing services, acting as agent or broker in selling credit life insurance and certain other types of insurance in connection with credit transactions and conducting certain insurance underwriting activities. The BHC Act does not place territorial limitations on permissible non-banking activities of bank holding companies. Despite prior approval, the Federal Reserve has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when the Federal Reserve has reasonable grounds to believe that continuation of such activity or such ownership or control constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of the bank holding company.

The GLB Act provides generally for “umbrella” regulation of financial holding companies by the Federal Reserve, and for functional regulation of banking activities by bank regulators, securities activities by securities regulators, and insurance activities by insurance regulators.

For a bank holding company to be eligible for financial holding company status, all of its subsidiary insured depository institutions must be well capitalized and well managed. A bank holding company may become a financial holding company by filing a declaration with the Federal Reserve that it elects to become a financial holding company. The Federal Reserve must deny expanded authority to any bank holding company with a subsidiary insured depository institution that received less than a satisfactory rating on its most recent Community Reinvestment Act of 1977 (the “CRA”) review as of the time it submits its declaration. If, after becoming a financial holding company and undertaking activities not permissible for a bank holding company, the company fails to continue to meet any of the prerequisites for financial holding company status, the company must enter into an agreement with the Federal Reserve to comply with all applicable capital and management requirements. If the company does not return to compliance within 180 days, the Federal Reserve may order the company to divest its subsidiary banks or the company may discontinue or divest investments in companies engaged in, activities permissible only for a bank holding company that has elected to be treated as a financial holding company.

The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve before: (1) it may acquire direct or indirect ownership or control of any voting shares of any bank or savings and loan association, if after such acquisition, the bank holding company will directly or indirectly own or control more than 5.0% of the voting shares of the institution; (2) it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank or savings and loan association; or (3) it may merge or consolidate with any other bank holding company.

The BHC Act further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any section of the United States, or the effect of which may be substantially to lessen competition or to tend to create a monopoly in any section of the country, or that in any other manner would be in restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. Consideration of financial resources generally focuses on capital adequacy, and consideration of convenience and needs issues includes the parties’ performance under the CRA, both of which are discussed below. In addition, the Federal Reserve must take into account the institutions’ effectiveness in combating money laundering.

Regions Bank is a member of the FDIC, and, as such, its deposits are insured by the FDIC to the extent provided by law. It is also subject to numerous statutes and regulations that affect its business activities and operations, and is supervised and examined by one or more state or federal bank regulatory agencies.

Regions Bank is a state bank, chartered in Alabama and is a member of the Federal Reserve System. Regions Bank is generally subject to supervision and examination by both the Federal Reserve and the Alabama Department of Banking. The Federal Reserve and the Alabama Department of Banking regularly examine the operations of Regions Bank and are given authority to approve or disapprove mergers, consolidations, the establishment of branches and similar corporate actions. The federal and state banking regulators also have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law. Various consumer laws and regulations also affect the operations of Regions Bank. In addition, commercial banks are affected significantly by the actions of the Federal Reserve as it attempts to control money and credit availability in order to influence the economy.

Community Reinvestment Act. Regions Bank is subject to the provisions of the CRA. Under the terms of the CRA, Regions Bank has a continuing and affirmative obligation consistent with safe and sound operation to help meet the credit needs of its communities, including providing credit to individuals residing in low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires each appropriate federal bank regulatory agency, in connection with its examination of a depository institution, to assess such institution’s record in assessing and meeting the credit needs of the community served by that institution, including low- and moderate-income neighborhoods. The regulatory agency’s assessment of the institution’s record is made available to the public. The assessment also is part of the Federal Reserve’s consideration of applications to acquire, merge or consolidate with another banking institution or its holding company, to establish a new branch office that will accept deposits or to relocate an office. In the case of a bank holding company applying for approval to acquire a bank or other bank holding company, the Federal Reserve will assess the records of each subsidiary depository institution of the applicant bank holding company, and such records may be the basis for denying the application. Regions Bank received a “satisfactory” CRA rating in its most recent examination.

USA PATRIOT Act. A major focus of governmental policy relating to financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA PATRIOT Act of 2001 (the “USA PATRIOT Act”) broadened the application of anti-money laundering regulations to apply to additional types of financial institutions such as broker-dealers, investment advisors and insurance companies, and strengthened the ability of the U.S. Government to help prevent, detect and prosecute international money laundering and the financing of terrorism. The principal provisions of Title III of the USA PATRIOT Act require that regulated financial institutions, including state member banks: (i) establish an anti-money laundering program that includes training and audit components; (ii) comply with regulations regarding the verification of identity of any person seeking to open an account; (iii) take additional required precautions with non-U.S. owned accounts; and (iv) perform certain verification and certification of money laundering risk for their foreign correspondent banking relationships. Failure of a financial institution to comply with the USA PATRIOT Act’s requirements could have serious legal and reputational consequences for the institution. Regions’ banking, broker-dealer and insurance subsidiaries have augmented their systems and procedures to meet the requirements of these regulations and will continue to revise and update their policies, procedures and controls to reflect changes required by the USA PATRIOT Act and implementing regulations.

Payment of Dividends. Regions is a legal entity separate and distinct from its banking and other subsidiaries. The principal source of cash flow of Regions, including cash flow to pay dividends to its stockholders and principal and interest on any debt of Regions, is dividends from Regions Bank. There are statutory and regulatory limitations on the payment of dividends by Regions Bank to Regions, as well as by Regions to its stockholders.

As to the payment of dividends, Regions Bank is subject to the laws and regulations of the state of Alabama and to the regulations of the Federal Reserve.

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 Act (“FDIA”), an insured institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. See “Regulatory Remedies under the FDIA” below. Moreover, the Federal Reserve and the FDIC have issued policy statements stating that bank holding companies and insured banks should generally pay dividends only out of current operating earnings.

At December 31, 2007, under dividend restrictions imposed under federal and state laws, Regions Bank, without obtaining governmental approvals, could declare aggregate dividends to Regions of approximately $223.3 million.

The payment of dividends by Regions and Regions Bank may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines.

Capital Adequacy. Regions and Regions Bank are required to comply with the applicable capital adequacy standards established by the Federal Reserve. There are two basic measures of capital adequacy for bank holding companies that have been promulgated by the Federal Reserve: a risk-based measure and a leverage measure.

The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in credit and market risk profiles among banks and financial holding companies, to account for off- balance-sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance-sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.

The minimum guideline for the ratio of total capital (“Total Capital”) to risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit) is 8.0%. At least half of the Total Capital must be composed of common equity, undivided profits, minority interests in the equity accounts of consolidated subsidiaries (including, for bank holding companies but not banks, trust preferred securities), non-cumulative perpetual preferred stock and for bank holding companies (but not banks) a limited amount of cumulative perpetual preferred stock, less goodwill and certain other intangible assets (“Tier 1 Capital”). Tier 2 Capital may consist of, among other things, qualifying subordinated debt, mandatorily convertible debt securities, other preferred stock and trust preferred securities and a limited amount of the allowance for loan losses. Non-cumulative perpetual preferred stock, trust preferred securities and other so-called “restricted core capital elements” are currently limited to 25% of Tier 1 Capital. The minimum guideline for Tier 1 Capital is 4.0%. At December 31, 2007, Regions’ consolidated Tier 1 Capital ratio was 7.29% and its Total Capital ratio was 11.25%.

