The Quarterly
RF Q2 2017 10-Q

Regions Financial Corp (RF) SEC Quarterly Report (10-Q) for Q3 2017

RF 2017 10-K
RF Q2 2017 10-Q RF 2017 10-K

Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

ý

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2017

or

¨

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from

to

Commission File Number: 001-34034

Regions Financial Corporation

(Exact name of registrant as specified in its charter)

Delaware

63-0589368

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1900 Fifth Avenue North

Birmingham, Alabama

35203

(Address of principal executive offices)

(Zip Code)

(800) 734-4667

(Registrant's telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     ý   Yes     ¨   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     ý   Yes     ¨   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer  ý Accelerated filer  ¨ Non-accelerated filer  ¨ (Do not check if a smaller reporting company) Smaller reporting company   ¨

Emerging growth company   ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨   Yes     ý   No

The number of shares outstanding of each of the issuer's classes of common stock was 1,159,971,493 shares of common stock, par value $.01, outstanding as of November 6, 2017.


1


Table of Contents



REGIONS FINANCIAL CORPORATION

FORM 10-Q

INDEX

Page

Part I. Financial Information

Item 1.

Financial Statements (Unaudited)

Consolidated Balance Sheets-September 30, 2017 and December 31, 2016

8

Consolidated Statements of Income-Three and nine months ended September 30, 2017 and 2016

9

Consolidated Statements of Comprehensive Income-Three and nine months ended September 30, 2017 and 2016

10

Consolidated Statements of Changes in Stockholders' Equity-Nine months ended September 30, 2017 and 2016

11

Consolidated Statements of Cash Flows-Nine months ended September 30, 2017 and 2016

12

Notes to Consolidated Financial Statements

13

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

62

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

96

Item 4.

Controls and Procedures

96

Part II. Other Information

Item 1.

Legal Proceedings

97

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

97

Item 6.

Exhibits

98

Signatures

99


2


Table of Contents



Glossary of Defined Terms

Agencies - collectively, FNMA, FHLMC and GNMA.

ALCO - Asset/Liability Management Committee.

AOCI - Accumulated other comprehensive income.

ASU - Accounting Standards Update.

ATM - Automated teller machine.

Basel I - Basel Committee's 1988 Regulatory Capital Framework (First Accord).

Basel III - Basel Committee's 2010 Regulatory Capital Framework (Third Accord).

Basel III Rules - Final capital rules adopting the Basel III capital framework approved by U.S. federal

regulators in 2013.

Basel Committee - Basel Committee on Banking Supervision.

BHC - Bank Holding Company.

BITS - Technology arm of the Financial Services Roundtable.

Bank - Regions Bank.

Board - The Company's Board of Directors.

CAP - Customer Assistance Program.

CCAR - Comprehensive Capital Analysis and Review.

CD - Certificate of deposit.

CEO - Chief Executive Officer.

CET1 - Common Equity Tier 1.

CFPB - Consumer Financial Protection Bureau.

Company - Regions Financial Corporation and its subsidiaries.

CPR - Constant (or Conditional) Prepayment Rate.

CRA - Community Reinvestment Act of 1977.

Dodd-Frank Act - The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

DPD - Days Past Due.

DUS - Fannie Mae Delegated Underwriting & Servicing.

FASB - Financial Accounting Standards Board.

FDIC - Federal Deposit Insurance Corporation.

Federal Reserve - Board of Governors of the Federal Reserve System.

FHA - Federal Housing Administration.

FHLB - Federal Home Loan Bank.

FHLMC - Federal Home Loan Mortgage Corporation, known as Freddie Mac.

FNMA - Federal National Mortgage Association, known as Fannie Mae.

FS-ISAC - Financial Services - Information Sharing & Analysis Center.

FRB - Federal Reserve Bank.

GAAP - Generally Accepted Accounting Principles in the United States.

GCM - Guideline Public Company Method.

GDP - Gross Domestic Product.

GNMA - Government National Mortgage Association.


3


Table of Contents



GTM - Guideline Transaction Method.

HUD - U.S. Department of Housing and Urban Development.

IP - Intellectual Property.

IPO - Initial public offering.

LCR - Liquidity coverage ratio.

LIBOR - London InterBank Offered Rates.

LTIP - Long-term incentive plan.

LTV - Loan to value.

MBS - Mortgage-backed securities.

Morgan Keegan - Morgan Keegan & Company, Inc.

MSAs - Metropolitan Statistical Areas.

MSR - Mortgage servicing right.

NM - Not meaningful.

NPR - Notice of Proposed Rulemaking.

OAS - Option-Adjusted Spread.

OCC - Office of the Comptroller of the Currency.

OCI - Other comprehensive income.

OIS - Overnight indexed swap.

OTTI - Other-than-temporary impairment.

Raymond James - Raymond James Financial, Inc.

RICO - Racketeer Influenced and Corrupt Organizations Act.

SEC - U.S. Securities and Exchange Commission.

SERP - Supplemental Executive Retirement Plan.

SSFA - Simplified Supervisory Formula Approach.

TDR - Troubled debt restructuring.

U.S. - United States.

U.S. Treasury - United States Department of the Treasury.

UTB - Unrecognized tax benefits.

VIE - Variable interest entity.




4


Table of Contents



Forward-Looking Statements

This Quarterly Report on Form 10-Q, other periodic reports filed by Regions Financial Corporation under the Securities Exchange Act of 1934, as amended, and any other written or oral statements made by us or on our behalf to analysts, investors, the media and others, may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The terms "Regions," the "Company," "we," "us" and "our" mean Regions Financial Corporation, a Delaware corporation, and its subsidiaries when or where appropriate. The words "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects," "targets," "projects," "outlook," "forecast," "will," "may," "could," "should," "can," and similar expressions often signify forward-looking statements . Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results or other developments. Forward-looking statements are based on management's current expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, and because they also relate to the future they are likewise subject to inherent uncertainties and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. Therefore, we caution you against relying on any of these forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, those described below:

Current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values, unemployment rates and potential reductions of economic growth, which may adversely affect our lending and other businesses and our financial results and conditions.

Possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations, which could have a material adverse effect on our earnings.

The effects of a possible downgrade in the U.S. government's sovereign credit rating or outlook, which could result in risks to us and general economic conditions that we are not able to predict.

Possible changes in market interest rates or capital markets could adversely affect our revenue and expense, the value of assets and obligations, and the availability and cost of capital and liquidity.

Any impairment of our goodwill or other intangibles, any repricing of assets, or any adjustment of valuation allowances on our deferred tax assets due to adverse changes in the economic environment, declining operations of the reporting unit, adverse consequences related to tax reform, or other factors.

Possible changes in the creditworthiness of customers and the possible impairment of the collectability of loans and leases, including operating leases.

Changes in the speed of loan prepayments, loan origination and sale volumes, charge-offs, loan loss provisions or actual loan losses where our allowance for loan losses may not be adequate to cover our eventual losses.

Possible acceleration of prepayments on mortgage-backed securities due to low interest rates, and the related acceleration of premium amortization on those securities.

Our ability to effectively compete with other financial services companies, some of whom possess greater financial resources than we do and are subject to different regulatory standards than we are.

Loss of customer checking and savings account deposits as customers pursue other, higher-yield investments, which could increase our funding costs.

Our inability to develop and gain acceptance from current and prospective customers for new products and services in a timely manner could have a negative impact on our revenue.

The effects of any developments, changes or actions relating to any litigation or regulatory proceedings brought against us or any of our subsidiaries.

Changes in laws and regulations affecting our businesses, such as the Dodd-Frank Act and other legislation and regulations relating to bank products and services, as well as changes in the enforcement and interpretation of such laws and regulations by applicable governmental and self-regulatory agencies, which could require us to change certain business practices, increase compliance risk, reduce our revenue, impose additional costs on us, or otherwise negatively affect our businesses.

Our ability to obtain a regulatory non-objection (as part of the CCAR process or otherwise) to take certain capital actions, including paying dividends and any plans to increase common stock dividends, repurchase common stock under current or future programs, or redeem preferred stock or other regulatory capital instruments, may impact our ability to return capital to stockholders and market perceptions of us.

Our ability to comply with stress testing and capital planning requirements (as part of the CCAR process or otherwise) may continue to require a significant investment of our managerial resources due to the importance and intensity of such tests and requirements.


5


Table of Contents



Our ability to comply with applicable capital and liquidity requirements (including, among other things, the Basel III capital standards and the LCR rule), including our ability to generate capital internally or raise capital on favorable terms, and if we fail to meet requirements, our financial condition could be negatively impacted.

The Basel III framework calls for additional risk-based capital surcharges for globally systemically important banks. Although we are not subject to such surcharges, it is possible that in the future we may become subject to similar surcharges.

The costs, including possibly incurring fines, penalties, or other negative effects (including reputational harm) of any adverse judicial, administrative, or arbitral rulings or proceedings, regulatory enforcement actions, or other legal actions to which we or any of our subsidiaries are a party, and which may adversely affect our results.

Our ability to manage fluctuations in the value of assets and liabilities and off-balance sheet exposure so as to maintain sufficient capital and liquidity to support our business.

Our ability to execute on our strategic and operational plans, including our ability to fully realize the financial and non-financial benefits relating to our strategic initiatives.

The success of our marketing efforts in attracting and retaining customers.

Possible changes in consumer and business spending and saving habits and the related effect on our ability to increase assets and to attract deposits, which could adversely affect our net income.

Our ability to recruit and retain talented and experienced personnel to assist in the development, management and operation of our products and services may be affected by changes in laws and regulations in effect from time to time.

Fraud or misconduct by our customers, employees or business partners.

Any inaccurate or incomplete information provided to us by our customers or counterparties.

The risks and uncertainties related to our acquisition and integration of other companies.

Inability of our framework to manage risks associated with our business such as credit risk and operational risk, including third-party vendors and other service providers, which could, among other things, result in a breach of operating or security systems as a result of a cyber attack or similar act.

The inability of our internal disclosure controls and procedures to prevent, detect or mitigate any material errors or fraudulent acts.

The effects of geopolitical instability, including wars, conflicts and terrorist attacks and the potential impact, directly or indirectly, on our businesses.

The effects of man-made and natural disasters, including fires, floods, droughts, tornadoes, hurricanes, and environmental damage, which may negatively affect our operations and/or our loan portfolios and increase our cost of conducting business.

Changes in commodity market prices and conditions could adversely affect the cash flows of our borrowers operating in industries that are impacted by changes in commodity prices (including businesses indirectly impacted by commodities prices such as businesses that transport commodities or manufacture equipment used in the production of commodities), which could impair their ability to service any loans outstanding to them and/or reduce demand for loans in those industries.

Our inability to keep pace with technological changes could result in losing business to competitors.

Our ability to identify and address cyber-security risks such as data security breaches, malware, "denial of service" attacks, "hacking" and identity theft, a failure of which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information; disruption or damage to our systems; increased costs; losses; or adverse effects to our reputation.

Our ability to realize our adjusted efficiency ratio target as part of our expense management initiatives.

Significant disruption of, or loss of public confidence in, the Internet and services and devices used to access the Internet could affect the ability of our customers to access their accounts and conduct banking transactions.

Possible downgrades in our credit ratings or outlook could increase the costs of funding from capital markets.

The effects of problems encountered by other financial institutions that adversely affect us or the banking industry generally could require us to change certain business practices, reduce our revenue, impose additional costs on us, or otherwise negatively affect our businesses.

The effects of the failure of any component of our business infrastructure provided by a third party could disrupt our businesses; result in the disclosure of and/or misuse of confidential information or proprietary information; increase our costs; negatively affect our reputation; and cause losses.

Our ability to receive dividends from our subsidiaries could affect our liquidity and ability to pay dividends to stockholders.


6


Table of Contents



Changes in accounting policies or procedures as may be required by the FASB or other regulatory agencies could materially affect how we report our financial results.

Other risks identified from time to time in reports that we file with the SEC.

The effects of any damage to our reputation resulting from developments related to any of the items identified above.

You should not place undue reliance on any forward-looking statements, which speak only as of the date made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible to predict all of them. We assume no obligation to update or revise any forward-looking statements that are made from time to time, either as a result of future developments, new information or otherwise, except as may be required by law.

See also the reports filed with the Securities and Exchange Commission, including the discussion under the "Risk Factors" section of Regions' Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission and available on its website at www.sec.gov.


7


Table of Contents



PART I

FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2017

December 31, 2016

(In millions, except share data)

Assets

Cash and due from banks

$

1,829


$

1,853


Interest-bearing deposits in other banks

1,932


3,583


Federal funds sold and securities purchased under agreements to resell

-


15


Trading account securities

193


124


Securities held to maturity (estimated fair value of $1,720 and $1,369, respectively)

1,703


1,362


Securities available for sale

23,659


23,781


Loans held for sale (includes $307 and $447 measured at fair value, respectively)

388


718


Loans, net of unearned income

79,356


80,095


Allowance for loan losses

(1,041

)

(1,091

)

Net loans

78,315


79,004


Other earning assets

1,421


1,644


Premises and equipment, net

2,057


2,096


Interest receivable

319


319


Goodwill

4,904


4,904


Residential mortgage servicing rights at fair value

335


324


Other identifiable intangible assets

187


221


Other assets

6,029


6,020


Total assets

$

123,271


$

125,968


Liabilities and Stockholders' Equity

Deposits:

Non-interest-bearing

$

37,293


$

36,046


Interest-bearing

60,298


62,989


Total deposits

97,591


99,035


Borrowed funds:

Short-term borrowings:

Other short-term borrowings

600


-


Total short-term borrowings

600


-


Long-term borrowings

6,102


7,763


Total borrowed funds

6,702


7,763


Other liabilities

2,354


2,506


Total liabilities

106,647


109,304


Stockholders' equity:

Preferred stock, authorized 10 million shares, par value $1.00 per share

Non-cumulative perpetual, liquidation preference $1,000.00 per share, including related surplus, net of issuance costs; issued-1,000,000 shares

820


820


Common stock, authorized 3 billion shares, par value $.01 per share:

Issued including treasury stock-1,206,139,664 and 1,255,839,866 shares, respectively

12


13


Additional paid-in capital

16,344


17,092


Retained earnings

1,279


666


Treasury stock, at cost-41,259,320 and 41,259,319 shares, respectively

(1,377

)

(1,377

)

Accumulated other comprehensive income (loss), net

(454

)

(550

)

Total stockholders' equity

16,624


16,664


Total liabilities and stockholders' equity

$

123,271


$

125,968



See notes to consolidated financial statements.


8


Table of Contents



REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended
September 30

Nine Months Ended
September 30

2017

2016

2017

2016

(In millions, except per share data)

Interest income, including other financing income on:

Loans, including fees

$

827


$

763


$

2,401


$

2,293


Securities - taxable

149


135


448


427


Loans held for sale

3


4


11


11


Trading account securities

1


-


3


4


Other earning assets

12


9


33


27


Operating lease assets

21


31


72


95


Total interest income, including other financing income

1,013


942


2,968


2,857


Interest expense on:

Deposits

42


31


114


86


Short-term borrowings

2


-


4


-


Long-term borrowings

53


51


153


148


Total interest expense

97


82


271


234


Depreciation expense on operating lease assets

18


25


58


78


Total interest expense and depreciation expense on operating lease assets

115


107


329


312


Net interest income and other financing income

898


835


2,639


2,545


Provision for loan losses

76


29


194


214


Net interest income and other financing income after provision for loan losses

822


806


2,445


2,331


Non-interest income:

Service charges on deposit accounts

175


166


512


491


Card and ATM fees

103


105


311


299


Investment management and trust fee income

58


54


171


156


Mortgage income

32


46


113


130


Securities gains (losses), net

8


-


9


1


Other

139


228


434


554


Total non-interest income

515


599


1,550


1,631


Non-interest expense:

Salaries and employee benefits

483


486


1,458


1,441


Net occupancy expense

91


87


262


259


Furniture and equipment expense

84


80


249


237


Other

228


281


703


781


Total non-interest expense

886


934


2,672


2,718


Income from continuing operations before income taxes

451


471


1,323


1,244


Income tax expense

139


152


400


380


Income from continuing operations

312


319


923


864


Discontinued operations:

Income (loss) from discontinued operations before income taxes

(1

)

2


9


7


Income tax expense (benefit)

-


1


4


3


Income (loss) from discontinued operations, net of tax

(1

)

1


5


4


Net income

$

311


$

320


$

928


$

868


Net income from continuing operations available to common shareholders

$

296


$

303


$

875


$

816


Net income available to common shareholders

$

295


$

304


$

880


$

820


Weighted-average number of shares outstanding:

Basic

1,182


1,246


1,197


1,266


Diluted

1,193


1,252


1,209


1,270


Earnings per common share from continuing operations:

Basic

$

0.25


$

0.24


$

0.73


$

0.64


Diluted

0.25


0.24


0.72


0.64


Earnings per common share:

Basic

$

0.25


$

0.24


$

0.74


$

0.65


Diluted

0.25


0.24


0.73


0.65


Cash dividends declared per common share

0.09


0.065


0.225


0.19


See notes to consolidated financial statements.

9


Table of Contents



REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended September 30

2017

2016

(In millions)

Net income

$

311


$

320


Other comprehensive income (loss), net of tax:

Unrealized losses on securities transferred to held to maturity:

Unrealized losses on securities transferred to held to maturity during the period (net of zero and zero tax effect, respectively)

-


-


Less: reclassification adjustments for amortization of unrealized losses on securities transferred to held to maturity (net of ($1) and ($4) tax effect, respectively)

(1

)

(5

)

Net change in unrealized losses on securities transferred to held to maturity, net of tax

1


5


Unrealized gains (losses) on securities available for sale:

Unrealized holding gains (losses) arising during the period (net of $16 and ($7) tax effect, respectively)

23


(13

)

Less: reclassification adjustments for securities gains (losses) realized in net income (net of $2 and zero tax effect, respectively)

2


-


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

21


(13

)

Unrealized gains (losses) on derivative instruments designated as cash flow hedges:

Unrealized holding gains (losses) on derivatives arising during the period (net of $4 and ($12) tax effect, respectively)

6


(18

)

Less: reclassification adjustments for gains (losses) on derivative instruments realized in net income (net of $7 and $13 tax effect, respectively)

10


22


Net change in unrealized gains (losses) on derivative instruments, net of tax

(4

)

(40

)

Defined benefit pension plans and other post employment benefits:

Net actuarial gains (losses) arising during the period (net of zero and zero tax effect, respectively)

-


(1

)

Less: reclassification adjustments for amortization of actuarial loss and settlements realized in net income (net of ($4) and ($3) tax effect, respectively)

(7

)

(6

)

Net change from defined benefit pension plans and other post employment benefits, net of tax

7


5


Other comprehensive income (loss), net of tax

25


(43

)

Comprehensive income

$

336


$

277


Nine Months Ended September 30

2017

2016

(In millions)

Net income

$

928


$

868


Other comprehensive income (loss), net of tax:

Unrealized losses on securities transferred to held to maturity:

Unrealized losses on securities transferred to held to maturity during the period (net of zero and zero tax effect, respectively)

-


-


Less: reclassification adjustments for amortization of unrealized losses on securities transferred to held to maturity (net of ($3) and ($8) tax effect, respectively)

(4

)

(12

)

Net change in unrealized losses on securities transferred to held to maturity, net of tax

4


12


Unrealized gains (losses) on securities available for sale:

Unrealized holding gains (losses) arising during the period (net of $47 and $180 tax effect, respectively)

75


295


Less: reclassification adjustments for securities gains (losses) realized in net income (net of $2 and zero tax effect, respectively)

3


1


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

72


294


Unrealized gains (losses) on derivative instruments designated as cash flow hedges:

Unrealized holding gains (losses) on derivatives arising during the period (net of $24 and $141 tax effect, respectively)

39


231


Less: reclassification adjustments for gains (losses) on derivative instruments realized in net income (net of $27 and $41 tax effect, respectively)

43


68


Net change in unrealized gains (losses) on derivative instruments, net of tax

(4

)

163


Defined benefit pension plans and other post employment benefits:

Net actuarial gains (losses) arising during the period (net of zero and $1 tax effect, respectively)

(1

)

(1

)

Less: reclassification adjustments for amortization of actuarial loss and settlements realized in net income (net of ($14) and ($9) tax effect, respectively)

(25

)

(17

)

Net change from defined benefit pension plans and other post employment benefits, net of tax

24


16


Other comprehensive income (loss), net of tax

96


485


Comprehensive income

$

1,024


$

1,353


See notes to consolidated financial statements.


10


Table of Contents



REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Preferred Stock

Common Stock

Additional

Paid-In

Capital

Retained

Earnings

(Deficit)

Treasury

Stock,

At Cost

Accumulated

Other

Comprehensive

Income (Loss), Net

Total

Shares

Amount

Shares

Amount

(In millions, except per share data)

BALANCE AT JANUARY 1, 2016

1


$

820


1,297


$

13


$

17,883


$

(115

)

$

(1,377

)

$

(380

)

$

16,844


Net income

-


-


-


-


-


868


-


-


868


Amortization of unrealized losses on securities transferred to held to maturity, net of tax

-


-


-


-


-


-


-


12


12


Net change in unrealized gains and losses on securities available for sale, net of tax and reclassification adjustment

-


-


-


-


-


-


-


294


294


Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment

-


-


-


-


-


-


-


163


163


Net change from employee benefit plans, net of tax

-


-


-


-


-


-


-


16


16


Cash dividends declared-$0.19 per share

-


-


-


-


-


(240

)

-


-


(240

)

Preferred stock dividends

-


-


-


-


-


(48

)

-


-


(48

)

Common stock transactions:

Impact of share repurchases

-


-


(65

)

-


(569

)

-


-


-


(569

)

Impact of stock transactions under compensation plans, net and other

-


-


4


-


25


-


-


-


25


BALANCE AT SEPTEMBER 30, 2016

1


$

820


1,236


$

13


$

17,339


$

465


$

(1,377

)

$

105


$

17,365


BALANCE AT JANUARY 1, 2017

1


$

820


1,214


$

13


$

17,092


$

666


$

(1,377

)

$

(550

)

$

16,664


Net income

-


-


-


-


-


928


-


-


928


Amortization of unrealized losses on securities transferred to held to maturity, net of tax

-


-


-


-


-


-


-


4


4


Net change in unrealized gains and losses on securities available for sale, net of tax and reclassification adjustment

-


-


-


-


-


-


-


72


72


Net change in unrealized gains and losses on derivative instruments, net of tax and reclassification adjustment

-


-


-


-


-


-


-


(4

)

(4

)

Net change from employee benefit plans, net of tax

-


-


-


-


-


-


-


24


24


Cash dividends declared-$0.225 per share

-


-


-


-


-


(267

)

-


-


(267

)

Preferred stock dividends

-


-


-


-


-


(48

)

-


-


(48

)

Common stock transactions:

Impact of share repurchases

-


-


(54

)

(1

)

(774

)

-


-


-


(775

)

Impact of stock transactions under compensation plans, net and other

-


-


5


-


26


-


-


-


26


BALANCE AT SEPTEMBER 30, 2017

1


$

820


1,165


$

12


$

16,344


$

1,279


$

(1,377

)

$

(454

)

$

16,624



See notes to consolidated financial statements.


