Notes to Financial Statements
December 31,
2016
and
2015
1. Description of the Plan
The following description of the Regions Financial Corporation 401(k) Plan (the Plan) provides only general information about the Plan’s provisions. Regions Financial Corporation (the Company) is the Plan Sponsor and the Benefits Management and Human Resources Committee is the Plan Administrator. Participants should refer to the Plan document and the Summary Plan Description for a more complete description of the Plan’s provisions, copies of which may be obtained from the Plan Sponsor.
General
The Plan is a defined contribution plan covering certain employees of the Company and affiliates. Employees are eligible to participate in the Plan the first day of the payroll period following completion of the enrollment process by the Company. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA).
Contributions
Each year, participants may contribute up to a total of 80 percent of eligible compensation on a pre‑tax and/or Roth after-tax basis, as defined in the Plan document, subject to Internal Revenue Code limitations. Participants may also rollover amounts representing distributions from other qualified plans. All employees who are eligible to make elective deferrals and who have attained age 50 before the close of the Plan year are eligible to make catch-up contributions.
The Company matches dollar for dollar on the participants’ pre-tax contributions and Roth after-tax contributions, up to 4 percent of total eligible compensation. The matching contribution can be increased to a greater percentage applicable to a Plan year at the discretion of the Board of Directors pursuant to a Plan amendment. One year of service is required to be eligible for the Company match.
The Company also contributes an additional employer contribution of 2 percent of eligible compensation for participants who have one year of service, are employed at the end of the year, have 1,000 hours of service in the Plan year, and are not eligible to accrue benefits in the Regions Financial Corporation Retirement Plans.
Upon enrollment, a participant may direct participant contributions, employer matching contributions and the additional 2 percent employer contribution in 1 percent increments to any of the Plan's fund options. Participants direct the contributions into various investment options offered by the Plan and can change their investment options on a daily basis, subject to designated insider restrictions.
Regions Financial Corporation 401(k) Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Effective January 1, 2016, the Company amended the Plan document to adopt an automatic deferral feature. Unless an eligible employee opts out or elects a different amount during their enrollment window, default elective deferrals are made on behalf of the employee on a pre-tax basis in an amount equal to 2 percent of the employee's eligible compensation.
Participant Accounts
Each participant account is credited with the participant’s contributions, rollovers (if any) and allocations of (a) the Company’s contributions and (b) Plan earnings or losses, and is charged with certain record-keeping expenses. Allocations of earnings and losses are based on participants' account balances, as defined in the Plan document. The benefit to which a participant is entitled is the benefit that can be provided from the participants' account less record-keeping expenses (if any), which are charged per participant account. The Plan has an employee stock ownership plan component that allows participants to elect to receive a cash distribution of all of the dividends payable on the shares of Regions Financial Corporation stock allocated to the participants’ stock accounts as of the record date. Participants direct the investment of their accounts among any of the Plan’s investment options.
Participant Loans
Participants may borrow from their accounts a minimum of $1,000 up to a maximum equal to the lesser of 50 percent of eligible employee contributions or $50,000, reduced by the highest outstanding loan balance during the prior twelve-month period. Eligible participant contributions are pre-tax participant contributions, regular after-tax participant contributions, rollover contributions, grandfathered qualified non-elective contributions and Roth elective deferrals. All loans must be repaid within 5 years. A participant may not have more than one loan outstanding at any point in time. Participants with a tax levy or garnishment against their wages are not eligible for a Plan loan. A loan is secured by the balance in the participant’s account and bears a fixed interest rate of 1 percent above the prime rate, as quoted in
The
Wall Street Journal
. Principal and interest are paid ratably through regular payroll deductions. Upon termination of employment, a participant has up to 60 days from date of termination to repay the outstanding loan amount plus interest. If the loan is not repaid after 60 days, it will automatically be treated as a distribution to the participant.
Eligibility and Vesting
All employees other than seasonal or leased employees are eligible to participate in the Plan. Participants are immediately vested in their contributions, the Company contributions and any earnings thereon.
