REGIONS FINANCIAL CORP - 10-K Annual Report

Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 2003

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)

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. [ ]

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 -- $7,269,247,544 AS OF JUNE 30, 2003.

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 -- 222,348,695 SHARES ISSUED AND OUTSTANDING
AS OF FEBRUARY 27, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the annual proxy statement expected to be filed on or before
April 29, 2004 are incorporated by reference into Part III.

PART I

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 (the "Exchange Act"), 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 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.

1

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

In addition, statements made in this Annual Report on Form 10-K, other
periodic reports filed by Regions under the Exchange Act, and other written or
oral statements made by or on behalf of Regions may include forward looking
statements relating to the benefits of the proposed merger between Regions and
Union Planters Corporation, including future financial and operating results,
and Regions' and Union Planters' plans, objectives, expectations and intentions.
Such statements involve risks and uncertainties that may cause results to differ
materially from those set forth in these statements.

The following factors, among those addressed above and others, could cause
actual results to differ materially from those set forth in such forward-looking
statements:

- The ability to obtain regulatory approvals of the merger on the proposed
terms and schedule.

- The failure of Regions or Union Planters stockholders to approve the
merger.

- The risk that Regions and Union Planters may not have the ability to
effect the merger.

- The level and timeliness of realization, if any, of expected cost savings
and revenue synergies from the merger.

- Difficulties related to the completion of the merger and the integration
of the businesses of Regions and Union Planters, including integration of
information systems and retention of key personnel.

- Disruption from the merger may make it more difficult to maintain
relationships with clients, employees or suppliers.

- A materially adverse change in the financial condition of Regions, Union
Planters or the combined company.

- Lower than expected revenues following the merger.

- Other difficulties in effecting the proposed merger.

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.

ITEM 1. BUSINESS

Regions Financial Corporation (together with its subsidiaries on a
consolidated basis, "Regions" or "Company"), 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, 2003, Regions had total consolidated assets of approximately $48.6
billion, total consolidated deposits of approximately $32.7 billion, and total
consolidated stockholders' equity of approximately $4.5 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, 2003, Regions Bank operated 681 full
service banking offices in Alabama, Arkansas, Florida, Georgia, Louisiana, North
Carolina, South Carolina, Tennessee and Texas.

2

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 or
divisions:

- Morgan Keegan & Company, Inc., acquired in 2001 and a subsidiary of
Regions Financial Corporation, is a full-service regional 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 in the South,
employs approximately 890 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 as well as
Toronto, Canada.

- Regions Mortgage, a division of Regions Bank, and EquiFirst Corporation,
a subsidiary of Regions Bank, are engaged in mortgage banking. Regions
Mortgage'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.
Regions Mortgage's servicing portfolio totaled approximately $16.1
billion and included approximately 194,000 real estate mortgages at
December 31, 2003. Regions Mortgage and EquiFirst operate loan production
offices in Alabama, Arizona, Arkansas, Florida, Georgia, Louisiana, North
Carolina, South Carolina, Tennessee and Texas.

- 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.

3

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 103 acquisitions of financial institutions and financial service
providers representing in aggregate (at the time the acquisitions were
completed) approximately $28.4 billion in assets. During 2002 and 2003, 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.

In January 2004, Regions signed a definitive merger agreement with Union
Planters Corporation. Union Planters Corporation is a $31.9 billion bank holding
company headquartered in Memphis, Tennessee. Union Planters Bank, National
Association, Union Planters' principal banking subsidiary, operates branches in
Alabama, Arkansas, Florida, Illinois, Indiana, Iowa, Kentucky, Louisiana,
Mississippi, Missouri, Tennessee and Texas. Union Planters offers a full range
of commercial and consumer financial solutions. The merger will be accounted for
as a purchase of Union Planters for accounting and financial reporting purposes.
As a result, the historical financial statements of Regions will become the
historical financial statements of the combined company. For more information on
the proposed merger, see Regions' Form 8-K dated as of January 22, 2004 and
filed as of January 26, 2004, and Regions' Form 8-K dated as of January 22, 2004
and filed on January 30, 2004.

SEGMENT INFORMATION

Reference is made to Note 24 "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 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 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 ("GLB Act"), 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,
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

4

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 GLB Act also permits securities brokerage firms and insurance companies
to own banks and bank holding companies. The GLB 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 insured depository 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 with a subsidiary insured depository
institution 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: (1) 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; (2) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (3) 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. 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.

5

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. In 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 "Regulatory Remedies under FDICIA." 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, 2003, 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
$743 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.

6

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.

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,
2003, Regions' consolidated Tier 1 Capital ratio was 9.72% and its Total Capital
ratio was 14.46%.

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, 2003, was 7.49%. 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, 2003.
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 "Regulatory Remedies
under FDICIA."

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 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 financial
holding company's bankruptcy, any commitment by the financial 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.

Regulatory Remedies under FDICIA. FDICIA establishes a system of
regulatory remedies 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

7

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 agencies' rules implementing FDICIA's remedy provisions, an
institution that (1) 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
(2) is not subject to any written agreement, order, capital directive, or
regulatory remedy 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 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, 2003, Regions Bank had the requisite capital levels to
qualify as well capitalized.

8

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 subgroup 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 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 "Regulatory
Remedies under FDICIA." 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.

9

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 matter. 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 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 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 a broker-dealer with every state, the District of
Columbia, and Puerto Rico. 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.

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.

10

COMPETITION

All aspects of Regions' business are highly competitive. Regions'
subsidiaries compete with other financial institutions located in Alabama,
Arkansas, 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 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, 2003, Regions and its subsidiaries had a total of 16,180
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

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 670 are owned by Regions or one
of its subsidiaries and 258 are subject to building or ground leases. Of the 681
branch office facilities operated by Regions Bank at December 31, 2003, 506 are
owned by Regions Bank and 175 are subject to building or ground leases. Of the
office facilities operated by Morgan Keegan at December 31, 2003, 64 are owned
by Morgan Keegan and 78 are subject to building or ground leases.

For offices in premises leased by Regions and its subsidiaries, annual
rentals totaled approximately $37.4 million as of December 31, 2003. During
2003, Regions and its subsidiaries received approximately $8.7 million in
rentals for space leased to others. At December 31, 2003, 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.

11

ITEM 3. LEGAL PROCEEDINGS

Reference is made to Note 13 "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
involving large damage awards against financial service company defendants.
Regions is subject to litigation in the ordinary course of business. Punitive
damages are routinely claimed in these cases. The litigation also includes 6
cases in which the claimants seek class action treatment.

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.

On January 27, 2004, a Regions stockholder filed a purported class action
complaint in the Circuit Court of Jefferson County, Alabama, on behalf of all
stockholders other than the defendants against Regions and the members of its
board of directors (except for C. Kemmons Wilson, Jr.) in connection with the
proposed merger of Regions and Union Planters Corporation. In addition, two
Union Planters shareholders separately filed purported class action complaints
in the Chancery Court of Tennessee on January 27, 2004 and January 28, 2004,
against Union Planters and the members of its board of directors in connection
with the merger. Each of these complaints alleges that the defendant board of
directors breached its fiduciary duties in approving the merger. The lawsuits
seek, among other things, to recover costs and to enjoin or rescind the
transactions contemplated by the merger agreement. In addition, the lawsuits
against Union Planters seek to recover unspecified damages. Regions believes
these lawsuits are entirely without merit and intends to defend against the
Alabama lawsuit vigorously.

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 2003.

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, 2003, is included under Item 8 of this Annual Report filed on Form
10-K in Note 27 "Summary of Quarterly Results of Operations, Common Stock Market
Prices, and Dividends" to the consolidated financial statements.

12

ITEM 6. SELECTED FINANCIAL DATA

HISTORICAL FINANCIAL SUMMARY

REGIONS FINANCIAL CORPORATION & SUBSIDIARIES

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

(a) In 2002, Regions adopted Statement of Financial Accounting Standards No. 142
(Statement 142) which eliminated amortization of excess purchase price. See
Note 25 "Recent Accounting Pronouncements" to the consolidated financial
statements for comparisons with prior years.

13

REGIONS FINANCIAL CORPORATION & SUBSIDIARIES

HISTORICAL FINANCIAL SUMMARY -- (CONTINUED)

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

The ratios disclosed in the following footnotes exclude certain 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 25 "Recent Accounting Pronouncements" to the
consolidated financial statements for comparisons with prior years.
(b)Ratios for 2001 excluding $17.8 million in after-tax merger and other charges
are as follows: Return on average stockholders' equity 13.96%, Return on
average total assets 1.18%, and Efficiency 61.27%.
(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 56.10%.
(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 53.77%.
(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.

14

REGIONS FINANCIAL CORPORATION & SUBSIDIARIES

HISTORICAL FINANCIAL SUMMARY -- CONTINUED

15

REGIONS FINANCIAL CORPORATION & SUBSIDIARIES

HISTORICAL FINANCIAL SUMMARY -- CONTINUED

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

Notes to Historical Financial Summary:

(1) 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.

(2) Yields are computed on a taxable equivalent basis, net of interest
disallowance, using marginal federal income tax rates of 35% for 2003-1998.

(3) This summary should be read in conjunction with the related consolidated
financial statements and notes thereto under Item 8 on pages 57 to 101 of
this Annual Report on Form 10-K.

16

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 2001, 2002 and 2003; in
addition, 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 2003, Regions' banking operations, excluding trust
activities, contributed approximately $508 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 banking 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.
Morgan Keegan, acquired in March 2001, contributed approximately $82.1 million
to net income in 2003, including trust activities. Morgan Keegan Trust, FSB, a
federal savings bank subsidiary of Morgan Keegan, acts as fiduciary for the
trust clients of Morgan Keegan and does not accept retail insured deposits.
Regions' mortgage banking divisions, Regions Mortgage and EquiFirst Corporation
("EquiFirst"), provide residential mortgage loan origination and servicing
activities for customers. Regions Mortgage services approximately $16.1 billion
in mortgage loans and in 2003 contributed approximately $49.1 million to net
income, while EquiFirst contributed $36.1 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. Rebsamen, acquired
in February 2001, contributed approximately $7.1 million to net income in 2003.
Credit life insurance services for customers are provided through other Regions'
affiliates.

Regions' profitability, like that of many other financial institutions, is
dependent on its ability to generate revenue from net interest income and
non-interest income sources. Net interest income is the difference between the
interest income Regions receives on earning assets, such as loans and
securities, and the interest expense Regions pays on interest-bearing
liabilities, principally deposits and borrowings. Regions' net interest income
is impacted by the size and mix of its balance sheet and the interest rate
spread it earns on its assets and liabilities. Non-interest income includes fees
from service charges on deposit accounts, trust and securities brokerage
activities, mortgage origination and servicing, insurance and other customer
services which Regions provides. Results of operations are also affected by the
provision for loan losses and non-interest expenses such as salaries and
employee benefits, occupancy and other operating expenses, including income
taxes.