11


Table of Contents



REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


Nine Months Ended September 30

2017

2016

(In millions)

Operating activities:

Net income

$

928


$

868


Adjustments to reconcile net income to net cash from operating activities:

Provision for loan losses

194


214


Depreciation, amortization and accretion, net

410


425


Securities (gains) losses, net

(9

)

(1

)

Deferred income tax expense

63


18


Originations and purchases of loans held for sale

(2,667

)

(2,767

)

Proceeds from sales of loans held for sale

3,074


2,711


(Gain) loss on sale of loans, net

(78

)

(95

)

Net change in operating assets and liabilities:

Trading account securities

(55

)

23


Other earning assets

165


69


Interest receivable and other assets

(85

)

28


Other liabilities

(9

)

157


Other

36


104


Net cash from operating activities

1,967


1,754


Investing activities:

Proceeds from maturities of securities held to maturity

152


522


Proceeds from sales of securities available for sale

722


1,873


Proceeds from maturities of securities available for sale

2,747


3,325


Proceeds from sales of trading account securities

37


-


Purchases of securities available for sale

(3,395

)

(6,108

)

Purchases of securities held to maturity

(494

)

-


Proceeds from sales of loans

45


86


Purchases of loans

(153

)

(779

)

Purchases of mortgage servicing rights

(40

)

(35

)

Net change in loans

498


720


Net purchases of other assets

(81

)

(107

)

Net cash from investing activities

38


(503

)

Financing activities:

Net change in deposits

(1,444

)

859


Net change in short-term borrowings

600


(10

)

Proceeds from long-term borrowings

2,844


1,607


Payments on long-term borrowings

(4,504

)

(3,910

)

Cash dividends on common stock

(346

)

(236

)

Cash dividends on preferred stock

(48

)

(48

)

Repurchases of common stock

(775

)

(569

)

Taxes paid related to net share settlement of equity awards

(22

)

(14

)

Other

-


(6

)

Net cash from financing activities

(3,695

)

(2,327

)

Net change in cash and cash equivalents

(1,690

)

(1,076

)

Cash and cash equivalents at beginning of year

5,451


5,314


Cash and cash equivalents at end of period

$

3,761


$

4,238



See notes to consolidated financial statements.


12


Table of Contents



REGIONS FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Three and Nine Months Ended September 30, 2017 and 2016

NOTE 1. BASIS OF PRESENTATION

Regions Financial Corporation ("Regions" or the "Company") provides a full range of banking and bank-related services to individual and corporate customers through its subsidiaries and branch offices located across the South, Midwest and Texas. The Company competes with other financial institutions located in the states in which it operates, as well as other adjoining states. Regions is subject to the regulations of certain government agencies and undergoes periodic examinations by certain regulatory authorities.

The accounting and reporting policies of Regions and the methods of applying those policies that materially affect the consolidated financial statements conform with GAAP and with general financial services industry practices. The accompanying interim financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and notes to the consolidated financial statements necessary for a complete presentation of financial position, results of operations, comprehensive income and cash flows in conformity with GAAP. In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the consolidated financial statements have been included. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in Regions' Annual Report on Form 10-K for the year ended December 31, 2016 . Regions has evaluated all subsequent events for potential recognition and disclosure through the filing date of this Form 10-Q.

On January 11, 2012, Regions entered into an agreement to sell Morgan Keegan and related affiliates. The transaction closed on April 2, 2012. See Note 2 and Note 14 for further details. Results of operations for the entities sold are presented separately as discontinued operations for all periods presented on the consolidated statements of income. This presentation is consistent with the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2016 .

NOTE 2. DISCONTINUED OPERATIONS

On January 11, 2012, Regions entered into a stock purchase agreement to sell Morgan Keegan and related affiliates to Raymond James. The transaction closed on April 2, 2012. Regions Investment Management, Inc. (formerly known as Morgan Asset Management, Inc.) and Regions Trust were not included in the sale. In connection with the closing of the sale, Regions agreed to indemnify Raymond James for all litigation matters related to pre-closing activities. See Note 14 for related disclosure.

The following table represents the condensed results of operations for discontinued operations:

Three Months Ended
September 30

Nine Months Ended
September 30

2017

2016

2017

2016

(In millions, except per share data)

Non-interest expense:

Professional and legal expenses/(recoveries)

$

1


$

(2

)

$

(10

)

$

(8

)

Other

-


-


1


1


Total non-interest expense

1


(2

)

(9

)

(7

)

Income (loss) from discontinued operations before income taxes

(1

)

2


9


7


Income tax expense (benefit)

-


1


4


3


Income (loss) from discontinued operations, net of tax

$

(1

)

$

1


$

5


$

4


Earnings (loss) per common share from discontinued operations:

Basic

$

(0.00

)

$

0.00


$

0.00


$

0.00


Diluted

$

(0.00

)

$

0.00


$

0.00


$

0.00



13


Table of Contents



NOTE 3. SECURITIES

The amortized cost, gross unrealized gains and losses, and estimated fair value of securities held to maturity and securities available for sale are as follows:

September 30, 2017

Recognized in OCI (1)

Not Recognized in OCI

Amortized

Cost

Gross Unrealized Gains

Gross Unrealized Losses

Carrying Value

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Estimated

Fair

Value

(In millions)

Securities held to maturity:

Mortgage-backed securities:

Residential agency

$

1,096


$

-


$

(42

)

$

1,054


$

16


$

(3

)

$

1,067


Commercial agency

653


-


(4

)

649


6


(2

)

653


$

1,749


$

-


$

(46

)

$

1,703


$

22


$

(5

)

$

1,720


Securities available for sale:

U.S. Treasury securities

$

307


$

1


$

-


$

308


$

308


Federal agency securities

24


-


-


24


24


Mortgage-backed securities:

Residential agency

17,573


89


(178

)

17,484


17,484


Residential non-agency

3


-


-


3


3


Commercial agency

3,630


14


(18

)

3,626


3,626


Commercial non-agency

803


7


(1

)

809


809


Corporate and other debt securities

1,179


28


(5

)

1,202


1,202


Equity securities

193


10


-


203


203


$

23,712


$

149


$

(202

)

$

23,659


$

23,659



14


Table of Contents




December 31, 2016

Recognized in OCI (1)

Not Recognized in OCI

Amortized
Cost

Gross Unrealized Gains

Gross Unrealized Losses

Carrying Value

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

(In millions)

Securities held to maturity:

Mortgage-backed securities:

Residential agency

$

1,249


$

-


$

(49

)

$

1,200


$

12


$

(3

)

$

1,209


Commercial agency

167


-


(5

)

162


-


(2

)

160


$

1,416


$

-


$

(54

)

$

1,362


$

12


$

(5

)

$

1,369


Securities available for sale:

U.S. Treasury securities

$

303


$

1


$

(1

)

$

303


$

303


Federal agency securities

35


-


-


35


35


Obligations of states and political subdivisions

1


-


-


1


1


Mortgage-backed securities:

Residential agency

17,531


95


(255

)

17,371


17,371


Residential non-agency

4


-


-


4


4


Commercial agency

3,486


9


(32

)

3,463


3,463


Commercial non-agency

1,124


8


(3

)

1,129


1,129


Corporate and other debt securities

1,272


19


(17

)

1,274


1,274


Equity securities

194


7


-


201


201


$

23,950


$

139


$

(308

)

$

23,781


$

23,781


_________

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


Securities with carrying values of $8.6 billion and $11.6 billion at September 30, 2017 and December 31, 2016 , respectively, were pledged to secure public funds, trust deposits and certain borrowing arrangements. Included within total pledged securities is approximately $50 million of encumbered U.S. Treasury securities at both September 30, 2017 and December 31, 2016 .

The amortized cost and estimated fair value of securities held to maturity and securities available for sale at September 30, 2017 , 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.


15


Table of Contents



Amortized

Cost

Estimated

Fair Value

(In millions)

Securities held to maturity:

Mortgage-backed securities:

Residential agency

$

1,096


$

1,067


Commercial agency

653


653


$

1,749


$

1,720


Securities available for sale:

Due in one year or less

$

37


$

37


Due after one year through five years

761


771


Due after five years through ten years

570


581


Due after ten years

142


145


Mortgage-backed securities:

Residential agency

17,573


17,484


Residential non-agency

3


3


Commercial agency

3,630


3,626


Commercial non-agency

803


809


Equity securities

193


203


$

23,712


$

23,659


The following tables present gross unrealized losses and the related estimated fair value of securities held to maturity and available for sale at September 30, 2017 and December 31, 2016 . For securities transferred to held to maturity from available for sale, the analysis in the tables below is comparing the securities' original amortized cost to its current estimated fair value. These securities are segregated between investments that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more.

September 30, 2017

Less Than Twelve Months

Twelve Months or More

Total

Estimated

Fair

Value

Gross

Unrealized

Losses

Estimated

Fair

Value

Gross

Unrealized

Losses

Estimated

Fair

Value

Gross

Unrealized

Losses

(In millions)

Securities held to maturity:

Mortgage-backed securities:

Residential agency

$

752


$

(18

)

$

315


$

(11

)

$

1,067


$

(29

)

Commercial agency

-


-


153


(6

)

153


(6

)

$

752


$

(18

)

$

468


$

(17

)

$

1,220


$

(35

)

Securities available for sale:

U.S. Treasury securities

$

80


$

-


$

18


$

-


$

98


$

-


Mortgage-backed securities:

Residential agency

10,060


(139

)

1,519


(39

)

11,579


(178

)

Commercial agency

1,490


(15

)

164


(3

)

1,654


(18

)

Commercial non-agency

175


(1

)

30


-


205


(1

)

All other securities

164


(1

)

104


(4

)

268


(5

)

$

11,969


$

(156

)

$

1,835


$

(46

)

$

13,804


$

(202

)



16


Table of Contents



December 31, 2016

Less Than Twelve Months

Twelve Months or More

Total

Estimated
Fair
Value

Gross
Unrealized
Losses

Estimated
Fair
Value

Gross
Unrealized
Losses

Estimated
Fair
Value

Gross
Unrealized
Losses

(In millions)

Securities held to maturity:

Mortgage-backed securities:

Residential agency

$

850


$

(26

)

$

359


$

(14

)

$

1,209


$

(40

)

Commercial agency

-


-


160


(7

)

160


(7

)

$

850


$

(26

)

$

519


$

(21

)

$

1,369


$

(47

)

Securities available for sale:

U.S. Treasury securities

$

112


$

(1

)

$

18


$

-


$

130


$

(1

)

Mortgage-backed securities:

Residential agency

12,071


(245

)

570


(10

)

12,641


(255

)

Commercial agency

2,199


(31

)

45


(1

)

2,244


(32

)

Commercial non-agency

402


(2

)

176


(1

)

578


(3

)

All other securities

382


(6

)

218


(11

)

600


(17

)

$

15,166


$

(285

)

$

1,027


$

(23

)

$

16,193


$

(308

)

The number of individual positions in an unrealized loss position in the tables above decreased from 1,613 at December 31, 2016 to 1,392 at September 30, 2017 . The decrease in the number of securities and the total amount of unrealized losses from year-end 2016 was primarily due to changes in market interest rates. In instances where an unrealized loss existed, there was no indication of an adverse change in credit on the underlying positions in the tables above. As it relates to these positions, management believes no individual unrealized loss, other than those discussed below, represented an OTTI as of those dates. The Company does not intend to sell, and it is not more likely than not that the Company will be required to sell, the positions before the recovery of their amortized cost basis, which may be at maturity.

As part of the Company's normal process for evaluating OTTI, management did identify a limited number of positions where an OTTI was believed to exist as of September 30, 2017 . For the nine months ended September 30, 2017 , such impairments were immaterial.

Gross realized gains and gross realized losses on sales of securities available for sale, as well as OTTI losses, are shown in the table below. The cost of securities sold is based on the specific identification method.

Three Months Ended September 30

Nine Months Ended September 30

2017

2016

2017

2016

(In millions)

Gross realized gains

$

5


$

1


$

9


$

30


Gross realized losses

-


(1

)

(3

)

(28

)

OTTI

(1

)

-


(1

)

(1

)

Securities available for sale gains (losses), net (1)

$

4


$

-


$

5



$

1


________

(1) The securities gains (losses), net balances above exclude net trading securities gains of $4 million recognized during the third quarter of 2017.


17


Table of Contents



NOTE 4. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

LOANS

The following table presents the distribution of Regions' loan portfolio by segment and class, net of unearned income:

September 30, 2017

December 31, 2016

(In millions, net of unearned income)

Commercial and industrial

$

35,443


$

35,012


Commercial real estate mortgage-owner-occupied

6,284


6,867


Commercial real estate construction-owner-occupied

335


334


Total commercial

42,062


42,213


Commercial investor real estate mortgage

3,999


4,087


Commercial investor real estate construction

1,936


2,387


Total investor real estate

5,935


6,474


Residential first mortgage

13,903


13,440


Home equity

10,276


10,687


Indirect-vehicles

3,489


4,040


Indirect-other consumer

1,318


920


Consumer credit card

1,214


1,196


Other consumer

1,159


1,125


Total consumer

31,359


31,408


$

79,356


$

80,095


During the three months ended September 30, 2017 , Regions purchased approximately $6 million in indirect-other consumer loans from third parties. During the three months ended September 30, 2016, Regions purchased approximately $200 million in indirect-vehicles and indirect-other consumer loans from third parties. During the nine months ended September 30, 2017 and 2016 , the comparable loan purchase amounts were approximately $153 million and $779 million , respectively.

At September 30, 2017 , $21.7 billion in securities and net eligible loans held by Regions were pledged to secure current and potential borrowings from the FHLB. At September 30, 2017 , an additional $22.0 billion in net eligible loans held by Regions were pledged to the FRB for potential borrowings.

ALLOWANCE FOR CREDIT LOSSES

Regions determines the appropriate level of the allowance on a quarterly basis. Refer to Note 1 "Summary of Significant Accounting Policies" to the consolidated financial statements to the Annual Report on Form 10-K for the year ended December 31, 2016 , for a description of the methodology.

ROLLFORWARD OF ALLOWANCE FOR CREDIT LOSSES

The following tables present analyses of the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2017 and 2016 . The total allowance for loan losses and the related loan portfolio ending balances are disaggregated to detail the amounts derived through individual evaluation and collective evaluation for impairment. The allowance for loan losses related to individually evaluated loans is attributable to reserves for non-accrual commercial and investor real estate loans and all TDRs. The allowance for loan losses and the loan portfolio ending balances related to collectively evaluated loans is attributable to the remainder of the portfolio.


18


Table of Contents



Three Months Ended September 30, 2017

Commercial

Investor Real

Estate

Consumer

Total

(In millions)

Allowance for loan losses, July 1, 2017

$

707


$

82


$

252


$

1,041


Provision (credit) for loan losses

8


(8

)

76


76


Loan losses:

Charge-offs

(43

)

-


(63

)

(106

)

Recoveries

11


3


16


30


Net loan losses

(32

)

3


(47

)

(76

)

Allowance for loan losses, September 30, 2017

683


77


281


1,041


Reserve for unfunded credit commitments, July 1, 2017

63


4


-


67


Provision (credit) for unfunded credit losses

(8

)

-


-


(8

)

Reserve for unfunded credit commitments, September 30, 2017

55


4


-


59


Allowance for credit losses, September 30, 2017

$

738


$

81


$

281


$

1,100


Three Months Ended September 30, 2016

Commercial

Investor Real

Estate

Consumer

Total

(In millions)

Allowance for loan losses, July 1, 2016

$

825


$

87


$

239


$

1,151


Provision (credit) for loan losses

(15

)

(7

)

51


29


Loan losses:

Charge-offs

(31

)

(1

)

(62

)

(94

)

Recoveries

19


5


16


40


Net loan losses

(12

)

4


(46

)

(54

)

Allowance for loan losses, September 30, 2016

798


84


244


1,126


Reserve for unfunded credit commitments, July 1, 2016

59


5


-


64


Provision (credit) for unfunded credit losses

8


-


-


8


Reserve for unfunded credit commitments, September 30, 2016

67


5


-


72


Allowance for credit losses, September 30, 2016

$

865


$

89


$

244


$

1,198


Nine Months Ended September 30, 2017

Commercial

Investor Real

Estate

Consumer

Total

(In millions)

Allowance for loan losses, January 1, 2017

$

753


$

85


$

253


$

1,091


Provision (credit) for loan losses

41


(16

)

169


194


Loan losses:

Charge-offs

(139

)

(2

)

(188

)

(329

)

Recoveries

28


10


47


85


Net loan losses

(111

)

8


(141

)

(244

)

Allowance for loan losses, September 30, 2017

683


77


281


1,041


Reserve for unfunded credit commitments, January 1, 2017

64


5


-


69


Provision (credit) for unfunded credit losses

(9

)

(1

)

-


(10

)

Reserve for unfunded credit commitments, September 30, 2017

55


4


-


59


Allowance for credit losses, September 30, 2017

$

738


$

81


$

281


$

1,100


Portion of ending allowance for loan losses:

Individually evaluated for impairment

$

202


$

19


$

52


$

273


Collectively evaluated for impairment

481


58


229


768


Total allowance for loan losses

$

683


$

77


$

281


$

1,041


Portion of loan portfolio ending balance:

Individually evaluated for impairment

$

898


$

108


$

727


$

1,733


Collectively evaluated for impairment

41,164


5,827


30,632


77,623


Total loans evaluated for impairment

$

42,062


$

5,935


$

31,359


$

79,356



19


Table of Contents



Nine Months Ended September 30, 2016

Commercial

Investor Real

Estate

Consumer

Total

(In millions)

Allowance for loan losses, January 1, 2016

$

758


$

97


$

251


$

1,106


Provision (credit) for loan losses

108


(21

)

127


214


Loan losses:

Charge-offs

(102

)

(2

)

(184

)

(288

)

Recoveries

34


10


50


94


Net loan losses

(68

)

8


(134

)

(194

)

Allowance for loan losses, September 30, 2016

798


84


244


1,126


Reserve for unfunded credit commitments, January 1, 2016

47


5


-


52


Provision (credit) for unfunded credit losses

20


-


-


20


Reserve for unfunded credit commitments, September 30, 2016

67


5


-


72


Allowance for credit losses, September 30, 2016

$

865


$

89


$

244


$

1,198


Portion of ending allowance for loan losses:

Individually evaluated for impairment

$

252


$

19


$

62


$

333


Collectively evaluated for impairment

546


65


182


793


Total allowance for loan losses

$

798


$

84


$

244


$

1,126


Portion of loan portfolio ending balance:

Individually evaluated for impairment

$

1,119


$

140


$

785


$

2,044


Collectively evaluated for impairment

41,625


6,624


30,590


78,839


Total loans evaluated for impairment

$

42,744


$

6,764


$

31,375


$

80,883



PORTFOLIO SEGMENT RISK FACTORS

The following describe the risk characteristics relevant to each of the portfolio segments.

Commercial -The commercial loan portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Commercial also includes owner-occupied commercial real estate mortgage loans to operating businesses, which are loans for long-term financing of land and buildings, and are repaid by cash flow generated by business operations. Owner-occupied construction loans are made to commercial businesses for the development of land or construction of a building where the repayment is derived from revenues generated from the business of the borrower. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers' business operations, and the sensitivity to market fluctuations in commodity prices.

Investor Real Estate -Loans for real estate development are repaid through cash flow related to the operation, sale or refinance of the property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of real estate or income generated from the real estate collateral. A portion of Regions' investor real estate portfolio segment consists of loans secured by residential product types (land, single-family and condominium loans) within Regions' markets. Additionally, these loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers. Loans in this portfolio segment are particularly sensitive to the valuation of real estate.

Consumer -The consumer loan portfolio segment includes residential first mortgage, home equity, indirect-vehicles, indirect-other consumer, consumer credit card, and other consumer loans. Residential first mortgage loans represent loans to consumers to finance a residence. These loans are typically financed over a 15 to 30 year term and, in most cases, are extended to borrowers to finance their primary residence. Home equity lending includes both home equity loans and lines of credit. This type of lending, which is secured by a first or second mortgage on the borrower's residence, allows customers to borrow against the equity in their home. Real estate market values as of the time the loan or line is secured directly affect the amount of credit extended and, in addition, changes in these values impact the depth of potential losses. Indirect-vehicles lending, which is lending initiated through third-party business partners, largely consists of loans made through automotive dealerships. Indirect-other consumer lending represents other point of sale lending through third parties. Consumer credit card includes Regions branded consumer credit card accounts. Other consumer loans include other revolving consumer accounts, direct consumer loans, and overdrafts. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.


20


Table of Contents



CREDIT QUALITY INDICATORS

The following tables present credit quality indicators for the loan portfolio segments and classes, excluding loans held for sale, as of September 30, 2017 , and  December 31, 2016 . Commercial and investor real estate loan portfolio segments are detailed by categories related to underlying credit quality and probability of default. Regions assigns these categories at loan origination and reviews the relationship utilizing a risk-based approach on, at minimum, an annual basis or at any time management becomes aware of information affecting the borrowers' ability to fulfill their obligations. Both quantitative and qualitative factors are considered in this review process. These categories are utilized to develop the associated allowance for credit losses.

Pass-includes obligations where the probability of default is considered low;

Special Mention-includes obligations that have potential weakness that may, if not reversed or corrected, weaken the credit or inadequately protect the Company's position at some future date. Obligations in this category may also be subject to economic or market conditions that may, in the future, have an adverse effect on debt service ability;

Substandard Accrual-includes obligations that exhibit a well-defined weakness that presently jeopardizes debt repayment, even though they are currently performing. These obligations are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected;

Non-accrual-includes obligations where management has determined that full payment of principal and interest is in doubt.

Substandard accrual and non-accrual loans are often collectively referred to as "classified." Special mention, substandard accrual, and non-accrual loans are often collectively referred to as "criticized and classified." Classes in the consumer portfolio segment are disaggregated by accrual status.