In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average total assets, less goodwill and certain other intangible assets (the “Leverage Ratio”), of 3.0% for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies generally are required to maintain a Leverage Ratio of at least 3.0%, plus an additional cushion of 100 to 200 basis points. Regions’ Leverage Ratio at December 31, 2007 was 6.66%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve has indicated that it will consider a “tangible Tier 1 Capital leverage ratio” (deducting all intangibles) and other indicators of capital strength in evaluating proposals for expansion or new activities.

A subsidiary bank is subject to substantially similar risk-based and leverage capital requirements as those applicable to Regions. Regions Bank was in compliance with applicable minimum capital requirements as of December 31, 2007. Neither Regions nor Regions Bank has been advised by any federal banking agency of any specific minimum capital ratio requirement applicable to it as of December 31, 2007.

In 2004, the Basel Committee on Banking Supervision published a new set of risk-based capital standards (“Basel II”) in order to update the original international capital standards that had been put in place in 1988 (“Basel I”). Basel II provides two approaches for setting capital standards for credit risk—an internal ratings-based approach tailored to individual institutions’ circumstances and a standardized approach that bases risk weighting on external credit assessments to a much greater extent than permitted in the existing risk-based capital guidelines. Basel II also would set capital requirements for operational risk and refine the existing capital requirements for market risk exposures. The U.S. banking and thrift agencies are developing proposed revisions to their existing capital adequacy regulations and standards based on Basel II. In November 2007, the agencies adopted a definitive final rule for implementing Basel II in the United States that will apply only to internationally active banking organizations, or “core banks” (defined as those with consolidated total assets of $250 billion or more or consolidated on-balance sheet foreign exposures of $10 billion or more). The final rule will be effective as of April 1, 2008. Other U.S. banking organizations may elect to adopt the requirements of this rule (if they meet applicable qualification requirements), but they will not be required to comply. The rule also allows a banking organization’s primary Federal supervisor to determine that application of the rule would not be appropriate in light of the bank’s asset size, level of complexity, risk profile or scope of operations. In July 2007, the agencies agreed to issue a proposed rule that would provide non-core banks with the option to adopt an approach consistent with the standardized approach of Basel II. This new proposal, which is intended to be finalized before the core banks may start their first transition period year under Basel II, will replace the agencies’ earlier proposed amendments to existing risk-based capital guidelines to make them more risk sensitive (formerly referred to as the “Basel I-A” approach). Regions Bank is not required to comply with Basel II.

Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business. See “Regulatory Remedies under the FDIA” below.

Support of Subsidiary Banks. Under Federal Reserve policy, Regions is expected to act as a source of financial strength to, and to commit resources to support, its subsidiary bank. This support may be required at times when, absent such Federal Reserve policy, Regions may not be inclined to provide it. In addition, any capital loans by a bank holding company to its subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

Transactions with Affiliates. There are various legal restrictions on the extent to which Regions and its non-bank subsidiaries may borrow or otherwise obtain funding from Regions Bank. Under Sections 23A and 23B of the Federal Reserve Act and the Federal Reserve’s Regulation W, Regions Bank (and its subsidiaries) may only engage in lending and other “covered transactions” with non-bank and non-savings bank affiliates to the following extent: (a) in the case of any single such affiliate, the aggregate amount of covered transactions of Regions Bank and its subsidiaries may not exceed 10% of the capital stock and surplus of Regions Bank; and (b) in the case of all affiliates, the aggregate amount of covered transactions of Regions Bank and its subsidiaries may not exceed 20% of the capital stock and surplus of Regions Bank. Covered transactions also are subject to certain collateralization requirements. “Covered transactions” are defined by statute to include a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve) from the affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.

Regulatory Remedies under the FDIA. The FDIA establishes a system of regulatory remedies to resolve the problems of undercapitalized institutions. The federal banking regulators have established five capital categories (“well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized”) and must take certain mandatory supervisory actions, and are authorized to take other discretionary actions, with respect to institutions in the three undercapitalized categories, the severity of which will depend upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the FDIA requires the banking regulator to appoint a receiver or conservator for an institution that is critically undercapitalized. The federal banking agencies have specified by regulation the relevant capital level for each category.

Under the agencies’ rules implementing the FDIA’s remedy provisions, an institution that (1) has a Total Capital ratio of 10.0% or greater, a Tier 1 Capital ratio of 6.0% or greater, and a Leverage Ratio of 5.0% or greater and (2) is not subject to any written agreement, order, capital directive or regulatory remedy directive issued by the appropriate federal banking agency is deemed to be “well capitalized.” An institution with a Total Capital ratio of 8.0% or greater, a Tier 1 Capital ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or greater is considered to be “adequately capitalized.” A depository institution that has a Total Capital ratio of less than 8.0%, a Tier 1 Capital ratio of less than 4.0%, or a Leverage Ratio of less than 4.0% is considered to be “undercapitalized.” An institution that has a Total Capital ratio of less than 6.0%, a Tier 1 Capital ratio of less than 3.0%, or a Leverage Ratio of less than 3.0% is considered to be “significantly undercapitalized,” and an institution that has a tangible equity capital to assets ratio equal to or less than 2.0% is deemed to be “critically undercapitalized.” For purposes of the regulation, the term “tangible equity” includes core capital elements counted as Tier 1 Capital for purposes of the risk-based capital standards plus the amount of outstanding cumulative perpetual preferred stock (including related surplus), minus all intangible assets with certain exceptions. A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating.

An institution that is categorized as undercapitalized, significantly undercapitalized or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. Under the FDIA, 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 the FDIA to fund a capital restoration plan is limited to the lesser of 5.0% of an undercapitalized subsidiary’s assets or the amount required to meet regulatory capital requirements. An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except in accordance with an accepted capital restoration plan or with the approval of the FDIC. In addition, the appropriate federal banking agency is given authority with respect to any undercapitalized depository institution to take any of the actions it is required to or may take with respect to a significantly undercapitalized institution as described below if it determines “that those actions are necessary to carry out the purpose” of the FDIA.

Institutions that are significantly undercapitalized or undercapitalized and either fail to submit an acceptable capital restoration plan or fail to implement an approved capital restoration plan may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized depository institutions are subject to appointment of a receiver or conservator.

At December 31, 2007, Regions Bank had the requisite capital levels to qualify as well capitalized.

