Regions Bank 2011 Annual Report Download - page 182

An analysis of the allowance for credit losses in the aggregate for the years ended December 31, 2010 and
2009 follows:
2010 2009
(In millions)
Allowance for loan losses at beginning of year ..................................... $3,114 $ 1,826
Provision for loan losses ....................................................... 2,863 3,541
Loan losses:
Charge-offs ......................................................... (2,912) (2,369)
Recoveries ......................................................... 120 116
Net loan losses ...................................................... (2,792) (2,253)
Allowance for loan losses at end of year .......................................... $3,185 $ 3,114
Reserve for unfunded credit commitments at beginning of year ........................ $ 74 $ 74
Provision for unfunded credit commitments ................................... (3) —
Reserve for unfunded credit commitments at end of year ............................. 71 74
Allowance for credit losses at end of year ......................................... $3,256 $ 3,188
PORTFOLIO SEGMENT RISK FACTORS
The following describe the risk characteristics relevant to each of the portfolio segments.
Commercial—The commercial loan portfolio segment includes commercial and industrial loans to
commercial customers for use in normal business operations to finance working capital needs, equipment
purchases or other expansion projects. Commercial also includes owner-occupied commercial real estate loans to
operating businesses, which are loans for long-term financing of land and buildings, and are repaid by cash flow
generated by business operations. Owner-occupied construction loans are made to commercial businesses for the
development of land or construction of a building where the repayment is derived from revenues generated from
the business of the borrower. Collection risk in this portfolio is driven by the creditworthiness of underlying
borrowers, particularly cash flow from customers’ business operations.
Investor Real Estate—Loans for real estate development are repaid through cash flow related to the
operation, sale or refinance of the property. This portfolio segment includes extensions of credit to real estate
developers or investors where repayment is dependent on the sale of real estate or income generated from the real
estate collateral. A portion of Regions’ investor real estate portfolio segment is comprised of loans secured by
residential product types (land, single-family and condominium loans) within Regions’ markets. Additionally,
these loans are made to finance income-producing properties such as apartment buildings, office and industrial
buildings, and retail shopping centers. Loans in this portfolio segment are particularly sensitive to valuation of
real estate.
Consumer—The consumer loan portfolio segment includes residential first mortgage, home equity, indirect,
consumer credit card, and other consumer loans. Residential first mortgage loans represent loans to consumers to
finance a residence. These loans are typically financed over a 15 to 30 year term and, in most cases, are extended
to borrowers to finance their primary residence. Home equity lending includes both home equity loans and lines
of credit. This type of lending, which is secured by a first or second mortgage on the borrower’s residence,
allows customers to borrow against the equity in their home. Real estate market values as of the time the loan or
line is secured directly affect the amount of credit extended and, in addition, changes in these values impact the
depth of potential losses. Indirect lending, which is lending initiated through third-party business partners, is
largely comprised of loans made through automotive dealerships. Consumer credit card includes approximately
500,000 Regions branded consumer credit card accounts purchased during 2011 from FIA Card Services. Other
consumer loans include direct consumer installment loans and overdrafts. Loans in this portfolio segment are
sensitive to unemployment and other key consumer economic measures.
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