Economic conditions, competition and the monetary and fiscal policies of
the Federal government in general, significantly affect financial institutions,
including Regions. Lending and deposit activities and fee income generation are
influenced by the level of business spending and investment, consumer income,
spending and savings, capital market activities, competition among financial
institutions, customer preferences, interest rate conditions and prevailing
market rates on competing products in Regions' primary market areas.

Regions' business strategy has been and continues to be focused on the
diversification of its revenue stream, providing a competitive mix of products
and services, delivering quality customer service and maintaining a branch
distribution network with offices in convenient locations. Regions believes that
its recently announced merger with Union Planters Corporation will be beneficial
in the future implementation of this strategy.

17

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 as well as Toronto, Canada.

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 carried on the balance sheet as an intangible asset) 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 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'
1998 to 2002 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.

18

During 2003 and 2002, Regions securitized automobile loans as a source of
funding. Regions accounted for these transactions as sales in accordance of
Statement of Financial Accounting Standards No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment 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 interests, such as servicing assets or residual interests. 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, from time to
time, evaluates potential bank and non-bank acquisition candidates; however, no
transactions were pending at December 31, 2003.

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' ability to
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 the acquisition
of 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.

19

In 2003, Regions consummated the purchase of three branches from Inter
Savings Bank, FSB, which strengthened its community banking franchise in central
Florida. These branches combined added $185 million in assets, $5 million in
loans and $185 million in deposits:

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

In January 2004, Regions signed a definitive merger agreement with Union
Planters Corporation ("UPC"). Terms of the agreement include the formation of a
new holding company to be named Regions Financial Corporation upon completion of
the transaction. In the transaction each share of UPC common stock will be
converted into one share of the new company stock and each share of Regions'
common stock will be converted into 1.2346 shares of the new company common
stock. The transaction is expected to close in mid 2004, subject to customary
regulatory and stockholder approvals. As of December 31, 2003, UPC had assets of
$31.9 billion, deposits of $23.1 billion and stockholders' equity of $3.1
billion (see Note 26 "Subsequent Event" to the consolidated financial
statements).

20

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, 2003, 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 $4.0 billion, a compound growth rate of 3%. Regions experienced
significant loan growth in 2000, with loans increasing $3.2 billion. 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 the
reclassification, total loans would have increased $1.2 billion, or 4%, in 2002.
Loans increased $1.2 billion or 4% in 2003, due primarily to growth in the real
estate portfolio partially offset by a decline in the commercial portfolio.

In 2000, Regions sold its credit card portfolio, which totaled $278
million. Adjusting for the effect of this sale, loans would have increased $3.5
billion, or 12%, in 2000. During 2002, Regions reclassified $1.1 billion of
indirect auto loans. These assets were transferred from the loan portfolio to
the loans held for sale category on September 30, 2002. The sale of the credit
card portfolio in 2000 and the reclassification of the indirect auto loans in
2002 resulted in slower growth in consumer loans.

All major categories in the loan portfolio have increased over the last
five years, with the strongest growth occurring in commercial and real estate
construction and mortgage loans. Over the last five years, commercial, financial
and agricultural loans increased $1.6 billion, or 19%. Real estate construction
loans increased $1.0 billion, or 43%, over the same period. Real estate mortgage
loans increased $1.2 billion, or 11%, and consumer loans increased $174 million,
or 3%, over the last five years.

Although loans have increased over the past five years, growth has slowed
in recent years. Average total loans were $30.9 billion in 2001 and 2002,
compared to $31.5 billion in 2003. The modest loan growth trend in recent years
is a result of lower loan demand resulting from weaker economic conditions,
significant prepayments of mortgage loans, management initiatives to focus on
higher margin loans, combined with the reclassification of indirect auto loans
in 2002. Regions expects modest loan growth to continue in 2004.

Regions' residential real estate mortgage portfolio as of December 31,
2003, included $5.6 billion of mortgage loans originated by its mortgage
subsidiaries and bank branches or obtained in various acquisitions. The
residential mortgage loan portfolio decreased approximately $800 million during
2003. The decline in 2003 reflects the substantial increase in mortgage loan
prepayments due to the high level of refinancing activity resulting from lower
mortgage interest rates. Based on outstanding balances, $2.7 billion of these
loans

21

are fixed rate mortgages with a weighted average coupon rate of 5.73%, down from
7.05% in 2002, and a weighted average remaining maturity of 172 months.

Residential real estate mortgage portfolio loans totaling $2.8 billion
(based on outstanding balances) are adjustable rate mortgages ("ARM") that have
rates currently averaging 5.10%, down from 6.02% at December 31, 2002. The
weighted average months to reprice the ARM portfolio was 31 months at December
31, 2003, up from 30 months in 2002.

The amounts of total gross loans (excluding residential mortgages and
consumer loans) outstanding at December 31, 2003, 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

22

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, 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 No. 114 (Statement
114) and Statement of Financial Accounting Standards No. 5 (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, are evaluated individually.
Impaired loans totaled approximately $179 million at December 31, 2003 and $142
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. The amount of the allowance for loan losses related to the higher-risk
loans was approximately 69% at December 31, 2003, compared to approximately 72%
at December 31, 2002. Higher-risk loans include loans classified OLEM (other
loans especially mentioned) and below, which include impaired loans.

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 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 losses exist was approximately 31% of Regions'
allowance for loan losses at December 31, 2003, compared to approximately 28% at
December 31, 2002. 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, 2003 and 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

23

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.

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 following table,
shows that net loan losses over the last five years ranged from a high of $126.8
million in 2001 to a low of $94.1 million in 2000. Net loan losses were $104.6
million in 2003, $111.8 million in 2002, and $99.2 million in 1999. Over the
last five years, net loan losses averaged 0.36% of average loans and were 0.33%
of average loans in 2003. Compared to the prior year, in 2003, Regions
experienced lower charge-offs of consumer credits, partially offset by higher
levels of losses in the commercial category.

24

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

25

RISK CHARACTERISTICS OF LOAN PORTFOLIO

In order to assess the risk characteristics of the loan portfolio, it is
appropriate to consider the economy of Regions' primary banking markets as well
as the three major categories of loans -- commercial, real estate and consumer.

Economy of Regions' primary banking markets. 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 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
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 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. General economic conditions deteriorated throughout the nation in
2001 and did not show significant recovery in 2002.

26

In 2003, various sectors of the economy reported growth, while others continued
the slow growth trends of 2002.

Commercial. Regions' commercial loan portfolio is highly diversified
within the markets it serves. Geographically, the largest concentration is the
28% of the portfolio in the state of Alabama. Loans in Georgia and Arkansas
account for 21% and 17%, respectively, of the commercial loan portfolio,
followed by Louisiana with 10%, Tennessee with 7%, Texas with 8%, 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.

Included in the commercial loan classification are $478 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 1999 to 2003, net commercial loan losses as a percent of average loans
outstanding ranged from a low of 0.30% in 1999 to a high of 0.88% in 2001.
Commercial loan losses in 2003 totaled $75.7 million, or 0.71% of average
commercial loans. The higher level of commercial loan losses in 2003 compared to
2002 resulted primarily from higher losses related to agribusiness customers.
Future losses are a function of many variables, of which general economic
conditions are the most important. Assuming moderate to slow economic growth
during 2004 in Regions' market areas, net commercial loan losses in 2004 are
expected to be near the 2003 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 3.3% in 2003 to $3.5 billion or
10.8% of Regions' total loan portfolio. Over the last five years real estate
construction loans averaged 10.7% of Regions' total loan portfolio. Strong
economic growth and new development in Regions' market areas enabled Regions to
steadily increase construction loans through 2001. During 2002 and 2003,
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.

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 $7.4 billion at December 31,
2003. 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 guarantees 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 57% 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.

27

From 1999 to 2003, net losses on real estate loans as a percent of average
real estate loans outstanding ranged from a high of 0.11% in 1999, to a low of
..04% in 2001. In 2003 real estate loan losses were .09% 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 2004 net real estate loan losses to be near the 2003 level.

Consumer. Regions' consumer loan portfolio consists of $4.0 billion in
consumer loans and $1.9 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 $10 million in indirect consumer loans at
December 31, 2003, $30 million at December 31, 2002 and $943 million at December
31, 2001. Indirect consumer loans declined significantly in 2002 due to the
reclassification of $1.1 billion of indirect auto loans to the loans held for
sale category. Personal lines of credit increased $700 million in 2003 due
primarily to a home equity loan promotion, which included a low introductory
interest rate and reduced closing costs. During the past five years, the ratio
of net consumer loan losses to average consumer loans ranged from a low of 0.29%
in 2003 to a high of 1.09% in 1999. Consumer loan losses have declined over each
of the last three years. The lower levels of net consumer loan losses were
primarily due to improvements in the collection and recovery process,
standardizing and improvement of underwriting procedures, reduced credit card
charge-offs resulting from the sale of the credit card portfolio in 2000 and
reduced indirect consumer loan charge-offs resulting from the reclassification
and subsequent securitization and sale of the indirect consumer loan portfolio.
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 2004 to be near the 2003 level.

NON-ACCRUAL LOANS

At December 31, 2003, non-accrual loans totaled $250.3 million, or 0.78% of
loans, compared to $226.5 million, or 0.73% of loans, at December 31, 2002. The
increase in non-accrual loans at December 31, 2003, was primarily due to higher
levels of commercial and consumer loans being placed on non-accrual status,
including a $21.9 million commercial credit. Partially offsetting these
increases were declining levels of real estate loans on non-accrual status.
Commercial loans comprised $137.1 million of the 2003 total, with real estate
loans accounting for $103.2 million (including $71.8 million in single-family
residential) and consumer loans $10.0 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 $1.2 million to $21.9 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
$250.3 million in non-accrual loans at December 31, 2003, approximately $71.8
million (29% 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 0.11% of total loans at
December 31, 2003, compared to 0.12% of total loans at December 31, 2002. Since
December 31, 2002, loan delinquencies in the consumer area have declined. Loans
past due 90 days or more at December 31, 2003, consisted of $8.2 million in
commercial and real estate loans and $27.0 million in consumer loans.

Renegotiated loans totaled $886,000 at December 31, 2003, compared to $32.3
million or 0.10% of total loans at December 31, 2002. Renegotiated loans
decreased significantly during the year due to the reclassification of a
commercial credit to non-accrual status.

Other real estate totaled $28.4 million at December 31, 2000, $40.9 million
at December 31, 2001, $59.6 million at December 31, 2002, and $52.2 million at
December 31, 2003. The decrease in other real estate in 2003 compared to the
prior year resulted primarily from management initiatives to reduce other real
estate levels. In 2003, sales of other real estate totaled $119.4 million.
Regions' other real estate is composed primarily of a number of small to
medium-size properties that are diversified geographically throughout its
franchise. The 25 largest parcels of other real estate range in recorded value
from $371,000 to $2.4 million, with only four parcels over $1 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

28

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 2003 on the $250.3 million of
non-accruing loans outstanding at year-end was approximately $7.7 million. If
these loans had been current in accordance with their original terms,
approximately $22.9 million would have been recognized on these loans in 2003.
Approximately $40,000 in interest income would have been recognized in 2003
under the original terms of the $886,000 in renegotiated loans outstanding at
December 31, 2003. Approximately $42,000 in interest income was actually
recognized in 2003 on these loans. A portion of the renegotiated loans were
modified to interest only 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 13
"Commitments and Contingencies" to the consolidated financial statements for
additional information. The following table shows the amount and duration of
Regions' funding commitments.

