REGIONS FINANCIAL CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM
TO

COMMISSION FILE NUMBER 0-6159

REGIONS FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE 63-0589368
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

417 NORTH 20TH STREET, BIRMINGHAM, ALABAMA 35203
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (205) 944-1300

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
of the registrant as of the last business day of the registrant's most recently
completed second fiscal quarter.

COMMON STOCK, $0.625 PAR VALUE -- $7,432,825,971 AS OF JUNE 28, 2002.

Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date.

COMMON STOCK, $0.625 PAR VALUE -- 221,754,135 SHARES ISSUED AND OUTSTANDING
AS OF FEBRUARY 28, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the annual proxy statement to be dated approximately April 14,
2003 are incorporated by reference into Part III.
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FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K, other periodic reports filed by Regions
under the Securities Exchange Act of 1934, as amended, and any other written or
oral statements made by or on behalf of Regions may include forward looking
statements which reflect Regions' current views with respect to future events
and financial performance. Such forward looking statements are based on general
assumptions and are subject to various risks, uncertainties, and other factors
that may cause actual results to differ materially from the views, beliefs, and
projections expressed in such statements. These risks, uncertainties and other
factors include, but are not limited to those described below.

Some factors are specific to Regions, including:

- The cost and other effects of material contingencies, including
litigation contingencies.

- Regions' ability to expand into new markets and to maintain profit
margins in the face of pricing pressures.

- Regions' ability to keep pace with technological changes.

- Regions' ability to develop competitive new products and services in a
timely manner and the acceptance of such products and services by
Regions' customers and potential customers.

- Regions' ability to effectively manage interest rate risk and other
market risk, credit risk and operational risk.

- Regions' ability to manage fluctuations in the value of assets and
liabilities and off-balance sheet exposure so as to maintain sufficient
capital and liquidity to support Regions' business.

- Regions' ability to achieve the earnings expectations related to the
businesses that were recently acquired or that may be acquired in the
future, which in turn depends on a variety of factors, including:

- Regions' ability to achieve the anticipated cost savings and revenue
enhancements with respect to the acquired operations;

- the assimilation of the acquired operations to Regions' corporate
culture, including the ability to instill Regions' credit practices and
efficient approach to the acquired operations; and

- the continued growth of the markets that the acquired entities serve,
consistent with recent historical experience.

Other factors which may affect Regions apply to the financial services
industry more generally, including:

- Further easing of restrictions on participants in the financial services
industry, such as banks, securities brokers and dealers, investment
companies and finance companies, may increase competitive pressures.

- Possible changes in interest rates may increase funding costs and reduce
earning asset yields, thus reducing margins.

- Possible changes in general economic and business conditions in the
United States and the South in general and in the communities Regions
serves in particular may lead to a deterioration in credit quality,
thereby increasing provisioning costs, or a reduced demand for credit,
thereby reducing earning assets.

- The threat or occurrence of war or acts of terrorism and the existence or
exacerbation of general geopolitical instability and uncertainty.

- Possible changes in trade, monetary and fiscal policies, laws, and
regulations, and other activities of governments, agencies, and similar
organizations, including changes in accounting standards, may have an
adverse effect on business.

- Possible changes in consumer and business spending and saving habits
could affect Regions' ability to increase assets and to attract deposits.

The words "believe," "expect," "anticipate," "project," and similar
expressions signify forward looking statements. Readers are cautioned not to
place undue reliance on any forward looking statements made by or on behalf of
Regions. Any such statement speaks only as of the date the statement was made.
Regions undertakes no obligation to update or revise any forward looking
statements.

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PART I

ITEM 1. BUSINESS

Regions Financial Corporation (together with its subsidiaries on a
consolidated basis, "Regions"), is a financial holding company headquartered in
Birmingham, Alabama, which operates primarily within the southeastern United
States. Regions' operations consist of banking, brokerage and investment
services, mortgage banking, insurance brokerage, credit life insurance,
commercial accounts receivable factoring and specialty financing. At December
31, 2002, Regions had total consolidated assets of approximately $47.9 billion,
total consolidated deposits of approximately $32.9 billion, and total
consolidated stockholders' equity of approximately $4.2 billion.

Regions is a Delaware corporation which began operations in 1971. Regions'
principal executive offices are located at 417 North 20th Street, Birmingham,
Alabama 35203, and its telephone number at such address is (205) 944-1300.

BANKING OPERATIONS

Regions Financial Corporation conducts its banking operations through
Regions Bank, an Alabama chartered commercial bank which is a member of the
Federal Reserve System. At December 31, 2002, Regions Bank operated 689 full
service banking offices in Alabama, Arkansas, Florida, Georgia, Louisiana, North
Carolina, South Carolina, Tennessee and Texas.

The following chart reflects the distribution of total assets, loans,
deposits and branches in each of the states in which Regions conducts its
banking operations.

BANKING RELATED OPERATIONS

In addition to its banking operations, Regions provides additional
financial services through the following banking-related subsidiaries:

- Morgan Keegan & Company, Inc., acquired in 2001 and a subsidiary of
Regions Financial Corporation, is a regional full-service brokerage and
investment banking firm. Morgan Keegan offers products and services
including securities brokerage, asset management, financial planning,
mutual funds, securities underwriting, sales and trading, and investment
banking. Morgan Keegan, one of the largest investment firms based in the
South, employs approximately 900 financial advisors offering products and
services from 142 offices located in Alabama, Arkansas, Florida, Georgia,
Illinois, Kentucky, Massachusetts, Mississippi, New York, Louisiana,
North Carolina, South Carolina, Tennessee, Texas, and Virginia.

- Regions Mortgage, Inc. ("RMI") and EquiFirst Corporation ("EquiFirst"),
subsidiaries of Regions Bank, are engaged in mortgage banking. RMI's
primary business and source of income is the origination and servicing of
mortgage loans for long-term investors. EquiFirst typically originates
mortgage loans which are sold to third-party investors with servicing
released. RMI's servicing portfolio totaled approximately $17.3 billion
and included approximately 218,000 real estate mortgages at December 31,
2002. RMI and EquiFirst operate from loan production offices in

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Alabama, Arkansas, Florida, Georgia, Louisiana, North Carolina, South Carolina,
Tennessee and Texas and from wholesale operations throughout much of the United
States.

- Rebsamen Insurance, Inc., acquired in 2001 and a subsidiary of Regions
Financial Corporation, acts as a general insurance broker for a full-line
of insurance products, primarily focusing on commercial property and
casualty insurance customers.

- Regions Agency, Inc., a subsidiary of Regions Financial Corporation, acts
as an insurance agent or broker with respect to credit life and accident
and health insurance and other types of insurance relating to extensions
of credit by Regions Bank or Regions' banking-related subsidiaries.

- Regions Life Insurance Company, a subsidiary of Regions Financial
Corporation, acts as a re-insurer of credit life and accident and health
insurance in connection with the activities of certain affiliates of
Regions.

- Regions Interstate Billing Service, Inc. ("RIBS"), a subsidiary of
Regions Financial Corporation, factors commercial accounts receivable and
performs billing and collection services. RIBS primarily serves clients
related to the trucking and automotive service industry.

ACQUISITION PROGRAM

A substantial portion of the growth of Regions since commencing operations
in 1971 has been through the acquisition of other financial institutions,
including commercial banks and thrift institutions, and the assets and deposits
thereof. Since it began operations as a bank holding company, Regions has
completed 102 acquisitions of financial institutions and financial service
providers representing in aggregate (at the time the acquisitions were
completed) approximately $28.2 billion in assets. During 2002, Regions'
acquisition activity was substantially slower than in prior years. As part of
its ongoing strategic plan, Regions continually evaluates business combination
opportunities. As a result, business combination discussions and, in some cases,
negotiations take place, and future business combinations involving cash, debt,
or equity securities can be expected. Any future business combination or series
of business combinations that Regions might undertake may be material, in terms
of assets acquired or liabilities assumed, to Regions' financial condition.
Recent business combinations in the financial services industry have typically
involved the payment of a premium over book and market values. This practice
could result in dilution of book value and net income per share for the
acquirer.

SEGMENT INFORMATION

Reference is made to Note W "Business Segment Information" to the
consolidated financial statements included under Item 8 of this Annual Report on
Form 10-K for information required by this item.

SUPERVISION AND REGULATION

General. Regions Financial Corporation is a financial holding company,
registered with the Board of Governors of the Federal Reserve System under the
Bank Holding Company Act of 1956, as amended ("BHC Act"). As such, Regions
Financial Corporation and its subsidiaries are subject to the supervision,
examination, and reporting requirements of the BHC Act and the regulations of
the Federal Reserve.

The Gramm-Leach-Bliley Act, adopted in 1999, significantly relaxed
previously existing restrictions on the activities of banks and bank holding
companies. Under such legislation, an eligible bank holding company may elect to
be a "financial holding company" and thereafter may engage in a range of
activities that are financial in nature and that were not previously permissible
for banks and bank holding companies. A financial holding company may engage
directly or through a subsidiary in the statutorily authorized activities of
securities dealing, underwriting, and market making, insurance underwriting and
agency activities, merchant banking, and insurance company portfolio
investments. A financial holding company also may engage in any activity that
the Federal Reserve determines by rule or order to be financial in nature,
incidental to such financial activity, or complementary to a financial activity
and that does not pose a substantial risk to the safety and soundness of an
institution or to the financial system generally.

In addition to these activities, a financial holding company may engage in
those activities permissible for a bank holding company including factoring
accounts receivable, acquiring and servicing loans, leasing personal property,

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performing certain data processing services, acting as agent or broker in
selling credit life insurance and certain other types of insurance in connection
with credit transactions, and conducting certain insurance underwriting
activities. The BHC Act does not place territorial limitations on permissible
nonbanking activities of bank holding companies. Despite prior approval, the
Federal Reserve has the power to order any bank holding company or its
subsidiaries to terminate any activity or to terminate its ownership or control
of any subsidiary when the Federal Reserve has reasonable grounds to believe
that continuation of such activity or such ownership or control constitutes a
serious risk to the financial soundness, safety, or stability of any bank
subsidiary of the bank holding company.

The Gramm-Leach-Bliley Act also permits securities brokerage firms and
insurance companies to own banks and bank holding companies. The Act also seeks
to streamline and coordinate regulation of integrated financial holding
companies, providing generally for "umbrella" regulation of financial holding
companies by the Federal Reserve, and for functional regulation of banking
activities by bank regulators, securities activities by securities regulators,
and insurance activities by insurance regulators.

For a bank holding company to be eligible for financial holding company
status, all of its subsidiary financial institutions must be well-capitalized
and well-managed. A bank holding company may become a financial holding company
by filing a declaration with the Federal Reserve that it elects to become a
financial holding company. The Federal Reserve must deny expanded authority to
any bank holding company that received less than a satisfactory rating on its
most recent Community Reinvestment Act of 1977 (the "CRA") review as of the time
it submits its declaration. If, after becoming a financial holding company and
undertaking activities not permissible for a bank holding company, the company
fails to continue to meet one of the prerequisites for financial holding company
status, the company must enter into an agreement with the Federal Reserve to
comply with all applicable capital and management requirements. If the company
does not return to compliance within 180 days, the Federal Reserve may order the
company to divest its subsidiary banks or the company may discontinue or divest
its non-permissible activities.

The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5.0% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (iii) it may merge or consolidate with any other bank
holding company.

The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues includes the
parties' performance under the CRA, both of which are discussed below.

Regions Bank is a member of the Federal Deposit Insurance Corporation
("FDIC"), and as such, its deposits are insured by the FDIC to the extent
provided by law. Regions Bank is also subject to numerous state and federal
statutes and regulations that affect its business activities and operations, and
is supervised and examined by one or more state or federal bank regulatory
agencies.

Regions Bank is a state-chartered bank. Regions Bank is a member of the
Federal Reserve System and is subject to supervision and examination by the
Federal Reserve and the state banking authority of Alabama, the state in which
it is headquartered. The Federal Reserve and the Alabama Department of Banking
regularly examine the operations of Regions Bank and are given authority to
approve or disapprove mergers, consolidations, the establishment of branches,
and similar corporate actions. Regions Bank is also subject to oversight and
examination by the appropriate regulators in the other states in which it
operates. The federal and state banking regulators also have the power to
prevent the continuance or development of unsafe or unsound banking practices or
other violations of law.

4

Community Reinvestment Act. Regions Bank is subject to the provisions of
the CRA. Under the terms of the CRA, Regions Bank has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires each appropriate federal bank regulatory agency, in connection with its
examination of a subsidiary depository institution, to assess such institution's
record in assessing and meeting the credit needs of the community served by that
institution, including low- and moderate-income neighborhoods. The regulatory
agency's assessment of the institution's record is made available to the public.
The assessment also is part of the Federal Reserve's consideration of
applications to acquire, merge or consolidate with another banking institution
or its holding company, to establish a new branch office that will accept
deposits or to relocate an office. In the case of a bank holding company
applying for approval to acquire a bank or other bank holding company, the
Federal Reserve will assess the records of each subsidiary depository
institution of the applicant bank holding company, and such records may be the
basis for denying the application. Regions Bank received a "satisfactory" CRA
rating in its most recent examination.

Patriot Act. On October 26, 2001, President Bush signed into law
comprehensive anti-terrorism legislation known as the USA Patriot Act. Title III
of the USA Patriot Act requires financial institutions, including Regions'
banking, broker-dealer, and insurance subsidiaries, to help prevent, detect and
prosecute international money laundering and the financing of terrorism. During
2002, the Secretary of the Treasury issued additional regulations to implement
Title III affecting Regions' banking and broker-dealer subsidiaries. Regions'
banking, broker-dealer and insurance subsidiaries have augmented their systems
and procedures to meet the requirements of these regulations. Additionally,
during 2002, the Secretary of the Treasury issued proposed further regulations
to implement Title III that would affect Regions' banking, broker-dealer and
insurance subsidiaries. Although Regions cannot predict when and in what form
these additional regulations will be adopted, Regions believes that the cost of
compliance with Title III of the USA Patriot Act is not likely to be material to
Regions.

Payment of Dividends. Regions Financial Corporation is a legal entity
separate and distinct from its banking and other subsidiaries. The principal
source of cash flow of Regions Financial Corporation, including cash flow to pay
dividends to its stockholders, is dividends from Regions Bank. There are
statutory and regulatory limitations on the payment of dividends by Regions Bank
to Regions Financial Corporation as well as by Regions Financial Corporation to
its stockholders.

As to the payment of dividends, Regions Bank is subject to the laws and
regulations of the state of Alabama and to the regulations of the Federal
Reserve.

If, in the opinion of a federal regulatory agency, an institution under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the institution, could
include the payment of dividends), such agency may require, after notice and
hearing, that such institution cease and desist from such practice. The federal
banking agencies have indicated that paying dividends that deplete an
institution's capital base to an inadequate level would be an unsafe and unsound
banking practice. Under the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"), an insured institution may not pay any dividend if
payment would cause it to become undercapitalized or if it already is
undercapitalized. See "Prompt Corrective Action." Moreover, the Federal Reserve
and the FDIC have issued policy statements stating that bank holding companies
and insured banks should generally pay dividends only out of current operating
earnings.

At December 31, 2002, under dividend restrictions imposed under federal and
state laws, Regions Bank, without obtaining governmental approvals, could
declare aggregate dividends to Regions Financial Corporation of approximately
$538 million.

The payment of dividends by Regions Financial Corporation and Regions Bank
may also be affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines.

Capital Adequacy. Regions Financial Corporation and Regions Bank are
required to comply with the capital adequacy standards established by the
Federal Reserve. There are two basic measures of capital adequacy for bank
holding companies that have been promulgated by the Federal Reserve: a
risk-based measure and a leverage measure. All applicable capital standards must
be satisfied for a financial holding company to be considered in compliance.

5

The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in credit and market risk profile
among banks and bank holding companies, to account for off-balance-sheet
exposure, and to minimize disincentives for holding liquid assets. Assets and
off-balance sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items.

The minimum guideline for the ratio of total capital ("Total Capital") to
risk-weighted assets (including certain off-balance-sheet items, such as standby
letters of credit) is 8.0%. At least half of the Total Capital must be composed
of common equity, undivided profits, minority interests in the equity accounts
of consolidated subsidiaries, noncumulative perpetual preferred stock, and a
limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 Capital"). The remainder may consist of
subordinated debt, other preferred stock, and a limited amount of allowance for
loan losses. The minimum guideline for Tier 1 Capital is 4.0%. At December 31,
2002, Regions' consolidated Tier 1 Capital ratio was 8.98% and its Total Capital
ratio was 13.84%.

In addition, the Federal Reserve has established minimum leverage ratio
guidelines for financial holding companies. These guidelines provide for a
minimum ratio of Tier 1 Capital to average assets, less goodwill and certain
other intangible assets (the "Leverage Ratio"), of 3.0% for bank holding
companies that meet certain specified criteria, including having the highest
regulatory rating. All other bank holding companies generally are required to
maintain a Leverage Ratio of at least 3.0%, plus an additional cushion of 100 to
200 basis points. Regions' Leverage Ratio at December 31, 2002, was 6.92%. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it
will consider a "tangible Tier 1 Capital leverage ratio" (deducting all
intangibles) and other indicators of capital strength in evaluating proposals
for expansion or new activities.

Regions Bank is subject to substantially similar risk-based and leverage
capital requirements as those applicable to Regions. Regions Bank was in
compliance with applicable minimum capital requirements as of December 31, 2002.
Neither Regions nor Regions Bank has been advised by any federal banking agency
of any specific minimum capital ratio requirement applicable to it.

Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business. See "Prompt Corrective
Action."

Support of Subsidiary Banks. Under Federal Reserve policy, Regions
Financial Corporation is expected to act as a source of financial strength to,
and to commit resources to support, Regions Bank. This support may be required
at times when, absent such Federal Reserve policy, Regions Financial Corporation
may not be inclined to provide it. In addition, any capital loans by a financial
holding company to its subsidiary banks are subordinate in right of payment to
deposits and to certain other indebtedness of such subsidiary banks. In the
event of a bank holding company's bankruptcy, any commitment by the bank holding
company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment.

Prompt Corrective Action. FDICIA establishes a system of prompt corrective
action to resolve the problems of undercapitalized institutions. Under this
system, which became effective in 1992, the federal banking regulators are
required to establish five capital categories ("well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized") and to take certain mandatory supervisory
actions, and are authorized to take other discretionary actions, with respect to
institutions in the three undercapitalized categories, the severity of which
will depend upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, FDICIA requires the banking regulator
to appoint a receiver or conservator for an institution that is critically
undercapitalized. The federal banking agencies have specified by regulation the
relevant capital level for each category.

Under the agency rule implementing the prompt corrective action provisions,
an institution that (i) has a Total Capital ratio of 10.0% or greater, a Tier 1
Capital ratio of 6.0% or greater, and a Leverage Ratio of 5.0% or greater and
(ii) is not subject to any written agreement, order, capital directive, or
prompt corrective action directive issued by the appropriate federal banking
agency is deemed to be "well capitalized." An institution with a Total Capital
ratio of 8.0% or greater, a Tier 1 Capital ratio of 4.0% or greater, and a
Leverage Ratio of 4.0% or greater is considered to be "adequately capitalized."
A depository institution that has a Total Capital ratio of less than 8.0%, a
Tier 1 Capital ratio of less than

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4.0%, or a Leverage Ratio of less than 4.0% is considered to be
"undercapitalized." An institution that has a Total Capital ratio of less than
6.0%, a Tier 1 Capital ratio of less than 3.0%, or a Leverage Ratio of less than
3.0% is considered to be "significantly undercapitalized," and an institution
that has a tangible equity capital to assets ratio equal to or less than 2.0% is
deemed to be "critically undercapitalized." For purposes of the regulation, the
term "tangible equity" includes core capital elements counted as Tier 1 Capital
for purposes of the risk-based capital standards plus the amount of outstanding
cumulative perpetual preferred stock (including related surplus), minus all
intangible assets with certain exceptions. A depository institution may be
deemed to be in a capitalization category that is lower than is indicated by its
actual capital position if it receives an unsatisfactory examination rating.

An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain limitations.
The obligation of a controlling bank holding company under FDICIA to fund a
capital restoration plan is limited to the lesser of 5.0% of an undercapitalized
subsidiary's assets or the amount required to meet regulatory capital
requirements. An undercapitalized institution is also generally prohibited from
increasing its average total assets, making acquisitions, establishing any
branches, or engaging in any new line of business, except in accordance with an
accepted capital restoration plan or with the approval of the FDIC. In addition,
the appropriate federal banking agency is given authority with respect to any
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.

For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan, the appropriate
federal banking agency must require the institution to take one or more of the
following actions: sell enough shares, including voting shares, to become
adequately capitalized; merge with (or be sold to) another institution (or
holding company), but only if grounds exist for appointing a conservator or
receiver; restrict certain transactions with banking affiliates as if the
"sister bank" exception to the requirements of Section 23A of the Federal
Reserve Act did not exist; otherwise restrict transactions with bank or nonbank
affiliates; restrict interest rates that the institution pays on deposits to
"prevailing rates" in the institution's "region"; restrict asset growth or
reduce total assets; alter, reduce, or terminate activities; hold a new election
of directors; dismiss any director or senior executive officer who held office
for more than 180 days immediately before the institution became
undercapitalized, provided that in requiring dismissal of a director or senior
officer, the agency must comply with certain procedural requirements, including
the opportunity for an appeal in which the director or officer will have the
burden of proving his or her value to the institution; employ "qualified" senior
executive officers; cease accepting deposits from correspondent depository
institutions; divest certain nondepository affiliates which pose a danger to the
institution; or be divested by a parent holding company. In addition, without
the prior approval of the appropriate federal banking agency, a significantly
undercapitalized institution may not pay any bonus to any senior executive
officer or increase the rate of compensation for such an officer without
regulatory approval.

At December 31, 2002, Regions Bank had the requisite capital levels to
qualify as well capitalized.

FDIC Insurance Assessments. Pursuant to FDICIA, the FDIC adopted a
risk-based assessment system for insured depository institutions that takes into
account the risks attributable to different categories and concentrations of
assets and liabilities. The risk-based system, which went into effect in 1994,
assigns an institution to one of three capital categories: (1) well capitalized;
(2) adequately capitalized; and (3) undercapitalized, as determined by capital
reported by the institution in the quarterly report issued before each
assessment period. Each institution also is assigned by the FDIC to one of three
supervisory subgroups within each capital group. The supervisory subgroup to
which an institution is assigned is based on a supervisory evaluation provided
to the FDIC by the institution's primary federal regulator and information which
the FDIC determines to be relevant to the institution's financial condition and
the risk posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor). An institution's
insurance assessment rate is then determined based on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, there are nine assessment risk classifications (i.e.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied.