FDIC Insurance Assessments. Regions Bank pays deposit insurance premiums to the FDIC based on an assessment rate established by the FDIC. In 2006, the FDIC enacted various rules to implement the provisions of the Federal Deposit Insurance Reform Act of 2005 (the “FDI Reform Act”). Pursuant to the FDI Reform Act, in 2006 the FDIC merged the Bank Insurance Fund with the Savings Association Insurance Fund to create a newly named Deposit Insurance Fund (the “DIF”) that covers both banks and savings associations. Effective January 1, 2007, the FDIC revised the risk-based premium system under which the FDIC classifies institutions based on the factors described below and generally assesses higher rates on those institutions that tend to pose greater risks to the DIF. Effective May 8, 2007, the FDIC implemented guidelines that will be used to determine how adjustments of up to 0.50% will be made to the quarterly assessment rates of insured institutions that are categorized as large “Risk Category I” institutions.

For most banks and savings associations, including Regions Bank, FDIC rates will depend upon a combination of CAMELS component ratings and financial ratios. CAMELS ratings reflect the applicable bank regulatory agency’s evaluation of the financial institution’s capital, asset quality, management, earnings, liquidity and sensitivity to risk. For large banks and savings associations that have long-term debt issuer ratings, assessment rates will depend upon such ratings and CAMELS component ratings. For institutions such as Regions Bank, which are in the lowest risk category, assessment rates will vary initially from five (5) to seven (7) basis points per $100 of insured deposits. The FDIA, as amended by the FDI Reform Act, requires the FDIC to set a ratio of deposit insurance reserves to estimated insured deposits, the designated reserve ratio (the “DRR”), for a particular year within a range of 1.15% to 1.50%. For 2008, the FDIC has set the DRR at 1.25%, which is unchanged from 2007 levels. Under the FDI Reform Act and the FDIC’s revised premium assessment program, every FDIC-insured institution will pay some level of deposit insurance assessments regardless of the level of the DRR. We cannot predict whether, as a result of an adverse change in economic conditions or other reasons, the FDIC will be required in the future to increase deposit insurance assessments above current levels. The FDIC has also finalized rules providing for a one-time credit assessment to each eligible insured depository institution based on the assessment base of the institution on December 31, 1996. The credit may be applied against the institution’s 2007 assessment, and for the three years thereafter the institution may apply the credit against up to 90% of its assessment. Regions Bank qualified for a credit of approximately $110 million, of which $34 million was applied in 2007, leaving a remaining balance at year end of $76 million to be applied over the next two years, based on the current assessment rate.

In addition, the Deposit Insurance Funds Act of 1996 authorized the Financing Corporation (“FICO”) to impose assessments on DIF applicable deposits in order to service the interest on FICO’s bond obligations from deposit insurance fund assessments. The amount assessed on individual institutions by FICO will be in addition to the amount, if any, paid for deposit insurance according to the FDIC’s risk-related assessment rate schedules. FICO assessment rates may be adjusted quarterly to reflect a change in assessment base. The FICO annual assessment rate for the fourth quarter of 2007 was 1.14 cents per $100 deposits and will remain the same for the first quarter of 2008. Regions Bank had a FICO assessment of $10.7 million in FDIC deposit premiums in 2007.

Under the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

Safety and Soundness Standards. The FDIA requires the federal bank regulatory agencies to prescribe standards, by regulations or guidelines, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial standards as the agencies deem appropriate. Guidelines adopted by the federal bank regulatory agencies establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal stockholder. In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of FDIA. See “Regulatory Remedies under the FDIA” above. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties.


David J. Cooper, Sr.
Mr. Cooper, 62, has been a Director of Regions since November 2006 and of AmSouth since 2005. Mr. Cooper is currently the Vice Chairman and was previously the President of Cooper/T. Smith Corporation, a privately held corporation that is one of the largest stevedoring and maritime-related firms in the United States. He also serves as a director of Alabama Power Company.

Earnest W. Deavenport, Jr.
Mr. Deavenport, 69, has been a Director of Regions since November 2006 and of AmSouth since 1999. He is the Retired Chairman of the Board and Chief Executive Officer of Eastman Chemical Company, a manufacturer of plastic, chemical and fiber products, positions he held 1994-2002. Mr. Deavenport also serves on the board of directors of King Pharmaceuticals, Inc. and ZEP, Inc.

Charles D. McCrary
Mr. McCrary, 56, has been a Director of Regions since November 2006 and of AmSouth since 2001. He has served as the President and Chief Executive Officer of Alabama Power Company, a public utility, since 2001. He is a member of the board of directors of Alabama Power Company and Protective Life Corporation.

Jorge M. Perez
Mr. Perez, 58, has been a Director of Union Planters/Regions since 2001. Since 1979 he has served as President of The Related Group, a real estate development company. Mr. Perez is a director of Florida East Coast Industries, Inc.

Spence L. Wilson
Mr. Wilson, 65, has been a Director of Union Planters/Regions since 1996. He is the President of Kemmons Wilson, Inc., a hotel development and management, resort time-sharing, home building, subdivision development and private investment company, a position he has held since 1970.

John E. Maupin, Jr.
Dr. Maupin, 61, has served as the President of Morehouse School of Medicine in Atlanta, GA, since 2006 and previously was the President of Meharry Medical College in Nashville, TN. Dr. Maupin also serves on the board of directors for LifePoint Hospitals, Inc., the Variable Annuity Life Insurance Companies I and II, a mutual fund complex for American International Group, Inc., and HealthSouth Corp.

George W. Bryan
Mr. Bryan, 63, has been a Director of Union Planters/Regions since 1986. He is retired from Sara Lee Corporation, Food Division, a food processing and packaging company, where he served as Senior Vice President from 1983 to 2000. Mr. Bryan has been the Chief Executive Officer, Old Waverly Investments, LLC, a real estate firm, since 2001. He is a member of the board of directors of Buckeye Technologies Inc.

Don DeFosset

Mr. DeFosset, 59, has been a Director of Regions since November 2006 and of AmSouth since 2005. He is the former Chairman, President and Chief Executive Officer of Walter Industries, Inc., a diversified company with businesses in water infrastructure, flow control, water transmission products, metallurgical coal and natural gas, and affordable homebuilding. He served as Chairman from March 2002 to September 2005, and as President and Chief Executive Officer from November 2000 to September 2005. He is also a director of Terex Corporation and James Hardie Industries, N.V.

James R. Malone
Mr. Malone, 65, has been a Director of Regions since November 2006 and of AmSouth since 1994. He is the Founding and Managing Partner of Qorval LLC, an operational improvement, restructuring and investment banking firm. Mr. Malone also is a Founder and Partner in Boyne Capital Partners, LLC, a private equity investment firm, and serves as Chief Executive Officer of AHM Holdings Corp., an aviation maintenance, repair and overhaul company. In 2006 and 2007, he served as Chairman, President and Chief Executive Officer of American Asphalt & Grading, an engineering, development and paving services company. He was Vice Chairman, Chairman, President and CEO (2004-2006) of Brown Jordan International, Inc., a furniture manufacturer; he also served as Chairman, President and Chief Executive Officer (2005) of Cenveo, a graphics communications company. From 1996 to 2004, he served as Chairman of the Board and Chief Executive Officer of HMI Industries, Inc., a producer of surface cleaners for residential and commercial use and other industrial manufactured products. In addition he serves on the boards of Ametek, Inc. and O’Sullivan Industries Holdings, Inc.

