Regions Bank 2008 Annual Report Download - page 115

When a hedge is terminated or hedge accounting is discontinued because the hedged item no longer meets
the definition of a firm commitment, or because it is probable that the forecasted transaction will not occur by the
end of the specified time period, the derivative will continue to be recorded in the consolidated balance sheets at
its fair value, with changes in fair value recognized currently in other non-interest income. Any asset or liability
that was recorded pursuant to recognition of the firm commitment is removed from the consolidated balance
sheets and recognized currently in other non-interest income. Gains and losses that were accumulated in other
comprehensive income pursuant to the hedge of a forecasted transaction are recognized immediately in other
non-interest income.
Regions also enters into interest rate lock commitments, which are commitments to originate mortgage
loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that
interest rate. Accordingly, such commitments are recorded at fair value with changes in fair value recorded in
mortgage income. Fair value is based on fees currently charged to enter into similar agreements and, for fixed-
rate commitments, considers the difference between current levels of interest rates and the committed rates.
Regions also has corresponding forward sale commitments related to these interest rate lock commitments, which
are recorded at fair value with changes in fair value recorded in mortgage income.
Regions enters into various derivative agreements with customers desiring protection from possible future
market fluctuations. Regions manages the market risk associated with these derivative agreements in a trading
portfolio. The contracts in this portfolio do not qualify for hedge accounting and are marked-to-market through
earnings and included in other assets and other liabilities. Customer derivatives are paired with offsetting
derivative contracts that, when completed, are designed to eliminate market risk.
INCOME TAXES
Regions and its subsidiaries file various federal and state income tax returns, including some returns that are
consolidated with subsidiaries. Regions accounts for the current and future tax effects of such returns using the
asset and liability method, recording deferred tax assets and liabilities and applying federal and state tax rates
currently in effect to its cumulative temporary differences. Temporary differences are differences between
financial statement carrying amounts and the corresponding tax bases of assets and liabilities.
From time to time, for certain business plans enacted by Regions, management bases the estimates of related
tax liabilities on its belief that future events will validate management’s current assumptions regarding the
ultimate outcome of tax-related exposures. If the tax effects of a plan are significant, Regions’ practice is to
obtain the opinion of advisors that the tax effects of such plans should prevail if challenged. If the tax benefits
associated with a plan are not more-likely-than-not of being sustained upon examination by weighing the facts
and circumstances at the reporting date, Regions records a liability for the recognized income tax benefits
associated with that plan. The examination of Regions’ income tax returns or changes in tax law may impact the
tax benefits of these plans. Regions recognizes accrued interest and penalties related to unrecognized tax benefits
as tax expense. Regions believes adequate provisions for income tax have been recorded for all years open for
examination.
In July 2006, Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) was issued,
which requires that only benefits from tax positions that are more-likely-than-not of being sustained upon
examination should be recognized in the financial statements. As a result of the implementation of FIN 48, the
Company recognized an approximate $259.0 million increase in the liability for unrecognized tax benefits, which
was accounted for as a reduction to the January 1, 2007 balance of retained earnings.
TREASURY STOCK
The purchase of the Company’s common stock is recorded at cost. At the date of retirement or subsequent
reissuance, treasury stock is reduced by the cost of such stock with differences recorded in additional paid-in
capital or retained earnings, as applicable.
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