Regions Bank is assessed at the well-capitalized level where the premium
rate is currently zero. Like all insured banks, Regions Bank also must pay a
quarterly assessment of approximately $.02 per $100 of assessable deposits to
pay

7

off bonds that were issued in the late 1980's by a mixed-ownership government
corporation, the Financing Corporation, to raise funds to cover costs of the
resolution of the savings and loan crisis.

Under the Federal Deposit Insurance Act ("FDIA"), insurance of deposits may
be terminated by the FDIC upon a finding that the institution has engaged in
unsafe and unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order, or
condition imposed by the FDIC.

Safety and Soundness Standards. The FDIA, as amended by FDICIA and the
Riegle Community Development and Regulatory Improvement Act of 1994, requires
the federal bank regulatory agencies to prescribe standards, by regulations or
guidelines, relating to internal controls, information systems and internal
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, asset quality, earnings, stock valuation and
compensation, fees and benefits and such other operational and managerial
standards as the agencies deem appropriate. In 1995, the federal bank regulatory
agencies adopted guidelines prescribing safety and soundness standards pursuant
to FDICIA, as amended. The guidelines establish general standards relating to
internal controls and information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
compensation, fees and benefits. In general, the guidelines require, among other
things, appropriate systems and practices to identify and manage the risk and
exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as
excessive when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director, or principal
stockholder. In addition, the agencies adopted regulations that authorize, but
do not require, an agency to order an institution that has been given notice by
an agency that it is not satisfying any of such safety and soundness standards
to submit a compliance plan. If, after being so notified, an institution fails
to submit an acceptable compliance plan or fails in any material respect to
implement an acceptable compliance plan, the agency must issue an order
directing action to correct the deficiency and may issue an order directing
other actions of the types to which an undercapitalized institution is subject
under the "prompt corrective action" provisions of FDICIA. See "Prompt
Corrective Action." If an institution fails to comply with such an order, the
agency may seek to enforce such order in judicial proceedings and to impose
civil money penalties. The federal bank regulatory agencies also proposed
guidelines for asset quality and earnings standards.

Depositor Preference. The Omnibus Budget Reconciliation Act of 1993
provides that deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution would be
afforded a priority over other general unsecured claims against such an
institution in the "liquidation or other resolution" of such an institution by
any receiver.

Regulation of Morgan Keegan. As a registered investment adviser and
broker-dealer, Morgan Keegan is subject to regulation and examination by the
Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD"), the New York Stock Exchange ("NYSE"), and other
self regulatory organizations ("SROs"), which may affect its manner of operation
and profitability. Such regulations cover a broad range of subject matters.
Rules and regulations for registered broker-dealers cover such issues as:
capital requirements; sales and trading practices; use of client funds and
securities; the conduct of directors, officers, and employees; record-keeping
and recording; supervisory procedures to prevent improper trading on material
non-public information; qualification and licensing of sales personnel; and
limitations on the extension of credit in securities transactions. Rules and
regulations for registered investment advisers include the limitations on the
ability of investment advisers to charge performance-based or non-refundable
fees to clients, record-keeping and reporting requirements, disclosure
requirements, limitations on principal transactions between an adviser or its
affiliates and advisory clients, and anti-fraud standards.

Morgan Keegan is subject to the net capital requirements set forth in Rule
15c3-1 of the Securities Exchange Act of 1934, as amended ("Exchange Act"). The
net capital requirements measure the general financial condition and liquidity
of a broker-dealer by specifying a minimum level of net capital that a
broker-dealer must maintain, and by requiring that a significant portion of its
assets be kept liquid. If Morgan Keegan failed to maintain its minimum required
net capital, it would be required to cease executing customer transactions until
it came back into compliance. This could also result in Morgan Keegan losing its
NASD membership, its registration with the SEC, or require a complete
liquidation.

The SEC's risk assessment rules also apply to Morgan Keegan as a registered
broker-dealer. These rules require broker-dealers to maintain and preserve
records and certain information, describe risk management policies and
procedures, and report on the financial condition of affiliates whose financial
and securities activities are reasonably likely

8

to have a material impact on the financial and operational condition of the
broker-dealer. Certain "material associated persons" of Morgan Keegan, as
defined in the risk assessment rules, may also be subject to SEC regulation.

In addition to federal registration, state securities commissions require
the registration of certain broker-dealers and investment advisers. Morgan
Keegan is registered as an investment adviser in the following states: Alabama,
Arkansas, California, Connecticut, Delaware, District of Columbia, Florida,
Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana,
Maine, Maryland, Michigan, Minnesota, Missouri, Mississippi, Montana, Nebraska,
Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio,
Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota,
Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, and
Wisconsin. Morgan Keegan is registered as a broker-dealer with the following
states: Alaska, Alabama, Arkansas, Arizona, California, Colorado, Connecticut,
Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois,
Indiana, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Maryland, Maine,
Michigan, Minnesota, Missouri, Mississippi, Montana, North Carolina, North
Dakota, Nebraska, New Hampshire, New Jersey, New Mexico, Nevada, New York, Ohio,
Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, South
Dakota, Tennessee, Texas, Utah, Virginia, Vermont, Washington, Wisconsin, West
Virginia, and Wyoming.

Violations of federal, state, and SRO rules or regulations may result in
the revocation of broker-dealer or investment adviser licenses, imposition of
censures or fines, the issuance of cease and desist orders, and the suspension
or expulsion of officers and employees from the securities business firm. In
addition, Morgan Keegan's business may be materially affected by new rules and
regulations issued by the SEC or SROs as well as any changes in the enforcement
of existing laws and rules that affect its securities business.

Other. The United States Congress continues to consider a number of
wide-ranging proposals for altering the structure, regulation, and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or in what form further legislation may be adopted or the extent to
which Regions' business may be affected thereby.

COMPETITION

All aspects of Regions' business are highly competitive. Regions'
subsidiaries compete with other financial institutions located in Alabama,
Arkansas, northwest and central Florida, Georgia, Louisiana, North Carolina,
South Carolina, Tennessee, Texas and other adjoining states, as well as large
banks in major financial centers and other financial intermediaries, such as
savings and loan associations, credit unions, consumer finance companies,
brokerage firms, insurance companies, investment companies, mutual funds, other
mortgage companies and financial service operations of major commercial and
retail corporations.

Customers for banking services and other financial services offered by
Regions' subsidiaries are generally influenced by convenience, quality of
service, personal contacts, price of services, and availability of products.
Although the ranking of Regions' position varies in different markets, Regions
believes that its affiliates effectively compete with other financial services
companies in their relevant market areas.

EMPLOYEES

As of December 31, 2002, Regions and its subsidiaries had a total of 15,695
full-time-equivalent employees.

AVAILABLE INFORMATION

Regions maintains a website at www.regions.com. Regions makes available on
its website free of charge its annual reports on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K, and amendments to those reports which
are filed or furnished to the SEC pursuant to Section 13(a) of the Exchange Act.
These documents are made available on Regions' website as soon as reasonably
practicable after they are electronically filed with or furnished to the SEC.
You may also request a copy of these filings, at no cost, by writing or
telephoning Regions at the following address:

ATTENTION: Investor Relations
REGIONS FINANCIAL CORPORATION
417 North 20th Street
Birmingham, Alabama 35203
(205) 944-1300

9

ITEM 2. PROPERTIES

Regions' corporate headquarters occupy several floors of the main banking
facility of Regions Bank, located at 417 North 20th Street, Birmingham, Alabama
35203.

Regions and its subsidiaries, including Regions Bank and Morgan Keegan,
operate through 928 office facilities, of which 692 are owned by Regions or one
of its subsidiaries and 236 are subject to building or ground leases. Of the 689
branch office facilities operated by Regions Bank at December 31, 2002, 520 are
owned by Regions Bank and 169 are subject to building or ground leases. Of the
office facilities operated by Morgan Keegan at December 31, 2002, 79 are owned
by Regions or Morgan Keegan and 63 are subject to building or ground leases.

For offices in premises leased by Regions and its subsidiaries, annual
rentals totaled approximately $36.1 million as of December 31, 2002. During
2002, Regions and its subsidiaries received approximately $9.1 million in
rentals for space leased to others. At December 31, 2002, there were no
significant encumbrances on the offices, equipment and other operational
facilities owned by Regions and its subsidiaries.

See ITEM 1. BUSINESS of this annual report for a description of the states
in which Regions Bank's branches and Morgan Keegan's offices are located.

ITEM 3. LEGAL PROCEEDINGS

Reference is made to Note M "Commitments and Contingencies," to the
consolidated financial statements included under Item 8 of this Annual Report on
Form 10-K.

Regions continues to be concerned about the general trend in litigation in
state and other courts involving large damage awards against financial service
company defendants. Regions directly or through its subsidiaries is party to
approximately 135 cases in the ordinary course of business, some of which seek
class action treatment or punitive damages.

Notwithstanding these concerns, Regions believes, based on consultation
with legal counsel, that the outcome of pending litigation will not have a
material effect on Regions' consolidated financial position but could impact
operating results for a particular reporting period.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to security holders for a vote during the fourth
quarter of 2002.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS

Common Stock Market Prices and Dividend information for the year ended
December 31, 2002, is included under Item 8 of this Annual Report filed on Form
10-K in Note Y to the consolidated financial statements.

10

ITEM 6. SELECTED FINANCIAL DATA

HISTORICAL FINANCIAL SUMMARY

REGIONS FINANCIAL CORPORATION & SUBSIDIARIES

11

REGIONS FINANCIAL CORPORATION & SUBSIDIARIES

HISTORICAL FINANCIAL SUMMARY -- (CONTINUED)

- ---------------

The ratios disclosed in the following footnotes exclude certain
non-recurring items which management believes aid the reader in evaluating
normalized trends.
(a) In 2002, Regions adopted Statement 142 which eliminated amortization of
excess purchase price. See Note X to the consolidated financial statements
for comparisons with prior years.
(b) Ratios for 2001 excluding $17.8 million in after-tax merger and other
non-recurring charges are as follows: Return on average stockholders' equity
13.96%, Return on average total assets 1.18%, and Efficiency 60.91%.
(c) Ratios for 2000 excluding $44.0 million in after-tax gain from sale of
credit card portfolio and $26.2 million in after-tax loss from sale of
securities are as follows: Return on average stockholders' equity 15.76%,
Return on average total assets 1.19%, and Efficiency 56.19%.
(d) Ratios for 1998 excluding $80.7 million in after-tax charges for merger and
consolidation charges are as follows: Return on average stockholders' equity
17.42%, Return on average total assets 1.48%, and Efficiency 54.13%.
(e) The efficiency ratio is the quotient of non-interest expense divided by the
sum of net interest income (on a tax equivalent basis) and non-interest
income (excluding securities gains and losses). This ratio is commonly used
by financial institutions as a measure of productivity.

12

REGIONS FINANCIAL CORPORATION & SUBSIDIARIES

HISTORICAL FINANCIAL SUMMARY -- CONTINUED

- ---------------

Notes to Historical Financial Summary:

(1) Amounts in all periods have been restated to reflect significant business
transactions accounted for as poolings of interests.

(2) All per share amounts give retroactive recognition to the effect of stock
dividends and stock splits.

(3) Non-accruing loans, of an immaterial amount, are included in earning assets.
No adjustment has been made for these loans in the calculation of yields.

(4) Yields are computed on a taxable equivalent basis, net of interest
disallowance, using marginal federal income tax rates of 35% for 2002-1997.

(5) This summary should be read in conjunction with the related consolidated
financial statements and notes thereto under Item 8 on pages 50 to 88 of
this Annual Report on Form 10-K.

14

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

GENERAL

The following discussion and financial information is presented to aid in
understanding Regions' financial position and results of operations. The
emphasis of this discussion will be on the years 2000, 2001 and 2002; however,
financial information for prior years will also be presented when appropriate.

Regions' primary business is providing traditional commercial and retail
banking services to customers throughout the South. Regions' banking subsidiary,
Regions Bank, operates as an Alabama state-chartered bank with operations in
Alabama, Arkansas, Florida, Georgia, Louisiana, North Carolina, South Carolina,
Tennessee and Texas. In 2002, Regions Bank contributed approximately $573
million to consolidated net income.

In addition to providing traditional commercial and retail banking
services, Regions provides other financial services in the fields of investment
banking, asset management, trust, mutual funds, securities brokerage, mortgage
banking, insurance, leasing and other specialty financing. Regions has no
foreign operations, although it maintains an international department to assist
customers with their foreign transactions. Regions provides investment banking
and brokerage services through 142 offices of Morgan Keegan & Company, Inc.
("Morgan Keegan"), one of the largest investment firms based in the South.
Regions acquired Morgan Keegan in March 2001, and it contributed approximately
$51.5 million to net income in 2002. Regions mortgage banking subsidiaries,
Regions Mortgage, Inc. ("RMI") and EquiFirst Corporation ("EquiFirst"), provide
residential mortgage loan origination and servicing activities for customers.
RMI services approximately $17.3 billion in mortgage loans and in 2002
contributed approximately $13.1 million to net income, while EquiFirst
contributed $20.5 million to net income. Regions provides full-line insurance
brokerage services through Rebsamen Insurance, Inc., one of the 50 largest
insurance brokers in the country. Regions acquired Rebsamen in February 2001,
and it contributed approximately $5.5 million to net income in 2002. Credit life
insurance services for customers are provided through other Regions' affiliates.

The Company's principal market areas are located in the states of Alabama,
Arkansas, Florida, Georgia, Louisiana, North Carolina, South Carolina, Tennessee
and Texas. Morgan Keegan also operates offices in Illinois, Kentucky,
Mississippi, New York, Massachusetts and Virginia.

CRITICAL ACCOUNTING POLICIES

In preparing financial information, management is required to make
significant estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses for the periods shown. The accounting
principles followed by Regions and the methods of applying these principles
conform with accounting principles generally accepted in the United States and
general banking practices. Estimates and assumptions most significant to Regions
are related primarily to allowance for loan losses, intangibles, income taxes,
securitizations and pensions and are summarized in the following discussion and
notes to the consolidated financial statements.

Management's determination of the adequacy of the allowance for loan
losses, which is based on the factors and risk identification procedures
discussed in the following pages, requires the use of judgments and estimates
that may change in the future. Changes in the factors used by management to
determine the adequacy of the allowance or the availability of new information
could cause the allowance for loan losses to be increased or decreased in future
periods. In addition, bank regulatory agencies, as part of their examination
process, may require that additions be made to the allowance for loan losses
based on their judgments and estimates.

Regions' excess purchase price (the amount in excess of book value of
acquired institutions) is reviewed at least annually to ensure that there have
been no events or circumstances resulting in an impairment of the recorded
amount of excess purchase price. Adverse changes in the economic environment,
operations of acquired business units, or other factors could result in a
decline in projected fair values. If the estimated fair value is less than the
carrying amount, a loss would be recognized to reduce the carrying amount to
implied fair value.

For purposes of evaluating mortgage servicing impairment, Regions
stratifies its mortgage servicing portfolio on the basis of certain risk
characteristics including loan type and contractual note rate. Changes in
interest rates, prepayment

15

speeds or other factors could result in impairment of the servicing asset and a
charge against earnings to reduce the recorded carrying amount.

Management's determination of the realization of the deferred tax asset is
based upon management's judgment of various future events and uncertainties,
including the timing and amount of future income earned by certain subsidiaries
and the implementation of various tax plans to maximize realization of the
deferred tax asset. Management believes that the subsidiaries will generate
sufficient operating earnings to realize the deferred tax benefits. Regions'
recent consolidated federal income tax returns are open for examination. From
time to time Regions engages in business plans that may also have an effect on
its tax liabilities. While Regions has obtained the opinion of advisors that the
tax aspects of these plans should prevail, examination of Regions' income tax
returns or changes in tax law may impact these plans and resulting provisions
for income taxes.

Management is required to make various assumptions in valuing its pension
assets and liabilities. These assumptions include the expected rate of return on
plan assets, the discount rate, and the rate of increase in future compensation
levels. Changes to these assumptions could impact earnings in future periods.
Regions takes into account the plan asset mix and expert opinions in determining
the expected rate of return on plan assets. Regions considers the Moody's AA
Corporate Bond yields and other market interest rates in setting the appropriate
discount rate. In addition, Regions reviews expected inflationary and merit
increases to compensation in determining the rate of increase in future
compensation levels.

During 2002, Regions securitized automobile loans as a source of funding.
Regions accounted for this transaction as a sale in accordance with the guidance
of Statement of Financial Accounting Standards No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinquishments of Liabilities".
When selling these financial assets, estimates of future cash flows are an
integral part of determining the gain or loss and subsequently evaluating any
impairment of any retained interest, such as a servicing asset or residual
interest. The most critical assumptions in estimating cash flows and related
fair value include prepayment speeds, expected credit losses, and discount rate.
Management reviews these assumptions on a quarterly basis and the assumptions
are adjusted if deemed appropriate.

ACQUISITIONS

The acquisitions of community banks and other financial service companies
historically have contributed significantly to Regions' growth. The community
bank acquisitions have enabled Regions to expand into new markets and strengthen
its presence in existing markets. The acquisitions of other financial service
companies have allowed Regions to better diversify its revenue stream and to
offer additional products and services to its customers. Regions continues to
evaluate potential bank and non-bank acquisition candidates; however, no
transactions were pending at December 31, 2002.

In 2000, Regions consummated five acquisition transactions that
strengthened its community banking franchise in Arkansas, Florida, Tennessee and
Louisiana, and resulted in Regions' expansion into the Austin, Texas, market.
These five acquisitions, described below, added a combined $885 million in
assets, $494 million in loans and $753 million in deposits:

- In Arkansas, Regions acquired from AmSouth Bank five branches located in
Fort Smith. This branch purchase added $186 million in assets.

- In Florida, Regions expanded into Ormond Beach through the acquisition of
East Coast Bank Corporation, with assets of $108 million.

- Regions expanded its Tennessee presence through the acquisition of LCB
Corporation in Fayetteville, with $173 million in assets.

- In Louisiana, Regions continued to strengthen its market presence through
the acquisition of First National Bancshares of Louisiana, Inc., of
Alexandria, with assets of $304 million.

- Regions expanded its Texas franchise by acquiring an institution in the
Austin market area. The acquisition of Heritage Bancorp, Inc., of Hutto,
added $114 million in assets.

In 2001, Regions significantly diversified its revenue stream and product
offerings through the acquisitions of Morgan Keegan and Rebsamen Insurance. The
Morgan Keegan acquisition in March 2001 greatly expanded Regions' abilities to

16

provide securities brokerage, investment banking, asset management and mutual
fund services. The February 2001 acquisition of Rebsamen Insurance enabled
Regions to offer insurance services to customers. Rebsamen, headquartered in
Little Rock, Arkansas, is a full-line general insurance broker that provides
primarily commercial property and casualty insurance brokerage services.

Also in 2001, Regions consummated two acquisition transactions that
resulted in Regions expanding its community banking franchise into the
Charlotte, North Carolina, and Houston, Texas, markets. These two acquisitions,
described below, added a combined $499 million in assets, $325 million in loans
and $391 million in deposits:

- In North Carolina, Regions expanded into Charlotte through the
acquisition of Park Meridian Financial Corporation, with assets of $310
million.

- In Texas, Regions expanded into Houston through the acquisition of First
Bancshares of Texas, Inc., with assets of approximately $189 million.

In 2002, Regions consummated two acquisitions, which strengthened its
community banking franchise in Texas while adding an insurance firm
headquartered in New Iberia, Louisiana. These acquisitions combined added $280
million in assets, $156 million in loans and $253 million in deposits:

- Regions expanded its insurance division though the acquisition of ICT
Group, LLC, headquartered in New Iberia, Louisiana.

- Regions expanded into the Dallas, Texas, market through Brookhollow
Bancshares, Inc., with $167 million in assets.

- Regions expanded its presence in the Houston, Texas, market through the
acquisition of Independence Bank, National Association, with $112 million
in assets.

Regions' business combinations over the last three years are summarized in
the following charts. Each of these transactions was accounted for as a
purchase.

17

FINANCIAL CONDITION

Regions' financial condition depends primarily on the quality and nature of
its assets, liabilities and capital structure, the market and economic
conditions, and the quality of its personnel.

LOANS AND ALLOWANCE FOR LOAN LOSSES

LOAN PORTFOLIO

Regions' primary investment is loans. At December 31, 2002, loans
represented 72% of Regions' earning assets.

Lending at Regions is generally organized along three functional lines:
commercial loans (including financial and agricultural), real estate loans and
consumer loans. The composition of the portfolio by these major categories is
presented below (with real estate loans further broken down between construction
and mortgage loans):

As the above table demonstrates, over the last five years loans increased a
total of $6.6 billion, a compound growth rate of 6%. Regions experienced
significant loan growth in 1999 and 2000, with loans increasing $3.8 billion and
$3.2 billion, respectively. In 2001, however, loan balances declined $491
million due primarily to increased prepayments of residential mortgage loans. In
2002, total loans increased $100 million primarily due to growth in the
commercial portfolio, partially offset by the reclassification of $1.1 billion
of indirect auto loans to the loans held for sale category on September 30,
2002. Excluding the effect of this reclassification, total loans would have
increased $1.2 billion, or 4%, in 2002.

During 1999, Regions securitized $1.3 billion in single-family residential
mortgage loans. These assets were transferred from the loan portfolio to the
available for sale securities portfolio. The securitization of these loans gave
Regions additional flexibility for funding purposes and results in a lower
risk-weighted capital allocation for these assets. In 2000, Regions sold its
credit card portfolio, which totaled $278 million. Adjusting for the effect of
the securitization and sale, loans would have increased $5.1 billion, or 21%, in
1999 and $3.5 billion, or 12%, in 2000.

