REGIONS FINANCIAL CORP - FORM 10-K/A

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EX-31.2 - EXHIBIT 31.2 - REGIONS FINANCIAL CORP	rf-20161231xex31210xka.htm
EX-31.1 - EXHIBIT 31.1 - REGIONS FINANCIAL CORP	rf-20161231xex31110xka.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K/A

Amendment No. 1



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

For the fiscal year ended December 31, 2016



¨	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 001-34034

REGIONS FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		63-0589368
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1900 Fifth Avenue North, Birmingham, Alabama 35203

(Address of principal executive offices)

Registrant’s telephone number, including area code: (800) 734-4667

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



Title of each class		Name of each exchange on which registered
Common Stock, $.01 par value		New York Stock Exchange
Depositary Shares, each representing a 1/40^th Interest in a Share of 6.375% Non-Cumulative Perpetual Preferred Stock, Series A		New York Stock Exchange
Depositary Shares, each representing a 1/40th Interest in a Share of 6.375% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series B		New York Stock Exchange

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes ý No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý 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. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ý

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, as of the last business day of the registrant’s most recently completed second fiscal quarter.

Common Stock, $.01 par value—$10,367,597,293 as of June 30, 2016.

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

Common Stock, $.01 par value—1,205,258,693 shares issued and outstanding as of February 22, 2017.

EXPLANATORY NOTE

Regions Financial Corporation is filing this Amendment No. 1 on Form 10-K/A (“Form 10-K/A”) to its Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on February 24, 2017 (the “Original Filing”) solely to correct typographical errors in Item 7. of the Form 10-K. Disclosures appearing on page 40 of the Original Filing, in the 2017 Expectations section, stated:


•	“Full year average loan growth in the low single digits compared to 2015 average balances”


•	“Full year average deposit growth in the low single digits compared to 2015 average balances”

The corrected statements are:


•	“Full year average loan growth in the low single digits compared to 2016 average balances”


•	“Full year average deposit growth in the low single digits compared to 2016 average balances”

In accordance with SEC Rule 12b-15, this Form 10-K/A sets forth the complete text of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as amended. This Form 10-K/A does not update any disclosures to reflect developments since the filing date of the Original Filing. No other changes have been made to the Original Filing, and this Form 10-K/A does not amend, update or change the financial statements or any other disclosures in the Original Filing other than the corrected statements described above. This Form 10-K/A should be read together with the Original Filing, including the section entitled "Forward-Looking Statements" contained therein.

In addition, we have filed the following exhibits:

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

EXECUTIVE OVERVIEW

Management believes the following sections provide an overview of several of the most relevant matters necessary for an understanding of the financial aspects of Regions Financial Corporation’s (“Regions” or “the Company”) business, particularly regarding its 2016 results. Cross references to more detailed information regarding each topic within Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and the consolidated financial statements are included. This summary is intended to assist in understanding the information provided, but should be read in conjunction with the entire MD&A and consolidated financial statements, as well as the other sections of this Annual Report on Form 10-K.

2016 Results

Regions reported net income available to common shareholders from continuing operations of $1.1 billion, or $0.87 per diluted share, in 2016 compared to net income available to common shareholders from continuing operations of $1.0 billion, or $0.76 per diluted share, in 2015.

Net interest income and other financing income (taxable-equivalent basis) from continuing operations totaled $3.5 billion in 2016 compared to $3.4 billion in 2015. The net interest margin (taxable-equivalent basis) was 3.14 percent in 2016, reflecting a 1 basis point increase from 2015 primarily due to the increases in yields on earning assets exceeding the slight increase in total funding costs.

The provision for loan losses totaled $262 million in 2016 compared to $241 million in 2015. This increase was primarily due to higher net charge-offs, including $37 million in 2016 energy charge-offs, and the increase in criticized and classified commercial loans, attributable primarily to downward risk rating migration in the energy portfolio. This increase was offset by the impact of $2.0 billion in business services loan balance runoff, including $436 million in direct energy, and improvement in the risk profile of certain other loan classes. Net charge-offs were 0.34 percent of average loans in 2016, compared to 0.30 percent in 2015.

Non-interest income from continuing operations was $2.2 billion in 2016 and $2.1 billion in 2015. The increase from the prior year was driven primarily by increases in capital markets fee income and other, card and ATM fees, and bank-owned life insurance income. These increases more than offset declines in insurance proceeds, net revenue from affordable housing, and securities gains, net. See Table 5 "Non-Interest Income from Continuing Operations" for further details.

Non-interest expenses from continuing operations was $3.6 billion in both 2016 and 2015. While non-interest expenses from continuing operations was relatively consistent in 2016, there were increases in salaries and employee benefits, furniture and equipment expenses, and the provision (credit) for unfunded credit losses. Decreases in net occupancy expenses, FDIC insurance assessments, professional, legal and regulatory expenses, and loss on early extinguishment of debt offset the increases discussed above. See Table 6 "Non-Interest Expense from Continuing Operations" for further details.

A discussion of activity within discontinued operations is included at the end of "Operating Results" in the Management’s Discussion and Analysis section of this report.

For more information, refer to the following additional sections within this Form 10-K:


•	"Operating Results" section of MD&A

Capital

Capital Actions

As part of its 2016 CCAR submission, Regions' proposed capital plans included increasing its quarterly common stock dividend from $0.06 per share to $0.065 per share during the second quarter of 2016 and the execution of up to $640 million in common share repurchases. The capital plan also provides the potential for a dividend increase beginning in the second quarter of 2017, which is expected to be considered by the Board in early 2017. The 2016 capital plans cover the period from the second quarter of 2016 through the second quarter of 2017. The Federal Reserve did not object to these plans.

Management expects to continue to evaluate the amount of the common stock dividend with the Board and in conjunction with regulatory supervisors, subject to the Company’s results of operations.

Regions’ Board approved the share repurchase plan. The share repurchase authority granted by the Board was available at the beginning of the second quarter of 2016 and will continue through the second quarter of 2017. Also, on October 12, 2016, Regions' Board authorized an additional $120 million repurchase, which increased the total amount authorized under the plan to $760 million. As of December 31, 2016, Regions had repurchased approximately 46.5 million shares of common stock at a total cost of approximately $485 million under this plan. The Company continued to repurchase shares under this plan into the first quarter of 2017. These shares were immediately retired upon repurchase and therefore are not included in treasury stock.

For more information refer to the following additional sections within this Form 10-K:


•	“Stockholders’ Equity” discussion in MD&A


•	Note 15 “Stockholders’ Equity and Accumulated Other Comprehensive Income (Loss)” to the consolidated financial statements

Regulatory Capital

Regions and Regions Bank are required to comply with applicable capital adequacy standards established by the Federal Reserve. In 2013, the Federal Reserve published the final Basel III Rules establishing an updated comprehensive capital framework for U.S. banking organizations. The Basel III Rules substantially revised the regulatory capital requirements applicable to BHCs and depository institutions, including Regions and Regions Bank. The Basel III Rules were effective for Regions and Regions Bank beginning January 1, 2015 (subject to a phase-in period), and maintained the minimum guidelines for Regions to be considered well-capitalized for Tier 1 capital and Total capital at 6.0% and 10.0%, respectively. At December 31, 2016, Regions’ Basel III Tier 1 capital and Total capital ratios were estimated to be 11.98% and 14.15%, respectively.

The Basel III Rules also officially defined CET1. When fully phased in on January 1, 2019, the minimum ratio of CET1 to risk-weighted assets will be at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7.0% upon full implementation). Regions' Basel III CET1 ratio at December 31, 2016 on a transitional basis was estimated to be 11.21%. Regions’ understanding of the framework is evolving and will likely change as analysis and discussions with regulators continue. Based on its current understanding, Regions estimates its fully phased-in CET1 ratio (non-GAAP) at December 31, 2016 to be 11.05%.

For more information refer to the following additional sections within this Form 10-K:


•	“Supervision and Regulation” discussion within Item 1. Business


•	Table 2 - “GAAP to Non-GAAP reconciliation” in MD&A


•	"Regulatory Requirements" section of MD&A


•	Note 14 “Regulatory Capital Requirements and Restrictions” to the consolidated financial statements

Loan Portfolio and Credit

During 2016 total loans decreased by $1.1 billion or 1 percent compared to 2015. Commercial and industrial loans declined $809 million, impacted by a $436 million reduction in direct energy loans. Owner-occupied commercial real estate mortgage loans declined $671 million reflecting the softness in loan demand from middle market and small business customers, combined with the competitive market for this asset class. Investor real estate loans declined $473 million as the Company curtailed growth in the multi-family sector. Home equity balances decreased $291 million as the pace of run-off continued to exceed production. These decreases were partially offset by increases in the consumer portfolio, which experienced growth in almost every product category. The consumer growth was led by increases in residential first mortgages of $629 million, and indirect-other of $375 million, as the Company continued to execute its point-of-sale initiatives. The economy has been and will continue to be the primary factor which influences Regions’ loan portfolio. Customers continued to benefit from improvement in overall economic conditions in 2016, particularly low interest rates and low inflation. These factors generated excess cash that has been used to support spending in other areas including paying down debt and increasing savings as was experienced in 2015. Labor market and housing market conditions continued to improve at a steady pace over the course of 2016. Overall, the rate of economic growth in 2017 is expected to remain in line with the modest trend rate of growth that has prevailed since the end of the 2007-2009 recession. Management’s expectation for 2017 average loan growth is in the low single digits.

Net charge-offs totaled $277 million, or 0.34 percent of average loans, in 2016, compared to $238 million, or 0.30 percent in 2015. Net charge-offs increased within commercial and industrial, commercial real estate, indirect-vehicles, indirect-other, consumer credit card and other consumer, but were lower within residential first mortgage and home equity when comparing 2016 to the prior year. Total non-accrual loans, past due loans, and troubled debt restructurings also increased year-over-year. Criticized and classified commercial and investor real estate loans increased $241 million in 2016 compared to 2015. The increase in criticized and classified commercial loans was driven primarily by downward risk rating migration in the energy portfolio. The downward migration in direct energy and energy-related credits also drove the increase in commercial troubled debt restructurings as these credits were restructured at concessionary terms. The allowance for loan losses at both December 31, 2016 and December 31, 2015 was 1.36 percent of total loans, net of unearned income. The coverage ratio of allowance for loan losses to non-performing loans was 1.10x at December 31, 2016 compared to 1.41x at December 31, 2015. The adjusted coverage ratio of allowance for loan losses to non-performing loans, which excluded direct energy (non-GAAP), was 1.38x at December 31, 2016 compared to 1.37x at December 31, 2015.

For more information, refer to the following additional sections within this Form 10-K:


•	Adjusted Non-Accrual Loans and Selected Ratios within the "Table 2 - GAAP-to-Non-GAAP Reconciliation"


•	“Allowance for Credit Losses” discussion within the “Critical Accounting Policies and Estimates” section of MD&A


•	“Provision for Loan Losses” discussion within the “Operating Results” section of MD&A


•	“Loans,” “Allowance for Credit Losses,” “Troubled Debt Restructurings” and “Non-performing Assets” discussions within the “Balance Sheet Analysis” section of MD&A


•	Note 1 "Summary of Significant Accounting Policies" to the consolidated financial statements


•	Note 5 "Loans" to the consolidated financial statements


•	Note 6 “Allowance for Credit Losses” to the consolidated financial statements

Net Interest Income and Other Financing Income, Net Interest Margin and Interest Rate Risk

In 2016, the net interest margin increased 1 basis point to 3.14 percent, due to an increase in yields on earning assets exceeding the slight increase in total funding costs . Net interest income and other financing income (taxable equivalent basis) increased $100 million in 2016, driven primarily by higher short-term interest rates, average loan growth, higher securities balances and balance sheet management strategies. Despite continued improvement, net interest income and other financing income and the resulting net interest margin continued to be pressured by a sustained low interest rate environment.

The Company expects to increase net interest income and other financing income in the range of 2 percent to 4 percent in 2017, commensurate with average loan growth in the low single digits. The range assumes an interest rate scenario equal to the market forward interest rates as of November 10, 2016, including an average Fed Funds rate of 81 basis points and an average 10-year U.S. Treasury rate of 2.26 percent for 2017.

For more information, refer to the following additional sections within this Form 10-K:


•	“Net Interest Income and Other Financing Income and Net Interest Margin” discussion within the “Operating Results” section of MD&A


•	“Interest Rate Risk” discussion within “Risk Management” section of MD&A

Liquidity

At the end of 2016, Regions Bank had $3.6 billion in cash on deposit with the Federal Reserve and the loan-to-deposit ratio was 81 percent. Cash and cash equivalents at the parent company totaled $1.0 billion. Regions' liquidity policy related to minimum holding company cash requires the holding company to maintain cash sufficient to cover the greater of (1) 18 months of debt service and other cash needs or (2) a minimum cash balance of $500 million.

At December 31, 2016, the Company’s borrowing capacity with the Federal Reserve was $15.6 billion based on available collateral. Borrowing availability with the FHLB was $12.1 billion based on available collateral at the same date. The Company has approximately $12.8 billion of unencumbered liquid securities available for pledging. Regions also maintains a shelf registration statement with the U.S. Securities and Exchange Commission that can be utilized by the Company to issue various debt and/or equity securities. Additionally, Regions' Board has approved a bank note program which would allow Regions Bank to issue up to $5 billion in aggregate principal amount of bank notes outstanding at any one time. As of December 31, 2016, no issuances have been made under this program.

In 2014, the Federal Reserve Board, the Office of the Comptroller of the Currency and the FDIC approved a final rule implementing a minimum LCR requirement for certain large BHCs, savings and loan holding companies and depository institutions, and a less stringent LCR requirement (the "modified LCR") for other banking organizations, such as Regions, with $50 billion or more in total consolidated assets. The final rule imposes a monthly calculation requirement. In January 2016, the minimum phased-in LCR requirement was 90 percent, followed by 100 percent in January 2017. The regulatory agencies finalized a rule that requires public disclosures of certain LCR measures beginning in October 2018 for Regions. At December 31, 2016, the Company was fully compliant with the LCR requirement.

For more information, refer to the following additional sections within this Form 10-K:


•	“Supervision and Regulation” discussion within Item 1. Business


•	“Short-Term Borrowings” discussion within the “Balance Sheet Analysis” section of MD&A


•	“Long-Term Borrowings” discussion within the “Balance Sheet Analysis” section of MD&A


•	“Regulatory Requirements” section of MD&A


•	“Liquidity Risk” discussion within the “Risk Management” section of MD&A


•	Note 12 “Short-Term Borrowings” to the consolidated financial statements


•	Note 13 “Long-Term Borrowings” to the consolidated financial statements

2017 Expectations

Management expectations for 2017 are noted below:


•	Expectations for 2017 assume full year GDP growth of 2 to 2.5 percent and an interest rate scenario equal to the market forward interest rates as of November 10, 2016, which equates to an average Fed Funds rate of 81 basis points and an average 10-year U.S. Treasury rate of 2.26 percent for 2017


•	Full year average loan growth in the low single digits compared to 2016 average balances


•	Full year average deposit growth in the low single digits compared to 2016 average balances


•	Net interest income and other financing income up 2 to 4 percent on a full year basis; the higher end of the range assumes that the post-election interest rate environment holds and pressure on deposit costs remains relatively low; the lower end of the range assumes a lower interest rate environment, similar to pre-election levels, or an environment where deposit costs are more reactive


•	Adjusted non-interest income (non-GAAP) growth of 3 to 5 percent on a full year basis


•	Adjusted non-interest expenses (non-GAAP) flat to up 1 percent on a full year basis


•	Full year adjusted efficiency ratio (non-GAAP) of approximately 62 percent


•	Positive adjusted operating leverage (non-GAAP) of 2 to 4 percent on a full year basis


•	Full year net charge-offs of 35 to 50 basis points

The reconciliation with respect to these forward-looking non-GAAP measures is expected to be consistent with the actual non-GAAP reconciliations within Management's Discussion and Analysis of this Form 10-K. For more information related to the Company's 2017 expectations, refer to the related sub-sections discussed in more detail within Management's Discussion and Analysis of this Form 10-K.

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 continuing operations for the years 2016, 2015 and 2014; in addition, financial information for prior years will also be presented when appropriate.

Regions’ profitability, like that of many other financial institutions, is dependent on its ability to generate revenue from net interest income and other financing income as well as non-interest income sources. Net interest income and other financing income is primarily the difference between the interest income Regions receives on interest-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 and other financing income is impacted by the size and mix of its balance sheet components and the interest rate spread between interest earned on its assets and interest paid on its liabilities. Net interest income and other financing income also includes rental income and depreciation expense associated with operating leases for which Regions is the lessor. Non-interest income includes fees from service charges on deposit accounts, card and ATM fees, mortgage servicing and secondary marketing, investment management and trust activities, insurance activities, capital markets 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, professional, legal and regulatory expenses, FDIC insurance assessments and other operating expenses, as well as income taxes.

Economic conditions, competition, new legislation and related rules impacting regulation of the financial services industry and the monetary and fiscal policies of the Federal government significantly affect most, if not all, financial institutions, including Regions. Lending and deposit activities and fee income generation are influenced by levels of business spending and investment, consumer income, consumer spending and savings, capital market activities, and competition among financial institutions, as well as customer preferences, interest rate conditions and prevailing market rates on competing products in Regions’ market areas.

Regions’ business strategy has been and continues to be focused on providing a competitive mix of products and services, delivering quality customer service and maintaining a branch distribution network with offices in convenient locations.

Recent Acquisitions

On October 17, 2016, Regions announced the acquisition of the low income housing tax credit corporate fund syndication and asset management businesses of First Sterling Financial, Inc., which is one of the leading national syndicators of investment funds benefiting from low income housing tax credits. The acquisition complements Regions' existing low income housing tax credit origination business and further expands the Company's capabilities to serve more clients and communities.

Dispositions

On January 11, 2012, Regions entered into a stock purchase agreement to sell Morgan Keegan and related affiliates to Raymond James. The sale closed on April 2, 2012. Regions Investment Management, Inc. (formerly known as Morgan Asset Management, Inc.) and Regions Trust were not included in the sale. They are now included in the Wealth Management segment.

Results of operations for the entities sold are presented separately as discontinued operations for all periods presented on the consolidated statements of income. Other expenses related to the transaction are also included in discontinued operations. Refer

to Note 3 “Discontinued Operations” and Note 24 “Commitments, Contingencies, and Guarantees” to the consolidated financial statements for further details.

Business Segments

Regions provides traditional commercial, retail and mortgage banking services, as well as other financial services in the fields of asset management, wealth management, securities brokerage, insurance and other specialty financing. Regions carries out its strategies and derives its profitability from three reportable segments: Corporate Bank, Consumer Bank, and Wealth Management, with the remainder split between Discontinued Operations and Other. During the first quarter of 2016, Regions reorganized its internal management structure and, accordingly, its segment reporting structure. Under the organizational realignment, Regions will continue to operate with the same three reporting units with the Relationship Management component of Business Banking moving to the Corporate Bank and the Branch Small Business component of Business Banking remaining part of the Consumer Bank. Previously, all of Business Banking was included within the Consumer Bank. The Wealth Management segment remained unchanged during the organizational realignment. Additionally, in prior years the provision for loan losses was allocated to each segment based on actual net charge-offs that had been recognized by the segment. During the first quarter of 2016, Regions began allocating the provision for loan losses to each segment using an estimated loss methodology with the difference between the consolidated provision for loan losses and the segments’ estimated loss reflected in Other. Lastly, allocations of operational and overhead cost pools among the segments were modified during the first quarter of 2016 to better align the total costs to support each segment in accordance with the reorganized management structure. Segment results for all periods presented have been recast to reflect this organizational realignment, as well as the provision for loan losses methodology change and the cost allocation modifications.

See Note 23 “Business Segment Information” to the consolidated financial statements for further information on Regions’ business segments.

Table 1—Financial Highlights



	2016			2015			2014			2013			2012
	(In millions, except per share data)
EARNINGS SUMMARY
Interest income, including other financing income	$	3,814		$	3,603		$	3,589		$	3,647		$	3,904
Interest expense and depreciation expense on operating lease assets	416			296			309			384			603
Net interest income and other financing income	3,398			3,307			3,280			3,263			3,301
Provision for loan losses	262			241			69			138			213
Net interest income and other financing income after provision for loan losses	3,136			3,066			3,211			3,125			3,088
Non-interest income	2,153			2,071			1,903			2,096			2,201
Non-interest expense	3,617			3,607			3,432			3,556			3,526
Income from continuing operations before income taxes	1,672			1,530			1,682			1,665			1,763
Income tax expense	514			455			548			561			583
Income from continuing operations	1,158			1,075			1,134			1,104			1,180
Income (loss) from discontinued operations before income taxes	8			(22		)	21			(24		)	(99		)
Income tax expense (benefit)	3			(9		)	8			(11		)	(40		)
Income (loss) from discontinued operations, net of tax	5			(13		)	13			(13		)	(59		)
Net income (loss)	$	1,163		$	1,062		$	1,147		$	1,091		$	1,121
Net income (loss) from continuing operations available to common shareholders	$	1,094		$	1,011		$	1,082		$	1,072		$	1,051
Net income (loss) available to common shareholders	$	1,099		$	998		$	1,095		$	1,059		$	992
Earnings (loss) per common share from continuing operations – basic	$	0.87		$	0.76		$	0.79		$	0.77		$	0.76
Earnings (loss) per common share from continuing operations – diluted	0.87			0.76			0.78			0.76			0.76
Earnings (loss) per common share – basic	0.87			0.75			0.80			0.76			0.72
Earnings (loss) per common share – diluted	0.87			0.75			0.79			0.75			0.72
Return on average common stockholders' equity	6.74		%	6.21		%	6.90		%	7.09		%	6.98		%
Return on average tangible common stockholders’ equity (non-GAAP)⁽¹⁾	9.69			8.96			10.00			10.59			10.79
Return on average assets from continuing operations	0.87			0.83			0.91			0.91			0.86
BALANCE SHEET SUMMARY
As of December 31—Consolidated
Loans, net of unearned income	$	80,095		$	81,162		$	77,307		$	74,609		$	73,995
Allowance for loan losses	(1,091		)	(1,106		)	(1,103		)	(1,341		)	(1,919		)
Assets	125,968			126,050			119,563			117,288			121,270
Deposits	99,035			98,430			94,200			92,453			95,474
Long-term debt	7,763			8,349			3,462			4,830			5,861
Stockholders’ equity	16,664			16,844			16,873			15,660			15,422
Average balances—Continuing Operations
Loans, net of unearned income	$	81,333		$	79,634		$	76,253		$	74,924		$	76,035
Assets	125,506			122,265			118,352			117,712			122,105
Deposits	97,921			96,890			93,481			92,646			95,330
Long-term debt	8,159			5,046			4,057			5,206			6,694
Stockholders’ equity	17,124			16,922			16,609			15,409			14,957
SELECTED RATIOS
Basel I Tier 1 common regulatory capital (non-GAAP) ⁽³⁾	N/A%			N/A%			11.65		%	11.21		%	10.84		%
Basel III common equity Tier 1 ratio ⁽²⁾	11.21			10.93			N/A			N/A			N/A
Basel III common equity Tier 1 ratio—Fully Phased-In Pro-Forma (non-GAAP) ^(1)(2)(3)	11.05			10.69			11.00			10.58			8.87
Tier 1 capital ^(2)(3)(4)	11.98			11.65			12.54			11.68			12.00
Total capital ^(2)(3)(4)	14.15			13.88			15.26			14.73			15.38
Leverage capital ^(2)(3)(4)	10.20			10.25			10.86			10.03			9.65
Tangible common stockholders’ equity to tangible assets (non-GAAP) ⁽¹⁾	8.99			9.13			9.66			9.15			8.57
Efficiency ratio	64.20			66.15			65.42			65.69			63.50
Adjusted efficiency ratio (non-GAAP) ⁽¹⁾	63.28			64.87			64.45			64.46			63.21



	2016			2015			2014			2013			2012
	(In millions, except per share data)
COMMON STOCK DATA
Cash dividends declared per common share	$	0.255		$	0.23		$	0.18		$	0.10		$	0.04
Common equity book value per share	13.04			12.35			11.81			11.04			10.57
Tangible common book value per share (non-GAAP)⁽¹⁾	8.95			8.52			8.18			7.47			7.05
Market value at year-end	14.36			9.60			10.56			9.89			7.13
Market price range: ⁽⁵⁾
High	14.73			10.87			11.54			10.52			7.73
Low	7.00			8.54			8.85			7.13			4.21
Total trading volume	5,241			4,243			3,689			3,962			5,282
Dividend payout ratio	29.25		%	30.76		%	22.80		%	13.31		%	5.59		%
Stockholders of record at year-end (actual)	48,958			51,270			57,529			63,815			67,574
Weighted-average number of common shares outstanding
Basic	1,255			1,325			1,375			1,395			1,381
Diluted	1,261			1,334			1,387			1,410			1,387

________

N/A - not applicable.