29

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, 2003 and 2002:

30

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 $303.6 million at December 31, 2002, to $96.5 million at
December 31, 2003, as maturities were not reinvested in this earning asset
category.

SECURITIES

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

In 2003, total securities increased $93 million, or 1%. U.S. Treasury and
Federal agency securities increased $610 million due to purchases of agency
securities to better balance Regions' interest rate sensitivity and 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 decreased $445 million due to sales, prepayments and other maturities
in 2003. Obligations of states and political subdivisions decreased $94 million
or 17% in 2003 due to calls, sales and maturities. Other securities increased in
2003 due to interest-only residual securities and other securities retained in
auto loan securitizations (see Note 6 "Asset Securitizations" to the
consolidated financial statements).

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 6 "Asset
Securitizations" to the consolidated financial statements).

Regions' investment portfolio policy stresses quality and liquidity. At
December 31, 2003, the average contractual maturity of U.S. Treasury and Federal
agency securities was 4.2 years and that of obligations of states and political
subdivisions was 7.0 years. The average contractual maturity of mortgage-backed
securities was 16.3 years and their expected maturity was 2.8 years. Other
securities had an average contractual maturity of 2.9 years. Overall, the
average maturity of the portfolio was 12.2 years using contractual maturities
and 3.3 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, 2003, was $339,000 above the amount carried on
Regions' books. Regions' securities held to maturity at December 31, 2003,
included unrealized gains of $339,000 and no unrealized losses. Regions'
securities available for sale portfolio at December 31, 2003, included net
unrealized gains of $105.6 million. Regions' securities held to maturity and
securities available for sale portfolios included gross unrealized gains of

31

$140.0 million and gross unrealized losses of $34.5 million at December 31,
2003. Market values of these portfolios vary significantly as interest rates
change. Management expects normal maturities from the 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, 2003, 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.

32

TRADING ACCOUNT ASSETS

Trading account assets increased $30.1 million to $816.1 million at
December 31, 2003. 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.

LOANS HELD FOR SALE

Loans held for sale include both single-family real estate mortgage loans
and indirect consumer auto loans. These loans totaled $1.2 billion ($1.0 billion
of mortgage loans and $220 million of indirect consumer auto loans) at December
31, 2003, a decrease of $256 million compared to December 31, 2002. In 2002,
Regions reclassified $1.1 billion of indirect auto loans to the loans held for
sale category and began to securitize and sell these loans from time to time.
Indirect consumer auto loans are held in the loans held for sale category from
origination until they are securitized and sold. Regions completed two
securitizations and sales in 2003 totaling $1.2 billion. The securitization and
sale of the indirect consumer auto loans gives Regions additional flexibility
for funding purposes and results in a lower risk-weighted capital allocation for
these assets.

MARGIN RECEIVABLES

Margin receivables totaled $503.6 million at December 31, 2003, and $432.3
million at December 31, 2002. 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, 2003, commercial loans, real estate construction
loans and commercial mortgage loans with an aggregate balance of $7.8 billion,
as well as securities of $509 million, 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.

33

The loan to deposit ratio at December 31, 2003, was 98.33%, representing an
increase compared to 94.11% at December 31, 2002, and 97.90% at December 31,
2001. This is the result of loan growth exceeding deposit growth in 2003.

As shown in the Consolidated Statement of Cash Flows, operating activities
provided significant levels of funds in 2003, 2002 and 2001, due primarily to
high levels of net income. Investing activities, primarily in loans and
securities, were a net user of funds in 2003 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 2003
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.

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. In 2003, financing
activities were a net user of funds as a result of declining deposit balances
and increased payments on borrowed funds. Cash dividends and the open-market
purchase of Regions' common stock also required funds in 2003, 2002 and 2001.

Regions' financing arrangement with the Federal Home Loan Bank of Atlanta
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,
2003, Regions' borrowings from the Federal Home Loan Bank totaled $4.0 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 10 "Borrowed Funds" to the consolidated financial statements).

In addition, Regions Bank has the requisite agreements in place to issue
and sell up to $5 billion of its bank notes to institutional investors through
placement agents. During 2003, Regions Bank issued $400 million of bank notes
under this program, which remain outstanding at December 31, 2003.

In 2002 and 2003, Regions utilized an additional funding source through the
securitization of indirect consumer auto loans. Regions securitized $800 million
of indirect consumer auto loans in 2002 and $1.2 billion in 2003, respectively.
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:

34

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.

The trust that issued the trust preferred securities was deconsolidated on
December 31, 2003, in connection with the implementation of Financial Accounting
Standards Board Interpretation No. 46 (FIN 46). Upon deconsolidation, the junior
subordinated notes that are owned by the trust were included in consolidated
long-term borrowings. Payments made by the Company on the junior subordinated
notes fully fund the payments made by the trust on the rated trust preferred
securities. See Note 19 "Variable Interest Entities" for additional discussion
on the deconsolidation of the trust.

DEPOSITS

Deposits are Regions' primary source of funds, providing funding for 73% of
average earning assets in 2003, 74% in 2002 and 75% in 2001. During the last
five years, average total deposits increased at a compound annual rate of 3%.

Average deposits increased $755 million, or 2%, in 2003 and $318 million,
or 1%, in 2002. In 2001, average deposits decreased $805 million, or 3%.
Acquisitions contributed average deposit growth of $14 million in 2003, $176
million in 2002 and $43 million in 2001.

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 6% since 2000. This category of deposits grew 9% in 2003, 6% in 2002 and
2% in 2001. Non-interest-bearing deposits continue to be a significant funding
source for Regions, accounting for 17% of average total deposits in 2003, 16% in
2002 and 15% in 2001.

Savings accounts have increased at a 2% compound growth rate since 2000.
Savings accounts declined slightly in 2003 and 5% in 2001, as rates paid on
these accounts were less attractive than other investment alternatives. In 2002,
as investors migrated to traditional, more liquid investments, savings accounts
increased 13%. 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 2003, savings accounts accounted for
approximately 4% of average total deposits, compared to approximately 5% of
average total deposits in 2002.

Interest-bearing transaction accounts have increased at a 77% compound
growth rate since 2000. Interest-bearing transaction accounts increased 134% in
2003, 72% in 2002 and 37% in 2001 as investors migrated toward more liquid
assets given recent market conditions. Interest-bearing transaction accounts
accounted for 7% of average total deposits in 2003 and 3% in 2002.

Money market savings accounts have increased at a compound annual rate of
7% since 2000. In 2003, as Regions less aggressively priced money market savings
products, average balances declined 2%. Money market savings increased 13% in
2002 and 11% in 2001. Money market savings products are one of Regions' most
significant funding sources, accounting for 33% of average total deposits in
2003, 34% of average total deposits in 2002 and 31% of average total deposits in
2001.

Certificates of deposit of $100,000 or more increased 2% in 2003 as
maturities of high costs certificates of deposits, experienced in prior years,
declined. Certificates of deposit of $100,000 or more declined 22% in 2002

35

and 9% in 2001 as these products were priced less aggressively. Certificates of
deposit of $100,000 or more accounted for 10% of average total deposits in 2003
and 2002.

Other interest-bearing deposits (certificates of deposit of less than
$100,000 and time open accounts) declined 8% in 2003 and 2002 and 12% in 2001 as
rates on these accounts were less attractive to investors and Regions' reduced
utilization of certain wholesale deposits as a funding source. Despite recent
trends, this category of deposits continues to be one of Regions' primary
funding sources; it accounted for 29% of average total deposits in 2003 and 32%
of average total deposits in 2002.

During recent years, management has increased lower-cost deposit products
as a source of funding, while reducing the company's reliance on higher-cost
deposit products such as certificates of deposit and wholesale deposit products.
This effort has been accomplished through pricing and other initiatives which
have increased lower-cost deposit products and reduced higher-cost, single
product certificates of deposit as a percentage of Regions' deposit funding
sources. Lower-cost deposits, which include non-interest bearing demand
deposits, interest-bearing transaction accounts, savings accounts and money
market savings accounts, totaled 61% of average deposits in 2003, compared to
58% in 2002 and 52% 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. Since 2000, market interest rates declined dramatically. The Federal
Reserve reduced rates 475 basis points (11 times) in 2001, 50 basis points in
2002 and 25 basis points in 2003. 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 from 4.30% in 2001 and 2.47% in 2002 to
1.61% in 2003.

A detail of interest-bearing deposit balances at December 31, 2003 and
2002, and the interest expense on these deposits for the three years ended
December 31, 2003, is presented in Note 9 "Deposits" to the consolidated
financial statements. The following table presents the average rates paid on
deposits by category for the three years ended December 31, 2003:

The following table presents the details of interest-bearing deposits and
maturities of the larger time deposits at December 31, 2003 and 2002:

36

The following table presents the average amounts of deposits outstanding by
category for the three years ended December 31, 2003:

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 $3.0 billion at
December 31, 2003 and $2.2 billion at December 31, 2002. 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, increased $1.3
billion in 2003 but decreased $146 million in 2002. The 2003 increase resulted
from increased reliance on purchased funds to support earning asset growth. The
declines in 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 consumer auto loans, combined with increased
utilization of alternative longer term funding.

Throughout 2003 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 $350
million as of December 31, 2003 and $850 million as of December 31, 2002. During
2003, Regions prepaid $350 million of these advances in addition to maturities
of $150 million. Regions incurred a $11.5 million charge related to the
prepayment that is recorded in other non-interest expense (see Note 16 "Other
Income and Expense" to the consolidated financial statements).

Morgan Keegan maintains certain lines of credit with unaffiliated banks. As
of December 31, 2003, $91.2 million was outstanding under these agreements with
an average interest rate of 1.4%, compared to $56.0 million outstanding at
December 31, 2002, with an average interest rate of 1.7%.

As of December 31, 2003, $5.5 million in commercial paper was outstanding,
compared to $17.3 million at December 31, 2002. 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 accounts. The due
to brokerage customers totaled $544.8 million at December 31, 2003, with an
interest rate of 0.4%, as compared to $651.1 million at December 31, 2002, with
an interest rate of 1.4%.

37

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,
2003, these balances totaled $68.3 million with an interest rate of 0.9%, as
compared to $111.3 million at December 31, 2002 with an interest rate of 1.3%.

Other short-term borrowings increased $138.9 million from December 31,
2002, to December 31, 2003, 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, senior bank notes and other long-term notes
payable.

