INTRODUCTION

The following discussion and analysis is part of Regions Financial Corporation's ("Regions" or the "Company") Quarterly Report on Form 10-Q to the Securities and Exchange Commission ("SEC") and updates Regions' Form 10-K for the year ended December 31, 2008, which was previously filed with the SEC. This financial information is presented to aid in understanding Regions' financial position and results of operations and should be read together with the financial information contained in the Form 10-K. Certain prior period amounts presented in this discussion and analysis have been reclassified to conform to current period classifications, except as otherwise noted. The emphasis of this discussion will be on the three and nine months ended September 30, 2009 compared to the three and nine months ended September 30, 2008 for the statement of operations. For the balance sheet, the emphasis of this discussion will be the balances as of September 30, 2009 compared to December 31, 2008.

This discussion and analysis contains statements that may be considered "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. See pages 3 and 4 for additional information regarding forward-looking statements.

CORPORATE PROFILE

Regions is a financial holding company headquartered in Birmingham, Alabama, which operates in the South, Midwest and Texas. Regions provides traditional commercial, retail and mortgage banking services, as well as other financial services in the fields of investment banking, asset management, trust, securities brokerage, insurance and other specialty financing.

Regions conducts its banking operations through Regions Bank, an Alabama chartered commercial bank that is a member of the Federal Reserve System. At September 30, 2009, Regions operated approximately 1,900 full-service banking offices in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia. Regions provides brokerage services and investment banking from approximately 340 offices of Morgan Keegan & Company, Inc. ("Morgan Keegan"), a full-service regional brokerage and investment banking firm. Regions provides full-line insurance brokerage services primarily through Regions Insurance, Inc., one of the 25 largest insurance brokers in the country.

Regions' profitability, like that of many other financial institutions, is dependent on its ability to generate revenue from net interest income and non-interest income sources. Net interest income is the difference between the interest income Regions receives on 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 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. Non-interest income includes fees from service charges on deposit accounts, securities brokerage, investment banking and trust activities, mortgage servicing and secondary marketing, insurance activities, and other customer services which Regions provides. Results of operations are also affected by the provision for loan losses and non-interest expenses, such as salaries and employee benefits, occupancy and other operating expenses, as well as income taxes.

Economic conditions, competition, and the monetary and fiscal policies of the Federal government significantly affect most 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. Regions delivers this business strategy with the personal attention and feel of a community bank and with the service and product offerings of a large regional bank.

THIRD QUARTER HIGHLIGHTS

Regions reported a net loss available to common shareholders of $437 million, or $0.37 loss per diluted share in the third quarter of 2009, compared to third quarter 2008 per diluted share income of $0.11. High credit costs, primarily the result of focused efforts to identify and address loan portfolio stress, as well as increasing unemployment and ongoing deterioration in real estate values, continued to negatively impact pre-tax earnings. During the third quarter, Regions recorded a $1.025 billion provision for loan losses, $608 million higher than the third quarter of 2008. Additionally, several other significant items, which are discussed later in this section, affected net income for the third quarter of 2009.

Net interest income on a fully taxable-equivalent basis for the third quarter of 2009 was $853 million compared to $931 million in the third quarter of 2008. The net interest margin (taxable-equivalent basis) was 2.73% in the third quarter of 2009, compared to 3.10% during the third quarter of 2008. The decline in the net interest margin was impacted primarily by factors directly and indirectly associated with the erosion of economic and industry conditions since late 2007. These factors include an unfavorable variation in the general level and shape of the yield curve, Regions' asset sensitive balance sheet, rate increases for new debt issuances, and rising non-performing asset levels. Additionally, declining loan yields have not been offset by similar declines in deposit rates due to the competitive demand for deposits within the industry. Recent increases in non-interest bearing deposit balances as well as the benefits of improving spreads on newly originated and renewed loans should help promote a stable net interest margin going forward.

Net charge-offs totaled $680 million, or an annualized 2.86% of average loans, in the third quarter of 2009, compared to 1.68% for the third quarter of 2008. Commercial real estate and commercial and industrial net charge-offs drove the increase, reflecting ongoing stress in housing valuations and continued strains in the economy as a whole. The provision for loan losses totaled $1.025 billion in the third quarter of 2009 compared to $417 million during the third quarter of 2008. The allowance for loan losses at September 30, 2009 was 2.83% of total loans, net of unearned income, compared to 1.87% at December 31, 2008 and 1.49% at September 30, 2008. Total non-performing assets, including loans held for sale, at September 30, 2009 were $4.1 billion, compared to $1.7 billion at December 31, 2008 and $1.8 billion at September 30, 2008. Residential homebuilder and condominium loans, as well as foreclosed properties, were the primary contributors to the increase since December 31, 2008. Additionally, income-producing commercial real estate, including multi-family and retail, significantly contributed to the third quarter inflows. Also included in non-performing assets were $380 million of loans held for sale at September 30, 2009 compared to $423 million at December 31, 2008 and $129 million at September 30, 2008.