September 30, 2017

Pass

Special  Mention

Substandard

Accrual

Non-accrual

Total

(In millions)

Commercial and industrial

$

33,323


$

627


$

1,000


$

493


$

35,443


Commercial real estate mortgage-owner-occupied

5,780


178


186


140


6,284


Commercial real estate construction-owner-occupied

315


6


8


6


335


Total commercial

$

39,418


$

811


$

1,194


$

639


$

42,062


Commercial investor real estate mortgage

$

3,729


$

128


$

137


$

5


$

3,999


Commercial investor real estate construction

1,888


2


46


-


1,936


Total investor real estate

$

5,617


$

130


$

183


$

5


$

5,935


Accrual

Non-accrual

Total

(In millions)

Residential first mortgage

$

13,858


$

45


$

13,903


Home equity

10,206


70


10,276


Indirect-vehicles

3,488


1


3,489


Indirect-other consumer

1,318


-


1,318


Consumer credit card

1,214


-


1,214


Other consumer

1,159


-


1,159


Total consumer

$

31,243


$

116


$

31,359


$

79,356



21


Table of Contents



December 31, 2016

Pass

Special

Mention

Substandard

Accrual

Non-accrual

Total

(In millions)

Commercial and industrial

$

32,619


$

658


$

1,112


$

623


$

35,012


Commercial real estate mortgage-owner-occupied

6,190


221


246


210


6,867


Commercial real estate construction-owner-occupied

308


8


15


3


334


Total commercial

$

39,117


$

887


$

1,373


$

836


$

42,213


Commercial investor real estate mortgage

$

3,766


$

190


$

114


$

17


$

4,087


Commercial investor real estate construction

2,192


129


66


-


2,387


Total investor real estate

$

5,958


$

319


$

180


$

17


$

6,474


Accrual

Non-accrual

Total

(In millions)

Residential first mortgage

$

13,390


$

50


$

13,440


Home equity

10,595


92


10,687


Indirect-vehicles

4,040


-


4,040


Indirect-other consumer

920


-


920


Consumer credit card

1,196


-


1,196


Other consumer

1,125


-


1,125


Total consumer

$

31,266


$

142


$

31,408


$

80,095



AGING ANALYSIS

The following tables include an aging analysis of DPD for each portfolio segment and class as of September 30, 2017 and December 31, 2016 :

September 30, 2017

Accrual Loans

30-59 DPD

60-89 DPD

90+ DPD

Total

30+ DPD

Total

Accrual

Non-accrual

Total

(In millions)

Commercial and industrial

$

26


$

20


$

5


$

51


$

34,950


$

493


$

35,443


Commercial real estate mortgage-owner-occupied

16


4


4


24


6,144


140


6,284


Commercial real estate construction-owner-occupied

-


-


-


-


329


6


335


Total commercial

42


24


9


75


41,423


639


42,062


Commercial investor real estate mortgage

7


-


-


7


3,994


5


3,999


Commercial investor real estate construction

29


-


-


29


1,936


-


1,936


Total investor real estate

36


-


-


36


5,930


5


5,935


Residential first mortgage

90


59


174


323


13,858


45


13,903


Home equity

59


30


33


122


10,206


70


10,276


Indirect-vehicles

45


13


9


67


3,488


1


3,489


Indirect-other consumer

8


5


-


13


1,318


-


1,318


Consumer credit card

11


7


16


34


1,214


-


1,214


Other consumer

12


4


4


20


1,159


-


1,159


Total consumer

225


118


236


579


31,243


116


31,359


$

303


$

142


$

245


$

690


$

78,596


$

760


$

79,356



22


Table of Contents



December 31, 2016

Accrual Loans

30-59 DPD

60-89 DPD

90+ DPD

Total

30+ DPD

Total

Accrual

Non-accrual

Total

(In millions)

Commercial and industrial

$

59


$

11


$

6


$

76


$

34,389


$

623


$

35,012


Commercial real estate mortgage-owner-occupied

29


7


2


38


6,657


210


6,867


Commercial real estate construction-owner-occupied

1


-


-


1


331


3


334


Total commercial

89


18


8


115


41,377


836


42,213


Commercial investor real estate mortgage

6


8


-


14


4,070


17


4,087


Commercial investor real estate construction

-


-


-


-


2,387


-


2,387


Total investor real estate

6


8


-


14


6,457


17


6,474


Residential first mortgage

99


63


212


374


13,390


50


13,440


Home equity

60


22


33


115


10,595


92


10,687


Indirect-vehicles

56


14


10


80


4,040


-


4,040


Indirect-other consumer

5


3


-


8


920


-


920


Consumer credit card

9


7


15


31


1,196


-


1,196


Other consumer

13


5


5


23


1,125


-


1,125


Total consumer

242


114


275


631


31,266


142


31,408


$

337


$

140


$

283


$

760


$

79,100


$

995


$

80,095



IMPAIRED LOANS

The following tables present details related to the Company's impaired loans as of September 30, 2017 and December 31, 2016 . Loans deemed to be impaired include all TDRs and all non-accrual commercial and investor real estate loans, excluding leases. Loans that have been fully charged-off do not appear in the tables below.

Non-accrual Impaired Loans As of September 30, 2017

Book Value (3)

Unpaid

Principal

Balance (1)

Charge-offs

and Payments

Applied (2)

Total

Impaired

Loans on

Non-accrual

Status

Impaired

Loans on

Non-accrual

Status with

No Related

Allowance

Impaired

Loans on

Non-accrual

Status with

Related

Allowance

Related

Allowance

for Loan

Losses

Coverage % (4)

(Dollars in millions)

Commercial and industrial

$

599


$

110


$

489


$

60


$

429


$

124


39.1

%

Commercial real estate mortgage-owner-occupied

156


16


140


12


128


38


34.6


Commercial real estate construction-owner-occupied

6


-


6


-


6


2


33.3


Total commercial

761


126


635


72


563


164


38.1


Commercial investor real estate mortgage

6


1


5


1


4


2


50.0


Total investor real estate

6


1


5


1


4


2


50.0


Residential first mortgage

28


1


27


-


27


3


14.3


Home equity

11


1


10


-


10


-


9.1


Total consumer

39


2


37


-


37


3


12.8


$

806


$

129


$

677


$

73


$

604


$

169


37.0

%


23


Table of Contents



Accruing Impaired Loans As of September 30, 2017

Unpaid

Principal

Balance (1)

Charge-offs

and Payments

Applied (2)

Book Value (3)

Related

Allowance for

Loan Losses

Coverage % (4)

(Dollars in millions)

Commercial and industrial

$

207


$

6


$

201


$

32


18.4

%

Commercial real estate mortgage-owner-occupied

64


3


61


6


14.1


Commercial real estate construction-owner-occupied

1


-


1


-


-


Total commercial

272


9


263


38


17.3


Commercial investor real estate mortgage

77


2


75


12


18.2


Commercial investor real estate construction

29


1


28


5


20.7


Total investor real estate

106


3


103


17


18.9


Residential first mortgage

418


-


418


45


10.8


Home equity

263


1


262


4


1.9


Indirect-vehicles

-


-


-


-


-


Consumer credit card

1


-


1


-


-


Other consumer

9


-


9


-


-


Total consumer

691


1


690


49


7.2


$

1,069


$

13


$

1,056


$

104


10.9

%


Total Impaired Loans As of September 30, 2017

Book Value (3)

Unpaid

Principal

Balance (1)

Charge-offs

and Payments

Applied (2)

Total

Impaired

Loans

Impaired

Loans with No

Related

Allowance

Impaired

Loans with

Related

Allowance

Related

Allowance

for Loan

Losses

Coverage % (4)

(Dollars in millions)

Commercial and industrial

$

806


$

116


$

690


$

60


$

630


$

156


33.7

%

Commercial real estate mortgage-owner-occupied

220


19


201


12


189


44


28.6


Commercial real estate construction-owner-occupied

7


-


7


-


7


2


28.6


Total commercial

1,033


135


898


72


826


202


32.6


Commercial investor real estate mortgage

83


3


80


1


79


14


20.5


Commercial investor real estate construction

29


1


28


-


28


5


20.7


Total investor real estate

112


4


108


1


107


19


20.5


Residential first mortgage

446


1


445


-


445


48


11.0


Home equity

274


2


272


-


272


4


2.2


Indirect-vehicles

-


-


-


-


-


-


-


Consumer credit card

1


-


1


-


1


-


-


Other consumer

9


-


9


-


9


-


-


Total consumer

730


3


727


-


727


52


7.5


$

1,875


$

142


$

1,733


$

73


$

1,660


$

273


22.1

%



24


Table of Contents




Non-accrual Impaired Loans As of December 31, 2016

Book Value (3)

Unpaid

Principal

Balance (1)

Charge-offs

and Payments

Applied (2)

Total

Impaired

Loans on

Non-accrual

Status

Impaired

Loans on

Non-accrual

Status with

No Related

Allowance

Impaired

Loans on

Non-accrual

Status with

Related

Allowance

Related

Allowance

for Loan

Losses

Coverage % (4)

(Dollars in millions)

Commercial and industrial

$

685


$

72


$

613


$

126


$

487


$

138


30.7

%

Commercial real estate mortgage-owner-occupied

231


21


210


39


171


53


32.0


Commercial real estate construction-owner-occupied

4


1


3


-


3


2


75.0


Total commercial

920


94


826


165


661


193


31.2


Commercial investor real estate mortgage

18


1


17


5


12


5


33.3


Total investor real estate

18


1


17


5


12


5


33.3


Residential first mortgage

41


12


29


-


29


4


39.0


Home equity

12


1


11


-


11


-


8.3


Total consumer

53


13


40


-


40


4


32.1


$

991


$

108


$

883


$

170


$

713


$

202


31.3

%

Accruing Impaired Loans As of December 31, 2016

Unpaid

Principal

Balance (1)

Charge-offs

and Payments

Applied (2)

Book Value (3)

Related

Allowance for

Loan Losses

Coverage % (4)

(Dollars in millions)

Commercial and industrial

$

187


$

1


$

186


$

33


18.2

%

Commercial real estate mortgage-owner-occupied

60


4


56


5


15.0


Commercial real estate construction-owner-occupied

1


-


1


-


-


Total commercial

248


5


243


38


17.3


Commercial investor real estate mortgage

82


8


74


7


18.3


Commercial investor real estate construction

16


-


16


1


6.3


Total investor real estate

98


8


90


8


16.3


Residential first mortgage

435


10


425


51


14.0


Home equity

292


-


292


5


1.7


Indirect-vehicles

1


-


1


-


-


Consumer credit card

2


-


2


-


-


Other consumer

10


-


10


-


-


Total consumer

740


10


730


56


8.9


$

1,086


$

23


$

1,063


$

102


11.5

%



25


Table of Contents



Total Impaired Loans As of December 31, 2016

Book Value (3)

Unpaid

Principal

Balance (1)

Charge-offs

and Payments

Applied (2)

Total

Impaired

Loans

Impaired

Loans with No

Related

Allowance

Impaired

Loans with

Related

Allowance

Related

Allowance for

Loan Losses

Coverage % (4)

(Dollars in millions)

Commercial and industrial

$

872


$

73


$

799


$

126


$

673


$

171


28.0

%

Commercial real estate mortgage-owner-occupied

291


25


266


39


227


58


28.5


Commercial real estate construction-owner-occupied

5


1


4


-


4


2


60.0


Total commercial

1,168


99


1,069


165


904


231


28.3


Commercial investor real estate mortgage

100


9


91


5


86


12


21.0


Commercial investor real estate construction

16


-


16


-


16


1


6.3


Total investor real estate

116


9


107


5


102


13


19.0


Residential first mortgage

476


22


454


-


454


55


16.2


Home equity

304


1


303


-


303


5


2.0


Indirect-vehicles

1


-


1


-


1


-


-


Consumer credit card

2


-


2


-


2


-


-


Other consumer

10


-


10


-


10


-


-


Total consumer

793


23


770


-


770


60


10.5


$

2,077


$

131


$

1,946


$

170


$

1,776


$

304


20.9

%

________

(1)

Unpaid principal balance represents the contractual obligation due from the customer and includes the net book value plus charge-offs and payments applied.

(2)

Charge-offs and payments applied represents cumulative partial charge-offs taken, as well as interest payments received that have been applied against the outstanding principal balance.

(3)

Book value represents the unpaid principal balance less charge-offs and payments applied; it is shown before any allowance for loan losses.

(4)

Coverage % represents charge-offs and payments applied plus the related allowance as a percent of the unpaid principal balance.



26


Table of Contents



The following table presents the average balances of total impaired loans and interest income for the three and nine months ended September 30, 2017 and 2016 . Interest income recognized represents interest on accruing loans modified in a TDR.

Three Months Ended September 30

Nine Months Ended September 30

2017

2016

2017

2016

Average

Balance

Interest

Income

Recognized

Average

Balance

Interest

Income

Recognized

Average

Balance

Interest

Income

Recognized

Average

Balance

Interest

Income

Recognized

(In millions)

Commercial and industrial

$

748


$

3


$

816


$

1


$

804


$

9


$

670


$

4


Commercial real estate mortgage-owner-occupied

209


2


296


1


234


4


313


3


Commercial real estate construction-owner-occupied

5


-


4


-


5


-


3


-


Total commercial

962


5


1,116


2


1,043


13


986


7


Commercial investor real estate mortgage

93


1


117


1


87


3


128


4


Commercial investor real estate construction

40


1


36


1


42


2


31


1


Total investor real estate

133


2


153


2


129


5


159


5


Residential first mortgage

448


4


464


4


454


12


473


12


Home equity

275


4


317


3


285


11


328


12


Consumer credit card

2


-


2


-


2


-


2


-


Other consumer

9


-


11


1


10


-


12


1


Total consumer

734


8


794


8


751


23


815


25


Total impaired loans

$

1,829


$

15


$

2,063


$

12


$

1,923


$

41


$

1,960


$

37


TROUBLED DEBT RESTRUCTURINGS

Regions regularly modifies commercial and investor real estate loans in order to facilitate a workout strategy. Similarly, Regions works to meet the individual needs of consumer borrowers to stem foreclosure through its CAP. Refer to Note 6 "Allowance For Credit Losses" in the 2016 Annual Report on Form 10-K for additional information regarding the Company's TDRs.

None of the modified consumer loans listed in the following TDR disclosures were collateral-dependent at the time of modification. At September 30, 2017 , approximately $15 million in residential first mortgage TDRs were in excess of 180 days past due and were considered collateral-dependent. At September 30, 2017 , approximately $5 million in home equity first lien TDRs were in excess of 180 days past due and approximately $2 million in home equity second lien TDRs were in excess of 120  days past due, both of which were considered collateral-dependent.

Further discussion related to TDRs, including their impact on the allowance for loan losses and designation of TDRs in periods subsequent to the modification is included in Note 1 "Summary of Significant Accounting Policies" in the 2016 Annual Report on Form 10-K.


27


Table of Contents



The following tables present the end of period balance for loans modified in a TDR during the periods presented by portfolio segment and class, and the financial impact of those modifications. The tables include modifications made to new TDRs, as well as renewals of existing TDRs. Loans first reported as TDRs during the nine months ended September 30, 2017 and 2016 totaled approximately $456 million and $347 million , respectively.

Three Months Ended September 30, 2017

Financial Impact

of Modifications

Considered TDRs

Number of

Obligors

Recorded

Investment

Increase in

Allowance at

Modification

(Dollars in millions)

Commercial and industrial

37


$

157


$

2


Commercial real estate mortgage-owner-occupied

33


32


1


Total commercial

70


189


3


Commercial investor real estate mortgage

8


45


2


Total investor real estate

8


45


2


Residential first mortgage

67


9


1


Home equity

10


1


-


Consumer credit card

11


-


-


Indirect-vehicles and other consumer

38


1


-


Total consumer

126


11


1


204


$

245


$

6



Three Months Ended September 30, 2016

Financial Impact

of Modifications

Considered TDRs

Number of

Obligors

Recorded

Investment

Increase in

Allowance at

Modification

(Dollars in millions)

Commercial and industrial

47


$

117


$

2


Commercial real estate mortgage-owner-occupied

22


26


1


Total commercial

69


143


3


Commercial investor real estate mortgage

19


27


-


Commercial investor real estate construction

3


25


1


Total investor real estate

22


52


1


Residential first mortgage

51


9


1


Home equity

57


2


-


Consumer credit card

14


1


-


Indirect-vehicles and other consumer

47


1


-


Total consumer

169


13


1


260


$

208


$

5



28


Table of Contents



Nine Months Ended September 30, 2017

Financial Impact
of Modifications
Considered TDRs

Number of
Obligors

Recorded
Investment

Increase in
Allowance at
Modification

(Dollars in millions)

Commercial and industrial

106


$

449


$

9


Commercial real estate mortgage-owner-occupied

94


97


3


Commercial real estate construction-owner-occupied

3


2


-


Total commercial

203


548


12


Commercial investor real estate mortgage

33


93


3


Commercial investor real estate construction

5


70


2


Total investor real estate

38


163


5


Residential first mortgage

168


34


4


Home equity

101


8


-


Consumer credit card

54


-


-


Indirect-vehicles and other consumer

125


2


-


Total consumer

448


44


4


689


$

755


$

21


Nine Months Ended September 30, 2016

Financial Impact
of Modifications
Considered TDRs

Number of
Obligors

Recorded
Investment

Increase in
Allowance at
Modification

(Dollars in millions)

Commercial and industrial

142


$

298


$

8


Commercial real estate mortgage-owner-occupied

98


60


2


Total commercial

240


358


10


Commercial investor real estate mortgage

68


87


1


Commercial investor real estate construction

8


36


1


Total investor real estate

76


123


2


Residential first mortgage

189


38


5


Home equity

263


13


-


Consumer credit card

65


1


-


Indirect-vehicles and other consumer

148


2


-


Total consumer

665


54


5


981


$

535


$

17


Defaulted TDRs

The following table presents, by portfolio segment and class, TDRs that defaulted during the three and nine months ended September 30, 2017 and 2016 , and that were modified in the previous twelve months (i.e., the twelve months prior to the default). For purposes of this disclosure, default is defined as placement on non-accrual status for the commercial and investor real estate portfolio segments, and 90 days past due and still accruing for the consumer portfolio segment. Consideration of defaults in the calculation of the allowance for loan losses is described in detail in the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2016 .


29


Table of Contents



Three Months Ended September 30

Nine Months Ended September 30

2017

2016

2017

2016

(In millions)

Defaulted During the Period, Where Modified in a TDR Twelve Months Prior to Default

Commercial and industrial

$

1


$

16


$

9


$

28


Commercial real estate mortgage-owner-occupied

1


1


1


2


Total commercial

2


17


10


30


Commercial investor real estate mortgage

-


1


-


2


Commercial investor real estate construction

-


1


-


1


Total investor real estate

-


2


-


3


Residential first mortgage

1


7


6


18


Home equity

-


-


1


1


Total consumer

1


7


7


19


$

3


$

26


$

17


$

52


Commercial and investor real estate loans that were on non-accrual status at the time of the latest modification are not included in the default table above, as they are already considered to be in default at the time of the restructuring. At September 30, 2017 , approximately $93 million of commercial and investor real estate loans modified in a TDR during the three months ended September 30, 2017 were on non-accrual status. An immaterial amount was 90 days past due.

At September 30, 2017 , Regions had restructured binding unfunded commitments totaling $20 million where a concession was granted and the borrower was in financial difficulty.

NOTE 5. SERVICING OF FINANCIAL ASSETS

RESIDENTIAL MORTGAGE BANKING ACTIVITIES

The fair value of residential MSRs is calculated using various assumptions including future cash flows, market discount rates, expected prepayment rates, servicing costs and other factors. 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 residential MSRs. The Company compares fair value estimates and assumptions to observable market data where available, and also considers recent market activity and actual portfolio experience.

The table below presents an analysis of residential MSRs under the fair value measurement method:

Three Months Ended September 30

Nine Months Ended September 30

2017

2016

2017

2016

(In millions)

Carrying value, beginning of period

$

346


$

216


$

324


$

252


Additions

10


34


56


73


Increase (decrease) in fair value (1) :

Due to change in valuation inputs or assumptions

(9

)

(2

)

(12

)

(60

)

Economic amortization associated with borrower repayments

(12

)

(10

)

(33

)

(27

)

Carrying value, end of period

$

335


$

238


$

335


$

238


________

(1) "Economic amortization associated with borrower repayments" includes both total loan payoffs as well as partial paydowns.


On February 29, 2016, the Company purchased the rights to service approximately $2.6 billion in residential mortgage loans for approximately $24 million .

On September 1, 2016, the Company purchased the rights to service approximately $2.8 billion in residential mortgage loans for approximately $22 million .



30


Table of Contents



On April 28, 2017, the Company purchased the rights to service approximately $2.7 billion in residential mortgage loans for approximately $30 million .


Data and assumptions used in the fair value calculation, as well as the valuation's sensitivity to rate fluctuations, related to residential MSRs (excluding related derivative instruments) are as follows:

September 30

2017

2016

(Dollars in millions)

Unpaid principal balance

$

32,586


$

29,657


Weighted-average prepayment speed (CPR; percentage)

10.0

%

12.3

%

Estimated impact on fair value of a 10% increase

$

(22

)

$

(13

)

Estimated impact on fair value of a 20% increase

$

(40

)

$

(24

)

Option-adjusted spread (basis points)

860


1,060


Estimated impact on fair value of a 10% increase

$

(11

)

$

(9

)

Estimated impact on fair value of a 20% increase

$

(23

)

$

(18

)

Weighted-average coupon interest rate

4.1

%

4.2

%

Weighted-average remaining maturity (months)

282


280


Weighted-average servicing fee (basis points)

27.4


27.6


The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of an adverse variation in a particular assumption on the fair value of residential MSRs is calculated without changing any other assumption, while in reality changes in one factor may result in changes in another, which may either magnify or counteract the effect of the change. The derivative instruments utilized by Regions would serve to reduce the estimated impacts to fair value included in the table above.

The following table presents servicing related fees, which includes contractually specified servicing fees, late fees and other ancillary income resulting from the servicing of residential mortgage loans:

Three Months Ended September 30

Nine Months Ended September 30

2017

2016

2017

2016

(In millions)

Servicing related fees and other ancillary income

$

24


$

21


$

71


$

63


Residential mortgage loans are sold in the secondary market with standard representations and warranties regarding certain characteristics such as the quality of the loan, the absence of fraud, the eligibility of the loan for sale and the future servicing associated with the loan. Regions may be required to repurchase these loans at par, or make-whole or indemnify the purchasers for losses incurred when representations and warranties are breached.

Regions maintains an immaterial repurchase liability related to residential mortgage loans sold with representations and warranty provisions. This repurchase liability is reported in other liabilities on the consolidated balance sheets and reflects management's estimate of losses based on historical repurchase and loss trends, as well as other factors that may result in anticipated losses different from historical loss trends. Adjustments to this reserve are recorded in other non-interest expense on the consolidated statements of income.

COMMERCIAL MORTGAGE BANKING ACTIVITIES

On July 18, 2014, Regions was approved as a Fannie Mae DUS lender and acquired a DUS servicing portfolio totaling approximately $1.0 billion . The Fannie Mae DUS program provides liquidity to the multi-family housing market. As part of the transaction, Regions recorded $12 million in commercial MSRs and $15 million in intangible assets associated with the DUS license purchased. Regions also assumed a loss share guarantee associated with the purchased portfolio and any future originations. Regions estimated the fair value of the loss share guarantee to be approximately $4 million . See Note 1 "Summary of Significant Accounting Policies" in the 2016 Annual Report on Form 10-K for additional information. Also see Note 14 herein for additional information related to the guarantee.

As of September 30, 2017 and December 31, 2016 , the DUS servicing portfolio was approximately $2.6 billion and $1.8 billion , respectively. The related commercial MSRs were valued at approximately $42 million and $30 million at September 30, 2017 and December 31, 2016 , respectively. The estimated fair value of the loss share guarantee was valued at approximately $4 million at both September 30, 2017 and December 31, 2016 .


31


Table of Contents



NOTE 6. GOODWILL

Goodwill allocated to each reportable segment (each a reporting unit) is presented as follows:

September 30, 2017

December 31, 2016

(In millions)

Corporate Bank

$

2,474


$

2,474


Consumer Bank

1,978


1,978


Wealth Management

452


452


$

4,904


$

4,904


Regions evaluates each reporting unit's goodwill for impairment on an annual basis in the fourth quarter, or more often if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. A detailed description of the Company's methodology and valuation approaches used to determine the estimated fair value of each reporting unit is included in the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2016. Adverse changes in the economic environment, declining operations, or other factors could result in a decline in the implied fair value of goodwill.

During the third quarter of 2017, Regions assessed events and circumstances for all three reporting units as of September 30, 2017 , and through the date of the filing of this Quarterly Report on Form 10-Q that could potentially indicate goodwill impairment. The indicators assessed included:

Recent operating performance,

Changes in market capitalization,

Regulatory actions and assessments,

Changes in the business climate (including legislation, legal factors, and competition),

Company-specific factors (including changes in key personnel, asset impairments, and business dispositions), and

Trends in the banking industry.

After assessing the indicators noted above, Regions determined that it was not more likely than not that the fair value of each of its reporting units had declined below their carrying value as of September 30, 2017 . Therefore, Regions determined that a test of goodwill impairment was not required for each of Regions' reporting units for the September 30, 2017 interim period.



