CHAIRMAN’S MESSAGE AND 10-K REPORT 2008 REGIONS 2008 CHAIRMAN’S MESSAGE AND 10-K REPORT 34887_Cov 1 2/20/09 10:08:20 AM FOR MORE INFORMATION Regions Financial Corporation Investor Relations 1900 Fifth Avenue North Birmingham, AL 35203 M. List Underwood, Jr. Director of Investor Relations (205) 801-0265 WWW.UNBOUNDARY.COM I Tobin N. Vinson Associate Director of Investor Relations (205) 326-4891 UNBOUNDARY Helen S. Johnson DESIGN: Shareholder Services Manager + (205) 326-5807 STRATEGY 34887_Cov 2 2/20/09 10:08:20 AM – MESSAGE FROM C. DOWD RITTER – To my fellow shareholders: As Americans closed out 2008 in the midst of a rapidly declining economy, Regions also fi nished the year with results that were both disappointing and refl ective of a turbulent operating environment. Investment banks, large national lenders, regional banks and community banks disappeared over the course of the year. No part of the fi nancial services industry was immune. The speed of change and level of unpredictability in our industry was unprecedented, requiring government action on a scale never seen before. In hindsight, the causes are clear. Easy consumer credit led to new buyers and to highly unconventional mortgages; commercial banks and government-sponsored agencies fueled the growth of residential real estate lending; and investment banks packaged and sold these riskier assets to investors, who had little transparency into what they were buying. After real estate prices peaked in March 2007, the subsequent decline of housing prices brought destructive results to the mortgage and credit markets. Ultimately, the destruction led to a capital and funding crisis that resulted in failed fi rms, federally-assisted acquisitions and investment banks converting into bank holding companies. While Regions did not suffer the devastating results that larger fi nancial services institutions experienced, the impact we felt was proportionate to our size and business mix. I recognize that this industry context is of little comfort to our shareholders. 334887_Txt_Rev.indd4887_Txt_Rev.indd 1 22/24/09/24/09 99:25:17:25:17 AAMM – MESSAGE FROM C. DOWD RITTER – REGIONS REMAINS A SAFE HARBOR The FDIC demonstrated its confi dence in FOR CUSTOMER DEPOSITS Regions’ stability and strength by selecting In my 2007 letter to shareholders, I wrote our company to acquire the deposits of two of how our three-year strategic plan and failing banks, the most recent on February 6, corporate-wide initiatives were designed 2009. These acquisitions meant additional to address the challenges we expected our deposits and liquidity and an expanding industry to face in 2008. These challenges, presence in Atlanta, Georgia, a long-term I am confi dent in saying, exceeded everyone’s strategic market for our franchise. expectations. Important, though, is that even while we made strategic adjustments 2008 RESULTS to our operating processes and policies Regions ended 2008 with results that to address the emerging challenges, we refl ected a very tough economic and credit remained keenly focused on our customers. environment, as well as actions taken to Our associates endeavored to preserve the aggressively recognize and deal with problem trust and relationships that are critical to assets. Another factor largely infl uencing our our success and to our ability to deliver year-end results was a fourth quarter shareholder value. $6 billion non-cash goodwill impairment charge. It is important to note that this charge did not impact our solid regulatory Unlike some, we have no exotic or tangible capital ratios, nor our earnings securities, no brokered loans, and capacity for the future. Excluding the almost no sub-prime loans in our goodwill impairment and merger charges, we fi nished 2008 with full-year profi t of portfolio, which has allowed us to $514 million, or 74 cents per share. serve customers from a more stable In spite of the credit crunch that has and relatively stronger position. accompanied the current economic recession, Regions is committed to working with As a true crisis of confi dence in the United customers to meet their credit needs States’ banking system developed in the third without jeopardizing shareholder value. and fourth quarters of 2008, we invested In fact, we grew loans 2% for the full year. time and resources in communicating to Regions continues to be in the business customers that Regions remains a safe harbor of making quality loans that meet high for their deposits. In addition to being well standards for credit quality, full pricing and capitalized by regulatory standards, Regions depository relationships. takes a comparatively conservative approach to banking. Unlike some, we have no exotic Revenues from Regions’ fee income- securities, no brokered loans, and almost no producing businesses increased during sub-prime loans in our portfolio, which has 2008 by 8% to $3.1 billion. And, while