As of December 31, 2003, Regions had subordinated notes of $1.2 billion,
consisting of $100 million in total principal amount of 7.75% subordinated notes
due 2024 (redeemable at the option of the holders 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.

During 2003 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, 2003 and 2002,
$2.8 billion and $3.6 billion of long-term Federal Home Loan Bank advances were
outstanding, respectively. In 2003, Regions prepaid $300 million of these
advances and as a result incurred a $9.1 million charge that is recorded in
other non-interest expense (see Note 16 "Other Income and Expense" to the
consolidated financial statements).

Federal Home Loan Bank long-term advances totaled $807 million, an increase
of $709 million compared to 2002. Regions utilized this source of funding due to
favorable interest rates and terms during 2003. 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. Effective December 31, 2003, these trust preferred securities
were deconsolidated in accordance with FIN 46 (see Note 19 "Variable Interest
Entities" and Note 25 "Recent Accounting Pronouncements" to the consolidated
financial statements).

As a result of the deconsolidation of trust preferred securities, effective
December 31, 2003, Regions began reporting $301 million of junior subordinated
notes. These junior subordinated notes are issued by Regions to a subsidiary
business trust, which issued the trust preferred securities discussed previously
(see Note 19 "Variable Interest Entities" and Note 25 "Recent Accounting
Pronouncements" to the consolidated financial statements).

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.

38

The following table shows the amount and maturity of Regions long term
borrowed funds as of December 31, 2003.

STOCKHOLDERS' EQUITY

Over the past three years, stockholders' equity has increased at a compound
annual growth rate of 9%. Stockholders' equity has grown from $3.5 billion at
the beginning of 2001 to $4.5 billion at year-end 2003. Internally generated
retained earnings contributed $996 million of this growth and $95 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 $160 million of equity while other
components of equity added $63 million. The internal capital generation rate
(net income less dividends as a percentage of average stockholders' equity) was
8.7% in 2003, compared to 8.9% in 2002 and 6.9% in 2001.

Regions has authorization to repurchase up to 12.6 million shares of common
stock. During 2003, Regions repurchased 1.4 million shares in connection with
its common stock repurchase program at a total cost of $49.9 million. At
December 31, 2003, 11.2 million shares were available for repurchase under the
current authorization. Subsequent to year end through March 11, 2004, Regions
repurchased an additional 4.2 million shares of its common stock at a total cost
of $156.9 million. Included in the shares repurchased subsequent to 2003 are 4.0
million shares that were repurchased through an accelerated stock repurchase
agreement entered into on March 9, 2004.

Regions' ratio of stockholders' equity to total assets was 9.16% at
December 31, 2003, compared to 8.72% at December 31, 2002, and 8.89% at December
31, 2001.

Regions and Regions Bank 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
financial 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.

39

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, 2003, substantially
exceeded all regulatory requirements.

BANK REGULATORY CAPITAL REQUIREMENTS

At December 31, 2003, Tier 1 capital totaled $3.6 billion, total risk-based
capital totaled $5.3 billion, and risk-adjusted assets totaled $36.9 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, 2003, 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 2003, Regions returned 43% of earnings to its stockholders in
the form of dividends. Total dividends declared by Regions in 2003 were $275.5
million or $1.24 per share, an increase of 6.9% from the $1.16 per share in
2002.

In January 2004, the Board of Directors declared a 3.1% increase in the
quarterly cash dividend from $.32 to $.33 per share. This is the 33rd
consecutive year that Regions has increased quarterly cash dividends.

In addition, a special dividend of $.0816 per share was also declared by
the Board of Directors in January 2004. This dividend was declared in connection
with the proposed merger of Regions with Union Planters Corporation (see Note 26
"Subsequent Event" to the consolidated financial statements). The increased cash
dividends in 2004 are expected to be funded by cash from operations.

40

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.

41

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of business, Regions enters into certain relationships
characterized as off-balance sheet arrangements. At December 31, 2003, these
relationships included obligations under standby letters of credit, variable
interests in unconsolidated variable interest entities, and interest-only strips
in qualifying special purpose entities. At December 31, 2003, the fair value of
Regions' obligation under loan standby letters of credit was $19.6 million with
a maximum potential obligation of $1.3 billion (see Note 13 "Commitments and
Contingencies" to the consolidated financial statements). At December 31, 2003,
Regions investment in unconsolidated variable interest entities was $269.7
million with a maximum exposure to loss of $302.3 million (see Note 19 "Variable
Interest Entities" to the consolidated financial statements). Regions owns the
subordinate certificates in three qualifying special purpose entities which hold
indirect consumer auto loans. These subordinate certificates, or interest-only
strips, were retained upon the securitization of the auto loans by Regions.
Regions investment in the interest-only strips and maximum exposure to loss was
$57.9 million at December 31, 2003 (see Note 6 "Asset Securitizations" to the
consolidated financial statements).

CONTRACTUAL OBLIGATIONS

The following table summarizes Regions' contractual cash obligations at
December 31, 2003:

A discussion regarding liquidity related to long-term borrowings is
included in the "Liquidity" section presented earlier. Regions intends to fund
the other contractual obligations presented in the table above primarily through
cash generated from normal operations.

OPERATING RESULTS

GENERAL

Net income increased 5% in 2003, 22% in 2002, but decreased 4% in 2001.
Adjusting for the adoption of Statement of Financial Accounting Standards No.
142 (Statement 142) "Goodwill and Other Intangible Assets" (see Note 25 "Recent
Accounting Pronouncements" to the consolidated financial statements), 2002 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 2002 and 2003.

42

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 decreased 2% in 2003 but
increased 5% in 2002. On a taxable equivalent basis, net interest income
decreased 2% in 2003 but increased 4% in 2002. The table "Analysis of Changes in
Net Interest Income" on the following page provides additional information to
analyze the changes in net interest income.

Lower spreads, partially offset by modest growth in interest-earning
assets, resulted in lower net interest income in 2003. The increase in net
interest income for 2002 was due to higher spreads, combined with modest growth
in interest-earning assets.

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 3.66% in 2001 to 3.73% in 2002, but declined to
3.49% in 2003. 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 3.00% in 2001, 3.30% in 2002
and 3.19% in 2003. 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.

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.

43

Rates were reduced again in mid-2003 by 25 basis points. These reductions
resulted in a near record low Federal Funds rate of 1.00%.

Regions' interest-earning asset yields and interest-bearing liability rates
were both lower in 2003 compared to 2002, reflecting continued declining market
interest rates. In 2003, Regions' interest-earning asset yields decreased 11
basis points more than did interest-bearing liability rates, resulting in a
reduced interest rate spread, compared to 2002.

The mix of earning assets can also affect the interest rate spread. During
2003, loans, which are typically Regions' most significant highest yielding
earning asset, decreased slightly as a percentage of earning assets. This
decline contributed to lower earning asset yields. Average loans as a percentage
of earning assets were 73.3% in 2002 and 71.1% in 2003.

During 2003 and 2002, Regions 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 $108.7 million in 2003 and $66.8 million
in 2002.

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 85% in each of
2001, 2002, and 2003. Accordingly, there was little effect on net interest
income in 2003 as compared to 2002 and 2001 resulting from changes in the
percentage of earning assets funded by interest-bearing liabilities.
Historically, 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.

44

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 the 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 foregoing discussion,
management has estimated the potential effect of shifts in interest rates on net
interest income. As of December 31, 2003, Regions maintains a slight asset
sensitive position to a gradual rate shift of plus or minus 100 or 200 basis
points. The following table demonstrates the expected effect that a gradual
(over six months beginning at December 31, 2003 and 2002, respectively) parallel
interest rate shift would have on Regions' net interest income.

45

As of December 31, 2003, Regions maintains a slight asset sensitive
position to an instantaneous rate shift of plus or minus 100 or 200 basis
points. The following table demonstrates the expected effect that an
instantaneous parallel interest rate shift would have on Regions' net interest
income.

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 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 14 "Derivative Financial Instruments and Hedging
Activities" 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.

46

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, 2003, Morgan Keegan had no outstanding futures contracts.

In the normal course of business, Morgan Keegan enters into underwriting
and forward and future commitments. At December 31, 2003, the contract amounts
of futures contracts were $41 million to purchase and $153 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 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." 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. During 2003, the provision for loan
losses decreased to $121.5 million (.39% of

47

average loans) due to lower loan losses, lower levels of nonperforming loans and
management's evaluation of current economic factors. The resulting year-end
allowance for loan losses increased $16.9 million to $454.1 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 increased 11% in 2003 and totaled $552.7 million in 2003
compared to $499.7 million in 2002 and $359.0 million in 2001. Morgan Keegan's
results of operations were included with Regions for the full year 2003 and
2002, but for only nine months in 2001. Brokerage and investment income is
significantly affected by economic and market conditions. As of December 31,
2003, Morgan Keegan employed approximately 890 financial advisors. Customer
assets totaled approximately $40.4 billion at year-end 2003, compared to
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 47% in 2003,
compared to 43% in 2002 and 39% in 2001. Morgan Keegan contributed $82.1 million
to net income in 2003. Revenues from the fixed income capital markets division
totaled $254.2 million, or 37% of Morgan Keegan's total revenue in 2003, 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 2003 and 2002, while other
divisions have experienced slower growth due to weaker market conditions.
Private client and equity capital markets revenue totaled $194.1 million and
$64.2 million, respectively. The investment advisory services division produced
$68.7 million of revenue in 2003. Revenues generated by each division are
included in various line items in the table below. In addition, beginning in
2003, Regions Morgan Keegan Trust division, which produced revenue of $60.3
million in 2003, is included with Morgan Keegan. Although Regions Morgan Keegan
trust division is included with Morgan Keegan, all trust income is reported as a
separate item in the consolidated statements of income (see next section titled
"Trust Income" for discussion of changes in trust income). Prior period
information has been adjusted as well for comparative purposes.

The following table shows the components of the contribution by Morgan
Keegan for the years ended December 31, 2003 and 2002. 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.

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

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

48

The following table shows the breakout of revenue by division contributed
by Morgan Keegan for the years ended December 31, 2003, 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. In addition,
beginning in 2003, Regions trust division is included with Morgan Keegan.
Although Regions Morgan Keegan trust division is included with Morgan Keegan,
all trust income is reported as a separate item in the consolidated statements
of income (see next section titled "Trust Income" for discussion of changes in
trust income). Prior period information has been adjusted as well for
comparative purposes.

MORGAN KEEGAN BREAKOUT OF REVENUE BY DIVISION

TRUST INCOME

Trust income increased 12% in 2003 and 10% in 2002, but decreased 2% in
2001. Beginning in 2002, trust became an integral part of Morgan Keegan. Income
was positively impacted by leveraging the resources and expertise of Morgan
Keegan. 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. In 2003 and 2002, better performance in the financial markets and
increases in trust assets contributed to higher trust fees. 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.

