Regions Bank 2008 Annual Report Download - page 97

retail branches. In addition, the increase was attributable to strong private client revenues, healthy fixed-income
capital markets activity aided by the second quarter 2007 acquisition of Shattuck Hammond Partners LLC and
higher trust and asset management fees.
In 2007, mortgage income decreased 24 percent to $135.7 million compared to $178.7 million in 2006,
primarily due to the increasingly challenging mortgage industry environment, which deteriorated as the year
progressed.
During the first quarter of 2007, Regions sold its non-conforming mortgage origination subsidiary,
EquiFirst, for a sales price of approximately $76 million and recorded an after-tax gain of approximately $1
million. During the third quarter of 2007, Regions also exited the wholesale mortgage warehouse lending
business as a result of risk and return considerations.
Regions reported net losses of $8.6 million from the sale of securities available for sale in 2007, compared
to net gains of $8.1 million in 2006. The 2007 losses were primarily related to the sale of federal agency
securities in conjunction with balance sheet management activities.
Other income increased 71 percent to $420.0 million in 2007, primarily due to higher gains on sales of
student loans and an increase in bank-owned life insurance income. Gains on the sale of loans increased in 2007
to $32.1 million compared to $0.7 million in 2006, reflecting a bulk sale of student loans and related servicing in
early 2007. Bank-owned life insurance income increased $50.2 million due to the AmSouth acquisition and, to a
lesser extent, the purchase of $896.6 million of additional life insurance late in 2007.
Non-interest expense totaled $4.7 billion in 2007 compared to $3.2 billion in 2006. Included in non-interest
expense are pre-tax merger-related charges of $350.9 million in 2007 and $88.7 million in 2006. The 2007
overall expense level was impacted due to the inclusion of a full twelve months of former AmSouth operations.
Salaries and employee benefits increased 33 percent to $2.5 billion in 2007 compared to $1.9 billion in
2006, primarily due to the November 2006 addition of approximately 12,000 legacy AmSouth associates, as well
as normal annual compensation adjustments and higher incentive payouts at Morgan Keegan. Excluding $158.6
million of pre-tax merger-related charges in 2007 and $65.7 million in 2006, salaries and benefits increased 29
percent in 2007. See Table 8 “Non-Interest Expense (including Non-GAAP reconciliation)” for further details.
Net occupancy expense increased 62 percent to $413.7 million in 2007, primarily attributable to expenses
added in connection with the AmSouth acquisition, new and acquired branch offices and rising price levels.
Furniture and equipment expense in 2007 totaled $301.3 million, a 91 percent increase over the prior year. In
addition to the higher merger-related expense base, furniture and equipment associated with the addition of new
branch offices was also a factor.
Other non-interest expense increased 58 percent to $1.5 billion in 2007 primarily due to a $54.8 million
increase in professional fees related to higher consulting fees in connection with the merger integration, legal
fees related to special assets litigation, a $63.9 million increase in marketing fees related to post-merger
rebranding and branch conversion initiatives, a $51.5 million charge related to the Visa antitrust lawsuit
settlement, and $38.5 million in losses related to investments in two Morgan Keegan mutual funds. Offsetting
these costs, non-interest expenses were positively affected by the realization of merger cost savings, which
continued to build throughout 2007.
Regions’ provision for income taxes from continuing operations in 2007 increased $26.6 million to $645.7
million due to the full-year inclusion of AmSouth results and the adoption of FIN 48. As a result of the adoption
of FIN 48, Regions recorded a cumulative reduction in equity of $259.0 million as of January 1, 2007. During
2007, the adoption of FIN 48 increased income tax expense and decreased after-tax net income by approximately
$65 million. The effective tax rate from continuing operations was 31.7 percent in 2007 compared to 31.1 percent
in 2006.
87