(1)	See Table 2 for GAAP to non-GAAP reconciliations.


(2)	Current year Basel III common equity Tier 1, Tier 1 capital, Total capital, and Leverage capital ratios are estimated.


(3)	Regions' regulatory capital ratios for years prior to 2015 have not been revised to reflect the retrospective application of new accounting guidance related to investments in qualified affordable housing projects.


(4)	Beginning in 2015, Regions' regulatory capital ratios are calculated pursuant to the phase-in provisions of the Basel III Rules. All prior period ratios were calculated pursuant to the Basel I capital rules.


(5)	High and low market prices are based on intraday sales prices.

NON-GAAP MEASURES

The table below presents computations of earnings and certain other financial measures, which exclude certain significant items that are included in the financial results presented in accordance with GAAP. These non-GAAP financial measures include "adjusted allowance for loan losses to non-performing loans, excluding loans held for sale ratio", “adjusted fee income ratio”, “adjusted efficiency ratio”, “return on average tangible common stockholders’ equity”, average and end of period “tangible common stockholders’ equity”, and “Basel III CET1, on a fully phased-in basis” and related ratios. Regions believes that expressing earnings and certain other financial measures excluding these significant items provides a meaningful base for period-to-period comparisons, which management believes will assist investors in analyzing the operating results of the Company and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of Regions’ business because management does not consider the activities related to the adjustments to be indications of ongoing operations. Regions believes that presentation of these non-GAAP financial measures will permit investors to assess the performance of the Company on the same basis as that applied by management. Management and the Board utilize these non-GAAP financial measures as follows:


•	Preparation of Regions’ operating budgets


•	Monthly financial performance reporting


•	Monthly close-out reporting of consolidated results (management only)


•	Presentations to investors of Company performance

The adjusted allowance for loan losses to non-performing loans, excluding loans held for sale ratio (non-GAAP), which is a measure of credit quality performance, is generally calculated as adjusted allowance for loan losses divided by adjusted total non-accrual loans, excluding loans held for sale. Management believes that excluding the portion of the allowance for loan losses related to direct energy loans and the direct energy non-accrual loans will assist investors in analyzing the Company's credit quality performance absent the volatility that has been experienced by energy businesses. The allowance for loan losses (GAAP) is presented excluding the portion of the allowance related to direct energy loans to arrive at the adjusted allowance for loan losses (non-GAAP). Total non-accrual loans (GAAP) is presented excluding direct energy non-accrual loans to arrive at adjusted total non-accrual loans, excluding loans held for sale (non-GAAP), which is the denominator for the allowance for loan losses to non-accrual loans ratio.

The adjusted efficiency ratio (non-GAAP), which is a measure of productivity, is generally calculated as non-interest expense divided by total revenue on a taxable-equivalent basis. The adjusted fee income ratio (non-GAAP) is generally calculated as non-interest income divided by adjusted total revenue on a taxable-equivalent basis. Management uses these ratios to monitor performance and believes these measures provide meaningful information to investors. Non-interest expense (GAAP) is presented excluding adjustments to arrive at adjusted non-interest expense (non-GAAP), which is the numerator for the adjusted efficiency ratio. Non-interest income (GAAP) is presented excluding adjustments to arrive at adjusted non-interest income (non-GAAP), which is the

numerator for the adjusted fee income ratio. Net interest income and other financing income on a taxable-equivalent basis and non-interest income are added together to arrive at total revenue on a taxable-equivalent basis. Adjustments are made to arrive at adjusted total revenue on a taxable-equivalent basis (non-GAAP), which is the denominator for the adjusted efficiency and adjusted fee income ratios.

Tangible common stockholders’ equity ratios have become a focus of some investors in analyzing the capital position of the Company absent the effects of intangible assets and preferred stock. Traditionally, the Federal Reserve and other banking regulatory bodies have assessed a bank’s capital adequacy based on Tier 1 capital, the calculation of which is codified in federal banking regulations. Analysts and banking regulators have assessed Regions’ capital adequacy using the tangible common stockholders’ equity measure. Because tangible common stockholders’ equity is not formally defined by GAAP, this measure is considered to be a non-GAAP financial measure and other entities may calculate it differently than Regions’ disclosed calculations. Since analysts and banking regulators may assess Regions’ capital adequacy using tangible common stockholders’ equity, Regions believes that it is useful to provide investors the ability to assess Regions’ capital adequacy on this same basis.

The Basel Committee's Basel III framework will strengthen international capital and liquidity regulations. When fully phased in, Basel III will increase capital requirements through higher minimum capital levels as well as through increases in risk-weights for certain exposures. Additionally, the Basel III rules place greater emphasis on common equity. The Federal Reserve released its final Basel III Rules detailing the U.S. implementation of Basel III in 2013. Regions, as a standardized approach bank, began transitioning to the Basel III framework in January 2015 subject to a phase-in period extending through January 2019. Because the Basel III implementation regulations will not be fully phased in until 2019 and, are not formally defined by GAAP, these measures are considered to be non-GAAP financial measures. Since analysts and banking regulators may assess Regions’ capital adequacy using the fully phased-in Basel III framework, Regions believes that it is useful to provide investors information enabling them to assess Regions’ capital adequacy on the same basis.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. In particular, a measure of earnings that excludes selected items does not represent the amount that effectively accrues directly to stockholders.

The following tables provide: 1) a reconciliation of allowance for loan losses (GAAP) to adjusted allowance for loan losses (non-GAAP), 2) a reconciliation of non-accrual loans (GAAP) to adjusted non-accrual loans (non-GAAP), 3) a computation of adjusted allowance for loan losses to non-performing loans, excluding loans held for sale (non-GAAP), 4) a reconciliation of net income (GAAP) to net income available to common shareholders (GAAP), 5) a reconciliation of non-interest expense from continuing operations (GAAP) to adjusted non-interest expense (non-GAAP), 6) a reconciliation of non-interest income from continuing operations (GAAP) to adjusted non-interest income (non-GAAP), 7) a computation of adjusted total revenue (non-GAAP), 8) a computation of the adjusted efficiency ratio (non-GAAP), 9) a computation of the adjusted fee income ratio (non-GAAP), 10) a reconciliation of average and ending stockholders’ equity (GAAP) to average and ending tangible common stockholders’ equity (non-GAAP) and calculations of related ratios (non-GAAP), 11) a reconciliation of stockholders’ equity (GAAP) to Basel III CET1, on a fully phased-in basis (non-GAAP), and calculation of the related ratio based on Regions’ current understanding of the Basel III requirements (non-GAAP).

Table 2—GAAP to Non-GAAP Reconciliation



		Year Ended December 31
		2016		2015		2014		2013		2012
		(Dollars in millions)
ADJUSTED NON-ACCRUAL LOANS AND SELECTED RATIOS
Allowance for loan losses (GAAP)	A	$	1,091	$	1,106	$	1,103	$	1,341	$	1,919
Less: Direct energy portion		147		151		28		15		24
Adjusted allowance for loan losses (non-GAAP)	B	$	944	$	955	$	1,075	$	1,326	$	1,895

Total non-accrual loans (GAAP)	C	$	995	$	782	$	829	$	1,082	$	1,681
Less: Direct energy non-accrual loans		311		83		37		—		20
Adjusted total non-accrual loans (non-GAAP)	D	$	684	$	699	$	792	$	1,082	$	1,661
Allowance for loan losses to non-performing loans, excluding loans held for sale (GAAP)	A/C	1.10x		1.41x		1.33x		1.24x		1.14x
Adjusted allowance for loan losses to non-performing loans, excluding loans held for sale (non-GAAP)	B/D	1.38x		1.37x		1.36x		1.23x		1.14x



		Year Ended December 31
		2016			2015			2014			2013			2012
		(Dollars in millions, except per share data)
INCOME
Net income (GAAP)		$	1,163		$	1,062		$	1,147		$	1,091		$	1,121
Preferred dividends and accretion (GAAP)		(64		)	(64		)	(52		)	(32		)	(129		)
Net income available to common shareholders (GAAP)	E	$	1,099		$	998		$	1,095		$	1,059		$	992
ADJUSTED FEE INCOME AND EFFICIENCY RATIOS
Non-interest expense from continuing operations (GAAP)	F	$	3,617		$	3,607		$	3,432		$	3,556		$	3,526
Significant items:
Professional, legal and regulatory expenses ⁽¹⁾⁽²⁾		(3		)	(48		)	(93		)	(58		)	—
Branch consolidation, property and equipment charges		(58		)	(56		)	(16		)	(5		)	—
Securities impairment, net		—			—			—			—			(2		)
Loss on early extinguishment of debt		(14		)	(43		)	—			(61		)	(11		)
Salary and employee benefits—severance charges		(21		)	(6		)	—			—			—
Gain on sale of TDRs held for sale, net		—			—			35			—			—
REIT investment early termination costs ⁽³⁾		—			—			—			—			(42		)
Adjusted non-interest expense (non-GAAP)	G	$	3,521		$	3,454		$	3,358		$	3,432		$	3,471
Net interest income and other financing income (GAAP)		$	3,398		$	3,307		$	3,280		$	3,263		$	3,301
Taxable-equivalent adjustment		84			75			63			54			50
Net interest income and other financing income, taxable-equivalent basis	H	3,482			3,382			3,343			3,317			3,351
Non-interest income from continuing operations (GAAP)	I	2,153			2,071			1,903			2,096			2,201
Significant items:
Securities gains, net		(6		)	(29		)	(27		)	(26		)	(48		)
Insurance proceeds ⁽⁴⁾		(50		)	(91		)	—			—			—
Leveraged lease termination gains, net		(8		)	(8		)	(10		)	(39		)	(14		)
Gain on sale of affordable housing residential mortgage loans ⁽⁵⁾		(5		)	—			—			—			—
Gain on sale of other assets ⁽⁶⁾		—			—			—			(24		)	—
Adjusted non-interest income (non-GAAP)	J	2,084			1,943			1,866			2,007			2,139
Total revenue, taxable-equivalent basis	H+I=K	$	5,635		$	5,453		$	5,246		$	5,413		$	5,552
Adjusted total revenue, taxable-equivalent basis (non-GAAP)	H+J=L	$	5,566		$	5,325		$	5,209		$	5,324		$	5,490
Efficiency ratio (GAAP)	F/K	64.20		%	66.15		%	65.42		%	65.69		%	63.50		%
Adjusted efficiency ratio (non-GAAP)	G/L	63.28		%	64.87		%	64.45		%	64.46		%	63.21		%
Fee income ratio (GAAP)	I/K	38.21		%	37.98		%	36.28		%	38.72		%	39.65		%
Adjusted fee income ratio (non-GAAP)	J/L	37.45		%	36.50		%	35.83		%	37.70		%	38.97		%
RETURN ON AVERAGE TANGIBLE COMMON STOCKHOLDERS’ EQUITY
Average stockholders’ equity (GAAP)		$	17,126		$	16,916		$	16,620		$	15,411		$	15,168
Less: Average intangible assets (GAAP)		5,125			5,099			5,103			5,136			5,210
Average deferred tax liability related to intangibles (GAAP)		(162		)	(170		)	(182		)	(188		)	(195		)
Average preferred stock (GAAP)		820			848			754			464			960
Average tangible common stockholders’ equity (non-GAAP)	M	$	11,343		$	11,139		$	10,945		$	9,999		$	9,193
Return on average tangible common stockholders’ equity (non-GAAP)	E/M	9.69		%	8.96		%	10.00		%	10.59		%	10.79		%



		Year Ended December 31
		2016			2015			2014			2013			2012
		(Dollars in millions, except share data)
TANGIBLE COMMON RATIOS-CONSOLIDATED
Ending stockholders’ equity (GAAP)		$	16,664		$	16,844		$	16,873		$	15,660		$	15,422
Less: Ending intangible assets (GAAP)		5,125			5,137			5,091			5,111			5,161
Ending deferred tax liability related to intangibles (GAAP)		(155		)	(165		)	(172		)	(188		)	(191		)
Ending preferred stock (GAAP)		820			820			884			450			482
Ending tangible common stockholders’ equity (non-GAAP)	N	$	10,874		$	11,052		$	11,070		$	10,287		$	9,970
Ending total assets (GAAP)		$	125,968		$	126,050		$	119,563		$	117,288		$	121,270
Less: Ending intangible assets (GAAP)		5,125			5,137			5,091			5,111			5,161
Ending deferred tax liability related to intangibles (GAAP)		(155		)	(165		)	(172		)	(188		)	(191		)
Ending tangible assets (non-GAAP)	O	$	120,998		$	121,078		$	114,644		$	112,365		$	116,300
End of period shares outstanding	P	1,215			1,297			1,354			1,378			1,431
Tangible common stockholders’ equity to tangible assets (non-GAAP)	N/O	8.99		%	9.13		%	9.66		%	9.15		%	8.57		%
Tangible common book value per share (non-GAAP)	N/P	$	8.95		$	8.52		$	8.18		$	7.47		$	7.05
BASEL III COMMON EQUITY TIER 1 RATIO—FULLY PHASED-IN PRO-FORMA⁽⁷⁾
Stockholders’ equity (GAAP)		$	16,664		$	16,844
Non-qualifying goodwill and intangibles		(4,955		)	(4,958		)
Adjustments, including all components of accumulated other comprehensive income, disallowed deferred tax assets, threshold deductions and other adjustments		489			286
Preferred stock (GAAP)		(820		)	(820		)
Basel III common equity Tier 1—Fully Phased-In Pro-Forma (non-GAAP)	Q	$	11,378		$	11,352
Basel III risk-weighted assets—Fully Phased-In Pro-Forma (non-GAAP)⁽⁸⁾	R	$	102,975		$	106,188
Basel III common equity Tier 1—Fully Phased-In Pro-Forma ratio (non-GAAP)	Q/R	11.05		%	10.69		%

_________

(1)

Regions recorded $3 million, $50 million and $100 million of contingent legal and regulatory accruals during the second quarter of 2016, the second quarter of 2015 and the fourth quarter of 2014, respectively, related to previously disclosed matters. The fourth quarter of 2014 accruals were settled in the second quarter of 2015 for $2 million less than originally estimated and a corresponding recovery was recognized.


(2)	In the fourth quarter of 2013, Regions recorded a non-tax deductible charge of $58 million related to previously disclosed inquiries from government authorities concerning matters from 2009. The 2013 matters were settled in the second quarter of 2014 for $7 million less than originally estimated and a corresponding recovery was recognized.

(3) In the fourth quarter of 2012, Regions entered into an agreement with a third party investor in Regions Asset Management Company, Inc., pursuant to which the investment was fully redeemed. This resulted in extinguishing a $203 million liability, including accrued, unpaid interest, as well as incurring early termination costs of approximately $42 million on a pre-tax basis ($38 million after tax).

(4) Insurance proceeds recognized in the third quarter of 2016 are related to the previously disclosed settlement with the Department of Housing and Urban Development. Insurance proceeds recognized in 2015 are related to the settlement of the previously disclosed 2010 class-action lawsuit.


(5)	Gain on sale of affordable housing residential mortgage loans in the fourth quarter of 2016 was due to the decision to sell approximately $171 million of loans to Freddie Mac. Approximately $91 million were sold with recourse, resulting in a deferred gain of $5 million, which will be evaluated when the recourse expires during the second quarter of 2017.

(6) In the third quarter of 2013, Regions recorded a $24 million gain on sale of a non-core portion of a Wealth Management business.

(7) The 2016 amounts and the resulting ratio are estimated. Regulatory capital measures for periods prior to 2015 were not revised to reflect the retrospective application of new accounting guidance related to investments in qualified affordable housing projects. As a result, those calculations are not included in the table.

(8) Regions continues to develop systems and internal controls to precisely calculate risk-weighted assets as required by Basel III on a fully phased-in basis. The amounts included above are a reasonable approximation, based on our understanding of the requirements.

CRITICAL ACCOUNTING ESTIMATES AND RELATED POLICIES

In preparing financial information, management is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses for the periods shown. The accounting principles followed by Regions and the methods of applying these principles conform with GAAP and general banking practices. Estimates and assumptions most significant to Regions are related primarily to the allowance for credit losses, fair value measurements, intangible assets (goodwill and other identifiable intangible assets), residential MSRs and income taxes, and are summarized in the following discussion and in the notes to the consolidated financial statements.

Allowance for Credit Losses

The allowance for credit losses (“allowance”) consists of two components: the allowance for loan losses and the reserve for unfunded credit commitments. Unfunded credit commitments include items such as letters of credit, financial guarantees and binding unfunded loan commitments. The allowance represents management’s estimate of probable credit losses inherent in the loan and credit commitment portfolios as of period end. Regions determines its allowance in accordance with GAAP and applicable regulatory guidance.

For non-accrual commercial and investor real estate loans equal to or greater than $2.5 million, the allowance for loan losses is based on note-level evaluation considering the facts and circumstances specific to each borrower. For all other commercial and investor real estate loans, the allowance for loan losses is based on statistical models using a PD and an LGD. Historical default information for similar loans is used as an input for the statistical model.

For residential first mortgages, home equity lending and other consumer-related loans, individual products are reviewed on a group basis (e.g., residential first mortgage pools). Historical loss information for similar loans is used as an input for the models.

Factors considered by management in determining the adequacy of the allowance include, but are not limited to: 1) detailed reviews of individual loans; 2) historical and current trends in gross and net loan charge-offs for the various classes of loans evaluated; 3) the Company’s policies relating to delinquent loans and charge-offs; 4) the level of the allowance in relation to total loans and to historical loss levels; 5) levels and trends in non-performing, criticized, classified and past due loans; 6) collateral values of properties securing loans; 7) the composition of the loan portfolio, including unfunded credit commitments; 8) management’s analysis of current economic conditions; and 9) migration of loans between risk rating categories.

In support of collateral values, Regions obtains updated valuations for large commercial and investor real estate non-performing loans on at least an annual basis. For loans that are individually identified for impairment, those valuations are currently discounted as appropriate from the most recent appraisal to consider continued declines in values. The discounted valuations are utilized in the measurement of the level of impairment in the allowance calculation. For loans that are not individually identified for impairment and secured by collateral, Regions considers the impact of declines in valuations in the loss given default estimates within the allowance calculation.

The allowance is sensitive to a variety of internal factors, such as modifications in the mix and level of loan balances outstanding, portfolio performance and assigned risk ratings. As a matter of business practice, Regions may require some form of credit support, such as a guarantee. Guarantees are legally binding and entered into simultaneously with the primary loan agreements. Evaluation of guarantors’ ability and willingness to pay is considered as part of the risk rating process, which provides the basis for the allowance for loan losses for the commercial and investor real estate portfolios. In concluding that the risk rating is appropriate, Regions considers a number of factors including whether underlying cash flow is adequate to service the debt, payment history, and whether there is appropriate guarantor support. Accordingly, Regions has concluded that the impact of credit support provided by guarantors has been appropriately considered in the calculation and assessment of the allowance for loan losses.

The allowance is also sensitive to a variety of external factors, such as the general health of the economy, as evidenced by volatility in commodity prices, changes in real estate demand and values, interest rates, unemployment rates, bankruptcy filings, fluctuations in the GDP, and the effects of weather and natural disasters such as droughts, floods and hurricanes.

Management considers these variables and all other available information when establishing the final level of the allowance. These variables and others have the ability to result in actual loan losses that differ from the originally estimated amounts.

Management considers the current level of the allowance appropriate to absorb losses inherent in the loan and credit commitment portfolios. Management’s determination of the appropriateness of the allowance requires the use of judgments and estimations that may change in the future. Changes in the factors used by management to determine the appropriateness of the allowance or the availability of new information could cause the allowance to be increased or decreased in future periods. In addition, bank regulatory agencies, as part of their examination process, may require changes in the level of the allowance based on their judgments and estimates. Given the current phase of the credit cycle, volatility in certain credit metrics is to be expected. Additionally, changes in circumstances related to individually large credits or certain portfolios may result in volatility.

Management’s estimate of the allowance for the commercial and investor real estate portfolio segments could be affected by estimates of losses inherent in various product types as a result of fluctuations in the internal and external factors mentioned above. For pooled commercial and investor real estate accounts, a 5 percent increase in the PD for non-defaulted accounts and a 5 percent increase in the LGD for all accounts would result in an increase to estimated inherent losses of approximately $55 million.

Losses on residential real estate mortgages, home equity lending and other consumer-related loans can be affected by such factors as collateral value, loss severity, and other internal and external factors mentioned above. A 5 percent increase or decrease in the estimated loss rates on these loans would change estimated inherent losses by approximately $11 million.

These pro forma analyses demonstrate the sensitivity of the allowance to key assumptions; however, they do not reflect an expected outcome.

For further discussion of the allowance for credit losses, see Note 1 “Summary of Significant Accounting Policies” and Note 6 “Allowance for Credit Losses” to the consolidated financial statements.

Fair Value Measurements

A portion of the Company’s assets and liabilities is carried at fair value, with changes in fair value recorded either in earnings or accumulated other comprehensive income (loss). These include trading account securities, securities available for sale, mortgage loans held for sale, residential MSRs and derivative assets and liabilities. From time to time, the estimation of fair value also affects other loans held for sale, which are recorded at the lower of cost or fair value. Fair value determination is also relevant for certain other assets such as foreclosed property and other real estate, which are recorded at the lower of the recorded investment in the loan/property or fair value, less estimated costs to sell the property. For example, the fair value of other real estate is determined based on recent appraisals by third parties and other market information, less estimated selling costs. Adjustments to the appraised value are made if management becomes aware of changes in the fair value of specific properties or property types. The determination of fair value also impacts certain other assets that are periodically evaluated for impairment using fair value estimates, including goodwill and other identifiable intangible assets.

Fair value is generally defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) as opposed to the price that would be paid to acquire the asset or received to assume the liability (an entry price), in an orderly transaction between market participants at the measurement date under current market conditions. While management uses judgment when determining the price at which willing market participants would transact when there has been a significant decrease in the volume or level of activity for the asset or liability in relation to “normal” market activity, management’s objective is to determine the point within the range of fair value estimates that is most representative of a sale to a third-party investor under current market conditions. The value to the Company if the asset or liability were held to maturity is not included in the fair value estimates.

A fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability, including the assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. Fair value is measured based on a variety of inputs the Company utilizes. Fair value may be based on quoted market prices for identical assets or liabilities traded in active markets (Level 1 valuations). If market prices are not available, quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market are used (Level 2 valuations). Where observable market data is not available, the valuation is generated from model-based techniques that use significant assumptions not observable in the market, but observable based on Company-specific data (Level 3 valuations). These unobservable assumptions reflect the Company’s own estimates for assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include option pricing models, discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability.

See Note 1 “Summary of Significant Accounting Policies” to the consolidated financial statements for a detailed discussion of determining fair value, including pricing validation processes.