32


Table of Contents



NOTE 7. STOCKHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

PREFERRED STOCK

The following table presents a summary of the non-cumulative perpetual preferred stock:

September 30, 2017

December 31, 2016

Issuance Date

Earliest Redemption Date

Dividend Rate

Liquidation Amount

Carrying Amount

Carrying Amount

(Dollars in millions)

Series A

11/1/2012

12/15/2017

6.375

%

$

500


$

387


$

387


Series B

4/29/2014

9/15/2024

6.375

%

(1)

500


433


433


$

1,000


$

820


$

820


_________

(1) Dividends, if declared, will be paid quarterly at an annual rate equal to (i) for each period beginning prior to September 15, 2024, 6.375% , and (ii) for each period beginning on or after September 15, 2024, three-month LIBOR plus 3.536% .

For each preferred stock issuance listed above, Regions issued depositary shares, each representing a 1/40th ownership interest in a share of the Company's preferred stock, with a liquidation preference of $1,000.00 per share of preferred stock (equivalent to $25.00 per depositary share). Dividends on the preferred stock, if declared, accrue and are payable quarterly in arrears. The preferred stock has no stated maturity and redemption is solely at Regions' option, subject to regulatory approval, in whole, or in part, after the earliest redemption date or in whole, but not in part, within 90 days following a regulatory capital treatment event for the Series A preferred stock or at any time following a regulatory capital treatment event for the Series B preferred stock.

The Board of Directors declared $24 million in cash dividends on Series A Preferred Stock during the first nine months of 2017 and 2016. Series B Preferred Stock dividends were also $24 million for the first nine months of 2017 and 2016.

In the event Series A and Series B preferred shares are redeemed at the liquidation amounts, $113 million and $67 million excess of the redemption amount over the carrying amount will be recognized, respectively. Approximately $100 million of Series A preferred dividends that were recorded as a reduction of preferred stock, including related surplus, will be recorded as a reduction to retained earnings, and approximately $13 million of related issuance costs that were recorded as a reduction of preferred stock, including related surplus, will be recorded as a reduction to net income available to common shareholders. Approximately $52 million of Series B preferred dividends that were recorded as a reduction of preferred stock, including related surplus, will be recorded as a reduction to retained earnings, and approximately $15 million of related issuance costs that were recorded as a reduction of preferred stock, including related surplus, will be recorded as a reduction to net income available to common shareholders.

COMMON STOCK

On June 28, 2017, Regions received no objection from the Federal Reserve to its 2017 capital plan that was submitted as part of the CCAR process, which included the repurchase of common shares and a common stock dividend increase. As part of the Company's capital plan, the Board authorized a new $1.47 billion common stock repurchase plan, permitting repurchases from the beginning of the third quarter of 2017 through the second quarter of 2018. The capital plan also included a proposed increase of the quarterly common stock dividend to $0.09 per common share beginning in the third quarter of 2017, subject to quarterly Board approval.

The Board declared a $0.07 per share and $0.09 per share cash dividend on common stock for the second and third quarters of 2017, respectively, as compared to $0.065 per common share for the first quarter of 2017, totaling $0.225 per common share for the first nine months of 2017. The Board declared a $0.065 per share cash dividend on common stock for the second and third quarters of 2016 as compared to $0.06 per common share for the first quarter of 2016, totaling $0.19 per common share for the first nine months of 2016.

As of September 30, 2017, Regions had repurchased approximately 34.6 million shares of common stock at a total cost of approximately $500 million . The Company continued to repurchase shares under this plan in the fourth quarter of 2017, and as of November 7, 2017, Regions had additional repurchases of approximately 7.8 million shares of common stock at a total cost of approximately $122.4 million . All of these shares were immediately retired upon repurchase and, therefore, will not be included in treasury stock.



33


Table of Contents



ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Activity within the balances in accumulated other comprehensive income (loss), net is shown in the following tables:

Three Months Ended September 30, 2017

Unrealized losses on securities transferred to held to maturity

Unrealized gains (losses) on securities available for sale

Unrealized gains (losses) on derivative instruments designated as cash flow hedges

Defined benefit

pension plans and other post

employment

benefits

Accumulated

other

comprehensive

income (loss),

net of tax

(In millions)

Beginning of period

$

(30

)

$

(55

)

$

11


$

(405

)

$

(479

)

Net change

1


21


(4

)

7


25


End of period

$

(29

)

$

(34

)

$

7


$

(398

)

$

(454

)

Three Months Ended September 30, 2016

Unrealized losses on securities transferred to held to maturity

Unrealized gains (losses) on securities available for sale

Unrealized gains (losses) on derivative instruments designated as cash flow hedges

Defined benefit pension plans and other post employment benefits

Accumulated other comprehensive
income (loss), net of tax

(In millions)

Beginning of period

$

(40

)

$

297


$

278


$

(387

)

$

148


Net change

5


(13

)

(40

)

5


(43

)

End of period

$

(35

)

$

284


$

238


$

(382

)

$

105


Nine Months Ended September 30, 2017

Unrealized losses on securities transferred to held to maturity

Unrealized gains (losses) on securities available for sale

Unrealized gains (losses) on derivative instruments designated as cash flow hedges

Defined benefit pension plans and other post employment benefits

Accumulated other comprehensive
income (loss), net of tax

(In millions)

Beginning of period

$

(33

)

$

(106

)

$

11


$

(422

)

$

(550

)

Net change

4


72


(4

)

24


96


End of period

$

(29

)

$

(34

)

$

7


$

(398

)

$

(454

)

Nine Months Ended September 30, 2016

Unrealized losses on securities transferred to held to maturity

Unrealized gains (losses) on securities available for sale

Unrealized gains (losses) on derivative instruments designated as cash flow hedges

Defined benefit pension plans and other post employment benefits

Accumulated other comprehensive
income (loss), net of tax

(In millions)

Beginning of period

$

(47

)

$

(10

)

$

75


$

(398

)

$

(380

)

Net change

12


294


163


16


485


End of period

$

(35

)

$

284


$

238


$

(382

)

$

105



34


Table of Contents



The following table presents amounts reclassified out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2017 and 2016 :

Three Months Ended September 30, 2017

Three Months Ended September 30, 2016

Details about Accumulated Other Comprehensive Income (Loss) Components

Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (1)

Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (1)

Affected Line Item in the Consolidated Statements of Income

(In millions)

Unrealized losses on securities transferred to held to maturity:

$

(2

)

$

(9

)

Net interest income and other financing income

1


4


Tax (expense) or benefit

$

(1

)

$

(5

)

Net of tax

Unrealized gains and (losses) on available for sale securities:

$

4


$

-


Securities gains (losses), net

(2

)

-


Tax (expense) or benefit

$

2


$

-


Net of tax

Gains and (losses) on cash flow hedges:

Interest rate contracts

$

17


$

35


Net interest income and other financing income

(7

)

(13

)

Tax (expense) or benefit

$

10


$

22


Net of tax

Amortization of defined benefit pension plans and other post employment benefits:

Actuarial gains (losses) and settlements

$

(11

)

$

(9

)

(2)

(11

)

(9

)

Total before tax

4


3


Tax (expense) or benefit

$

(7

)

$

(6

)

Net of tax

Total reclassifications for the period

$

4


$

11


Net of tax


35


Table of Contents



Nine Months Ended

September 30, 2017

Nine Months Ended

September 30, 2016

Details about Accumulated Other Comprehensive Income (Loss) Components

Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (1)

Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (1)

Affected Line Item in the Consolidated Statements of Income

(In millions)

Unrealized losses on securities transferred to held to maturity:

$

(7

)

$

(20

)

Net interest income and other financing income

3


8


Tax (expense) or benefit

$

(4

)

$

(12

)

Net of tax

Unrealized gains and (losses) on available for sale securities:

$

5


$

1


Securities gains (losses), net

(2

)

-


Tax (expense) or benefit

$

3


$

1


Net of tax

Gains and (losses) on cash flow hedges:

Interest rate contracts

$

70


$

109


Net interest income and other financing income

(27

)

(41

)

Tax (expense) or benefit

$

43


$

68


Net of tax

Amortization of defined benefit pension plans and other post employment benefits:

Actuarial gains (losses) and settlements

$

(39

)

$

(26

)

(2)

(39

)

(26

)

Total before tax

14


9


Tax (expense) or benefit

$

(25

)

$

(17

)

Net of tax

Total reclassifications for the period

$

17


$

40


Net of tax

________

(1) Amounts in parentheses indicate reductions to net income.

(2) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension cost and are included in salaries and employee benefits on the consolidated statements of income (see Note 10 for additional details).


36


Table of Contents



NOTE 8. EARNINGS (LOSS) PER COMMON SHARE

The following table sets forth the computation of basic earnings (loss) per common share and diluted earnings (loss) per common share:

Three Months Ended September 30

Nine Months Ended September 30

2017

2016

2017

2016

(In millions, except per share amounts)

Numerator:

Income from continuing operations

$

312


$

319


$

923


$

864


Preferred stock dividends

(16

)

(16

)

(48

)

(48

)

Income from continuing operations available to common shareholders

296


303


875


816


Income (loss) from discontinued operations, net of tax

(1

)

1


5


4


Net income available to common shareholders

$

295


$

304


$

880


$

820


Denominator:

Weighted-average common shares outstanding-basic

1,182


1,246


1,197


1,266


Potential common shares

11


6


12


4


Weighted-average common shares outstanding-diluted

1,193


1,252


1,209


1,270


Earnings per common share from continuing operations available to common shareholders (1) :

Basic

$

0.25


$

0.24


$

0.73


$

0.64


Diluted

0.25


0.24


0.72


0.64


Earnings (loss) per common share from discontinued operations (1) :

Basic

$

(0.00

)

$

0.00


$

0.00


$

0.00


Diluted

(0.00

)

0.00


0.00


0.00


Earnings per common share (1) :

Basic

$

0.25


$

0.24


$

0.74


$

0.65


Diluted

0.25


0.24


0.73


0.65


________

(1)

 Certain per share amounts may not appear to reconcile due to rounding.

The effect from the assumed exercise of 14 million and 15 million stock options, restricted stock units and awards and performance stock units for the three and nine months ended September 30, 2017 , respectively, was not included in the above computations of diluted earnings per common share because such amounts would have had an antidilutive effect on earnings per common share. The effect from the assumed exercise of 27 million and 29 million stock options for the three and nine months ended September 30, 2016 , respectively, was not included in the above computations of diluted earnings per common share because such amounts would have had an antidilutive effect on earnings per common share.

NOTE 9. SHARE-BASED PAYMENTS

Regions administers long-term incentive compensation plans that permit the granting of incentive awards in the form of stock options, restricted stock awards, performance awards and stock appreciation rights. While Regions has the ability to issue stock appreciation rights, none have been issued to date. The terms of all awards issued under these plans are determined by the Compensation Committee of the Board; however, no awards may be granted after the tenth anniversary from the date the plans were initially approved by stockholders. Incentive awards usually vest based on employee service, generally within three years from the date of the grant. The contractual lives of options granted under these plans are typically ten years from the date of the grant.

On April 23, 2015, the stockholders of the Company approved the Regions Financial Corporation 2015 LTIP , which permits the Company to grant to employees and directors various forms of incentive compensation. These forms of incentive compensation are similar to the types of compensation approved in prior plans. The 2015 LTIP authorizes 60 million common share equivalents available for grant, where grants of options and grants of full value awards (e.g., shares of restricted stock, restricted stock units and performance stock units) count as one share equivalent. Unless otherwise determined by the Compensation Committee of the Board, grants of restricted stock, restricted stock units, and performance stock units accrue dividends, or their notional equivalent, as they are declared by the Board, and are paid upon vesting of the award. Upon adoption of the 2015 LTIP, Regions closed the prior long-term incentive plan to new grants, and, accordingly, prospective grants must be made under the 2015 LTIP or a successor


37


Table of Contents



plan. All existing grants under prior long-term incentive plans are unaffected by adoption of the 2015 LTIP. The number of remaining share equivalents available for future issuance under the 2015 LTIP was approximately 45 million at September 30, 2017 .

STOCK OPTIONS

The following table summarizes the activity related to stock options:

Nine Months Ended September 30

2017

2016

Number of

Options

Weighted-Average

Exercise Price

Number of

Options

Weighted-Average

Exercise Price

Outstanding at beginning of period

13,455,047


$

19.37


19,350,157


$

21.06


Exercised

(1,114,766

)

6.66


(568,882

)

5.86


Forfeited or expired

(2,727,357

)

34.51


(3,840,704

)

34.68


Outstanding at end of period

9,612,924


$

16.55


14,940,571


$

18.14


Exercisable at end of period

9,612,924


$

16.55


14,940,571


$

18.14


RESTRICTED STOCK AWARDS AND PERFORMANCE STOCK AWARDS

Regions periodically grants restricted stock awards that vest upon service conditions. Regions also periodically grants restricted stock awards and performance stock awards that vest based upon service conditions and performance conditions. Incremental shares earned above the performance target associated with previous performance stock awards are included when and if performance targets are achieved. Dividend payments during the vesting period are deferred to the end of the vesting term. The fair value of these restricted shares, restricted stock units and performance stock units was estimated based upon the fair value of the underlying shares on the date of the grant. The valuation was not adjusted for the deferral of dividends.

The following table summarizes the activity related to restricted stock awards and performance stock awards:

Nine Months Ended September 30

2017

2016

Number of

Shares

Weighted-Average

Grant Date Fair Value

Number of

Shares

Weighted-Average
Grant Date Fair Value

Non-vested at beginning of period

16,558,942


$

9.31


16,374,242


$

9.51


Granted

3,976,193


14.57


6,840,385


7.92


Vested

(4,623,917

)

11.08


(5,735,271

)

8.25


Forfeited

(522,258

)

10.00


(686,347

)

9.18


Non-vested at end of period

15,388,960


$

10.12


16,793,009


$

9.31



38


Table of Contents



NOTE 10. PENSION AND OTHER POSTRETIREMENT BENEFITS

Effective January 1, 2016, Regions separated its defined benefit pension plan qualified under the Internal Revenue Code into two plans. The new plan was created primarily for participants who were actively employed on January 1, 2016 and all other participants were retained in the existing plan. Regions' defined benefit pension plans cover only certain employees as the pension plans are closed to new entrants.The Company also sponsors a SERP, which is a non-qualified pension plan that provides certain senior executive officers defined benefits in relation to their compensation.

Net periodic pension cost, which is recorded in salaries and employee benefits on the consolidated statements of income, included the following components:

Qualified Plans

Non-qualified Plans

Total

Three Months Ended September 30

2017

2016

2017

2016

2017

2016

(In millions)

Service cost

$

8


$

9


$

1


$

1


$

9


$

10


Interest cost

18


19


1


1


19


20


Expected return on plan assets

(35

)

(36

)

-


-


(35

)

(36

)

Amortization of actuarial loss

8


8


1


1


9


9


Settlement charge

-


-


2


-


2


-


Net periodic pension cost (credit)

$

(1

)

$

-


$

5


$

3


$

4


$

3


Qualified Plans

Non-qualified Plans

Total

Nine Months Ended September 30

2017

2016

2017

2016

2017

2016

(In millions)

Service cost

$

25


$

26


$

3


$

3


$

28


$

29


Interest cost

54


55


3


4


57


59


Expected return on plan assets

(106

)

(108

)

-


-


(106

)

(108

)

Amortization of actuarial loss

24


24


3


2


27


26


Settlement charge

-


-


12


-


12


-


Net periodic pension cost (credit)

$

(3

)

$

(3

)

$

21


$

9


$

18


$

6



The settlement charge during the third quarter of 2017 resulted from receiving the final actuarial valuation for the settlement of liabilities under the SERP for certain plan participants that occurred during the second quarter of 2017.

Regions' funding policy for the qualified plans is to contribute annually at least the amount required by IRS minimum funding standards. Regions made a contribution of $75 million for the 2017 plan during the third quarter of 2017.

Regions also provides other postretirement benefits such as defined benefit health care plans and life insurance plans that cover certain retired employees. There was no material impact from other postretirement benefits on the consolidated financial statements for the nine months ended September 30, 2017 or 2016 .


39


Table of Contents



NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

The following tables present the notional amount and estimated fair value of derivative instruments on a gross basis as of September 30, 2017 and December 31, 2016 . The variation margin payments made during 2017 for derivatives cleared through the Chicago Mercantile Exchange are legally characterized as settlements of the derivatives. As a result, these variation margin payments are netted against the fair value of the respective derivative contracts in the balance sheet and related disclosures.

September 30, 2017

December 31, 2016

Notional

Amount

Estimated Fair Value

Notional

Amount

Estimated Fair Value

Gain (1)

Loss (1)

Gain (1)

Loss (1)

(In millions)

Derivatives in fair value hedging relationships:

Interest rate swaps

$

3,130


$

1


$

37


$

2,257


$

7


$

40


Derivatives in cash flow hedging relationships:

Interest rate swaps

7,150


21


153


9,000


19


269


Total derivatives designated as hedging instruments

$

10,280


$

22


$

190


$

11,257


$

26


$

309


Derivatives not designated as hedging instruments:

Interest rate swaps

$

40,124


$

315


$

352


$

41,851


$

412


$

467


Interest rate options

3,787


20


10


3,877


24


12


Interest rate futures and forward commitments

27,944


4


7


18,605


11


6


Other contracts

5,551


53


46


5,813


106


93


Total derivatives not designated as hedging instruments

$

77,406


$

392


$

415


$

70,146


$

553


$

578


Total derivatives

$

87,686


$

414


$

605


$

81,403


$

579


$

887


_________

(1)

Derivatives in a gain position are recorded as other assets and derivatives in a loss position are recorded as other liabilities on the consolidated balance sheets.

HEDGING DERIVATIVES

Derivatives entered into to manage interest rate risk and facilitate asset/liability management strategies are designated as hedging derivatives. Derivative financial instruments that qualify in a hedging relationship are classified, based on the exposure being hedged, as either fair value hedges or cash flow hedges. See Note 1 "Summary of Significant Accounting Policies" of the Annual Report on Form 10-K for the year ended December 31, 2016 , for additional information regarding accounting policies for derivatives.

FAIR VALUE HEDGES

Fair value hedge relationships mitigate exposure to the change in fair value of an asset, liability or firm commitment.

Regions enters into interest rate swap agreements to manage interest rate exposure on the Company's fixed-rate borrowings, which includes long-term debt and certificates of deposit. These agreements involve the receipt of fixed-rate amounts in exchange for floating-rate interest payments over the life of the agreements. Regions enters into interest rate swap agreements to manage interest rate exposure on certain of the Company's fixed-rate available for sale debt securities. These agreements involve the payment of fixed-rate amounts in exchange for floating-rate interest receipts.

CASH FLOW HEDGES

Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions.

Regions enters into interest rate swap agreements to manage overall cash flow changes related to interest rate risk exposure on LIBOR-based loans. The agreements effectively modify the Company's exposure to interest rate risk by utilizing receive fixed/pay LIBOR interest rate swaps.

Regions issues long-term fixed-rate debt for various funding needs. Regions may enter into receive LIBOR/pay fixed forward starting swaps to hedge risks of changes in the projected quarterly interest payments attributable to changes in the benchmark interest rate (LIBOR) during the time leading up to the probable issuance date of the new long-term fixed-rate debt.


40


Table of Contents



Regions recognized an unrealized after-tax gain of $130 million and $179 million in accumulated other comprehensive income (loss) at September 30, 2017 and 2016 , respectively, related to terminated cash flow hedges of loan instruments, which will be amortized into earnings in conjunction with the recognition of interest payments through 2025. Regions recognized pre-tax income of $16 million and $22 million during the three months ended September 30, 2017 and 2016 , respectively, and pre-tax income of $53 million and $46 million during the nine months ended September 30, 2017 and 2016 , respectively, related to the amortization of discontinued cash flow hedges of loan instruments.

Regions expects to reclassify out of accumulated other comprehensive income (loss) and into earnings approximately $52 million in pre-tax income due to the receipt or payment of interest payments on all cash flow hedges within the next twelve months. Included in this amount is $56 million in pre-tax net gains related to the amortization of discontinued cash flow hedges. The maximum length of time over which Regions is hedging its exposure to the variability in future cash flows for forecasted transactions is approximately eight years as of September 30, 2017 .

The following tables present the effect of hedging derivative instruments on the consolidated statements of income:

Gain or (Loss) Recognized in Income on Derivatives

Location of Amounts Recognized in Income on Derivatives and Related Hedged Item

Gain or (Loss) Recognized in Income on Related Hedged Item

Three Months Ended September 30

Three Months Ended
September 30

2017

2016

2017

2016

(In millions)

(In millions)

Fair Value Hedges:

Interest rate swaps on:

Debt/CDs

$

1


$

2


Interest expense

$

-


$

-


Debt/CDs

(6

)

(23

)

Other non-interest expense

6


24


Securities available for sale

(1

)

(2

)

Interest income

-


-


Securities available for sale

-


2


Other non-interest expense

-


(5

)

Total

$

(6

)

$

(21

)

$

6


$

19


Effective Portion (3)

Gain or (Loss) Recognized in AOCI (1)

Location of Amounts Reclassified from AOCI into Income

Gain or (Loss) Reclassified from AOCI into Income (2)

Three Months Ended September 30

Three Months Ended September 30

2017

2016

2017

2016

(In millions)

(In millions)

Cash Flow Hedges:

Interest rate swaps

$

(4

)

$

(40

)

Interest income on loans

$

17


$

35


Total

$

(4

)

$

(40

)

$

17


$

35


Gain or (Loss) Recognized in Income on Derivatives

Location of Amounts Recognized in Income on Derivatives and Related Hedged Item

Gain or (Loss) Recognized in Income on Related Hedged Item

Nine Months Ended
September 30

Nine Months Ended
September 30

2017

2016

2017

2016

(In millions)

(In millions)

Fair Value Hedges:

Interest rate swaps on:

Debt/CDs

$

2


$

10


Interest expense

$

-


$

(2

)

Debt/CDs

(1

)

4


Other non-interest expense

2


(3

)

Securities available for sale

(3

)

(7

)

Interest income

-


-


Securities available for sale

(2

)

(36

)

Other non-interest expense

1


32


Total

$

(4

)

$

(29

)

$

3


$

27



41


Table of Contents



Effective Portion (3)

Gain or (Loss) Recognized in AOCI (1)

Location of Amounts Reclassified from AOCI into Income

Gain or (Loss) Reclassified from AOCI into Income (2)

Nine Months Ended September 30

Nine Months Ended September 30

2017

2016

2017

2016

(In millions)

(In millions)

Cash Flow Hedges:

Interest rate swaps

$

(4

)

$

163


Interest income on loans

$

70


$

109


Total

$

(4

)

$

163


$

70


$

109


______

(1) After-tax

(2) Pre-tax

(3) All cash flow hedges were highly effective for all periods presented, and the change in fair value attributed to hedge ineffectiveness was not material.


DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS

The Company holds a portfolio of interest rate swaps, option contracts, and futures and forward commitments that result from transactions with its commercial customers in which they manage their risks by entering into a derivative with Regions. The Company monitors and manages the net risk in this customer portfolio and enters into separate derivative contracts in order to reduce the overall exposure to pre-defined limits. For both derivatives with its end customers and derivatives Regions enters into to mitigate the risk in this portfolio, the Company is subject to market risk and the risk that the counterparty will default. The contracts in this portfolio are not designated as accounting hedges and are marked-to market through earnings (in capital markets fee income and other) and included in other assets and other liabilities, as appropriate.