Claude B. Nielsen
Mr. Nielsen, 57, has been a Director of Regions since November 2006 and of AmSouth since 1993. He has been the Chief Executive Officer of Coca-Cola Bottling Company United, Inc., a soft drink bottler, since 1991 and its Chairman since May 2003. Mr. Nielsen also serves on the board of Colonial Properties Trust.

C. Dowd Ritter
Mr. Ritter, 60, has been a Director of Regions since November 2006 and of AmSouth since 1993. Since January 2008 he has served as Chairman, President and Chief Executive Officer of Regions and Regions Bank. From November 2006 through December 2007 he served as President and Chief Executive Officer of Regions and Regions Bank. From 1996 to November 2006 he was President and Chief Executive Officer of AmSouth Bancorporation and AmSouth Bank and was Chairman of AmSouth Bancorporation and AmSouth Bank from September 1996 to October 1999 and January 2001 to November 2006. Mr. Ritter also serves on the board of directors of Alabama Power Company and Protective Life Corporation.

Samuel W. Bartholomew, Jr.
Mr. Bartholomew, 63, has been a Director of Union Planters/Regions since 2001. From 1997 until July 2005 he was Chairman and Chief Executive Officer of Stokes Bartholomew Evans & Petree, P.A., a law firm. Since July 2005 he has served as Chairman Emeritus—Tennessee of Adams and Reese LLP law firm. Additionally, since January 2004 he has been the Clinical Professor of Business Law at Vanderbilt-Owen School of Management.

Susan W. Matlock
Ms. Matlock, 61, has been a Director of Regions since 2002. Currently she serves as President and CEO of Innovation Depot, Inc., an emerging business incubation center. Innovation Depot, Inc. was established in 2007 as the result of the combination of the University of Alabama at Birmingham’s biotech/life science incubation program and the mixed-use incubation program Entrepreneurial Center. Ms. Matlock was founding President of the Entrepreneurial Center and Executive Director of the University of Alabama at Birmingham’s program.

John R. Roberts
Mr. Roberts, 66, has been a Director of Union Planters/Regions since 2001. He is the Retired Managing Partner, Mid-South Region, of Arthur Andersen LLP, a certified public accounting firm, a position he held from 1993 to 1998. He served as Independent Consultant and Executive Director of Civic Progress, Inc., a nonprofit organization, from 2001 through 2006. Mr. Roberts is a member of the board of directors of Energizer Holdings, Inc. and Centene Corporation.

Lee J. Styslinger III
Mr. Styslinger, 46, has been a Director of Regions since 2003 and serves as the Chief Executive Officer, Altec, Inc., a leading equipment and service provider for the electric utility, telecommunications and contractor markets.



The following discussion and analysis is part of Regions Financial Corporation’s (“Regions” or the “Company”) Quarterly Report on Form 10-Q to the Securities and Exchange Commission (“SEC”) and updates Regions’ Form 10-K for the year ended December 31, 2007, which was previously filed with the SEC. This financial information is presented to aid in understanding Regions’ financial position and results of operations and should be read together with the financial information contained in the Form 10-K. Certain prior period amounts presented in this discussion and analysis have been reclassified to conform to current period classifications, except as otherwise noted. The emphasis of this discussion will be on the three months ended March 31, 2008 compared to the three months ended March 31, 2007 for the statement of income. For the balance sheet, the emphasis of this discussion will be the balances as of March 31, 2008 as compared to December 31, 2007.

This discussion and analysis contains statements that may be considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. See page 3 for additional information regarding forward-looking statements.


Regions is a financial holding company headquartered in Birmingham, Alabama, which operates in the South, Midwest and Texas. Regions’ provides traditional commercial, retail and mortgage banking services, as well as other financial services in the fields of investment banking, asset management, trust, mutual funds, securities brokerage, insurance and other specialty financing.

Regions conducts its banking operations through Regions Bank, an Alabama chartered commercial bank that is a member of the Federal Reserve System. At March 31, 2008, Regions operated approximately 1,900 full-service banking offices in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia. Regions provides brokerage services and investment banking from approximately 400 offices of Morgan Keegan & Company, Inc. (“Morgan Keegan”), a full-service regional brokerage and investment banking firm. Regions provides full-line insurance brokerage services primarily through Regions Insurance, Inc., one of the 30 largest insurance brokers in the country.

Regions’ profitability, like that of many other financial institutions, is dependent on its ability to generate revenue from net interest income and non-interest income sources. Net interest income is the difference between the interest income Regions receives on interest-earning assets, such as loans and securities, and the interest expense Regions pays on interest-bearing liabilities, principally deposits and borrowings. Regions’ net interest income is impacted by the size and mix of its balance sheet components and the interest rate spread between interest earned on its assets and interest paid on its liabilities. Non-interest income includes fees from service charges on deposit accounts, securities brokerage, investment banking and trust activities, mortgage servicing and secondary marketing, insurance activities and other customer services which Regions provides. Results of operations are also affected by the provision for loan losses and non-interest expenses, such as salaries and employee benefits, occupancy and other operating expenses, as well as income taxes.

Economic conditions, competition, and the monetary and fiscal policies of the Federal government significantly affect most financial institutions, including Regions. Lending and deposit activities and fee income generation are influenced by levels of business spending and investment, consumer income, consumer spending and savings, capital market activities, and competition among financial institutions, as well as customer preferences, interest rate conditions and prevailing market rates on competing products in Regions’ market areas.

Regions’ business strategy has been and continues to be focused on providing a competitive mix of products and services, delivering quality customer service and maintaining a branch distribution network with offices in convenient locations. Regions delivers this business strategy with the personal attention and feel of a community bank and with the service and product offerings of a large regional bank.


Regions reported income from continuing operations of $336.7 million, or $0.48 per diluted share in the first quarter of 2008, which included $46.9 million in after-tax merger-related expenses (or 7 cents per diluted share). Excluding the impact of merger-related expenses, earnings per diluted share from continuing operations were $0.55, compared to first quarter 2007 per diluted share earnings of $0.69. See Table 12 for a reconciliation of GAAP to non-GAAP financial measures. First quarter 2008 earnings were solid given the current operating environment. Several significant revenue and expense items occurred during the quarter, which are discussed later in this section. Primary drivers of the first quarter 2008 net income include solid fee-based revenue, controlled core operating expenses and accelerated merger cost savings.