Non-interest income for the third quarter of 2009 increased by $53 million compared to the third quarter of 2008. Mortgage income was the primary driver of the increase, increasing $43 million for the third quarter of 2009 as compared to the same period in 2008. The increase was primarily due to customers taking advantage of historically low mortgage rates and the corresponding impact on mortgage originations. Mortgage servicing rights and related hedging valuation adjustments also contributed to the increase in mortgage income. Brokerage, investment banking and capital markets income increased in the third quarter of 2009 by $11 million as compared to the same period in 2008. The increase was primarily due to increases in fixed income capital markets revenue. These increases were partially offset by a decrease of $17 million in trust department income for the quarter ended September 30, 2009 as compared to the same period in 2008. This decrease was driven primarily by the impact of lower asset valuations on trust fees. Also, trust department income for the 2008 period included fees from energy-related brokered transactions, which did not repeat in 2009.

Total non-interest expense, excluding merger-related charges, was $1.243 billion and $1.103 billion in the third quarter of 2009 and 2008, respectively. Pre-tax merger charges of $25 million were incurred in the third quarter of 2008 (see Table 14 "GAAP to Non-GAAP Reconciliation"). The Company's third quarter decision to consolidate 121 branches into other existing branches and resulting charges of $41 million contributed to the increase. The increase in non-interest expense was also attributable to increased professional fees, other real estate owned ("OREO") expense, and FDIC insurance premiums. Additionally, salaries and employee benefits, excluding merger charges, were higher in the third quarter of 2009 as compared to the corresponding 2008 period.

TOTAL ASSETS

Regions' total assets at September 30, 2009 were $140 billion, compared to $146 billion at December 31, 2008. The decrease in total assets from year-end 2008 resulted primarily from a decrease in interest-bearing deposits in other banks. Lower loan balances also contributed to the decrease.

LOANS

At September 30, 2009 and December 31, 2008, loans represented 75% of Regions' interest-earning assets. The following table presents the distribution by loan type of Regions' loan portfolio, net of unearned income:

Table 1-Loan Portfolio



                                               September 30       December 31       September 30
(In millions, net of unearned income)              2009              2008               2008
Commercial and industrial                     $       21,925     $      23,596     $       23,511
Commercial real estate-non owner-occupied             16,190            14,486             14,151
Commercial real estate-owner-occupied                 12,103            11,722             11,569
Construction-non owner-occupied                        6,616             9,029              9,810
Construction-owner-occupied                              875             1,605              1,810
Residential first mortgage                            15,513            15,839             16,191
Home equity                                           15,630            16,130             15,849
Indirect                                               2,755             3,854              4,211
Other consumer                                         1,147             1,158              1,610

                                              $       92,754     $      97,419     $       98,712

Loans, net of unearned income, totaled $92.8 billion at September 30, 2009, a decrease of $4.7 billion from year-end 2008 levels, primarily due to a decline in construction loans, reflecting developers' reluctance to begin new projects or purchase existing projects under current economic conditions. The commercial and industrial category also declined due to decreased utilization of lines of credit. The impact of the recession on loan demand also drove decreases in most other categories. These decreases were partially offset by increases in the commercial real estate portfolios which are attributable to the migration from construction loans as projects are completed. Residential first mortgages also decreased, although production activity was solid as a result of continued refinance activity due to attractive interest rates. The dealer indirect portfolio is an exit portfolio and continues to be in a runoff mode.

CREDIT QUALITY

The loans in the following portfolios may have a greater risk of non-collection than other loans. In the recent past, Regions' pressured portfolios were comprised of residential homebuilder, Florida second lien home equity and the condominium portfolios. Beginning in the second quarter of 2009 and continuing through September 30, 2009, income-producing commercial real estate, including multi-family and retail, also showed

signs of credit pressure, contributing more significantly to increases in non-accrual loans. Because of the cash flow associated with the income-producing credits, the Company generally can more easily restructure these loans. Accordingly, the loss content is expected to be generally lower than other types of commercial real estate.

RESIDENTIAL HOMEBUILDER PORTFOLIO

During late 2007, the residential homebuilder portfolio came under significant stress. In Table 1 "Loan Portfolio", the majority of these loans are reported in the construction-non owner-occupied loan category, while a smaller portion is reported as commercial real estate-non owner-occupied. This portfolio has decreased by approximately $1.0 billion from December 31, 2008 to September 30, 2009, and approximately $3.8 billion since the beginning of 2008. The Company has placed a moratorium on new originations in this portfolio.