Regions enters into interest rate lock commitments, which are commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. At September 30, 2017 and December 31, 2016 , Regions had $289 million and $274 million , respectively, in total notional amount of interest rate lock commitments. Regions manages market risk on interest rate lock commitments and mortgage loans held for sale with corresponding forward sale commitments. Residential mortgage loans held for sale are recorded at fair value with changes in fair value recorded in mortgage income. Commercial mortgage loans held for sale are recorded at either the lower of cost or market or at fair value based on management's election. At September 30, 2017 and December 31, 2016 , Regions had $584 million and $786 million , respectively, in total notional amounts related to these forward sale commitments. Changes in mark-to-market from both interest rate lock commitments and corresponding forward sale commitments related to residential mortgage loans are included in mortgage income. Changes in mark-to-market from both interest rate lock commitments and corresponding forward sale commitments related to commercial mortgage loans are included in capital markets fee income and other.

Regions has elected to account for residential MSRs at fair value with any changes to fair value being recorded within mortgage income. Concurrent with the election to use the fair value measurement method, Regions began using various derivative instruments, in the form of forward rate commitments, futures contracts, swaps and swaptions to mitigate the effect of changes in the fair value of its residential MSRs in its consolidated statements of income. As of September 30, 2017 and December 31, 2016 , the total notional amount related to these contracts was $6.4 billion and $7.2 billion , respectively.

The following table presents the location and amount of gain or (loss) recognized in income on derivatives not designated as hedging instruments in the consolidated statements of income for the three and nine months ended September 30, 2017 and 2016 :


42


Table of Contents



Three Months Ended September 30

Nine Months Ended September 30

Derivatives Not Designated as Hedging Instruments

2017

2016

2017

2016

(In millions)

Capital markets fee income and other (1) :

Interest rate swaps

$

3


$

4


$

9


$

7


Interest rate options

9


2


19


16


Interest rate futures and forward commitments

1


1


6


4


Other contracts

9


(11

)

(6

)

(9

)

Total capital markets fee income and other

22


(4

)

28


18


Mortgage income:

Interest rate swaps

1


(3

)

7


45


Interest rate options

(2

)

(1

)

(3

)

7


Interest rate futures and forward commitments

2


8


(5

)

9


Total mortgage income

1


4


(1

)

61


$

23


$

-


$

27


$

79


______

(1) Capital markets fee income and other is included in Other income on the consolidated statements of income.

Credit risk, defined as all positive exposures not collateralized with cash or other assets or reserved for, at September 30, 2017 and December 31, 2016 , totaled approximately $253 million and $334 million , respectively. These amounts represent the net credit risk on all trading and other derivative positions held by Regions.

CREDIT DERIVATIVES

Regions has both bought and sold credit protection in the form of participations on interest rate swaps (swap participations). These swap participations, which meet the definition of credit derivatives, were entered into in the ordinary course of business to serve the credit needs of customers. Swap participations, whereby Regions has purchased credit protection, entitle Regions to receive a payment from the counterparty if the customer fails to make payment on any amounts due to Regions upon early termination of the swap transaction and have maturities between 2017 and 2024. Swap participations, whereby Regions has sold credit protection have maturities between 2017 and 2025. For contracts where Regions sold credit protection, Regions would be required to make payment to the counterparty if the customer fails to make payment on any amounts due to the counterparty upon early termination of the swap transaction. Regions bases the current status of the prepayment/performance risk on bought and sold credit derivatives on recently issued internal risk ratings consistent with the risk management practices of unfunded commitments.

Regions' maximum potential amount of future payments under these contracts as of September 30, 2017 was approximately $296 million . This scenario would only occur if variable interest rates were at zero percent and all counterparties defaulted with zero recovery. The fair value of sold protection at September 30, 2017 and 2016 was immaterial. In transactions where Regions has sold credit protection, recourse to collateral associated with the original swap transaction is available to offset some or all of Regions' obligation.

Regions has bought credit protection in the form of credit default indices. These indices, which meet the definition of credit derivatives, were entered into in the ordinary course of business to economically hedge credit spread risk in commercial mortgage loans held for sale whereby the fair value option has been elected. Credit derivatives, whereby Regions has purchased credit protection, entitle Regions to receive a payment from the counterparty if losses on the underlying index exceed a certain threshold, dependent upon the tranche rating of the capital structure.

CONTINGENT FEATURES

Certain of Regions' derivative instrument contracts with broker-dealers contain credit-related termination provisions and/or credit-related provisions regarding the posting of collateral, allowing those broker-dealers to terminate the contracts in the event that Regions' and/or Regions Bank's credit ratings falls below specified ratings from certain major credit rating agencies. The aggregate fair values of all derivative instruments with any credit-risk-related contingent features that were in a liability position on September 30, 2017 and December 31, 2016 , were $102 million and $141 million , respectively, for which Regions had posted collateral of $104 million and $141 million , respectively, in the normal course of business.

OFFSETTING

Regions engages in derivatives transactions with dealers and customers. These derivatives transactions are subject to enforceable master netting agreements, which include a right of setoff by the non-defaulting or non-affected party upon early termination of the derivatives transaction. The following table presents the Company's gross derivative positions, including collateral posted or received, as of September 30, 2017 and December 31, 2016 .


43


Table of Contents



Offsetting Derivative Assets

Offsetting Derivative Liabilities

September 30, 2017

December 31, 2016

September 30, 2017

December 31, 2016

(In millions)

Gross amounts subject to offsetting

$

259


$

414


$

347


$

583


Gross amounts not subject to offsetting

155


165


258


304


Gross amounts recognized

414


579


605


887


Gross amounts offset in the consolidated balance sheets (1)

158


241


265


541


Net amounts presented in the consolidated balance sheets

256


338


340


346


Gross amounts not offset in the consolidated balance sheets:

Financial instruments

3


4


50


50


Cash collateral received/posted

-


-


250


227


Net amounts

$

253


$

334


$

40


$

69


________

(1)

At September 30, 2017 , gross amounts of derivative assets and liabilities offset in the consolidated balance sheets presented above include cash collateral received of $40 million and cash collateral posted of $148 million . At December 31, 2016 , gross amounts of derivative assets and liabilities offset in the consolidated balance sheets presented above include cash collateral received of $48 million and cash collateral posted of $349 million .

Gross amounts of derivatives not subject to offsetting primarily consist of derivatives cleared through a Central Counterparty Clearing House and interest rate lock commitments to originate mortgage loans.

NOTE 12. FAIR VALUE MEASUREMENTS

See Note 1 "Summary of Significant Accounting Policies" to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2016 for a description of valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis. Assets and liabilities measured at fair value rarely transfer between Level 1 and Level 2 measurements. There were no such transfers during the nine month periods ended September 30, 2017 and 2016 . Trading account securities and securities available for sale may be periodically transferred to or from Level 3 valuation based on management's conclusion regarding the observability of inputs used in valuing the securities. Such transfers are accounted for as if they occur at the beginning of a reporting period.



44


Table of Contents



The following table presents assets and liabilities measured at estimated fair value on a recurring basis and non-recurring basis as of September 30, 2017 and December 31, 2016 :

September 30, 2017

December 31, 2016

Level 1

Level 2

Level 3

Total

Estimated Fair Value

Level 1

Level 2

Level 3

Total

Estimated Fair Value

(In millions)

Recurring fair value measurements

Trading account securities

$

193


$

-


$

-


$

193


$

124


$

-


$

-


$

124


Securities available for sale:

U.S. Treasury securities

$

308


$

-


$

-


$

308


$

303


$

-


$

-


$

303


Federal agency securities

-


24


-


24


-


35


-


35


Obligations of states and political subdivisions

-


-


-


-


-


1


-


1


Mortgage-backed securities (MBS):

Residential agency

-


17,484


-


17,484


-


17,371


-


17,371


Residential non-agency

-


-


3


3


-


-


4


4


Commercial agency

-


3,626


-


3,626


-


3,463


-


3,463


Commercial non-agency

-


809


-


809


-


1,129


-


1,129


Corporate and other debt securities

-


1,198


4


1,202


-


1,271


3


1,274


Equity securities

203


-


-


203


201


-


-


201


Total securities available for sale

$

511


$

23,141


$

7


$

23,659


$

504


$

23,270


$

7


$

23,781


Loans held for sale

$

-


$

307


$

-


$

307


$

-


$

414


$

33


$

447


Residential mortgage servicing rights

$

-


$

-


$

335


$

335


$

-


$

-


$

324


$

324


Derivative assets:

Interest rate swaps

$

-


$

337


$

-


$

337


$

-


$

438


$

-


$

438


Interest rate options

-


10


10


20


-


13


11


24


Interest rate futures and forward commitments

-


4


-


4


-


11


-


11


Other contracts

2


51


-


53


2


104


-


106


Total derivative assets

$

2


$

402


$

10


$

414


$

2


$

566


$

11


$

579


Derivative liabilities:

Interest rate swaps

$

-


$

542


$

-


$

542


$

-


$

776


$

-


$

776


Interest rate options

-


10


-


10


-


12


-


12


Interest rate futures and forward commitments

-


7


-


7


-


6


-


6


Other contracts

2


44


-


46


1


92


-


93


Total derivative liabilities

$

2


$

603


$

-


$

605


$

1


$

886


$

-


$

887


Non-recurring fair value measurements

Loans held for sale

$

-


$

-


$

5


$

5


$

-


$

-


$

7


$

7


Foreclosed property and other real estate

-


32


6


38


-


29


6


35


Assets and liabilities in all levels could result in volatile and material price fluctuations. Realized and unrealized gains and losses on Level 3 assets represent only a portion of the risk to market fluctuations in Regions' consolidated balance sheets. Further, derivatives included in Levels 2 and 3 are used by the ALCO of the Company in a holistic approach to managing price fluctuation risks.


45


Table of Contents



The following tables illustrate rollforwards for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2017 and 2016 . The tables do not reflect the change in fair value attributable to any related economic hedges the Company used to mitigate the interest rate risk associated with these assets and liabilities. The net changes in realized gains (losses) included in earnings related to Level 3 assets and liabilities held at September 30, 2017 and 2016 are not material.

Three Months Ended September 30, 2017

Opening
Balance July 1,
2017

Total Realized /

Unrealized

Gains or Losses

Purchases

Sales

Issuances

Settlements

Transfers
into
Level 3

Transfers
out of
Level 3

Closing
Balance September 30, 2017

Included

in

Earnings

Included

in Other

Compre-

hensive

Income

(Loss)

(In millions)

Level 3 Instruments Only

Securities available for sale:

Residential non-agency MBS

$

3


-


-


-


-


-


-


-


-


$

3


Corporate and other debt securities

4


-


-


-


-


-


-


-


-


4


Total securities available for sale

$

7


-


-


-


-


-


-


-


-


$

7


Commercial mortgage loans held for sale

$

-


-


-


-


-


-


-


-


-


$

-


Residential mortgage servicing rights

$

346


(21

)

(1) 

-


10


-


-


-


-


-


$

335


Total derivatives, net

$

13


31


(2) 

-


-


-


-


(34

)

-


-


$

10


Three Months Ended September 30, 2016

Opening
Balance July 1, 2016

Total Realized /
Unrealized
Gains or Losses

Purchases

Sales

Issuances

Settlements

Transfers
into
Level 3

Transfers
out of
Level 3

Closing
Balance September 30, 2016

Included
in Earnings

Included
in Other
Compre-
hensive
Income
(Loss)

(In millions)

Level 3 Instruments Only

Securities available for sale:

Residential non-agency MBS

$

5


-


-


-


-


-


-


-


-


$

5


Corporate and other debt securities

3


-


-


-


-


-


-


-


-


3


Total securities available for sale

$

8


-


-


-


-


-


-


-


-


$

8


Commercial mortgage loans held for sale

$

30


-


-


-


-


60


-


-


-


$

90


Residential mortgage servicing rights

$

216


(12

)

(1) 

-


34


-


-


-


-


-


$

238


Total derivatives, net

$

17


32


(4) 

-


-


-


-


(33

)

-


-


$

16



46


Table of Contents



Nine Months Ended September 30, 2017

Opening
Balance
January 1,
2017

Total Realized /

Unrealized

Gains or Losses

Purchases

Sales

Issuances

Settlements

Transfers
into
Level 3

Transfers
out of
Level 3

Closing
Balance September 30, 2017

Included

in

Earnings

Included

in Other

Compre-

hensive

Income

(Loss)

(In millions)

Level 3 Instruments Only

Securities available for sale:

Residential non-agency MBS

$

4


-


-


-


-


-


(1

)

-


-


$

3


Corporate and other debt securities

3


-


-


-


-


-


-


1


-


4


Total securities available for sale

$

7


-


-


-


-


-


(1

)

1


-


$

7


Commercial mortgage loans held for sale

$

33


-


-


7


(40

)

-


-


-


-


$

-


Residential mortgage servicing rights

$

324


(45

)

(1) 

-


56


-


-


-


-


-


$

335


Total derivatives, net

$

11


87


(5) 

-


-


-


-


(88

)

-


-


$

10


Nine Months Ended September 30, 2016

Opening
Balance
January 1,
2016

Total Realized /

Unrealized

Gains or Losses

Purchases

Sales

Issuances

Settlements

Transfers

into

Level 3

Transfers

out of

Level 3

Closing
Balance September 30, 2016

Included

in Earnings

Included

in Other

Compre-

hensive

Income

(Loss)

(In millions)

Level 3 Instruments Only

Trading account securities

$

33


(2

)

(3)

-


-


(31

)

-


-


-


-


$

-


Securities available for sale:

Residential non-agency MBS

$

5


-


-


-


-


-


-


-


-


$

5


Corporate and other debt securities

3


-


-


-


-


-


-


-


-


3


Total securities available for sale

$

8


-


-


-


-


-


-


-


-


$

8


Commercial mortgage loans held for sale

$

-


-


-


-


-


90


-


-


-


$

90


Residential mortgage servicing rights

$

252


(87

)

(1) 

-


73


-


-


-


-


-


$

238


Total derivatives, net

$

10


105


(6) 

-


-


-


-


(99

)

-


-


$

16


_________

(1) Included in mortgage income.

(2) Approximately $8 million was included in capital markets fee income and other and $23 million was included in mortgage income.

(3) Included in capitals markets fee income and other.

(4) Approximately $3 million was included in capital markets fee income and other and $29 million was included in mortgage income.

(5) Approximately $18 million was included in capital markets fee income and other and $69 million was included in mortgage income.

(6) Approximately $16 million was included in capital markets fee income and other and $89 million was included in mortgage income.


The following table presents the fair value adjustments related to non-recurring fair value measurements:

Three Months Ended September 30

Nine Months Ended September 30

2017

2016

2017

2016

(In millions)

Loans held for sale

$

(1

)

$

(3

)

$

(8

)

$

(25

)

Foreclosed property and other real estate

(6

)

(8

)

(21

)

(35

)


47


Table of Contents



The following tables present detailed information regarding assets and liabilities measured at fair value using significant unobservable inputs (Level 3) as of September 30, 2017 , and December 31, 2016 . The tables include the valuation techniques and the significant unobservable inputs utilized. The range of each significant unobservable input as well as the weighted-average within the range utilized at September 30, 2017 , and December 31, 2016 , are included. Following the tables are descriptions of the valuation techniques and the sensitivity of the techniques to changes in the significant unobservable inputs.

September 30, 2017

Level 3
Estimated Fair Value at
September 30, 2017

Valuation

Technique

Unobservable

Input(s)

Quantitative Range of

Unobservable Inputs and

(Weighted-Average)

(Dollars in millions)

Recurring fair value measurements:

Securities available for sale:

Residential non-agency MBS

$3

Discounted cash flow

Spread to LIBOR

5.4% - 69.9% (22.9%)

Weighted-average CPR (%)

3.8% - 29.3% (11.4%)

Probability of default

1.3%

Loss severity

88.0%

Corporate and other debt securities

$4

Market comparable

Evaluated quote on same issuer/comparable bond

99.7%

Residential mortgage servicing rights (1)

$335

Discounted cash flow

Weighted-average CPR (%)

8.1% - 26.5% (10.0%)

OAS (%)

8.1% - 15.0% (8.6%)

Derivative assets:

Interest rate options

$8

Interest rate lock commitments on the residential mortgage loans are valued using discounted cash flows

Weighted-average CPR (%)

8.1% - 26.5% (10.0%)

OAS (%)

8.1% - 15.0% (8.6%)

Pull-through

8.6% - 99.0% (79.9%)

$2

Interest rate lock commitments on the commercial mortgage loans are valued using discounted cash flows

Internal rate of return

12.0% - 17.0% (12.0%)

Nonrecurring fair value measurements:

Loans held for sale

$5

Commercial loans held for sale are valued based on multiple data points, including discount to appraised value of collateral based on recent market activity for sales of similar loans

Appraisal comparability adjustment (discount)

28.3% - 72.7% (54.7%)

Foreclosed property and other real estate

$5

 Property in foreclosure is valued by discount to appraised value of property based on recent market activity for sales of similar properties

 Appraisal comparability adjustment (discount)

25.0% - 35.0% (26.0%)

$1

Bank owned property valuations are based on comparable sales and local broker network estimates provided by a third-party real estate services provider

Estimated third-party valuations utilizing available sales data for similar transactions (discount)

3.4%

_________

(1) See Note 5 for additional disclosures related to assumptions used in the fair value calculation for residential mortgage servicing rights.


48


Table of Contents




December 31, 2016

Level 3
Estimated Fair Value at
December 31, 2016

Valuation

Technique

Unobservable

Input(s)

Quantitative Range of

Unobservable Inputs and

(Weighted-Average)

(Dollars in millions)

Recurring fair value measurements:

Securities available for sale:

Residential non-agency MBS

$4

Discounted cash flow

Spread to LIBOR

5.5% - 70.0% (23.0%)

Weighted-average CPR (%)

3.5% - 29.5% (12.2%)

Probability of default

3.1%

Loss severity

63.6%

Corporate and other debt securities

$3

Market comparable

Evaluated quote on same issuer/comparable bond

100.3%

Commercial mortgage loans held for sale

$33

Market comparable

Credit spreads for bonds in the commercial MBS

0.4% - 5.8% (1.3%)

Residential mortgage servicing rights (1)

$324

Discounted cash flow

Weighted-average CPR (%)

5.7% - 24.3% (7.6%)

OAS (%)

8.2% - 13.6% (10.5%)

Derivative assets:

Interest rate options

$8

Interest rate lock commitments on the residential mortgage loans are valued using discounted cash flows

Weighted-average CPR (%)

5.7% - 24.3% (7.6%)

OAS (%)

8.2% - 13.6% (10.5%)

Pull-through

14.9% - 99.4% (78.3%)

$3

Interest rate lock commitments on the commercial mortgage loans are valued using discounted cash flows

Internal rate of return

7.0% - 17.0% (12.0%)

Nonrecurring fair value measurements:

Loans held for sale

$7

Commercial loans held for sale are valued based on multiple data points, including discount to appraised value of collateral based on recent market activity for sales of similar loans

Appraisal comparability adjustment (discount)

26.2% - 69.4% (48.1%)

Foreclosed property and other real estate

$1

 Property in foreclosure is valued by discount to appraised value of property based on recent market activity for sales of similar properties

 Appraisal comparability adjustment (discount)

25.0% - 60.3% (37.0%)

$5

Bank owned property valuations are based on comparable sales and local broker network estimates provided by a third-party real estate services provider

Estimated third-party valuations utilizing available sales data for similar transactions (discount)

5.9% - 29.6% (15.8%)

_________

(1) See Note 7 to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2016 for additional disclosures related to assumptions used in the fair value calculation for residential mortgage servicing rights.



49


Table of Contents




RECURRING FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS

Securities available for sale

Residential non-agency MBS -The fair value reported in this category relates to retained interests in legacy securitizations. Significant unobservable inputs include the spread to LIBOR, CPR, probability of default, and loss severity in the event of default. Significant increases in spread to LIBOR, probability of default and loss given default in isolation would result in significantly lower fair value.

Corporate and other debt securities -Significant unobservable inputs include evaluated quotes on comparable bonds for the same issuer. Changes in the evaluated quote on comparable bonds would result in a directionally similar change in the fair value of the corporate and other debt securities.

Commercial mortgage loans held for sale

Commercial mortgage loans held for sale are valued based on traded market prices for comparable commercial mortgage-backed securitizations, into which the loans will be placed, adjusted for movements of interest rates and credit spreads. Significant unobservable inputs include credit spreads for bonds in commercial mortgage-backed securitizations. An increase in credit spreads would result in a decrease in fair value.

Residential mortgage servicing rights

The significant unobservable inputs used in the fair value measurement of residential MSRs are OAS and CPR. This valuation requires generating cash flow projections over multiple interest rate scenarios and discounting those cash flows at a risk-adjusted rate. Additionally, the impact of prepayments and changes in the OAS are based on a variety of underlying inputs such as servicing costs. Increases or decreases to the underlying cash flow inputs will have a corresponding impact on the value of the MSR asset. The net change in unrealized gains (losses) included in earnings related to MSRs held at period end are disclosed as the changes in valuation inputs or assumptions included in the MSR rollforward table in Note 5. See Note 5 for these amounts and additional disclosures related to assumptions used in the fair value calculation for MSRs.

Derivative assets

Residential mortgage interest rate options -These instruments are interest rate lock agreements made in the normal course of originating residential mortgage loans. Significant unobservable inputs in the fair value measurement are OAS, CPR, and pull-through. The impact of OAS and CPR inputs in the valuation of these derivative instruments are consistent with the MSR discussion above. Pull-through is an estimate of the number of interest rate lock commitments that will ultimately become funded loans. Increases or decreases in the pull-through assumption will have a corresponding impact on the value of these derivative assets.

Commercial mortgage interest rate options -These instruments are interest rate lock agreements made in the normal course of originating commercial mortgage loans. The significant unobservable input in the fair value measurement using discounted cash flows is the internal rate of return. The Company's internal rates of return are compared against those of market competitors, and should those rates change the Company's rates would also change in a similar direction and the fair value of the option would change inversely.

NON-RECURRING FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS

Loans held for sale

Commercial loans held for sale are valued based on multiple data points indicating the fair value for each loan. The primary data point for loans held for sale is a discount to the appraised value of the underlying collateral, which considers the return required by potential buyers of the loans. Management establishes this discount or comparability adjustment based on recent sales of loans secured by similar property types. As liquidity in the market increases or decreases, the comparability adjustment and the resulting asset valuation are impacted. These non-recurring fair value measurements are typically recorded on the date an updated appraisal is received.

Foreclosed property and other real estate

Property in foreclosure is valued based on offered quotes as available. If no sales contract is pending for a specific property, management establishes a comparability adjustment to the appraised value based on historical activity considering proceeds for properties sold versus the corresponding appraised value. Increases or decreases in realization for properties sold impact the comparability adjustment for similar assets remaining on the balance sheet. These non-recurring fair value measurements are typically recorded on the date an updated offered quote or appraisal is received.

Bank owned property available for sale is valued based on estimated third-party valuations utilizing recent sales data from similar transactions. A broker's opinion of value is obtained to further support the asset valuations. Updated valuations along with


50


Table of Contents



actual sales results of similar properties can further impact these values. These non-recurring fair value measurements are typically recorded on the date an updated third-party valuation is received.

FAIR VALUE OPTION

Regions has elected the fair value option for all FNMA and FHLMC eligible residential mortgage loans and certain commercial mortgage loans originated with the intent to sell. These elections allow for a more effective offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting. Regions has not elected the fair value option for other loans held for sale primarily because they are not economically hedged using derivative instruments. Fair values of residential mortgage loans held for sale are based on traded market prices of similar assets where available and/or discounted cash flows at market interest rates, adjusted for securitization activities that include servicing values and market conditions, and are recorded in loans held for sale in the consolidated balance sheets. Fair values of commercial mortgage loans held for sale are based on traded market prices for comparable commercial mortgage-backed securitizations, into which the loans will be placed, adjusted for movements of interest rates and credit spreads.