Intangible Assets

Regions’ intangible assets consist primarily of the excess of cost over the fair value of net assets of acquired businesses (“goodwill”) and other identifiable intangible assets (primarily core deposit intangibles and purchased credit card relationships). Goodwill totaled $4.9 billion at both December 31, 2016 and 2015, respectively, and is allocated to each of Regions’ reportable segments (each a reporting unit: Corporate Bank, Consumer Bank, and Wealth Management). Refer to Note 23 “Business Segment Information” to the consolidated financial statements for discussion of Regions' reorganization of its management reporting structure during the first quarter of 2016 and, accordingly, its segment reporting structure and goodwill reporting units. In connection with the reorganization, management reallocated goodwill to the new reporting units using a relative fair value approach. Goodwill is tested for impairment on an annual basis as of October 1 or more often if events and circumstances indicate impairment may exist (refer to Note 1 “Summary of Significant Accounting Policies” to the consolidated financial statements for further discussion).

A test of goodwill for impairment consists of two steps. In Step One, the fair value of the reporting unit is compared to its carrying amount, including goodwill. To the extent that the estimated fair value of the reporting unit exceeds the carrying value, impairment is not indicated and no further testing is required. Conversely, if the estimated fair value of the reporting unit is below its carrying amount, Step Two must be performed. Step Two consists of determining the implied estimated fair value of goodwill, which is the net difference between the valuation adjustments of assets and liabilities excluding goodwill and the valuation

adjustment to equity (from Step One) of the reporting unit. The carrying value of equity for each reporting unit is determined from an allocation based upon risk weighted assets. Adverse changes in the economic environment, declining operations of the reporting unit, or other factors could result in a decline in the estimated implied fair value of goodwill. If the estimated implied fair value of goodwill is less than the carrying amount, a loss would be recognized to reduce the carrying amount to the estimated implied fair value.

The estimated fair value of the reporting unit is determined using a blend of both income and market approaches. Within the income approach, which is the primary valuation approach, Regions utilizes the CAPM in order to derive the base discount rate. The inputs to the CAPM include the 20-year risk-free rate, 5-year beta for a select peer set specific to each reporting unit, and a market risk premium, all based on published data. To determine the estimated cost of equity for each reporting unit, a size premium is added (also based on a published source) as well as a company-specific risk premium for each reporting unit, which is an estimate determined by the Company and meant to compensate for the risk inherent in the future cash flow projections and inherent differences (such as business model and market perception of risk) between Regions and the peer set. Regions evaluates the appropriateness of the inputs to the CAPM at each test date. Company specific factors considered during recent evaluation periods include positive results of operations, stable asset quality and strong capital and liquidity positions.

In estimating future cash flows, a balance sheet as of the test date and statements of income for the last twelve months of activity for each reporting unit is compiled. From that point, future balance sheets and statements of income are projected based on the inputs. Cash flows are based on expected future capitalization requirements due to balance sheet growth and anticipated changes in regulatory capital requirements. The baseline cash flows utilized in all models correspond to recent internal forecasts and/or budgets. These internal forecasts range from 1 to 3 years and are based on inputs developed in the Company’s internal strategic planning processes.

Regions uses the GCM and the GTM as its market approaches. The GCM applies a value multiplier derived from each reporting unit’s peer group to a financial metric and an implied control premium to the respective reporting units. The control premium is evaluated and compared to similar financial services transactions considering the absolute and relative potential revenue synergies and cost savings. The GTM applies a value multiplier to a financial metric of the reporting unit based on comparable observed purchase transactions in the financial services industry for the reporting unit.

Refer to Note 10 “Intangible Assets” to the consolidated financial statements for further discussion of these approaches and related assumptions. The fair values of assets and liabilities in Step Two, if applicable, are determined using an exit price concept. Refer to the discussion of fair value in Note 1 “Summary of Significant Accounting Policies” to the consolidated financial statements for discussions of the exit price concept and the determination of fair values of financial assets and liabilities.

The results of the calculations for the fourth quarter of 2016 indicated that the estimated fair values of the Corporate Bank, Consumer Bank and Wealth Management reporting units were $10.2 billion, $9.3 billion and $1.7 billion, respectively, which were greater than their carrying amounts of $9.2 billion, $6.2 billion and $1.1 billion, respectively. Therefore, the goodwill of each reporting unit was considered not impaired as of the testing date, and Step Two of the goodwill impairment test was not required. Refer to Note 10 “Intangible Assets” to the consolidated financial statements for the key assumptions used in estimating the fair value of each reporting unit as of fourth quarter 2016 and fourth quarter 2015.

The table below summarizes the discount rate used in the goodwill impairment test of each reporting unit for the fourth quarter of 2016, first quarter of 2016 and the fourth quarter of 2015:



Discount Rate:	Corporate Bank		Consumer Bank		Wealth Management
Fourth quarter 2016 ⁽¹⁾	10.00	%	10.25	%	11.50	%
First quarter 2016 ⁽¹⁾	11.00	%	11.25	%	12.00	%
Fourth quarter 2015	11.00	%	11.00	%	12.00	%

_______


(1)	The discount rates decreased in the fourth quarter 2016 goodwill test as compared to the first quarter 2016 goodwill test due primarily to a decline in the risk-free rate.

Specific factors as of the date of filing the financial statements that could negatively impact the assumptions used in assessing goodwill for impairment include: a protracted decline in the Company’s market capitalization; disparities in the level of fair value changes in net assets (especially loans) compared to equity; increases in book values of equity of a reporting unit in excess of the increase in fair value of equity; adverse business trends resulting from litigation and/or regulatory actions; higher loan losses; lengthened forecasts of high unemployment levels; future increased minimum regulatory capital requirements above current thresholds (refer to Note 14 “Regulatory Capital Requirements and Restrictions” to the consolidated financial statements for a discussion of current minimum regulatory requirements); future federal rules and regulations (e.g., such as those resulting from the Dodd-Frank Act); and/or a protraction in the current low level of interest rates significantly beyond 2017.

For sensitivity analysis, a discount rate of 11.00 percent for the Corporate Bank, 11.25 percent for the Consumer Bank reporting units and 12.50 percent for the Wealth Management reporting unit would result in estimated fair values of equity of $9.2

billion, $8.3 billion, and $1.6 billion, respectively. All three reporting units' estimated fair value would continue to exceed the book value by approximately $13 million, $2.1 billion, and $468 million, respectively, and would not require Step Two procedures. This assumes all other assumptions would remain unchanged in the fourth quarter of 2016 calculation.

If the prior year inputs for GCM and GTM had remained the same for the fourth quarter of 2016, the estimated fair value would continue to exceed book value for the Corporate Bank, Consumer Bank, and Wealth Management reporting units by approximately $1.6 billion, $2.7 billion, and $668 million, respectively. This assumes all other assumptions would remain unchanged in the fourth quarter of 2016 calculation.

Sensitivity calculations are hypothetical and should not be considered to be predictive of future performance. Changes in implied fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of an adverse variation in a particular assumption on the implied fair value of goodwill is calculated without changing any other assumption, while in reality changes in one factor may result in changes in another which may either magnify or counteract the effect of the change.

Other material identifiable intangible assets, primarily core deposit intangibles and purchased credit card relationships, are reviewed at least annually (usually in the fourth quarter) for events or circumstances which could impact the recoverability of the intangible asset. These events could include loss of core deposits, significant losses of credit card accounts and/or balances, increased competition or adverse changes in the economy. To the extent an other identifiable intangible asset is deemed unrecoverable, an impairment loss would be recorded to reduce the carrying amount. These events or circumstances, if they occur, could be material to Regions’ operating results for any particular reporting period but the potential impact cannot be reasonably estimated.

Residential Mortgage Servicing Rights

Regions has elected to measure and report its residential MSRs using the fair value method. Although sales of residential MSRs do occur, residential MSRs do not trade in an active market with readily observable market prices and the exact terms and conditions of sales may not be readily available, and are therefore Level 3 valuations in the fair value hierarchy previously discussed in the “Fair Value Measurements” section. Specific characteristics of the underlying loans greatly impact the estimated value of the related residential MSRs. As a result, Regions stratifies its residential mortgage servicing portfolio on the basis of certain risk characteristics, including loan type and contractual note rate, and values its residential MSRs using discounted cash flow modeling techniques. These techniques require management to make estimates regarding future net servicing cash flows, taking into consideration historical and forecasted residential mortgage loan prepayment rates, discount rates, escrow balances and servicing costs. Changes in interest rates, prepayment speeds or other factors impact the fair value of residential MSRs which impacts earnings. The carrying value of residential MSRs was $324 million at December 31, 2016. Based on a hypothetical sensitivity analysis, Regions estimates that a reduction in primary mortgage market rates of 25 basis points and 50 basis points would reduce the December 31, 2016 fair value of residential MSRs by approximately 4 percent ($13 million) and 9 percent ($28 million), respectively. Conversely, 25 basis point and 50 basis point increases in these rates would increase the December 31, 2016 fair value of residential MSRs by approximately 4 percent ($11 million) and 7 percent ($21 million), respectively. Regions also estimates that an increase in servicing costs of approximately $10 per loan, or 12 percent, would result in a decline in the value of the residential MSRs by approximately $12 million.

The pro forma fair value analysis presented above demonstrates the sensitivity of fair values to hypothetical changes in primary mortgage rates. This sensitivity analysis does not reflect an expected outcome. Refer to the “Residential Mortgage Servicing Rights” discussion in the “Balance Sheet” analysis section found later in this report.

Income Taxes

Accrued income taxes are reported as a component of either other assets or other liabilities, as appropriate, in the consolidated balance sheets and reflect management’s estimate of income taxes to be paid or received.

Deferred income taxes represent the amount of future income taxes to be paid or received and are accounted for using the asset and liability method. The net balance is reported as a component of either other assets or other liabilities, as appropriate, in the consolidated balance sheets. The Company determines the realization of the deferred tax asset based upon an evaluation of the four possible sources of taxable income: 1) the future reversals of taxable temporary differences; 2) future taxable income exclusive of reversing temporary differences and carryforwards; 3) taxable income in prior carryback years; and 4) tax-planning strategies. In projecting future taxable income, the Company utilizes forecasted pre-tax earnings, adjusts for the estimated book-tax differences and incorporates assumptions, including the amounts of income allocable to taxing jurisdictions. These assumptions require significant judgment and are consistent with the plans and estimates the Company uses to manage the underlying businesses. The realization of the deferred tax assets could be reduced in the future if these estimates are significantly different than forecasted. For a detailed discussion of realization of deferred tax assets, refer to the “Income Taxes” section found later in this report.

The Company is subject to income tax in the U.S. and multiple state and local jurisdictions. The tax laws and regulations in each jurisdiction may be interpreted differently in certain situations, which could result in a range of outcomes. Thus, the Company is required to exercise judgment regarding the application of these tax laws and regulations. The Company will evaluate and

recognize tax liabilities related to any tax uncertainties. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is different from the current estimate of the tax liabilities.

The Company’s estimate of accrued income taxes, deferred income taxes and income tax expense can also change in any period as a result of new legislative or judicial guidance impacting tax positions, as well as changes in income tax rates. Any changes, if they occur, can be significant to the Company’s consolidated financial position, results of operations or cash flows.

OPERATING RESULTS

NET INTEREST INCOME AND OTHER FINANCING INCOME AND NET INTEREST MARGIN

Net interest income and other financing income is Regions’ principal source of income and is one of the most important elements of Regions’ ability to meet its overall performance goals. Net interest income and other financing income (taxable-equivalent basis) increased approximately $100 million, or 3 percent in 2016 from 2015, driven primarily by higher short-term interest rates, average loan growth, higher securities balances and balance sheet management strategies. The net interest margin increased to 3.14 percent in 2016 from 3.13 percent in 2015, due to an increase in yields on earning assets exceeding the slight increase in total funding costs during 2016.

Comparing 2016 to 2015, average earning asset yields were higher, increasing 3 basis points. Also, interest-bearing liability rates were higher, increasing by 5 basis points. As a result, the net interest rate spread decreased 2 basis points to 2.97 percent in 2016 compared to 2.99 percent in 2015.

Market volatility driven by domestic as well as global events led to continued accommodative monetary policies from the Federal Reserve and global central banks for the majority of 2016. These dynamics, along with the modest pace of the economic recovery, resulted in continued low levels of both short and long-term interest rates in 2016, both of which have influence on net interest margin and net interest income and other financing income. Long-term interest rates are generally represented by the yield on the benchmark 10-year U.S. Treasury note. The 10-year U.S. Treasury note was 2.24 percent at the beginning of 2016 and ended the year at 2.45 percent. However, the previously mentioned global events led to new all-time low long-term rates as the 10-year U.S. Treasury declined to 1.36 percent on July 8, 2016. The average yield on the benchmark 10-year U.S. Treasury note decreased to 1.84 percent in 2016, as compared to 2.14 percent in 2015. As market rates stayed low, earning asset yields on fixed-rate loans and securities remained under pressure. One way in which long-term interest rates affect asset yields is through their influence on prepayment activity. Low levels of long-term interest rates generate higher levels of prepayments, particularly within fixed-rate loan and securities portfolios, which has resulted in the replacement of these assets at lower rates of interest. As a result of lower interest rates, lower reinvestment yields and prepayments, the taxable investment securities portfolio, which contains significant residential fixed-rate exposure, decreased in yield to 2.28 percent in 2016 from 2.34 percent in 2015. The Company's loan pricing is also influenced by short-term interest rates such as the 30-day LIBOR. As the Federal Reserve modestly increased short term interest rates in December 2015, 30-day LIBOR averaged 50 basis points in 2016, compared to 20 basis points in 2015, leading to modestly higher loan yields.

Deposit costs remained low throughout 2016 given the continuation of historically low interest rates. Short-term interest rates such as the Federal Reserve's Rate of Interest on Excess Reserves and the Prime rate most directly influence deposit costs. These rates remained relatively low throughout 2016, even with the 0.25 percent rate increases during the fourth quarters of both 2015 and 2016. Deposit costs, therefore, remained at a low level of 12 basis points for 2016 compared to 11 basis points for 2015. Average long-term borrowings increased to $8.2 billion in 2016 as compared to $5.0 billion in 2015, but the cost on these borrowings decreased 76 basis points as the mix transitioned from long-term debt securities to shorter-term FHLB advances. See the "Long-Term Borrowings" section in Management's Discussion and Analysis and Note 13 "Long-Term Borrowings" to the consolidated financial statements for additional information.

See also the "Market Risk-Interest Rate Risk" section in Management's Discussion and Analysis for additional information.

Management expects net interest income and other financing income to increase in the range of 2 percent to 4 percent in 2017, commensurate with average loan and deposit growth in the low single digits. The range assumes an interest rate scenario equal to the market forward interest rates as of November 10, 2016, which equates to an average Fed Funds rate of 81 basis points and an average 10-year U.S. Treasury rate of 2.26 percent for 2017. The higher end of the range assumes that the post-election interest rate environment holds, and pressure on deposit costs remains relatively low. Conversely, the lower end of the range assumes a lower interest rate environment, similar to pre-election levels, or an environment where deposit costs are more reactive.

Table 3 “Consolidated Average Daily Balances and Yield/Rate Analysis for Continuing Operations” presents a detail of net interest income and other financing income (on a taxable-equivalent basis), the net interest margin, and the net interest spread.

Table 3—Consolidated Average Daily Balances and Yield/Rate Analysis for Continuing Operations



	Year Ended December 31
	2016							2015							2014
	Average Balance			Income/ Expense		Yield/ Rate		Average Balance			Income/ Expense		Yield/ Rate		Average Balance			Income/ Expense		Yield/ Rate
	(Dollars in millions; yields on taxable-equivalent basis)
Assets
Earning assets:
Federal funds sold and securities purchased under agreements to resell	$	4		$	—	—	%	$	9		$	—	—	%	$	12		$	—	—	%
Trading account securities	121			5		3.73		117			5		4.49		107			3		2.92
Securities:
Taxable	24,830			566		2.28		24,130			564		2.34		23,637			584		2.47
Tax-exempt	1			—		—		1			—		—		3			—		—
Loans held for sale	479			16		3.33		442			16		3.65		564			22		3.89
Loans, net of unearned income ^(1)(2)(3)	81,333			3,150		3.86		79,634			3,017		3.79		76,253			3,004		3.94
Investment in operating leases, net ⁽³⁾	775			22		2.85		214			5		2.60		—			—		—
Other earning assets	3,469			36		1.05		3,324			43		1.28		3,521			39		1.11
Total earning assets	111,012			3,795		3.41		107,871			3,650		3.38		104,097			3,652		3.51
Allowance for loan losses	(1,139		)					(1,106		)					(1,235		)
Cash and due from banks	1,824							1,702							1,793
Other non-earning assets	13,809							13,798							13,697
	$	125,506						$	122,265						$	118,352
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Savings	$	7,719		11		0.14		$	7,119		9		0.13		$	6,596		8		0.12
Interest-bearing checking	20,507			20		0.10		21,324			18		0.08		20,804			19		0.09
Money market	26,909			31		0.11		26,573			28		0.10		26,006			29		0.11
Time deposits	7,415			55		0.75		8,167			54		0.66		9,003			49		0.55
Total interest-bearing deposits ⁽⁴⁾	62,550			117		0.19		63,183			109		0.17		62,409			105		0.17
Federal funds purchased and securities sold under agreements to repurchase	—			—		—		588			—		—		1,944			2		0.08
Other short-term borrowings	3			—		—		338			1		0.20		55			—		—
Long-term borrowings	8,159			196		2.38		5,046			158		3.14		4,057			202		4.98
Total interest-bearing liabilities	70,712			313		0.44		69,155			268		0.39		68,465			309		0.45
Non-interest-bearing deposits ⁽⁴⁾	35,371			—		—		33,707			—		—		31,072			—		—
Total funding sources	106,083			313		0.29		102,862			268		0.26		99,537			309		0.31
Net interest spread						2.97							2.99							3.06
Other liabilities	2,299							2,481							2,206
Stockholders’ equity	17,124							16,922							16,609
	$	125,506						$	122,265						$	118,352
Net interest income and other financing income/margin on a taxable-equivalent basis from continuing operations ⁽⁵⁾				$	3,482	3.14	%				$	3,382	3.13	%				$	3,343	3.21	%

_______


(1)	Loans, net of unearned income include non-accrual loans for all periods presented.


(2)	Interest income includes net loan fees of $33 million, $58 million and $78 million for the years ended December 31, 2016, 2015 and 2014, respectively.


(3)	During the fourth quarter of 2015, Regions corrected the accounting for approximately $214 million of year-to-date average balances of leases, for which Regions is the lessor. These leases had been previously classified as capital leases but were subsequently determined to be operating leases.


(4)	Total deposit costs may be calculated by dividing total interest expense on deposits by the sum of interest-bearing deposits and non-interest-bearing deposits. The rates for total deposit costs equal 0.12%, 0.11% and 0.11% for the years ended December 31, 2016, 2015 and 2014, respectively.


(5)	The computation of taxable-equivalent net interest income and other financing income is based on the statutory federal income tax rate of 35%, adjusted for applicable state income taxes net of the related federal tax benefit.

Table 4—Volume and Yield/Rate Variances from Continuing Operations

Table 4 “Volume and Yield/Rate Variances from Continuing Operations” provides additional information with which to analyze the changes in net interest income and other financing income.



	2016 Compared to 2015									2015 Compared to 2014
	Change Due to									Change Due to
	Volume			Yield/ Rate			Net			Volume			Yield/ Rate			Net
	(Taxable-equivalent basis—in millions)
Interest income including other financing income on:
Trading account securities	$	—		$	—		$	—		$	—		$	2		$	2
Securities-taxable	16			(14		)	2			12			(32		)	(20		)
Loans held for sale	1			(1		)	—			(4		)	(2		)	(6		)
Loans, including fees	65			68			133			130			(117		)	13
Investment in operating leases, net	16			1			17			5			—			5
Other earning assets	2			(9		)	(7		)	(2		)	6			4
Total earning assets	100			45			145			141			(143		)	(2		)
Interest expense on:
Savings	1			1			2			1			—			1
Interest-bearing checking	(1		)	3			2			—			(1		)	(1		)
Money market	—			3			3			1			(2		)	(1		)
Time deposits	(5		)	6			1			(5		)	10			5
Total interest-bearing deposits	(5		)	13			8			(3		)	7			4
Federal funds purchased and securities sold under agreements to repurchase	—			—			—			(1		)	(1		)	(2		)
Other short-term borrowings	—			(1		)	(1		)	—			1			1
Long-term borrowings	81			(43		)	38			42			(86		)	(44		)
Total interest-bearing liabilities	76			(31		)	45			38			(79		)	(41		)
Increase (decrease) in net interest income and other financing income	$	24		$	76		$	100		$	103		$	(64	)	$	39

______

Notes:


•	The change in interest not due solely to volume or yield/rate has been allocated to the volume column and yield/rate column in proportion to the relationship of the absolute dollar amounts of the change in each.


•	The computation of taxable-equivalent net interest income and other financing income is based on the statutory federal income tax rate of 35%, adjusted for applicable state income taxes net of the related federal tax benefit.

The mix of earning assets can also affect the interest rate spread. Regions’ primary types of earning assets are loans and investment securities. Certain types of earning assets have historically generated larger spreads; for example, loans typically generate larger spreads than other assets, such as securities, Federal funds sold or securities purchased under agreements to resell. The spread on loans increased in 2016 as compared to 2015, due primarily to the increase in short-term interest rates. Average earning assets in 2016 totaled $111.0 billion, an increase of $3.1 billion as compared to the prior year.

Average loans as a percentage of average earning assets was 73 percent in 2016 and 74 percent in 2015. The remaining categories of earning assets are shown in Table 3 “Consolidated Average Daily Balances and Yield/Rate Analysis for Continuing

Operations”. The proportion of average earning assets to average total assets, which was 88 percent in both 2016 and 2015, measures the effectiveness of management’s efforts to invest available funds into the most profitable earning vehicles. Funding for Regions’ earning assets comes from interest-bearing and non-interest-bearing sources. Another significant factor affecting the net interest margin is the percentage of earning assets funded by interest-bearing liabilities. The percentage of average earning assets funded by average interest-bearing liabilities was 64 percent in both 2016 and 2015.

PROVISION FOR LOAN LOSSES

The provision for loan losses is used to maintain the allowance for loan losses at a level that in management’s judgment is appropriate to absorb probable losses inherent in the portfolio at the balance sheet date. During 2016, the provision for loan losses totaled $262 million and net charge-offs were $277 million. This compares to a provision for loan losses of $241 million and net charge-offs of $238 million in 2015. The increase in the provision for loan losses in 2016 compared to 2015 was primarily due to higher net charge-offs, including $37 million in 2016 energy charge-offs, and the increase in criticized and classified commercial loans, attributable primarily to downward risk rating migration in the energy portfolio. This increase was offset by the impact of $2.0 billion in business services loan balance runoff, including $436 million in direct energy, and improvement in the risk profile of certain other loan classes.

For further discussion and analysis of the total allowance for credit losses, see the "Allowance for Credit Losses" and “Risk Management” sections found later in this report. See also Note 6 “Allowance for Credit Losses” to the consolidated financial statements.

NON-INTEREST INCOME

Table 5—Non-Interest Income from Continuing Operations



	Year Ended December 31							Change 2016 vs. 2015
	2016		2015			2014		Amount			Percent
	(Dollars in millions)
Service charges on deposit accounts	$	664	$	662		$	695	$	2		0.3	%
Card and ATM fees	402		364			334		38			10.4	%
Investment management and trust fee income	213		202			193		11			5.4	%
Mortgage income	173		162			149		11			6.8	%
Capital markets fee income and other	152		104			73		48			46.2	%
Insurance commissions and fees	148		140			124		8			5.7	%
Bank-owned life insurance	95		74			85		21			28.4	%
Commercial credit fee income	73		76			61		(3		)	(3.9	)%
Investment services fee income	58		55			43		3			5.5	%
Insurance proceeds	50		91			—		(41		)	(45.1	)%
Net revenue from affordable housing	17		24			16		(7		)	(29.2	)%
Securities gains, net	6		29			27		(23		)	(79.3	)%
Market value adjustments on employee benefit assets	3		(3		)	4		6			(200.0	)%
Other miscellaneous income	99		91			99		8			8.8	%
	$	2,153	$	2,071		$	1,903	$	82		4.0	%

Service Charges on Deposit Accounts

Service charges on deposit accounts include non-sufficient fund fees and other service charges. The slight increase during 2016 compared to 2015 was primarily due to growth in consumer checking accounts, which offset the impact of the change in posting order of customer deposit transactions that went into effect during the fourth quarter of 2015.