SERVICE CHARGES ON DEPOSIT ACCOUNTS

Service charge income increased 4% in 2003 and 2002 and 15% in 2001 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
divisions, Regions Mortgage and EquiFirst Corporation ("EquiFirst"). Regions
Mortgage'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 2003, mortgage servicing and origination fees increased 7%, from $104.7
million in 2002 to $111.6 million in 2003. Origination fees increased in 2003
due to the significant mortgage activity resulting from the historically low
interest rate environment. Servicing fees were lower in 2003 as compared to 2002
due to a smaller servicing portfolio in 2003. At December 31, 2003, Regions'
servicing portfolio totaled $16.1 billion and included approximately 194,000
loans. At December 31, 2002 and 2001, the servicing

49

portfolio totaled $17.3 billion and $19.1 billion, respectively. The decline in
the servicing portfolio during 2003 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 2003.

In 2002, mortgage servicing and origination fees increased 8%, from $97.1
million in 2001. 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.

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.

Regions Mortgage and EquiFirst, through their retail, correspondent
lending, and wholesale operations, produced mortgage loans totaling $9.4
billion, $6.6 billion and $5.6 billion in 2003, 2002 and 2001, respectively.
Regions Mortgage and EquiFirst produce loans from 90 offices in Alabama,
Arizona, Arkansas, Florida, Georgia, Louisiana, North Carolina, South Carolina,
Tennessee and Texas.

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 amortization of mortgage servicing rights
is included in other non-interest expense. 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.

SECURITIES GAINS

In 2003, net gains of $25.7 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 to offset
impairment charges related to mortgage servicing assets.

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 to offset
impairment charges related to 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.

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.

50

Fee and commission income increased in 2003 primarily due to higher fees
from standby letters of credit and higher revenue from credit card fees. In
2002, fee and commission income increased 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.

Insurance and commission income increased 16% in 2003 due primarily to
increased revenues in the commercial property and casualty business. 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 its exposure related to
customer derivative products. These exposures are marked to market on a daily
basis. Capital market income totaled $21.9 million in 2003, $14.3 million in
2002 and $8.6 million in 2001.

In 2003, gains related to the sale of mortgage loans held for sale totaled
$139.3 million ($121.7 million related to EquiFirst and $17.6 million related to
Regions Mortgage). For the years ended December 31, 2002, and December 31, 2001,
gains were also recorded totaling $87.4 million and $22.9 million, respectively.

In 2003, Regions recognized $3.3 million of net gains from the
securitization and sale of $1.2 billion indirect auto consumer loans. In 2002,
Regions recognized a $7.5 million gain from the securitization and sale of $800
million of indirect auto consumer loans.

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

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

NON-INTEREST EXPENSE

The main components of non-interest expense are salaries and employee
benefits, net occupancy expense, furniture and equipment expenses and other
non-interest expense. Total non-interest expense increased $80.6 million, or 5%,
in 2003 on an as-reported basis. An impairment charge on mortgage servicing
rights of $19.0 million was recorded in the second quarter of 2003. In the third
quarter of 2003, $20.0 million of impairment recapture on mortgage servicing
rights was recorded as a result of changes in interest rates and a slowdown in
prepayment speeds. Also during the third quarter of 2003, Regions chose to pay
off $650 million of Federal Home Loan Bank advances early, resulting in a $20.6
million loss on early extinguishment of debt. During the third and fourth
quarters of 2002, Regions recognized impairment charges 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 25 "Recent Accounting Pronouncements" 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. Morgan Keegan's non-interest expense was
included with Regions for only nine months in 2001. On an as-adjusted basis,
which excludes impairment and prepayment charges, total non-interest expense

51

increased $102.9 million or 6% in 2003. The following tables show the components
of non-interest expense for the years ended December 31, 2003 and 2002.

2003 NON-INTEREST EXPENSE

2002 NON-INTEREST EXPENSE

SALARIES AND EMPLOYEE BENEFITS

Total salaries and benefits increased 9% in 2003, 17% in 2002 and 49% in
2001. Salaries and benefits were higher in 2003, as compared to 2002, due
primarily to higher incentive costs associated with Morgan Keegan and mortgage
banking. Increased production and achievement of other goals at Morgan Keegan,
Regions Mortgage and EquiFirst resulted in increased incentive compensation in
2003. In addition to increased incentive compensation in 2003, normal merit and
promotional adjustments, and higher benefit costs resulted in increased salaries
and benefits in 2003. Salaries and benefits were higher in 2002 as Morgan
Keegan's expenses were included for the full year of 2002 (versus nine months in
2001). Higher commission and incentive pay related to the brokerage and mortgage
banking operations also contributed to the increase 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.

At December 31, 2003, Regions had 16,180 full-time equivalent employees,
compared to 15,695 at December 31, 2002, and 15,921 at December 31, 2001. 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 $598.5 million in 2003, compared to
$583.2 million in 2002 and $533.9 million in 2001. Increased salaries in 2003
and 2002 were primarily the result of normal merit and promotional adjustments.
Higher employment levels in 2001, due to acquisitions, resulted in higher
salaries.

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 29% 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 2003 and 2002 and 3% in 2001.

52

Commissions and incentives expense increased to $352.1 million in 2003,
compared to $301.3 million in 2002 and $204.0 million in 2001. The significant
increase in commissions and incentives were primarily the result of a $43.8
million increase in commissions paid at Morgan Keegan, Regions Mortgage and
EquiFirst related to increased production levels and other goal attainment. At
Morgan Keegan, commissions and incentives are a key component 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 improvements and for achievement of corporate
financial goals. Regions' long-term incentive plan provides for the granting of
stock options, restricted stock and performance shares (see Note 20 "Stock
Option and Long Term Incentive Plans" to the consolidated financial statements).

Pension expense totaled $19.8 million in 2003 compared to $7.1 million in
2002. Higher pension costs in 2003 are the result of lower asset returns and
discount rate assumptions. Pension expense in 2004 is expected to be
approximately $21.8 million.

Payroll taxes increased 3% in 2003, 19% in 2002 and 30% in 2001. Increases
in the Social Security tax base, combined with increased salary levels were the
primary reasons for increased payroll taxes.

Group insurance expense increased 12% in 2003, 1% in 2002 and 47% in 2001.
The 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 8% in 2003, 13% in 2002 and 23% in 2001 due
to acquisitions, new and acquired branch offices, rising price levels, and
increased business activity.

FURNITURE AND EQUIPMENT EXPENSE

Furniture and equipment expense decreased 10% in 2003 due primarily to
lower expenses related to computer equipment. In 2002 and 2001, furniture and
equipment expense increased 4% and 18%, respectively. 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. Other expenses included $19.6 million in 2003 and $41.9
million in 2002 of costs related to mortgage servicing impairment and debt
retirement, previously discussed. Please refer to Note 16 "Other Income and
Expense" to the consolidated financial statements for an analysis of the
significant components of other expense.

Other non-credit losses decreased in 2003 from levels in 2002 and 2001. The
2003 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 increased in 2003 and 2001, but
decreased 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 2003 and 2001. Lower
balances of

53

mortgage servicing rights combined with impairment taken in 2002, resulted in a
decrease in the amortization of mortgage servicing rights in 2002.

In the second quarter of 2003 Regions incurred charges of $19.0 million
related to the impairment of mortgage servicing rights. In the third quarter of
2003, $20.0 million of impairment recapture on mortgage servicing rights was
recorded as a result of changes in interest rates and a slowdown in prepayment
speeds.

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 decreased $10.5 million while other outside
services increased $20.8 million. Other outside services include safekeeping
fees, credit investigations costs and equity asset line origination costs. Also
included as a part of the increase in other outside services is other loan
origination costs paid to third parties resulting from the increased volume in
the mortgage banking area.

Also in 2003, in connection with the prepayment of $650 million of Federal
Home Loan Bank advances ($350 million classified as short-term and $300 million
classified as long-term), Regions incurred a $20.6 million loss on early
extinguishment of debt.

In 2002, Regions incurred a $5.2 million charge related to the prepayment
of $250 million of Federal Home Loan Bank advances.

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.

APPLICABLE INCOME TAX

Regions' provision for income taxes increased 4% in 2003 and 19% in 2002.
These increases were caused primarily by a 5% increase in income before taxes in
2003 and a 21% increase in 2002. Regions effective income tax rates for 2003,
2002 and 2001 were 28.5%, 28.7% and 29.1%, respectively. The effective tax rate
decreased slightly in 2003 compared to 2002 primarily due to an increase in the
amount of tax credits realized, offset by an increase in state taxes and a
decrease in tax-exempt interest.

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 strategies should prevail, examination of
Regions' income tax returns or changes in tax law may impact the tax benefits of
these plans.

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. As shown in Note 17 "Income
Taxes" to the consolidated financial statements, Regions recognized benefits of
$34.5 million in 2003, $30.0 million in 2002 and $40.0 million in 2001 from the
recapitalization of this subsidiary.

Regions' federal and state income tax returns for the years 1998 through
2002 are open for review and examination by governmental authorities. In the
normal course of these examinations, Regions is subject to challenges from
governmental authorities regarding amounts of taxes due. Regions has received
notices of proposed adjustments relating to taxes due for the years 1999 through
2001, which includes proposed adjustments relating to an increase in taxable
income of the mortgage-related subsidiary discussed above. Regions believes
adequate provision for income taxes have been recorded for all years open for
review and intends to vigorously contest the proposed adjustments. To the extent
that final resolution of the proposed adjustments results in significantly
different conclusions from Regions' current assessment of the proposed

54

adjustments, Regions' effective tax rate in any given financial reporting period
may be materially different from its current effective tax rate.

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 planning 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 17 "Income Taxes" 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.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to page 45 through 47 "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.............................. 56
Consolidated Statements of Condition -- December 31, 2003
and 2002.................................................. 57
Consolidated Statements of Income -- Years ended December
31, 2003, 2002 and 2001................................... 58
Consolidated Statements of Cash Flows -- Years ended
December 31, 2003, 2002 and 2001.......................... 59
Consolidated Statements of Changes in Stockholders'
Equity -- Years ended December 31, 2003, 2002 and 2001.... 60
Notes to Consolidated Financial Statements -- December 31,
2003...................................................... 61

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.

55

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,
2003 and 2002, 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, 2003. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Regions
Financial Corporation and subsidiaries at December 31, 2003 and 2002, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States.

/s/ Ernst & Young LLP

Birmingham, Alabama
February 27, 2004

56

REGIONS FINANCIAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

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

( ) Indicates deduction.

See notes to consolidated financial statements.

57

REGIONS FINANCIAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

See notes to consolidated financial statements.

58

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.

59

REGIONS FINANCIAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

DISCLOSURE OF 2003 RECLASSIFICATION
AMOUNT:
Unrealized holding losses, net of tax, on available for sale securities
arising during the period................................................... $ (83,352)
Less: Reclassification adjustment, net of tax, for net gains realized in net
income...................................................................... 18,345

Unrealized holding gain on derivatives, net of tax........................... 2,119
Less: Reclassification adjustment, net of tax, for amortization of cash flow
hedges...................................................................... 973
---------
Comprehensive income net of $60,426 in income taxes.......................... $(100,551)
=========

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

( ) Indicates deduction.
See notes to consolidated financial statements.