The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for mortgage loans held for sale measured at fair value:

September 30, 2017

December 31, 2016

Aggregate

Fair Value

Aggregate

Unpaid

Principal

Aggregate Fair

Value Less

Aggregate

Unpaid

Principal

Aggregate

Fair Value

Aggregate

Unpaid

Principal

Aggregate Fair

Value Less

Aggregate

Unpaid

Principal

(In millions)

Mortgage loans held for sale, at fair value

$

307


$

296


$

11


$

447


$

443


$

4


Interest income on mortgage loans held for sale is recognized based on contractual rates and is reflected in interest income on loans held for sale in the consolidated statements of income. The following table details net gains and losses resulting from changes in fair value of these loans, which were recorded in mortgage and capital markets income in the consolidated statements of income during the three and nine months ended September 30, 2017 and 2016 . These changes in fair value are mostly offset by economic hedging activities. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.

Net gains (losses) resulting from changes in fair value

Three Months Ended September 30

Nine Months Ended September 30

2017

2016

2017

2016

(In millions)

Mortgage loans held for sale, at fair value

$

(3

)

$

-


$

5


$

9



51


Table of Contents



The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company's financial instruments as of September 30, 2017 are as follows:

September 30, 2017

Carrying

Amount

Estimated

Fair

Value (1)

Level 1

Level 2

Level 3

(In millions)

Financial assets:

Cash and cash equivalents

$

3,761


$

3,761


$

3,761


$

-


$

-


Trading account securities

193


193


193


-


-


Securities held to maturity

1,703


1,720


-


1,720


-


Securities available for sale

23,659


23,659


511


23,141


7


Loans held for sale

388


388


-


388


-


Loans (excluding leases), net of unearned income and allowance for loan losses (2)(3)

77,351


74,002


-


-


74,002


Other earning assets (4)

891


891


-


891


-


Derivative assets

414


414


2


402


10


Financial liabilities:

Derivative liabilities

605


605


2


603


-


Deposits

97,591


97,630


-


97,630


-


Short-term borrowings

600


600


-


600


-


Long-term borrowings

6,102


6,447


-


4,878


1,569


Loan commitments and letters of credit

85


420


-


-


420


Indemnification obligation

23


22


-


-


22


_________

(1)

Estimated fair values are consistent with an exit price concept. The assumptions used to estimate the fair values are intended to approximate those that a market participant would use in a hypothetical orderly transaction. In estimating fair value, the Company maintains a corporate governance program to make adjustments for estimated changes in interest rates, market liquidity and credit spreads in the periods they are deemed to have occurred. Historically, the Company has utilized the results of a third-party vendor model to support its primary valuation approach for loans. The Company is currently finalizing the development of an internally-supported loan valuation model which management expects to implement by March 31, 2018.

(2)

The estimated fair value of portfolio loans assumes sale of the loans to a third-party financial investor. Accordingly, the value to the Company if the loans were held to maturity is not reflected in the fair value estimate. In the current whole loan market, financial investors are generally requiring a higher rate of return than the return inherent in loans if held to maturity. The fair value discount at September 30, 2017 was $3.3 billion or 4.3 percent.

(3)

Excluded from this table is the capital lease carrying amount of $964 million at September 30, 2017 .

(4)

Excluded from this table is the operating lease carrying amount of $ 530 million at September 30, 2017 .



52


Table of Contents



The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company's financial instruments as of December 31, 2016 are as follows:

December 31, 2016

Carrying

Amount

Estimated

Fair

Value (1)

Level 1

Level 2

Level 3

(In millions)

Financial assets:

Cash and cash equivalents

$

5,451


$

5,451


$

5,451


$

-


$

-


Trading account securities

124


124


124


-


-


Securities held to maturity

1,362


1,369


-


1,369


-


Securities available for sale

23,781


23,781


504


23,270


7


Loans held for sale

718


722


-


689


33


Loans (excluding leases), net of unearned income and allowance for loan losses (2)(3)

78,128


74,063


-


-


74,063


Other earning assets (4)

956


956


-


956


-


Derivative assets

579


579


2


566


11


Financial liabilities:

Derivative liabilities

887


887


1


886


-


Deposits

99,035


99,081


-


99,081


-


Long-term borrowings

7,763


8,008


-


5,408


2,600


Loan commitments and letters of credit

102


484


-


-


484


Indemnification obligation

28


26


-


-


26


_________

(1)

Estimated fair values are consistent with an exit price concept. The assumptions used to estimate the fair values are intended to approximate those that a market participant would use in a hypothetical orderly transaction. In estimating fair value, the Company maintains a corporate governance program to make adjustments for estimated changes in interest rates, market liquidity and credit spreads in the periods they are deemed to have occurred. Historically, the Company has utilized the results of a third-party vendor model to support its primary valuation approach for loans. The Company is currently finalizing the development of an internally-supported loan valuation model which management expects to implement by March 31, 2018.

(2)

The estimated fair value of portfolio loans assumes sale of the loans to a third-party financial investor. Accordingly, the value to the Company if the loans were held to maturity is not reflected in the fair value estimate. In the current whole loan market, financial investors are generally requiring a higher rate of return than the return inherent in loans if held to maturity. The fair value discount at December 31, 2016 was $4.1 billion or 5.2 percent.

(3)

Excluded from this table is the capital lease carrying amount of $876 million at December 31, 2016 .

(4)

Excluded from this table is the operating lease carrying amount of $688 million at December 31, 2016 .

NOTE 13. BUSINESS SEGMENT INFORMATION

Each of Regions' reportable segments is a strategic business unit that serves specific needs of Regions' customers based on the products and services provided. The segments are based on the manner in which management views the financial performance of the business. The Company has three reportable segments: Corporate Bank, Consumer Bank, and Wealth Management, with the remainder split between Discontinued Operations and Other. Additional information about the Company's reportable segments is included in Regions' Annual Report on Form 10-K for the year ended December 31, 2016.

The application and development of management reporting methodologies is a dynamic process and is subject to periodic enhancements. As these enhancements are made, financial results presented by each reportable segment may be periodically revised.

The following tables present financial information for each reportable segment for the period indicated.


53


Table of Contents



Three Months Ended September 30, 2017

Corporate Bank

Consumer

Bank

Wealth

Management

Other

Continuing

Operations

Discontinued

Operations

Consolidated

(In millions)

Net interest income and other financing income (loss)

$

362


$

542


$

50


$

(56

)

$

898


$

-


$

898


Provision (credit) for loan losses

66


75


5


(70

)

76


-


76


Non-interest income

112


275


110


18


515


-


515


Non-interest expense

214


511


117


44


886


1


887


Income (loss) before income taxes

194


231


38


(12

)

451


(1

)

450


Income tax expense (benefit)

74


88


15


(38

)

139


-


139


Net income (loss)

$

120


$

143


$

23


$

26


$

312


$

(1

)

$

311


Average assets

$

51,304


$

34,988


$

3,093


$

34,048


$

123,433


$

-


$

123,433


Three Months Ended September 30, 2016

Corporate Bank

Consumer Bank

Wealth

Management

Other

Continuing

Operations

Discontinued

Operations

Consolidated

(In millions)

Net interest income and other financing income (loss)

$

352


$

516


$

43


$

(76

)

$

835


$

-


$

835


Provision (credit) for loan losses

72


74


5


(122

)

29


-


29


Non-interest income

130


291


107


71


599


-


599


Non-interest expense

225


530


120


59


934


(2

)

932


Income (loss) before income taxes

185


203


25


58


471


2


473


Income tax expense (benefit)

70


77


10


(5

)

152


1


153


Net income (loss)

$

115


$

126


$

15


$

63


$

319


$

1


$

320


Average assets

$

53,798


$

34,843


$

3,233


$

33,955


$

125,829


$

-


$

125,829


Nine Months Ended September 30, 2017

Corporate Bank

Consumer Bank

Wealth

Management

Other

Continuing

Operations

Discontinued

Operations

Consolidated

(In millions)

Net interest income and other financing income (loss)

$

1,062


$

1,593


$

143


$

(159

)

$

2,639


$

-


$

2,639


Provision (credit) for loan losses

199


220


16


(241

)

194


-


194


Non-interest income

343


836


331


40


1,550


-


1,550


Non-interest expense

649


1,541


358


124


2,672


(9

)

2,663


Income (loss) before income taxes

557


668


100


(2

)

1,323


9


1,332


Income tax expense (benefit)

212


254


38


(104

)

400


4


404


Net income (loss)

$

345


$

414


$

62


$

102


$

923


$

5


$

928


Average assets

$

51,896


$

34,982


$

3,130


$

34,016


$

124,024


$

-


$

124,024



54


Table of Contents



Nine Months Ended September 30, 2016

Corporate Bank

Consumer Bank

Wealth

Management

Other

Continuing

Operations

Discontinued

Operations

Consolidated

(In millions)

Net interest income and other financing income (loss)

$

1,088


$

1,531


$

131


$

(205

)

$

2,545


$

-


$

2,545


Provision (credit) for loan losses

216


215


17


(234

)

214


-


214


Non-interest income

380


831


321


99


1,631


-


1,631


Non-interest expense

662


1,544


351


161


2,718


(7

)

2,711


Income (loss) before income taxes

590


603


84


(33

)

1,244


7


1,251


Income tax expense (benefit)

224


229


32


(105

)

380


3


383


Net income (loss)

$

366


$

374


$

52


$

72


$

864


$

4


$

868


Average assets

$

54,420


$

34,373


$

3,235


$

33,706


$

125,734


$

-


$

125,734


NOTE 14. COMMITMENTS, CONTINGENCIES AND GUARANTEES

COMMERCIAL COMMITMENTS

Regions issues off-balance sheet financial instruments in connection with lending activities. The credit risk associated with these instruments is essentially the same as that involved in extending loans to customers and is subject to Regions' normal credit approval policies and procedures. Regions measures inherent risk associated with these instruments by recording a reserve for unfunded commitments based on an assessment of the likelihood that the guarantee will be funded and the creditworthiness of the customer or counterparty. Collateral is obtained based on management's assessment of the creditworthiness of the customer.

Credit risk associated with these instruments is represented by the contractual amounts indicated in the following table:

September 30, 2017

December 31, 2016

(In millions)

Unused commitments to extend credit

$

45,378


$

44,408


Standby letters of credit

1,356


1,425


Commercial letters of credit

63


46


Liabilities associated with standby letters of credit

25


34


Assets associated with standby letters of credit

26


34


Reserve for unfunded credit commitments

59


69


Unused commitments to extend credit -To accommodate the financial needs of its customers, Regions makes commitments under various terms to lend funds to consumers, businesses and other entities. These commitments include (among others) credit card and other 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 -Standby letters of credit are also issued to customers, which commit Regions to make payments on behalf of customers if certain specified future events occur. Regions has recourse against the customer for any amount required to be paid to a third party under a standby letter of credit. Historically, a large percentage of standby letters of credit expire without being funded. The contractual amount of standby letters of credit represents the maximum potential amount of future payments Regions could be required to make and represents Regions' maximum credit risk.

Commercial letters of credit -Commercial letters of credit are issued to facilitate foreign or domestic trade transactions for customers. As a general rule, drafts will be drawn when the goods underlying the transaction are in transit.

LEGAL CONTINGENCIES

Regions and its subsidiaries are subject to loss contingencies related to litigation, claims, investigations and legal and administrative cases and proceedings arising in the ordinary course of business. Regions evaluates these contingencies based on information currently available, including advice of counsel. Regions establishes accruals for those matters when a loss contingency is considered probable and the related amount is reasonably estimable. Any accruals are periodically reviewed and may be adjusted


55


Table of Contents



as circumstances change. Some of Regions' exposure with respect to loss contingencies may be offset by applicable insurance coverage. In determining the amounts of any accruals or estimates of possible loss contingencies however, Regions does not take into account the availability of insurance coverage. To the extent that Regions has an insurance recovery, the proceeds are recorded in the period the recovery is received.

In addition, as previously discussed, Regions has agreed to indemnify Raymond James for all legal matters resulting from pre-closing activities in conjunction with the sale of Morgan Keegan and recorded an indemnification obligation at fair value in the second quarter of 2012. The indemnification obligation had a carrying amount of approximately $23 million and an estimated fair value of approximately $22 million as of September 30, 2017 (see Note 12).

When it is practicable, Regions estimates possible loss contingencies, whether or not there is an accrued probable loss. When Regions is able to estimate such possible losses, and when it is reasonably possible Regions could incur losses in excess of amounts accrued, Regions discloses the aggregate estimation of such possible losses. Regions currently estimates that any such losses in excess of amounts accrued, including legal contingencies that are subject to the indemnification agreement with Raymond James, would be immaterial to Regions' financial statements as a whole. However, as available information changes, the matters for which Regions is able to estimate, as well as the estimates themselves will be adjusted accordingly.

Assessments of litigation and claims exposure are difficult because they involve inherently unpredictable factors including, but not limited to, the following: whether the proceeding is in the early stages; whether damages are unspecified, unsupported, or uncertain; whether there is a potential for punitive or other pecuniary damages; whether the matter involves legal uncertainties, including novel issues of law; whether the matter involves multiple parties and/or jurisdictions; whether discovery has begun or is not complete; whether meaningful settlement discussions have commenced; and whether the lawsuit involves class allegations. Assessments of class action litigation, which is generally more complex than other types of litigation, are particularly difficult, especially in the early stages of the proceeding when it is not known whether a class will be certified or how a potential class, if certified, will be defined. As a result, Regions may be unable to estimate reasonably possible losses with respect to some of the matters disclosed below, and the aggregated estimated amount discussed above may not include an estimate for every matter disclosed below.

In July 2006, Morgan Keegan and a former Morgan Keegan analyst were named as defendants in a lawsuit filed by a Canadian insurance and financial services company and its American subsidiary in the Circuit Court of Morris County, New Jersey. Plaintiffs alleged civil claims under the RICO Act and claims for commercial disparagement, tortious interference with contractual relationships, tortious interference with prospective economic advantage and common law conspiracy. Plaintiffs allege that defendants engaged in a multi-year conspiracy to publish and disseminate false and defamatory information about plaintiffs to improperly drive down plaintiffs' stock price, so that others could profit from short positions. Plaintiffs allege that defendants' actions damaged their reputations and harmed their business relationships. Plaintiffs seek monetary damages for a number of categories of alleged damages, including lost insurance business, lost financings and increased financing costs, increased audit fees and directors and officers insurance premiums and lost acquisitions. In September 2012, the trial court dismissed the case with prejudice. Plaintiffs filed an appeal, and in April 2017, the appellate court affirmed the dismissal of the plaintiffs' claims under the RICO Act. The appellate court reversed the trial court's dismissal of the commercial disparagement and tortious interference claims and remanded those claims but limited the plaintiffs' damages. Plaintiffs filed an appeal with the Supreme Court of New Jersey in May 2017, and in October 2017, that court denied the plaintiffs' petition. This matter is subject to the indemnification agreement with Raymond James.

Regions is involved in formal and informal information-gathering requests, investigations, reviews, examinations and proceedings by various governmental regulatory agencies, law enforcement authorities and self-regulatory bodies regarding Regions' business, Regions' business practices and policies, and the conduct of persons with whom Regions does business. Additional inquiries will arise from time to time. In connection with those inquiries, Regions receives document requests, subpoenas and other requests for information. The inquiries, including those described below, could develop into administrative, civil or criminal proceedings or enforcement actions that could result in consequences that have a material effect on Regions' consolidated financial position, results of operations or cash flows as a whole. Such consequences could include adverse judgments, findings, settlements, penalties, fines, orders, injunctions, restitution, or alterations in our business practices, and could result in additional expenses and collateral costs, including reputational damage.    

Regions is cooperating with an investigation by the United States Attorney's Office for the Eastern District of New York pertaining to Regions' banking relationship with a former customer and accounts maintained by related entities and individuals affiliated with the customer who may be involved in criminal activity, as well as related aspects of Regions' Anti-Money Laundering and Bank Secrecy Act compliance program.

While the final outcome of litigation and claims exposures or of any inquiries is inherently unpredictable, management is currently of the opinion that the outcome of pending and threatened litigation and inquiries will not have a material effect on Regions' business, consolidated financial position, results of operations or cash flows as a whole. However, in the event of unexpected future developments, it is reasonably possible that an adverse outcome in any of the matters discussed above could be material to Regions' business, consolidated financial position, results of operations or cash flows for any particular reporting period of occurrence.


56


Table of Contents



GUARANTEES

INDEMNIFICATION OBLIGATION

As discussed in Note 2, on April 2, 2012 ("Closing Date"), Regions closed the sale of Morgan Keegan and related affiliates to Raymond James. In connection with the sale, Regions agreed to indemnify Raymond James for all legal matters related to pre-closing activities, including matters filed subsequent to the Closing Date that relate to actions that occurred prior to closing. Losses under the indemnification include legal and other expenses, such as costs for judgments, settlements and awards associated with the defense and resolution of the indemnified matters. The maximum potential amount of future payments that Regions could be required to make under the indemnification is indeterminable due to the indefinite term of some of the obligations. As of September 30, 2017 , the carrying value of the indemnification obligation was approximately $23 million .

FANNIE MAE DUS LOSS SHARE GUARANTEE

Regions is a Fannie Mae DUS lender. The Fannie Mae DUS program provides liquidity to the multi-family housing market. Regions services loans sold to Fannie Mae and is required to provide a loss share guarantee equal to one-third of the majority of its DUS servicing portfolio. At September 30, 2017 and December 31, 2016 , the Company's DUS servicing portfolio totaled approximately $2.6 billion and $1.8 billion , respectively. Regions' maximum quantifiable contingent liability related to its loss share guarantee was approximately $834 million and $559 million at September 30, 2017 and December 31, 2016 , respectively. The Company would be liable for this amount only if all of the loans it services for Fannie Mae, for which the Company retains some risk of loss, were to default and all of the collateral underlying these loans was determined to be without value at the time of settlement. Therefore, the maximum quantifiable contingent liability is not representative of the actual loss the Company would be expected to incur. The estimated fair value of the associated loss share guarantee recorded as a liability on the Company's consolidated balance sheets was approximately $4 million at both September 30, 2017 and December 31, 2016 . Refer to Note 1 "Summary of Significant Accounting Policies" to the consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2016, for additional information.


57


Table of Contents



NOTE 15. RECENT ACCOUNTING PRONOUNCEMENTS    

Standard

Description

Required Date of Adoption

Effect on Regions' financial statements or other significant matters

Standards Adopted (or partially adopted) in 2017

ASU 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships

The ASU amends Topic 815, Derivatives and Hedging , and addresses how a change in the counterparty to a derivative contract affects a hedging relationship. The ASU may be adopted either prospectively or on a modified retrospective basis.

January 1, 2017

Adopted on a prospective basis January 1, 2017.
No material impact.

ASU 2016-06, Contingent Put and Call Options in Debt Instruments

The ASU amends Topic 815, Derivatives and Hedging , and clarifies that entities should solely use the four-step decision sequence described in current derivatives accounting guidance. This sequence should be used when assessing whether contingent exercise provisions associated with a put or call option are clearly and closely related to their debt hosts. The ASU should be adopted on a modified retrospective basis.

January 1, 2017

Adopted January 1, 2017.
No material impact.

ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting

The ASU amends Topic 323, Investments-Equity Method and Joint Ventures , and eliminates the requirement for an investor to retrospectively apply the equity method to investments when its ownership interest (or degree of influence in an investee) increases to a level that triggers the equity method of accounting. This ASU should be adopted prospectively.

January 1, 2017

Adopted on a prospective basis January 1, 2017.
No material impact.

ASU 2016-09, Improvements to Employee Share-Based Payment Accounting

This ASU amends Topic 718, Stock Compensation , and intends to improve and simplify accounting for employee share-based payments. The amendments update the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The transition method of accounting application (i.e. prospective, retrospective or modified retrospective application) differs by amendment and is defined in the guidance.

January 1, 2017

Adopted on January 1, 2017.
There was no material impact at adoption related to the reclassification of excess tax benefits previously recognized in additional paid-in capital to income tax expense (prospective basis), cash flow statement reclassification related to excess tax benefits (prospective basis) or cash flow statement reclassification related to taxes paid for employee withholdings on share-based awards (retrospective basis).


Additionally, the Company has no previously unrecognized excess tax benefits; therefore, there was no impact.


The Company elected to retain its existing accounting policy election to estimate award forfeitures.

ASU 2016-17, Interest Held through Related Parties That Are Under Common Control



This ASU amends Topic 810, Consolidation , and prescribes that when determining whether a single decision maker is the primary beneficiary of a variable interest entity (VIE), a single decision maker will no longer be required to consider indirect interests held through related parties that are under common control with the single decision maker to be the equivalent of direct interests in their entirety.

January 1, 2017



Adopted on January 1, 2017.


No material impact.



58


Table of Contents



Standard

Description

Required Date of Adoption

Effect on Regions' financial statements or other significant matters

Standards Not Yet Adopted

ASU 2014-09, Revenue from Contracts with Customers
ASU 2015-14, Deferral of the Effective Date
ASU 2016-08, Principal versus Agent Considerations
ASU 2016-10, Identifying Performance Obligations and Licensing
ASU 2016-12, Narrow-Scope Improvements and Practical Expedience
ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers

This ASU supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition , and most industry-specific guidance throughout the Industry topics of the Codification. The core principle of the ASU is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU may be adopted either retrospectively or on a modified retrospective basis.

January 1, 2018

Regions has established a revenue recognition standard implementation team, led by the Corporate Controller's group with assistance from the various lines of business and finance management to evaluate the potential impact of adopting this guidance. The implementation team has completed the scoping and determined that approximately $1.7 billion of 2016 non-interest income would be within the scope of the new revenue recognition standard, when adopted. Non-interest income streams that are out of scope of the new standard include mortgage income, securities gains (losses), bank-owned life insurance and certain other components within non-interest income. The implementation team has also completed its reviews of contracts related to in-scope non-interest income. Based on the completed contract reviews, any potential changes in revenue recognition for those contracts are not expected to result in a material impact to Regions upon adoption. The implementation team is in the process of developing additional quantitative and qualitative disclosures that will be required upon the adoption of the new revenue recognition standard.


ASU 2017-01, Clarifying the Definition of a Business

This ASU amends Topic 805,  Business Combinations , and provides additional accounting guidance to better determine when a set of assets and activities is a business. The ASU should be adopted prospectively.

January 1, 2018

Early adoption is permitted for certain transactions as described in the guidance.

Regions is evaluating the impact upon adoption; however, the impact is not expected to be material.

ASU 2017-04, Simplifying the Test for Goodwill Impairment

This ASU amends Topic 350, Intangibles-Goodwill and Other , and eliminates Step 2 from the goodwill impairment test.

January 1, 2020
Early adoption is permitted.

Regions believes the adoption of this guidance will not have a material impact. Regions does not plan to early adopt.

2017-05, Other Income- Gains and Losses from the Derecognition of Nonfinancial Assets

This ASU amends Subtopic 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets , to clarify the scope and to add guidance for partial sales of nonfinancial assets. The new standard adds a definition for in-substance nonfinancial assets and clarifies that nonfinancial assets within a legal entity are within the scope of ASC 606. This ASU should be adopted in conjunction with ASU 2014-09 using a retrospective or modified retrospective approach.

January 1, 2018

Regions is evaluating the impact upon adoption; however, the impact is not expected to be material.