Net interest income from continuing operations, on a fully taxable-equivalent basis, for the first quarter of 2008 was $1.0 billion, compared to $1.2 billion in the first quarter of 2007. The taxable equivalent net interest margin (annualized and including discontinued operations) for the first quarter of 2008 was 3.53%, compared to 3.99% in the first quarter of 2007. The decrease in the net interest margin reflects the continued pressure of a negative shift in the funding mix given a lower level of low-cost deposits. The first quarter 2008 net interest margin was also negatively impacted by the recent Federal Reserve Board rate cuts, as interest rates on loans are re-pricing downward ahead of funding costs. Rising non-performing asset levels and purchases of bank-owned life insurance are also having an unfavorable effect on the margin.

Net charge-offs totaled $125.8 million, or 0.53% of average loans, annualized, in the first quarter of 2008, compared to 0.20% for the first quarter of 2007. The provision for loan losses from continuing operations totaled $181.0 million in the first quarter of 2008 compared to $47.0 million during the same period of 2007. These increases were primarily driven by deterioration in the residential homebuilder portfolio and losses within the home equity portfolio, both of which are closely tied to the housing market slowdown. Total non-performing assets at March 31, 2008, were $1,204.4 million, compared to $864.1 million at December 31, 2007. The allowance for credit losses at March 31, 2008, was 1.49% of total loans, net of unearned income, compared to 1.45% at December 31, 2007 and 1.18% at March 31, 2007.

Non-interest income in the first quarter of 2008 from continuing operations, excluding the gains from sales of securities and the Visa initial public offering redemption (“IPO”), increased 8% compared to the first quarter of 2007. This increase was attributable to strong contributions from brokerage and investment banking income, mortgage income, commercial credit fee income and insurance income. Non-interest income includes a $91.6 million gain on the sale of securities available for sale and $62.8 million received from the redemption of a portion of the Company’s ownership interest in Visa’s IPO in the first quarter of 2008.

Total non-interest expense from continuing operations was $1.3 billion in the first quarter of 2008, compared to $1.1 billion in the first quarter of 2007. Pre-tax merger charges of $75.6 million were incurred in the first quarter of 2008 compared to $49.0 million in the first quarter of 2007 (see Table 12 “GAAP to Non-GAAP Reconciliation”). Several significant non-interest expense items were recorded during the first quarter of 2008, including $42.0 million of mortgage servicing rights impairment, a $65.4 million loss on the early extinguishment of debt related to the redemption of subordinated notes and a $24.5 million write-down on the investment in two Morgan Keegan mutual funds. These items were partially offset by the recognition of a $28.4 million litigation expense reduction related to Visa’s IPO. Non-interest expenses benefited from the realization of merger cost saves of approximately $127 million during the first three months of 2008.


Regions’ total assets at March 31, 2008, were $144.2 billion, compared to $141.0 billion at December 31, 2007. The increase in total assets from year end 2007 resulted from an increase in other assets, primarily due to increased customer derivative activity, as well as moderate growth in the loan and securities portfolios.


At March 31, 2008, loans represented 81% of Regions’ interest-earning assets. The following table presents the distribution by loan type of Regions’ loan portfolio, net of unearned income:

Loans, net of unearned income, totaled $96.4 billion at March 31, 2008, an increase of $1.0 billion from year-end 2007 levels. Due to system conversion-related re-mapping of loan product types, first quarter 2008 loans, net of unearned income, reflect an approximate $722 million reclassification from real estate-construction to real estate- mortgage. During the first three months of 2008, growth occurred primarily in commercial loans.

Regions has approximately $100 million in book value of “sub-prime” loans retained from the disposition of EquiFirst, relatively unchanged from the year-end 2007 balance. The credit loss exposure related to these loans is addressed in management’s periodic determination of the allowance for credit losses.


During late 2007, the residential homebuilder portfolio came under significant stress. In Table 1 “Loan Portfolio”, the majority of these loans is reported in the real estate—construction loan category, while a smaller portion is reported as real estate—mortgage loans. The residential homebuilder portfolio is geographically concentrated in Florida and Regions’ Central Region, mainly Atlanta, Georgia. Regions has realigned its organizational structure to enable some of the Company’s most experienced bankers to concentrate their efforts on management of this portfolio.

The following table details the portfolio breakout of the residential homebuilder portfolio:


The allowance for credit losses (“allowance”) represents management’s estimate of credit losses inherent in the portfolio as of March 31, 2008. The allowance consists of two components: the allowance for loan losses and the reserve for unfunded credit commitments. Management’s assessment of the adequacy of the allowance is based on the combination of both of these components. Regions determines its allowance in accordance with regulatory guidance, Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan” (“FAS 114”) and Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (“FAS 5”). Binding unfunded credit commitments include items such as letters of credit, financial guarantees and binding unfunded loan commitments.

At March 31, 2008 and December 31, 2007, the allowance totaled approximately $1.4 billion. The allowance as a percentage of net loans was 1.49% at March 31, 2008 compared to 1.45% at year-end 2007. Net loan losses as a percentage of average loans (annualized) were 0.53% and 0.20% in the first three months of 2008 and 2007, respectively. The increase in the allowance was primarily driven by deterioration in the residential homebuilder portfolio and losses within the home equity portfolio, both of which are tied directly to the housing market slowdown. The reserve for unfunded credit commitments was $55.8 million at March 31, 2008 compared to $58.3 million at December 31, 2007. Details regarding the allowance and net charge-offs, including an analysis of activity from the previous year’s totals, are included in Table 3 “Allowance for Credit Losses”.

Factors considered by management in determining the adequacy of the allowance include, but are not limited to: (1) detailed reviews of individual loans; (2) historical and current trends in gross and net loan charge-offs for the various portfolio segments evaluated; (3) the level of the allowance in relation to total loans and to historical loss levels; (4) levels and trends in non-performing and past due loans; (5) collateral values of properties securing loans; (6) the composition of the loan portfolio, including unfunded credit commitments; and (7) management’s analysis of economic conditions.

Various departments, including Credit Review, Commercial and Consumer Credit Risk Management and Special Assets are involved in the credit risk management process to assess the accuracy of risk ratings, the quality of the portfolio and the estimation of inherent credit losses in the loan portfolio. This comprehensive process also assists in the prompt identification of problem credits.

For the majority of the loan portfolio, management uses information from its ongoing review processes to stratify the loan portfolio into pools sharing common risk characteristics. Loans that share common risk characteristics are assigned a portion of the allowance based on the assessment process described above. Credit exposures are categorized by type and assigned estimated amounts of inherent loss based on the processes described above.

Impaired loans are defined as commercial and commercial real estate loans (excluding leases) on non-accrual status. Impaired loans totaled approximately $899.5 million at March 31, 2008, compared to $660.4 million at December 31, 2007. The increase in impaired loans is consistent with the increase in non-performing loans, which is discussed in the “Non-Performing Assets” section of this report. All loans that management has identified as impaired, and that are greater than $2.5 million, are evaluated individually for purposes of determining appropriate allowances for credit losses. For these loans, Regions measures the level of impairment based on the present value of the estimated cash flows, the estimated value of the collateral or, if available, observable market prices. Specifically reviewed impaired loans totaled $521.3 million, and the allowance allocated to these loans totaled $83.2 million at March 31, 2008. This compared to $337.2 million of specifically reviewed impaired loans with allowance allocated to these loans of $58.7 million at December 31, 2007. While impaired loans increased, they are generally well-secured by real estate collateral.

