Regions Bank 2010 Annual Report Download - page 82

Other Real Estate Owned Expense
Other real estate owned (“OREO”) expenses include the cost of adjusting foreclosed properties to fair value
after these assets have been classified as OREO and net gains and losses on sales of properties, as well as other
costs to maintain the property such as property taxes, security, and grounds maintenance. Through Regions’
efforts to sell foreclosed properties, OREO balances decreased $153 million to $454 million in 2010 compared to
$607 million in 2009. OREO expense increased $34 million to $209 million in 2010 compared to $175 million in
2009, primarily driven by valuation declines resulting from further deterioration of the housing and real estate
markets. See Note 9 “Foreclosed Properties” to the consolidated financial statements for more information.
Other-Than-Temporary Impairments (“OTTI”)
OTTI decreased $73 million during 2010 to $2 million compared to $75 million in 2009. The 2009 charges
are net of the non-credit portion recorded in accumulated other comprehensive income (loss). Other-than-
temporary impairment charges were minimal in 2010 due to the Company’s efforts to de-risk the portfolio and
the resulting portfolio composition. Refer to Note 3 “Securities” to the consolidated financial statements for
further discussion.
FDIC Premiums and Special Assessment
FDIC premiums increased in 2010 by $57 million to $220 million. The increases resulted from higher
premium rates applied to a higher level of insured deposit balances. On October 7, 2008, the FDIC increased the
rates banks pay for deposit insurance, while at the same time making adjustments to the system that determines
the rate a bank pays the FDIC. Under this and additional proposals, the assessment rate schedule was raised on
January 1, 2009. The bank regulatory agencies’ ratings, comprised of Regions Bank’s capital, asset quality,
management, earnings, liquidity and sensitivity to risk, along with its long-term debt issuer ratings and financial
ratios are the primary factors in determining FDIC insurance premiums.
During early 2009, Regions utilized its remaining assessment credits, which had previously offset a
substantial portion of premium cost. Regions qualified for a credit of approximately $110 million, which was
applied toward premiums in 2009, 2008 and 2007, thereby exhausting the credit. Under existing federal
regulations, every FDIC-insured institution will pay some level of deposit insurance assessments regardless of
the level of the designated reserve ratio. Regions incurred a $64 million special assessment in 2009 to help
replenish the Deposit Insurance Fund. Additionally, the FDIC required all institutions to prepay, by
December 31, 2009, estimated assessments for all of 2010, 2011 and 2012 based on the 2009 fourth quarter
assessment rate.
In February 2011, the FDIC adopted a final rule (the “New Assessment Rule”) to revise the deposit
insurance assessment system for large institutions. The New Assessment Rule changed the assessment base from
deposits as the basis and utilizes a risk-based approach which calculates the assessment using average
consolidated assets minus average tangible equity. Implementation of the New Assessment Rule is expected to
result in an increase in FDIC expense beginning in the second quarter of 2011. For a more detailed discussion of
the FDIC insurance assessment methodology and proposed changes, see the “Supervision and Regulation – FDIC
Insurance Assessments” section of “Item 1. Business” of this Annual Report on Form 10-K.
Loss on Early Extinguishment of Debt
During 2010, Regions prepaid approximately $2.0 billion of FHLB advances, realizing a $108 million
pre-tax loss on early extinguishment. These extinguishments were part of the Company’s asset/liability
management process.
Regulatory Charge
On April 7, 2010, the SEC, a joint state task force of securities regulators from Alabama, Kentucky,
Mississippi, and South Carolina and FINRA announced that they were commencing administrative proceedings
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