The following table provides details related to the product breakout of the residential homebuilder portfolio:

Table 2-Residential Homebuilder Portfolio



                                    Loan       Year-to-Date       90 Days     Non-Accruing
September 30, 2009                Balance     Net Charge-Offs     Past Due        Loans
                                            (In millions, net of unearned income)
Land                              $  1,134   $             101   $        9   $         306
Residential-spec                       952                  51            3             197
Residential-presold                    222                  12           -              115
Lots                                   819                  77            1             186
National homebuilders and other        225                  11           -               95

                                  $  3,352   $             252   $       13   $         899

                                    Loan       Year-to-Date       90 Days     Non-Accruing
September 30, 2008                Balance     Net Charge-Offs     Past Due        Loans
                                            (In millions, net of unearned income)
Land                              $  1,839   $              64   $       -    $         176
Residential-spec                     1,506                  54            1             170
Residential-presold                    457                  19           -               42
Lots                                 1,110                  35            6             123
National homebuilders and other        290                  14           -               46

                                  $  5,202   $             186   $        7   $         557

The residential homebuilder portfolio is geographically concentrated in Florida and North Georgia; the balances in these areas total approximately $1.3 billion of the $3.4 billion balance at September 30, 2009. The following table provides detail related to the geographic breakout and performing status of the residential homebuilder portfolio:

Table 3-Geographic Breakout of Residential Homebuilder Portfolio



                September 30, 2009   Non-Accruing     Accruing     Total
                                                (In millions)
                Central              $         326   $      728   $ 1,054
                Florida                        280          562       842
                Midsouth                       198          830     1,028
                Southwest                       53          295       348
                Other                           42           38        80

                                     $         899   $    2,453   $ 3,352

Notes:

1 Central consists of Alabama, Georgia and South Carolina

2 Midsouth consists of North Carolina, Virginia, Tennessee, Indiana, Illinois, Missouri, Iowa and Kentucky

3 Southwest consists of Louisiana, Mississippi, Texas and Arkansas

                September 30, 2008   Non-Accruing     Accruing     Total
                                                (In millions)
                Central              $         180   $    1,546   $ 1,726
                Florida                        196        1,126     1,322
                Midsouth                        62        1,148     1,210
                Midwest                         76          466       542
                Southwest                        7          271       278
                Other                           36           88       124

                                     $         557   $    4,645   $ 5,202

Notes:

1 Central consists of Alabama, Georgia and South Carolina

2 Midsouth consists of North Carolina, Virginia and Tennessee

3 Midwest consists of Arkansas, Illinois, Indiana, Iowa, Kentucky, Missouri and Texas

4 Southwest consists of Louisiana and Mississippi

HOME EQUITY PORTFOLIO

The home equity portfolio totaled $15.6 billion at September 30, 2009. The portfolio has an average original FICO score of 738 as of September 30, 2009 compared with 736 as of September 30, 2008. The main source of continued stress has been in Florida, where residential property values have declined. Further, losses on relationships in Florida where Regions is in a second lien position have been higher than first lien losses.

The following tables provide details related to the home equity portfolio as follows:

Table 4-Selected Home Equity Portfolio Information



                                                                                   Nine Months Ended September 30, 2009
                                                 Florida                                    All Other States                                      Total
(In millions)                    1st Lien         2nd Lien         Total         1st Lien         2nd Lien         Total         1st Lien         2nd Lien         Total
Balance                         $    2,181       $    3,570       $ 5,751       $    4,451       $    5,428       $ 9,879       $    6,632       $    8,998       $ 15,630
Net Charge-offs                         42              184           226               19               57            76               61              241            302
Net Charge-off %(1)                   2.59 %           6.80 %        5.23 %           0.57 %           1.36 %        1.00 %           1.22 %           3.50 %         2.54 %




                                                                                   Nine Months Ended September 30, 2008
                                                 Florida                                     All Other States                                      Total
(In millions)                    1st Lien         2nd Lien         Total         1st Lien         2nd Lien         Total          1st Lien         2nd Lien         Total
Balance                         $    1,995       $    3,579       $ 5,574       $    4,584       $    5,691       $ 10,275       $    6,579       $    9,270       $ 15,849
Net Charge-offs                         16               87           103               14               40             54               30              127            157
Net Charge-off %(1)                   1.18 %           3.33 %        2.58 %           0.41 %           0.95 %         0.71 %           0.64 %           1.86 %         1.37 %

(1) Net charge-off percentages are calculated on an annualized basis as a percent of average balances.

CONDOMINIUM PORTFOLIO

Property value declines also led to increased stress in the condominium portfolio. Regions' exposure in this portfolio is $647 million at September 30, 2009, a $968 million decrease since the beginning of 2008. The Company has placed a moratorium on new originations in this portfolio.

