Regions Bank 2010 Annual Report Download - page 55

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
INTRODUCTION
EXECUTIVE SUMMARY
Management believes the following points summarize several of the most relevant items necessary for an
understanding of the financial aspects of Regions Financial Corporation’s (“Regions” or “the Company”)
business, particularly regarding its 2010 results. Cross references to more detailed information regarding each
topic within Management's Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) and the consolidated financial statements are included. This summary is intended to assist in
understanding the information provided, but should be read in conjunction with the entire MD&A and
consolidated financial statements, as well as the other sections of this Annual Report on Form 10-K.
• Credit—The distressed economy has increased the risk of default for many loan types. Regions entered
2008 with a concentration in investor real estate products in its Southeastern footprint. Loans extended
to real estate developers or investors where repayment depends on sales of real estate, especially those
loans secured by land, single-family developments and condominiums, experienced the most credit
pressure. Income producing investor real estate, including loans secured by multi-family and retail
developments, also came under pressure. Additionally, the risk profile of home equity products,
particularly second lien mortgages in Florida, increased as real estate values fell and unemployment
increased in that state. In 2010, credit risk began to moderate. However, an elevated provision for loan
losses of $2.9 billion was the catalyst for the net loss available to common shareholders of $763 million
in 2010. Internally criticized loans and total non-accrual loans while still elevated, migrated in
favorable directions during 2010. Management is encouraged by these trends and is cautiously
optimistic that credit metrics will continue to trend favorably. However, unemployment remains high
throughout Regions’ footprint, property valuations continue to be pressured, and credit costs are
expected to remain elevated, as compared to historical levels. Management has therefore maintained
the allowance for credit losses at $3.3 billion to cover losses inherent in the loan portfolio. For more
information, refer to the following additional sections within this Form 10-K:
• 2010 Overview discussion in MD&A
• Discussion of Allowance for Credit Losses within the Critical Accounting Policies and Estimates
section of MD&A
• Other Real Estate Owned discussion within the Non-Interest Expense section of MD&A
• Loans discussion within the Balance Sheet Analysis section of MD&A
• Credit Risk section of MD&A
• Note 5 “Allowance for Credit Losses” to the consolidated financial statements
• Liquidity—At the end of 2010, Regions had interest-bearing deposits in other banks of $4.9 billion,
which primarily consist of deposits at the Federal Reserve. Additionally, the loan-to-deposit ratio was
88 percent. Regions’ policy is to maintain a sufficient level of funding to meet projected cash needs,
including all debt service, dividends, and maturities for the subsequent two years at the parent company
and for acceptable periods at the bank and other affiliates. The Company’s funding and contingency
planning does not rely on unsecured sources, although these markets are periodically tested to ensure
they are available. Maturities of loans and securities provide a constant flow of funds available for cash
needs. At December 31, 2010, the Company’s borrowing capacity with the Federal Reserve Discount
Window was $16.6 billion based on available collateral. Borrowing capacity with the FHLB was $1.2
billion based on available collateral at the same date. The Company also has a bank note program and
has issued senior and subordinated notes at the parent company level. Management believes the
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