Card and ATM Fees

Card and ATM fees include the combined amounts of credit card/bank card income and debit card and ATM related revenue. The increase in 2016 compared to 2015 was a result of the continued growth in consumer checking accounts, and an increase in debit card transactions. Additionally, an increase in active credit cards generated greater purchase activity resulting in higher interchange income.

Investment Management and Trust Fee Income

Investment management and trust fee income represents income from asset management services provided to individuals, businesses and institutions. The increase in investment management and trust fees during 2016 compared to 2015 was driven primarily from the increase in assets under administration.

Mortgage Income

Mortgage income is generated through the origination and servicing of residential mortgage loans for long-term investors and sales of residential mortgage loans in the secondary market. The increase in mortgage income during 2016 compared to 2015 was due to increased gains from loan sales partially offset by declines in the market valuation of mortgage servicing rights and related hedging activity. In addition, mortgage servicing income has increased as a result of purchasing the rights to service a total of approximately $8 billion in residential mortgage loans during 2016. See Note 7 "Servicing of Financial Assets" to the consolidated financial statements for more information.

Capital Markets Fee Income and Other

Capital markets fee income and other primarily relates to capital raising activities that includes securities underwriting and placement, loan syndication and placement, as well as foreign exchange, derivatives, merger and acquisition and other advisory services. The increase in 2016 compared to 2015 was primarily due to mergers and acquisitions advisory fees, which the Company began recognizing in the fourth quarter of 2015 in connection with the purchase of a middle-market advisory firm. Also contributing to the increase were higher loan syndication fees and fees generated from the placement of permanent financing for real estate customers.

Insurance Commissions and Fees

Regions sells property and casualty, life and health, mortgage, and other specialty insurance and credit related products to businesses and individuals. The increase in 2016 compared to 2015 was partially due to additional revenue generated by the third quarter of 2015 acquisition of an insurance team that specializes in group employee benefits.

Bank-owned Life Insurance

Bank-owned life insurance increased in 2016 compared to 2015 primarily due to income from insurance claims as well as a gain recognized upon the exchange of policies in the first quarter of 2016.

Insurance Proceeds

Insurance proceeds recognized in 2016 decreased compared to 2015. During the third quarter of 2016, the Company received $47 million of insurance proceeds related to a previously disclosed settlement with the Department of Justice on behalf of HUD regarding FHA insured mortgage loans. The $91 million of insurance proceeds recognized in 2015 was related to the settlement of the previously disclosed and accrued 2010 class-action lawsuit.

Net Revenue from Affordable Housing

Net revenue from affordable housing includes actual gains or losses resulting from the sale of affordable housing investments, cash distributions from the investments and any related impairment charges. The decrease in revenue for 2016 compared to 2015 reflects a lower level of gains on sales of investments.

Securities Gains, Net

Net securities gains result from the Company's asset/liability management process. The decrease in securities gains, net during 2016 compared to 2015 was primarily due to the Company reducing its exposure to energy-related corporate bonds in an effort to mitigate the risk of future downgrades and incurring losses in 2016. See Note 4 "Securities" to the consolidated financial statements for more information.

Market Value Adjustments on Employee Benefit Assets

Market value adjustments on employee benefit assets increased in 2016 compared to 2015 reflecting market value variations related to assets held for certain employee benefits. These adjustments are offset in salaries and employee benefits expense.

Other Miscellaneous Income

Other miscellaneous income includes fees from safe deposit boxes, check fees and other miscellaneous fees. The increase in 2016 compared to 2015 was primarily due to a recovery of approximately $10 million related to the 2010 Gulf of Mexico oil spill that occurred during the third quarter of 2016.

NON-INTEREST EXPENSE

Table 6—Non-Interest Expense from Continuing Operations



	Year Ended December 31								Change 2016 vs. 2015
	2016		2015			2014			Amount			Percent
	(Dollars in millions)
Salaries and employee benefits	$	1,913	$	1,883		$	1,810		$	30		1.6	%
Net occupancy expense	348		361			368			(13		)	(3.6	)%
Furniture and equipment expense	317		303			287			14			4.6	%
Outside services	154		149			131			5			3.4	%
Marketing	101		98			95			3			3.1	%
FDIC insurance assessments	99		105			75			(6		)	(5.7	)%
Professional, legal and regulatory expenses	89		137			235			(48		)	(35.0	)%
Branch consolidation, property and equipment charges	58		56			16			2			3.6	%
Credit/checkcard expenses	55		54			44			1			1.9	%
Provision (credit) for unfunded credit losses	17		(13		)	(13		)	30			(230.8	)%
Visa class B shares expense	15		9			12			6			66.7	%
Loss on early extinguishment of debt	14		43			—			(29		)	(67.4	)%
Other miscellaneous expenses	437		422			372			15			3.6	%
	$	3,617	$	3,607		$	3,432		$	10		0.3	%

Salaries and Employee Benefits

Salaries and employee benefits are comprised of salaries, incentive compensation, long-term incentives, payroll taxes, and other employee benefits such as 401(k), pension, and medical, life and disability insurance, as well as, expenses from liabilities held for employee benefit purposes. Salaries and employee benefits increased during 2016 compared to 2015 primarily due to increased production-based incentives related to capital markets income growth, increases in base salaries from annual merit increases, and increases in severance expenses. Staffing levels decreased to 22,166 at December 31, 2016 from 23,393 full-time equivalent positions at December 31, 2015, serving to partially offset the aforementioned increases.

Net Occupancy Expense

Net occupancy expense includes rent, depreciation and amortization, utilities, maintenance, insurance, taxes, and other expenses of premises occupied by Regions and its affiliates. Net occupancy expense decreased during 2016 compared to 2015 primarily related to the Company's branch consolidation and occupancy optimization initiatives.

Furniture and Equipment Expense

Furniture and equipment expense includes depreciation, maintenance and repairs, rent, taxes and other expenses of equipment utilized by Regions and its affiliates. Furniture and equipment expense increased during 2016 compared to 2015 primarily driven by increased depreciation on new technology-related assets placed in service.

Outside Services

Outside services consists of expenses related to routine services provided by third parties, such as contract labor, servicing costs, data processing, loan pricing and research, data license purchases, data subscriptions, and check printing. Outside services increased during 2016 compared to 2015 primarily due to increases in servicing costs related to continued purchases of indirect loans from third parties and costs for services related to data processing.

FDIC Insurance Assessments

FDIC insurance assessments decreased during 2016 compared to 2015 primarily due to $23 million of additional assessment expenses recorded in the third quarter of 2015 related to prior assessments. The surcharge imposed by the FDIC went into effect during the third quarter of 2016 creating offsetting additional expense.

Professional, Legal and Regulatory Expenses

Professional, legal and regulatory expenses consist of amounts related to legal, consulting, other professional fees and regulatory charges. Professional, legal and regulatory expenses decreased during 2016 compared to 2015 primarily as the result of a net $48 million accrual for contingent legal and regulatory expenses recorded in the second quarter of 2015, as well as a favorable legal settlement of $7 million recorded in the first quarter of 2016.

Branch Consolidation, Property and Equipment Charges

Branch consolidation, property and equipment charges include valuation adjustments related to owned branches when the decision to close them is made. Accelerated depreciation and lease write-off charges are recorded for leased branches through and at the actual branch close date. Branch consolidation, property and equipment charges also include costs related to occupancy optimization initiatives.

Provision (Credit) for Unfunded Credit Losses

Provision (credit) for unfunded credit losses is the adjustment to the reserve for unfunded credit commitments. The provision for unfunded credit losses during 2016 was attributable to increases in commercial and industrial reserve rates for unfunded commitments and letters of credit and a large specific reserve on an unfunded energy credit. The (credit) for unfunded credit losses in 2015 was primarily due to loan fundings during 2015 which resulted in reductions to the reserve.

Visa Class B Shares Expense

Visa class B shares expense is associated with shares sold in a prior year. The Visa class B shares have restrictions tied to finalization of certain covered litigation. Changes in the status of that litigation drove the increased expense during 2016. Refer to Note 24 "Commitments, Contingencies and Guarantees" to the consolidated financial statements for additional information.

Loss on Early Extinguishment of Debt

Loss on early extinguishment of debt decreased during 2016 compared to 2015. In 2015, Regions purchased approximately $250 million of its 7.50% subordinated notes due May 2018, incurring a related early extinguishment pre-tax charge of approximately $43 million. In 2016, the Company purchased approximately $649 million of its 2.00% senior notes due May 2018. Pre-tax losses on the early extinguishment related to this tender offer were approximately $14 million.

Other Miscellaneous Expenses

Other miscellaneous expenses include expenses related to communications, postage, supplies, certain credit-related costs, foreclosed property expenses and mortgage repurchase costs. Other miscellaneous expenses increased during 2016 compared to 2015 primarily due to increased credit-related valuation charges associated with other real estate and loans held for sale.

INCOME TAXES

The Company’s income tax expense from continuing operations was $514 million and $455 million, resulting in effective tax rates of 30.7 percent and 29.7 percent for 2016 and 2015, respectively. The effective tax rate was higher in 2016 principally due to higher pre-tax income.

The Company’s effective tax rate is affected by many factors including, but not limited to, the level of pre-tax income, the mix of income between various tax jurisdictions with differing tax rates, net tax benefits related to affordable housing investments, income from bank-owned life insurance and tax exempt interest. In addition, the effective tax rate is affected by items that may occur in any given period but are not consistent from period-to-period, such as the termination of certain leveraged leases, valuation allowance changes and changes to unrecognized tax benefits. Accordingly, the comparability of the effective tax rate between periods may be impacted.

New guidance related to accounting for share-based payments was issued in March 2016. The guidance eliminates additional paid-in capital pools and designates that all excess tax benefits and deficiencies should be recorded in income tax expense or benefit when the awards vest or are settled. Regions adopted the guidance effective January 1, 2017. Regions estimates an incremental increase to income tax expense of approximately $5 million in the second quarter of 2017 and the first quarter of 2018 related to expiring stock options. The vesting of restricted and performance stock awards, which will occur in the second quarters of 2017 and 2018, could also impact income tax expense depending on Regions' stock price when vested. Refer to Note 1 "Summary of Significant Accounting Policies" to the consolidated financial statements for additional information.

At December 31, 2016, the Company reported a net deferred tax asset of $308 million, compared to $254 million at December 31, 2015. The increase in the net deferred tax asset was primarily due to an increase in unrealized losses related to securities available for sale and derivative instruments, reflecting an increase in market interest rates in late 2016.

The Company continually assesses the realizability of its deferred tax assets based on an evaluative process that considers all available positive and negative evidence. As part of this evaluative process, the Company considers the following sources of taxable income: 1) the future reversals of taxable temporary differences; 2) future taxable income exclusive of reversing temporary differences and carryforwards; 3) taxable income in prior carryback years; and 4) tax-planning strategies. In making a conclusion, the Company has evaluated all available positive and negative evidence impacting these sources of taxable income. The primary sources of evidence impacting the Company's judgment regarding the realization of its deferred tax assets are summarized below.


•	History of earnings - In 2016, the Company has continued its positive earnings trend with positive earnings from 2012 through 2016. All federal net operating losses and federal tax credit carryforwards with expiration dates have been utilized. There is no history of significant tax carryforwards expiring unused.


•	Reversals of taxable temporary differences - The Company anticipates that future reversals of taxable temporary differences, including the accretion of taxable temporary differences related to leveraged leases acquired in a prior business combination, can absorb up to approximately $665 million of deferred tax assets.


•	Creation of future taxable income - The Company has projected future taxable income that will be sufficient to absorb the remaining deferred tax assets after the reversal of future taxable temporary differences.


•	Ability to implement tax planning strategies - The Company has the ability to implement tax planning strategies such as asset sales to maximize the realization of deferred tax assets.

Based on this evaluative process, the Company has established a valuation allowance in the amount of $30 million at December 31, 2016 and $29 million at December 31, 2015 because the Company believes that a portion of the state net operating loss carryforwards and state tax credit carryforwards will not be utilized.

See Note 1 “Summary of Significant Accounting Policies” and Note 20 “Income Taxes” to the consolidated financial statements for additional information about income taxes.

DISCONTINUED OPERATIONS

Morgan Keegan was sold on April 2, 2012. Regions' results from discontinued operations are presented in Note 3 "Discontinued Operations" to the consolidated financial statements. During 2016, income from discontinued operations was primarily the result of recoveries of legal expenses. During 2015, the loss from discontinued operations was primarily the result of legal fees incurred during the year.

BALANCE SHEET ANALYSIS

The following sections provide expanded discussion of significant changes in certain line items in asset, liability, and equity categories.

Cash and Cash Equivalents

At December 31, 2016, cash and cash equivalents totaled $5.5 billion as compared to $5.3 billion at December 31, 2015. The slight increase year-over-year was driven by an increase in cash and due from banks. This increase was somewhat offset by a decrease in interest-bearing deposits in other banks as a result of normal day-to-day operating variations.

Securities

Regions utilizes the securities portfolio to manage liquidity, interest rate risk, and regulatory capital, as well as to take advantage of market conditions to generate a favorable return on investments without undue risk.

The “Market Risk-Interest Rate Risk” and "Liquidity Risk" sections, found later in this report, further explain Regions’ interest rate and liquidity risk management practices. The weighted-average yield earned on securities, less equities, was 2.41 percent in 2016 and 2.49 percent in 2015. Table 7 “Securities” details the carrying values of securities, including both available for sale and held to maturity.

Table 7—Securities



	2016		2015		2014
	(In millions)
U.S. Treasury securities	$	303	$	229	$	177
Federal agency securities	35		558		573
Obligations of states and political subdivisions	1		1		2
Mortgage-backed securities:
Residential agency	18,571		17,491		17,665
Residential non-agency	4		5		8
Commercial agency	3,625		3,194		2,173
Commercial non-agency	1,129		1,231		1,494
Corporate and other debt securities	1,274		1,667		1,990
Equity securities	201		280		146
	$	25,143	$	24,656	$	24,228

Regions maintains a highly rated securities portfolio consisting primarily of agency mortgage-backed securities. The securities at December 31, 2016 increased $487 million from December 31, 2015 primarily due to additional portfolio purchases, which were partially offset by decreases in the fair value of certain securities based on changes in market interest rates.

Maturity Analysis—The average life of the securities portfolio (excluding equities) at December 31, 2016 was estimated to be 5.8 years, with a duration of approximately 4.3 years. These metrics compare with an estimated average life of 5.4 years, with a duration of approximately 3.8 years for the portfolio at December 31, 2015. Table 8 “Relative Contractual Maturities and Weighted-Average Yields for Securities” provides additional details.

Table 8—Relative Contractual Maturities and Weighted-Average Yields for Securities



	Securities Maturing as of December 31, 2016
	Within One Year			After One But Within Five Years			After Five But Within Ten Years			After Ten Years			Total
	(Dollars in millions)
Securities ⁽¹⁾:
U.S. Treasury securities	$	18		$	217		$	66		$	2		$	303
Federal agency securities	5			6			24			—			35
Obligations of states and political subdivisions	—			1			—			—			1
Mortgage-backed securities:
Residential agency	1			148			1,800			16,622			18,571
Residential non-agency	—			—			—			4			4
Commercial agency	—			723			2,462			440			3,625
Commercial non-agency	64			31			308			726			1,129
Corporate and other debt securities	51			362			630			231			1,274
	$	139		$	1,488		$	5,290		$	18,025		$	24,942
Weighted-average yield ⁽²⁾	1.50		%	2.15		%	2.46		%	2.42		%	2.41		%

_________


(1)	Equity securities of other corporations held by Regions are not included in the table.

(2)

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 taxable-equivalent basis using a tax rate of 35%, adjusted for applicable state income taxes net of the related federal tax benefit. Average tax-exempt securities were maintained at such a small balance in 2016 that the taxable-equivalent adjustments for the calculation of yields amounted to zero for the year ended December 31, 2016. 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.

Portfolio Quality—Regions’ investment policy emphasizes credit quality and liquidity. Securities rated in the highest category by nationally recognized rating agencies and securities backed by the U.S. Government and government sponsored agencies, both on a direct and indirect basis, represented approximately 95 percent of the investment portfolio at December 31, 2016. All other securities rated below AAA, not backed by the U.S. Government or government sponsored agencies, or which are not rated represented approximately 5 percent of total securities at year-end 2016.

Loans Held For Sale

At December 31, 2016, loans held for sale totaled $718 million, consisting of $505 million of residential real estate mortgage loans, $200 million of commercial mortgage loans and $13 million of non-performing loans. At December 31, 2015, loans held for sale totaled $448 million, consisting of $354 million of residential real estate mortgage loans, $56 million of commercial mortgage loans, and $38 million of non-performing loans. The level of residential real estate mortgage loans held for sale that are part of the Company's mortgage originations to be sold in the secondary market fluctuates depending on the timing of the origination and sale to third parties. The level of commercial mortgage loans held for sale also fluctuates depending on timing.

Loans

GENERAL

Average loans, net of unearned income, represented 73 percent of average interest-earning assets for the year ended December 31, 2016, compared to 74 percent for the year ended December 31, 2015. Lending at Regions is generally organized along three portfolio segments: commercial loans (including commercial and industrial, and owner-occupied commercial real estate mortgage and construction loans), investor real estate loans (commercial real estate mortgage and construction loans) and consumer loans (residential first mortgage, home equity, indirect-vehicles, indirect-other consumer, consumer credit card and other consumer loans).

Table 9 illustrates a year-over-year comparison of loans, net of unearned income, by portfolio segment and class and Table 10 provides information on selected loan maturities.

Table 9—Loan Portfolio



	2016		2015		2014		2013		2012
	(In millions, net of unearned income)
Commercial and industrial	$	35,012	$	35,821	$	32,732	$	29,413	$	26,674
Commercial real estate mortgage—owner-occupied	6,867		7,538		8,263		9,495		10,095
Commercial real estate construction—owner-occupied	334		423		407		310		302
Total commercial	42,213		43,782		41,402		39,218		37,071
Commercial investor real estate mortgage	4,087		4,255		4,680		5,318		6,808
Commercial investor real estate construction	2,387		2,692		2,133		1,432		914
Total investor real estate	6,474		6,947		6,813		6,750		7,722
Residential first mortgage	13,440		12,811		12,315		12,163		12,963
Home equity	10,687		10,978		10,932		11,294		11,800
Indirect—vehicles	4,040		3,984		3,642		3,075		2,336
Indirect—other consumer	920		545		206		198		197
Consumer credit card	1,196		1,075		1,009		948		906
Other consumer	1,125		1,040		988		963		1,000
Total consumer	31,408		30,433		29,092		28,641		29,202
	$	80,095	$	81,162	$	77,307	$	74,609	$	73,995

Table 10—Selected Loan Maturities



	Loans Maturing as of December 31, 2016 ⁽¹⁾
	Within One Year		After One But Within Five Years		After Five Years		Total
	(In millions)
Commercial and industrial ⁽²⁾	$	5,070	$	22,275	$	7,504	$	34,849
Commercial real estate mortgage—owner-occupied	892		3,185		2,790		6,867
Commercial real estate construction—owner-occupied	16		83		235		334
Total commercial	5,978		25,543		10,529		42,050
Commercial investor real estate mortgage	1,900		1,915		272		4,087
Commercial investor real estate construction	750		1,607		30		2,387
Total investor real estate	2,650		3,522		302		6,474
	$	8,628	$	29,065	$	10,831	$	48,524



	Predetermined Rate		Variable Rate
	(In millions)
Due after one year but within five years	$	5,029	$	24,036
Due after five years	7,246		3,585
	$	12,275	$	27,621

_________

(1) Excludes residential first mortgage, home equity, indirect-vehicles, indirect-other consumer, consumer credit card and other consumer loans.

(2) Excludes $163 million of small business credit card accounts.

Loans, net of unearned income, totaled $80.1 billion at December 31, 2016, a decrease of $1.1 billion from year-end 2015 levels. Regions manages loan growth with a focus on risk management and risk-adjusted return on capital. Loan balances decreased year over year in the commercial and investor real estate portfolio classes with the largest decrease in commercial and industrial, while most consumer portfolio classes increased.

PORTFOLIO CHARACTERISTICS

The following sections describe the composition of the portfolio segments and classes disclosed in Table 9, explain changes in balances from the 2015 year-end, and highlight the related risk characteristics. Regions believes that its loan portfolio is well diversified by product, client, and geography throughout its footprint. However, the loan portfolio may be exposed to certain concentrations of credit risk which exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, certain loan products, or certain regions of the country. See Note 5 “Loans” and Note 6 “Allowance for Credit Losses” to the consolidated financial statements for additional discussion.

Commercial

The commercial portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases and other expansion projects. Commercial and industrial loans decreased $809 million or 2 percent since year-end 2015 driven primarily by declines in direct energy loans, softness in demand for middle market commercial small business loans, management of concentration risk limits, and a continued focus on achieving appropriate risk-adjusted returns. Commercial also includes owner-occupied commercial real estate mortgage loans and owner-occupied commercial real estate construction loans to operating businesses. Owner-occupied commercial real estate mortgage loans are for long-term financing of land and buildings, and are repaid by cash flow generated by business operations. These loans declined $671 million or 9 percent from year-end 2015 as a result of continued customer deleveraging. Owner-occupied commercial real estate construction loans are made to commercial businesses for the development of land or construction of a building where the repayment is derived from revenues generated from the business of the borrower.

Over half of the Company’s total loans are included in the commercial portfolio segment. These balances are spread across numerous industries, as noted in the table below. The Company manages the related risks to this portfolio by setting certain lending limits for each significant industry.

The following table provides detail of Regions' commercial lending balances in selected industries as of December 31:

Table 11—Selected Industry Exposure



	December 31, 2016
	Loans		Unfunded Commitments		Total Exposure
	(In millions)
Administrative, support, waste and repair	$	899	$	481	$	1,380
Agriculture	612		241		853
Educational services	1,929		307		2,236
Energy	2,097		1,968		4,065
Financial services ⁽¹⁾	3,473		3,228		6,701
Government and public sector	2,485		246		2,731
Healthcare	4,178		1,483		5,661
Information	1,111		817		1,928
Manufacturing ⁽¹⁾	4,101		4,024		8,125
Professional, scientific and technical services ⁽¹⁾	1,701		1,052		2,753
Real estate ⁽¹⁾	6,513		5,445		11,958
Religious, leisure, personal and non-profit services	1,934		495		2,429
Restaurant, accommodation and lodging	2,436		650		3,086
Retail trade	2,570		2,339		4,909
Transportation and warehousing ⁽¹⁾	2,196		1,005		3,201
Utilities	1,147		2,008		3,155
Wholesale goods ⁽¹⁾	2,795		2,396		5,191
Other	36		1,162		1,198
Total commercial	$	42,213	$	29,347	$	71,560



	December 31, 2015 ⁽²⁾
	Loans		Unfunded Commitments		Total Exposure
	(In millions)
Administrative, support, waste and repair	$	901	$	575	$	1,476
Agriculture	747		295		1,042
Educational services	1,846		312		2,158
Energy	2,533		2,461		4,994
Financial services ⁽³⁾	3,556		2,984		6,540
Government and public sector	2,408		238		2,646
Healthcare	4,322		1,407		5,729
Information	1,281		744		2,025
Manufacturing ⁽³⁾	4,407		3,938		8,345
Professional, scientific and technical services⁽³⁾	1,730		1,114		2,844
Real estate	6,427		5,046		11,473
Religious, leisure, personal and non-profit services	2,165		600		2,765
Restaurant, accommodation and lodging	2,489		633		3,122
Retail trade	2,492		2,507		4,999
Transportation and warehousing⁽³⁾	2,228		1,084		3,312
Utilities	1,047		1,674		2,721
Wholesale goods ⁽³⁾	2,981		2,588		5,569
Other	222		1,600		1,822
Total commercial	$	43,782	$	29,800	$	73,582

_______

(1)

Regions' definition of indirect energy-related lending includes certain balances within each of these selected industry categories. As of December 31, 2016, total indirect energy-related loans were approximately $536 million, with approximately $506 million included in commercial loans and $30 million in investor real estate loans. Total unfunded commitments for indirect energy-related lending were $446 million as of December 31, 2016.