All major categories of loans have shared in the growth in the loan
portfolio over the last five years, with the strongest growth occurring in
commercial and real estate construction loans. Over the last five years,
commercial, financial and agricultural loans increased $3.5 billion, or 50%.
Real estate construction loans increased $1.7 billion, or 93%, over the same
period. Real estate mortgage loans increased $1.4 billion, or 15%, but consumer
loans decreased $98 million, or 2%, over the last five years. The decline in
consumer loans is the direct result of the reclassification of $1.1 billion of
indirect auto loans to the loans held for sale category in 2002 and the $278
million sale of the credit card portfolio in 2000. The increase in real estate
mortgage loans is net of the $1.3 billion single-family residential mortgage
loan securitization in 1999.

Although loans have increased over the past five years, growth has slowed
over the past two years. In 2000, average total loans were $30.1 billion,
compared to $30.9 billion in 2001 and 2002. This trend is a result of lower loan
demand resulting from weaker economic conditions, significant prepayments of
mortgage loans, management initiatives to focus on higher margin products,
combined with the reclassification of indirect auto loans in 2002. Regions
expects modest loan growth to continue in 2003.

Regions' residential real estate portfolio as of December 31, 2002,
included $6.4 billion of mortgage loans originated by its mortgage subsidiaries
and bank branches or obtained in various acquisitions. These loans decreased
approximately $1.1 billion during 2002. The decline in 2002 reflects management
initiatives to reduce capital allocated to lower margin products, to manage
sensitivity to changing interest rate environments, as well as higher levels of
prepayments due to lower interest rates. Based on outstanding balances, $4.2
billion of these loans are adjustable rate mortgages ("ARMs")

18

that have rates that reset approximately 242 basis points above market indices.
The weighted average months to reprice on the ARM portfolio was 30 months on
December 31, 2002, down from 40 months in 2001. The weighed average coupon of
the portfolio was 6.02% on December 31, 2002, down from 6.97% in 2001.

Residential real estate portfolio loans totaling $2.1 billion (based on
outstanding balances) are fixed rate loans with a weighted average coupon of
7.05% and a weighted average remaining maturity of 133 months.

The amounts of total gross loans (excluding residential mortgages on
single-family residences and consumer loans) outstanding at December 31, 2002,
based on remaining scheduled repayments of principal, due in (1) one year or
less, (2) more than one year but less than five years and (3) more than five
years, are shown in the following table. The amounts due after one year are
classified according to sensitivity to changes in interest rates.

A sound credit policy and careful, consistent credit review are vital to a
successful lending program. All affiliates of Regions operate under written loan
policies that attempt to maintain a consistent lending philosophy, provide sound
traditional credit decisions, provide an adequate risk-adjusted return and
render service to the communities in which the banks are located. Regions'
lending policy generally confines loans to local customers or to national firms
doing business locally. Credit reviews and loan examinations help confirm that
affiliates are adhering to these loan policies.

ALLOWANCE FOR LOAN LOSSES

Every loan carries some degree of credit risk. This risk is reflected in
the consolidated financial statements by the allowance for loan losses, the
amount of loans charged off and the provision for loan losses charged to
operating expense. It is Regions' policy that when a loss is identified, it is
charged against the allowance for loan losses in the current period. The policy
regarding recognition of losses requires immediate recognition of a loss if
significant doubt exists as to principal repayment.

Regions' provision for loan losses is a reflection of actual losses
experienced during the year and management's judgment as to the adequacy of the
allowance for loan losses. Some of the factors considered by management in
determining the amount of the provision and resulting allowance include: (1)
detailed reviews of individual loans; (2) gross and net loan charge-offs in the
current year; (3) the current level of the allowance in relation to total loans
and to historical loss levels; (4) past due and non-accruing loans; (5)
collateral values of properties securing loans; (6) the composition of the loan
portfolio (types of loans) and risk profiles; and (7) management's analysis of
economic conditions and the resulting impact on Regions' loan portfolio.

A coordinated effort is undertaken to identify credit losses in the loan
portfolio for management purposes and to establish the loan loss provision and
resulting allowance for accounting purposes. A regular, formal and ongoing loan
review is conducted to identify loans with unusual risks or possible losses. The
primary responsibility for this review rests with the management of the
individual banking offices. Their work is supplemented with reviews by Regions'
internal audit staff and corporate loan examiners. This process provides
information that helps in assessing the quality of the portfolio,

19

assists in the prompt identification of problems and potential problems, and
aids in deciding if a loan represents a probable loss that should be recognized
or a risk for which an allowance should be maintained.

If, as a result of Regions' loan review and evaluation procedures, it is
determined that payment of interest on a loan is questionable, it is Regions'
policy to reverse interest previously accrued on the loan against interest
income. Interest on such loans is thereafter recorded on a "cash basis" and is
included in earnings only when actually received in cash and when full payment
of principal is no longer doubtful.

Although it is Regions' policy to immediately charge off as a loss all loan
amounts judged to be uncollectible, historical experience indicates that certain
losses exist in the loan portfolio that have not been specifically identified.
To anticipate and provide for these unidentifiable losses, the allowance for
loan losses is established by charging the provision for loan losses expense
against current earnings. No portion of the resulting allowance is in any way
allocated or restricted to any individual loan or group of loans. The entire
allowance is available to absorb losses from any and all loans.

Regions' determination of its allowance for loan losses is determined in
accordance with Statement of Financial Accounting Standards Nos. 114 and 5. In
determining the amount of the allowance for loan losses, management uses
information from its ongoing loan review process to stratify the loan portfolio
into risk grades. The higher-risk-graded loans in the portfolio are assigned
estimated amounts of loss based on several factors, including current and
historical loss experience of each higher-risk category, regulatory guidelines
for losses in each higher-risk category and management's judgment of economic
conditions and the resulting impact on the higher-risk-graded loans. All loans
deemed to be impaired, which include non-accrual loans and loans past due 90
days or more, excluding loans to individuals, are evaluated individually.
Impaired loans totaled approximately $142 million at December 31, 2002 and $180
million at December 31, 2001. The vast majority of Regions' impaired loans are
dependent upon collateral for repayment. For these loans, impairment is measured
by evaluating collateral value as compared to the current investment in the
loan. For all other loans, Regions compares the amount of estimated discounted
cash flows to the investment in the loan. In the event a particular loan's
collateral value is not sufficient to support the collection of the investment
in the loan, a charge is immediately taken against the allowance for loan
losses. The amount of the allowance for loan losses related to the higher-risk
loans (including impaired loans) was approximately 72% at December 31, 2002,
compared to approximately 80% at December 31, 2001.

In addition to establishing allowance levels for specifically identified
higher-risk-graded loans, management determines allowance levels for all other
loans in the portfolio for which historical experience indicates that certain
losses exist. These loans are categorized by loan type and assigned estimated
amounts of loss based on several factors, including current and historical loss
experience of each loan type and management's judgment of economic conditions
and the resulting impact on each category of loans. The amount of the allowance
for loan losses related to all other loans in the portfolio for which historical
experience indicates that certain losses exist was approximately 28% of Regions'
allowance for loan losses at December 31, 2002, compared to approximately 20% at
December 31, 2001. The amount of the allowance related to these loans is
combined with the amount of the allowance related to the higher-risk-graded
loans to evaluate the overall level of the allowance for loan losses.

Over the last five years, the year-end allowance for loan losses as a
percentage of loans ranged from a low of 1.20% at December 31, 2000 and 1999 to
a high of 1.41% at December 31, 2002. Management considers the current level of
the allowance for loan losses adequate to absorb possible losses from loans in
the portfolio. Management's determination of the adequacy of the allowance for
loan losses, which is based on the factors and risk identification procedures
previously discussed, requires the use of judgments and estimations that may
change in the future. Changes in the factors used by management to determine the
adequacy of the allowance or the availability of new information could cause the
allowance for loan losses to be increased or decreased in future periods. In
addition, bank regulatory agencies, as part of their examination process, may
require that additions be made to the allowance for loan losses based on their
judgments and estimates.

20

The following table presents information on non-performing loans and real
estate acquired in settlement of loans:

The analysis of loan loss experience, as reflected in the table below,
shows that net loan losses, over the last five years ranged from a high of
$126.8 million in 2001 to a low of $66.4 million in 1998. Net loan losses were
$111.8 million in 2002, $94.1 million in 2000 and $99.2 million in 1999. Over
the last five years, net loan losses averaged 0.35% of average loans and were
0.36% of average loans in 2002. Compared to the prior year, in 2002 Regions
experienced lower charge-offs of commercial and consumer credits, partially
offset by higher levels of losses in the real estate category.

The following analysis presents a five-year history of the allowance for
loan losses and loan loss data:

RISK CHARACTERISTICS OF LOAN PORTFOLIO

In order to assess the risk characteristics of the loan portfolio, it is
appropriate to consider the three major categories of loans -- commercial, real
estate and consumer.

Commercial. Regions' commercial loan portfolio is highly diversified
within the markets it serves. Geographically, the largest concentration is the
27% of the portfolio in the state of Alabama. Loans in Georgia and Arkansas
account for 22% and 19%, respectively, of the commercial loan portfolio,
followed by Louisiana with 10%, Tennessee with 7%, Texas with 6%, Florida and
South Carolina with 4% each, and North Carolina with 1%. A small portion of
these loans is secured by properties outside Regions' banking market areas.

The Alabama economy has experienced relatively stable growth over the last
several years. Industries important in the Alabama economy include vehicle and
vehicle parts manufacturing and assembly, lumber and wood products, health care
services, and steel production. High technology and defense-related industries
are important in the northern part of the state. Agriculture, particularly
poultry, beef cattle and cotton, are also important to the state's economy.

The economy of northern Georgia, where the majority of Regions' Georgia
franchise is located, is diversified with a strong presence in poultry
production, carpet manufacturing, automotive manufacturing-related industries,
tourism, and various service sector industries. A well-developed transportation
system has contributed to the growth in north Georgia. This area has experienced
rapid population growth and has very favorable household income characteristics
relative to many of Regions' other markets.

In the southern region of Georgia, while agriculture is important, other
industries play a significant role in the economy as well. Georgia ranks as one
of the nation's top producers of paper and paper board products. Albany and
Valdosta, Regions' primary market areas in southern Georgia, are hubs for retail
trade and health care for the entire South Georgia market. These markets are
also home to numerous manufacturing and production facilities of Fortune 500
Companies.

The Arkansas economy is supported in part by the forest products industry,
due to the abundance of corporate-owned forests and public forest lands. In
recent years, retail trade, transportation and steel production have become
increasingly important to the state's economy.

Natural resources are very important to the Louisiana economy. Energy and
petrochemical industries play a significant role in the economy. Shipping,
shipbuilding, and other transportation equipment industries are strong in the

22

state's durable goods industries. Tourism, amusement and recreation, service,
and health care industries are also important to the Louisiana economy. Cotton,
rice and sugarcane are among Louisiana's most important agricultural
commodities, while Louisiana's fishing industry is one of the largest in the
nation.

The North Carolina economy is diversified with manufacturing, agriculture,
financial services and textiles as its primary industries. North Carolina has
experienced population growth well in excess of the national average in recent
years. The economy is further supported by three state universities, which
provide stable employment and serve as research centers in the area.

The economy along the I-85 corridor in South Carolina is home to numerous
multinational manufacturers, resulting in one of the highest per capita foreign
investment areas in the nation. Auto manufacturing has become increasingly
important in recent years.

Tennessee's economy is heavily influenced by automobile manufacturing,
tourism, entertainment and recreation, health care and other service industries.
With one out of four Tennesseeans employed in service industries, the state's
economy is very dependent on this sector.

The economy in the state of Texas has been among the strongest in the
nation in recent years. In addition to oil, gas and agriculture, the Texas
economy is supported by telecommunications, computer and technology research,
and the health care industry.

Northwestern and central Florida have also experienced excellent economic
growth during the last several years. Tourism and space research are very
important to the Florida economy, and military payrolls are significant in the
panhandle area. Florida has experienced strong in-migration, contributing to
strong construction activity and a growing retirement-age population. Citrus
fruit production is also important in the state.

The economy in the markets served by Regions continues to be among the best
in the nation. However, general economic conditions deteriorated throughout the
nation in 2001. Slower economic growth, combined with the unprecedented events
of September 11, 2001, resulted in a weaker economy than in recent years and did
not show significant recovery in 2002. This weakening resulted in higher loan
losses in 2001 and 2002 than in 2000.

Included in the commercial loan classification are $508 million of
syndicated loans. Syndicated loans are typically made to national companies and
are originated through an agent bank. Regions' syndicated loans are primarily to
national companies with operations in Regions' banking footprint.

From 1998 to 2002, net commercial loan losses as a percent of average loans
outstanding ranged from a low of 0.19% in 1998 to a high of 0.88% in 2001.
Commercial loan losses in 2002 totaled $68.7 million, or 0.66% of average
commercial loans. The lower level of commercial loan losses in 2002 compared to
2001 resulted primarily from lower losses related to customers in agriculture
and the steel industry. Future losses are a function of many variables, of which
general economic conditions are the most important. Assuming moderate to slow
economic growth during 2003 in Regions' market areas, net commercial loan losses
in 2003 are expected to be near the 2002 level.

Real Estate. Regions' real estate loan portfolio consists of construction
and land development loans, loans to businesses for long-term financing of land
and buildings, loans on one- to four-family residential properties, loans to
mortgage banking companies (which are secured primarily by loans on one- to
four-family residential properties and are known as warehoused mortgage loans)
and various other loans secured by real estate.

Real estate construction loans decreased 1.6% in 2002 to $3.6 billion or
11.6 % of Regions' total loan portfolio. At the end of 1998 real estate
construction loans represented 7.7% of Regions' total loan portfolio. Strong
economic growth and new development in Regions' market areas have enabled
Regions to steadily increase construction loans through 2001. During 2002,
construction loan demand declined as the economy continued to exhibit signs of
weakness. Most of the construction loans relate to shopping centers, apartment
complexes, commercial buildings and residential property development. These
loans are normally secured by land and buildings and are generally backed by
commitments for long-term financing from other financial institutions. Real
estate construction loans are closely monitored by management, since these loans
are generally considered riskier than other types of loans and are particularly
vulnerable in economic downturns and in periods of high interest rates. Regions
generally requires higher levels of borrower equity investment in addition to
other underwriting requirements for this type of lending as compared to other
real estate lending. Regions has not been an active lender to real estate
developers outside its market areas.

23

The loans to businesses for long-term financing of land and buildings are
primarily to commercial customers within Regions' markets. Total loans secured
by non-farm, non-residential properties totaled $7.0 billion at December 31,
2002. Although some risk is inherent in this type of lending, Regions attempts
to minimize this risk by generally making a significant amount of these type
loans only on owner-occupied properties, and by requiring collateral values that
exceed the loan amount, adequate cash flow to service the debt, and in most
cases, the personal guaranties of principals of the borrowers.

Regions also attempts to mitigate the risks of real estate lending by
adhering to standard loan underwriting policies and by diversifying the
portfolio both geographically within its market area and within industry groups.

Loans on one- to four-family residential properties, which total
approximately 61% of Regions' real estate mortgage portfolio, are principally on
single-family residences. These loans are geographically dispersed throughout
the southeastern states, and some are guaranteed by government agencies or
private mortgage insurers. Historically, this category of loans has not produced
sizable loan losses; however, it is subject to some of the same risks as other
real estate lending. Warehoused mortgage loans, since they are secured primarily
by loans on one- to four-family residential properties, are similar to these
loans in terms of risk.

From 1998 to 2002, net losses on real estate loans as a percent of average
real estate loans outstanding ranged from a high of 0.11% in 1998 and 1999, to a
low of .04% in 2001. In 2002 real estate loan losses were .08% of average real
estate loans, primarily as a result of higher commercial real estate loan
charge-offs. These losses depend, to a large degree, on the level of interest
rates, economic conditions and collateral values, and thus, are very difficult
to predict. Management expects 2003 net real estate loan losses to be near the
2002 level.

Consumer. Regions' consumer loan portfolio consists of $4.5 billion in
consumer loans and $1.2 billion in personal lines of credit (including home
equity loans). Consumer loans are primarily borrowings of individuals for home
improvements, automobiles and other personal and household purposes. Regions'
consumer loan portfolio includes $30 million in indirect installment loans at
December 31, 2002, and $943 million at December 31, 2001. Indirect installment
loans declined significantly due to the reclassification of $1.1 billion of
indirect auto loans to the loans held for sale category. During the past five
years, the ratio of net consumer loan losses to average consumer loans ranged
from a low of 0.53% in 2002 to a high of 1.09% in 1999. The lower level of net
consumer loan losses in 2001 and 2002 was primarily due to improvements in the
collection and recovery process, standardizing and improvement of underwriting
procedures, and reduced credit card charge-offs resulting from the sale of the
credit card portfolio in 2000. Consumer loan losses are difficult to predict but
historically have tended to increase during periods of economic weakness.
Management expects net consumer loan losses in 2003 to be lower than the 2002
level (assuming moderate economic growth in 2003) because of the reduced size of
Regions' consumer loan portfolio.

NON-ACCRUAL LOANS

At December 31, 2002, non-accrual loans totaled $226.5 million, or 0.73% of
loans, compared to $269.8 million, or 0.87% of loans, at December 31, 2001. The
decline in non-accrual loans at December 31, 2002, was primarily due to lower
levels of commercial and real estate loans being placed on non-accrual status,
combined with certain commercial credits returning to accrual status. Commercial
loans comprised $106.4 million of the 2002 total, with real estate loans
accounting for $116.0 million and consumer loans $4.1 million. Regions'
non-performing loan portfolio is composed primarily of a number of small to
medium-sized loans that are diversified geographically throughout its franchise.
The 25 largest non-accrual loans range from $1.0 million to $11.3 million, with
only one non-accrual loan greater than $10 million. These loans are widely
dispersed among a number of industries and are generally highly collateralized.
Of the $226.5 million in non-accrual loans at December 31, 2002, approximately
$77.7 million (34% of total non-accrual loans) are secured by single-family
residences, which historically have had very low loss ratios.

Loans contractually past due 90 days or more were 0.12% of total loans at
December 31, 2002, compared to 0.15% of total loans at December 31, 2001. Since
December 31, 2001, loan delinquencies in the commercial and real estate areas
have declined. Loans past due 90 days or more at December 31, 2002, consisted of
$7.5 million in commercial and real estate loans and $31.0 million in consumer
loans.

24

Renegotiated loans as a percent of total loans was 0.10% at December 31,
2002 and 0.14% at December 31, 2001. Renegotiated loans decreased during the
year primarily due to the repayment of certain real estate and commercial
credits.

Other real estate declined from 1998 to 1999, but increased to $28.4
million at December 31, 2000, $40.9 million at December 31, 2001, and $59.6
million at December 31, 2002. Increases in other real estate in the last three
years resulted primarily from weaker economic conditions. Regions' other real
estate is composed primarily of a number of small to medium-size properties that
are diversified geographically throughout its franchise. The 20 largest parcels
of other real estate range in recorded value from $500,000 to $8.6 million, with
only 1 parcel over $5 million. Other real estate is recorded at the lower of (1)
the recorded investment in the loan or (2) fair value less the estimated cost to
sell. Although Regions does not anticipate material loss upon disposition of
other real estate, sustained periods of adverse economic conditions, substantial
declines in real estate values in Regions' markets, actions by bank regulatory
agencies, or other factors, could result in additional loss from other real
estate.

The amount of interest income recognized in 2002 on the $226.5 million of
non-accruing loans outstanding at year-end was approximately $6.5 million. If
these loans had been current in accordance with their original terms,
approximately $21.0 million would have been recognized on these loans in 2002.
Approximately $1,114,000 in interest income would have been recognized in 2002
under the original terms of the $32.3 million in renegotiated loans outstanding
at December 31, 2002. Approximately $1,066,000 in interest income was actually
recognized in 2002 on these loans.

FUNDING COMMITMENTS

In the normal course of business, Regions makes commitments under various
terms to lend funds to its customers. These commitments include (among others)
revolving credit agreements, term loan agreements and short-term borrowing
arrangements, which are usually for working capital needs. Letters of credit are
also issued, which under certain conditions could result in loans. See Note M to
the consolidated financial statements for additional information. The following
table shows the amount and duration of Regions' funding commitments.

25

The commercial, real estate and consumer loan portfolios are highly
diversified in terms of industry concentrations. The following table shows the
largest concentrations in terms of the customer's Standard Industrial
Classification Code at December 31, 2002 and 2001:

INTEREST-BEARING DEPOSITS IN OTHER BANKS

Interest-bearing deposits in other banks are used primarily as temporary
investments and generally have short-term maturities. This category of earning
assets decreased from $667.2 million at December 31, 2001, to $303.6 million at
December 31, 2002, as maturities were not reinvested in this earning asset
category.

26

SECURITIES

The following table shows the carrying values of securities as follows:

In 2002, total securities increased $1.1 billion, or 15%. U.S. Treasury and
Federal agency securities increased $1.2 billion due to purchases of agency
securities. Agency securities were purchased throughout 2002 to offset possible
declines in the fair value of Regions' mortgage servicing asset, as security
values respond inversely to a change in interest rates. Mortgage-backed
securities increased $83 million due to purchases in 2002. Obligations of states
and political subdivisions decreased $169 million or 24% in 2002 due to calls,
sales and maturities. Other securities increased in 2002 due to an interest-only
security retained in the auto loan securitization (see Note F to the
consolidated financial statements).

In 2001, total securities decreased $1.1 billion, or 13%. U.S. Treasury and
Federal agency securities decreased $2.6 billion due primarily to calls and
sales. A portion of the proceeds from the calls and sales of U.S. Treasury and
Federal agency securities were not reinvested in this category of securities as
a part of management's initiative to allocate less capital to lower margin
assets and to reduce sensitivity to changing interest rates. Mortgage-backed
securities increased $1.5 billion due to purchases in 2001. Obligations of
states and political subdivisions decreased $97.6 million, or 12%, in 2001 due
to calls, sales and maturities. Other securities increased in 2001 due to
acquisition activity.

In 2001, upon the adoption of Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities"
(Statement 133), Regions elected to reclassify a significant portion of
securities from the held to maturity category to the available for sale category
to provide additional flexibility in managing the securities portfolio.

Regions' investment portfolio policy stresses quality and liquidity. At
December 31, 2002, the average contractual maturity of U.S. Treasury and Federal
agency securities was 4.4 years and that of obligations of states and political
subdivisions was 7.1 years. The average contractual maturity of mortgage-backed
securities was 15.6 years and their expected maturity was 2.1 years. Other
securities had an average contractual maturity of 3.5 years. Overall, the
average maturity of the portfolio was 12.5 years using contractual maturities
and 2.9 years using expected maturities. Expected maturities differ from
contractual maturities because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.

