Regions Bank 2010 Annual Report Download - page 143

Company performs periodic assessments to determine whether the hedging relationship has been highly effective
in offsetting changes in fair values or cash flows of hedged items and whether the relationship is expected to
continue to be highly effective in the future.
When a hedge is terminated or hedge accounting is discontinued because the hedged item no longer meets
the definition of a firm commitment, or because it is probable that the forecasted transaction will not occur by the
end of the specified time period, the derivative will continue to be recorded in the consolidated balance sheets at
its estimated fair value, with changes in fair value recognized in brokerage, investment banking and capital
markets income. Any asset or liability that was recorded pursuant to recognition of the firm commitment is
removed from the consolidated balance sheets and recognized in other non-interest expense. Gains and losses
that were accumulated in other comprehensive income pursuant to the hedge of a forecasted transaction are
recognized immediately in other non-interest expense.
Derivative contracts that do not qualify for hedge accounting are classified as trading with gains and losses
related to the change in fair value recognized in the statement of operations during the period. These positions are
used to mitigate economic and accounting volatility related to customer derivative transactions, as well as
non-derivative instruments.
Regions enters into interest rate lock commitments, which are commitments to originate mortgage loans
whereby the interest rate on the loan is determined prior to funding and the customers have locked into that
interest rate. Accordingly, such commitments are recorded at estimated fair value with changes in fair value
recorded in mortgage income. Regions also has corresponding forward sale commitments related to these interest
rate lock commitments, which are recorded at fair value with changes in fair value recorded in mortgage income.
See Note 21 for additional information related to the valuation of interest rate lock commitments.
Regions enters into various derivative agreements with customers desiring protection from possible future
market fluctuations. Regions manages the market risk associated with these derivative agreements in a trading
portfolio. The contracts in this portfolio do not qualify for hedge accounting and are marked-to-market through
earnings and included in other assets and other liabilities.
Concurrent with the election to use fair value measurement for mortgage servicing rights referred to above,
Regions began using various derivative instruments to mitigate the impact of changes in the fair value of
mortgage servicing rights in the statements of operations. The instruments are primarily forward rate
commitments but can include futures and swaptions. These derivatives are carried at fair value, with changes in
fair value reported in mortgage income.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method, which requires the recognition
of deferred tax assets and liabilities for expected future tax consequences. Under this method, deferred tax assets
and liabilities are determined by applying the federal and state tax rates to the differences between financial
statement carrying amounts and the corresponding tax bases of assets and liabilities. Deferred tax assets are also
recorded for any tax attributes, such as tax credit carryforwards and net operating losses. Any effect of a change
in federal and state tax rates on deferred tax assets and liabilities is recognized in income tax expense in the
period that includes the enactment date. The Company reflects either the expected amount of income tax expense
to be refunded or paid during the year within current income tax (benefit)/expense, as applicable.
The Company evaluates the realization of deferred tax assets based on all positive and negative evidence
available at the balance sheet date. Realization of deferred tax assets is based on the Company’s judgments,
including taxable income within any applicable carryback periods, future projected taxable income, reversal of
taxable temporary differences and other tax-planning strategies to maximize realization of the deferred tax assets.
A valuation allowance is recorded for any deferred tax assets that are not more-likely-than-not to be realized. See
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