Regions Bank 2009 Annual Report Download - page 65

or if they occur could be material to Regions’ operating results for any particular reporting period; the potential
impact cannot be reasonably estimated. As previously discussed, Regions incurred a $6.0 billion impairment
charge in 2008. See Note 1 “Summary of Significant Accounting Policies” to the consolidated financial
statements for additional information.
Other identifiable intangible assets, primarily core deposit intangibles, are reviewed at least annually for
events or circumstances which could impact the recoverability of the intangible asset, such as loss of core
deposits, increased competition or adverse changes in the economy. To the extent an other identifiable intangible
asset is deemed unrecoverable, an impairment loss would be recorded to reduce the carrying amount. These
events or circumstances, when they occur, could be material to Regions’ operating results for any particular
reporting period; the potential impact cannot be reasonably estimated.
Mortgage Servicing Rights
Regions estimates the fair value of its mortgage servicing rights in order to record them at fair value on the
balance sheet. Although sales of mortgage servicing rights do occur, mortgage servicing rights do not trade in an
active market with readily observable market prices and the exact terms and conditions of sales may not be
readily available. Specific characteristics of the underlying loans greatly impact the estimated value of the related
mortgage servicing rights. As a result, Regions stratifies its mortgage servicing portfolio on the basis of certain
risk characteristics, including loan type and contractual note rate, and values its mortgage servicing rights using
discounted cash flow modeling techniques. These techniques require management to make estimates regarding
future net servicing cash flows, taking into consideration historical and forecasted mortgage loan prepayment
rates and discount rates. Changes in interest rates, prepayment speeds or other factors impact the fair value of
mortgage servicing rights which impacts earnings. Based on a hypothetical sensitivity analysis, Regions
estimates that a reduction in primary mortgage market rates of 25 basis points and 50 basis points would reduce
the December 31, 2009 fair value of mortgage servicing rights by approximately 6.5 percent ($16 million) and
12.6 percent ($31 million), respectively. Conversely, 25 basis point and 50 basis point increases in these rates
would increase the December 31, 2009 fair value of mortgage servicing rights by approximately 5.7 percent ($14
million) and 11.3 percent ($28 million), respectively.
The pro forma fair value analysis presented above demonstrates the sensitivity of fair values to hypothetical
changes in primary mortgage rates. This sensitivity analysis does not reflect an expected outcome. Refer to the
“Mortgage Servicing Rights” discussion in the “Balance Sheet” analysis.
Income Taxes
Accrued taxes represent the estimated amount payable to or receivable from taxing jurisdictions, and are
reported, on a net basis, as a component of “other liabilities” in the consolidated balance sheets.
Management’s determination of the realization of the net deferred tax asset is based upon management’s
judgment of various future events and uncertainties, including the timing and amount of future taxable income
and the implementation of various tax plans to maximize realization of the deferred tax asset. In making its
determination of the realization of the net deferred tax asset, management considers all positive and negative
evidence available including the impact of the three-year cumulative results as well as potential carryback of tax
to prior years’ taxable income, reversal of taxable temporary differences, tax planning strategies and projected
earnings within the statutory tax loss carryover period.
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. While Regions has obtained the opinion of advisors that the
anticipated tax treatment of these transactions should prevail and has assessed the relative merits and risks of the
appropriate tax treatment, examination of Regions’ income tax returns, changes in tax law and regulatory
guidance may impact the tax treatment of these transactions and resulting provisions for income taxes.
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