(2)

As customers' businesses evolve (e.g. up or down the vertical manufacturing chain), Regions may need to change the assigned business industry code used to define the customer relationship. When these changes occur, Regions does not recast the customer history for prior periods into the new classification because the business industry code used in the prior period was deemed appropriate. As a result, year over year changes may be impacted.

(3)

Regions' definition of indirect energy-related lending includes certain balances within each of these selected industry categories. As of December 31, 2015, total indirect energy-related loans were approximately $519 million, with approximately $497 million included in commercial loans and $22 million in investor real estate loans. Total unfunded commitments for indirect energy-related lending were $446 million as of December 31, 2015.

Regions continues to monitor the impacts of low oil prices on both its direct and indirect energy lending portfolios. Regions’ direct energy loan balances at December 31, 2016 amounted to approximately $2.1 billion, consisting of loans for oilfield services, exploration and production, and pipeline transportation of gas and crude oil. Other types of lending are tangentially impacted by the energy portfolio, such as petroleum wholesalers, oil and gas equipment manufacturing, air transportation, and petroleum bulk stations and terminals. These indirect energy loan balances were approximately $536 million at December 31, 2016. The entire energy-related portfolio, combining direct and indirect loans, was approximately $2.6 billion or 3 percent of total loans at December 31, 2016. Regions also has $131 million of energy-related operating leases. Regions evaluates the current value of these operating lease assets and tests for impairment when indicators of impairment are present. Economic trends such as volatility in commodity prices and collateral valuations, as well as circumstances related to individually large operating lease assets could result in impairment. If an impairment loss is deemed necessary on operating lease assets, the impairment is recorded through other non-interest income.

Regions’ energy-related portfolio is geographically concentrated primarily in Texas and, to a lesser extent, in southern Louisiana. Regions employs a variety of risk management strategies, including the use of concentration limits and continuous monitoring, as well as utilizing underwriting with borrowing base structures tied to energy commodity reserve bases or other tangible assets. Additionally, heightened credit requirements have been adopted for select segments of the portfolio. Regions also employs experienced lending and underwriting teams including petroleum engineers, all with extensive energy sector experience through multiple economic cycles. Given the recent volatility in oil prices, this energy-related portfolio may be subject to additional pressure on credit quality metrics including past due, criticized, and non-performing loans, as well as net charge-offs. Regions' energy-related portfolio consists of a relatively small number of customers, which provides the Company granular insight into the financial health of those borrowers. Through its on-going portfolio credit quality assessment, Regions will continue to assess the impact to the allowance and make adjustments as appropriate.

Investor Real Estate

Loans for real estate development are repaid through cash flow related to the operation, sale or refinance of the property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of real estate or income generated from the real estate collateral. A portion of Regions’ investor real estate portfolio segment consists of loans secured by residential product types (land, single-family and condominium loans) within Regions’ markets. Additionally, this category includes loans made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers. Total investor real estate loans decreased $473 million from 2015 year-end balances.

Due to the nature of the cash flows typically used to repay investor real estate loans, these loans are particularly vulnerable to weak economic conditions. As a result, this loan type has a higher risk of non-collection than other loans.

Residential First Mortgage

Residential first mortgage loans represent loans to consumers to finance a residence. These loans are typically financed over a 15 to 30 year term and, in most cases, are extended to borrowers to finance their primary residence. These loans experienced a $629 million or 5 percent increase from year-end 2015, as prepayments have slowed. Approximately $3.3 billion in new loan originations were retained on the balance sheet during 2016.

Home Equity

Home equity lending includes both home equity loans and lines of credit. This type of lending, which is secured by a first or second mortgage on the borrower's residence, allows customers to borrow against the equity in their homes. The home equity portfolio totaled $10.7 billion at December 31, 2016 as compared to $11.0 billion at December 31, 2015. Substantially all of this portfolio was originated through Regions’ branch network.

The following table presents information regarding the future principal payment reset dates for the Company's home equity lines of credit as of December 31, 2016. The balances presented are based on maturity date for lines with a balloon payment and draw period expiration date for lines that convert to a repayment period.

Table 12—Home Equity Lines of Credit - Future Principal Payment Resets



	First Lien		% of Total		Second Lien		% of Total		Total
	(Dollars in millions)
2017	$	10	0.14	%	$	20	0.27	%	$	30
2018	12		0.17		17		0.24		29
2019	77		1.07		69		0.96		146
2020	159		2.19		124		1.72		283
2021	187		2.58		161		2.22		348
2022-2026	1,679		23.22		1,760		24.33		3,439
2027-2031	1,551		21.44		1,406		19.44		2,957
Thereafter	—		—		1		0.01		1
Total	$	3,675	50.81	%	$	3,558	49.19	%	$	7,233

Of the $10.7 billion home equity portfolio at December 31, 2016, approximately $7.2 billion were home equity lines of credit and $3.5 billion were closed-end home equity loans (primarily originated as amortizing loans). Beginning December 2016, new home equity lines of credit have a 10-year draw period and a 20-year repayment term. During the 10-year draw period customers do not have an interest-only payment option, except on a very limited basis. From May 2009 to December 2016, new home equity lines of credit had a 10-year draw period and a 10-year repayment period. Prior to May 2009, home equity lines of credit had a 20-year term with a balloon payment upon maturity or a 5-year draw period with a balloon payment upon maturity. The term “balloon payment” means there are no principal payments required until the balloon payment is due for interest-only lines of credit. As of December 31, 2016, none of Regions' home equity lines of credit have converted to mandatory amortization under the contractual terms. As presented in the table above, the majority of home equity lines of credit will either mature with a balloon payment or convert to amortizing status after fiscal year 2020.

Other Consumer Credit Quality Data

The Company calculates an estimate of the current value of property secured as collateral for both residential first mortgage and home equity lending products (“current LTV”). The estimate is based on home price indices compiled by a third party. The third party data indicates trends for MSAs. Regions uses the third party valuation trends from the MSAs in the Company's footprint in its estimate. The trend data is applied to the loan portfolios taking into account the age of the most recent valuation and geographic area.

The following table presents current LTV data for components of the residential first mortgage and home equity classes of the consumer portfolio segment. Current LTV data for the remaining loans in the portfolio is not available, primarily because some of the loans are serviced by others. Data may also not be available due to mergers and systems integrations. The amounts in the table represent the entire loan balance. For purposes of the table below, if the loan balance exceeds the current estimated collateral, the entire balance is included in the “Above 100%” category, regardless of the amount of collateral available to partially offset the shortfall. The balances in the "Above 100%" category as a percentage of the portfolio balances declined to 1 percent in the residential first mortgage portfolio and to 3 percent in the home equity portfolio at December 31, 2016.

Table 13—Estimated Current Loan to Value Ranges



	December 31, 2016						December 31, 2015
	Residential First Mortgage		Home Equity				Residential First Mortgage		Home Equity
	Residential First Mortgage		1st Lien		2nd Lien		Residential First Mortgage		1st Lien		2nd Lien
	(In millions)
Estimated current loan to value:
Above 100%	$	139	$	82	$	235	$	267	$	127	$	417
80% - 100%	1,675		371		677		1,703		497		886
Below 80%	11,090		6,248		2,814		10,288		5,965		2,785
Data not available	536		99		161		553		107		194
	$	13,440	$	6,800	$	3,887	$	12,811	$	6,696	$	4,282

Indirect—Vehicles

Indirect-vehicles lending, which is lending initiated through third-party business partners, largely consists of loans made through automotive dealerships. This portfolio class increased $56 million from year-end 2015. However, the balance is expected to decrease during 2017, as Regions terminated a third-party arrangement during the fourth quarter of 2016 that historically accounted for approximately half of the Company's production.

Indirect—Other Consumer

Indirect-other consumer lending represents other point of sale lending through third parties. This portfolio class increased $375 million from year-end 2015 primarily due to continued growth in new point-of-sale initiatives.

Consumer Credit Card

Consumer credit card lending represents primarily open-ended variable interest rate consumer credit card loans. These balances increased $121 million from year-end 2015.

Other Consumer

Other consumer loans primarily include direct consumer loans, overdrafts and other revolving loans. Other consumer loans increased $85 million from year-end 2015.

Regions qualitatively considers factors such as periodic updates of FICO scores, unemployment, home prices, and geography as credit quality indicators for consumer loans. FICO scores are obtained at origination as part of Regions' formal underwriting process. Refreshed FICO scores are obtained by the Company quarterly for all revolving accounts and home equity lines of credit and semiannually for all other consumer loans. Residential first mortgage FICO scores are refreshed quarterly. The following tables present estimated current FICO score data for components of classes of the consumer portfolio segment. Current FICO data is not available for the remaining loans in the portfolio for various reasons; for example, if customers do not use sufficient credit, an updated score may not be available. Residential first mortgage and home equity balances with FICO scores below 620 were 5 percent of the combined portfolios for December 31, 2016 compared to 6 percent at December 31, 2015.

Table 14—Estimated Current FICO Score Ranges



	December 31, 2016
	Residential First Mortgage		Home Equity				Indirect-Vehicles		Indirect-Other Consumer		Consumer Credit Card		Other Consumer
	Residential First Mortgage		1st Lien		2nd Lien		Indirect-Vehicles		Indirect-Other Consumer		Consumer Credit Card		Other Consumer
	(In millions)
Below 620	$	807	$	301	$	204	$	427	$	19	$	71	$	82
620 - 680	920		529		355		527		94		206		162
681 - 720	1,400		834		489		559		141		271		222
Above 720	9,578		4,988		2,775		2,402		382		647		597
Data not available	735		148		64		125		284		1		62
	$	13,440	$	6,800	$	3,887	$	4,040	$	920	$	1,196	$	1,125



	December 31, 2015
	Residential First Mortgage		Home Equity				Indirect⁽¹⁾		Consumer Credit Card		Other Consumer
	Residential First Mortgage		1st Lien		2nd Lien		Indirect⁽¹⁾		Consumer Credit Card		Other Consumer
	(In millions)
Below 620	$	768	$	311	$	249	$	421	$	55	$	86
620 - 680	1,013		531		415		549		158		150
681 - 720	1,489		789		530		611		247		191
Above 720	8,487		4,808		2,938		2,409		614		526
Data not available	1,054		257		150		539		1		87
	$	12,811	$	6,696	$	4,282	$	4,529	$	1,075	$	1,040

________


(1)	Amount represents both indirect-vehicles and indirect-other consumer portfolio classes.

Allowance for Credit Losses

The allowance for loan losses totaled $1.1 billion at both December 31, 2016 and December 31, 2015. Additionally, the allowance for loan losses as a percentage of net loans remained consistent between December 31, 2016 and December 31, 2015 at 1.36 percent. Total allowance for loan losses for the direct energy portfolio was approximately 7 percent at December 31, 2016 compared to approximately 6 percent at year-end 2015.

The increase in the provision for loan losses in 2016 compared to 2015 was primarily due to higher net charge-offs, including $37 million in 2016 energy charge-offs, and the increase in criticized and classified commercial loans, attributable primarily to downward risk rating migration in the energy portfolio. This increase was offset by the impact of $2.0 billion in business services loan balance runoff, including $436 million in direct energy, and improvement in the risk profile of certain other loan classes.

Management expects that net loan charge-offs will be in the 0.35 percent to 0.50 percent range in 2017. Economic trends such as interest rates, unemployment, volatility in commodity prices and collateral valuations will impact the future levels of net charge-offs and may result in volatility during 2017.

Details regarding the allowance and net charge-offs, including an analysis of activity from the previous year’s totals, are included in Table 15 “Allowance for Credit Losses.”

The table below summarizes activity in the allowance for credit losses for the years ended December 31:

Table 15—Allowance for Credit Losses



	2016			2015			2014			2013			2012
	(Dollars in millions)
Allowance for loan losses at January 1	$	1,106		$	1,103		$	1,341		$	1,919		$	2,745
Loans charged-off:
Commercial and industrial	120			130			114			186			203
Commercial real estate mortgage—owner-occupied	22			24			63			125			193
Commercial real estate construction—owner-occupied	1			—			2			1			8
Commercial investor real estate mortgage	2			15			23			69			226
Commercial investor real estate construction	—			—			1			1			46
Residential first mortgage	15			26			36			223			147
Home equity	56			68			93			159			266
Indirect—vehicles	51			41			37			31			23
Indirect—other consumer	15			—			—			—			—
Consumer credit card	42			37			37			38			45
Other consumer	74			62			67			65			66
	398			403			473			898			1,223
Recoveries of loans previously charged-off:
Commercial and industrial	32			51			51			45			61
Commercial real estate mortgage—owner-occupied	11			16			16			25			16
Commercial real estate construction—owner-occupied	—			—			—			3			—
Commercial investor real estate mortgage	10			16			22			35			36
Commercial investor real estate construction	3			11			5			5			9
Residential first mortgage	3			8			8			6			5
Home equity	26			28			32			35			32
Indirect—vehicles	18			15			13			10			8
Indirect—other consumer	1			—			—			—			—
Consumer credit card	6			6			5			4			2
Other consumer	11			14			14			14			15
	121			165			166			182			184
Net charge-offs:
Commercial and industrial	88			79			63			141			142
Commercial real estate mortgage—owner-occupied	11			8			47			100			177
Commercial real estate construction—owner-occupied	1			—			2			(2		)	8
Commercial investor real estate mortgage	(8		)	(1		)	1			34			190
Commercial investor real estate construction	(3		)	(11		)	(4		)	(4		)	37
Residential first mortgage	12			18			28			217			142
Home equity	30			40			61			124			234
Indirect—vehicles	33			26			24			21			15
Indirect—other consumer	14			—			—			—			—
Consumer credit card	36			31			32			34			43
Other consumer	63			48			53			51			51
	277			238			307			716			1,039
Provision for loan losses	262			241			69			138			213
Allowance for loan losses at December 31	$	1,091		$	1,106		$	1,103		$	1,341		$	1,919
Reserve for unfunded credit commitments at January 1	$	52		$	65		$	78		$	83		$	78
Provision (credit) for unfunded credit losses	17			(13		)	(13		)	(5		)	5
Reserve for unfunded credit commitments at December 31	$	69		$	52		$	65		$	78		$	83
Allowance for credit losses at December 31	$	1,160		$	1,158		$	1,168		$	1,419		$	2,002
Loans, net of unearned income, outstanding at end of period	$	80,095		$	81,162		$	77,307		$	74,609		$	73,995
Average loans, net of unearned income, outstanding for the period	$	81,333		$	79,634		$	76,253		$	74,924		$	76,035
Ratios:
Allowance for loan losses to loans, net of unearned income	1.36		%	1.36		%	1.43		%	1.80		%	2.59		%
Allowance for loan losses to non-performing loans, excluding loans held for sale	1.10x			1.41x			1.33x			1.24x			1.14x
Net charge-offs as percentage of average loans, net of unearned income	0.34		%	0.30		%	0.40		%	0.96		%	1.37		%

Allocation of the allowance for loan losses by portfolio segment and class is summarized as follows:

Table 16—Allocation of the Allowance for Loan Losses



	2016				2015				2014				2013				2012
	Allocation Amount		% Loans in Each Category		Allocation Amount		% Loans in Each Category		Allocation Amount		% Loans in Each Category		Allocation Amount		% Loans in Each Category		Allocation Amount		% Loans in Each Category
	(Dollars in millions)
Commercial and industrial	$	585	43.7	%	$	549	44.1	%	$	428	42.4	%	$	427	39.4	%	$	497	36.1	%
Commercial real estate mortgage—owner-occupied	161		8.6		200		9.3		214		10.7		271		12.8		342		13.6
Commercial real estate construction—owner-occupied	7		0.4		9		0.5		12		0.5		13		0.4		8		0.4
Total commercial	753		52.7		758		53.9		654		53.6		711		52.6		847		50.1
Commercial investor real estate mortgage	54		5.1		69		5.3		122		6.0		210		7.1		424		9.2
Commercial investor real estate construction	31		3.0		28		3.3		28		2.8		26		1.9		45		1.2
Total investor real estate	85		8.1		97		8.6		150		8.8		236		9.0		469		10.4
Residential first mortgage	68		16.8		77		15.8		93		15.9		119		16.3		254		17.5
Home equity	45		13.3		67		13.5		90		14.1		160		15.1		252		16.0
Indirect—vehicles	39		5.0		33		4.9		41		4.7		39		4.1		20		3.2
Indirect—other consumer	15		1.2		5		0.7		3		0.3		3		0.3		2		0.3
Consumer credit card	45		1.5		40		1.3		46		1.3		43		1.3		45		1.2
Other consumer	41		1.4		29		1.3		26		1.3		30		1.3		30		1.3
Total consumer	253		39.2		251		37.5		299		37.6		394		38.4		603		39.5
	$	1,091	100.0	%	$	1,106	100.0	%	$	1,103	100.0	%	$	1,341	100.0	%	$	1,919	100.0	%

TROUBLED DEBT RESTRUCTURINGS (TDRs)

TDRs are modified loans in which a concession is provided to a borrower experiencing financial difficulty. Residential first mortgage, home equity, indirect-vehicles, consumer credit card and other consumer TDRs are consumer loans modified under the CAP. Commercial and investor real estate loan modifications are not the result of a formal program, but represent situations where modifications were offered as a workout alternative. Renewals of classified commercial and investor real estate loans are considered to be TDRs, even if no reduction in interest rate is offered, if the existing terms are considered to be below market.

More detailed information regarding Regions’ TDRs is included in Note 6 “Allowance for Credit Losses” to the consolidated financial statements. The following table summarizes the loan balance and related allowance for accruing and non-accruing TDRs for the periods ending December 31:

Table 17—Troubled Debt Restructurings



	2016				2015
	Loan Balance		Allowance for Loan Losses		Loan Balance		Allowance for Loan Losses
	(In millions)
Accruing:
Commercial	$	241	$	38	$	146	$	20
Investor real estate	90		8		157		17
Residential first mortgage	380		46		398		52
Home equity	286		5		323		7
Indirect—vehicles	1		—		1		—
Consumer credit card	2		—		2		—
Other consumer	10		—		12		—
	1,010		97		1,039		96
Non-accrual status or 90 days past due and still accruing:
Commercial	279		65		135		37
Investor real estate	5		2		22		3
Residential first mortgage	74		9		81		10
Home equity	17		—		18		—
	375		76		256		50
Total TDRs - Loans	$	1,385	$	173	$	1,295	$	146

TDRs- Held For Sale	3		—		8		—
Total TDRs	$	1,388	$	173	$	1,303	$	146

_________

Note: All loans listed in the table above are considered impaired under applicable accounting literature.

The following table provides an analysis of the changes in commercial and investor real estate TDRs. TDRs with subsequent restructurings that meet the definition of a TDR are only reported as TDR inflows in the period they were first modified. Other than resolutions such as charge-offs, foreclosures, payments, sales and transfers to held for sale, Regions may remove loans from TDR classification, if the borrower's financial condition improves such that the borrower is no longer in financial difficulty, the loan has not had any forgiveness of principal or interest, and the loan is subsequently refinanced or restructured at market terms and qualifies as a new loan.

For the consumer portfolio, changes in TDRs are primarily due to inflows from CAP modifications and outflows from payments and charge-offs. Given the types of concessions currently being granted under the CAP, as detailed in Note 6 “Allowance for Credit Losses” to the consolidated financial statements, Regions does not expect that the market interest rate condition will be widely achieved. Therefore, Regions expects consumer loans modified through CAP to continue to be identified as TDRs for the remaining term of the loan.

Table 18—Analysis of Changes in Commercial and Investor Real Estate TDRs



	2016						2015
	Commercial			Investor Real Estate			Commercial			Investor Real Estate
	(In millions)
Balance, beginning of period	$	281		$	179		$	344		$	357
Inflows	497			27			186			57
Outflows
Charge-offs	(30		)	—			(13		)	(8		)
Foreclosure	—			—			(1		)	(32		)
Payments, sales and other ⁽¹⁾	(228		)	(111		)	(235		)	(195		)
Balance, end of period	$	520		$	95		$	281		$	179

_________

(1)

The majority of this category consists of payments and sales. "Other" outflows include normal amortization/accretion of loan basis adjustments and loans transferred to held for sale. It also includes $35 million of commercial loans and $8 million of investor real estate loans refinanced or restructured as new loans and removed from TDR classification during 2016. During 2015, $44 million of commercial loans and $58 million of investor real estate loans were refinanced or restructured as new loans and removed from TDR classification.

NON-PERFORMING ASSETS

The following table presents non-performing assets as of December 31:

Table 19—Non-Performing Assets



	2016			2015			2014			2013			2012
	(Dollars in millions)
Non-performing loans:
Commercial and industrial	$	623		$	325		$	252		$	257		$	409
Commercial real estate mortgage—owner-occupied	210			268			238			303			439
Commercial real estate construction—owner-occupied	3			2			3			17			14
Total commercial	836			595			493			577			862
Commercial investor real estate mortgage	17			31			123			238			457
Commercial investor real estate construction	—			—			2			10			20
Total investor real estate	17			31			125			248			477
Residential first mortgage	50			63			109			146			214
Home equity	92			93			102			111			128
Total consumer	142			156			211			257			342
Total non-performing loans, excluding loans held for sale	995			782			829			1,082			1,681
Non-performing loans held for sale	13			38			38			82			89
Total non-performing loans⁽¹⁾	1,008			820			867			1,164			1,770
Foreclosed properties	90			100			124			136			149
Total non-performing assets⁽¹⁾	$	1,098		$	920		$	991		$	1,300		$	1,919
Accruing loans 90 days past due:
Commercial and industrial	$	6		$	9		$	7		$	6		$	19
Commercial real estate mortgage—owner-occupied	2			3			5			6			6
Total commercial	8			12			12			12			25
Commercial investor real estate mortgage	—			4			3			6			11
Total investor real estate	—			4			3			6			11
Residential first mortgage⁽²⁾	99			113			122			142			220
Home equity	33			59			63			75			87
Indirect—vehicles	10			9			7			5			3
Consumer credit card	15			12			12			12			14
Other consumer	5			4			3			4			3
Total consumer	162			197			207			238			327
	$	170		$	213		$	222		$	256		$	363
Restructured loans not included in the categories above	$	1,010		$	1,039		$	1,260		$	1,676		$	2,789
Restructured loans held for sale not included in the categories above	$	1		$	1		$	1		$	545		$	—
Non-performing loans⁽¹⁾ to loans and non-performing loans held for sale	1.26		%	1.01		%	1.12		%	1.56		%	2.39		%
Non-performing assets⁽¹⁾ to loans, foreclosed properties and non-performing loans held for sale	1.37		%	1.13		%	1.28		%	1.74		%	2.59		%

_________


(1)	Excludes accruing loans 90 days past due.

(2)

Excludes residential first mortgage loans that are 100% guaranteed by the FHA and all guaranteed loans sold to the GNMA where Regions has the right but not the obligation to repurchase. Total 90 days or more past due guaranteed loans excluded were $113 million at December 31, 2016, $107 million at December 31, 2015, $125 million at December 31, 2014, $106 million at December 31, 2013 and $87 million at December 31, 2012.

Non-performing loans increased during 2016 primarily as a result of pressure on the energy lending portfolio as discussed in the "Portfolio Characteristics" section. Economic trends such as interest rates, unemployment, volatility in commodity prices and collateral valuations will impact the future level of non-performing assets. Circumstances related to individually large credits could also result in volatility throughout 2017.

Loans past due 90 days or more and still accruing, excluding government guaranteed loans, were $170 million at December 31, 2016, a decrease from $213 million at December 31, 2015.