2017-07, Compensation- Retirement Benefits

This ASU amends Topic 715, Retirement Benefits , and provides more prescriptive guidance around the presentation of net period pension and postretirement benefit cost in the income statement. The amendment requires that the service cost component be disaggregated from other components of net periodic benefit cost in the income statement.

January 1, 2018


Early adoption is permitted.

Regions is evaluating the impact upon adoption; however, the impact is not expected to be material. Regions does not plan to early adopt.

2017-08, Receivables- Nonrefundable Fees and Other Costs

This ASU amends Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs , to shorten the amortization period for certain purchased callable debt securities held at a premium to the earliest call date. Current guidance generally requires entities to amortize a premium as a yield adjustment over the contractual life of the instrument. Shortening the amortization period is generally expected to more closely align the recognition of interest income with expectations incorporated into the pricing of the underlying securities. The amendments do not affect the accounting treatment of discounts. This ASU should be adopted on a modified retrospective basis.

January 1, 2019
Early adoption permitted, including in an interim period.

Regions is evaluating the impact upon adoption; however, the impact is not expected to be material.

ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments



This ASU amends Topic 230,  Statement of Cash Flows , and provides clarification with respect to classification within the statement on cash flows where current guidance is unclear or silent. The ASU should be adopted retrospectively.


January 1, 2018


Early adoption is permitted.



Regions is evaluating the impact upon adoption; however, the impact is not expected to be material. Regions does not plan to early adopt.



59


Table of Contents



Standard

Description

Required Date of Adoption

Effect on Regions' financial statements or other significant matters

Standards Not Yet Adopted (continued)

ASU 2016-02, Leases

This ASU creates ASU Topic 842, Leases , and supersedes Topic 840, Leases . The new guidance requires lessees to record a right-of-use asset and a corresponding liability equal to the present value of future rental payments on their balance sheets for all leases with a term greater than one year. There are not significant changes to lessor accounting; however, there were certain improvements made to align lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers . This guidance expands both quantitative and qualitative required disclosures. This ASU should be adopted on a modified retrospective basis.

January 1, 2019


Early adoption is permitted.

This ASU supersedes the lease accounting requirements in Topic 840, Leases . Regions has established a leasing standard implementation team comprised of the Corporate Controller's group, Corporate Real Estate and other business and finance management to plan and execute the adoption of the new leasing standard. The implementation team has substantially completed the identification of Regions' leases that will need to be measured and reported as a right-of-use asset and corresponding liability for future rental payments. The implementation team is currently working with a lease administration vendor to set up and test the accounting for the lease contracts on the lease administration system. Based on the December 31, 2016 lease portfolio, Regions has approximately $761 million of future lease obligations that would be measured and recognized when the new guidance is adopted (refer to Note 24 to the 2016 consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2016). While this amount represents a large majority of the leases that are within the scope of the new leasing standard, the implementation team will continue reviewing service contracts up through the effective date and may identify additional leases embedded in those arrangements that will be within the scope of the new standard. Between now and January 1, 2019, Regions will likely have changes to the lease portfolio as the Company continues to evaluate and execute branch and occupancy optimization initiatives. In addition to final determination of the lease portfolio at the effective date, the initial measurement of the right-of-use asset and the corresponding liability will be affected by certain key assumptions such as expectations of renewals or extensions and the interest rate to be used to discount the future lease obligations. Up through the date of adoption, the evaluation of the impact of the standard will be adjusted based on new leases that are executed, leases that are terminated prior to the effective date, and any leases with changes to key assumptions or expectations such as renewals and extensions, and discount rates. While there will be some changes to income statement classification, the implementation team does not expect the adoption of the standard to have a material impact to pre-tax income. Regions does not anticipate early adoption of the new standard.

ASU 2016-13, Measurement of Credit Losses on Financial Instruments

This ASU amends Topic 326, Financial Instruments- Credit Losses  to replace the current incurred loss accounting model with a current expected credit loss approach (CECL) for financial instruments measured at amortized cost and other commitments to extend credit. The amendments require entities to consider all available relevant information when estimating current expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts. The resulting allowance for credit losses is to reflect the portion of the amortized cost basis that the entity does not expect to collect. The amendments also eliminate the current accounting model for purchased credit impaired loans and debt securities. Additional quantitative and qualitative disclosures are required upon adoption.
While the CECL model does not apply to AFS debt securities, the ASU does require entities to record an allowance when recognizing credit losses for AFS securities, rather than reduce the amortized cost of the securities by direct write-offs.
The ASU should be adopted on a modified retrospective basis. Entities that have loans accounted for under ASC 310-30 at the time of adoption should prospectively apply the guidance in this amendment for purchase credit deteriorated assets.

January 1, 2020


Early adoption permitted beginning January 1, 2019.

Regions has formed a cross-functional implementation team co-led by Finance and Risk Management. The implementation team has developed a project plan and is keeping current with the broader industry's perspective and insights, delivering educational and awareness sessions across the Company, identifying and researching key decision points, and evaluating the financial and operational implications of adoption.
Regions expects the guidance will result in an increase in the allowance for credit losses given the change from accounting for losses inherent in the loan portfolio to accounting for losses over the remaining expected life of the portfolio. The guidance will also result in the establishment of an allowance for credit loss on held to maturity debt securities. The amount of the increase in these allowances will be impacted by the portfolio composition and quality at the adoption date as well as economic conditions and forecasts at that time.

ASU 2017-09, Stock Compensation: Scope of Modification Accounting


This ASU amends Topic 718, Compensation- Stock Compensation , and clarifies when modification accounting should be applied to changes in terms or conditions of share-based payment awards. The amendments narrow the scope of modification accounting by clarifying that modification accounting should be applied to awards if the change affects the fair value, vesting conditions, or classification of the award. The amendments do not impact current disclosure requirements for modifications, regardless of whether modification accounting is required under the new guidance.


January 1, 2018



Regions is evaluating the impact upon adoption; however, the impact is not expected to be material.



60


Table of Contents



Standard

Description

Required Date of Adoption

Effect on Regions' financial statements or other significant matters

Standards Not Yet Adopted (continued)

ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities


This ASU amends ASC Topic 825,  Financial Instruments-Overall , and addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The main provisions require investments in equity securities to be measured at fair value with changes in the fair value recognized through net income (except for those accounted for under the equity method of accounting or those that result in consolidation of the investee) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes and requires an entity to present separately in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value. Except for disclosure requirements that will be adopted prospectively, the ASU must be adopted on a modified retrospective basis.


January 1, 2018


Early adoption is permitted for certain provisions as described in the guidance.


Regions is evaluating the impact upon adoption; however, the impact is not expected to be material. Regions does not plan to early adopt.


ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities


This ASU amends ASC 815, Derivatives and Hedging  to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity's risk management activities by better aligning the entity's financial reporting for hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers.


January 1, 2019.


Early adoption is permitted.


Regions is evaluating the impact upon adoption; however, the impact is not expected to be material. Regions is considering early adoption.






61


Table of Contents



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The following discussion and analysis is part of Regions Financial Corporation's ("Regions" or the "Company") Quarterly Report on Form 10-Q to the SEC and updates Regions' Annual Report on Form 10-K for the year ended December 31, 2016 , 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 other 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 and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of September 30, 2017 compared to December 31, 2016 .

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 pages 5 through 7 for additional information regarding forward-looking statements.

CORPORATE PROFILE

Regions is a financial holding company headquartered in Birmingham, Alabama, that 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 asset management, wealth management, securities brokerage, insurance brokerage, trust services, merger and acquisition advisory services and other specialty financing.

Regions conducts its banking operations through Regions Bank, an Alabama state-chartered commercial bank that is a member of the Federal Reserve System. At September 30, 2017 , Regions operated 1,489 total branch outlets across the South, Midwest and Texas. Regions operates under three reportable business segments: Corporate Bank, Consumer Bank, and Wealth Management with the remainder split between Discontinued Operations and Other. See Note 13 "Business Segment Information" to the consolidated financial statements for more information regarding Regions' segment reporting structure. Regions also provides full-line insurance brokerage services primarily through Regions Insurance, Inc., which is included in the Wealth Management segment.

On January 11, 2012, Regions entered into a stock purchase agreement to sell Morgan Keegan and related affiliates to Raymond James. The sale closed on April 2, 2012. Regions Investment Management, Inc. and Regions Trust were not included in the sale; they are included in the Wealth Management segment. See Note 2 "Discontinued Operations" to the consolidated financial statements for further discussion.

Regions' profitability, like that of many other financial institutions, is dependent on its ability to generate revenue from net interest income and other financing income as well as non-interest income sources. Net interest income and other financing income is primarily 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 and other financing 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. Net interest income and other financing income also includes rental income and depreciation expense associated with operating leases for which Regions is the lessor. Non-interest income includes fees from service charges on deposit accounts, card and ATM fees, mortgage servicing and secondary marketing, investment management and trust activities, insurance activities, capital markets 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, professional, legal and regulatory expenses, FDIC insurance assessments, and other operating expenses, as well as income taxes.

Economic conditions, competition, new legislation and related rules impacting regulation of the financial services industry and the monetary and fiscal policies of the Federal government significantly affect most, if not all, 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.


62


Table of Contents



THIRD QUARTER OVERVIEW

Regions reported net income available to common shareholders of $295 million , or $0.25 per diluted share, in the third quarter of 2017 compared to $304 million , or $0.24 per diluted share, in the third quarter of 2016 . Net income available to common shareholders from continuing operations was $296 million , or $0.25 per diluted share, compared to $303 million , or $0.24 per diluted share, over these same periods. The primary drivers of the decreases in results from the prior year periods were increased provision for loan losses and lower non-interest income, partially offset by increased net interest income and other financing income and lower non-interest expense. Third quarter 2017 results were negatively impacted by recent hurricanes across the footprint as detailed below.

For the third quarter of 2017 , net interest income and other financing income (taxable-equivalent basis) from continuing operations totaled $921 million , up $65 million compared to the third quarter of 2016 . The net interest margin (taxable-equivalent basis) was 3.36 percent for the third quarter of 2017 and 3.06 percent in the third quarter of 2016 . Net interest margin (taxable-equivalent basis) benefited from higher market interest rates, prudent deposit cost management, favorable credit-related interest recoveries, and the impact of balance sheet management strategies, partially offset by lower average loan balances.

The provision for loan losses totaled $76 million in the third quarter of 2017 compared to $29 million during the third quarter of 2016 . Estimated hurricane-related loan losses of $40 million are included in the third quarter 2017 provision. Volatility in certain credit metrics is to be expected, especially related to large dollar commercial credits, fluctuating commodity prices and further analysis and revisions to hurricane-related exposures.

Net charge-offs totaled $76 million , or an annualized 0.38 percent of average loans, in the third quarter of 2017 , compared to $54 million, or an annualized 0.26 percent for the third quarter of 2016 . See Note 4 "Loans and the Allowance for Credit Losses" to the consolidated financial statements for additional information.

The allowance for loan losses at September 30, 2017 , was 1.31 percent of total loans, net of unearned income, compared to 1.36 percent at December 31, 2016 . Total non-performing loans decreased to 0.96 percent of total loans, net of unearned income, at September 30, 2017 , compared to 1.24 percent at December 31, 2016 .

Non-interest income from continuing operations was $515 million for the third quarter of 2017 compared to $599 million for the third quarter of 2016 . The decrease was primarily driven by declines in mortgage income, capital markets fee income, and $10 million of operating lease impairment charges recognized in the third quarter of 2017. In addition, insurance proceeds of $47 million were recognized during the third quarter of 2016. These decreases were offset by an increase in service charges. See Table 20 "Non-Interest Income from Continuing Operations" for more detail.

Total non-interest expense from continuing operations was $886 million in the third quarter of 2017 , a $48 million decrease from the third quarter of 2016 . The decrease was primarily driven by lower salaries and employee benefits, professional fees, and a decline in the provision for unfunded credit losses. In addition, the third quarter of 2016 included a $14 million loss on early extinguishment of debt. Offsetting these decreases were increases in occupancy and other real estate owned expenses related to branch damage, hurricane preparedness, and other storm-related charges. See Table 21 "Non-Interest Expense from Continuing Operations" for more detail.

Income tax expense from continuing operations for the three months ended September 30, 2017 was $139 million compared to income tax expense of $152 million for the same period in 2016 . See "Income Taxes" toward the end of the Management's Discussion and Analysis section of this report for more detail.

A discussion of activity within discontinued operations is included at the end of the Management's Discussion and Analysis section of this report.

2017 Expectations

Management expectations for 2017 are noted below:

Excluding the impact of a terminated third-party arrangement within the indirect-vehicle loan portfolio, full year average loans are expected to be down slightly compared to the prior year

Full-year average deposits are expected to be relatively stable compared to the prior year

Net interest income and other financing income up 3 to 5 percent

Adjusted non-interest income (non-GAAP) is expected to be relatively stable compared to the prior year

Adjusted non-interest expenses (non-GAAP) flat to up 1 percent

Full-year adjusted efficiency ratio (non-GAAP) of approximately 62 percent

Positive adjusted operating leverage (non-GAAP) of approximately 2 percent

Full-year effective income tax rate expected in the 30 percent to 31 percent range


63


Table of Contents



Full-year net charge-offs of 35 to 50 basis points

The reconciliation with respect to these forward-looking non-GAAP measures is expected to be consistent with the actual non-GAAP reconciliations within Management's Discussion and Analysis of this Form 10-Q. For more information related to the Company's 2017 expectations, including additional guidance within the ranges disclosed above, refer to the related sub-sections discussed in more detail within Management's Discussion and Analysis of this Form 10-Q.

BALANCE SHEET ANALYSIS

CASH AND CASH EQUIVALENTS

Cash and cash equivalents decreased approximately $1.7 billion from year-end 2016 to September 30, 2017 . This decrease was due primarily to a decrease in interest-bearing deposits in other banks as a result of normal day-to-day operating variations.

SECURITIES

The following table details the carrying values of securities, including both available for sale and held to maturity:

Table 1-Securities

September 30, 2017

December 31, 2016

(In millions)

U.S. Treasury securities

$

308


$

303


Federal agency securities

24


35


Obligations of states and political subdivisions

-


1


Mortgage-backed securities:

Residential agency

18,538


18,571


Residential non-agency

3


4


Commercial agency

4,275


3,625


Commercial non-agency

809


1,129


Corporate and other debt securities

1,202


1,274


Equity securities

203


201


$

25,362


$

25,143


Regions maintains a highly rated securities portfolio consisting primarily of agency mortgage-backed securities. Total securities at September 30, 2017 increased slightly from year-end 2016 . See Note 3 "Securities" to the consolidated financial statements for additional information.

Securities available for sale, which constitute the majority 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 the "Market Risk-Interest Rate Risk" and "Liquidity Risk" sections for more information.

LOANS HELD FOR SALE

Loans held for sale totaled $388 million at September 30, 2017 , consisted of $307 million of residential real estate mortgage loans, $60 million of commercial mortgage loans, $15 million of other loans, and $6 million of non-performing loans. At December 31, 2016 , loans held for sale totaled $718 million , consisting of $505 million of residential real estate mortgage loans, $200 million of commercial mortgage loans, and $13 million of non-performing loans. The level of residential real estate mortgage loans held for sale that are part of the Company's mortgage originations to be sold in the secondary market fluctuates depending on the timing of origination and sale to third parties. The level of commercial mortgage loans held for sale also fluctuates depending on timing.


64


Table of Contents



LOANS

Loans, net of unearned income, represented approximately 73 percent of Regions' interest-earning assets at September 30, 2017 . The following table presents the distribution of Regions' loan portfolio by portfolio segment and class, net of unearned income:

Table 2-Loan Portfolio

September 30, 2017

December 31, 2016

(In millions, net of unearned income)

Commercial and industrial

$

35,443


$

35,012


Commercial real estate mortgage-owner-occupied

6,284


6,867


Commercial real estate construction-owner-occupied

335


334


Total commercial

42,062


42,213


Commercial investor real estate mortgage

3,999


4,087


Commercial investor real estate construction

1,936


2,387


Total investor real estate

5,935


6,474


Residential first mortgage

13,903


13,440


Home equity

10,276


10,687


Indirect-vehicles

3,489


4,040


Indirect-other consumer

1,318


920


Consumer credit card

1,214


1,196


Other consumer

1,159


1,125


Total consumer

31,359


31,408


$

79,356


$

80,095


PORTFOLIO CHARACTERISTICS

The following sections describe the composition of the portfolio segments and classes disclosed in Table 2, explain changes in balances from 2016 year-end, and highlight the related risk characteristics. Regions believes that its loan portfolio is well diversified by product, client, and geography throughout its footprint. However, the loan portfolio may be exposed to certain concentrations of credit risk which exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, certain loan products, or certain regions of the country. See Note 4 "Loans and the Allowance for Credit Losses" to the consolidated financial statements for additional discussion.

Commercial

The commercial portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases and other expansion projects. Commercial and industrial loans increased $431 million since year-end 2016 driven primarily by new relationships and expansion of existing relationships in government and institutional banking, asset-based lending, financial services, and real estate investment trust portfolios, which more than offset declines in energy balances as well as the impact of large corporate customers utilizing the fixed income market to pay down and pay off bank debt. Commercial also includes owner-occupied commercial real estate mortgage loans to operating businesses, which are loans for long-term financing of land and buildings, and are repaid by cash flows generated by business operations. These loans declined $583 million from year-end 2016 as a result of continued softness in demand, increasing competition for middle market and small business loans. Additionally, a modest increase in mergers and acquisitions was observed in the middle market space further contributing to elevated loan payoffs.

Owner-occupied commercial real estate construction loans are made to commercial businesses for the development of land or construction of a building where the repayment is derived from revenues generated from the business of the borrower.

Over half of the Company's total loans are included in the commercial portfolio segment. These balances are spread across numerous industries, as noted in the table below. The Company manages the related risks to this portfolio by setting certain lending limits for each significant industry.

The following tables provide detail of Regions' commercial lending balances in selected industries.



65


Table of Contents



Table 3-Selected Industry Exposure

September 30, 2017

Loans

Unfunded Commitments

Total Exposure

(In millions)

Administrative, support, waste and repair

$

940


$

535


$

1,475


Agriculture

606


227


833


Educational services

2,259


346


2,605


Energy

1,902


1,922


3,824


Financial services

3,537


3,223


6,760


Government and public sector

2,735


357


3,092


Healthcare

4,073


1,584


5,657


Information

1,046


883


1,929


Manufacturing (1)

4,188


3,715


7,903


Professional, scientific and technical services (1)

1,696


1,236


2,932


Real estate (1)

6,224


5,531


11,755


Religious, leisure, personal and non-profit services

1,908


627


2,535


Restaurant, accommodation and lodging

2,221


540


2,761


Retail trade

2,555


2,202


4,757


Transportation and warehousing (1)

1,829


787


2,616


Utilities

1,214


2,135


3,349


Wholesale goods (1)

3,076


2,271


5,347


Other (2)

53


2,263


2,316


Total commercial

$

42,062


$

30,384


$

72,446


December 31, 2016 (3)

Loans

Unfunded Commitments

Total Exposure

(In millions)

Administrative, support, waste and repair

$

899


$

481


$

1,380


Agriculture

612


241


853


Educational services

1,929


307


2,236


Energy

2,097


1,968


4,065


Financial services (4)

3,473


3,228


6,701


Government and public sector

2,485


246


2,731


Healthcare

4,178


1,483


5,661


Information

1,111


817


1,928


Manufacturing (4)

4,101


4,024


8,125


Professional, scientific and technical services (4)

1,701


1,052


2,753


Real estate (4)

6,513


5,445


11,958


Religious, leisure, personal and non-profit services

1,934


495


2,429


Restaurant, accommodation and lodging

2,436


650


3,086


Retail trade

2,570


2,339


4,909


Transportation and warehousing (4)

2,196


1,005


3,201


Utilities

1,147


2,008


3,155


Wholesale goods (4)

2,795


2,396


5,191


Other (2)


36


1,162


1,198


Total commercial

$

42,213


$

29,347


$

71,560



66


Table of Contents



________

(1)

Regions' definition of indirect energy-related lending includes certain balances within each of these selected industry categories. As of September 30, 2017, total indirect energy-related loans were approximately $572 million, with approximately $544 million included in commercial loans and $28 million in investor real estate loans. Total unfunded commitments for indirect energy-related lending were $363 million as of September 30, 2017.

(2)

"Other" contains balances related to non-classifiable and invalid business industry codes offset by payments in process and fee accounts that are not available at the loan level.

(3)

As customers' businesses evolve (e.g. up or down the vertical manufacturing chain), Regions may need to change the assigned business industry code used to define the customer relationship. When these changes occur, Regions does not recast the customer history for prior periods into the new classification because the business industry code used in the prior period was deemed appropriate. As a result, year over year changes may be impacted.

(4)

Regions' definition of indirect energy-related lending includes certain balances within each of these selected industry categories. As of December 31, 2016, total indirect energy-related loans were approximately $536 million, with approximately $506 million included in commercial loans and $30 million in investor real estate loans. Total unfunded commitments for indirect energy-related lending were $446 million as of December 31, 2016.


Regions continues to monitor the impacts of low oil prices on both its direct and indirect energy lending portfolios. Regions' direct energy loan balances at September 30, 2017 amounted to approximately $1.9 billion , consisting of loans such as oilfield services, exploration and production, and pipeline transportation of gas and crude oil. Other types of lending are tangentially impacted by the energy portfolio, such as petroleum wholesalers, oil and gas equipment manufacturing, air transportation, and petroleum bulk stations and terminals. These indirect energy loan balances were approximately $572 million at September 30, 2017 . The entire energy-related portfolio, combining direct and indirect loans, was approximately $2.5 billion or 3 percent of total loans at September 30, 2017 . Regions has $1 million of energy-related loans held for sale. Regions also has $66 million of energy-related operating leases. Regions evaluates the current value of these operating lease assets and tests for impairment when indicators of impairment are present. Economic trends such as volatility in commodity prices and collateral valuations, as well as circumstances related to individually large operating lease assets could result in impairment. If an impairment loss is deemed necessary on operating lease assets, the impairment is recorded through other non-interest income.

Regions' energy-related portfolio is geographically concentrated primarily in Texas and, to a lesser extent, in southern Louisiana. Regions employs a variety of risk management strategies, including the use of concentration limits and continuous monitoring, as well as utilizing underwriting with borrowing base structures tied to energy commodity reserve bases or other tangible assets. Additionally, heightened credit requirements have been adopted for select segments of the portfolio. Regions also employs experienced lending and underwriting teams including petroleum engineers, all with extensive energy sector experience through multiple economic cycles. Given the recent volatility in oil prices, this energy-related portfolio may be subject to additional pressure on credit quality metrics including past due, criticized, and non-performing loans, as well as net charge-offs. Regions' energy-related portfolio consists of a relatively small number of customers, which provides the Company granular insight into the financial health of those borrowers. Through its on-going portfolio credit quality assessment, Regions will continue to assess the impact to the allowance and make adjustments as appropriate.

Investor Real Estate

Loans for real estate development are repaid through cash flows related to the operation, sale or refinance of the property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of real estate or income generated from the real estate collateral. A portion of Regions' investor real estate portfolio segment consists of loans secured by residential product types (land, single-family and condominium loans) within Regions' markets. Additionally, this category includes loans made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers. Total investor real estate loans decreased $539 million in comparison to 2016 year-end balances. A number of investor real estate loans paid off in the third quarter of 2017 prior to maturity reflecting the impact of low capitalization rates.

Due to the nature of the cash flows typically used to repay investor real estate loans, these loans are particularly vulnerable to weak economic conditions. As a result, this loan type has a higher risk of non-collection than other loans.