The estimated fair market value of Regions' securities held to maturity
portfolio at December 31, 2002, was $1.1 million above the amount carried on
Regions' books. Regions' securities held to maturity at December 31, 2002,
included unrealized gains of $1.1 million. Regions' securities available for
sale portfolio at December 31, 2002, included net unrealized gains of $268.4
million. Regions' securities held to maturity and securities available for sale
portfolios included gross unrealized gains of $269.8 million and gross
unrealized losses of $320,000 at December 31, 2002. Market values of these
portfolios vary significantly as interest rates change. Management expects
normal maturities from the

27

securities portfolios to meet liquidity needs. Of Regions' tax-free securities
rated by Moody's Investors Service, Inc., 99% are rated "A" or better. The
portfolio is carefully monitored to assure no unreasonable concentration of
securities in the obligations of a single debtor, and current credit reviews are
conducted on each security holding.

The following table shows the maturities of securities (excluding equity
securities) at December 31, 2002, the weighted average yields and the taxable
equivalent adjustment used in calculating the yields:

- ---------------

Note: The weighted average yields are calculated on the basis of the yield to
maturity based on the book value of each security. Weighted average yields
on tax-exempt obligations have been computed on a fully taxable equivalent
basis using a tax rate of 35%. Yields on tax-exempt obligations have not
been adjusted for the non-deductible portion of interest expense used to
finance the purchase of tax-exempt obligations.

TRADING ACCOUNT ASSETS

Trading account assets increased $44.1 million to $786.0 million at
December 31, 2002. Trading account assets are held for the purpose of selling at
a profit and are carried at market value.

The following table shows the carrying value of trading account assets by
type of security.

28

LOANS HELD FOR SALE

Loans held for sale include both single-family real estate mortgage loans
and indirect consumer auto loans. These loans totaled $1.5 billion ($1.0 billion
of mortgage loans and $484 million of indirect auto loans) at December 31, 2002,
an increase of $608 million compared to 2001. The increase from the prior year
is due primarily to the reclassification of $1.1 billion of indirect auto loans
to the loans held for sale category in September 2002, partially offset by the
subsequent $800 million securitization and sale of indirect auto loans in
December 2002. In periods prior to 2002, the loans held for sale category
included only single-family real estate mortgage loans.

MARGIN RECEIVABLES

Margin receivables totaled $432.3 million at December 31, 2002, and $523.9
at December 31, 2001. Margin receivables represent funds advanced to brokerage
customers for the purchase of securities that are secured by certain marketable
securities held in the customer's brokerage account. The risk of loss from these
receivables is minimized by requiring that customers maintain marketable
securities in the brokerage account which have a fair market value substantially
in excess of the funds advanced to the customer.

LIQUIDITY

GENERAL

Liquidity is an important factor in the financial condition of Regions and
affects Regions' ability to meet the borrowing needs and deposit withdrawal
requirements of its customers. Assets, consisting principally of loans and
securities, are funded by customer deposits, purchased funds, borrowed funds and
stockholders' equity.

The securities portfolio is one of Regions' primary sources of liquidity.
Maturities of securities provide a constant flow of funds available for cash
needs (see previous table on Securities Maturing). Maturities in the loan
portfolio also provide a steady flow of funds (see previous table on Loans
Maturing). At December 31, 2002, commercial loans, real estate construction
loans and commercial mortgage loans with an aggregate balance of $7.5 billion,
as well as securities of $1.6 billion, were due to mature in one year or less.
Additional funds are provided from payments on consumer loans and one- to
four-family residential mortgage loans. Historically, Regions' high levels of
earnings have also contributed to cash flow. In addition, liquidity needs can be
met by the purchase of funds in state and national money markets. Regions'
liquidity also continues to be enhanced by a relatively stable deposit base.

The loan to deposit ratio at December 31, 2002, was 94.11%, representing a
slight decrease compared to 97.90% at December 31, 2001, and 97.98% at December
31, 2000. This trend is a result of loan and deposit growth over the relevant
periods.

As shown in the Consolidated Statement of Cash Flows, operating activities
provided significant levels of funds in 2000 and 2002, due primarily to high
levels of net income. Operating activities were a net user of funds in 2001 as
loans held for sale and other assets increased. During 2001, Regions' mortgage
loan production increased $3.2 billion compared to 2000 as lower mortgage rates
contributed to high levels of production. The lag between origination and sale
requires warehousing a portion of these mortgage loans for short periods of time
and therefore requires the use of greater levels of operating cash flows.
Investing activities, primarily in loans and securities, were a net user of
funds in 2000 and 2002 but were a net provider of funds in 2001 as loan and
security balances declined. Loan and security balances declined in 2001 due to
management's decision to reduce capital allocated to lower margin products.
Significant prepayments of mortgage loans and securities were not reinvested,
positively affecting cash flow in 2001. Loan growth in 2000 and 2002 required a
significant amount of funds for investing activities. Funds needed for investing
activities were provided primarily by deposits, purchased funds and borrowings.

In 2000, a significant portion of the short-term borrowings were repaid
using proceeds from the sale of securities available for sale and from deposit
growth. Financing activities were a net user of funds in 2001, as deposit
balances declined and Regions (excluding borrowings added in connection with
acquisitions) was less dependent on borrowed funds as a funding source. In 2002,
financing activities were a significant provider of funds as a result of strong
deposit growth and proceeds from long-term borrowings. Cash dividends and the
open-market purchase of Regions' common stock also required funds in 2000, 2001
and 2002.

29

Regions' financing arrangement with the Federal Home Loan Bank adds
additional flexibility in managing its liquidity position. The maximum amount
that could be borrowed from the Federal Home Loan Bank under the current
borrowing agreement is approximately $9.0 billion. Additional investment in
Federal Home Loan Bank stock is required with each advance. As of December 31,
2002, Regions' borrowings from the Federal Home Loan Bank totaled $4.5 billion.

Regions filed a $1.5 billion universal shelf registration statement in
November 2001 and a $1.0 billion universal shelf registration statement in
January 2001. Under these registration statements, Regions issued $600 million
of subordinated notes in May 2002, $500 million of subordinated notes in
February 2001 and $288 million of trust preferred securities in February 2001.
Consequently, $1.1 billion of various debt securities could be registered and
subsequently issued, at market rates, under these registration statements (see
Note J to the consolidated financial statements).

In addition, Regions Bank has the requisite agreements in place to issue
and sell up to $1 billion of its bank notes to institutional investors through
placement agents. As of December 31, 2002, there were no outstanding bank notes
under this program.

In 2002, Regions utilized an additional funding source through the $800
million securitization of indirect consumer auto loans. Securitizations provide
additional flexibility to Regions in managing liquidity.

RATINGS

The table below reflects the most recent debt ratings of Regions Financial
Corporation and Regions Bank by Standard & Poor's Corporation, Moody's Investors
Service and Fitch IBCA:

A security rating is not a recommendation to buy, sell or hold securities,
and the ratings above are subject to revision or withdrawal at any time by the
assigning rating agency. Each rating should be evaluated independently of any
other rating.

DEPOSITS

Deposits are Regions' primary source of funds, providing funding for 74% of
average earning assets in 2002, 75% in 2001 and 79% in 2000. During the last
five years, average total deposits increased at a compound annual rate of 4%.

Average deposits increased $318.2 million, or 1%, in 2002 and decreased
$805 million, or 3%, in 2001. In 2000, average deposits increased $2.9 billion,
or 10%. Acquisitions contributed average deposit growth of $176 million in 2002,
$43 million in 2001 and $427 million in 2000.

Regions competes with other banking and financial services companies for a
share of the deposit market. Regions' ability to compete in the deposit market
depends heavily on how effectively the company meets customers' needs. Regions
employs both traditional and non-traditional means to meet customers' needs and
enhance competitiveness. The traditional means include providing well-designed
products, providing a high level of customer service, providing attractive
pricing and expanding the traditional branch network to provide convenient
branch locations for customers throughout the Southern United States. Regions
also employs non-traditional approaches to enhance its competitiveness. These
include providing centralized, high quality telephone banking services and
alternative product delivery channels like Internet banking. Regions' success at
competing for deposits is discussed below.

Average non-interest bearing deposits have increased at a compound growth
rate of 3% since 1999. This category of deposits grew 6% in 2002, 2% in 2001 and
1% in 2000. Despite modest growth in 2001 and 2000, non-interest-bearing

30

deposits continue to be a significant funding source for Regions, accounting for
16% of average total deposits in 2002, 15% in 2001 and 14% in 2000.

During 2000 and 2001, the rate paid on savings accounts was less attractive
to customers, relative to other investment alternatives. As a result, savings
accounts have decreased at a 1% compound growth rate since 1999. Savings
accounts increased 13% in 2002 as investors migrated to traditional, more liquid
investments but declined 5% in 2001 and 10% in 2000. Management expects savings
accounts to continue to be a stable-funding source, but does not expect any
significant growth given the current interest rate environment. In 2002, savings
accounts accounted for approximately 5% of average total deposits.

Interest-bearing transaction accounts have increased at a 28% compound
growth rate since 1999. Interest-bearing transaction accounts increased 72% in
2002 and 37% in 2001 as investors migrated toward more liquid assets given
recent market conditions. During 2000, interest-bearing transaction accounts
decreased 12%, due to less attractive rates relative to other investment
alternatives. Interest-bearing transaction accounts accounted for 3% of average
total deposits in 2002 and 2% in 2001.

Money market savings products continue to be one of Regions' fastest
growing deposits, increasing at a compound annual rate of 12% since 1999.
Customers have responded to Regions' competitive money market savings products
by continuing to invest in these accounts. The results are increases in average
balances of 5% in 2002, 19% in 2001 and 12% in 2000. Money market savings
products are one of Regions' most significant funding sources, accounting for
41% of average total deposits in 2002, 39% of average total deposits in 2001 and
32% of average total deposits in 2000.

Certificates of deposit of $100,000 or more declined 22% in 2002 and 9% in
2001 as these products were priced less aggressively than in prior years.
Certificates of deposit of $100,000 or more increased 6% in 2000 due to their
increased usage as a funding source.

Other interest-bearing deposits declined 3% in 2002 and 23% in 2001 as
rates on these accounts were less attractive to investors and Regions' reduced
utilization of certain wholesale deposits as a funding source. Other interest-
bearing deposits (certificates of deposit of less than $100,000 and time open
accounts) increased 18% in 2000. In 2000, new deposit products and higher rates
resulted in higher balances in this category. This category of deposits
continues to be one of Regions' primary funding sources; it accounted for 26% of
average total deposits in 2002 and 27% of average total deposits in 2001.

The sensitivity of Regions' deposit rates to changes in market interest
rates is reflected in Regions' average interest rate paid on interest-bearing
deposits. In 2001 and 2002, market interest rates declined dramatically. The Fed
reduced rates 11 times (475 basis points) in 2001 and 1 time (50 basis points)
in 2002. While Regions' average interest rate paid on interest-bearing deposits
follows these trends, a lag period exists between the change in market rates and
the repricing of the deposits. The rate paid on interest-bearing deposits
decreased to 2.47% in 2002 compared to 4.30% in 2001 and 5.03% in 2000.

A detail of interest-bearing deposit balances at December 31, 2002 and
2001, and the interest expense on these deposits for the three years ended
December 31, 2002, is presented in Note I to the consolidated financial
statements. The following table presents the average rates paid on deposits by
category for the three years ended December 31, 2002:

31

The following table presents the details of interest-bearing deposits and
maturities of the larger time deposits at December 31, 2002 and 2001:

The following table presents the average amounts of deposits outstanding by
category for the three years ended December 31, 2002:

BORROWED FUNDS

Regions' short-term borrowings consist of federal funds purchased and
security repurchase agreements, commercial paper, Federal Home Loan Bank
structured notes, due to brokerage customers, and other short-term borrowings.

Federal funds purchased and security repurchase agreements are used to
satisfy daily funding needs and, when advantageous, for rate arbitrage. Federal
funds purchased and security repurchase agreements totaled $2.2 billion at
December 31, 2002 and $1.8 billion at December 31, 2001. Balances in these
accounts can fluctuate significantly on a day-to-day basis. The average daily
balance of federal funds purchased and security repurchase agreements, net of
federal funds sold and security reverse repurchase agreements, decreased $146
million in 2002 and $1.5 billion in 2001. The declines in 2001 and 2002 resulted
from paydowns of purchased fund positions funded by sales and maturities of
available for sale securities and the $800 million securitization of the
indirect auto loans, combined with increased utilization of alternative longer
term funding.

Throughout 2001 and 2002, Federal Home Loan Bank structured notes were used
as a short-term funding source, primarily due to their favorable interest rates.
These structured notes have original stated maturities in excess of one year,
but are callable, at the option of the Federal Home Loan Bank, at various times
less than one year. Because of the call feature, the structured notes are
considered short-term. The amount of structured notes outstanding was $850
million as of December 31, 2002 and $1.1 billion as of December 31, 2001. During
2002, Regions prepaid $250 million of these advances. Regions incurred a $5.2
million charge related to the prepayment that is recorded in other non-interest
expense (see Note P to the consolidated financial statements).

32

Morgan Keegan maintains certain lines of credit with unaffiliated banks. As
of December 31, 2002, $56.0 million was outstanding under these agreements with
an average interest rate of 1.7%, as compared to $151.3 million outstanding at
December 31, 2001, with an average interest rate of 1.9%.

As of December 31, 2002, $17.3 million in commercial paper was outstanding,
compared to $27.8 million at December 31, 2001. Regions issues commercial paper
through its private placement commercial paper program. Regions policy limits
total commercial paper outstanding, at any time, to $75 million. The level of
commercial paper outstanding depends on the funding requirements of Regions and
the cost of commercial paper compared to alternative borrowing sources.

Regions maintains a due to brokerage customer position through Morgan
Keegan. This represents liquid funds in customers' brokerage account. The due to
brokerage customers totaled $651.1 million at December 31, 2002, with an
interest rate of 1.4%, as compared to $932.8 million at December 31, 2001, with
an interest rate of 2.3%.

Regions holds cash as collateral for certain derivative transactions with
customers and other third parties. Upon the expiration of these agreements, cash
held as collateral will be remitted to the counter-party. As of December 31,
2002, these balances totaled $111.3 million with an interest rate of 1.3%.

Other short-term borrowings increased $113.1 million from December 31,
2001, to December 31, 2002, primarily due to an increase in the short-sale
liability, which is frequently used by Morgan Keegan to offset other market
risks, which are undertaken in the normal course of business.

Regions' long-term borrowings consist primarily of subordinated notes,
Federal Home Loan Bank borrowings, trust preferred securities and other
long-term notes payable.

As of December 31, 2002, Regions had subordinated notes of $1.2 billion,
consisting of $100 million in total principle amount of 7.75% subordinated notes
due 2024 (redeemable at the option of holder in 2004), $500 million in total
principal amount of 7.00% subordinated notes due 2011 and $600 million in total
principal amount of 6 3/8% subordinated notes due 2012. The 6 3/8% subordinated
notes due 2012 were issued in May 2002.

During 2001 and 2002, Regions utilized Federal Home Loan Bank structured
notes with original call periods in excess of one year. These structured notes
have various stated maturities but are callable, at the option of the Federal
Home Loan Bank, between one and two years. As of December 31, 2002 and 2001,
$3.6 billion of long-term Federal Home Loan Bank advances were outstanding.

Federal Home Loan Bank long-term advances decreased $53.0 million in 2002.
Regions utilized other sources of funding with more favorable interest rates and
terms during 2002. Membership in the Federal Home Loan Bank system provides
access to an additional source of lower-cost funds.

Regions issued $288 million of trust preferred securities in February 2001.
These securities, which qualify as Tier 1 capital, have an interest rate of
8.00% and a 30-year term, but are callable after five years. In addition,
Regions assumed $4 million of trust preferred securities in connection with a
2001 acquisition.

Other long-term borrowings consist of redeemable trust preferred
securities, notes issued to former stockholders of acquired banks, notes for
equipment financing, mark-to-market adjustments related to hedged debt items,
and miscellaneous notes payable.

33

The following table shows the amount and maturity of Regions long term
borrowed funds as of December 31, 2002.

STOCKHOLDERS' EQUITY

Over the past three years, stockholders' equity has increased at a compound
annual growth rate of 11%. Stockholders' equity has grown from $3.1 billion at
the beginning of 2000 to $4.2 billion at year-end 2002. Internally generated
retained earnings contributed $908 million of this growth and $53 million was
attributable to the exercise of stock options and to the issuance of stock for
employee incentive plans. In addition, treasury share repurchases, net of equity
issued in connection with acquisitions used $147 million of equity while other
components of equity added $299 million. The internal capital generation rate
(net income less dividends as a percentage of average stockholders' equity) was
8.9% in 2002, compared to 6.9% in 2001 and 8.9% in 2000.

Regions' ratio of stockholders' equity to total assets was 8.72% at
December 31, 2002, compared to 8.89% at December 31, 2001, and 7.92% at December
31, 2000.

Regions and its bank subsidiary are required to comply with capital
adequacy standards established by banking regulatory agencies. Currently, there
are two basic measures of capital adequacy: a risk-based measure and a leverage
measure.

The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance sheet exposure and interest rate
risk, and to minimize disincentives for holding liquid assets. Assets and
off-balance sheet items are assigned to broad risk categories, each with
specified risk-weighting factors. The resulting capital ratios represent capital
as a percentage of total risk-weighted assets and off-balance sheet items.
Banking organizations that are considered to have excessive interest rate risk
exposure are required to hold additional capital.

The minimum standard for the ratio of total capital to risk-weighted assets
is 8%. At least 50% of that capital level must consist of common equity,
undivided profits and non-cumulative perpetual preferred stock, less goodwill
and certain other intangibles ("Tier 1 capital"). The remainder ("Tier 2
capital") may consist of a limited amount of other preferred stock, mandatory
convertible securities, subordinated debt and a limited amount of the allowance
for loan losses. The sum of Tier 1 capital and Tier 2 capital is "total
risk-based capital."

The banking regulatory agencies also have adopted regulations that
supplement the risk-based guidelines to include a minimum ratio of 3% of Tier 1
capital to average assets less goodwill (the "leverage ratio"). Depending upon
the risk profile of the institution and other factors, the regulatory agencies
may require a leverage ratio of 1% to 2% above the minimum 3% level.

The following chart summarizes the applicable bank regulatory capital
requirements. Regions' capital ratios at December 31, 2002, substantially
exceeded all regulatory requirements.

34

BANK REGULATORY CAPITAL REQUIREMENTS

At December 31, 2002, Tier 1 capital totaled $3.2 billion, total risk-based
capital totaled $5.0 billion, and risk-adjusted assets totaled $36.1 billion.

Total capital at Regions Bank also has an important effect on the amount of
FDIC insurance premiums paid. Institutions not considered well capitalized can
be subject to higher rates for FDIC insurance. As of December 31, 2002, Regions
Bank had the requisite capital levels to qualify as well capitalized.

Regions attempts to balance the return to stockholders through the payment
of dividends, with the need to maintain strong capital levels for future growth
opportunities. In 2002, Regions returned 43% of earnings to its stockholders in
the form of dividends. Total dividends declared by Regions in 2002 were $259.2
million or $1.16 per share, an increase of 3.6% from the $1.12 per share in
2001.

In January 2003, the Board of Directors declared a 3.4% increase in the
quarterly cash dividend from $.29 to $.30 per share. This is the 32nd
consecutive year that Regions has increased quarterly cash dividends.

35

CONSOLIDATED AVERAGE BALANCES

The following table shows the percentage distribution of Regions'
consolidated average balances of assets, liabilities and stockholders' equity as
of the dates shown:

Please refer to Item 6 of this Annual Report on Form 10-K for a complete
presentation of average balances, related interest, yields and rates paid.

OPERATING RESULTS

GENERAL

Net income increased 22% in 2002, decreased 4% in 2001 and increased less
than 1% in 2000. Adjusting for the adoption of Statement of Financial Accounting
Standards No. 142 (see Note X to the consolidated financial statements), net
income increased 12% over 2001. The accompanying table presents the dollar
amount and percentage change in the important components of income that occurred
in 2001 and 2002.

36

SUMMARY OF CHANGES IN OPERATING RESULTS

NET INTEREST INCOME

Net interest income (interest income less interest expense) is Regions'
principal source of income. Net interest income increased 5% in 2002 and 3% in
2001. On a taxable equivalent basis, net interest income increased 4% in 2002
and increased 7% in 2001. The table "Analysis of Changes in Net Interest Income"
on the following page provides additional information to analyze the changes in
net interest income.

Modest growth in interest-earning assets, combined with higher spreads on
those earning assets, resulted in increased net interest income in 2001 and
2002.

Regions measures its ability to produce net interest income with a ratio
called the interest margin. The interest margin is net interest income (on a
taxable equivalent basis) as a percentage of average earning assets. The
interest margin increased from 3.55% in 2000 to 3.66% in 2001 and to 3.73% in
2002. Changes in the interest margin occur primarily due to two factors: (1) the
interest rate spread (the difference between the taxable equivalent yield on
earning assets and the rate on interest-bearing liabilities) and (2) the
percentage of earning assets funded by interest-bearing liabilities.

The first factor affecting Regions' interest margin is the interest rate
spread. Regions' average interest rate spread was 2.84% in 2000, 3.00% in 2001
and 3.30% in 2002. Market interest rates, both the level of rates and the slope
of the yield curve (the spread between short-term rates and longer-term rates),
affect the interest rate spread by influencing the pricing on most categories of
Regions' interest-earning assets and interest-bearing liabilities.

In the first six months of 2000, the Fed raised the Federal Funds rate
three times totaling 100 basis points, resulting in a rate of 6.50%. The Fed
began reducing the Federal Funds rate in early 2001. Throughout 2001, the Fed
lowered the rate eleven times totaling 475 basis points. In 2002, the Fed
mandated a single, 50-basis-points rate reduction. These reductions resulted in
a near record low Federal Funds rate of 1.25%.

37

Regions' interest-earning asset yields and interest-bearing liability rates
were both lower in 2002 compared to 2001, reflecting the declining market
interest rates experienced in 2001 and 2002. As market interest rates further
declined in 2002, Regions' interest-bearing liability rates decreased faster
than did interest-earning asset yields. The interest rate spread expanded in
2002 because interest-earning asset yields decreased 30 basis points less than
did interest-bearing liability rates.