Except for specific allowances on certain impaired loans, no portion of the resulting allowance is restricted to any individual credits or group of credits. The remaining allowance is available to absorb losses from any and all loans.

Management expects the allowance to vary over time due to changes in economic conditions, loan mix, management’s estimates or variations in other factors that may affect inherent losses.

Non-accrual loans at March 31, 2008 increased $280.6 million from year-end 2007 levels. The increase was primarily driven by commercial and commercial real estate loans, including the residential homebuilder portfolio, due to the widespread decline in residential property values. Non-performing assets are expected to continue upward throughout the year as the strained economic climate continues.

Loans past due 90 days or more and still accruing increased $110.7 million from year-end 2007 levels, reflecting weaker economic conditions and general market deterioration. The increase was due primarily to increases in home equity and residential first mortgages, as well as commercial loans being managed by the Special Assets Department and in the process of collection.

At March 31, 2008 and December 31, 2007, Regions had approximately $203.7 million and $221.5 million, respectively, of potential problem commercial loans that were not included in non-accrual loans or in the accruing loans 90 days past due categories, but for which management had concerns as to the ability of such borrowers to comply with their present loan repayment terms.


Securities totaled $17.8 billion at March 31, 2008, an increase of approximately $447.0 million from year-end 2007 levels. Securities available for sale, which comprise nearly all of the securities portfolio, are an important tool used to manage interest rate sensitivity and provide a primary source of liquidity for the Company (see INTEREST RATE SENSITIVITY, Exposure to Interest Rate Movements and LIQUIDITY).

During the first quarter of 2008, Regions sold approximately $1.9 billion in available for sale agency debentures and U.S. treasury securities and recognized a gain of approximately $91.6 million. Proceeds from the sales were reinvested in mortgage-backed securities, agency debentures and U.S. treasury securities.

During 2007, Regions invested approximately $130 million in two open-end mutual funds managed by Morgan Keegan. Regions accounts for these investments using the equity method. At March 31, 2008, total assets of these funds were approximately $175.4 million. Regions’ investment in the funds was approximately $37.7 million at March 31, 2008 and is included in other assets. During the three months ended March 31, 2008, Regions recognized losses associated with these investments of approximately $24.5 million, which is included in other non-interest expense.


All other interest-earning assets increased approximately $450.6 million from year-end 2007 to March 31, 2008, primarily resulting from the increase in trading account assets and margin receivables.


A summary of mortgage servicing rights is presented in Table 6. The balances shown represent the right to service mortgage loans that are owned by other investors and include the original amounts capitalized, less accumulated amortization and the valuation allowance. The carrying values of mortgage servicing rights are affected by various factors, including estimated 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, thus creating potential volatility in the carrying amount of mortgage servicing rights. During the first three months of 2008 and 2007, the Company recorded $42.0 million and $1.0 million, respectively, of non-interest expense related to the impairment of mortgage servicing rights.


Regions competes with other banking and financial services companies for a share of the deposit market. Regions’ ability to compete in the deposit market depends heavily on the pricing of its deposits and how effectively the Company meets customers’ needs. Regions employs various means to meet those needs and enhance competitiveness, such as providing well-designed products, a high level of customer service, competitive pricing and expanding the traditional branch network to provide convenient branch locations for its customers. Regions also serves customers through providing centralized, high-quality telephone banking services and alternative product delivery channels such as internet banking.

Total deposits at March 31, 2008, decreased approximately $5.6 billion compared to year-end 2007 levels. The primary driver for the decrease was a shift out of foreign deposits (which Regions uses as a source of short-term wholesale funding) and into short-term borrowings to access the most cost-effective funding. Decreases in other deposit categories from December 31, 2007 were driven by commercial customers using their deposits to pay down debt. There was a slight increase in savings and time deposits, which was more than offset by the decreases in non-interest bearing demand, interest-bearing transaction and money market accounts. In the current economic environment, deposit growth is likely to remain an industry challenge throughout the remainder of the year.

Federal funds purchased and securities sold under agreements to repurchase totaled $8.5 billion at March 31, 2008, compared to $8.8 billion at year-end 2007. The level of Federal funds purchased and securities sold under agreements to repurchase can fluctuate significantly on a day-to-day basis, depending on funding needs and which sources of funds are used to satisfy those needs. Short-term borrowings increased due to the shift away from using foreign deposits for funding purposes. Instead, the Company utilized short-term borrowings through participation in the Federal Reserve’s Term Auction Facility. In addition, short-term borrowings increased due to the issuance of approximately $1.4 billion of senior bank notes.


Stockholders’ equity was $20.0 billion at March 31, 2008, compared to $19.8 billion at December 31, 2007. During the first three months of 2008, net income added $336.7 million to stockholders’ equity, cash dividends declared reduced equity by $264.2 million, and accumulated other comprehensive income increased equity by $128.2 million.

Regions’ ratio of stockholders’ equity to total assets was 13.88% at March 31, 2008, compared to 14.05% at December 31, 2007. Regions’ ratio of tangible stockholders’ equity to tangible assets was 5.90% at March 31, 2008, compared to 5.88% at December 31, 2007.

At March 31, 2008, Regions had 23.1 million common shares available for repurchase through open market transactions under an existing share repurchase authorization. There were no treasury stock purchases during the first three months of 2008. The Company, like many other financial institutions, is in a capital conservation mode and does not expect to repurchase shares in the near term.

The Board of Directors declared a $0.38 cash dividend for the first quarter of 2008, compared to a $0.36 cash dividend declared for the first quarter of 2007 and $0.38 for fourth quarter 2007.


Regions and Regions Bank are required to comply with capital adequacy standards established by banking regulatory agencies. Currently, there are two basic measures of capital adequacy: a risk-based measure and a leverage measure.

The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in credit risk profiles among banks and bank holding companies, to account for off-balance sheet exposure and interest rate risk, and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with specified risk-weighting factors. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. Banking organizations that are considered to have excessive interest rate risk exposure are required to maintain higher levels of capital.

The minimum standard for the ratio of total capital to risk-weighted assets is 8%. At least 50% of that capital level must consist of common equity, undivided profits and non-cumulative perpetual preferred stock, less excess purchase price 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 that supplement the risk-based guidelines to include a minimum ratio of 3% of Tier 1 Capital to average assets less excess purchase price (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.


List Underwood – Investor Relations

Thank you, operator. Good morning everyone and we appreciate your participation today, a very busy day overall. Our presentation will discuss Regions’ business outlook and includes forward-looking statements. These statements may include descriptions of management’s plans, objectives or goals for future operations, products or services, forecasts of financial or other performance measures, statements about the expected quality, performance or collectability of loans and statements about Regions’ general outlook for economic and business conditions.