Residential First Mortgage

Residential first mortgage loans represent loans to consumers to finance a residence. These loans are typically financed over a 15 to 30 year term and, in most cases, are extended to borrowers to finance their primary residence. These loans experienced a $463 million increase in comparison to 2016 year-end balances. Approximately $2.1 billion in new loan originations were retained on the balance sheet through the first nine months of 2017 .

Home Equity

Home equity lending includes both home equity loans and lines of credit. This type of lending, which is secured by a first or second mortgage on the borrower's residence, allows customers to borrow against the equity in their homes. The home equity portfolio totaled $10.3 billion at September 30, 2017 as compared to $10.7 billion at December 31, 2016 . Substantially all of this portfolio was originated through Regions' branch network.


67


Table of Contents



The following table presents information regarding the future principal payment reset dates for the Company's home equity lines of credit as of September 30, 2017 . The balances presented are based on maturity date for lines with a balloon payment and draw period expiration date for lines that convert to a repayment period.

Table 4-Home Equity Lines of Credit - Future Principal Payment Resets

First Lien

% of Total

Second Lien

% of Total

Total

(Dollars in millions)

2017

$

3


0.05

%

$

7


0.10

%

$

10


2018

9


0.13


15


0.22


24


2019

66


0.99


57


0.86


123


2020

138


2.06


106


1.58


244


2021

161


2.41


141


2.11


302


2022-2026

1,480


22.12


1,546


23.09


3,026


2027-2031

1,583


23.64


1,380


20.63


2,963


Thereafter

-


-


1


0.01


1


Total

$

3,440


51.40

%

$

3,253


48.60

%

$

6,693


Of the $10.3 billion home equity portfolio at September 30, 2017 , approximately $6.7 billion were home equity lines of credit and $3.6 billion were closed-end home equity loans (primarily originated as amortizing loans). Beginning in December 2016, new home equity lines of credit have a 10-year draw period and a 20-year repayment term. During the 10-year draw period customers do not have an interest-only payment option, except on a very limited basis. From May 2009 to December 2016, home equity lines of credit had a 10-year draw period and a 10-year repayment period. Prior to May 2009, home equity lines of credit had a 20-year term with a balloon payment upon maturity or a 5-year draw period with a balloon payment upon maturity. The term "balloon payment" means there are no principal payments required until the balloon payment is due for interest-only lines of credit. As of September 30, 2017 , none of Regions' home equity lines of credit have converted to mandatory amortization under the contractual terms. As presented in the table above, the majority of home equity lines of credit will either begin to mature with a balloon payment or convert to amortizing status after fiscal year 2020.

Other Consumer Credit Quality Data

The Company calculates an estimate of the current value of property secured as collateral for both residential first mortgage and home equity lending products ("current LTV"). The estimate is based on home price indices compiled by a third party. The third party data indicates trends for MSAs. Regions uses the third party valuation trends from the MSAs in the Company's footprint in its estimate. The trend data is applied to the loan portfolios, taking into account the age of the most recent valuation and geographic area.

The following table presents current LTV data for components of the residential first mortgage and home equity classes of the consumer portfolio segment. Current LTV data for the remaining loans in the portfolio is not available, primarily because some of the loans are serviced by others. Data may also not be available due to mergers and systems integrations. The amounts in the table represent the entire loan balance. For purposes of the table below, if the loan balance exceeds the current estimated collateral, the entire balance is included in the "Above 100%" category, regardless of the amount of collateral available to partially offset the shortfall. The balances in the "Above 100%" category as a percentage of the portfolio balances were 1 percent in the residential first mortgage portfolio and 2 percent in the home equity portfolio at September 30, 2017 .

Table 5-Estimated Current Loan to Value Ranges

September 30, 2017

December 31, 2016

Residential

First Mortgage

Home Equity

Residential

First Mortgage

Home Equity

1st Lien

2nd Lien

1st Lien

2nd Lien

(In millions)

Estimated current LTV:

Above 100%

$

106


$

54


$

138


$

139


$

82


$

235


80% - 100%

1,632


280


526


1,675


371


677


Below 80%

11,584


6,277


2,778


11,090


6,248


2,814


Data not available

581


91


132


536


99


161


$

13,903


$

6,702


$

3,574


$

13,440


$

6,800


$

3,887



68


Table of Contents



Indirect-Vehicles

Indirect-vehicles lending, which is lending initiated through third-party business partners, largely consists of loans made through automotive dealerships. This portfolio class decreased $551 million from year-end 2016 , primarily because Regions terminated a third-party purchase arrangement during the fourth quarter of 2016. The balance is expected to continue to decrease during 2017.

Indirect-Other Consumer

Indirect-other consumer lending represents other point of sale lending through third parties. This portfolio class increased $398 million from year-end 2016 primarily due to continued growth in point of sale initiatives and the purchase of $138 million in loans during the second quarter of 2017.

Consumer Credit Card

Consumer credit card lending represents primarily open-ended variable interest rate consumer credit card loans. These balances increased $18 million from year-end 2016 .

Other Consumer

Other consumer loans primarily include direct consumer loans, overdrafts and other revolving loans. Other consumer loans increased $34 million from year-end 2016 .

Regions qualitatively considers factors such as periodic updates of FICO scores, unemployment, home prices, and geography as credit quality indicators for consumer loans. FICO scores are obtained at origination as part of Regions' formal underwriting process. Refreshed FICO scores are obtained by the Company quarterly for all consumer loans, including residential first mortgages. The following tables present estimated current FICO score data for components of classes of the consumer portfolio segment. Current FICO data is not available for the remaining loans in the portfolio for various reasons; for example, if customers do not use sufficient credit, an updated score may not be available. Residential first mortgage and home equity balances with FICO scores below 620 were 5 percent of the combined portfolios for both September 30, 2017 and December 31, 2016 .

Table 6-Estimated Current FICO Score Ranges

September 30, 2017

Residential

First Mortgage

Home Equity

Indirect-Vehicles

Indirect-Other Consumer

Consumer

Credit Card

Other

Consumer

1st Lien

2nd Lien

(In millions)

Below 620

$

766


$

273


$

181


$

355


$

47


$

81


$

74


620-680

827


486


296


422


153


214


145


681-720

1,361


815


445


442


236


277


228


Above 720

10,201


4,988


2,595


2,173


721


633


650


Data not available

748


140


57


97


161


9


62


$

13,903


$

6,702


$

3,574


$

3,489


$

1,318


$

1,214


$

1,159


December 31, 2016

Residential

First Mortgage

Home Equity

Indirect-Vehicles

Indirect-Other Consumer

Consumer

Credit Card

Other

Consumer

1st Lien

2nd Lien

(In millions)

Below 620

$

807


$

301


$

204


$

427


$

19


$

71


$

82


620-680

920


529


355


527


94


206


162


681-720

1,400


834


489


559


141


271


222


Above 720

9,578


4,988


2,775


2,402


382


647


597


Data not available

735


148


64


125


284


1


62


$

13,440


$

6,800


$

3,887


$

4,040


$

920


$

1,196


$

1,125



69


Table of Contents



ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses ("allowance") consists of two components: the allowance for loan losses and the reserve for unfunded credit commitments. Discussion of the methodology used to calculate the allowance is included in Note 1 "Summary of Significant Accounting Policies" and Note 6 "Allowance for Credit Losses" to the consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2016 , as well as related discussion in Management's Discussion and Analysis.

The allowance for loan losses totaled $1.0 billion at September 30, 2017 as compared to $1.1 billion in December 31, 2016 . The allowance for loan losses as a percentage of net loans decreased from 1.36 percent at December 31, 2016 to 1.31 percent at September 30, 2017 . The decrease in the percentage is primarily attributable to a reduction in non-performing, classified and criticized loans, decreased allowance associated with commercial charge-offs and continued improvement in the energy portfolio.

During the third quarter of 2017, several hurricanes impacted 100 counties in six states of Regions' footprint. These hurricanes caused significant flood and wind damage, resulting in loss of life, property, power and income. Due to the proximity of these hurricanes to quarter-end, Regions is still assessing all aspects of their impact to its customers. Regions has been in contact with certain of its affected customers, but in many cases customers are still assessing and valuing the extent of damage to their property. Also, many customers are facing employment uncertainty in situations where their place of employment was damaged. Therefore, a full evaluation of the storm-related impact may take several months.

The hurricanes primarily impacted Regions' footprint in Houston, Texas and the state of Florida. In the Houston metropolitan area, Regions had loans of approximately $3.2 billion as of September 30, 2017. In Florida, Regions had loans of approximately $16.2 billion as of September 30, 2017.

The provision for loan losses decreased for the first nine months of 2017 as compared to the same period in 2016. During the first nine months of 2017 , the provision for loan losses was less than net charge-offs by approximately $50 million . Net charge-offs for the first nine months of 2017 were approximately $50 million higher as compared to the same period in 2016, reflecting a small number of large-dollar commercial loan charge-offs within the energy, healthcare, and education sectors. Estimated hurricane-related loan losses of $40 million are included in the third quarter and first nine months of 2017 provision amounts. Regions is continually assessing the customer directly impacted by the hurricanes and the related level of estimated loss, including economic disruption in the affected areas that could potentially have an adverse impact on some borrowers. The estimate of potential loss includes a significant amount of uncertainty. The availability of additional or different information affecting customers in the hurricane-impacted areas could cause the allowance for loan losses to be increased or decreased in future periods.

Management expects that net loan charge-offs will be in the 0.35 percent to 0.50 percent range for the 2017 year. Economic trends such as interest rates, unemployment, volatility in commodity prices, collateral valuations, and further analysis of hurricane exposures will impact the future levels of net charge-offs and may result in volatility during the remainder of 2017 . Additionally, changes in circumstances related to individually large credits or certain portfolios may result in volatility.

Details regarding the allowance and net charge-offs, including an analysis of activity from the previous year's totals, are included in Table 7 "Allowance for Credit Losses."

Activity in the allowance for credit losses is summarized as follows:


70


Table of Contents



Table 7-Allowance for Credit Losses

Nine Months Ended September 30

2017

2016

(Dollars in millions)

Allowance for loan losses at beginning of year

$

1,091


$

1,106


Loans charged-off:

Commercial and industrial

124


82


Commercial real estate mortgage-owner-occupied

15


19


Commercial real estate construction-owner-occupied

-


1


Commercial investor real estate mortgage

2


2


Commercial investor real estate construction

-


-


Residential first mortgage

9


11


Home equity

26


45


Indirect - vehicles

38


36


Indirect - other consumer

20


10


Consumer credit card

40


30


Other consumer

55


52


329


288


Recoveries of loans previously charged-off:

Commercial and industrial

22


25


Commercial real estate mortgage-owner-occupied

6


9


Commercial real estate construction-owner-occupied

-


-


Commercial investor real estate mortgage

8


8


Commercial investor real estate construction

2


2


Residential first mortgage

3


2


Home equity

15


21


Indirect - vehicles

14


14


Indirect - other consumer

1


-


Consumer credit card

5


4


Other consumer

9


9


85


94


Net charge-offs:

Commercial and industrial

102


57


Commercial real estate mortgage-owner-occupied

9


10


Commercial real estate construction-owner-occupied

-


1


Commercial investor real estate mortgage

(6

)

(6

)

Commercial investor real estate construction

(2

)

(2

)

Residential first mortgage

6


9


Home equity

11


24


Indirect - vehicles

24


22


Indirect - other consumer

19


10


Consumer credit card

35


26


Other consumer

46


43


244


194


Provision for loan losses

194


214


Allowance for loan losses at September 30

$

1,041


$

1,126


Reserve for unfunded credit commitments at beginning of year

$

69


$

52


Provision (credit) for unfunded credit losses

(10

)

20


Reserve for unfunded credit commitments at September 30

$

59


$

72


Allowance for credit losses at September 30

$

1,100


$

1,198


Loans, net of unearned income, outstanding at end of period

$

79,356


$

80,883


Average loans, net of unearned income, outstanding for the period

$

79,956


$

81,583


Ratios:

Allowance for loan losses at end of period to loans, net of unearned income

1.31

%

1.39

%

Allowance for loan losses at end of period to non-performing loans, excluding loans held for sale

1.37x


1.04x


Net charge-offs as percentage of average loans, net of unearned income (annualized)

0.41

%

0.32

%


71


Table of Contents



TROUBLED DEBT RESTRUCTURINGS (TDRs)

TDRs are modified loans in which a concession is provided to a borrower experiencing financial difficulty. Residential first mortgage, home equity, indirect-vehicles, consumer credit card and other consumer TDRs are consumer loans modified under the CAP. Commercial and investor real estate loan modifications are not the result of a formal program, but represent situations where modifications were offered as a workout alternative. Renewals of classified commercial and investor real estate loans are considered to be TDRs, even if no reduction in interest rate is offered, if the existing terms are considered to be below market. More detailed information is included in Note 4 "Loans and the Allowance For Credit Losses" to the consolidated financial statements. The following table summarizes the loan balance and related allowance for accruing and non-accruing TDRs for the periods presented:

Table 8-Troubled Debt Restructurings

September 30, 2017

December 31, 2016

Loan

Balance

Allowance for

Loan Losses

Loan

Balance

Allowance for

Loan Losses

(In millions)

Accruing:

Commercial

$

262


$

38


$

241


$

38


Investor real estate

104


17


90


8


Residential first mortgage

381


41


380


46


Home equity

257


5


286


5


Indirect-vehicles

-


-


1


-


Consumer credit card

1


-


2


-


Other consumer

9


-


10


-


1,014


101


1,010


97


Non-accrual status or 90 days past due and still accruing:

Commercial

238


50


279


65


Investor real estate

1


1


5


2


Residential first mortgage

64


7


74


9


Home equity

15


-


17


-


318


58


375


76


Total TDRs - Loans

$

1,332


$

159


$

1,385


$

173


TDRs - Held For Sale

1


-


3


-


Total TDRs

$

1,333


$

159


$

1,388


$

173


_________

Note: All loans listed in the table above are considered impaired under applicable accounting literature.

The following table provides an analysis of the changes in commercial and investor real estate TDRs. TDRs with subsequent restructurings that meet the definition of a TDR are only reported as TDR inflows in the period they were first modified. Other than resolutions such as charge-offs, foreclosures, payments, sales and transfers to held for sale, Regions may remove loans from TDR classification if the following conditions are met: the borrower's financial condition improves such that the borrower is no longer in financial difficulty, the loan has not had any forgiveness of principal or interest, the loan has not been restructured as an "A" note/"B" note, the loan has been reported as a TDR over one fiscal year-end and the loan is subsequently refinanced or restructured at market terms such that it qualifies as a new loan.

For the consumer portfolio, changes in TDRs are primarily due to inflows from CAP modifications and outflows from payments and charge-offs. Given the types of concessions currently being granted under the CAP, as detailed in Note 4 "Loans and the Allowance for Credit Losses" to the consolidated financial statements, Regions does not expect that the market interest rate condition will be widely achieved. Therefore, Regions expects consumer loans modified through CAP to continue to be identified as TDRs for the remaining term of the loan.


72


Table of Contents



Table 9-Analysis of Changes in Commercial and Investor Real Estate TDRs

Nine Months Ended
September 30, 2017

 Nine Months Ended

 September 30, 2016

Commercial

Investor
Real Estate

Commercial

Investor
Real Estate

(In millions)

Balance, beginning of period

$

520


$

95


$

281


$

179


Inflows

359


88


299


27


Outflows

Charge-offs

(11

)

(1

)

(15

)

-


Foreclosure

(2

)

-


-


-


Payments, sales and other (1)

(366

)

(77

)

(160

)

(77

)

Balance, end of period

$

500


$

105


$

405


$

129


_________

(1) The majority of this category consists of payments and sales. "Other" outflows include normal amortization/accretion of loan basis adjustments and loans transferred to held for sale. It also includes $59 million of commercial loans and $10 million of investor real estate loans refinanced or restructured as new loans and removed from TDR classification for the nine months ended September 30, 2017 . During the nine months ended September 30, 2016 , $31 million of commercial loans and $7 million of investor real estate loans were refinanced or restructured as new loans and removed from TDR classification.


73


Table of Contents



NON-PERFORMING ASSETS

Non-performing assets are summarized as follows:

Table 10-Non-Performing Assets

September 30, 2017

December 31, 2016

(Dollars in millions)

Non-performing loans:

Commercial and industrial

$

493


$

623


Commercial real estate mortgage-owner-occupied

140


210


Commercial real estate construction-owner-occupied

6


3


Total commercial

639


836


Commercial investor real estate mortgage

5


17


Total investor real estate

5


17


Residential first mortgage

45


50


Home equity

70


92


Indirect - vehicles

1


-


Total consumer

116


142


Total non-performing loans, excluding loans held for sale

760


995


Non-performing loans held for sale

6


13


Total non-performing loans (1)

766


1,008


Foreclosed properties

73


90


Total non-performing assets (1)

$

839


$

1,098


Accruing loans 90 days past due:

Commercial and industrial

$

5


$

6


Commercial real estate mortgage-owner-occupied

4


2


Total commercial

9


8


Residential first mortgage (2)

80


99


Home equity

33


33


Indirect-vehicles

9


10


Consumer credit card

16


15


Other consumer

4


5


Total consumer

142


162


$

151


$

170


Restructured loans not included in the categories above

$

1,014


$

1,010


Non-performing loans (1)  to loans and non-performing loans held for sale

0.97

%

1.26

%

Non-performing assets (1)  to loans, foreclosed properties and non-performing loans held for sale

1.06

%

1.37

%

_________

(1)

Excludes accruing loans 90 days past due.

(2)

Excludes residential first mortgage loans that are 100% guaranteed by the FHA and all guaranteed loans sold to the GNMA where Regions has the right but not the obligation to repurchase. Total 90 days or more past due guaranteed loans excluded were $94 million at September 30, 2017 and $113 million at December 31, 2016 .

Non-performing loans at September 30, 2017 have decreased compared to year-end levels, due to improvement in credit quality as evidenced by stability in oil prices. Total commercial and investor real estate non-performing loans, excluding loans held for sale, that were paying as agreed (e.g., less than 30 days past due) represented approximately 70 percent of the total balance at September 30, 2017.

Due to the proximity of the hurricanes to quarter-end, past due and non-performing loans as of September 30, 2017 were not materially affected. Regions handles customer payment difficulties on a case-by-case basis through conversations which identify their specific needs. Due to the many counties across multiple states that were declared disaster areas and the resulting volume of loans affected, the Company is gathering all available intelligence through direct contact with customers to determine actual loan exposures, potential losses, and any revised payment terms. For natural disasters, the Company's most common types of


74


Table of Contents



customer assistance are payment deferrals and extensions for up to 90 days.  Regions expects to have more knowledge and insight of the credit quality of impacted loans by the end of 2017.

Economic trends such as interest rates, unemployment, volatility in commodity prices, collateral valuations and further analysis of hurricane exposures will impact the future level of non-performing assets. Circumstances related to individually large credits could also result in volatility throughout 2017 .

Loans past due 90 days or more and still accruing, excluding government guaranteed loans, were $151 million at September 30, 2017 , a decrease from $170 million at December 31, 2016 .

At September 30, 2017 , Regions had approximately $125 million to $200 million of potential problem commercial and investor real estate loans that were not included in non-accrual loans, but for which management had concerns as to the ability of such borrowers to comply with their present loan repayment terms. This is a likely estimate of the amount of commercial and investor real estate loans that have the potential to migrate to non-accrual status in the next quarter.

In order to arrive at the estimate of potential problem loans, personnel from geographic regions forecast certain larger dollar loans that may potentially be downgraded to non-accrual at a future time, depending on the occurrence of future events. These personnel consider a variety of factors, including the borrower's capacity and willingness to meet the contractual repayment terms, make principal curtailments or provide additional collateral when necessary, and provide current and complete financial information including global cash flows, contingent liabilities and sources of liquidity. Based upon the consideration of these factors, a probability weighting is assigned to loans to reflect the potential for migration to the pool of potential problem loans during this specific time period. Additionally, for other loans (for example, smaller dollar loans), a trend analysis is incorporated to determine the estimate of potential future downgrades. Because of the inherent uncertainty in forecasting future events, the estimate of potential problem loans ultimately represents the estimated aggregate dollar amounts of loans as opposed to an individual listing of loans.

The majority of the loans on which the potential problem loan estimate is based are considered criticized and classified. Detailed disclosures for substandard accrual loans (as well as other credit quality metrics) are included in Note 4 "Loans and the Allowance for Credit Losses" to the consolidated financial statements.

The following table provides an analysis of non-accrual loans (excluding loans held for sale) by portfolio segment:

Table 11-Analysis of Non-Accrual Loans

Non-Accrual Loans, Excluding Loans Held for Sale
Nine Months Ended September 30, 2017

Commercial

Investor

Real Estate

Consumer (1)

Total

(In millions)

Balance at beginning of period

$

836


$

17


$

142


$

995


Additions

423


7


-


430


Net payments/other activity

(389

)

(7

)

(26

)

(422

)

Return to accrual

(80

)

(8

)

-


(88

)

Charge-offs on non-accrual loans (2)

(133

)

(1

)

-


(134

)

Transfers to held for sale (3)

(14

)

(2

)

-


(16

)

Transfers to foreclosed properties

(3

)

(1

)

-


(4

)

Sales

(1

)

-


-


(1

)

Balance at end of period

$

639


$

5


$

116


$

760



75


Table of Contents




Non-Accrual Loans, Excluding Loans Held for Sale
Nine Months Ended September 30, 2016

Commercial

Investor

Real Estate

Consumer (1)

Total

(In millions)

Balance at beginning of period

$

595


$

31


$

156


$

782


Additions

724


16


-


740


Net payments/other activity

(223

)

(12

)

(13

)

(248

)

Return to accrual

(34

)

(12

)

-


(46

)

Charge-offs on non-accrual loans (2)

(97

)

(2

)

-


(99

)

Transfers to held for sale (3)

(40

)

(1

)

(1

)

(42

)

Transfers to foreclosed properties

(3

)

-


-


(3

)

Sales

(5

)

(1

)

-


(6

)

Balance at end of period

$

917


$

19


$

142


$

1,078


________

(1)

All net activity within the consumer portfolio segment other than sales and transfers to held for sale (including related charge-offs) is included as a single net number within the net payments/other activity line.

(2)

Includes charge-offs on loans on non-accrual status and charge-offs taken upon sale and transfer of non-accrual loans to held for sale.

(3)

Transfers to held for sale are shown net of charge-offs of $5 million and $19 million recorded upon transfer for the nine months ended September 30, 2017 and 2016 , respectively.

GOODWILL

Goodwill totaled $4.9 billion at both September 30, 2017 and December 31, 2016 and is allocated to each of Regions' reportable segments (each a reporting unit), at which level goodwill is tested for impairment on an annual basis or more often if events and circumstances indicate the fair value of the reporting unit may have declined below the carrying value (refer to Note 1 "Summary of Significant Accounting Policies" to the 2016 consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2016 for further discussion of when Regions tests goodwill for impairment and the Company's methodology and valuation approaches used to determine the estimated fair value of each reporting unit).

The result of the assessment performed for the third quarter of 2017 did not indicate that the estimated fair values of the Company's reporting units (Corporate Bank, Consumer Bank and Wealth Management) had declined below their respective carrying values. Therefore, Regions determined that a test of goodwill impairment was not required for each of Regions' reporting units for the September 30, 2017 interim period.


76


Table of Contents



DEPOSITS

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

The following table summarizes deposits by category:

Table 12-Deposits

September 30, 2017

December 31, 2016

(In millions)

Non-interest-bearing demand

$

37,293


$

36,046


Savings

8,364