The mix of earning assets can also affect the interest rate spread. During
2002, loans, which are typically Regions' highest yielding earning asset,
decreased slightly as a percentage of earning assets, partially mitigating the
effects of changing earning asset yields and interest-bearing liability rates.
Average loans as a percentage of earning assets were 74.9% in 2001 and 73.3% in
2002.

During 2002 and 2001, the Company used interest rate derivatives as cash
flow and fair value hedges of certain liability positions. These contracts had
the effect of reducing interest expense by $66.8 million in 2002 and $1.1
million in 2001.

The second factor affecting the interest margin is the percentage of
earning assets funded by interest-bearing liabilities. Funding for Regions'
earning assets comes from interest-bearing liabilities, non-interest-bearing
liabilities and stockholders' equity. The net spread on earning assets funded by
non-interest-bearing liabilities and stockholders' equity is higher than the net
spread on earning assets funded by interest-bearing liabilities. The percentage
of earning assets funded by interest-bearing liabilities was 87% in 2000,
compared to 85% in 2001 and 2002. The change in the percentage of earning assets
funded by interest-bearing liabilities had a positive effect on net interest
income in 2002 and 2001 as compared to 2000. In 2002 and 2001, equity, issued in
connection with acquisitions and internally generated, funded a larger
percentage of earning assets than in 2000. In prior years, the trend had been
for a greater percentage of new funding for earning assets to come from
interest-bearing sources. In the future, management expects that an increasing
percentage of funding will be provided from interest-bearing liabilities.

ANALYSIS OF CHANGES IN NET INTEREST INCOME

- ---------------

Note: The change in interest due to both rate and volume has been allocated to
change due to volume and change due to rate in proportion to the absolute
dollar amounts of the change in each.

38

MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair
value of financial instruments due to changes in interest rates, exchange rates,
commodity prices, equity prices, or the credit quality of debt securities.

INTEREST RATE SENSITIVITY

Regions' primary market risk is interest rate risk. To quantify this risk
Regions measures the change in its net interest income in various interest rate
scenarios as compared to a base case scenario. Net interest income sensitivity
(as measured over 12 months) is a useful short-term indicator of Regions'
interest rate risk.

Sensitivity Measurement. Financial simulation models are Regions' primary
tools used to measure interest rate exposure. Using a wide range of hypothetical
deterministic and stochastic simulations, these tools provide management with
extensive information on the potential impact to net interest income caused by
changes in interest rates.

These models are structured to simulate cash flows and accrual
characteristics of the many products both on and off Regions' balance sheet.
Assumptions are made about the direction and volatility of interest rates, the
slope of the yield curve, and about the changing composition of the balance
sheet that result from both strategic plans and from customer behavior. Among
the assumptions are expectations of balance sheet growth and composition, the
pricing and maturity characteristics of existing business and the
characteristics of future business. Interest rate related risks are expressly
considered, such as pricing spreads, the lag time in pricing administered rate
accounts, prepayments and other option risks. Regions considers these factors,
as well as the degree of certainty or uncertainty surrounding their future
behavior.

Off-balance sheet items are used in hedging the values of selected assets
and liabilities from changes in interest rates. The effect of these hedges is
included in the simulations of net interest income.

The primary objectives of Asset/Liability Management at Regions are balance
sheet coordination and the management of interest rate risk in achieving
reasonable and stable net interest income throughout various interest rate
cycles. A standard set of alternate interest rate scenarios is compared to the
results of the base case scenario to determine the extent of potential
fluctuations and to establish exposure limits. The standard set of interest rate
scenarios includes the traditional instantaneous parallel rate shifts of plus
and minus 100 and 200 basis points. In addition, Regions includes simulations of
gradual interest rate movements that may more realistically mimic potential
interest rate movements. The gradual scenarios include curve steepening,
flattening, and parallel movements of various magnitudes phased in over 6-to
12-month periods.

Exposure to Interest Rate Movements. Based on the aforementioned
discussion, management has estimated the potential effect of shifts in interest
rates on net interest income. As of December 31, 2002, Regions maintains an
almost balanced position to a gradual rate shift of plus or minus 100 basis
points. The following table demonstrates the expected effect that a gradual
(over twelve months beginning at December 31, 2002 and 2001, respectively)
parallel interest rate shift would have on Regions' net interest income.

Instantaneous shocks demonstrate slightly more sensitivity. Based on
current modeling, a minus 100-basis point instantaneous shock would result in
net interest income of approximately $10.8 million less than the base case, a
0.73% decline. A 100-basis point instantaneous increase would result in net
interest income of approximately $16.6 million greater than the base case, a
1.12% increase.

39

DERIVATIVES

Regions uses financial derivative instruments for management of interest
rate sensitivity. The Asset and Liability Committee in its oversight role for
the management of interest rate sensitivity approves the use of derivatives in
balance sheet hedging strategies. The most common derivatives the Company
employs are interest rate swaps, interest rate options, forward sale
commitments, and interest rate and foreign exchange forward contracts.

Interest rate swaps are contractual agreements typically entered into to
exchange fixed for variable streams of interest payments. The notional principal
is not exchanged but is used as a reference for the size of the interest
payments. Interest rate options are contracts that allow the buyer to purchase
or sell a financial instrument at a pre-determined price and time. Forward sale
commitments are contractual obligations to sell money market instruments at a
future date for an already agreed upon price. Foreign exchange forwards are
contractual agreements to receive or deliver a foreign currency at an agreed
upon future date and price.

Regions has made use of interest rate swaps and interest rate options to
convert a portion of its fixed-rate funding position to a variable rate. Regions
also uses derivatives to manage interest rate and pricing risk associated with
its mortgage origination business. Futures contracts and forward sales
commitments are used to protect the value of the loan pipeline from changes in
interest rates. In the period of time that elapses between the origination and
sale of mortgage loans, changes in interest rates have the potential to cause a
decline in the value of the loans in this held-for-sale portfolio. Futures and
forward sale commitment positions are used to protect the Company from the risk
of such adverse changes. The change in value of the hedging contracts is
expected to be highly effective in offsetting the change in value of specific
assets and liabilities over the life of the hedge relationship.

Regions also uses derivatives to meet the needs of its customers. Interest
rate swaps, interest rate options, futures and forward commitments and foreign
exchange forwards are the most common derivatives sold to customers. Positions
with similar characteristics are used to offset the market risk and minimize
income statement volatility associated with this portfolio. Those instruments
used to service customers are entered into the trading account with changes in
value recorded in the income statement. Refer to Note N of the consolidated
financial statements for a tabular summary of Regions' year-end derivatives
positions in the trading portfolio.

BROKERAGE AND MARKET MAKING ACTIVITY

Morgan Keegan's business activities expose it to market risk, including its
securities inventory positions and securities held for investment.

Morgan Keegan trades for its own account in corporate and tax-exempt
securities and U.S. government, agency and guaranteed securities. Most of these
transactions are entered into to facilitate the execution of customers' orders
to buy or sell these securities. In addition, it trades certain equity
securities in order to "make a market" in these securities. Morgan Keegan's
trading activities require the commitment of capital. All principal transactions
place the subsidiary's capital at risk. Profits and losses are dependent upon
the skills of employees and market fluctuations. In some cases, in order to
hedge the risks of carrying inventory, Morgan Keegan enters into a low level of
activity involving U.S. Treasury note futures.

Morgan Keegan, as part of its normal brokerage activities, assumes short
positions on securities. The establishment of short positions exposes Morgan
Keegan to off-balance sheet risk in the event that prices increase, as it may be
obligated to cover such positions at a loss. Morgan Keegan manages its exposure
to these instruments by entering into offsetting or other positions in a variety
of financial instruments.

Morgan Keegan will occasionally hedge a portion of its long proprietary
inventory position through the use of short positions in financial future
contracts, which are included in securities sold, not yet purchased at market
value. At December 31, 2002, Morgan Keegan had no outstanding futures contracts.
The contract amounts do not necessarily represent future cash requirements.

In the normal course of business, Morgan Keegan enters into underwriting
and forward and future commitments. At December 31, 2002, the contract amounts
of futures contracts were $24 million to purchase and $92 million to sell U.S.
Government and municipal securities. Morgan Keegan typically settles its
position by entering into equal but opposite contracts and, as such, the
contract amounts do not necessarily represent future cash requirements.
Settlement of the

40

transactions relating to such commitments are not expected to have a material
effect on Regions' consolidated financial position. Transactions involving
future settlement give rise to market risk, which represents the potential loss
that can be caused by a change in the market value of a particular financial
instrument. Regions' exposure to market risk is determined by a number of
factors, including the size, composition and diversification of positions held,
the absolute and relative levels of interest rates, and market volatility.

Interest rate risk at Morgan Keegan arises from the exposure of holding
interest-sensitive financial instruments such as government, corporate and
municipal bonds and certain preferred equities. Morgan Keegan manages its
exposure to interest rate risk by setting and monitoring limits and, where
feasible, hedging with offsetting positions in securities with similar interest
rate risk characteristics. Securities inventories are marked to market, and
accordingly there are no unrecorded gains or losses in value. While a
significant portion of the securities inventories have contractual maturities in
excess of five years, these inventories, on average, turn over in excess of
twelve times per year. Accordingly, the exposure to interest rate risk inherent
in Morgan Keegan's securities inventories is less than that of similar financial
instruments held by firms in other industries. Morgan Keegan's equity securities
inventories are exposed to risk of loss in the event of unfavorable price
movements. The equity securities inventories are marked to market and there are
no unrecorded gains or losses.

Morgan Keegan is also subject to credit risk arising from non-performance
by trading counterparties, customers, and issuers of debt securities owned. This
risk is managed by imposing and monitoring position limits, monitoring trading
counterparties, reviewing security concentrations, holding and marking to market
collateral and conducting business through clearing organizations that guarantee
performance. Morgan Keegan regularly participates in the trading of some
derivative securities for its customers; however, this activity does not involve
Morgan Keegan acquiring a position or commitment in these products and this
trading is not a significant portion of Morgan Keegan's business. Morgan Keegan
does not participate in the trading of derivative securities that have
off-balance sheet risk.

PROVISION FOR LOAN LOSSES

The provision for loan losses is used to fund the allowance for loan
losses. Actual loan losses, net of recoveries, are charged directly to the
allowance. The expense recorded each year is a reflection of management's
judgment as to the adequacy of the allowance. For an analysis and discussion of
the allowance for loan losses, refer to the section entitled "-- Financial
Condition -- Loans and Allowance for Loan Losses." During 2000, the provision
for loan losses increased to $127.1 million (.42% of average loans) due to
inherent losses associated with the loan portfolio and management's evaluation
of current economic factors. The provision for loan losses totaled $165.4
million (.53% of average loans), in 2001, a $38.3 million increase compared to
the prior year. The higher provision was due to increased loan losses in 2001,
weaker economic conditions and management's assessment of economic trends. The
2002 provision for loan losses was decreased to $127.5 million (.41% of average
loans) due to lower loan losses and management's assessment of current economic
conditions. The resulting year-end allowance for loan losses increased $18.0
million to $437.2 million.

NON-INTEREST INCOME

BROKERAGE AND INVESTMENT BANKING

Income from brokerage and investment banking increased significantly in
2001 and 2002 due to Regions' acquisition of Morgan Keegan. Brokerage and
investment income totaled $499.7 million in 2002 compared to $359.0 million in
2001 and $41.3 million in 2000. Morgan Keegan's results of operations were
included with Regions for the full year 2002, but for only nine months in 2001.
Brokerage and investment income is significantly affected by economic and market
conditions. As of December 31, 2002, Morgan Keegan employed approximately 930
financial advisors. Customer assets totaled approximately $32.7 billion at
year-end 2002.

The addition of Morgan Keegan significantly diversified Regions' revenue
stream. Non-interest income as a percent of total revenue equaled 43% in 2002,
compared to 39% in 2001 and 31% in 2000. Morgan Keegan contributed $51.5 million
to net income in 2002. Revenues from the fixed income capital markets division
totaled $228.3 million, or 40% of Morgan Keegan's total revenue in 2002, and was
the top revenue-producing line of business. This line of business has benefited
from significant fixed income issuance and refinance activity resulting from the
historically low levels of interest rates in 2002, while other divisions have
been negatively impacted by weaker market conditions. Private client

41

and equity capital markets revenue totaled $173.3 million and $55.7 million,
respectively. Investment advisory services produced $54.4 million of revenue in
2002.

The following table shows the components of the contribution by Morgan
Keegan for the years ended December 31, 2002 and 2001. For comparison purposes,
information for the year ended December 31, 2001, has been included in the
following table, but only the nine months ended December 31, 2001, is reflected
in Regions' consolidated financial statements.

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* Excludes $19.7 million in amortization of excess purchase price.

The following table shows the breakout of revenue by division contributed
by Morgan Keegan for the years ended December 31, 2002 and 2001. For comparison
purposes, information for the year ended December 31, 2001, has been included in
the following table, but only the nine months ended December 31, 2001, is
reflected in Regions consolidated financial statements.

MORGAN KEEGAN BREAKOUT OF REVENUE BY DIVISION

TRUST INCOME

Trust income increased 10% in 2002 and 8% in 2000, but decreased 2% in
2001. Beginning in 2002, trust sales efforts were managed through Morgan Keegan.
Morgan Keegan's expertise and experience in asset management and sales
contributed to higher trust fees in 2002. In addition to sales efforts, trust
fees are also affected by the securities markets, as many trust fees are
calculated as a percentage of trust asset values. Strong market conditions and
sales initiatives resulted in higher trust income in 2000. In 2001, weaker
securities markets, combined with the extraordinary events of September 11 and
their impact on the economy, had an adverse impact on trust income.

42

SERVICE CHARGES ON DEPOSIT ACCOUNTS

Service charge income increased 19% in 2000, 15% in 2001 and 4% in 2002 due
to increases in the number of deposit accounts, management initiatives and
standardization in the pricing of certain deposit accounts and related services.
The collection rate of fees charged for deposit services continues to improve,
but remains a focus of management.

MORTGAGE SERVICING AND ORIGINATION FEES

The primary source of this category of income is Regions' mortgage banking
affiliates, Regions Mortgage, Inc. ("RMI") and EquiFirst Corporation
("EquiFirst"). RMI's primary business and source of income is the origination
and servicing of mortgage loans for long-term investors. EquiFirst typically
originates mortgage loans which are sold to third-party investors with servicing
released. Net gains or losses related to the sale of mortgage loans are included
in other non-interest income.

In 2002, mortgage servicing and origination fees increased 8%, from $97.1
million in 2001 to $104.7 million in 2002. Origination fees increased in 2002
due to an increase in the number of loans closed as the result of lower mortgage
interest rates. Servicing fees were lower in 2002 as compared to 2001 due to a
smaller servicing portfolio in 2002. At December 31, 2002, Regions' servicing
portfolio totaled $17.3 billion and included approximately 218,000 loans. At
December 31, 2001 and 2000, the servicing portfolio totaled $19.1 billion and
$21.6 billion, respectively. The decline in the servicing portfolio during 2002
resulted from high levels of prepayments due to the low interest rate
environment driving record mortgage refinance activity, partially offset by
higher levels of production in 2002.

In 2001, mortgage servicing and origination fees increased 17%, from $82.7
million in 2000. Origination fees were higher due to an increase in the number
of loans closed as a result of lower mortgage interest rates in 2001. Servicing
fees were lower in 2001 as compared to 2000 due to lower numbers of loans
serviced in 2001.

In 2000, mortgage servicing and origination fees decreased 20%, from $103.1
million in 1999 to $82.7 million in 2000. Origination fees were lower due to a
decrease in the number of loans closed as a result of an increase in mortgage
interest rates in 2000. Servicing fees were lower in 2000 as compared to 1999
due to lower numbers of loans serviced as a result of sales of blocks of
mortgage servicing assets.

RMI and EquiFirst, through their retail and correspondent lending
operations, produced mortgage loans totaling $6.6 billion, $5.6 billion and $2.4
billion in 2002, 2001 and 2000, respectively. RMI and EquiFirst produce loans
from 84 offices in Alabama, Arkansas, Florida, Georgia, Louisiana, North
Carolina, South Carolina, Tennessee and Texas, and from other wholesale
operations located throughout much of the United States.

A summary of mortgage servicing rights, which are included in other assets
in the consolidated statements of condition, is presented as follows. The
balances shown represent the original amounts capitalized, less accumulated
amortization and valuation adjustments, for the right to service mortgage loans
that are owned by other investors. The carrying values of mortgage servicing
rights are affected by various factors, including prepayments of the underlying
mortgages. A significant change in prepayments of mortgages in the servicing
portfolio could result in significant changes in the valuation adjustments.

43

SECURITIES GAINS (LOSSES)

In 2002, net gains of $51.7 million were reported from sale of available
for sale securities. These gains were primarily related to the sale of agency
and mortgage-related securities. These gains were taken primarily as an offset
against impairment of mortgage servicing assets.

In 2001, Regions reported net security gains of $32.1 million. These gains
resulted from the sale of approximately $554 million of various available for
sale agency, mortgage-related and municipal securities.

Regions recognized net losses, in 2000, of $39.9 million related to the
disposition of securities available for sale. This loss primarily related to the
sale of $1.2 billion in lower-yielding mortgage-related securities as part of a
first quarter balance sheet repositioning.

OTHER INCOME

The components of other income consist mainly of fees and commissions,
insurance premiums, customer derivative fees and gains related to the sale of
mortgage loans. Beginning in 2002, Regions began reporting net gains/losses
related to the sale of mortgage loans held for sale in the non-interest income
category. In prior periods these net gains/losses were reported in other
non-interest expense. All comparable periods have been adjusted to reflect this
reclassification in reporting.

Fee and commission income increased in 2002 primarily due to higher money
order, cashier check and other banking fees. In 2001 fee and commission income
decreased primarily due to lower revenue from credit card referral fees. In 2000
fee and commission income increased from revisions in charges for certain
services, an increased emphasis on charging customers for services performed and
an increased customer base due to internal growth and acquisitions.

In 2002, insurance and commission income increased 49% due primarily to the
acquisition of ICT Group LLC. Insurance premium and commission income also
increased significantly in 2001, due to the acquisition of Rebsamen Insurance,
Inc. This income results primarily from the sale of property and casualty,
liability and workers compensation insurance to commercial customers as well as
credit life and accident and health insurance to consumer loan customers.

In 2001, Regions began operations of a customer derivative division. This
division primarily assists existing commercial customers with capital market
products including interest rate swaps, caps and floors. Typically, Regions
enters into offsetting derivative positions limiting the company's exposure
related to customer derivative products. These exposures are marked to market on
a daily basis. Capital market income totaled $14.3 million in 2002 and $8.6
million in 2001.

For the years ended December 31, 2002, and December 31, 2001, gains related
to the sale of mortgage loans held for sale totaled $87.4 million and $22.9
million, respectively. For the year ended December 31, 2000, Regions recognized
losses on the sale of mortgage loans totaling $4.0 million.

In 2002, Regions recognized a $7.5 million gain from the securitization and
sale of $800 million of indirect auto consumer loans.

In 2001 and 2000, Regions sold blocks of mortgage servicing assets that did
not fit into Regions' long-term strategy for mortgage servicing operations.
These sales resulted in pre-tax gains of $2.9 million in 2001 and $19.9 million
in 2000.

A $1.9 million gain was recognized in 2001, which was associated with the
sale of certain interests in an ATM network.

During 2000, Regions recognized a pre-tax gain of $67.2 million in
connection with the sale of its $278 million credit card portfolio.

NON-INTEREST EXPENSE

The main components of non-interest expense are salaries and employee
benefits, net occupancy expense, furniture and equipment expense and other
non-interest expense. Total non-interest expense increased $212.8 million, or
14%, in 2002 on an as-reported basis. Morgan Keegan's non-interest expense was
included with Regions for the full year 2002, but only for nine months in 2001.
During the third and fourth quarters of 2002, Regions recognized impairment
charges

44

related to mortgage servicing assets. The impairment charges totaled $36.7
million ($19.7 million in the third quarter and $17.0 million in the fourth
quarter). Also in the fourth quarter of 2002, Regions incurred a $5.2 million
charge related to the prepayment of higher cost Federal Home Loan Bank advances.
In 2002, Regions discontinued amortizing excess purchase price upon the adoption
of Statement 142 (see Note X to the consolidated financial statements).
Amortization of excess purchase price in 2001 totaled $52.1 million. Regions
also incurred $23.3 million in charges related to the acquisition of Morgan
Keegan in 2001. On an as-adjusted basis, which excludes impairment, prepayment
and acquisition charges and the affect of the adoption of Statement 142, total
non-interest expense increased $246.3 million or 17% in 2002.

The following table shows the components of non-interest expense for the
year ended December 31, 2002.

NON-INTEREST EXPENSE

SALARIES AND EMPLOYEE BENEFITS

Total salaries and benefits increased 17% in 2002, 49% in 2001 and 7% in
2000. Salaries and benefits were higher in 2002 as Morgan Keegan's expenses were
included for the full year in 2002 (versus nine months in 2001). Increased
production at Morgan Keegan, RMI and EquiFirst resulted in increased incentive
compensation in 2002. In addition to increased incentive compensation in 2002,
normal merit and promotional adjustments, and higher benefit costs resulted in
increased salaries and benefits in 2002. The significant increase in 2001 was
primarily the result of the acquisition of Morgan Keegan, which added 2,307
employees to Regions' payroll. The 2000 increase resulted from normal merit and
promotional adjustments, increased incentive payments tied to performance, the
effects of inflation and higher benefit costs.

At December 31, 2002, Regions had 15,695 full-time equivalent employees,
compared to 15,921 at December 31, 2001, and 14,390 at December 31, 2000. The
increase in employees in 2001 resulted primarily from personnel added in
connection with acquisitions. The decrease in employees in 2002 resulted
primarily from streamlining and consolidating certain bank operations.

Salaries, excluding benefits, totaled $583.2 million in 2002, compared to
$533.9 million in 2001 and $433.0 million in 2000. Higher employment levels in
2001, due to acquisitions, resulted in higher salaries. Increased salaries in
2002 were primarily the result of normal merit and promotional adjustments
combined with increased business activity.

Regions provides employees who meet established employment requirements
with a benefits package which includes pension, profit sharing, and medical,
life and disability insurance plans. The total cost to Regions for fringe
benefits, including payroll taxes, equals approximately 24% of salaries.