We also may make other forward-looking statements in the question and answer period following the discussion. These forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially. Information on the risk factors that could cause actual results to differ is available from today’s earnings press release, in today’s Form 8-K, our Form 10-K for the year ended December 31, 2007 or our Form 10-Q for the period ending March 31, 2008.

As a reminder, forward-looking statements are effective only as of the date they are made and we assume no obligation to update information concerning our expectations. Let me also mention that our discussions may include the use of non-GAAP financial measures. A reconciliation of these to the same measures on a GAAP basis can be found in our earnings release and related supplemental financial schedules.

Now I will turn it over to our Chairman and Chief Executive Officer, Dowd Ritter. Dowd?

Dowd Ritter – Chairman and Chief Executive Officer

Thank you, List. We appreciate all of you joining us for Regions' second quarter earnings conference call. With me this afternoon are Irene Esteves, our Chief Financial Officer; Bill Wells, our Chief Risk Officer; Mike Willoughby, our Chief Credit Officer and Bob Watts, our Head of Consumer Credit.

As all of you are well aware, credit quality deterioration and capital adequacy are today’s overriding issues for the financial services companies, Regions is among them. Earnings are being pressured by rising credit costs particularly related to residential homebuilder, condominium and home equity portfolios. As a result, second quarter earnings from continuing operations were below expectations at $0.39 per diluted share excluding merger charges. We believe that we’re prudently managing our credit risk and establishing the necessary reserves as I’ll discussion in a few minutes.

Given the current operating environment and its potential pressure on earnings, we have decided to build our capital by reducing our quarterly common cash dividend to $0.10 per share. At current share prices that dividend rate represents a yield of 4%. The dividend reduction will provide additional capital of approximately $1.2 billion by year end 2009, and will significantly strengthen our regulatory capital ratios. We remain committed to a strong capital position.

Turning to credit. In the second quarter, we continue to increase the allowance for credit losses while aggressively charging off problem loans. A $309 million provision for loan losses exceeded net charge-offs by $100 million. This lifted our period end allowance for credit losses to 1.56%.

Given the continuing deterioration in residential property values, especially in Florida and the generally uncertain economic backdrop, we expect credit costs to remain elevated. While we are not predicting the duration of this economic downturn, we think it is prudent to plan for no real improvements until 2010.

Credit management is clearly a top priority. While it’s difficult to have a great deal of confidence in projections as to the depth and duration of this credit down cycle, we do know that a successful navigation requires a proactive approach. We have been and will continue to aggressively deal with problem credits.

As I previously mentioned, loans to residential homebuilders, condominiums and home equity lending are the main sources of our portfolio weakness. During the second quarter, we experienced unprecedented deterioration in home equity lending mostly in Florida where property valuations in certain markets have experienced significant and rapid deterioration. We have and will continue to implement measures to mitigate portfolio risk, particularly in our more problematic portfolios.

Specific to our residential homebuilder portfolio, we have transferred some of our most experienced bankers to our special assets department so that they focus on risk mitigation of problem credits. We have established a loan disposition program one that evaluates opportunities on multiple levels through three different independent working groups. We have intensified our credit servicing function through more in-depth and frequent builder contacts and reporting. We stated our credit policies and processes across our franchise and adopted a more rigorous and disciplined underwriting and review process. We placed a moratorium on certain types of loans including land and condominium loans. Those two categories have declined $1.6 billion and $1 billion respectively since the end of 2006.

We have also taken significant action in the management of our home equity portfolio including the completion of a portfolio evaluation analysis, the results of which provide us with valuable information in portfolio work-outs. In addition, we have continued to develop our customer assistance program, which age our customers on several fronts and Irene will provide some additional information on those initiatives in just a few minutes.

There is no quick fix to today’s housing related issues and their negative impact on segments of our own portfolio. But, the actions that we have taken, we feel are important steps in the right direction, steps that will help minimize earnings impact and strengthen Regions as we move through the current cycle. Even with our real estate exposure with a couple of exceptions, we feel good about the diversity provided from our 16 state footprint and the overall diversity of the loan portfolio.

Also, keep in mind that we have no structured investment vehicles, no collateralized debt obligations, no credit card loans and less than $90 million of subprime mortgage exposure. Although capital and credit or funds that we continue to work hard to take full advantage of quality revenue growth opportunities. For example, we grew loans at a healthy 6% annualized pace in the second quarter, up from first quarter’s 4%. Commercial and Industrial loans were the primary driver, where new initiatives to selectively leverage financial lease of our commercial class by emphasizing usage of additional services, is starting to pay off.

On the expense side, we are taking actions that will further reduce expenses and improve our operating efficiencies. For instance, at the end of June, we eliminated another 600 positions, most related to the ongoing centralization of back office and operational facilities as well as corporate overhead following our late 2007 merger related branch conversions. This and other cost reductions efforts, such as our previously disclosed efficiency and effectiveness initiative enhance our confidence in achieving an all-in cost save run rate of greater than $700 million by year end 2008. In fact, in this second quarter, we are nearly there. Our second quarter merger cost saves totaled $165 million, which equates to an annual run rate of $660 million. As a reminder, this is well above of our originally targeted merger cost saves of $400 million.

There is no doubt that the environment is challenging but, we are confident in our ability to successfully manage through these tough times. We are realistic about the environment and we are aggressively dealing with the credit issues. We have taken actions to bolster capital and fortify Regions’ balance sheet. We are developing and implementing revenue initiatives that will enable us to capture market share and enhance our longer term growth prospects. Finally, we are diligently managing expenses.

Let me now turn it over to Irene.

Irene Esteves – Chief Financial Officer

Thank you, Dowd. As you’ve seen, higher credit cost pressured second quarter operating earnings, driving our earnings per share to $0.39 excluding merger charges. Credit quality deterioration primarily caused by declining residential property values necessitate a $309 million loan loss provision, $128 million above the first quarter level and $100 million higher than our current quarter’s net charge off. As a result, the allowance for credit losses increased to 1.56% of June 30th loan balances. This is up 7 basis points linked quarter.

Non-performing assets were up 35% and net charge offs increased 66% linked quarter, largely driven by deterioration in our residential homebuilder and home equity portfolios.

Non-performing assets climbed $416 million linked quarter to 1.65% of loans and for closed assets, driven by migration of residential homebuilder credits and condominium project. The majority of the condo increase came from a handful of larger projects in South Florida.

For our newly established loan disposition program, we disposed off approximately $147 million of properties in the first quarter, one example of our proactive approach to our credit quality issue. The majority of these assets has been classified as non-performing prior to their disposition. We’ll continue these transactions in the future on opportunistic basis. At the same time, net loan charge offs increased $83% million linked quarter, equating to an annualized 0.86% of average loan.