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. 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 (Statement 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 $16.0 million, $19.6
million and $21.6 million in 2003, 2002, and 2001, respectively.

61

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 non-interest 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 non-interest 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 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. 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.

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 of Financial Accounting Standards No. 114 (Statement
114) and Statement of Financial Accounting Standards No. 5 (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 higher-risk-graded

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

loans. All loans deemed to be impaired, which include non-accrual and loans past
due 90 days or more, excluding loans to individuals in both categories, are
evaluated individually. Impaired loans totaled approximately $179 million at
December 31, 2003 and $142 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.

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 Standards No. 140 (Statement
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 brokerage customers
for the purchase of securities, are carried at cost and secured by certain
marketable securities in the customer's brokerage account.

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 $1,083,440,000 (net of accumulated amortization of $197.8 million) at
December 31, 2003, and $1,061,554,000 (net of accumulated amortization of $197.8
million) at December 31, 2002. Upon the adoption of Statement of Financial
Accounting Standards No. 142, the Company no longer amortizes excess purchase
price. The Company's excess purchase price 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 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 $4.1 million and $5.4 million at
December 31, 2003 and 2002, respectively. In 2003 and 2002, Regions'
amortization of core deposit intangible assets was $1.3 million and $1.4
million, respectively. Core deposit intangible assets are typically amortized
over a five year period. The aggregate amount of amortization expense is
estimated to be $1.3 million in years 2004 through 2006, declining to $82,000 in
2007, the final year of amortization.

Amounts capitalized for the right to service mortgage loans, which totaled
$126,846,000 at December 31, 2003, and $106,987,000 at December 31, 2002, 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 $126.8 million and $107.0 million at
December 31, 2003 and 2002, 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 2003, 2002 and 2001, Regions capitalized $60.9 million,
$41.0 million and $52.2 million in mortgage servicing rights, respectively. In
2003, 2002 and 2001, Regions' amortization of mortgage servicing rights was
$42.1 million, $33.9 million and $41.4 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.

64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The changes in the valuation allowance for servicing assets for the years
ended December 31, 2003 and 2002 were as follows:

Assumptions used in the fair value calculation for the years ended December
31, 2003 and 2002 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. It is Regions policy to enter into master netting agreements with
counterparties and to require collateral based on counterparty credit ratings to
cover exposures.

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
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 into 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 (up to 3% of total

65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

compensation), 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
Statement of Financial Accounting Standards No. 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 $0.8 billion in
2003, $1.1 billion in 2002, and $1.7 billion in 2001 for interest on deposits
and borrowings. Income tax payments totaled $135 million for 2003, $128 million
for 2002, and $152 million for 2001. Loans transferred to other real estate
totaled $112 million in 2003, $126 million in 2002 and $74 million in 2001.
During 2003, Regions retained interest-only strips and other securities with an
aggregate carrying value of $80 million related to the securitizations of
indirect consumer auto loans. This amount was reclassified from loans held for
sale to securities available for sale. During 2002, Regions reclassified
approximately $1.1 billion of indirect auto loans from the loan category to the
loans held 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.

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2. RESTRICTIONS ON CASH AND DUE FROM BANKS

Regions 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, 2003 and 2002, was approximately $82.9 million and $33.2
million, respectively.

NOTE 3. SECURITIES

The amortized cost and estimated fair value of securities held to maturity
and securities available for sale at December 31, 2003, are as follows:

The following table presents the age of gross unrealized losses and fair
value by investment category at December 31, 2003:

Management does not believe any individual unrealized loss as of December
31, 2003 represents an other-than-temporary impairment. The unrealized losses
relate primarily to the impact of changes in interest rates on U.S. Treasury and
Federal agency securities and mortgage-backed securities.

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The cost and estimated fair value of securities held to maturity and
securities available for sale at December 31, 2003, 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.

Proceeds from sales of securities available for sale in 2003 were $342
million. Gross realized gains and losses were $25.8 million and $140,000,
respectively. Proceeds from sales of securities available for sale in 2002 were
$858 million, with gross realized gains and losses of $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.

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

Securities with carrying values of $7,486,357,000 and $6,285,323,000 at
December 31, 2003, and 2002, respectively, were pledged to secure public funds,
trust deposits and certain borrowing arrangements.

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4. LOANS

The loan portfolio at December 31, 2003 and 2002, 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, 2003,
and 2002, were approximately $135 million and $133 million respectively. During
2003, $36 million of new loans were made and repayments totaled $34 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 $925,000 and $250,000 in
December 31, 2003 and 2002, respectively.

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

The recorded investment in impaired loans was $179 million at December 31,
2003, and $142 million at December 31, 2002. The average amount of impaired
loans during 2003 was $179 million.

The amount of interest income recognized in 2003 on the $250.3 million of
non-accruing loans outstanding at year-end was approximately $7.7 million. If
these loans had been current in accordance with their original terms,
approximately $22.9 million would have been recognized on these loans in 2003.
Approximately $40,000 in interest income would have been recognized in 2003
under the original terms of the $886,000 in renegotiated loans outstanding at
December 31, 2003. Approximately $42,000 in interest income was actually
recognized in 2003 on these loans. A portion of the renegotiated loans were
modified to interest only loans.

69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5. ALLOWANCE FOR LOAN LOSSES

An analysis of the allowance for loan losses follows:

NOTE 6. ASSET SECURITIZATIONS

In September 2002, Regions reclassified $1.1 billion of indirect consumer
auto loans to the held for sale category. During 2003 and 2002, Regions
securitized and sold approximately $1.2 billion and $800 million, respectively,
of indirect consumer auto loans. The sale of these loans resulted in net gains
recorded in non-interest income of $3.3 million in 2003 and $7.5 million in
2002. Regions retained interest-only strips with initial carrying values of
$45.0 million for securitizations during 2003 and $35.1 million for the
securitization during 2002. The interest-only strips are classified as available
for sale securities.

The following table summarizes certain cash flows received from
securitization trusts for sales that were completed during 2003 and 2002 and the
key economic assumptions used in measuring the interest-only strips as of the
dates of such sales:

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table outlines the key economic assumptions used in the
valuation of the interest-only strips at December 31, 2003 and the sensitivity
of the fair values to immediate 10% and 20% adverse changes in the current
assumptions:

The sensitivities in the preceding table are hypothetical and changes in
fair value of the interest-only strips are calculated based on variation of a
particular assumption without affecting any other assumption. A summary of
managed indirect consumer auto loans, which represent both owned and securitized
loans, along with information about delinquencies and net credit losses follows:

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7. PREMISES AND EQUIPMENT

A summary of premises and equipment follows:

Net occupancy expense is summarized as follows:

NOTE 8. 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 $52,194,000
at December 31, 2003, and $59,606,000 at December 31, 2002. Gain or loss on the
sale of other real estate is included in other non-interest expense.

NOTE 9. DEPOSITS

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

72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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: 2004-$6.7 billion; 2005-$1.7 billion; 2006-$709.1
million; 2007-$490.8 million; and 2008-$368.7 million.

NOTE 10. 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 four hundred forty-four days, nine days and
two days at December 31, 2003, 2002 and 2001, respectively. Weighted average
rates on these dates were 0.9%, 1.1%, and 1.7%, 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 6.3%, 6.4%, and 6.4% at December 31, 2003,
2002 and 2001, respectively.

73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Morgan Keegan maintains certain lines of credit with unaffiliated banks
that provide for maximum borrowings of $375 million. As of December 31, 2003 and
2002, $91.2 million and $56.0 million were outstanding under these agreements,
respectively. These agreements had weighted average interest rates of 1.4% and
1.7% at December 31, 2003 and 2002, respectively.

Commercial paper maturities ranged from 4 days to 53 days at December 31,
2003, from 218 days to 419 days at December 31, 2002 and from 4 days to 714 days
at December 31, 2001. Weighted average maturities were 18 days, 335 days and 392
days at December 31, 2003, 2002 and 2001, respectively. The weighted average
interest rates on these dates were 3.7%, 3.7% and 5.5%, respectively.

Through Morgan Keegan, Regions maintains a due to brokerage customer
position, which represents liquid funds in the customers' brokerage accounts. At
December 31, 2003, these funds had an interest rate of 0.4%. At December 31,
2002, these funds had an interest rate of 1.4%.

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 counterparty. As of December 31, 2003
these balances totaled $68.3 million, with an interest rate of 0.9%. As of
December 31, 2002, these balances totaled $111.3 million, with an interest rate
of 1.3%.

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%, 2.8% and 4.1% at December 31, 2003,
2002 and 2001, 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. 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.

74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In September 2003, Regions issued $400 million of 2.9% senior bank notes,
due December 15, 2006. These balances remain outstanding as of the end of the
year.

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 5.8% at December 31,
2003.

Federal Home Loan Bank advances represent borrowings with fixed interest
rates ranging from 0.5% to 7.7% and with maturities of one to fourteen 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
$197.2 million) and by first mortgage loans on one- to four-family dwellings
held by Regions Bank (approximately $3.3 billion at December 31, 2003). 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. Effective December 31,
2003, these trust preferred securities were deconsolidated in accordance with
Financial Accounting Standards Board Interpretation No. 46 (FIN 46) (see Note 19
"Variable Interest Entities" and Note 25 "Recent Accounting Pronouncements" to
the consolidated financial statements) and are no longer included in Regions
statement of condition.

As a result of the deconsolidation of trust preferred securities, effective
December 31, 2003, Regions began reporting $301 million of junior subordinated
notes. These junior subordinated notes are issued by Regions to two subsidiary
business trusts, which issued the trust preferred securities discussed
previously (see Note 19 "Variable Interest Entities" and Note 25 "Recent
Accounting Pronouncements" to the consolidated financial statements).

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 14 "Derivative Financial Instruments and Hedging Activities"
to the consolidated financial statements.

Other long-term debt at December 31, 2003, had a weighted average interest
rate of 7.8% and a weighted average maturity of 10.2 years.

The aggregate amount of maturities of all long-term debt in each of the
next five years is as follows: 2004-$361,108,193; 2005-$1,801,303,408;
2006-$1,003,973,716; 2007-$3,531,951; 2008-$19,726,481.

Substantially all net assets are owned by subsidiaries. The primary source
of operating cash available to Regions is provided by dividends from
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, 2003, the banking subsidiary
could pay approximately $743 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.

75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11. 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:

The accumulated benefit obligation at the end of 2003 and 2002 was $304.3
million and $250.6 million, respectively. At December 31, 2003, a pension
liability of $10.1 million was recorded for the supplemental executive
retirement program and is included in the $63.4 million prepaid pension cost.