Beginning in 2001, employees could elect to have profit sharing paid in
cash or contributed to their 401(k) plan. The combination of the cash payments
and contributions to employee 401(k) plans was equal to approximately 2% of
after-tax income in 2002, 3% in 2001, and 5% in 2000.

Commissions and incentives expense increased to $301.3 million in 2002,
compared to $204.0 million in 2001 and $46.3 million in 2000. The significant
increase in commissions and incentives were primarily the result of commissions
paid at Morgan Keegan, RMI and EquiFirst related to increased production levels.
At Morgan Keegan, commissions and incentives are the primary method of
compensation, which is typical in the brokerage and investment banking industry.
In general, incentives continue to be used to reward employees for selling
products and services, for productivity

45

improvements and for achievement of other corporate goals. Regions' long-term
incentive plan provides for the granting of stock options, restricted stock and
performance shares (see Note S to the consolidated financial statements). The
long-term incentive plan is intended to assist Regions in attracting, retaining,
motivating and rewarding employees who make a significant contribution to
Regions' long-term success, and to encourage employees to acquire and maintain
an equity interest in Regions. Regions also uses cash incentive plans to reward
employees for achievement of various goals.

Pension expense totaled $7.1 million in 2002 compared to $538,000 in 2001.
Higher pension costs in 2002 is the result of lower returns associated with
pension plan assets. Pension expense in 2003 is expected to be approximately
$18.7 million.

Payroll taxes increased 19% in 2002, 30% in 2001 and 4% in 2000. Increases
in the Social Security tax base, combined with increased salary levels were the
primary reasons for increased payroll taxes.

Group insurance expense decreased 1% in 2002, but increased 47% in 2001 and
54% in 2000. The prior year increases were the result of increased levels of
covered employees and higher claims cost.

NET OCCUPANCY EXPENSE

Net occupancy expense includes rents, depreciation and amortization,
utilities, maintenance, insurance, taxes and other expenses of premises occupied
by Regions and its affiliates. Regions' affiliates operate offices throughout
Alabama, Arkansas, Florida, Georgia, Louisiana, North Carolina, South Carolina,
Tennessee, and Texas.

Net occupancy expense increased 13% in 2002, 23% in 2001 and 15% in 2000
due to acquisitions, new and acquired branch offices, rising price levels, and
increased business activity.

FURNITURE AND EQUIPMENT EXPENSE

Furniture and equipment expense increased 4% in 2002, 18% in 2001 and 3% in
2000. These increases resulted from acquisitions, rising price levels, expenses
related to equipment for new branch offices, and increased depreciation and
service contract expenses associated with other new back office and branch
equipment.

OTHER EXPENSES

The significant components of other expense include other non-credit
losses, amortization and impairment of mortgage servicing rights and computer
and other outside services. Increases in this category of expense generally
resulted from acquisitions, expanded programs, increased business activity and
rising price levels. In 2002, other expenses included $41.9 million of costs
related to mortgage servicing impairment and debt retirement, previously
discussed. Please refer to Note P to the consolidated financial statements for
an analysis of the significant components of other expense.

Other non-credit losses decreased in 2002 from levels in 2001 and 2000. The
2002 decrease was primarily related to lower losses related to litigation. Other
non-credit losses primarily include charges for items unrelated to the extension
of credit such as fraud losses, litigation losses, write-downs of other real
estate, insurance claims and miscellaneous losses.

Amortization of mortgage servicing rights decreased in 2002 and 2000, but
increased in 2001. Lower balances of mortgage servicing rights combined with
impairment taken in 2002, resulted in a decrease in the amortization of mortgage
servicing rights in 2002. Accelerated amortization rates due to the low interest
rate environment and increased prepayments of the underlying mortgages combined
with the retention of servicing rights on much of Regions mortgage subsidiary's
production resulted in additional amortization expense in 2001. Mortgage
servicing rights amortization expense declined in 2000 due to slower prepayment
activity on the underlying mortgages than in other years.

In 2002, Regions incurred charges totaling $36.7 million related to the
impairment of mortgage servicing rights due primarily to the historically low
interest rate environment.

Outside computer services increased $4.6 million while other outside
services increased $20.1 million. Other outside services include safekeeping
fees, credit investigations costs and equity asset line and other loan
origination costs paid to third parties.

46

Also in 2002, in connection with the prepayment of $250 million of Federal
Home Loan Bank advances, Regions incurred a $5.2 million charge.

Amortization of excess purchase price expense was eliminated in 2002 upon
the adoption of Statement 142. Amortization of excess purchase price totaled
$52.1 million in 2001 and $29.2 million in 2000.

Other non-interest expense for the year ended December 31, 2001, included a
net gain of $819,000 attributable to cash flow hedge ineffectiveness. No gains
or losses were recognized in 2002 related to cash flow hedge ineffectiveness.

APPLICABLE INCOME TAX

Regions' provision for income taxes increased 19% in 2002 but decreased 2%
in 2001. The increase in 2002 was caused primarily by a 21% increase in income
before taxes. Regions effective income tax rates for 2002, 2001 and 2000 were
28.7%, 29.1% and 28.9%, respectively. The effective tax rate decreased slightly
in 2002 compared to 2001, primarily due to the elimination of non-deductible
excess purchase price expense upon the adoption of Statement 142.

During the fourth quarter of 2000, Regions recapitalized a mortgage-related
subsidiary by raising Tier 2 capital, which resulted in a reduction in taxable
income of that subsidiary attributable to Regions. The reduction in the taxable
income of this subsidiary attributable to Regions is expected to result in a
lower effective tax rate applicable to the consolidated taxable income before
taxes of Regions for future periods. The impact, on Regions' effective tax rate
applicable to consolidated income before taxes, of the reduction in the
subsidiary's taxable income attributable to Regions will, however, depend on a
number of factors, including, but not limited to, the amount of assets in the
subsidiary, the yield of the assets in the subsidiary, the cost of funding the
subsidiary, possible loan losses in the subsidiary, the level of expenses of the
subsidiary, the level of income attributable to obligations of states and
political subdivisions, and various other factors.

Regions' consolidated federal income tax returns, for the years 1998
through 2002, are open for examination. From time to time Regions engages in
business plans that may also have an effect on its tax liabilities. While
Regions has obtained the opinion of advisors that the tax aspects of these plans
should prevail, examination of Regions' income tax returns or changes in tax law
may impact the tax benefits of these plans. Regions believes adequate provisions
for income tax have been recorded for all years open for review.

Management's determination of the realization of the deferred tax asset is
based upon management's judgment of various future events and uncertainties,
including the timing and amount of future income earned by certain subsidiaries
and the implementation of various tax plans to maximize realization of the
deferred tax asset. Management believes that the subsidiaries will generate
sufficient operating earnings to realize the deferred tax benefits.

Note Q to the consolidated financial statements provides additional
information about the provision for income taxes.

EFFECTS OF INFLATION

The majority of assets and liabilities of a financial institution are
monetary in nature; therefore, a financial institution differs greatly from most
commercial and industrial companies, which have significant investments in fixed
assets or inventories. However, inflation does have an important impact on the
growth of total assets in the banking industry and the resulting need to
increase equity capital at higher than normal rates in order to maintain an
appropriate equity-to-assets ratio. Inflation also affects other expenses that
tend to rise during periods of general inflation.

Management believes the most significant impact of inflation on financial
results is Regions' ability to react to changes in interest rates. As discussed
previously, management is attempting to maintain an essentially balanced
position between rate-sensitive assets and liabilities in order to protect net
interest income from being affected by wide interest rate fluctuations.

47

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to page 39 through 41 "Market Risk" included in
Management's Discussion and Analysis under Item 7 of this Annual Report on Form
10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and report of independent auditors of
Regions Financial Corporation and subsidiaries are set forth in the pages listed
below.

Report of Independent Auditors.............................. 49
Consolidated Statements of Condition -- December 31, 2002
and 2001.................................................. 50
Consolidated Statements of Income -- Years ended December
31, 2002, 2001 and 2000................................... 51
Consolidated Statements of Cash Flows -- Years ended
December 31, 2002, 2001 and 2000.......................... 52
Consolidated Statements of Changes in Stockholders'
Equity -- Years ended December 31, 2002, 2001 and 2000.... 53
Notes to Consolidated Financial Statements -- December 31,
2002...................................................... 55

Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.

48

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors
Regions Financial Corporation

We have audited the accompanying consolidated statements of condition of
Regions Financial Corporation and subsidiaries (the Company) as of December 31,
2002 and 2001, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Regions Financial Corporation and subsidiaries at December 31, 2002 and 2001,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.

As discussed in Note X to the consolidated financial statements, in 2002
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets."

/s/ Ernst & Young LLP

Birmingham, Alabama
February 28, 2003

49

REGIONS FINANCIAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

- ---------------

( ) Indicates deduction.

See notes to consolidated financial statements.
50

REGIONS FINANCIAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

See notes to consolidated financial statements.

51

REGIONS FINANCIAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

- ---------------

(1) In 2002 excludes effect of $1.1 billion non-cash reclassification of
indirect consumer auto loans to loans held for sale.

See notes to consolidated financial statements.

52

REGIONS FINANCIAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

53

REGIONS FINANCIAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED)

DISCLOSURE OF 2002 RECLASSIFICATION
AMOUNT:
Unrealized holding gains on
available for sale securities
arising during the period................................................... $ 139,158
Less:
Reclassification
adjustment, net of tax, for
net gains realized in net
income.................................................................... 36,829
Unrealized holding gain on derivatives,
net of tax.................................................................. 4,306
Less:
Reclassification
adjustment, net of tax, for
losses realized in net
income.................................................................... 971
---------
Comprehensive income,
net of taxes of $60,285..................................................... $ 105,664
=========

- ---------------

( ) Indicates deduction.

See notes to consolidated financial statements.

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of Regions Financial Corporation
("Regions" or "the Company"), conform with accounting principles generally
accepted in the United States and with general financial services industry
practices. Regions provides a full range of banking and bank-related services to
individual and corporate customers through its subsidiaries and branch offices
located primarily in Alabama, Arkansas, Florida, Georgia, Louisiana, North
Carolina, South Carolina, Tennessee and Texas. The Company is subject to intense
competition from other financial institutions and is also subject to the
regulations of certain government agencies and undergoes periodic examinations
by those regulatory authorities.

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Regions and
its subsidiaries. Significant intercompany balances and transactions have been
eliminated. In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the statement of condition dates and revenues and expenses for
the periods shown. Actual results could differ from the estimates and
assumptions used in the consolidated financial statements including the
estimates and assumptions related to allowance for loan losses, intangibles,
income taxes, securitizations and pensions.

Certain amounts in prior-year financial statements have been reclassified
to conform to the current year presentation.

SECURITIES

The Company's policies for investments in debt and equity securities are as
follows. Management determines the appropriate classification of debt and equity
securities at the time of purchase and re-evaluates such designations as of the
date of each statement of condition.

Debt securities are classified as securities held to maturity when the
Company has the positive intent and ability to hold the securities to maturity.
Securities held to maturity are stated at amortized cost.

Debt securities not classified as securities held to maturity or trading
account assets, and marketable equity securities not classified as trading
account assets, are classified as securities available for sale. Securities
available for sale are stated at estimated fair value, with unrealized gains and
losses, net of taxes, reported as a component of other comprehensive income.

The amortized cost of debt securities classified as securities held to
maturity or securities available for sale is adjusted for amortization of
premiums and accretion of discounts to maturity, or in the case of
mortgage-backed securities, over the estimated life of the security, using the
effective yield method. Such amortization or accretion is included in interest
on securities. Realized gains and losses are included in securities gains
(losses). The cost of the securities sold is based on the specific
identification method.

In January 2001, upon the adoption of Statement of Financial Accounting
Standards No. 133, Regions elected to reclassify $3.4 billion of securities from
the held to maturity category to the available for sale category. At the time of
transfer, the unrealized loss associated with the securities reclassified
totaled $2.1 million.

TRADING ACCOUNT ASSETS

Trading account assets, which are held for the purpose of selling at a
profit, consist of debt and marketable equity securities and are carried at
estimated market value. Gains and losses, both realized and unrealized, are
included in brokerage income. Trading account gains totaled $19.6 million, $21.6
million and $534,000 in 2002, 2001, and 2000, respectively.

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

LOANS HELD FOR SALE

Loans held for sale include both single-family real estate mortgage loans
and indirect consumer auto loans.

Mortgage loans held for sale have been designated as one of the hedged
items in a fair value hedging relationship under Statement 133. Therefore, to
the extent changes in fair value are attributable to the interest rate risk
being hedged, the change in fair value is recognized in income as an adjustment
to the carrying amount of mortgage loans held for sale. Otherwise, mortgage
loans held for sale are accounted for under the lower of cost or market method.
The fair values are based on quoted market prices of similar instruments,
adjusted for differences in loan characteristics. Gains and losses on mortgages
held for sale are included in other income.

Indirect consumer auto loans held for sale are accounted for under the
lower of cost or market method. Fair values are based on cash flow models.
Regions' intent is to securitize and sell indirect consumer auto loans in the
loans held for sale category. Gains and losses associated with securitization
and sale of indirect consumer auto loans are included in other income.

SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE

Securities purchased under agreements to resell and securities sold under
agreements to repurchase are generally treated as collateralized financing
transactions and are recorded at market value plus accrued interest. It is
Regions' policy to take possession of securities purchased under resell
agreements.

LOANS

Interest on loans is generally accrued based upon the principal amount
outstanding.

Through provisions charged directly to operating expense, Regions has
established an allowance for loan losses. This allowance is reduced by actual
loan losses and increased by subsequent recoveries, if any.

The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, historical loan loss experience, current economic conditions,
collateral values of properties securing loans, volume, growth, quality and
composition of the loan portfolio and other relevant factors. Unfavorable
changes in any of these, or other factors, or the availability of new
information, could require that the allowance for loan losses be increased in
future periods. No portion of the resulting allowance is restricted to any
individual loan or group of loans. The entire allowance is available to absorb
losses from any and all loans.

On loans which are on non-accrual status (including impaired loans), it is
Regions' policy to reverse interest previously accrued on the loan against
interest income. Interest on such loans is thereafter recorded on a "cash basis"
and is included in earnings only when actually received in cash and when full
payment of principal is no longer doubtful.

Regions' determination of its allowance for loan losses is determined in
accordance with Statement 114 and Statement 5. In determining the amount of the
allowance for loan losses, management uses information from its ongoing loan
review process to stratify the loan portfolio into risk grades. The
higher-risk-graded loans in the portfolio are assigned estimated amounts of loss
based on several factors, including current and historical loss experience of
each higher-risk category, regulatory guidelines for losses in each higher-risk
category and management's judgment of economic conditions and the resulting
impact on the higher-risk-graded loans. All loans deemed to be impaired, which
include non-accrual loans and loans past due 90 days or more, excluding loans to
individuals in both categories, are evaluated individually. Impaired loans
totaled approximately $142 million at December 31, 2002 and $180 million at
December 31, 2002. The vast majority of Regions' impaired loans are dependent
upon collateral for repayment. For these loans, impairment is measured by
evaluating collateral value as compared to the current investment in the loan.
For all other loans, Regions compares the amount of estimated discounted cash
flows to the investment in the loan. In the event a particular loan's collateral
value is not sufficient to support the collection of the investment in the loan,
a charge is immediately taken against the allowance for loan losses.

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In addition to establishing allowance levels for specifically identified
higher-risk-graded loans, management determines allowance levels for all other
loans in the portfolio for which historical experience indicates that certain
losses exist. These loans are categorized by loan type and assigned estimated
amounts of loss based on several factors, including current and historical loss
experience of each loan type and management's judgment of economic conditions
and the resulting impact on each category of loans. The amount of the allowance
related to these loans is combined with the amount of the allowance related to
the higher-risk-graded loans to evaluate the overall level of the allowance for
loan losses.

ASSET SECURITIZATIONS

Regions uses the securitization of financial assets, such as automobile
loans, as a source of funding. Automobile loans are transferred into a trust to
legally isolate the assets from Regions Bank, a subsidiary of the Company. In
accordance with Statement of Financial Accounting Standard No. 140, securitized
loans are removed from the balance sheet and a net gain or loss is recognized in
income at the time of initial sale. Net gains or losses resulting from
securitizations are recorded in non-interest income.

Retained interests in the subordinated tranches and interest-only strips
are recorded at fair value and included in the available for sale securities
portfolio. Subsequent adjustments to the fair value are recorded through other
comprehensive income. The Company uses assumptions and estimates in determining
the fair value allocated to the retained interests at the time of sale in
accordance with Statement 140. These assumptions and estimates include
projections concerning rates charged to customers, the expected life of the
receivables, loan losses, prepayment rates, the cost of funds, and discount
rates associated with the risks involved. Adverse changes related to any of the
assumptions used in determining fair value could result in a reduced yield on
the security over future periods, or, in some cases, a write-down of the
security carrying amount in the period of a decline in value.

Management reviews the historical performance of the retained interest and
the assumptions used to project future cash flows on a quarterly basis. Upon
review, assumptions may be revised and the present value of future cash flows
recalculated.

MARGIN RECEIVABLES

Margin receivables, which represent funds advanced to broker/dealer
customers for the purchase of securities, are carried at cost and secured by
certain marketable securities in the customer's brokerage account.

PREMISES AND EQUIPMENT

Premises and equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. The provision for depreciation is
computed using the straight-line and declining-balance methods over the
estimated useful lives of the assets. Leasehold improvements are amortized using
the straight-line method over the estimated useful lives of the improvements (or
the terms of the leases if shorter).

Estimated useful lives generally are as follows:

Premises and leasehold improvements......................... 10-40 years
Furniture and equipment..................................... 3-12 years

INTANGIBLE ASSETS

Intangible assets, consisting of (1) the excess of cost over the fair value
of net assets of acquired businesses (excess purchase price), (2) amounts
recorded related to the value of acquired indeterminate-maturity deposits (core
deposit intangible assets) and (3) amounts capitalized for the right to service
mortgage loans, are included in other assets.

The excess of cost over the fair value of net assets of acquired businesses
totaled $1,061,554,000 (net of accumulated amortization of $197.8 million) at
December 31, 2002, and $1,030,441,000 (net of accumulated amortization of $197.8
million) at December 31, 2001. Upon the adoption of Financial Accounting
Standards Board Statement 142, the Company no longer amortizes excess purchase
price. The Company's excess purchase price is reviewed at least annually

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

to ensure that there have been no events or circumstances resulting in an
impairment of the recorded amount of excess purchase price. Adverse changes in
the economic environment, operations of the business unit, or other factors
could result in a decline in the implied fair value. If the implied fair value
is less than the carrying amount, a loss would be recognized to reduce the
carrying amount to fair value.

Core deposit intangible assets totaled $5.4 million and $1.7 million at
December 31, 2002 and 2001, respectively. In 2002 and 2001, Regions'
amortization of core deposit intangible assets was $1.4 million and $29,000,
respectively. Core deposit intangible assets are typically amortized over a five
year period. The aggregate amount of amortization expense over the next five
years is estimated to be $1.3 million in years 2003 through 2006, declining to
$82,000 in 2007.

Amounts capitalized for the right to service mortgage loans, which totaled
$106,987,000 at December 31, 2002, and $136,594,000 at December 31, 2001, are
being amortized over the estimated remaining servicing life of the loans,
considering appropriate prepayment assumptions. The estimated fair values of
capitalized mortgage servicing rights were $107 million and $202 million at
December 31, 2002 and 2001, respectively. The fair value of mortgage servicing
rights is calculated by discounting estimated future cash flows from the
servicing assets, using market discount rates, and using expected future
prepayment rates. In 2002, 2001 and 2000, Regions capitalized $41.0 million,
$52.2 million and $18.9 million in mortgage servicing rights, respectively. In
2002, 2001 and 2000, Regions' amortization of mortgage servicing rights was
$33.9 million, $41.4 million and $33.6 million, respectively. Mortgage servicing
assets are evaluated periodically for impairment. For purposes of evaluating
impairment, the Company stratifies its mortgage servicing portfolio on the basis
of certain risk characteristics including loan type and note rate. Changes in
interest rates, prepayment speeds, or other factors, could result in impairment
of the servicing asset and a charge against earnings.

The changes in the valuation allowance for servicing assets for the years
ended December 31, 2002 and 2001 were as follows:

Assumptions used in the fair value calculation for the years ended December
31, 2002 and 2001 are as follows:

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

The Company enters into derivative financial instruments to manage interest
rate risk, facilitate asset/liability management strategies, and manage other
exposures. All derivative financial instruments are recognized on the statement
of condition as assets or liabilities at fair value as required by Statement
133.

Derivative financial instruments that qualify under Statement 133 in a
hedging relationship are designated, based on the exposure being hedged, as
either fair value or cash flow hedges. Fair value hedge relationships mitigate
exposure to the change in fair value of an asset, liability or firm commitment.
Under the fair value hedging model, gains or losses attributable to the change
in fair value of the derivative instrument, as well as the gains and losses
attributable to the change in fair value of the hedged item, are recognized in
earnings in the period in which the change in fair value occurs.

Cash flow hedge relationships mitigate exposure to the variability of
future cash flows or other forecasted transactions. Under the cash flow hedging
model, the effective portion of the gain or loss related to the derivative
instrument is recognized as a component of other comprehensive income. The
ineffective portion of the gain or loss related to the derivative instrument, if
any, is recognized in earnings during the period of change. Amounts recorded in

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

other comprehensive income are amortized to earnings in the period or periods
during which the hedged item impacts earnings. For derivative financial
instruments not designated as fair value or cash flow hedges, gains and losses
related to the change in fair value are recognized in earnings during the period
of change in fair value.

The Company formally documents all hedging relationships between hedging
instruments and the hedged item, as well as its risk management objective and
strategy for entering various hedge transactions. The Company performs an
assessment, at inception and on an ongoing basis, whether the hedging
relationship has been highly effective in offsetting changes in fair values or
cash flows of hedged items and whether they are expected to continue to be
highly effective in the future.

PROFIT-SHARING, 401(K) AND PENSION PLANS

Regions has profit-sharing and 401(k) plans covering substantially all
employees. Regions' pension plan covers substantially all employees employed
prior to January 1, 2001. Annual contributions to the profit-sharing plans are
determined at the discretion of the Board of Directors. Regions' contributions
to the 401(k) plan are determined using a multiple of the employee's
contribution to the plan, based on the employee's length of service. The 401(k)
match is invested in Regions' common stock. Pension expense is computed using
the projected unit credit (service prorate) actuarial cost method and the
pension plan is funded using the aggregate actuarial cost method. Annual
contributions to all the plans do not exceed the maximum amounts allowable for
federal income tax purposes.