Home equity credits caused over half the increase, rising to an annualized 1.94% of outstanding lines and loans, up from 57 basis points last quarter. We are clearly experiencing greater deterioration in this portfolio than originally expected, mostly due to Florida based credits which account for approximately $5.4 billion or one-third of our total home equity portfolio. Of that balance, approximately 1.9 billion represents first lien. Second lien, which totaled 3.5 billion or 22% of our home equity portfolio, are the main sources of the loss. In fact, the second quarter annualized loss rate on Florida second lien was 3.5 times the rate of first lien home equity loans and line, 4.74% for second lien versus 1.37% for first lien in Florida.

So to emphasize this point, 22% of our total home equity portfolio or $3.5 billion had a 4.7% net charge off rate. The remaining 78% had about 1.1% net charge off rate. The problems in this portfolio are very concentrated. Within Florida, we are seeing particularly high losses in the Bradenton Sarasota, Fort Myers, Cape Coral, Maples, Marco Island, and Fort Walton areas. Customers who did not live in the properties but purchased them to be used as an investment home or second home were more prevalent in Florida than our other markets and have been especially problematic. As property values have dropped, so has the equity supporting these loans, exacerbating home equity write-offs. Significant income losses are also negatively affecting a growing number of borrower’s ability to repay home equity loans.

Now we’ve been taking steps to proactively address the impact of the real estate market on our overall home equity portfolio. First of all, you should know we are recognizing losses when they become apparent. In many cases, this means we are charging home equity loans and lines down to market value before they become a 180 days past due. We review the strength of our equity position based on current appraisal and take appropriate charges regardless of the payment status with Regions.

Second, we have a customer assistance program in place to mitigate losses. For example, we are educating customers about what work out options and contacting customers in short order as quickly as five days in some cases after a home equity loan or line is delinquent to discuss options.

Finally, late in the second quarter, we completed the valuation assessment of our home equity portfolio, providing granular up-to-date property level information that will help us in making timely informed work out decisions. The assessment results are also being used in a pilot program to reach out to customers who are not delinquent to see if they are in need of assistance. If they are, we immediately make use of the tools within our customer assistance program.

In part, due to these and other actions being taken, Regions 90 days past due home equity loans and lines dropped 20 basis points linked quarter to 1.08%. 30 days past dues improved to 2.36% from 2.67%.

Let me now turn to our residential homebuilder portfolio. Second quarter losses in this portfolio were also higher but generally inline with our expectation. During the quarter, we charged-off $34.2 million of these credits. In total, our residential homebuilder portfolio now stands at $5.8 billion, a $473 million decrease versus first quarter. For loans within the portfolios that have been identified as exit credit increased from $1.2 billion from the first quarter to $1.8 billion at the end of the second quarter.

Looking at commercial 90day past dues, total business services declined 6% versus first quarter. Drivers of the net decline include both migration to non-accrual credits and credits that were brought current during the quarter.

Shifting to revenue, non-interest income was relatively steady linked quarter excluding securities transactions and the first quarter's leased income. Higher brokerage and service charge fee income largely offset lower levels of mortgage and commercial credit fees. Commercial credit fees were lower by $28 million versus the first quarter primarily due to drop in swap fees. However, this was offset by decline in the related market position adjustment before any brokerage income, which increased to $28 million. Service charges rose $23 million in the quarter driven by both seasonal factors and pricing adjustments.

Mortgage income was affected by an approximate $15 million second quarter loss until of our mortgage servicing rights related to $3.4 billion of (inaudible) loans. Also, factoring the linked quarter change with the absence of first quarter’s FAS159 one-time adoption benefit of $9 million.

Morgan Keegan posted a $7.3 million increase in net income linked quarter excluding merger charges, which was driven by lower expenses. With respect to revenues, fixed income capital markets activity was especially strong, up $8 million linked quarter. As customer swap to relative safety offered by these products. However, somewhat weaker equity capital markets revenue offset causing Morgan Kegan's total revenues to remain relative unchanged linked quarter.

Notably, second quarter write-downs on investments to mutual funds totaled $13.4 million compared to first quarter's $24.5 million charge. The mutual fund investments market value was approximately $22 million at quarter end for these two funds.

Consistent with our expectations, net interest income totaled just under $1 billion in the second quarter, $38 million below prior period. A 17 basis point drop in the net interest margin to 3.36% was the primary reason.

The margin continues to be pressured by negative shift in our deposit mix, the flow through of recent yield curve movement and Federal Reserve interest rate cuts as well as higher non-performing asset level. Also, our proactive approach to capital and liquidity positioning including second quarter’s issuance of $750 million of sub debt and $345 million of hybrid capital further pressured the margin in the quarter.

Average low cost deposits declined $489 million or an annualized 3% linked quarter, primarily from declines in low profitability, public funds and money markets. Non-interest bearing and savings balances partially offset the money market decline increasing $323 million combined. We have a major initiative underway to build our low cost deposits. We have better aligned branch incentive plans to drive checking accounts production and deposit growth. We are offering new product enhancements such as the relationship focus checking and savings that offer inducements to build relationships through additional products and services. We are creating a new unit which has end to end responsibility for growing deposits including product management, product delivery and deposit acquisitions.

Turning to loans, growth picked up in the second quarter to an annualized 6%, driving solid gains and average earnings assets and helping net interest income. Importantly, commercial and industrial loans drove this growth, primarily in central Alabama, Southern Mississippi, North Carolina, and Virginia.

With respect to operating expenses, we made very good progress in realizing targeted cost save. Nonetheless, operating expenses adjusted for unusual items were relatively flat linked quarter. While the second quarter reflects solid personnel related efficiencies, these were offset by increasing credit related costs such as higher other real estate expenses and professional fees.

Second quarter’s effective tax rate excluding mortgage charges declined to 28% due to income mix as well as a recovery related to tax information reporting. With the adoption of FIN 48, the volatility of the effective tax rate has increased significantly with fluctuations of 200 to 400 basis points a quarter becoming more common.

Regarding capital, our Tier I and total risk based ratios increased to an estimated 7.47% and 11.77% respectively as of quarter end. Both of these capital ratios will benefit from the reduced dividend rates. In fact, the estimated $780 million annual dividend relating saving will add approximately 65 basis points a year on a pro forma basis to our regulatory ratios.

The Board’s decision to reduce the dividend was based on a very full assessment of our capital needs over the next couple of years. Of course, one of the key variables considered was asset quality trends, which we looked at under different portfolio stress scenario. Our conclusion after reviewing these scenarios was to prudently build capital in a measured way over the cycle. From a regulatory standpoint, we view Tier 1 capital as a priority and are fortunate to have approximately $1.2 billion of additional hybrid capital capacity. If this market opens up with reasonable terms, we will be opportunistic and tapping into it.

In summary, we believe the credit environment will continue to pressure the industry and we are taking the actions necessary to successfully navigate through this unprecedented environment. We are directing substantial resources towards working through our credit related issues. At the same time, we remain focused on our customers, increasing branch efficiency, gathering low cost deposits, and enhancing our market share, and driving down overall cost.

Finally, the dividend action we took strengthened our capital base and helps position us for future growth. All of these initiatives will help drive results both during the current cycle and as we transition to a more favorable operating environment.

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