Regions Bank 2008 Annual Report Download - page 159

NOTE 25. COMMITMENTS, CONTINGENCIES AND GUARANTEES
COMMERCIAL COMMITMENTS
Regions issues off-balance sheet financial instruments in connection with lending activities. The credit risk
associated with these instruments is essentially the same as that involved in extending loans to customers and is
subject to Regions’ credit policies. Regions measures inherent risk associated with these instruments by
recording a reserve for unfunded commitments based on an assessment of the likelihood that the guarantee will
be funded and the creditworthiness of the customer or counterparty. Collateral is obtained based on
management’s assessment of the customer.
Credit risk associated with these instruments as of December 31 is based upon the contractual amounts
indicated in the following table:
2008 2007
(In millions)
Unused commitments to extend credit ........................................... $37,271 $39,628
Standby letters of credit ...................................................... 8,012 7,642
Commercial letters of credit ................................................... 20 43
Unused commitments to extend credit—To accommodate the financial needs of its customers, Regions
makes commitments under various terms to lend funds to consumers, businesses and other entities. These
commitments include (among others) revolving credit agreements, term loan commitments and short-term
borrowing agreements. Many of these loan commitments have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of these commitments are expected to expire without being
funded, the total commitment amounts do not necessarily represent future liquidity requirements. However, the
current lack of liquidity in the broader market and the current credit environment has resulted in increased
fundings of commitments to extend credit.
Standby letters of credit—Standby letters of credit are also issued to customers, which commit Regions to
make payments on behalf of customers if certain specified future events occur. Regions has recourse against the
customer for any amount required to be paid to a third party under a standby letter of credit. Historically, a large
percentage of standby letters of credit expire without being funded. The current lack of liquidity in the broader
market and the current credit environment has resulted in increased fundings of standby letters of credit. The
contractual amount of standby letters of credit represents the maximum potential amount of future payments
Regions could be required to make and represents Regions’ maximum credit risk. At December 31, 2008 and
2007, Regions had $118.4 million and $82.7 million, respectively, of liabilities associated with standby letter of
credit agreements, with related assets of $107.6 million and $74.4 million, respectively.
Commercial letters of credit—Commercial letters of credit are issued to facilitate foreign or domestic trade
transactions for customers. As a general rule, drafts will be drawn when the goods underlying the transaction are
in transit.
The reserve for all of these off-balance sheet financial instruments was $73.5 million and $58.3 million at
December 31, 2008 and 2007, respectively.
LEASES
Operating leases—Regions and its subsidiaries lease land, premises and equipment under cancelable and
non-cancelable leases, some of which contain renewal options under various terms. The leased properties are
used primarily for banking purposes. Total rental expense on operating leases for the years ended December 31,
2008, 2007 and 2006 was $193.9 million, $198.4 million and $111.4 million, respectively.
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