our allowed us to serve customers from a more non-interest expenses were higher in 2008 stable and relatively stronger position. compared to 2007, much of the increase was 2 REGIONS 2008 10-K 334887_Txt_Rev.indd4887_Txt_Rev.indd 2 22/24/09/24/09 99:25:18:25:18 AAMM – MESSAGE FROM C. DOWD RITTER – credit-related costs tied to the turbulent them as judiciously as possible — while, at operating environment. the same time, making sure that reserve levels remain appropriate. Regions’ deposit-gathering efforts were successful due in large part to the new In times like these, capital strength is LifeGreen® Checking and Savings products paramount. Last fall, the U.S. Treasury introduced in July of 2008. We experienced invested in many fi nancial services an increase in total customer deposits of institutions to strengthen capital levels and 4% during the fourth quarter and are open up the credit markets. Participating encouraged by the momentum this product in the U.S. Treasury’s Capital Purchase is creating as we begin 2009. Program raised our Tier 1 capital ratio from 7.5% to 10.4% — $5 billion above the Our non-performing assets and credit losses “well-capitalized” regulatory minimums. We certainly refl ect the challenging economic fi nished the year with a tangible common conditions of 2008, but remain below industry levels due to our consistent and prudent underwriting. Non-performing assets, as a Regions continues to be in the business percentage of total loans and repossessed assets, were 1.76% at December 31, 2008, compared of making quality loans that meet high to 0.90% a year earlier, while net charge-offs standards for credit quality, full pricing increased to 1.59% of average loans, up from and depository relationships. 0.29% in 2007. We recently intensifi ed our efforts to dispose of non-performers, selling or moving to held for sale approximately equity ratio of 5.2%, which puts us around $1 billion of these assets. These actions the median for our peer group. And, as the helped drive a 27% fourth quarter versus Treasury and Congress intended, we are using third quarter reduction in non-performing increased capital to strengthen our balance loans, the largest component of non- sheet and to prudently lend. In fact, during the performing assets, to $1.1 billion at the end fourth quarter, the government’s investment of 2008. The aggressive action we took to supported our ability to commit $16.5 billion deal with non-performing assets in 2008 in new and renewed loans and lines. will put us in a stronger position once the environment begins to improve. SERVING CUSTOMERS FROM A POSITION OF STRENGTH AND STABILITY We also made good progress in reducing While I am not satisfi ed with our 2008 the number of stressed assets in our loan results and understand our shareholders’ portfolio. In fact, we reduced exposure to disappointment, we enter a new year with these troubled assets by $3.1 billion in 2008. a sense of confi dence that comes from Our overarching credit message remains pursuing a clear purpose — to protect, unchanged: we are focused on proactively preserve and strengthen our capital, liquidity identifying problem assets and disposing of and risk management. REGIONS 2008 10-K 3 334887_Txt_Rev.indd4887_Txt_Rev.indd 3 22/24/09/24/09 99:25:18:25:18 AAMM – MESSAGE FROM C. DOWD RITTER – Associates are focused on building stronger, delivering shareholder value and service broader customer relationships. To make quality begins by assisting the customer this goal a reality, we will work to establish in front of them — helping them fi nd the primary banking relationships with our account or service that will keep or make customers through the cross-selling of Regions that customer’s primary banking products and services and growing deposits relationship. Regions’ associates support and fee-based revenue. And, of course, we our commitment to make life better for all will continue delivering the kind of high of our stakeholders, as well as our service quality that differentiates us from commitment to maintain high ethical our competitors. standards in how we operate. You can also count on us to do what is right I thank our associates for their hard work for the communities we serve. Over the and commitment to our customers past year, we reached out to over 100,000 and shareholders. I would also like to express residential fi rst mortgage and home equity my gratitude to our Board of Directors for their valued perspective during a year In spite of the credit crunch that has that was sometimes diffi cult and always challenging. Let us hope that unemployment accompanied the current economic levels improve and housing values stabilize recession, Regions is committed in 2009, and that valuations for fi nancial to working with customers to services stocks, especially Regions, improve signifi cantly. meet their credit needs without jeopardizing shareholder value.