Net pension cost included the following components:

76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The weighted average assumptions used to determine the plans' benefit
obligations at the end of each year and the plans' net pension cost during each
year were as follows:

The asset allocation for the plan at the end of 2003 and 2002, and the
target allocation for 2004, by asset category, are as follows:

Regions' investment strategy is to invest primarily in large-cap equity
securities and intermediate term investment grade domestic fixed income
securities. Regions will invest in small-cap, mid-cap, and international
equities in smaller concentrations depending on the Company's outlook for growth
in those sectors. The expected long-term return on plan assets assumption is
determined using the plan asset mix, historical returns, and expert opinions.

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 2003 totaled $13,892,000, with $9,020,000
paid in cash and $4,872,000 deferred into the 401(k) plan. 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. Regions' contribution to the
401(k) plan on behalf of employees totaled $16.5 million, $16.0 million, and
$14.3 million in 2003, 2002, and 2001, respectively.

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 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.

77

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 8.0% 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, 2003, by $1,616,000 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 2003 by
$322,000. Decreasing the assumed health care cost trend rates by one percentage
in each year would decrease the accumulated postretirement benefit obligation at
December 31, 2003, by $1,479,000 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 2003 by
$291,000.

78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The weighted average assumptions used to determine the plan's
postretirement benefit obligations at the end of each year and the plan's net
postretirement cost during each year were as follows:

Information about the expected cash flows for the pension plans and the
postretirement health care plan follows:

NOTE 12. LEASES

Rental expense for all leases amounted to approximately $43,360,000,
$42,956,000 and $36,492,000 for 2003, 2002 and 2001, respectively. The
approximate future minimum rental commitments as of December 31, 2003, 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.

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13. 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 $7.8 billion at December 31, 2003 and $6.7 billion
at December 31, 2002. Standby letters of credit were $1.3 billion at December
31, 2003, and $1.1 billion at December 31, 2002. Commitments under commercial
letters of credit used to facilitate customers' trade transactions were $51.9
million at December 31, 2003, and $38.8 million at December 31, 2002.

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.

NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Regions maintains positions in derivative financial instruments to manage
interest rate risk, facilitate asset/liability management strategies, and to
serve the risk management needs of our customers. 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 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 1 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, 2002, Regions reported a $5.5 million loss in other comprehensive
income related to cash flow hedges, of which approximately $1.4 million was
amortized to interest expense in 2003. Another $400,000 was recorded in expense
related to the debt extinguishment in 2003. The Company will amortize the
remaining $3.7 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 $994,000. For the years ended December 31, 2003 and
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 2003 related to
components of derivative instruments that were excluded from the assessment of
hedge effectiveness.

Regions hedges the changes in fair value of mortgage loans held for sale
using forward contracts, which represent commitments to sell money market
instruments at a future date at a specified price or yield. 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, 2003 and 2002, Regions
recognized a net hedging loss of $2.8 million and a net hedging gain of $5.2
million, respectively, associated with these hedging instruments. For the year
ended December 31, 2001, the Company recorded a $16,000 net hedging loss. The
gross amount of forward contracts totaled $111 million and $292 million at
December 31, 2003, and 2002, respectively.

80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 years ended December 31, 2003 and 2002, there was a
$503,000 loss and $2.0 million loss, respectively, 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 2003 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,
interest rate options 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, 2003 and 2002 was $37.2 million and $21.9 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 $20 million and $16 million at December 31, 2003 and 2002, respectively.
The Company is subject to the risk that another party will fail to perform.

In the normal course of business, Morgan Keegan enters into underwriting
and forward and future commitments. At December 31, 2003, the contract amount of
future contracts to purchase and sell U.S. Government and municipal securities
was approximately $41 million and $153 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.

Regions derivative financial instruments are summarized as follows:

OTHER THAN TRADING DERIVATIVES

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

NOTE 15. 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.

82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16. OTHER INCOME AND EXPENSE

Other income consists of the following:

Other expense consists of the following:

85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 17. INCOME TAXES

At December 31, 2003, Regions has net operating loss carryforwards for
federal tax purposes of $4.9 million that expire in years 2004 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, 2003 and 2002
are listed below.

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:

86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 strategies should prevail, examination of
Regions' income tax returns or changes in tax law may impact the tax benefits of
these plans.

During the fourth quarter of 2000, Regions recapitalized a mortgage-related
subsidiary 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.

Regions' federal and state income tax returns for the years 1998 through
2002 are open for review and examination by governmental authorities. In the
normal course of these examinations, Regions is subject to challenges from
governmental authorities regarding amounts of taxes due. Regions has received
notices of proposed adjustments relating to taxes due for the years 1999 through
2001, which includes proposed adjustments relating to an increase in taxable
income allocated to Regions from the mortgage-related subsidiary discussed
above. Regions believes adequate provisions for income taxes have been recorded
for all years open for review and intends to vigorously contest the proposed
adjustments. To the extent that final resolution of the proposed adjustments
results in significantly different conclusions from Regions' current assessment
of the proposed adjustments, Regions' effective tax rate in any given financial
reporting period may be materially different from its current effective tax
rate.

The provisions for income taxes in the consolidated statements of income
are summarized below. Included in these amounts are income taxes of $8,980,000,
$18,079,000 and $11,237,000 in 2003, 2002 and 2001, respectively, related to
securities transactions.

NOTE 18. BUSINESS COMBINATIONS

During 2003, Regions completed the following business combination:

The total cash received in this business combination was approximately $170
million. Total intangible assets recorded in connection with this transaction
totaled approximately $9 million.

87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 2002, Regions completed the following additional business
combinations:

Regions' consolidated financial statements include the results of
operations of acquired 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, 2002. 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 2003 and 2002.

As of December 31, 2003, Regions had no pending business combinations.

In January 2004, Regions signed a definitive agreement to merge with Union
Planters Corporation ("UPC") of Memphis, Tennessee. As of December 31, 2003, UPC
had assets of $31.9 billion, deposits of $23.1 billion and equity of $3.1
billion (see Note 26 "Subsequent Event" to the consolidated financial
statements).

88

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 19. VARIABLE INTEREST ENTITIES

Regions adopted Financial Accounting Standard Board Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46) for all variable interest
entities ("VIE") created after January 31, 2003. In addition, FIN 46 was adopted
on December 31, 2003 for entities created prior to February 1, 2003 that are
considered to be special-purpose entities. FIN 46 will be adopted on March 31,
2004 for entities created prior to February 1, 2003 which are not considered to
be special-purpose entities. A summary of Regions' significant variable
interests in VIEs is provided below.

Regions owns the common stock of two subsidiary business trusts, which have
issued manditorily redeemable preferred capital securities ("trust preferred
securities"). One of the trusts issued $287.5 million in trust preferred
securities in February 2001. The other trust issued $3.0 million in trust
preferred securities and was acquired as part of a bank acquisition in November
2001. The trusts' only assets are junior subordinated debentures issued by
Regions, which were acquired by the trusts using the proceeds from the issuance
of the trust preferred securities and common stock. Prior to the adoption of FIN
46 for special-purpose entities on December 31, 2003, Regions consolidated the
trusts and reported the trust preferred securities in long-term debt. Regions
determined that it is not the primary beneficiary of the trusts and,
accordingly, deconsolidated the trusts upon the adoption of FIN 46 for
special-purpose entities on December 31, 2003. As of December 31, 2003, the
junior subordinated debentures were included in long-term debt and Regions'
equity interest in the business trusts was included in other assets. The
deconsolidation resulted in a net increase in long-term debt and other assets of
$9.0 million. The deconsolidation of the trusts did not impact net income. For
regulatory reporting and capital adequacy purposes, the Federal Reserve Board
has indicated that such preferred securities will continue to constitute Tier 1
capital until further notice.

Regions invested in two grantor trusts during 2001 which are parties to
leveraged lease financing transactions. The trusts have been determined to be
VIEs. Regions' total investment in the trusts and maximum exposure to loss was
$78.2 million as of December 31, 2003. FIN 46 did not impact Regions' current
leveraged lease accounting for its investment in the trusts.

Regions periodically invests in single-purpose trusts that own tax-exempt
municipal bonds. These trusts were determined to be VIEs; however, Regions is
not the primary beneficiary of the trusts. As of December 31, 2003, Regions
maximum exposure to loss approximates its investment in the trusts of $14.7
million.

Regions periodically invests in various limited partnerships that sponsor
affordable housing projects utilizing the Low Income Housing Tax Credit pursuant
to Section 42 of the Internal Revenue Code. The investments are funded through a
combination of debt and equity with equity typically comprising 30% to 50% of
the total partnership capital. Regions has concluded that these partnerships are
VIEs, however, Regions is not the primary beneficiary of these partnerships. As
of December 31, 2003, Regions' recorded investment in these limited partnerships
was $159.5 million. Regions' maximum exposure to loss as of December 31, 2003
was $183.3 million, which includes $23.8 million in unfunded commitments to the
partnerships.

Regions has a recorded investment of $8.3 million in non-registered
investment partnerships which were determined to be VIEs. Regions' maximum
exposure to loss as of December 31, 2003, was $17.1 million which includes $8.8
million in unfunded commitments to the partnerships. FIN 46 will be effective
for Regions' investments in these partnerships as of March 31, 2004. Management
is still evaluating these partnerships to determine if Regions is the primary
beneficiary. However, management does not believe the adoption of FIN 46 will
have a material impact on Regions' financial position or results of operations.

89

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 20. 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 compensation 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 seven 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. No stock
appreciation rights were attached to options outstanding at December 31, 2003,
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 2003, 2002, and 2001, Regions granted
349,530; 382,210, and 329,750 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, or the grantees must meet the standards of a retiree
at which time the restricted shares may be prorated and released. However,
during this period the grantee is eligible to receive dividends and exercise
voting privileges on such restricted shares. In 2003, 2002, and 2001, 305,728;
236,896 and 134,227 restricted shares, respectively, were released. Total
expense for restricted stock was $10,331,000 in 2003, $8,738,000 in 2002, and
$4,310,000 in 2001.

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:

90

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
6.8 years. The weighted average fair value of options granted was $4.54 in 2003,
$4.61 in 2002 and $4.83 in 2001. 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 2003: expected dividend yield of 3.7%;
expected option life of 5 years; expected volatility of 21.8%; and a risk-free
interest rate of 2.8%. The 2002 assumptions used in the model included: 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 were:
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%.

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.

91

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 21. PARENT COMPANY ONLY FINANCIAL STATEMENTS

Presented below are condensed financial statements of Regions Financial
Corporation:

STATEMENTS OF CONDITION

92

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STATEMENTS OF INCOME

93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STATEMENTS OF CASH FLOWS

Aggregate maturities of long-term borrowings in each of the next five years
for the parent company only are as follows: $100,850,000 in 2004; $870,000 in
2005; $910,000 in 2006; $950,000 in 2007; and $1,480,000 in 2008.

94

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 22. 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,
2003, 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.