INCOME TAXES

Regions and its subsidiaries file a consolidated federal income tax return.
Regions accounts for income taxes using the liability method pursuant to
Financial Accounting Standards Board Statement 109, "Accounting for Income
Taxes." Under this method, the Company's deferred tax assets and liabilities
were determined by applying federal and state tax rates currently in effect to
its cumulative temporary book/tax differences. Temporary differences are
differences between financial statement carrying amounts and the corresponding
tax bases of assets and liabilities. Deferred taxes are provided as a result of
such temporary differences.

From time to time the Company engages in business plans that may also have
an effect on its tax liabilities. If the tax effects of a plan are significant,
the Company's practice is to obtain the opinion of advisors that the tax effects
of such plans should prevail if challenged.

Regions has obtained the opinion of advisors that the tax aspects of
certain plans should prevail. Examination of Regions' income tax returns or
changes in tax law may impact the tax benefits of these plans. Regions believes
adequate provisions for income tax have been recorded for all years open for
review.

PER SHARE AMOUNTS

Earnings per share computations are based upon the weighted average number
of shares outstanding during the periods. Diluted earnings per share
computations are based upon the weighted average number of shares outstanding
during the period plus the dilutive effect of outstanding stock options and
stock performance awards.

TREASURY STOCK

The purchase of the Company's common stock is recorded at cost. At the date
of retirement or subsequent reissuance, the treasury stock account is reduced by
the cost of such stock.

STATEMENT OF CASH FLOWS

Cash equivalents include cash and due from banks and federal funds sold and
securities purchased under agreements to resell. Regions paid $1.1 billion in
2002, $1.7 billion in 2001, and $1.8 billion in 2000 for interest on deposits
and borrowings. Income tax payments totaled $128 million for 2002, $152 million
for 2001, and $278 million for 2000. Loans transferred to other real estate
totaled $126 million in 2002, $74 million in 2001 and $58 million in 2000.
During 2002, Regions reclassified approximately $1.1 billion of indirect auto
loans from the loan category to the loans held
59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for sale category in connection with the fourth quarter 2002 auto loan
securitization and sale. In December 2002, Regions retired 10.6 million shares
of treasury stock, with a cost of $358 million, and in December 2001, retired
1.8 million shares of treasury stock, with a cost of $52.5 million.

NOTE B. RESTRICTIONS ON CASH AND DUE FROM BANKS

Regions' subsidiary bank is required to maintain reserve balances with the
Federal Reserve Bank. The average amount of the reserve balances maintained for
the year ended December 31, 2002 and 2001, was approximately $33.2 million and
$9.4 million, respectively.

NOTE C. SECURITIES

The amortized cost and estimated fair value of securities held to maturity
and securities available for sale at December 31, 2002, are as follows:

The cost and estimated fair value of securities held to maturity and
securities available for sale at December 31, 2002, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Proceeds from sales of securities available for sale in 2002 were $858
million. Gross realized gains and losses were $52.4 million and $805,000,
respectively. Proceeds from sales of securities available for sale in 2001 were
$554 million, with gross realized gains and losses of $36.7 million and $4.6
million, respectively. Proceeds from sales of securities available for sale in
2000 were $1.3 billion, with gross realized gains and losses of $768,000 and
$40.7 million, respectively.

In 2001, upon adoption of Statement 133, Regions elected to reclassify a
significant portion of securities from held to maturity category to available
for sale category.

The amortized cost and estimated fair value of securities held to maturity
and securities available for sale at December 31, 2001, are as follows:

Securities with carrying values of $6,285,323,000 and $5,466,650,000 at
December 31, 2002, and 2001, respectively, were pledged to secure public funds,
trust deposits and certain borrowing arrangements.

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE D. LOANS

The loan portfolio at December 31, 2002 and 2001, consisted of the
following:

Directors and executive officers of Regions and its principal subsidiaries,
including the directors' and officers' families and affiliated companies, are
loan and deposit customers and have other transactions with Regions in the
ordinary course of business. Total loans to these persons (excluding loans which
in the aggregate do not exceed $60,000 to any such person) at December 31, 2002,
and 2001, were approximately $133 million and $102 million respectively. During
2002, $99 million of new loans were made and repayments totaled $68 million.
These loans were made in the ordinary course of business and on substantially
the same terms, including interest rates and collateral, as those prevailing at
the same time for comparable transactions with other persons and involve no
unusual risk of collectibility.

Regions sells loans to third party investors with limited recourse,
primarily related to first payment default or prepayment. Regions' recorded
recourse liability related to these loans totaled $250,000 and $350,000 at
December 31, 2002 and 2001, respectively.

The loan portfolio is diversified geographically, primarily within Alabama,
Arkansas, Louisiana, Georgia, North Carolina, South Carolina, northwest and
central Florida, Texas, and Tennessee.

The recorded investment in impaired loans was $142 million at December 31,
2002, and $180 million at December 31, 2001. The average amount of impaired
loans during 2002 was $164 million.

In September 2002, Regions reclassified $1.1 billion of indirect auto loans
to the loans held for sale category. The reclassification was partially offset
by the subsequent $800 million securitization and sale of indirect auto loans in
December 2002.

The amount of interest income recognized in 2002 on the $226.5 million of
non-accruing loans outstanding at year-end was approximately $6.5 million. If
these loans had been current in accordance with their original terms,
approximately $21.0 million would have been recognized on these loans in 2002.
Approximately $1,114,000 in interest income would have been recognized in 2002
under the original terms of the $32.3 million in renegotiated loans outstanding
at December 31, 2002. Approximately $1,066,000 in interest income was actually
recognized in 2002 on these loans.

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE E. ALLOWANCE FOR LOAN LOSSES

An analysis of the allowance for loan losses follows:

NOTE F. ASSET SECURITIZATIONS

In September 2002, Regions reclassified $1.1 billion of indirect consumer
auto loans to the held for sale category. In December 2002, $800 million of
these loans were securitized and sold resulting in a gain of $7.5 million, which
was recorded in other non-interest income. A retained interest in the form of an
interest-only strip was also recognized in the available for sale securities
portfolio with an initial carrying value of $35.1 million.

Below is a summary of the fair values of the interest-only strip and key
economic assumptions used to arrive at the fair value.

A 10% adverse change in the monthly principal prepayment rate assumption
would result in a $1.6 million decline in fair value of the interest-only strip,
while a 10% adverse change in the expected annual loan losses assumption would
result in a $1.0 million decline in fair value, as of December 31, 2002. A 20%
adverse change in the monthly principal prepayment rate assumption would result
in a $3.2 million decline in fair value of the interest-only strip, while a 20%
adverse change in the expected annual loan losses assumption would result in a
$2.0 million decline in fair value, as of December 31, 2002. The sensitivities
are hypothetical and changes in fair value of the interest-only strip are
calculated based on variation of a particular assumption without affecting any
other assumption.

NOTE G. PREMISES AND EQUIPMENT

A summary of premises and equipment follows:

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net occupancy expense is summarized as follows:

NOTE H. OTHER REAL ESTATE

Other real estate acquired in satisfaction of indebtedness ("foreclosure")
is carried in other assets at the lower of the recorded investment in the loan
or fair value less estimated cost to sell. Other real estate totaled $59,606,000
at December 31, 2002, and $40,872,000 at December 31, 2001. Gain or loss on the
sale of other real estate is included in other non-interest expense.

NOTE I. DEPOSITS

The following schedule presents the detail of interest-bearing deposits:

The following schedule details interest expense on deposits:

The aggregate amount of maturities of all time deposits in each of the next
five years is as follows: 2003-$8.1 billion; 2004-$1.2 billion; 2005-$1.0
billion; 2006-$1.1 billion; and 2007-$325.5 million.

64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE J. BORROWED FUNDS

Following is a summary of short-term borrowings:

Federal funds purchased and securities sold under agreements to repurchase
had weighted average maturities of nine, two and two days at December 31, 2002,
2001 and 2000, respectively. Weighted average rates on these dates were 1.1%,
1.7%, and 6.5%, respectively.

Federal Home Loan Bank structured notes have an original stated maturity
ranging from two to five years but are callable within one year. The structured
notes had a weighted average rate of 6.4% at December 31, 2002, 2001 and 2000.

Regions' brokerage subsidiary maintains certain lines of credit with
unaffiliated banks that provide for maximum borrowings of $490 million. As of
December 31, 2002 and 2001, $56.0 million and $151.3 million were outstanding
under these agreements, respectively. These agreements had a weighted average
interest rates of 1.7% and 1.9% at December 31, 2002 and 2001, respectively.

Commercial paper maturities ranged from 218 to 419 days at December 31,
2002, from 4 to 714 days at December 31, 2001 and from 218 to 718 days at
December 31, 2000. Weighted average maturities were 335, 392 and 422 days at
December 31, 2002, 2001 and 2000, respectively. The weighted average interest
rates on these dates were 3.7%, 5.5% and 6.5%, respectively.

Through its brokerage subsidiary, Regions maintains a due to brokerage
customer position, which represents liquid funds in the customers' brokerage
accounts. At December 31, 2002, these funds had an interest rate of 1.4%. At
December 31, 2001, these funds had an interest rate of 2.3%.

Regions holds cash as collateral for certain derivative transactions with
customers and other third parties. Upon the expiration of these agreements, cash
held as collateral will be remitted to the counter-party. As of December 31,
2002, these balances totaled $111.3 million, with an interest rate of 1.3%.

65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The short-sale liability represents Regions' trading obligation to deliver
certain securities at a predetermined date and price. These securities had
weighted average interest rates of 2.8%, 4.1% and 5.4% at December 31, 2002,
2001 and 2000, respectively.

Long-term borrowings consist of the following:

In May 2002, Regions issued $600 million of 6 3/8% subordinated notes, due
May 15, 2012. The $75 million of 7.80% subordinated notes originally issued in
December 1992, matured in December 2002. In February 2001, Regions issued $500
million of 7.00% subordinated notes, due March 1, 2011. In September 1994,
Regions issued $100 million of 7.75% subordinated notes, due September 15, 2024.
The $100 million of 7.75% subordinated notes may be redeemed in whole or in part
at the option of the holders thereof on September 15, 2004, at 100% of the
principal amount to be redeemed, together with accrued interest. All issues of
these notes are subordinated and subject in right of payment of principal and
interest to the prior payment in full of all senior indebtedness of the Company,
generally defined as all indebtedness and other obligations of the Company to
its creditors, except subordinated indebtedness. Payment of the principal of the
notes may be accelerated only in the case of certain events involving
bankruptcy, insolvency proceedings or reorganization of the Company. The
subordinated notes described above, qualify as "Tier 2 capital" under Federal
Reserve guidelines.

Federal Home Loan Bank structured notes have various stated maturities but
are callable, by the Federal Home Loan Bank, between one to two years. The
structured notes had a weighted average interest rate of 6.0% at December 31,
2002.

Federal Home Loan Bank advances represent borrowings with fixed interest
rates ranging from 5.5% to 8.1% and with maturities of one to fifteen years.
These borrowings, as well as the short-term borrowings from the Federal Home
Loan Bank, are secured by Federal Home Loan Bank stock (carried at cost of
$235.0 million) and by first mortgage loans on one- to four-family dwellings
held by Regions Bank (approximately $4.5 billion at December 31, 2002). The
maximum amount that could be borrowed from Federal Home Loan Banks under the
current borrowing agreements and without further investment in Federal Home Loan
Bank stock is approximately $9 billion.

In February 2001, Regions issued $288 million of 8.00% trust preferred
securities. These securities have a 30-year term, are callable in five years and
qualify as Tier 1 Capital. In addition, Regions assumed $4 million of trust
preferred securities in connection with an acquisition.

The industrial development revenue bonds mature on July 1, 2008, with
principal of $200,000 payable annually and interest at a tax effected prime rate
payable monthly.

Regions uses derivative instruments, primarily interest rate swaps and
options, to manage interest rate risk by converting a portion of its fixed-rate
debt to variable-rate. The basis adjustments related to these hedges are
included in long-term borrowings. Further discussion of derivative instruments
is included in Note N.

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other long-term debt at December 31, 2002, had a weighted average interest
rate of 7.8% and a weighted average maturity of 11.2 years.

The aggregate amount of maturities of all long-term debt in each of the
next five years is as follows: 2003-$152,364,454; 2004-$101,385,731;
2005-$2,551,334,409; 2006-$5,008,715; 2007-$4,720,920.

Substantially all consolidated net assets are owned by the subsidiaries and
the primary source of operating cash available to Regions is provided by
dividends from the subsidiaries. Statutory limits are placed on the amount of
dividends the subsidiary bank can pay without prior regulatory approval. In
addition, regulatory authorities require the maintenance of minimum
capital-to-asset ratios at banking subsidiaries. At December 31, 2002, the
banking subsidiary could pay approximately $538 million in dividends without
prior approval.

Management believes that none of these dividend restrictions will
materially affect Regions' dividend policy. In addition to dividend
restrictions, federal statutes also prohibit unsecured loans from banking
subsidiaries to the parent company. Because of these limitations, substantially
all of the net assets of Regions' subsidiaries are restricted, except for the
amount that can be paid to the parent in the form of dividends.

NOTE K. EMPLOYEE BENEFIT PLANS

Regions has a defined-benefit pension plan covering substantially all
employees employed at or before December 31, 2000. After January 1, 2001, the
plan is closed to new entrants. Benefits under the plan are based on years of
service and the employee's highest five years of compensation during the last
ten years of employment. Regions' funding policy is to contribute annually at
least the amount required by IRS minimum funding standards. Contributions are
intended to provide not only for benefits attributed to service to date, but
also for those expected to be earned in the future.

The Company also sponsors a supplemental executive retirement program,
which is a non-qualified plan that provides certain senior executive officers
defined pension benefits in relation to their compensation.

The following table sets forth the plans' funded status, using a September
30 measurement date, and amounts recognized in the consolidated statement of
condition:

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net pension cost included the following components:

The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.00% and 4.50%, respectively, at December 31,
2002; 7.75% and 4.50%, respectively, at December 31, 2001; and 8.25% and 4.50%,
respectively, at December 31, 2000. The expected long-term rate of return on
plan assets was 9.5% at December 31, 2002, 2001, and 2000.

Contributions to employee profit sharing plans totaled $28,125,000 for
2000. Beginning with the 2001 plan year, Regions' employees could elect to
receive their profit sharing contribution as a cash payment or defer it into
their 401(k) account. Contributions in 2002 totaled $13,919,000, with $8,750,000
paid in cash and $5,169,000 deferred into the 401(k) plan. Contributions in 2001
totaled $16,422,0000, with $9,357,000 paid in cash and $7,065,000 deferred into
the 401(k) plan.

Beginning in 2001, Regions modified the existing 401(k) plan to incorporate
a company match of employee contributions. This match, ranging from 150% to 200%
of the employee contribution (up to 3% of compensation), is based on length of
service and is invested in Regions common stock. In 2002, Regions' contribution
to the 401(k) plan on behalf of employees totaled $16.0 million. In 2001,
Regions' contribution to the 401(k) plan on behalf of employees totaled $14.3
million.

Regions sponsors a defined-benefit postretirement health care plan that
covers certain retired employees. Currently the Company pays a portion of the
costs of certain health care benefits for all eligible employees that retired
before January 1, 1989. No health care benefits are provided for employees
retiring at normal retirement age after December 31, 1988. For employees
retiring before normal retirement age, the Company currently pays a portion
(based upon length of active service at the time of retirement) of the costs of
certain health care benefits until the retired employee becomes eligible for
Medicare. The plan is contributory and contains other cost-sharing features such
as deductibles and co-payments. Retiree health care benefits, as well as similar
benefits for active employees, are provided through a group insurance program in
which premiums are based on the amount of benefits paid. The Company's policy is
to fund the Company's share of the cost of health care benefits in amounts
determined at the discretion of management.

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the plan's funded status, using a September
30 measurement date, and amounts recognized in the consolidated statement of
condition:

Net periodic postretirement benefit cost included the following components:

The assumed health care cost trend rate was 8.5% for 2003 and is assumed to
decrease gradually to 5.0% by 2010 and remain at that level thereafter.
Increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation at
December 31, 2002, by $1,485,000 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 2002 by
$263,000. Decreasing the assumed health care cost trend rates by one percentage
in each year would decrease the accumulated postretirement benefit obligation at
December 31, 2002, by $1,355,000 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 2002 by
$238,000. The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.00% at December 31, 2002, and 7.75% at
December 31, 2001.

69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE L. LEASES

Rental expense for all leases amounted to approximately $42,956,000,
$36,492,000 and $19,241,000 for 2002, 2001 and 2000, respectively. The
approximate future minimum rental commitments as of December 31, 2002, for all
noncancelable leases with initial or remaining terms of one year or more are
shown in the following table. Included in these amounts are all renewal options
reasonably assured of being exercised.

NOTE M. COMMITMENTS AND CONTINGENCIES

To accommodate the financial needs of its customers, Regions makes
commitments under various terms to lend funds to consumers, businesses and other
entities. These commitments include (among others) revolving credit agreements,
term loan commitments and short-term borrowing agreements. Many of these loan
commitments have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of these commitments are expected to expire
without being funded, the total commitment amounts do not necessarily represent
future liquidity requirements. Standby letters of credit are also issued, which
commit Regions to make payments on behalf of customers if certain specified
future events occur. Historically, a large percentage of standby letters of
credit also expire without being funded.

Both loan commitments and standby letters of credit have credit risk
essentially the same as that involved in extending loans to customers and are
subject to normal credit approval procedures and policies. Collateral is
obtained based on management's assessment of the customer's credit.

Loan commitments totaled $6.7 billion at December 31, 2002 and $6.5 billion
at December 31, 2001. Standby letters of credit were $1.1 billion at December
31, 2002, and $926.6 million at December 31, 2001. Commitments under commercial
letters of credit used to facilitate customers' trade transactions were $38.8
million at December 31, 2002, and $39.8 million at December 31, 2001.

The Company and its affiliates are defendants in litigation and claims
arising from the normal course of business. Based on consultation with legal
counsel, management is of the opinion that the outcome of pending and threatened
litigation will not have a material effect on Regions' consolidated financial
statements.

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE N. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Regions maintains positions in derivative financial instruments to manage
interest rate risk, to facilitate asset/liability management strategies, and to
manage other risk exposures. The most common derivative instruments are forward
rate agreements, interest rate swaps, and put and call options. For those
derivative contracts that qualify for hedge accounting, according to Statement
of Financial Accounting Standards No. 133, Regions designates the hedging
instrument as either a cash flow or fair value hedge. The accounting policies
associated with derivative financial instruments are discussed further in Note A
to the Consolidated Financial Statements.

Regions utilizes certain derivatives to hedge the variability of interest
cash flows on debt instruments. To the extent that the hedge of future cash
flows is effective, changes in the fair value of the derivative are recognized
as a component of other comprehensive income in stockholders' equity. At
December 31, 2001, Regions reported a $6.9 million loss in other comprehensive
income related to cash flow hedges, of which approximately $1.4 million was
amortized to interest expense in 2002. The Company will amortize the remaining
$5.5 million loss into earnings in conjunction with the recognition of interest
payments through 2011. The amount expected to be reclassified during the next
twelve months is $1.4 million. For the year ended December 31, 2002, there was
no ineffectiveness recognized in other non-interest expense attributable to cash
flow hedges. Other non-interest expense for the year ended December 31, 2001,
included a gain of $835,000 attributable to cash flow hedge ineffectiveness. No
gains or losses were recognized during 2002 related to components of derivative
instruments that were excluded from the assessment of hedge effectiveness.

Regions hedges the changes in fair value of assets using forward contracts,
which represent commitments to sell money market instruments at a future date at
a specified price or yield. The contracts are utilized by the Company to hedge
interest rate risk positions associated with the origination of mortgage loans
held for sale. The Company is subject to the market risk associated with changes
in the value of the underlying financial instrument as well as the risk that the
other party will fail to perform. For the years ended December 31, 2002 and
2001, Regions recognized a net hedging gain of $5.2 million and a $16,000 net
hedging loss, respectively, associated with these hedging instruments. The gross
amount of forward contracts totaled $292 million and $551 million at December
31, 2002, and 2001, respectively.

Regions has also entered into interest rate swap agreements converting a
portion of its fixed-rate long-term debt to floating-rate. The fair values of
these derivative instruments are included in other assets on the statement of
financial condition. For the year ended December 31, 2002, there was a $2.0
million loss recorded in earnings due to hedge ineffectiveness. For the year
ended December 31, 2001, there was no ineffectiveness recorded in earnings
related to these fair value hedges. No gains or losses were recognized during
2002 related to components of derivative instruments that were excluded from the
assessment of hedge effectiveness.

The Company also maintains a trading portfolio of interest rate swaps,
option contracts and futures and forward commitments used to meet the needs of
its customers. The portfolio is used to generate trading profit and help clients
manage interest rate risk. The fair value of the trading portfolio at December
31, 2002 and 2001 was $21.9 million and $7.8 million, respectively.

Foreign currency contracts involve the exchange of one currency for another
on a specified date and at a specified rate. These contracts are executed on
behalf of the Company's customers and are used to manage fluctuations in foreign
exchange rates. The notional amount of forward foreign exchange contracts
totaled $16 million and $19 million at December 31, 2002 and 2001, respectively.
The Company is subject to the risk that another party will fail to perform.

In the normal course of business, Regions' brokerage subsidiary enters into
underwriting and forward and future commitments. At December 31, 2002, the
contract amount of future contracts to purchase and sell U.S. Government and
municipal securities was approximately $24 million and $92 million,
respectively. The brokerage subsidiary typically settles its position by
entering into equal but opposite contracts and, as such, the contract amounts do
not necessarily represent future cash requirements. Settlement of the
transactions relating to such commitments is not expected to have a material
effect on the subsidiary's financial position. Transactions involving future
settlement give rise to market risk, which represents the potential loss that
can be caused by a change in the market value of a particular financial
instrument. The exposure to market risk is determined by a number of factors,
including size, composition and diversification of positions held, the absolute
and relative levels of interest rates, and market volatility.