OTHER PRESSURED PORTFOLIOS

The Company expects continued credit pressure on loans secured by income-producing commercial real estate, including multi-family and retail. Because of the cash flow associated with the income-producing credits, the Company can generally more easily restructure these loans. Accordingly, the loss content is expected to be generally lower than other types of commercial real estate.

Regions does not have any option adjustable rate mortgage (ARM) products, loans with initial teaser rates or other higher-risk residential loans. Regions has approximately $64 million in book value of "sub-prime" loans retained from the disposition of EquiFirst, down from the year-end 2008 balance of $77 million. The credit loss exposure related to these loans is addressed in management's periodic determination of the allowance for credit losses.

ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses ("allowance") represents management's estimate of credit losses inherent in the portfolio. The allowance consists of two components: the allowance for loan losses and the reserve for unfunded credit commitments. Management's assessment of the adequacy of the allowance is based on the combination of both of these components. Regions determines its allowance in accordance with applicable accounting literature as well as regulatory guidance related to receivables and contingencies. Binding unfunded credit commitments include items such as letters of credit, financial guarantees and binding unfunded loan commitments.

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 portfolio segments 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 and past due loans; (6) collateral values of properties securing loans; (7) the composition of the loan portfolio, including unfunded credit commitments; and (8) management's analysis of current economic conditions.

In support of collateral values, Regions obtains updated valuations for non-performing loans on at least an annual basis. For non-performing loans deemed to be in markets of concern (currently defined in general as Florida, Georgia, North Carolina and South Carolina), Regions obtains updated valuations on a semi-annual basis.

Various departments, including Credit Review, Commercial and Consumer Credit Risk Management and Special Assets are involved in the credit risk management process to assess the accuracy of risk ratings, the quality of the portfolio and the estimation of inherent credit losses in the loan portfolio. This comprehensive process also assists in the prompt identification of problem credits. The Company has taken a number of measures to aggressively manage the portfolios and mitigate losses, particularly in the more problematic or stressed portfolios. In addition, a strong Customer Assistance Program is in place which educates customers about options and initiates early contact with customers to discuss solutions when a loan first becomes delinquent.

For the majority of the loan portfolio, management uses information from its ongoing review processes to stratify the loan portfolio into pools sharing common risk characteristics. Loans that share common risk

characteristics are assigned a portion of the allowance based on the assessment process described above. Credit exposures are categorized by type and assigned estimated amounts of inherent loss based on several factors, including current and historical loss experience for pools of similar loans and management's consideration of current economic conditions and the expected impact on credit performance.

The allowance for credit losses totaled $2.69 billion at September 30, 2009 and $1.90 billion at December 31, 2008. The allowance for loan losses as a percentage of net loans was 2.83% at September 30, 2009 compared to 1.87% at December 31, 2008 and 1.49% at September 30, 2008. The increase in the allowance was primarily driven by the result of focused efforts to identify and address loan portfolio stress, as well as deterioration in the residential homebuilder, home equity, condominium and income-producing commercial real estate portfolios. These developments resulted in a significant migration of loans into non-performing status. Residential homebuilder and condominium loans were the primary contributors to the increase in non-accrual loans since December 31, 2008. Additionally, income-producing commercial real estate, including multi-family and retail, significantly contributed to third quarter inflows. Given continuing pressure on residential property values-especially in Florida and North Georgia-rising unemployment and a generally uncertain economic backdrop, the Company expects credit costs to remain elevated. The reserve for unfunded credit commitments was $63 million at September 30, 2009 and $74 million at December 31, 2008. Details regarding the allowance and net charge-offs, including an analysis of activity from the previous year's totals, are included in Table 5 "Allowance for Credit Losses".

Net charge-offs as a percentage of average loans (annualized) were 2.19% and 1.03% in the first nine months of 2009 and 2008, respectively. For the first nine months of 2009, net charge-offs on commercial real estate-non-owner-occupied and owner-occupied were an annualized 3.13% and 0.49%, respectively, compared to an annualized 0.78% and 0.27%, respectively, for the first nine months of 2008. For the first nine months of 2009, net charge-offs on construction-non-owner-occupied and owner-occupied were an annualized 5.70% and 0.99%, respectively, compared to an annualized 3.50% and 0.26%, respectively, for the first nine months of 2008. The increases in commercial real estate-non owner-occupied and construction-non owner-occupied net charge-offs are in part related to continued deterioration in Regions' homebuilder portfolio.

Net charge-offs were an annualized 2.54% of home equity loans compared to an annualized 1.37% through the first nine months of 2009 and 2008, respectively. Losses in Florida-based credits remained at elevated levels, as unemployment levels remain high and property valuations in certain markets have continued to experience ongoing deterioration. As illustrated in Table 4, these loans and lines represent approximately $5.8 billion of Regions' total home equity . . .