Regions Bank 2009 Annual Report Download - page 73

Effective January 1, 2009, Regions made an election to prospectively change the policy for accounting for
residential mortgage servicing rights from the amortization method to the fair value measurement method. Under
the fair value measurement method, servicing assets are measured at fair value each period with changes in fair
value recorded as a component of mortgage banking income. Regions uses various derivative instruments to
mitigate the effect of changes in the fair value of its mortgage servicing rights in the statement of operations.
Beginning in the fourth quarter of 2009, the Company also began using trading assets to mitigate the impact of
changes in the fair value of its mortgage servicing rights. Because changes in value of trading assets are reported
in brokerage income, and because earnings on these assets are reported in net interest income, the total effect of
mortgage servicing rights and related hedging instruments impacts several line items in the 2009 statement of
operations, as illustrated in Table 8.
Table 8—Categorization of Income Related to Mortgage Servicing Rights and Related Hedging
Instruments
2009
(In millions)
Net interest income ................................ $20
Brokerage income ................................. 4
Mortgage income ................................. 13
$37
During 2008, the Company sold mortgage servicing rights on approximately $3.4 billion of GNMA
(Government National Mortgage Association) loans and recognized a loss of $15 million, including transaction
costs. The Company did not sell any mortgage servicing rights in 2009. At December 31, 2009, Regions’
servicing portfolio totaled $39.7 billion, and of this portfolio, $23.3 billion were serviced for third parties. At
December 31, 2008, the servicing portfolio totaled $36.6 billion, $21.2 billion of which were serviced for third
parties.
Securities Gains (Losses), Net
Regions reported net gains of $69 million from the sale of securities available for sale in 2009, as compared
to net gains of $92 million in 2008. During the year, the company significantly reduced its exposure in
non-agency investment securities, collateralized mortgage-backed securities and municipal securities and through
these measures incurred some losses on the sales. The Company’s gains were due to increased sales activity
within the available for sale category as part of the Company’s asset/liability management strategies. The
proceeds from the sales in 2009 and 2008 were reinvested in U.S. government agency mortgage-backed
securities classified as available for sale. Refer to “Securities” section in the “Balance Sheet Analysis” for further
discussion.
Insurance Commissions and Fees
Insurance commissions and fees decreased 5 percent to $105 million in 2009, compared to $110 million in
2008. This decrease is primarily due to the continued decline in insurance premium rates coupled with lower
volume.
Leveraged Lease Termination Gains
A 2008 settlement with the IRS negatively impacted the economics of Regions’ leveraged lease portfolio. In
addition, there was a mutual desire with lessees to terminate certain leases within this portfolio. Accordingly, the
Company decided to terminate these leases in 2009, resulting in gains of $587 million. However, these gains
were more than offset by related income tax expense of $589 million, resulting in a minimal impact to net
income in 2009.
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