At December 31, 2016, Regions had approximately $125 million to $200 million of potential problem commercial and investor real estate loans that were not included in non-accrual loans, but for which management had concerns as to the ability of such borrowers to comply with their present loan repayment terms. This is a likely estimate of the amount of commercial and investor real estate loans that have the potential to migrate to non-accrual status in the next quarter.

In order to arrive at the estimate of potential problem loans, personnel from geographic regions forecast certain larger dollar loans that may potentially be downgraded to non-accrual at a future time, depending on the occurrence of future events. These personnel consider a variety of factors, including the borrower’s capacity and willingness to meet the contractual repayment terms, make principal curtailments or provide additional collateral when necessary, and provide current and complete financial information including global cash flows, contingent liabilities and sources of liquidity. Based upon the consideration of these factors, a probability weighting is assigned to loans to reflect the potential for migration to the pool of potential problem loans during this specific time period. Additionally, for other loans (for example, smaller dollar loans), a trend analysis is incorporated to determine the estimate of potential future downgrades. Because of the inherent uncertainty in forecasting future events, the estimate of potential problem loans ultimately represents the estimated aggregate dollar amounts of loans as opposed to an individual listing of loans.

The majority of the loans on which the potential problem loan estimate is based are considered criticized and classified. Detailed disclosures for substandard accrual loans (as well as other credit quality metrics) are included in Note 6 “Allowance for Credit Losses” to the consolidated financial statements.

The following table provides an analysis of non-accrual loans (excluding loans held for sale) by portfolio segment for the periods presented:

Table 20—Analysis of Non-Accrual Loans



	Non-Accrual Loans, Excluding Loans Held for Sale as of December 31, 2016
	Commercial			Investor Real Estate			Consumer⁽¹⁾			Total
	(In millions)
Balance at beginning of year	$	595		$	31		$	156		$	782
Additions	861			20			—			881
Net payments/other activity	(341		)	(17		)	(12		)	(370		)
Return to accrual	(87		)	(13		)	—			(100		)
Charge-offs on non-accrual loans⁽²⁾	(136		)	(2		)	(1		)	(139		)
Transfers to held for sale⁽³⁾	(46		)	(1		)	(1		)	(48		)
Transfers to foreclosed properties	(4		)	—			—			(4		)
Sales	(6		)	(1		)	—			(7		)
Balance at end of year	$	836		$	17		$	142		$	995



	Non-Accrual Loans, Excluding Loans Held for Sale as of December 31, 2015
	Commercial			Investor Real Estate			Consumer⁽¹⁾			Total
	(In millions)
Balance at beginning of year	$	493		$	125		$	211		$	829
Additions	684			33			—			717
Net payments/other activity	(236		)	(53		)	(53		)	(342		)
Return to accrual	(129		)	(20		)	—			(149		)
Charge-offs on non-accrual loans⁽²⁾	(148		)	(15		)	(1		)	(164		)
Transfers to held for sale⁽³⁾	(59		)	(6		)	(1		)	(66		)
Transfers to foreclosed properties	(7		)	(33		)	—			(40		)
Sales	(3		)	—			—			(3		)
Balance at end of year	$	595		$	31		$	156		$	782

________


(1)	All net activity within the consumer portfolio segment other than sales and transfers to held for sale (including related charge-offs) is included as a single net number within the net payments/other activity line.


(2)	Includes charge-offs on loans on non-accrual status and charge-offs taken upon sale and transfer of non-accrual loans to held for sale.


(3)	Transfers to held for sale are shown net of charge-offs of $21 million and $51 million recorded upon transfer for the years ended December 31, 2016 and 2015, respectively.

Other Earning Assets

Other earning assets consist primarily of investments in FRB stock, FHLB stock, and operating lease assets. The balance at December 31, 2016 totaled $1.6 billion as compared to $1.7 billion at December 31, 2015. The primary driver of the slight decrease between years was a decrease in operating lease assets.

Refer to Note 8 "Other Earning Assets" to the consolidated financial statements for additional information.

Premises and Equipment

Premises and equipment at December 31, 2016 decreased $56 million to $2.1 billion compared to year-end 2015. This decrease primarily resulted from depreciation expense on existing assets, combined with branch consolidation initiatives.

Goodwill

Goodwill totaled $4.9 billion for both December 31, 2016 and 2015 and was reallocated to the new reporting units during 2016. Refer to the “Critical Accounting Policies” section earlier in this report for detailed discussions of the Company’s methodology for testing goodwill for impairment. Refer to Note 1 “Summary of Significant Accounting Policies” and Note 10 “Intangible Assets” to the consolidated financial statements for the methodologies and assumptions used in Step One of the goodwill impairment test and further details on the reallocation. Additionally, Note 1 “Summary of Significant Accounting Policies” to the consolidated financial statements includes information related to the fair value measurements of certain assets and liabilities and the valuation methodology of such measurements, which is also used for testing goodwill for impairment.

Residential Mortgage Servicing Rights at Fair Value

Residential MSRs increased approximately $72 million from December 31, 2015 to December 31, 2016. The year-over-year increase is primarily due to purchases of the rights to service approximately $8 billion in residential mortgage loans for approximately $69 million, combined with additions resulting from loans sold during the year. These total additions exceeded the economic amortization associated with borrower repayments. An analysis of residential MSRs is presented in Note 7 “Servicing of Financial Assets” to the consolidated financial statements.

Deposits

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 the pricing of its deposits and how effectively the Company meets customers’ needs. Regions employs various means to meet those needs and enhance competitiveness, such as providing a high level of customer service, competitive pricing and providing convenient branch locations for its customers. Regions also serves customers through providing centralized, high-quality banking services and alternative product delivery channels such as mobile and internet banking.

Deposits are Regions’ primary source of funds, providing funding for 88 percent of average earning assets in 2016 and 90 percent of average earning assets in 2015. Table 21 “Deposits” details year-over-year deposits on a period-ending basis. Total deposits at December 31, 2016 increased approximately $605 million compared to year-end 2015 levels. The increase in deposits was primarily driven by increases in non-interest-bearing demand, savings and money market-domestic accounts. These increases were partially offset by declines in time deposits and interest-bearing transaction accounts.

Due to liquidity in the market, Regions has been able to steadily grow its low-cost customer deposits and therefore deposit costs have remained relatively consistent at 12 basis points for 2016, compared to 11 basis points for both 2015 and 2014. The following table summarizes deposits by category as of December 31:

Table 21—Deposits



	2016		2015		2014
	(In millions)
Non-interest-bearing demand	$	36,046	$	34,862	$	31,747
Savings	7,840		7,287		6,653
Interest-bearing transaction	20,259		21,902		21,544
Money market—domestic	27,293		26,468		25,396
Money market—foreign	186		243		265
Low-cost deposits	91,624		90,762		85,605
Time deposits	7,183		7,468		8,595
Customer deposits	98,807		98,230		94,200
Corporate treasury time deposits	228		200		—
	$	99,035	$	98,430	$	94,200

Within customer deposits, non-interest-bearing demand deposits increased $1.2 billion to $36.0 billion. Non-interest-bearing deposits accounted for approximately 36 percent of total deposits at year-end 2016 compared to 35 percent at year-end 2015. Savings balances increased $553 million to $7.8 billion, generally reflecting continued consumer savings trends, spurred by economic uncertainty. Money market-domestic accounts increased $825 million to $27.3 billion. Money market-domestic accounts accounted for approximately 28 percent and 27 percent of total deposits at year-end 2016 and 2015, respectively.

Interest-bearing transaction accounts decreased $1.6 billion to $20.3 billion as a result of certain trust customer deposits, which require collateralization by securities, continuing to shift out of deposits and into other fee income-producing customer investments.

Included in customer time deposits are certificates of deposit and individual retirement accounts. The balance of customer time deposits decreased approximately 4 percent in 2016 to $7.2 billion compared to $7.5 billion in 2015. The decrease was primarily due to maturities with minimal reinvestment by customers as a result of the continued decline in interest rates offered on these products. Customer time deposits accounted for 7 percent of total deposits in 2016 compared to 8 percent in 2015. See Table 22 “Maturity of Time Deposits of $100,000 or More” for maturity information.

During 2016, corporate treasury deposits remained at low levels as the Company continued to utilize customer-based funding and other sources.

The sensitivity of Regions’ deposit rates to changes in market interest rates is reflected in Regions’ average interest rate paid on interest-bearing deposits. The rate paid on interest-bearing deposits increased slightly to 0.19 percent in 2016 compared to 0.17 percent for both 2015 and 2014, driven by market interest rate increases that occurred in 2016.

Table 22—Maturity of Time Deposits of $100,000 or More



	2016		2015
	(In millions)
Time deposits of $100,000 or more, maturing in:
3 months or less	$	532	$	679
Over 3 through 6 months	243		223
Over 6 through 12 months	491		438
Over 12 months	1,844		1,646
	$	3,110	$	2,986

Short-Term Borrowings

See Note 12 “Short-Term Borrowings” to the consolidated financial statements for a summary of these borrowings at December 31, 2016 and 2015. The levels of these borrowings can fluctuate depending on the Company’s funding needs and the sources utilized, as well as a result of customers’ activity.

In the near term, Regions expects the use of wholesale unsecured borrowings for its funding needs to remain low. Short-term secured borrowings, such as securities sold under agreements to repurchase and FHLB advances, are a core portion of Regions' funding strategy.

The securities financing market and specifically short-term FHLB advances, however, continue to provide reliable funding at attractive rates. See the "Liquidity Risk" section for further detail of Regions' borrowing capacity with the FHLB.

Long-Term Borrowings

Total long-term borrowings decreased approximately $586 million to $7.8 billion at December 31, 2016. The decrease was primarily the result of an approximately $1.0 billion decrease in the FHLB advances and the repurchase, through a tender offer, of approximately $649 million of the outstanding 2.00% senior notes due May 2018. Offsetting these decreases was the issuance of $1.1 billion of 3.20% senior notes.

See Note 13 “Long-Term Borrowings” to the consolidated financial statements for further discussion and detailed listing of outstandings and rates.

Ratings

Table 23 “Credit Ratings” reflects the debt ratings information of Regions Financial Corporation and Regions Bank by Standard and Poor's ("S&P"), Moody’s, Fitch and Dominion Bond Rating Service ("DBRS") as of December 31, 2016 and 2015.

Table 23—Credit Ratings



	As of December 31, 2016
	S&P	Moody’s	Fitch	DBRS
Regions Financial Corporation
Senior unsecured debt	BBB	Baa2	BBB	BBBH
Subordinated debt	BBB-	Baa2	BBB-	BBB
Regions Bank
Short-term	A-2	P-1	F2	R-1L
Long-term bank deposits	N/A	A2	BBB+	AL
Long-term rating	BBB+	A2	BBB	N/A
Senior unsecured debt	BBB+	Baa2	BBB	AL
Subordinated debt	BBB	Baa2	BBB-	BBBH
Outlook	Stable	Stable	Positive	Stable



	As of December 31, 2015
	S&P	Moody’s	Fitch	DBRS
Regions Financial Corporation
Senior unsecured debt	BBB	Baa3	BBB	BBB
Subordinated debt	BBB-	Baa3	BBB-	BBBL
Regions Bank
Short-term	A-2	P-2	F2	R-1L
Long-term bank deposits	N/A	A3	BBB+	BBBH
Long-term rating	BBB+	A3	BBB	N/A
Senior unsecured debt	BBB+	Baa3	BBB	BBBH
Subordinated debt	BBB	Baa3	BBB-	BBB
Outlook	Stable	Stable	Stable	Positive

_________

N/A - not applicable.

On October 4, 2016, Fitch revised the outlook for Regions Financial Corporation to Positive from Stable, reflecting the Company’s capital and liquidity profile, improving earnings, and continued improvement in asset quality.

On November 2, 2016, Moody's upgraded the senior unsecured and subordinated debt ratings of Regions Financial Corporation. Further, Moody’s upgraded Regions Bank's long-term deposit, short-term deposit, senior unsecured and subordinated debt ratings. Following the upgrade, the outlook for the Company is Stable. The upgrade is reflective of the Company's continued improvement in asset quality, sensitivity to asset concentrations in its loan portfolio, reduction in direct-energy loan exposure, and strong capital and liquidity profile.

On December 9, 2016, DBRS upgraded the senior unsecured and subordinated debt ratings for Regions Financial Corporation. Further, DBRS upgraded Regions Bank’s long-term deposit, senior unsecured debt and subordinated debt ratings. The trend for all ratings is Stable. The upgrade is reflective of the progress the Company has made improving its asset quality and reducing its risk profile, while improving core profitability.

On February 10, 2017, S&P revised the outlook for Regions Financial Corporation, and its subsidiary, Regions Bank to Positive from Stable, indicating a possible one-notch upgrade over the next two years. The outlook upgrade is reflective of a reduction in energy loan exposure and the expectation of manageable non-performing assets and net charge-off levels in 2017 given improved energy prices and stability of economic trends in most of the Company’s major markets. Furthermore, the outlook revision cited the Company’s conservative business growth strategies and improved risk management.

In general, ratings agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, probability of government support, and level and quality of earnings. Any downgrade in credit ratings by one or more ratings agencies may impact Regions in several ways, including, but not limited to, Regions’ access to the capital markets or short-term funding, borrowing cost and capacity, collateral requirements, and acceptability of its letters of credit, thereby potentially adversely impacting Regions’ financial condition and liquidity. See the “Risk Factors” section of this Annual Report on Form 10-K for more information.

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

Stockholders' Equity

Stockholders’ equity was $16.7 billion at December 31, 2016 as compared to $16.8 billion at December 31, 2015. During 2016, net income increased stockholders’ equity by $1.2 billion, while cash dividends on common stock reduced stockholders' equity by $318 million and cash dividends on preferred stock reduced stockholder's equity by $64 million. Changes in accumulated other comprehensive income reduced stockholders' equity by $170 million, primarily due to the net change in the value of securities available for sale and derivative instruments. Common stock repurchased during 2016 reduced stockholders' equity by $839 million. These shares were immediately retired and therefore are not included in treasury stock.

On June 29, 2016, Regions received no objection from the Federal Reserve to its 2016 capital plan that was submitted as part of the CCAR process. In addition to continuing the $0.065 quarterly common stock dividend, actions that Regions may undertake as outlined in its capital plan include the repurchase of up to $640 million in common shares. The capital plan also provides the potential for a dividend increase beginning in the second quarter of 2017, which is expected to be considered by the Board in early 2017.

On July 14, 2016, Regions' Board authorized a new $640 million common stock repurchase plan, permitting repurchases from the beginning of the third quarter of 2016 through the second quarter of 2017. On October 12, 2016, Regions' Board authorized an additional $120 million repurchase, which increases the total amount authorized under the plan to $760 million. As of December 31, 2016, Regions had repurchased approximately 46.5 million shares of common stock at a total cost of approximately $485 million under this plan. The Company continued to repurchase shares under this plan in the first quarter of 2017, and as of February 23, 2017, Regions had additional repurchases of approximately 10.2 million shares of common stock at a total cost of approximately $149.8 million. All of these shares were immediately retired upon repurchase and, therefore, will not be included in treasury stock.

Regions’ Board increased the annual dividend to $0.255 per common share for 2016, compared to $0.23 per common share for 2015 and $0.18 per common share for 2014. The Board also declared $64 million in cash dividends on preferred stock for both 2016 and 2015, and $52 million for 2014. Prior to the first quarter of 2016, the Company was in a retained deficit position and common stock dividends were recorded as a reduction of additional paid-in capital, while preferred dividends were recorded as a reduction of preferred stock, including related surplus. During the first quarter of 2016, the Company achieved positive retained earnings and both common stock and preferred dividends were recorded as a reduction of retained earnings.

See Note 15 “Stockholders’ Equity and Accumulated Other Comprehensive Income (Loss)” to the consolidated financial statements for additional information.

REGULATORY REQUIREMENTS

CAPITAL RULES

Regions and Regions Bank are required to comply with regulatory capital requirements established by Federal and State banking agencies. These regulatory capital requirements involve quantitative measures of 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. See Note 14 "Regulatory Capital Requirements and Restrictions" to the consolidated financial statements for a tabular presentation of the applicable holding company and bank regulatory capital requirements.

In 2013, the Federal Reserve released its final rules detailing the U.S. implementation of the Basel III Rules. Under the Basel III Rules, Regions is designated as a standardized approach bank and, as such, began transitioning to the Basel III Rules in January 2015 subject to a phase-in period extending to January 2019. When fully phased in, the Basel III Rules will increase capital requirements through higher minimum capital levels as well as through increases in risk-weights for certain exposures. Additionally,

the Basel III Rules place greater emphasis on common equity. The Basel III Rules substantially revise the regulatory capital requirements applicable to BHCs and depository institutions, including Regions and Regions Bank. The Basel III Rules define the components of capital and address other issues affecting the numerator in banking institutions' regulatory capital ratios. The Basel III Rules also address risk weights and other issues affecting the denominator in banking institutions' regulatory capital ratios to incorporate a more risk-sensitive approach. The Basel III Rules also implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies' rules.

The Basel III Rules, among other things, (i) introduce a measure called CET1, (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expand the scope of the deductions/adjustments to capital as compared to prior regulations.

Under the Basel III Rules, the initial minimum capital ratios as of January 1, 2015 were as follows:


•	4.5% CET1 to risk-weighted assets.


•	6.0% Tier 1 capital to risk-weighted assets.


•	8.0% Total capital to risk-weighted assets.

The Basel III Rules also introduce a new capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer is on top of these minimum risk-weighted asset ratios. In addition, the Basel III Rules provide for a countercyclical capital buffer applicable only to advanced approach institutions. Currently the countercyclical capital buffer is not applicable to Regions or Regions Bank. The reportable capital conservation buffer is equal to the lowest difference between the three risk-based capital ratios less the applicable minimum required ratio. Banking institutions with ratios that are above the minimum but below the combined capital conservation buffer and countercyclical capital buffer (when applicable) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

When fully phased in on January 1, 2019, the Basel III Rules will require Regions and Regions Bank to maintain an additional capital conservation buffer of 2.5% of CET1 to risk-weighted assets, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii) Total capital to risk-weighted assets of at least 10.5%.

The Basel III Rules provide for a number of deductions from and adjustments to CET1. For example, goodwill and certain other intangible assets, as well as certain deferred tax assets are deducted. MSRs, certain other deferred tax assets and significant investments in non-consolidated financial entities are also deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1. Under the Basel III Rules, the effects of certain accumulated other comprehensive items are included; however, standardized approach banking organizations, including Regions and Regions Bank, may make a one-time permanent election to exclude these items. Regions and Regions Bank made this election in order to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of their securities portfolios.

Implementation of the deductions and other adjustments to CET1 began on January 1, 2015 and will be phased in over a 4-year period (beginning at 40% on January 1, 2015 and an additional 20% per year thereafter). The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and be phased in over a 3-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).

With respect to Regions Bank, the Basel III Rules also revise the prompt corrective action regulations pursuant to Section 38 of the Federal Deposit Insurance Act, by (i) introducing a CET1 ratio requirement at each level (other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the required Tier 1 capital ratio for well-capitalized status being 8% (as compared to the previous 6%); and (iii) eliminating the provision that provides that a bank with a composite supervisory rating of 1 may have a 3% leverage ratio and still be adequately capitalized. The Basel III Rules do not change the total capital requirement for any prompt corrective action category.

The Basel III Rules prescribe a standardized approach for risk weightings that expands the risk-weighting categories from the previous four Basel I-derived categories (0%, 20%, 50% and 100%) to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 1,250% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories. Specific changes to the prior capital rules impacting Regions' determination of risk-weighted assets include, among other things:


•	Applying a 150% risk weight for certain high volatility commercial real estate acquisition, development and construction exposures (previously set at 100%).


•	Assigning a 150% risk weight to exposures (other than residential mortgage exposures) that are on non-accrual status or 90 days or more past due (previously set at 100%).


•	Providing for a 20% credit conversion factor for the unused portion of a loan commitment with an original maturity of less than one year that is not unconditionally cancellable (previously set at 0%).


•	Eliminating the previous 50% cap on the risk weight for derivative exposures.


•	Replacing the previous Ratings Based Approach for certain asset-backed securities with a SSFA, which results in risk weights ranging from 20% to 1,250% (previously ranged from 100% to 1,250%).


•	Effective January 1, 2018, applying a 250% risk weight to the portion of MSRs and certain deferred tax assets that are includible in capital (previously set at 100%).

In addition, the Basel III Rules also provide more advantageous risk weights for derivatives and repurchase-style transactions cleared through a qualifying central counterparty and increase the scope of eligible guarantors and eligible collateral for purposes of credit risk mitigation.

The Company’s estimated CET1 ratio on a fully phased-in basis as of December 31, 2016 was approximately 11.05% and therefore exceeded the Basel III minimum plus capital conservation buffer requirement of 7% for CET1. Because the Basel III capital calculations will not be fully phased in until 2019 and are not formally defined by GAAP, this measure is considered to be a non-GAAP financial measure, and other entities may calculate it differently than Regions’ disclosed calculation (see Table 2 “GAAP to Non-GAAP Reconciliation” for further details).

LIQUIDITY COVERAGE RATIO

The Federal Reserve, the OCC and the FDIC approved a final rule in 2014 implementing a minimum LCR requirement for certain large BHCs, savings and loan holding companies and depository institutions, and a less stringent LCR requirement (the "modified LCR") for other banking organizations, such as Regions, with $50 billion or more in total consolidated assets. The final rule imposes a monthly calculation requirement. As of January 1, 2017, the LCR calculation rule has been fully phased in. In December 2016, the Federal Reserve issued a final rule on the public disclosure of the LCR calculation that requires BHCs, such as Regions, to disclose publicly, on a quarterly basis, quantitative and qualitative information about certain components of its LCR beginning October 1, 2018.

At December 31, 2016, the Company was fully compliant with the LCR requirements. However, should the Company's cash position or investment mix change in the future, the Company's ability to meet the LCR requirement may be impacted, and additional funding may need to be sourced to remain compliant.

See the “Supervision and Regulation—Liquidity Regulation” subsection of the “Business” section and the “Risk Factors” section for more information.

OFF-BALANCE SHEET ARRANGEMENTS

Regions periodically invests in various limited partnerships that sponsor affordable housing projects, which are funded through a combination of debt and equity. See Note 2 “Variable Interest Entities” to the consolidated financial statements for further discussion.

Regions' off-balance sheet credit risk includes obligations for loans sold with recourse, unfunded loan commitments, and letters of credit. See Note 7 "Servicing of Financial Assets" and Note 24 "Commitments, Contingencies and Guarantees" to the consolidated financial statements for further discussion.

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 that are greatly impacted by inflation. 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 potential impact of inflation on financial results is a direct result of Regions’ ability to manage the impact of changes in interest rates. Management attempts to maintain an essentially balanced position between rate-sensitive assets and liabilities in order to minimize the impact of interest rate fluctuations on net interest income and other financing income. However, this goal can be difficult to completely achieve in times of rapidly changing rate structure and is one of many factors considered in determining the Company’s interest rate positioning. The Company is moderately asset sensitive as of December 31, 2016. Refer to Table 24 “Interest Rate Sensitivity” for additional details on Regions’ interest rate sensitivity.

EFFECTS OF DEFLATION

A period of deflation would affect all industries, including financial institutions. Potentially, deflation could lead to lower profits, higher unemployment, lower production and deterioration in overall economic conditions. In addition, deflation could depress economic activity and impair bank earnings through increasing the value of debt while decreasing the value of collateral

for loans. If the economy experienced a severe period of deflation, then it could depress loan demand, impair the ability of borrowers to repay loans and sharply reduce bank earnings.

Management believes the most significant potential impact of deflation on financial results relates to Regions’ ability to maintain a sufficient amount of capital to cushion against future losses. However, the Company can utilize certain risk management tools to help it maintain its balance sheet strength even if a deflationary scenario were to develop.

