Regions Bank 2009 Annual Report Download - page 35

to prior years’ taxable income, reversals of existing temporary differences, tax planning strategies and projected
earnings within the statutory tax loss carryover period. We have determined that the deferred tax assets are more
likely than not to be realized at December 31, 2009. If we were to conclude that our deferred tax assets were not
more likely than not to be realized, then we would record a valuation allowance which could materially adversely
impact our operating results and financial position.
Further disruptions in the residential real estate market could adversely affect our performance.
As of December 31, 2009, residential homebuilder loans, home equity loans secured by second liens in
Florida and condominium loans represented approximately 7.6% of our total loan portfolio. These portions of our
loan portfolio have been under pressure for over two years and, due to weakening credit quality, we increased our
loan loss provision and our total allowance for credit losses. In addition, we have implemented several measures
to support the management of these sections of the loan portfolio, including reassignment of experienced, key
relationship managers to focus on work-out strategies for distressed borrowers.
While we expect that these actions will help mitigate the overall effects of the downward credit cycle, the
weaknesses in these sections of our loan portfolio are expected to continue well into 2010. Accordingly, it is
anticipated that our non-performing asset and charge-off levels will remain elevated.
Further, the effects of recent mortgage market challenges, combined with the ongoing decrease in residential
real estate market prices and demand, could result in further price reductions in home values, adversely affecting
the value of collateral securing the residential real estate and construction loans that we hold, as well as loan
originations and gains on sale of real estate and construction loans. Specifically, a significant portion of our
residential mortgages and commercial real estate loan portfolios are composed of borrowers in the Southeastern
United States, in which certain markets have been particularly adversely affected by declines in real estate value,
declines in home sale volumes, and declines in new home building. For example, prices of Florida properties
remain under significant pressure, with rising unemployment levels and the impact of the real estate downturn on
the general economy. These factors could result in higher delinquencies and greater charge-offs in future periods,
which would materially adversely affect our financial condition and results of operations. A decline in home
values or overall economic weakness could also have an adverse impact upon the value of real estate or other
assets which we own upon foreclosing a loan.
Continuing weakness in the commercial real estate market could adversely affect our performance.
The fundamentals within the commercial real estate sector remain weak, under continuing pressure by
reduced asset values, rising vacancies and reduced rents. As of December 31, 2009, approximately 23.9% of our
loan portfolio consisted of investor real estate loans. The properties securing investor income-producing loans are
typically not fully leased at the origination of the loan. Properties securing the land, single-family and
condominium loans continue to be impacted by declining property values, especially in areas where Regions has
significant lending activities, including Florida and north Georgia. The borrower’s ability to repay the loan is
instead reliant upon additional leasing through the life of the loan or the borrower’s successful operation of a
business. Weak economic conditions may impair a borrower’s business operations and typically slow the
execution of new leases. Such economic conditions may also lead to existing lease turnover. As a result of these
factors, vacancy rates for retail, office and industrial space are expected to continue to rise in 2010. Increased
vacancies could result in rents falling further over the next several quarters. The combination of these factors
could result in further deterioration in the fundamentals underlying the commercial real estate market and the
deterioration of one or more loans we have made. Any such deterioration could adversely affect our financial
condition and results of operations.
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