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Regions derivative financial instruments are summarized as follows:

OTHER THAN TRADING DERIVATIVES

DERIVATIVE FINANCIAL INSTRUMENTS

- ---------------

(1) Credit Risk Amount is defined as all positive exposures not collateralized
with cash on deposit. Any credit risk arising under option contracts is
combined with swaps to reflect netting agreements.

72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE O. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.

Cash and cash equivalents: The carrying amount reported in the
consolidated statements of condition and cash flows approximates the estimated
fair value.

Interest-bearing deposits in other banks: The carrying amount reported in
the consolidated statement of condition approximates the estimated fair value.

Securities held to maturity: Estimated fair values are based on quoted
market prices, where available. If quoted market prices are not available,
estimated fair values are based on quoted market prices of comparable
instruments.

Securities available for sale: Estimated fair values, which are the
amounts recognized in the consolidated statements of condition, are based on
quoted market prices, where available. If quoted market prices are not
available, estimated fair values are based on quoted market prices of comparable
instruments.

Trading account assets: Estimated fair values, which are the amounts
recognized in the consolidated statements of condition, are based on quoted
market prices, where available. If quoted market prices are not available,
estimated fair values are based on quoted market prices of comparable
instruments.

Loans held for sale: Loans held for sale include both single-family real
estate mortgage loans and indirect consumer auto loans. Mortgage loans held for
sale have been designated as one of the hedged items in a fair value hedging
relationship under Statement 133. Therefore, to the extent changes in fair value
are attributable to the interest rate risk being hedged, the change in fair
value is recognized in income as an adjustment to the carrying amount of
mortgage loans held for sale. Otherwise, mortgage loans held for sale are
accounted for under the lower of cost or market method. The fair values are
based on quoted market prices of similar instruments, adjusted for differences
in loan characteristics. Indirect auto consumer loans are accounted for under
the lower of cost or market method. The fair values are based on cash flow
models.

Margin receivables: The carrying amount reported in the consolidated
statement of condition approximates the estimated fair value.

Loans: Estimated fair values for variable-rate loans, which reprice
frequently and have no significant credit risk, are based on carrying value.
Estimated fair values for all other loans are estimated using discounted cash
flow analyses, based on interest rates currently offered on loans with similar
terms to borrowers of similar credit quality. The carrying amount of accrued
interest reported in the consolidated statements of condition approximates the
fair value.

Derivative assets and liabilities: Fair values for derivative instruments
are based either on cash flow projection models or observable market prices.

Deposit liabilities: The fair value of non-interest bearing demand
accounts, interest-bearing transaction accounts, savings accounts, money market
accounts and certain other time open accounts is the amount payable on demand at
the reporting date (i.e., the carrying amount). Fair values for certificates of
deposit are estimated by using discounted cash flow analyses, using the interest
rates currently offered for deposits of similar maturities.

Short-term borrowings: The carrying amount reported in the consolidated
statements of condition approximates the estimated fair value.

Long-term borrowings: Fair values are estimated using discounted cash flow
analyses, based on the current rates offered for similar borrowing arrangements.

Loan commitments, standby and commercial letters of credit: Estimated fair
values for these off-balance-sheet instruments are based on standard fees
currently charged to enter into similar agreements.

73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:

NOTE P. OTHER INCOME AND EXPENSE

Other income consists of the following:

74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other expense consists of the following:

NOTE Q. INCOME TAXES

At December 31, 2002, Regions has net operating loss carryforwards for
federal tax purposes of $3.7 million that expire in years 2003 through 2013.
These carryforwards resulted from various acquired financial institutions.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Regions' deferred tax assets and liabilities as of December 31, 2002 and 2001
are listed below.

75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Applicable income taxes for financial reporting purposes differs from the
amount computed by applying the statutory federal income tax rate of 35% for the
reasons below:

During the fourth quarter of 2000, Regions recapitalized one of its
subsidiaries by raising Tier 2 capital through issuance of a new class of
participating preferred stock of this subsidiary. Regions is not subject to tax
on the portion of the subsidiary's income allocated to the holders of the
preferred stock for federal income tax purposes.

The provisions for income taxes (benefit) in the consolidated statements of
income are summarized below. Included in these amounts are income taxes of
$18,079,000, $11,237,000 and $(13,975,000) in 2002, 2001 and 2000, respectively,
related to securities transactions.

NOTE R. BUSINESS COMBINATIONS

During 2002 Regions completed the following business combinations:

The total consideration paid for these business combinations was
approximately $50 million in cash. Total intangible assets recorded in
connection with the purchase transactions totaled approximately $30 million.

76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 2001 Regions completed the following additional business
combinations:

Because the 2002 and 2001 business combinations were accounted for as
purchases, Regions' consolidated financial statements include the results of
operations of those companies only from their respective dates of acquisition.
The following unaudited summary information presents the consolidated results of
operations of Regions on a pro forma basis, as if all the above companies had
been acquired on January 1, 2001. The pro forma summary information does not
necessarily reflect the results of operations that would have occurred if the
acquisitions had occurred at the beginning of the periods presented, or of
results which may occur in the future.

The following chart summarizes the assets acquired and liabilities assumed
in connection with business combinations in 2002 and 2001.

As of December 31, 2002, Regions had no pending business combinations.

77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE S. STOCK OPTION AND LONG-TERM INCENTIVE PLANS

Regions has stock option plans for certain key employees that provide for
the granting of options to purchase up to 5,720,000 shares of Regions' common
stock (excluding options assumed in connection with acquisitions). The terms of
options granted are determined by the personnel committee of the Board of
Directors; however, no options may be granted after ten years from the plans'
adoption, and no options may be exercised beyond ten years from the date
granted. The option price per share of incentive stock options cannot be less
than the fair market value of the common stock on the date of the grant;
however, the option price of non-qualified options may be less than the fair
market value of the common stock on the date of the grant. The plans also permit
the granting of stock appreciation rights to holders of stock options. Stock
appreciation rights were attached to 24,694 of the options outstanding at
December 31, 2000. No stock appreciation rights were attached to options
outstanding at December 31, 2002 and 2001.

Regions' long-term incentive plans provide for the granting of up to
35,000,000 shares of common stock in the form of stock options, stock
appreciation rights, performance awards or restricted stock awards. The terms of
stock options granted under the long-term incentive plans are generally subject
to the same terms as options granted under Regions' stock option plans. A
maximum of 5,500,000 shares of restricted stock and 30,000,000 shares of
performance awards may be granted. During 2002, 2001, and 2000, Regions granted
382,210; 329,750, and 256,042 shares, respectively, as restricted stock.
Grantees of restricted stock must remain employed with Regions for certain
periods from the date of the grant at the same or a higher level in order for
the shares to be released. However, during this period the grantee is eligible
to receive dividends and exercise voting privileges on such restricted shares.
In 2002, 2001, and 2000, 236,896; 134,227 and 59,216 restricted shares,
respectively, were released. Total expense for restricted stock was $8,738,000
in 2002, $4,310,000 in 2001, and $2,753,000 in 2000.

In connection with the business combinations with other companies in prior
years, Regions assumed stock options, that were previously granted by those
companies and converted those options, based on the appropriate exchange ratio,
into options to acquire Regions' common stock. The common stock for such options
has been registered under the Securities Act of 1933 by Regions and is not
included in the maximum number of shares that may be granted by Regions under
its existing stock option plans.

Stock option activity (including assumed options) over the last three years
is summarized as follows:

78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 2001, Regions granted approximately 5.9 million options (included in
the table above) as a part of retention packages for Morgan Keegan' employees.
These options were granted to retain certain key employees important to the
success of the business combination.

In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting and Disclosure of Stock-Based Compensation"
(Statement 123). Statement 123 is effective for fiscal years beginning after
December 15, 1995, and allows for the option of continuing to follow Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees", and the related interpretations, or selecting the fair value method
of expense recognition as described in Statement 123. The Company has elected to
follow APB 25 in accounting for its employee stock options. Pro forma net income
and net income per share data is presented below for the years ended December 31
as if the fair-value method had been applied in measuring compensation costs:

Regions' options outstanding have a weighted average contractual life of
7.1 years. The weighted average fair value of options granted was $4.61 in 2002,
$4.83 in 2001 and $3.52 in 2000. The fair value of each grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions used for grants in 2002: expected dividend yield of 3.48%;
expected option life of 5 years; expected volatility of 21.8%; and a risk-free
interest rate of 2.7%. The 2001 assumptions used in the model included: expected
dividend yield of 3.7%; expected option life of 5 years; expected volatility of
22.2%; and a risk-free interest rate of 4.3%. The 2000 assumptions were:
expected dividend yield of 3.9%; expected option life of 5 years; expected
volatility of 22.2%; and a risk-free interest rate of 5.0%.

Since the exercise price of the Company's employee stock options equals the
market price of underlying stock on the date of grant, no compensation expense
is recognized.

The effects of applying Statement 123 for providing pro forma disclosures
are not likely to be representative of the effects on reported net income for
future years.

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE T. PARENT COMPANY ONLY FINANCIAL STATEMENTS

Presented below are condensed financial statements of Regions Financial
Corporation:

STATEMENTS OF CONDITION

80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STATEMENTS OF INCOME

Aggregate maturities of long-term borrowings in each of the next five years
for the parent company only are as follows: $710,000 in 2003; $100,850,000 in
2004; $870,000 in 2005; $910,000 in 2006; and $950,000 in 2007.

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STATEMENTS OF CASH FLOWS

NOTE U. REGULATORY CAPITAL REQUIREMENTS

Regions and its banking subsidiaries are subject to regulatory capital
requirements administered by federal banking agencies. These regulatory capital
requirements involve quantitative measures of the Company's assets, liabilities
and certain off-balance sheet items, and also qualitative judgments by the
regulators. Failure to meet minimum capital requirements can subject the Company
to a series of increasingly restrictive regulatory actions. As of December 31,
2002, the most recent notification from federal banking agencies categorized
Regions and its significant subsidiaries as "well capitalized" under the
regulatory framework.

Minimum capital requirements for all banks are Tier 1 Capital of at least
4% of risk-weighted assets, Total Capital of at least 8% of risk-weighted assets
and a Leverage Ratio of 3%, plus an additional 100- to 200- basis point cushion
in certain circumstances, of adjusted quarterly average assets. Tier 1 Capital
consists principally of stockholders' equity, excluding unrealized gains and
losses on securities available for sale, less excess purchase price and certain
other intangibles. Total Capital consists of Tier 1 Capital plus certain debt
instruments and the allowance for loan losses, subject to limitation.

82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Regions' and its most significant subsidiary's capital levels at December
31, 2002 and 2001, exceeded the "well capitalized" levels, as shown below:

In addition, Regions' subsidiaries engaged in mortgage banking must adhere
to various U.S. Department of Housing and Urban Development (HUD) regulatory
guidelines including required minimum capital to maintain their Federal Housing
Administration approved status. Failure to comply with the HUD guidelines could
result in withdrawal of this certification. As of December 31, 2002, RMI and
EquiFirst were in compliance with HUD guidelines. RMI and EquiFirst are also
subject to various capital requirements by secondary market investors.

83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE V. EARNINGS PER SHARE

The following table sets forth the computation of basic net income per
share and diluted net income per share.

NOTE W. BUSINESS SEGMENT INFORMATION

Regions' segment information is presented based on Regions' primary
segments of business. Each segment is a strategic business unit that serves
specific needs of Regions' customers. The Company's primary segment is Community
Banking. Community Banking represents the Company's branch banking functions and
has separate management that is responsible for the operation of that business
unit. In addition, Regions has designated as distinct reportable segments the
activity of its treasury, mortgage banking, investment banking/brokerage/trust,
and insurance divisions. The treasury division includes the Company's bond
portfolio, indirect mortgage lending division, and other wholesale activities.
Mortgage banking consists of origination and servicing functions of Regions
mortgage subsidiaries. Investment banking includes trust activities and all
brokerage and investment activities associated with Morgan Keegan and, for
periods prior to the acquisition of Morgan Keegan, the activities of Regions'
securities brokerage subsidiary. Insurance includes all business associated with
commercial insurance, in addition to credit life products sold to consumer
customers. The reportable segment designated "Other" includes activity of
Regions indirect consumer lending division and the parent company.

At the end of 2000, Regions implemented a new funds transfer pricing system
affecting the method by which unit banks are reported within each region. This
methodology is based on duration matched transfer pricing. The new system was in
place for the full year of 2001 and 2002 and influences comparability with the
year 2000. During 2002, Regions modified the funds transfer pricing system to
include a prepayment option premium and term credit spreads on certain
commercial and real estate loans. These adjustments had the impact of reducing
2002 net interest income approximately $69.4 million and 2002 net income
approximately $43.4 million for the Community Banking Segment.

84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The accounting policies used by each reportable segment are the same as
those discussed in Note A (summary of significant accounting policies). The
following table presents financial information for each reportable segment.

85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE X. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 (Statement 141), "Business
Combinations" and Statement of Financial Accounting Standards No. 142 (Statement
142), "Goodwill and Other Intangible Assets." Statement 141 prohibits the use of
the pooling-of-interests method to account for business combinations initiated
after June 30, 2001. Statement 142 provides guidance for the amortization of
goodwill arising from the use of the purchase method to account for business
combinations. Goodwill arising from purchase business combinations completed
after June 30, 2001, will not be amortized. The accounting for goodwill and
other intangible assets required under Statement 142 was effective for the
fiscal year beginning January 1, 2002.

The following tables illustrate the impact of the adoption of Statement
142:

86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FASB Statement 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued in July 2002 and addresses financial accounting and
reporting for costs associated with exit or disposal activities. The Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized at fair value when the liability is incurred. Statement
146 became effective for the Company on January 1, 2003, and did not have a
material effect on its financial position or results of operations.

In October 2002, the FASB issued Statement of Financial Accounting
Standards No. 147 (Statement 147), "Acquisitions of Certain Financial
Institutions." Statement 147 became effective at issuance and required companies
to cease amortization of unidentifiable intangible assets associated with
certain branch acquisitions and reclassify these assets to goodwill. In
addition, Statement 147 amends FASB Statement 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," to include in its scope long-term
customer-relationship intangible assets of financial institutions. Statement 147
did not have a material effect on Regions' financial position or results of
operations.

On December 31, 2002, the Financial Accounting Standards Board issued FASB
Statement No. 148, "Accounting for Stock-Based Compensation -- Transition and
Disclosure." Statement 148 amends FASB Statement No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition to
Statement 123's fair value method of accounting for stock-based employee
compensation. Statement 148 also amends the disclosure provisions of Statement
123 and APB Opinion No. 28, "Interim Financial Reporting," to require disclosure
in the summary of significant accounting policies of the effects of an entity's
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim financial statements.
While the Statement does not amend Statement 123 to require companies to account
for employee stock options using the fair value method, the disclosure
provisions of Statement 148 are applicable to all companies with stock-based
employee compensation, regardless of whether they account for that compensation
using the fair value method of Statement 123 or the intrinsic value method of
Opinion 25. Statement 148's amendment of the transition and annual disclosure
requirements of Statement 123 are effective for fiscal years ending after
December 15, 2002. The adoption of this Statement did not have a material impact
on financial position or results of operations (See Note S to the consolidated
financial statements).

In January, 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities, an Interpretation of ARB 51." This
Interpretation addresses consolidation by business enterprises of variable
interest entities (VIE). FIN 46 defines a VIE as one which has one or both of
the following characteristics: (1) The equity investment at risk is not
sufficient to permit the entity to finance its activities without additional
support from other parties, which is provided through other interest that will
absorb some or all of the expected losses of the entity and/or (2) The equity
investors lack one or more of the following essential characteristics of a
controlling financial interest: (a) the direct or indirect ability to make
decisions about the entity's activities through voting rights or similar rights,
(b) the obligation to absorb the expected losses of the entity if they occur,
which makes it possible for the entity to finance its activities, or (c) the
right to receive the expected residual returns of the entity if they occur,
which is the compensation for the risk of absorbing expected losses. FIN 46
excludes certain interests from its scope including transferors to qualifying
special purpose entities subject to Statement 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" and employee
benefit plans subject to specific accounting requirements in existing FASB
Statements. FIN 46 is effective immediately to VIEs created after January 31,
2003 and is effective in the interim period beginning after June 15, 2003 for
VIEs in which an enterprise holds prior to January 31, 2003. The Company is
currently assessing the impact, if any, the interpretation will have on results
of operations and financial position.

87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE Y. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS, COMMON STOCK MARKET PRICES
AND DIVIDENDS (UNAUDITED)

Regions Common Stock trades on the New York Stock Exchange under the symbol
RF. At December 31, 2002, there were 52,020 shareholders of record of Regions
Financial Corporation Common Stock.

88

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

All information presented under the captions "Information On Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" of the Registrant's
proxy statement to be dated approximately April 14, 2003, are incorporated by
reference.

Executive officers of the Registrant as of December 31, 2002, are as
follows:

- ---------------

* The years indicated are those in which the individual was first deemed to be
an executive officer of Registrant, although in every case the individual had
been an executive officer of a subsidiary of Registrant for a number of
years.

** Mr. Hufham retired February 28, 2003.

ITEM 11. EXECUTIVE COMPENSATION

All information presented under the caption "Executive Compensation and
Other Transactions", excluding the information under the subheading
"Compensation Committee Executive Compensation Report" of the Registrant's proxy
statement to be dated approximately April 14, 2003, are incorporated herein by
reference. All information presented under the caption "Executive Compensation
Report" of the Registrant's proxy statement to be dated approximately April 14,
2003, are specifically not incorporated by reference herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

All information presented under the captions "Voting Securities and
Principal Holders Thereof" and "Information on Directors" of the Registrant's
proxy statement to be dated approximately April 14, 2003, are incorporated
herein by reference.

EQUITY COMPENSATION PLAN INFORMATION

The following table gives information about the common stock that may be
issued upon the exercise of options, warrants and rights under all of Regions
existing equity compensation plans as of December 31, 2002.

(a) Does not include outstanding restricted stock awards.

(b) Calculated by deducting all grants from the total number of share
equivalents authorized to be awarded under Regions' long term incentive
plans.

(c) Consists of outstanding stock options issued under plans assumed by Regions
in connection with certain business combinations, including 2,591,682
options awarded under the Morgan Keegan 2000 Equity Compensation Plan in
2001 following Regions' acquisition of Morgan Keegan. In each instance, the
number of shares subject to option and the exercise price of outstanding
options have been adjusted to reflect the applicable exchange ratio.

90

ITEM 13. CERTAIN RELATIONSHIPS AND SELECTED TRANSACTIONS

All information presented under the caption "Other Transactions", of the
Registrant's proxy statement to be dated approximately April 14, 2003, are
incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

Based on their evaluation, as of a date within 90 days of the filing of
this Form 10-K, Regions' Chairman of the Board, President and Chief Executive
Officer and Executive Vice President and Chief Financial Officer have concluded
that Regions' disclosure controls and procedures (as defined in Rule 13a-14
under the Securities Exchange Act of 1934) are effective. There have been no
significant changes in internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A)(1) Consolidated Financial Statements. The following consolidated
financial statements are included in Item 8 of this report:

Report of Independent Auditors;

Consolidated Statements of Condition -- December 31, 2002 and 2001;

Consolidated Statements of Income -- Years ended December 31, 2002, 2001
and 2000;

Consolidated Statements of Cash Flows -- Years ended December 31, 2002,
2001 and 2000;

Consolidated Statements of Changes in Stockholders' Equity -- Years ended
December 31, 2002, 2001 and 2000;

Notes to Consolidated Financial Statements

(2) Consolidated Financial Statement Schedules. The following consolidated
financial statement schedules are included in Item 8 hereto:

None. The Schedules to consolidated financial statements are not required
under the related instructions or are inapplicable.

(3) Exhibits. The exhibits indicated below are either included or
incorporated by reference as indicated.

*Compensatory plan or agreement.

Copies of the exhibits are available to stockholders upon request to:

Investor Relations
417 North 20th Street
Post Office Box 10247
Birmingham, Alabama 35202-0247

(B) Reports on Form 8-K:

No reports on Form 8-K were filed during the fourth quarter of 2002.

The following reports on Form 8-K under item 9 were furnished during
the fourth quarter of 2002:

- A report submitted October 11, 2002 relating to a presentation given
by representatives of the registrant at the Morgan Keegan Equity
Conference.

- A report submitted October 28, 2002 relating to the press release
reporting on Regions results of operations for the third quarter of
2002.

(C) See Item 15(a)(3) above.

(D) See Item 15(a)(2) above.

93

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

REGIONS FINANCIAL CORPORATION

By: /s/ Carl E. Jones, Jr.
------------------------------------
Carl E. Jones, Jr.
Chairman, President and Chief
Executive Officer

Date: March 21, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

94

CERTIFICATIONS

I, Carl E. Jones, Jr., Chairman of the Board, President and Chief Executive
Officer of Regions Financial Corporation certify that:

1. I have reviewed this annual report on Form 10-K of Regions Financial
Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ Carl E. Jones, Jr.
--------------------------------------
Carl E. Jones, Jr.
Chairman of the Board, President, and
Chief Executive Officer

Date: March 21, 2003

95

I, D. Bryan Jordan, Executive Vice President and Chief Financial Officer of
Regions Financial Corporation certify that:

1. I have reviewed this annual report on Form 10-K of Regions Financial
Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ D. Bryan Jordan
--------------------------------------
D. Bryan Jordan
Executive Vice President and
Chief Financial Officer

Date: March 21, 2003

96

STATEMENT OF THE CHIEF EXECUTIVE OFFICER AND THE CHIEF FINANCIAL
OFFICER OF REGIONS FINANCIAL CORPORATION
PURSUANT TO 18 U.S.C. 1350

Each of the undersigned hereby certifies in his capacity as an officer of
Regions Financial Corporation (the "Company") that to the knowledge of such
undersigned this Annual Report on Form 10-K for the period ended December 31,
2002, as filed with the Securities and Exchange Commission on the date hereof
(this "Report"), fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934, and the information contained in this Report
fairly presents, in all material respects, the financial condition and results
of operations of the Company.

/s/ Carl E. Jones, Jr.
--------------------------------------
Carl E. Jones, Jr.
Chairman of the Board, President
and Chief Executive Officer

Date: March 21, 2003

/s/ D. Bryan Jordan
--------------------------------------
D. Bryan Jordan
Executive Vice President
and Chief Financial Officer

Date: March 21, 2003

97

EXHIBITS INDEX