Regions' and Regions Bank's capital levels at December 31, 2003 and 2002,
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, 2003, Regions
Mortgage and Equifirst were in compliance with HUD guidelines. Regions Mortgage
and Equifirst are also subject to various capital requirements by secondary
market investors.

95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 23. EARNINGS PER SHARE

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

NOTE 24. 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. Prior period
amounts have been restated to reflect changes in methodology.

Regions utilizes a 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. During 2002, Regions modified the funds
transfer pricing system to include prepayment option premium and term credit
spreads on certain commercial and real estate loans.

96

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following tables present financial information for each reportable
segment.

97

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 25. 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:

In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149 (Statement 149), "Amendment of FASB Statement No. 133 on Derivative and
Hedging Transactions." Statement 149 amends

98

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under Statement 133. Statement 149 was effective for contracts entered into or
modified after June 30, 2003. The adoption of Statement 149 did not have a
material effect on Regions' financial position or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150 (Statement 150), "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity." Statement 150 established
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those instruments were
previously classified as equity. Statement 150 was effective for financial
instruments entered into or modified after May 31, 2003, and otherwise became
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of Statement 150 did not have a material effect on Regions'
financial position or results of operations.

In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB 51." In December 2003, the FASB
revised FIN 46 to incorporate several FASB Staff Positions and change the
effective date. FIN 46 addresses consolidation by business enterprises of
variable interest entities (VIE). In general, FIN 46 defines a VIE as any legal
structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities. FIN 46
excludes certain interests from its scope including transferors to qualifying
special purpose entities subject to Statement of Financial Accounting Standards
No. 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 was effective
immediately to VIEs created after January 31, 2003. For variable interests in
entities created before February 1, 2003, that are considered to be
special-purpose entities, FIN 46 was effective on December 31, 2003, for
calendar-year companies. For variable interests in other entities created before
February 1, 2003, FIN 46 will be effective on March 31, 2004, for calendar-year
companies. Regions adopted the provisions of FIN 46 for all variable interests
in entities created or modified after January 31, 2003. In addition, Regions
adopted FIN 46 on December 31, 2003, for entities created before February 1,
2003, that are considered to be special-purpose entities. The adoption of FIN 46
for special-purpose entities resulted in the deconsolidation of two subsidiary
business trusts, which have issued trust-preferred securities. Significant
variable interests in VIEs and the impact of the deconsolidation of the two
subsidiary business trusts are disclosed in Note 19. FIN 46 will be adopted on
March 31, 2004, for entities created before February 1, 2003, that are not
considered to be special-purpose entities. Management does not believe the
adoption of FIN 46 for these entities will have a material effect on Regions'
financial position or results of operations.

In December 2003, the FASB revised Statement of Financial Accounting
Standards No. 132 (Statement 132), "Employers' Disclosures about Pensions and
Other Postretirement Benefits." The revision was made to improve financial
statement disclosures for defined benefit plans. Statement 132, as revised,
requires companies to provide more details about their plan assets, benefit
obligations, cash flows, benefit costs and other relevant information. In
addition to increased annual disclosures, Statement 132, as revised, requires
companies to report the various elements of pension and other postretirement
benefit costs on a quarterly basis. The revision to Statement 132 is effective
for financial statements with fiscal years ending after December 15, 2003. The
interim-period disclosures of Statement 132, as revised, are effective for
interim periods beginning after December 15, 2003. Regions has adopted the
revisions to Statement 132 and the increased required disclosures are in Note 11
"Employee Benefit Plans."

In December 2003, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
03-3 (SOP 03-3), "Accounting for Certain Loans and Debt Securities Acquired in a
Transfer." SOP 03-3 addresses accounting for differences between contractual
cash flows and cash flows expected to be collected from an investor's initial
investment in loans or debt securities acquired in a transfer if those
differences are attributable, at least in part, to credit quality. It

99

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

includes such loans acquired in purchase business combinations and applies to
all nongovernmental entities. SOP 03-3 does not apply to loans originated by the
entity. SOP 03-3 limits the yield that may be accreted (accretable yield) to the
excess of the investor's estimate of cash flows expected at acquisition to be
collected over the investor's initial investment of the loan. SOP 03-3 requires
that the excess of contractual cash flows over cash flows expected to be
collected (nonaccretable difference) not be recognized as an adjustment of
yield, loss accrual, or valuation allowance. SOP 03-3 prohibits investors from
displaying accretable yield and nonaccretable difference in the balance sheet.
Subsequent increases in cash flows expected to be collected generally should be
recognized prospectively through adjustment of the loan's yield over its
remaining life. Decreases in cash flows expected to be collected should be
recognized as impairment. SOP 03-3 also prohibits carrying over or creation of
valuation allowances in the initial accounting of all loans acquired in a
transfer that are within the scope of SOP 03-3. The prohibition of the valuation
allowance carryover applies to the purchase of an individual loan, a pool of
loans, a group of loans, and loans acquired in a purchase business combination.
SOP 03-3 is effective for loans acquired in fiscal years beginning after
December 15, 2004. The Company is currently assessing the impact, if any, SOP
03-3 will have on the results of operations and financial position.

In December 2003, President Bush signed into law a bill that expands
Medicare benefits, primarily adding a prescription drug benefit for
Medicare-eligible retirees beginning in 2006. The law also provides a federal
subsidy to companies which sponsor postretirement benefit plans that provide
prescription drug coverage. FASB Staff Position 106-1, "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003" permits deferring the recognition of the new
Medicare provisions' impact due to lack of specific authoritative guidance on
accounting for the federal subsidy. The Company has elected to defer accounting
for the effects of this new legislation until the specific authoritative
guidance is issued. Accordingly, the postretirement benefit obligations and net
periodic costs reported in the accompanying financial statements and notes do
not reflect the impact of this legislation. The accounting guidance, when
issued, could require changes to previously reported financial information.
Management does not believe the adoption of this standard will have a material
effect on Regions' financial position or results of operations.

On March 9, 2004, the SEC released Staff Accounting Bulletin No. 105 (SAB
105), "Application of Accounting Principles to Loan Commitments" that will
require all registrants to account for mortgage loan interest rate lock
commitments related to loans held for sale as written options, effective not
later than for commitments entered into after March 31, 2004. The Company enters
into such commitments with customers in connection with residential mortgage
loan applications. SAB 105 will require the Company to recognize a liability on
its balance sheet equal to the fair value of the commitment at the time the loan
commitment is issued. As a result, SAB 105 will delay the recognition of any
revenue related to these commitments until such time as the loan is sold,
however, it will have no effect on the ultimate amount of revenue or cash flows
recognized over time. The Company is currently assessing the impact of SAB 105
on its results of operations and financial position.

NOTE 26. SUBSEQUENT EVENT

In January 2004, the Company signed a definitive merger agreement with
Union Planters Corporation, headquartered in Memphis, Tennessee. Terms of the
agreement include the formation of a new holding company to be named Regions
Financial Corporation upon completion of the transaction. In the transaction,
each share of Union Planters Corporation common stock will be converted into one
share of the new company common stock and each share of Regions' common stock
will be converted into 1.2346 shares of the new company common stock. The merger
will be accounted for as a purchase of Union Planters for accounting and
financial reporting purposes. As a result, the historical financial statements
of Regions will become the historical financial statements of the combined
company. The transaction is expected to close in mid 2004, subject to customary
regulatory and stockholder approvals. Additional information on the proposed
merger is included in Regions' Form 8-K dated as of January 22, 2004, and filed
as of January 26, 2004, and Regions' Form 8-K dated as of January 22, 2004, and
filed as of January 30, 2004.

100

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 27. 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, 2003, there were 49,740 shareholders of record of Regions
Financial Corporation Common Stock.

101

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

Not Applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Based on an evaluation, as of the end of the period covered by this Form
10-K, under the supervision and with the participation of Regions' management,
including its Chief Executive Officer and Chief Financial Officer, the Chief
Executive Officer and the Chief Financial Officer have concluded that Regions'
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934) are effective. During the fourth fiscal quarter
of the year ended December 31, 2003, there have been no significant changes in
Regions' internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, Regions' internal
control over financial reporting.

PART III

Regions incorporates by reference in this report on Form 10-K certain
information from Regions' definitive proxy statement expected to be filed on or
before April 29, 2004. All such information will appear in the portion of the
proxy statement pertaining to Regions' annual meeting and will appear under the
heading "Other Matters to be Considered at the Regions Meeting."

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Registrant incorporates by reference in this report on Form 10-K all
information to be presented under the sub captions "Information On Directors",
"The Board and Committees of the Board", "Section 16(a) Beneficial Ownership
Reporting Compliance", and "Code of Ethics", in the Registrant's definitive
proxy statement expected to be filed on or before April 29, 2004.

Executive officers of the Registrant as of December 31, 2003, are as
follows:

102

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

* 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.

ITEM 11. EXECUTIVE COMPENSATION

All information to be presented under the caption "Executive Compensation
and Other Transactions", excluding the information under the caption "Report of
the Compensation Committee Regarding Executive Compensation" of the Registrant's
definitive proxy statement expected to be filed on or before April 29, 2004, is
incorporated herein by reference; information presented under the caption
"Report of the Compensation Committee Regarding Executive Compensation" is
specifically not incorporated by reference herein.

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

All information to be presented under the caption "Voting Securities and
Principal Holders Thereof" of the Registrant's definitive proxy statement
expected to be filed on or before April 29, 2004, is incorporated herein by
reference.

103

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, 2003.

(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 issued under plans assumed by Regions in
connection with certain business combinations, including 2,220,219
outstanding 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.

ITEM 13. CERTAIN RELATIONSHIPS AND SELECTED TRANSACTIONS

All information presented under the caption "Other Transactions", of the
Registrant's proxy statement expected to be filed on or before April 29, 2004,
are incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

All information presented under the caption "Audit Fees, Audit-Related
Fees, Tax Fees and All Other Fees", of the Registrant's definitive proxy
statement expected to be filed on or before April 29, 2004, are incorporated
herein by reference.

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, 2003 and 2002;

Consolidated Statements of Income -- Years ended December 31, 2003, 2002
and 2001;

Consolidated Statements of Cash Flows -- Years ended December 31, 2003,
2002 and 2001;

Consolidated Statements of Changes in Stockholders' Equity -- Years ended
December 31, 2003, 2002 and 2001;

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 the consolidated financial statements are not
required under the related instructions or are inapplicable.

104

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

105

106

*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 2003.

The following reports on Form 8-K were furnished during the fourth
quarter of 2003:

- A report submitted October 16, 2003 relating to the press release
reporting on Regions results of operations for the third quarter of
2003.

- A report submitted October 28, 2003 relating to a presentation given
by representatives of the registrant at the U.S. Bancorp Piper
Jaffray Financial Services Conference.

- A report submitted November 6, 2003 relating to a presentation given
by representatives of the registrant at the BancAnalyst Association
of Boston 2003 Fall Conference.

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

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

107

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 11, 2004

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.

108

EXHIBITS INDEX

109

110

111