RISK MANAGEMENT

Regions is exposed to various risks as part of the normal course of operations. The exposure to risk requires sound risk management practices that comprise an integrated and comprehensive set of programs and processes that apply to the entire Company. Accordingly, Regions has established a risk management framework to manage risks and provide reasonable assurance of the achievement of the Company’s strategic objectives.

The primary risk exposures identified and managed through the Company’s risk management framework are market risk, liquidity risk, credit risk, operational risk, legal risk, compliance risk, reputational risk and strategic risk.


•	Market risk is the risk to Regions’ financial condition resulting from adverse movements in market rates or prices, such as interest rates, foreign exchange rates or equity prices.

•

Liquidity risk is the potential that the Company will be unable to meet its obligations as they come due because of an inability to liquidate assets or obtain adequate funding (referred to as "funding liquidity risk") or the potential that it cannot easily unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions ("market liquidity risk").


•	Credit risk is the risk that arises from the potential that a borrower or counterparty will fail to perform on an obligation.


•	Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events.


•	Legal risk is the risk that arises from the potential that unenforceable contracts, lawsuits, or adverse judgments can disrupt or otherwise negatively affect the operations or condition of the Company.


•	Compliance risk is the risk to current or anticipated earnings or capital arising from violations of laws, rules, or regulations, or from non-conformance with prescribed practices, internal policies and procedures, or ethical standards.


•	Reputational risk is the potential that negative publicity regarding Regions' business practices, whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions.


•	Strategic risk is the risk to current or anticipated earnings, capital, or franchise or enterprise value arising from adverse business decisions, poor implementation of business decisions, or lack of responsiveness to changes in the banking industry and operating environment.

Several of these primary risk exposures are expanded upon further within the remaining sections of Management's Discussion and Analysis.

Regions’ risk management framework outlines the Company’s approach for managing risk that includes the following four components:

•

Culture - A strong, collaborative risk culture ensures focus on risk in all activities and encourages the necessary mindset and behavior to enable effective risk management and promote sound risk-taking within the bounds of the Company’s risk appetite. Our risk culture requires that risks be promptly identified, escalated, and challenged; thereby, benefiting the overall performance of the Company.


•	Appetite - The Company's risk appetite statements define the types and levels of risk the Company is willing to take to achieve its objectives.


•	Process - Effective risk management requires sustainable processes and tools to effectively identify, measure, mitigate, monitor, and report risk.


•	Governance - Governance serves as the foundation for comprehensive management of risks facing the Company. It outlines clear responsibility and accountability for managing, monitoring, escalating, and reporting both existing and emerging risks.

Clearly defined roles and responsibilities are critical to the effective management of risk and are central to the four components of the Company’s approach to risk management. Regions utilizes the Three Lines of Defense concept to clearly designate risk management activities within the Company.


•	1st Line of Defense activities provide for the identification, acceptance and ownership of risks.


•	2nd Line of Defense activities provide for objective oversight of the Company’s risk-taking activities and assessment of the Company’s aggregate risk levels.


•	3rd Line of Defense activities provide for independent reviews and assessments of risk management practices across the Company.

The Board provides the highest level of risk management governance. The principal risk management functions of the Board are to oversee processes for evaluating the adequacy of internal controls, risk management, financial reporting and compliance with laws and regulations. The Board has designated an Audit Committee of outside directors to focus on oversight of management's establishment and maintenance of appropriate disclosure controls and procedures over financial reporting. See the "Financial Disclosures and Internal Controls" section of Management's Discussion and Analysis for additional information. The Board has also designated a Risk Committee of outside directors to focus on Regions’ overall risk profile. The Risk Committee annually approves an Enterprise Risk Appetite Statement that reflects core business principles and strategic vision by including quantitative limits and qualitative statements that are organized by risk type. This statement is designed to be a high-level document that sets the tone for the Board’s risk appetite, which is the maximum amount of risk the Company is willing to accept in pursuit of its business objectives. By establishing boundaries around risk taking and business decisions, and by incorporating the needs and goals of its stockholders, regulators, customers and other stakeholders, the Company’s risk appetite is aligned with its strategic priorities and goals.

The Risk Management Group, led by the Company’s Chief Risk Officer, ensures the consistent application of Regions’ risk management approach within the structure of the Company’s operating, capital and strategic plans. The primary activities of the Risk Management Group include:


•	Interpreting internal and external signals that point to possible risk issues for the Company;


•	Identifying risks and determining which Company areas and/or products will be affected;


•	Ensuring there are mechanisms in place to specifically determine how risks will affect the Company as a whole and the individual area and or product;


•	Assisting business groups in analyzing trends and ensuring Company areas have appropriate risk identification and mitigation processes in place; and


•	Reviewing the limits, parameters, policies, and procedures in place to ensure the continued appropriateness of risk controls.

As part of its ongoing assessment process, the Risk Management Group makes recommendations to management and the Risk Committee of the Board regarding adjustments to these controls as conditions or risk tolerances change. In addition, the Internal Audit division provides an independent assessment of the Company’s internal control structure and related systems and processes.

Management, with the assistance of the Risk Management Group, follows a formal process for identifying, measuring and documenting key risks facing each business group and determining how those risks can be controlled or mitigated, as well as how the controls can be monitored to ensure they are effective. The Risk Committee receives reports from management to ensure operations are within the limits established by the Committee’s Enterprise Risk Appetite Statement.

Some of the more significant processes used by management to manage and control risks are described in the remainder of this report. External factors beyond management’s control may result in losses despite the Risk Management Group’s efforts.

MARKET RISK—INTEREST RATE RISK

Regions’ primary market risk is interest rate risk. This includes uncertainty with respect to absolute interest rate levels as well as relative interest rate levels, which are impacted by both the shape and the slope of the various yield curves that affect the financial products and services that the Company offers. To quantify this risk, Regions measures the change in its net interest income and other financing income in various interest rate scenarios compared to a base case scenario. Net interest income and other financing income sensitivity to market rate movements is a useful short-term indicator of Regions’ interest rate risk.

Sensitivity Measurement—Financial simulation models are Regions’ primary tools used to measure interest rate exposure. Using a wide range of sophisticated simulation techniques provides management with extensive information on the potential impact to net interest income and other financing income caused by changes in interest rates. Models are structured to simulate cash flows and accrual characteristics of Regions’ balance sheet. Assumptions are made about the direction and volatility of interest rates, the slope of the yield curve, and 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 pricing of deposit accounts, prepayments and other option risks. Regions considers these factors, as well as the degree of certainty or uncertainty surrounding their future behavior.

The primary objective of asset/liability management at Regions is to coordinate balance sheet composition with interest rate risk management to sustain reasonable and stable net interest income and other financing income throughout various interest rate cycles. In computing interest rate sensitivity for measurement, Regions compares a set of alternative interest rate scenarios to the results of a base case scenario based on “market forward rates.” The standard set of interest rate scenarios includes the traditional instantaneous parallel rate shifts of plus 100 and 200 basis points. While not presented, up-rate scenarios of greater magnitude are also analyzed. Regions prepares a minus 50 basis points scenario, as minus 100 and 200 basis points scenarios are of limited use in the current rate environment. In addition to parallel curve shifts, multiple curve steepening and flattening scenarios are contemplated. Regions includes simulations of gradual interest rate movements phased in over a six-month period that may more realistically mimic the speed of potential interest rate movements.

Exposure to Interest Rate Movements—As of December 31, 2016, Regions was moderately asset sensitive to both gradual and instantaneous parallel yield curve shifts as compared to the base case for the measurement horizon ending December 2017. The estimated exposure associated with the parallel yield curve shift of minus 50 basis points in the table below reflects the combined impacts of movements in short-term and long-term interest rates. The decline in short-term interest rates (such as the Fed Funds rate and the rate of Interest on Excess Reserves) will lead to a reduction of yield on assets and liabilities contractually tied to such rates. Recent Federal Funds increases have not resulted in higher deposit costs for Regions. Therefore, it is expected that declines in deposit costs will only partially offset the decline in asset yields. A reduction in long-term interest rates (such as intermediate to longer-term U.S. Treasuries, swap and mortgage rates) will drive yields lower on certain fixed rate, newly originated or renewed loans, reduce prospective yields on certain investment portfolio purchases, and increase amortization of premium expense on existing securities in the investment portfolio.

With respect to sensitivity to long-term interest rates, the balance sheet is estimated to be moderately asset sensitive. Current simulation models estimate that, as compared to the base case, net interest income and other financing income over a 12 month horizon would respond favorably by approximately $96 million if longer-term interest rates were to immediately and on a sustained basis exceed the base scenario by 100 basis points. Conversely, if longer-term interest rates were to immediately and on a sustained basis underperform the base case by 50 basis points, then net interest income and other financing income, as compared to the base case, would decline by approximately $54 million. Higher long-term rates experienced during the fourth quarter reduced the interest income sensitivity afforded by potential further extension of investment securities and the resulting impact on premium amortization. While the benefit of lower premium amortization will persist, incremental improvements will be smaller than observed through the recent market rate increase. Estimates may vary to the extent that long-term yield curve basis relationships change. The table below summarizes Regions' positioning in various parallel yield curve shifts (i.e. including both long-term and short-term interest rates). The scenarios are inclusive of all interest rate risk hedging activities.

Table 24—Interest Rate Sensitivity



	Estimated Annual Change in Net Interest Income and Other Financing Income December 31, 2016
	(In millions)
Gradual Change in Interest Rates
+ 200 basis points	$	219
+ 100 basis points	127
- 50 basis points	(66		)

Instantaneous Change in Interest Rates
+ 200 basis points	$	222
+ 100 basis points	152
- 50 basis points	(107		)

As discussed above, the interest rate sensitivity analysis presented in Table 24 is informed by a variety of assumptions and estimates regarding the course of the balance sheet in both the baseline scenario as well as the scenarios of instantaneous and gradual shifts in the yield curve. Though there are many assumptions which affect the estimates for net interest income and other financing income, those pertaining to deposit pricing, deposit mix and overall balance sheet composition are particularly impactful. Given the uncertainties associated with interest rate increases following a prolonged period of low interest rates, management evaluates the impact to its sensitivity analysis of these key assumptions. Sensitivity calculations are hypothetical and should not be considered to be predictive of future results.

The Company’s baseline balance sheet growth assumptions include continued moderate loan and deposit growth reflecting management's best estimate. The behavior of deposits in response to changes in interest rate levels is largely informed by analyses of prior rate cycles, but with suitable adjustments based on management’s expectations in the current rate environment. In the + 200 basis point gradual interest rate change scenario in Table 24, the total cumulative interest bearing deposit re-pricing sensitivity

is expected to be approximately 60 percent of changes in short-term market rates (e.g. Fed Funds), as compared to approximately 55 percent in the 2004 to 2007 historical timeframe. A 5 percentage point higher sensitivity than the 60 percent baseline would reduce 12 month net interest income and other financing income in the gradual +200 basis points scenario by approximately $74 million. While the estimates should be used as a guide, differences may result driven by the pace of rate changes, and other market and competitive factors.

Similarly, management assumes that the change in the mix of deposits in a rising rate environment versus the baseline balance sheet growth assumptions is informed by analyses of prior rate cycles. Management assumes that in rising rate scenarios, some shift from non-interest bearing to interest-bearing products will occur. The magnitude of the shift is rate dependent, but equates to approximately $3.5 billion over 12 months in the gradual +200 basis point scenario in Table 24. In the event this shift increased by an additional $3.0 billion over 12 months, the result would be a reduction of 12 month net interest income and other financing income in the gradual +200 basis points scenario by approximately $25 million.

Interest rate movements may also have an impact on the value of Regions’ securities portfolio, which can directly impact the carrying value of stockholders’ equity. Regions from time to time may hedge these price movements with derivatives (as discussed below).

Derivatives—Regions uses financial derivative instruments for management of interest rate sensitivity. ALCO, which consists of members of Regions’ senior management team, in its oversight role for the management of interest rate sensitivity, approves the use of derivatives in balance sheet hedging strategies. Derivatives are also used to offset the risks associated with customer derivatives, which include interest rate, credit and foreign exchange risks. The most common derivatives Regions employs are forward rate contracts, Eurodollar futures contracts, interest rate swaps, options on interest rate swaps, interest rate caps and floors, and forward sale commitments.

Forward rate contracts are commitments to buy or sell financial instruments at a future date at a specified price or yield. A Eurodollar futures contract is a future on a Eurodollar deposit. Eurodollar futures contracts subject Regions to market risk associated with changes in interest rates. Because futures contracts are cash settled daily, there is minimal credit risk associated with Eurodollar futures. Interest rate swaps are contractual agreements typically entered into to exchange fixed for variable (or vice versa) streams of interest payments. The notional principal is not exchanged but is used as a reference for the size of interest settlements. Interest rate options are contracts that allow the buyer to purchase or sell a financial instrument at a predetermined price and time. Forward sale commitments are contractual obligations to sell market instruments at a future date for an already agreed-upon price. 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 by customers to manage fluctuations in foreign exchange rates. The Company is subject to the credit risk that another party will fail to perform.

Regions has made use of interest rate swaps in balance sheet hedging strategies to effectively convert a portion of its fixed-rate funding position and available for sale securities portfolios to a variable-rate position and to effectively convert a portion of its variable-rate loan portfolios to fixed-rate. Regions also uses derivatives to economically manage interest rate and pricing risk associated with its mortgage origination business. 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 contracts and forward sale commitments are used to protect the value of the loan pipeline and loans held for sale from changes in interest rates and pricing.

The following table presents additional information about the interest rate swaps used by Regions to manage interest rate risk:

Table 25—Hedging Derivatives by Interest Rate Risk Management Strategy



	December 31, 2016
	Notional Amount		Estimated Fair Value				Weighted-Average
	Notional Amount		Gain		Loss		Maturity (Years)	Receive Rate		Pay Rate
	(Dollars in millions)
Interest rate swaps:
Derivatives in fair value hedging relationships:
Receive fixed/pay variable	$	1,850	$	1	$	26	3.1	1.2	%	0.9	%
Receive variable/pay fixed	407		6		14		10.4	0.8		2.5
Derivatives in cash flow hedging relationships:
Receive fixed/pay variable	9,000		19		269		4.9	1.3		0.7
Total derivatives designated as hedging instruments	$	11,257	$	26	$	309	4.8	1.3	%	0.8	%

Regions manages the credit risk of these instruments in much the same way as it manages credit risk of the loan portfolios by establishing credit limits for each counterparty and through collateral agreements for dealer transactions. For non-dealer transactions, the need for collateral is evaluated on an individual transaction basis and is primarily dependent on the financial strength of the counterparty. Credit risk is also reduced significantly by entering into legally enforceable master netting agreements. When there is more than one transaction with a counterparty and there is a legally enforceable master netting agreement in place, the exposure represents the net of the gain and loss positions with and collateral received from and/or posted to that counterparty. The majority of interest rate derivatives traded by Regions are subject to mandatory clearing. The counterparty risk for cleared trades effectively moves from the executing broker to the clearinghouse allowing Regions to benefit from the risk mitigation controls in place at the respective clearinghouse. The “Credit Risk” section in this report contains more information on the management of credit risk.

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. Other derivatives instruments with similar characteristics are used to hedge market risk and minimize volatility associated with this portfolio. Instruments used to service customers are held in the trading account, with changes in value recorded in the consolidated statements of income.

The primary objective of Regions’ hedging strategies is to mitigate the impact of interest rate changes, from an economic perspective, on net interest income and other financing income and the net present value of its balance sheet. The overall effectiveness of these hedging strategies is subject to market conditions, the quality of Regions’ execution, the accuracy of its valuation assumptions, counterparty credit risk and changes in interest rates. See Note 21 “Derivative Financial Instruments and Hedging Activities” to the consolidated financial statements for a tabular summary of Regions’ year-end derivatives positions and further discussion.

Regions accounts for residential MSRs at fair market value with any changes to fair value being recorded within mortgage income. Regions enters into derivative and balance sheet transactions to economically mitigate the impact of market value fluctuations related to residential MSRs. Derivative instruments entered into in the future could be materially different from the current risk profile of Regions’ current portfolio.

MARKET RISK—PREPAYMENT RISK

Regions, like most financial institutions, is subject to changing prepayment speeds on mortgage-related assets under different interest rate environments. Prepayment risk is a significant risk to earnings and specifically to net interest income and other financing income. For example, mortgage loans and other financial assets may be prepaid by a debtor, so that the debtor may refinance its obligations at lower rates. As loans and other financial assets prepay in a falling rate environment, Regions must reinvest these funds in lower-yielding assets. Prepayments of assets carrying higher rates reduce Regions’ interest income and overall asset yields. Conversely, in a rising rate environment, these assets will prepay at a slower rate, resulting in opportunity cost by not having the cash flow to reinvest at higher rates. Prepayment risk can also impact the value of securities and the carrying value of equity. Regions’ greatest exposures to prepayment risks primarily rest in its mortgage-backed securities portfolio, the mortgage fixed-rate loan portfolio and the residential MSR, all of which tend to be sensitive to interest rate movements. Each of these assets is also exposed to prepayment risk due to factors which are not necessarily the result of interest rates, but rather due to changes in policies or programs related, either directly or indirectly, to the U.S. Government's governance over certain lending and financing within the mortgage market. Such policies can work to either encourage or discourage financing dynamics and represent a risk that is extremely difficult to forecast and may be the result of non-economic factors. The Company attempts to monitor and manage such exposures within reasonable expectations while acknowledging all such risks cannot be foreseen or avoided. Further, Regions has prepayment risk that would be reflected in non-interest income in the form of servicing income on the residential MSR. Regions actively monitors prepayment exposure as part of its overall net interest income and other financing income forecasting and interest rate risk management.

LIQUIDITY RISK

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. In 2014, the Federal Reserve Board, the OCC and the FDIC released the final version of the liquidity coverage ratio rule, which is designed to ensure that financial institutions have the necessary assets on hand to withstand short-term liquidity disruptions. See the "Liquidity Coverage Ratio" discussion included in the "Regulatory Requirements" section of Management's Discussion and Analysis for additional information.

Regions intends to fund its obligations primarily through cash generated from normal operations. In addition to these obligations, Regions has obligations related to potential litigation contingencies. See Note 24 “Commitments, Contingencies and Guarantees” to the consolidated financial statements for additional discussion of the Company’s funding requirements.

Assets, consisting principally of loans and securities, are funded by customer deposits, borrowed funds and stockholders’ equity. Regions’ goal in liquidity management is to satisfy the cash flow requirements of depositors and borrowers, while at the same time meeting the Company’s cash flow needs. Having and using various sources of liquidity to satisfy the Company’s funding requirements is important.

In order to ensure an appropriate level of liquidity is maintained, Regions performs specific procedures including scenario analyses and stress testing at the bank, holding company, and affiliate levels. Regions' liquidity policy requires the holding company to maintain cash sufficient to cover the greater of (1) 18 months of debt service and other cash needs or (2) a minimum cash balance of $500 million. Compliance with the holding company cash requirements is reported to the Risk Committee of the Board on a quarterly basis. Regions also has minimum liquidity requirements for the Bank and subsidiaries. The Bank's funding and contingency planning does not include any reliance on short-term unsecured sources. Risk limits are established within the Company's Liquidity Risk Oversight Committee and ALCO, which regularly reviews compliance with the established limits.

The securities portfolio is one of Regions’ primary sources of liquidity. Proceeds from maturities and principal and interest payments of securities provide a constant flow of funds available for cash needs (see Note 4 “Securities” to the consolidated financial statements). The agency guaranteed mortgage-backed securities portfolio is another source of liquidity in various secured borrowing capacities.

Maturities in the loan portfolio also provide a steady flow of funds. Additional funds are provided from payments on consumer loans and one-to-four family residential first mortgage loans. Regions’ liquidity is further enhanced by its relatively stable customer deposit base. Liquidity needs can also be met by borrowing funds in state and national money markets, although Regions does not currently rely on short-term unsecured wholesale market funding.

The balance with the FRB is the primary component of the balance sheet line item, “interest-bearing deposits in other banks.” At December 31, 2016, Regions had approximately $3.6 billion in cash on deposit with the Federal Reserve, down approximately 9 percent from 2015. The average balance held with the Federal Reserve was approximately $2.6 billion during both 2016 and 2015.

Regions’ borrowing availability with the FRB as of December 31, 2016, based on assets pledged as collateral on that date, was $15.6 billion.

Regions’ financing arrangement with the FHLB adds additional flexibility in managing the Company's liquidity position. As of December 31, 2016, Regions’ outstanding balance of FHLB borrowings was $4.3 billion and its total borrowing capacity from the FHLB totaled approximately $16.4 billion. FHLB borrowing capacity is contingent on the amount of collateral pledged to the FHLB. Regions Bank pledged certain securities, commercial real estate mortgage loans, residential first mortgage loans on one-to-four family dwellings and home equity lines of credit as collateral for the FHLB advances outstanding. Additionally, investment in FHLB stock is required in relation to the level of outstanding borrowings. Refer to Note 8 "Other Earning Assets" to the consolidated financial statements for additional information. The FHLB has been and is expected to continue to be a reliable and economical source of funding.

Regions maintains a shelf registration statement with the U.S. Securities and Exchange Commission that can be utilized by Regions to issue various debt and/or equity securities. Regions may also issue bank notes from time to time, either as part of a bank note program or as stand-alone issuances. Refer to Note 13 "Long-Term Borrowings" to the consolidated financial statements for additional information.

Regions may, from time to time, consider opportunistically retiring outstanding issued securities, including subordinated debt in privately negotiated or open market transactions for cash or common shares. Regulatory approval would be required for retirement of some instruments.

Table 26—Contractual Obligations

Regions' contractual obligations and expected payment dates are presented in the following table:



	Payments Due By Period ⁽¹⁾
	Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years		Indeterminable Maturity		Total
	(In millions)
Deposits ⁽²⁾	$	3,189	$	2,207	$	1,828	$	187	$	91,624	$	99,035
Long-term borrowings	4,252		1,353		1,106		1,202		—		7,913
Lease obligations	136		218		144		263		—		761
Purchase obligations	22		54		26		36		—		138
Benefit obligations ⁽³⁾	44		24		38		68		—		174
Commitments to fund low income housing partnerships ⁽⁴⁾	653		—		—		—		—		653
Unrecognized tax benefits ⁽⁵⁾	—		—		—		—		35		35
Indemnification obligation ⁽⁶⁾	28		—		—		—		—		28
	$	8,324	$	3,856	$	3,142	$	1,756	$	91,659	$	108,737

_________


(1)	See Note 24 “Commitments, Contingencies and Guarantees” to the consolidated financial statements for the Company’s commercial commitments at December 31, 2016.


(2)	Deposits with indeterminable maturity include non-interest bearing demand, savings, interest-bearing transaction accounts and money market accounts.


(3)	Amounts only include obligations related to the unfunded non-qualified pension plan and postretirement health care plan.

(4)

Commitments to fund low income housing partnerships includes commitments to make future investments, short-term construction loans and letters of credit, as well as the funded portions of these loans and letters of credit. All of these items are short-term in nature and the majority do not have defined maturity dates. Therefore, they have all been considered due on demand, maturing one year or less. See Note 2 "Variable Interest Entities" to the consolidated financial statements for additional information.


(5)	Includes liabilities for unrecognized tax benefits of $31 million and tax-related interest and penalties of $4 million. See Note 20 “Income Taxes” to the consolidated financial statements.


(6)	See Note 24 “Commitments, Contingencies and Guarantees” to the consolidated financial statements for a description of the indemnification obligation to Raymond James, and the rationale for the expected payment timeframe.

CREDIT RISK

Regions’ objective regarding credit risk is to maintain a high-quality credit portfolio that provides for stable credit costs with acceptable volatility through an economic cycle. Regions has various processes to manage credit risk as described below. In order to assess the risk profile of the loan portfolio, Regions considers risk factors within the loan portfolio segments and classes, the current U.S. economic environment and that of its primary banking markets, as well as counterparty risk. See the "Portfolio Characteristics" section found earlier in this report for further information regarding the loan portfolio. See further discussion of the current U.S. economic environment and counterparty risk below.

Management Process

Credit risk is managed by maintaining a sound credit risk culture, throughout all lines of defense, which ensures that the levels and types of risk taken are aligned with Regions' credit risk appetite. The credit quality of borrowers and counterparties has a significant impact on Regions' earnings; however, the nature of the risk differs by each of the defined businesses which engage in multiple forms of commercial, investor real estate and consumer lending. Regions categorizes the credit risks it faces by asset quality, counterparty exposure, and diversification levels which provides a structure to assess credit risk and guides credit decision-making. Credit policies, another key component of Regions' culture, are designed and adjusted, as needed, to promote sound credit risk management. These policies guide lending activities in a manner consistent with our strategy and provide a framework for achieving asset quality and earnings objectives.

Effective credit risk management requires coordinated identification, measurement, mitigation, monitoring and reporting of credit risk exposure, credit quality, and emerging risk trends. Accordingly, Regions has implemented a credit risk governance structure that provides oversight from the Board to the organizational units in order to maintain open channels of communication.

Occasionally, borrowers and counterparties do not fulfill their obligations and Regions must take steps to mitigate and manage losses. Teams are in place to appropriately identify and manage nonperforming loans, collections, loan modifications, and loss mitigation efforts. Regions maintains an allowance that management considers adequate to absorb losses inherent in the portfolio.

For a discussion of the process and methodology used to calculate the allowance for credit losses refer to the “Critical Accounting Estimates and Related Policies” section found earlier in this report, and Note 1 “Summary of Significant Accounting Policies” and Note 6 “Allowance for Credit Losses” to the consolidated financial statements. Details regarding the allowance for credit losses, including an analysis of activity from the previous year’s total, are included in Table 15 “Allowance for Credit Losses.” Also, refer to Table 16 “Allocation of the Allowance for Loan Losses” for details pertaining to management’s allocation of the allowance for loan losses to each loan category.

Responsibility and accountability for effectively managing all risks, including credit risk, in the various business units lies with the first line of defense. Credit Risk Management, in the second line of defense, oversees, assesses and effectively challenges the risk-taking activities of the first line of defense. Finally, Credit Risk Review provides ongoing oversight, as a third line of defense function, of the credit portfolios to ensure Regions’ activities, and controls, are appropriate for the size, complexity and risk profile of the Company.

Economic Environment in Regions’ Banking Markets

One of the primary factors influencing the credit performance of Regions’ loan portfolio is the overall economic environment in the U.S. and the primary markets in which it operates. Preliminary data shows the U.S. economy grew at a rate of just 1.5 percent in 2016, down from 2.6 percent in 2015 and below the average 2.1 percent annual growth realized since the end of the 2007 to 2009 recession. Growth over the first half of 2016 was notably slow, due to weakness in business investment and residential fixed investment and the continuation of a persistent inventory correction. Growth picked up considerably in the third quarter of 2016, with real GDP growth of 3.5 percent, and fourth quarter growth was approximately 2.0 percent (annualized rates). Consumer

spending was again the key driver of overall economic growth in 2016. According to preliminary data, private domestic demand grew at a rate of 2.3 percent in 2016, after adjusting for inflation.

Business investment spending was a persistent drag on top-line growth in 2016, as was also the case in 2015. One key difference, however, is that while in 2015 weakness in business investment spending was mainly a function of sharp cutbacks in energy-related investments, the weakness was more broad-based in 2016. In an environment of persistently slow top-line growth and an already considerable degree of idle industrial capacity, companies had little incentive to undertake capital investment in 2016. Weak business investment spending in turn contributed to generally weak conditions in manufacturing in 2016, with the exception of automotive and automotive parts manufacturers. Additionally, domestic manufacturing was also impacted by a soft global growth environment that resulted in U.S. exports of goods being basically unchanged from 2015.

In contrast, another year of steadily improving labor market conditions led to solid growth in inflation adjusted personal income that, in turn, supported growth in consumer spending. In addition to improved labor market conditions, U.S. consumers also benefitted from low interest rates, low inflation, and rising household net worth. Consumers responded by not only increasing discretionary spending, but also by building up savings and paying down debt. Household balance sheets ended 2016 in better condition than has been the case for several years.

Over the course of 2016 there was considerable volatility in financial markets, both in the U.S. and abroad. Early in 2016, fears that growth in the Chinese economy would slow sharply and perhaps touch off broad based deflation led to a decline in long-term U.S. interest rates. In the aftermath of the Brexit vote in late June, long-term U.S. interest rates fell even more sharply, with yields on 10-year U.S. Treasury notes falling below 1.4 percent. Following the November elections, however, long-term interest rates jumped dramatically and closed the year at just under 2.5 percent with short-term rates rising by a lesser extent. Expectations that both growth and inflation would be faster than has been the case in recent years pushed market interest rates and the exchange value of the U.S. dollar sharply higher.

The FOMC raised the mid-point of the Fed funds rate target range by 25 basis points in December, making 2016 the second consecutive year in which the FOMC raised the target range mid-point only once. Given the uncertainty around the path of the U.S. economy, a soft global growth environment, and inflation remaining below their 2.0 percent target rate, the FOMC had the latitude to remain patient on removing monetary accommodation. Currently, however, the FOMC has less latitude to remain patient and the “dot plot” released in conjunction with their December 2016 meeting implied three 25-basis point hikes in the Fed funds rate target range mid-point in 2017, one more than had been implied in the prior edition of the dot plot released in conjunction with the September 2016 FOMC meeting.

Differentials in rates of economic growth and central bank policy paths could be a source of persistent upward pressure on the exchange value of the U.S. dollar in 2017. Further dollar appreciation would act as a drag on growth in U.S. exports and on U.S. corporate profits, and would put further downward pressure on prices of imported goods, thereby making it harder for the FOMC to hit their inflation target. These differentials could also be a source of persistent volatility in global financial markets in 2017 that could result in sharp swings in asset prices, market interest rates, and exchange rates around a fairly stable mean. As such, while Regions looks for moderate increases in long-term U.S. interest rates in 2017, a considerable degree of volatility and sharp swings, in either direction, that ultimately will not be sustained is expected.

The FOMC is currently trying to assess what significant changes to fiscal, regulatory, and trade policy will alter the course of the U.S. economy, and to a lesser extent the global economy, in 2017. With no specific policy proposals yet on the table, it is not possible to quantify the effects on economic growth and Regions’ baseline forecast for 2017 continues to call for real GDP growth of 2.1 percent. Consumer spending and housing, single family housing in particular, are expected to be the primary drivers for growth in 2017. Based on the likely contours of changes to policy in 2017, however, potential upside risks to a baseline outlook from fiscal and regulatory policy and potential downside risks from trade policy exist. Business investment spending and government spending are two areas that may have the most upside potential, while exports, and by extension manufacturing, may have the most downside potential. It should be noted that the outlook for housing would be less favorable should we see continued increases in mortgage interest rates occur following the increases already seen after the November elections. On the whole, Regions believes the potential upside risks to growth outweigh the potential downside risks to growth.

That said, Regions thinks many analysts are discounting the likelihood that the policy changes that ultimately emerge from the legislative process will be less impactful than what was discussed during the course of the Presidential campaign, and also believes the legislative process may take longer than many analysts seem to be expecting. As such, Regions does not expect meaningful impacts on economic growth until the fourth quarter of 2017, meaning growth for the year is not likely to stray far from its baseline forecast. Regions does, however, see more upside potential for growth in 2018.

Within the Regions footprint, rates of job, income, and overall economic growth have been and are expected to remain broadly consistent with those seen nationally. There are, however, differences in rates of growth among the individual states and metropolitan areas across the footprint. Markets with exposure to energy and trade underperformed in 2016, as was the case in 2015, though by year-end some firming in crude oil prices brought some relief to those markets with heavy energy exposure. Should the U.S. economy and the global economy evolve as expected in 2017, energy prices should remain fairly stable. However, should trade policy evolve along the lines discussed during the Presidential campaign, those markets with heavy exposure to trade could suffer

from lower export and import volumes, and in turn diminished shipping volumes would take a toll on domestic transportation operations. Those markets which are larger and more economically diverse and boast demographic trends have been and are expected to remain among the better performing markets within Regions' footprint. Housing market activity appears to be picking up at a steady pace within Regions' footprint. As is the case for the U.S. as a whole, multi-family construction has rebounded far more rapidly than has single family construction. Over the course of 2017, it is expected single family construction will take on a larger role while multi-family construction will begin to recede from cyclical peaks as there is a considerable degree of supply in the pipeline. Further increases in mortgage interest rates could alter both the outlook for overall residential construction and the mix between single family and multi-family construction. As has been the case nationally, house price appreciation in Regions’ larger metro area markets picked up notably over the course of 2016, but a slower pace of price appreciation in 2017 is expected.

In summation, real GDP growth is expected to be in the 2.0 percent to 2.5 percent range for 2017 and 2018 but at present upside risks to a baseline outlook depending on the evolution of economic and regulatory policy exist in the coming months. The global growth outlook remains uneven and uncertain and this could be a source of volatility in global financial markets in 2017 even if there is limited economic impact in the U.S. The FOMC will face a new set of challenges in 2017, given the potential shifts in fiscal, regulatory, and trade policy, and as such greater scope for not only more aggressive action on the part of the FOMC than has been the case in recent years, but also for policy decisions that could add to volatility in global financial markets may be seen.

Counterparty Risk

Counterparty risk within Regions Bank is the risk that the counterparty to a transaction or contract could be unable or unwilling to fulfill its contractual or legal obligations. Exposure may be to a financial institution (such as commercial banks, insurance companies, broker dealers, etc.) or a corporate client.

Regions has a centralized approach to approval, management, and monitoring of counterparty exposure. Counterparty Risk Management, housed within Capital Markets Risk Management, is responsible for the independent credit risk management of financial institution counterparties and their affiliates. Market Risk Management is responsible for the suitability, measurement, and stress testing of counterparty exposures. Business Services Credit is responsible for the independent credit risk management of client side counterparties.

Financial institution exposure may result from a variety of transaction types generated in one or more departments of the Company. Exposure limits are established to manage the exposure generated by various areas of the Company. Counterparty client credit risk arises when Regions sells a risk management product to hedge risks in the client’s business. Exposures to counterparties are aggregated across departments and regularly reported to senior management.

INFORMATION SECURITY RISK

Regions faces a variety of operational risks, including information security risks. Information security risks such as evolving and adaptive cyber-attacks, regularly conducted against Regions and other large financial institutions to compromise or disable information systems, have generally increased in recent years. This trend is expected to continue for a number of reasons, including the proliferation of new technologies, the use of mobile devices, more financial transactions conducted online, and the increased sophistication and activities of organized crime, hackers, terrorists, nation-states, activists and other external parties or fraud on the part of employees.

Regions spends significant resources to identify and mitigate threats to the confidentiality, availability and integrity of its information systems. Regions regularly assesses the threats and vulnerabilities to its environment so it can update and maintain its systems and controls to effectively mitigate these risks. Layered security controls are designed to complement each other to protect customer information and transactions. Regions will continue to commit the resources necessary to mitigate these growing cyber risks, as well as continue to develop and enhance controls, processes and technology to protect its systems from attacks or unauthorized access. In addition, Regions maintains a strong commitment to a comprehensive risk management program that includes oversight of third-party relationships involving vendors. The Board, through its various committees, is briefed at least quarterly on information security matters.

Regions participates in information sharing organizations such as FS-ISAC, to gather and share information amongst peer banks and other financial institutions to better prepare and protect its information systems from attack. FS-ISAC is a nonprofit organization whose objective is to protect the financial services sector against cyber and physical threats and risk. It acts as a trusted third party that provides anonymity to allow members to submit threat, vulnerability and incident information in a non-attributable and trusted manner so information that would normally not be shared is instead made available for the greater good of the membership. In addition to FS-ISAC, Regions is a member of BITS, the technology arm of the Financial Services Roundtable. BITS serves the financial community and its members by providing industry best practices on a variety of security and fraud topics.

Regions has contracts with vendors to provide denial of service mitigation. These vendors have also continued to commit the necessary resources to support Regions in the event of an attack. Even though Regions devotes significant resources to combat cyber security risks, there is no guarantee that these measures will provide absolute security. As an additional security measure, Regions has placed a computer forensics firm and an industry-leading consulting firm on retainer in case of a breach event.

Even if Regions successfully prevents data breaches to its own networks, the Company may still incur losses that result from customers' account information obtained through breaches of retailers' networks where customers have transacted business. The fraud losses, as well as the costs of investigations and re-issuing new customer cards impact Regions' financial results. In addition, Regions also relies on some vendors to provide certain components of its business infrastructure, which may also increase information security risk.

REGULATORY RISK

In 2014, the Federal Reserve Bank of Atlanta began a regularly scheduled CRA examination of Regions Bank covering 2012 and 2013 performance. This review included, among other things, a review of Regions Bank's previously disclosed public consent orders. As a result of the examination, the results of which were communicated during the fourth quarter of 2015, Regions Bank received "High Satisfactory" ratings on its CRA components, but its overall CRA rating was downgraded from "Satisfactory" to “Needs to Improve.” The downgrade was attributed to the matters underlying Regions Bank’s April 2015 public consent order with the CFPB related to overdrafts and Regulation E. Regions Bank had self-reported these matters and provided remuneration to affected customers during 2011 and 2012. This downgrade imposed restrictions on the Company's ability to undertake certain activities, including mergers and acquisitions of insured depository institutions and applications to open branches or certain other facilities until such time as the rating was improved. On December 19, 2016, the Federal Reserve Bank of Atlanta informed Regions that the Company's overall CRA rating had been reinstated from "Needs to Improve" to "Satisfactory" and this regulatory issue is resolved. Further, Regions continued to receive a "High Satisfactory" rating on the lending, investment and service portions of the Company's most recent CRA review.

FINANCIAL DISCLOSURE AND INTERNAL CONTROLS

Regions has always maintained internal controls over financial reporting, which generally include those controls relating to the preparation of the consolidated financial statements in conformity with GAAP. Regions’ process for evaluating internal controls over financial reporting starts with understanding the risks facing each of its functions and areas, how those risks are controlled or mitigated, and how management monitors those controls to ensure that they are in place and effective. These risks, control procedures and monitoring tools are documented in a standard format. This format not only documents the internal control structures over all significant accounts, but also places responsibility on management for establishing feedback mechanisms to ensure that controls are effective.

Regions has also established processes to ensure appropriate disclosure controls and procedures are maintained. These controls and procedures as defined by the SEC are generally designed to ensure that financial and non-financial information required to be disclosed in reports filed with the SEC is reported within the time periods specified in the SEC’s rules and forms, and that such information is communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Regions’ Disclosure Review Committee, which includes representatives from the legal, risk management, accounting, investor relations, and treasury departments, meets quarterly to review recent internal and external events to determine whether all appropriate disclosures have been made in reports filed with the SEC. In addition, the CEO and CFO meet quarterly with the SEC Filings Review Committee, which includes senior representatives from accounting, legal, risk management, treasury, and the business groups. The SEC Filings Review Committee provides a forum in which senior executives disclose to the CEO and CFO any known significant deficiencies or material weaknesses in Regions’ internal controls over financial reporting, and provide reasonable assurance that the financial statements and other contents of the Company’s Form 10-K and 10-Q filings are accurate, complete and timely. As part of this process, certifications of internal control effectiveness are obtained from Regions’ associates who are responsible for maintaining and monitoring effective internal controls over financial reporting. These certifications are reviewed and presented to the CEO and CFO as support of the Company’s assessment of internal controls over financial reporting. The Form 10-K is presented to the Audit Committee of the Board of Directors for approval, and the Forms 10-Q are reviewed by the Audit Committee. Financial results and other financial information are also reviewed with the Audit Committee on a quarterly basis.

As required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, the CEO and the CFO review and make certifications regarding the accuracy of Regions’ periodic public reports filed with the SEC, as well as the effectiveness of disclosure controls and procedures and internal controls over financial reporting. With the assistance of the financial review committees noted in the previous paragraph, Regions will continue to assess and monitor disclosure controls and procedures and internal controls over financial reporting, and will make refinements as necessary.

COMPARISON OF 2015 WITH 2014—CONTINUING OPERATIONS

Regions reported net income available to common shareholders of $1.1 billion, or $0.76 per diluted common share, in 2015 compared to $0.79 per diluted share in 2014. Regions reported income from continuing operations available to common shareholders of $1.0 billion, or $0.76 per diluted common share, in 2015 compared to $1.1 billion, or $0.78 per diluted share, in 2014.

Net interest income and other financing income from continuing operations was $3.3 billion in both 2015 and 2014. The net interest margin from continuing operations (taxable-equivalent basis) was 3.13 percent in 2015, compared to 3.21 percent during 2014. The margin decline was driven primarily by decreases in yields on earning assets exceeding the decline in funding costs.

Non-interest income from continuing operations increased $168 million to $2.1 billion in 2015 compared to 2014. The year-over-year increase was due to an increase in insurance proceeds, capital markets fee income and other and card and ATM fees. See Table 5 "Non-Interest Income from Continuing Operations" for additional information.

In 2015, insurance proceeds increased $91 million compared to 2014. The increase was primarily driven by the settlement of the previously disclosed and accrued 2010 class action lawsuit.

Capital markets fee income and other increased $31 million in 2015 compared to 2014. The increase was primarily related to increased securities underwriting and placement fees and loan syndication fees. Mergers and acquisitions advisory fees, which were derived from the purchase of BlackArch Partners, also contributed to the increase.

Card and ATM fees increased $30 million in 2015 compared to 2014. The increase was a result of increased checking accounts, as well as increased transactions in part by the continued migration of transactions from cash and checks to cards. Additionally, the increase in active credit cards generated greater purchase activity resulting in higher interchange income.

Non-interest expense from continuing operations increased $175 million in 2015 compared to 2014. Increases in non-interest expense in 2015 included increases in branch consolidation, property and equipment charges and FDIC insurance assessments, as well as losses on early extinguishment of debt. These increases were offset by decreases in professional, legal and regulatory expenses, net occupancy expense, salaries and employee benefits and a 2014 gain on the sale of TDRs held for sale that did not repeat. See Table 6 “Non-Interest Expense from Continuing Operations” for additional information.

Branch consolidation, property and equipment charges increased $40 million in 2015 as compared to 2014. The increase was due to additional charges related to the transfer of land previously held for branch expansion, to held for sale based on changes in management’s intent, as management identified certain parcels of land that were no longer intended to be developed. This increase also included write-offs and depreciation for closed branches.

FDIC insurance assessments increased $30 million in 2015 as compared to 2014. The increase is primarily due to a $23 million adjustment to prior assessments recorded during the third quarter of 2015 that exceeded the benefit of refunds of previously incurred fees recognized in prior quarters.

During 2015, the Company incurred $43 million in early extinguishment charges, related to the redemption of certain subordinated debt.

Professional, legal, and regulatory expenses decreased $98 million in 2015 as compared to 2014. The Company recorded $50 million and $100 million of contingent legal expenses in 2015 and 2014, respectively, related to previously disclosed matters. The 2014 accruals were settled in 2015 for $2 million less than originally estimated, and a corresponding recovery was recorded. Excluding these items, professional, legal, and regulatory expenses decreased $46 million during 2015 compared to 2014 primarily due to lower consulting fees and lower legal fees resulting from a declining case load as well as legal fee recoveries.

Net occupancy expense decreased 2 percent to $361 million in 2015 as compared to 2014.

Total salaries and employee benefits increased $73 million, or 4 percent, in 2015. The increase is primarily due to increases in base salaries, as well as expenses from liabilities held for employee benefit purposes. Higher pension, health insurance, severance expenses and higher incentives. Headcount increased from 23,723 at December 31, 2014 to 23,916 at December 31, 2015.

During the fourth quarter of 2013, Regions transferred certain residential first mortgage loans classified as TDRs to loans held for sale. These loans were sold during the first quarter of 2014, resulting in a $35 million net gain.

Outside services increased $18 million in 2015 as compared to 2014, primarily due to increases in certain fees paid in connection with revenue growth as well as increased servicing costs related to continued purchases of indirect loans from third parties.

The Company’s income tax expense for 2015 was $455 million compared to $548 million in 2014, resulting in an effective tax rate of 29.7 percent and 32.6 percent, respectively. The decrease in the effective tax rate was driven primarily by audit settlements reached with the IRS and certain state taxing authorities, tax benefits related to state deferred taxes and lower pre-tax income.

At December 31, 2015, the allowance for loan losses totaled $1.1 billion or 1.36 percent of total loans, net of unearned income compared to $1.1 billion or 1.43 percent at December 31, 2014. Net charge-offs totaled $238 million, or 0.30 percent of average loans in 2015 compared to $307 million, or 0.40 percent of average loans in 2014. Net charge-offs were lower across most major categories when comparing 2015 to 2014 primarily due to fundamental improvement in credit performance. During 2015, the provision for loan losses was $241 million as compared to $69 million in 2014. Non-performing assets decreased from $991

million at December 31, 2014, to $920 million at December 31, 2015, which reflected management’s continuing efforts to work through problem assets and reduce the riskiest exposures.

Table 27—Quarterly Results of Operations



	2016									2015
	Fourth Quarter		Third Quarter		Second Quarter		First Quarter			Fourth Quarter			Third Quarter			Second Quarter			First Quarter
	(In millions, except per share data)
Total interest income, including other financing income	$	957	$	942	$	952	$	963		$	933		$	901		$	883		$	886
Total interest expense and depreciation expense on operating lease assets	104		107		104		101			97			65			63			71
Net interest income and other financing income	853		835		848		862			836			836			820			815
Provision for loan losses	48		29		72		113			69			60			63			49
Net interest income and other financing income after provision for loan losses	805		806		776		749			767			776			757			766
Total non-interest income, excluding securities gains (losses), net	517		599		520		511			503			490			584			465
Securities gains (losses), net	5		—		6		(5		)	11			7			6			5
Total non-interest expense	899		934		915		869			873			895			934			905
Income from continuing operations before income taxes	428		471		387		386			408			378			413			331
Income tax expense	134		152		115		113			120			116			124			95
Income from continuing operations	294		319		272		273			288			262			289			236
Discontinued operations:
Income (loss) from discontinued operations before income taxes	1		2		5		—			(6		)	(6		)	(6		)	(4		)
Income tax expense (benefit)	—		1		2		—			(3		)	(2		)	(2		)	(2		)
Income (loss) from discontinued operations, net of tax	1		1		3		—			(3		)	(4		)	(4		)	(2		)
Net income	$	295	$	320	$	275	$	273		$	285		$	258		$	285		$	234
Income from continuing operations available to common shareholders	$	278	$	303	$	256	$	257		$	272		$	246		$	273		$	220
Net income available to common shareholders	$	279	$	304	$	259	$	257		$	269		$	242		$	269		$	218
Earnings per common share from continuing operations: ⁽¹⁾
Basic	$	0.23	$	0.24	$	0.20	$	0.20		$	0.21		$	0.19		$	0.20		$	0.16
Diluted	0.23		0.24		0.20		0.20			0.21			0.19			0.20			0.16
Earnings per common share: ⁽¹⁾
Basic	$	0.23	$	0.24	$	0.20	$	0.20		$	0.21		$	0.18		$	0.20		$	0.16
Diluted	0.23		0.24		0.20		0.20			0.21			0.18			0.20			0.16
Cash dividends declared per common share	0.065		0.065		0.065		0.06			0.06			0.06			0.06			0.05
Market price: ⁽²⁾
High	$	14.73	$	10.08	$	10.00	$	9.51		$	10.28		$	10.87		$	10.82		$	10.68
Low	9.78		7.80		7.53		7.00			8.54			8.74			9.28			8.59

________


(1)	Quarterly amounts may not add to year-to-date amounts due to rounding.


(2)	High and low market prices are based on intraday sales prices.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by undersigned thereunto duly authorized.




DATE:	March 1, 2017		Regions Financial Corporation

		By:	/S/ HARDIE B. KIMBROUGH, JR.
			Executive Vice President and Controller (principal accounting officer)

Large accelerated filer x

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