Regions Financial Corporation 401(k) Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Payment of Benefits
Upon termination of service, death, disability or retirement, a participant (or his/her beneficiaries) may receive a lump sum amount equal to the vested value of his or her account, or an annual withdrawal. If a participant’s vested account balance is $1,000 or less, it will be paid in the form of a lump sum only. There were no benefit payments requested, approved and processed for payment but not yet disbursed as of
December 31, 2016
and
2015
, respectively.
In-service withdrawals are available in certain limited circumstances, as defined by the Plan document. Hardship withdrawals are allowed for participants incurring an immediate and heavy financial need, as defined by the Plan document. Hardship withdrawals are strictly regulated by the Internal Revenue Service (IRS) and a participant must exhaust all available loan options and available distributions prior to requesting a hardship withdrawal.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA and the Plan document.
2. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements of the Plan have been prepared on the modified cash basis of accounting, which is a comprehensive basis of accounting other than U.S. generally accepted accounting principles. The modified cash basis of accounting is an acceptable alternative method of reporting under regulations issued by the Department of Labor. Income on securities is recorded on an accrual basis and investments are recorded at fair value as stated below. All other transactions are recorded on a cash basis.
Payment of Benefits
Benefits are recorded when paid.
Regions Financial Corporation 401(k) Plan
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Notes Receivable from Participants
Notes receivable from participants represent participant loans that are recorded at their unpaid principal balance plus any accrued but unpaid interest. Interest income on notes receivable from participants is recorded when it is earned. Related fees are recorded as administrative expenses and are expensed when they are incurred. No allowance for credit losses has been recorded as of
December 31, 2016
or
2015
. If a participant ceases to make loan repayments and the Plan Administrator deems the participant loan to be a distribution, the participant’s loan balance is reduced and a benefit payment is recorded.
Investment Valuation and Income Recognition
The Plan’s investments are stated at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). See Note 3,
Fair Value of Financial Instruments
, for further discussion and disclosures related to fair value measurements. The shares of mutual funds and common stock in the Regions Stock Fund are valued at quoted market prices in an active market on the last business day of the Plan year. The Regions Stock Fund may also hold cash or other short-term securities, although these are expected to be a small percentage of the fund. The Company has implemented a dividend pass through election for its participants.
The Company’s Benefits Management and Human Resources Committee is responsible for determining the Plan's valuation policies and analyzing information provided by the investment custodians and issuers that is used to determine the fair value of the Plan’s investments. The Benefits Management and Human Resources Committee is comprised of nine voting members and three non-voting members appointed by the Compensation Committee and reports to the Compensation Committee of the Company’s Board of Directors.
The Plan’s collective investment trust funds include the Pioneer Large Cap Core Equity Trust, the Pioneer US Balanced Trust, multiple T. Rowe Price Retirement Trusts, the Bank of New York Mellon EB US Small-Mid Cap Growth Equity Fund, and the Morley Stable Value Fund. The fair value of the investments in these collective trust funds is estimated using their net asset value (NAV) per unit.
The Morley Stable Value Fund distributes income in the form of units, and provides a constant unit redemption value. The Morley Stable Value Fund invests in fully benefit-responsive investment contracts (FBRICs) and is presented at fair value based on its NAV. As a result, the Plan is an indirect investor in FBRICs since the Plan itself does not directly invest in FBRICs.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded as earned. Dividends are recorded on the ex-dividend date. Net appreciation (depreciation) in fair value of investments includes the Plan’s gains and losses on investments bought, sold and held during the year.
Regions Financial Corporation 401(k) Plan
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of the financial statements in conformity with the basis of accounting described above requires management to make estimates that affect the amounts reported in the financial statements, accompanying notes and supplemental schedule. Actual results could differ from those estimates.
Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market volatility and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits.
Legal Contingencies
The Plan is subject to litigation and claims arising during the ordinary course of business and Plan activities. The Plan evaluates these contingencies based on information currently available, including advice of counsel and assessment of available insurance coverage. Although it is not possible to predict the ultimate resolution with respect to these litigation contingencies, management is currently of the opinion that the outcome of pending and threatened litigation would not have a material effect on the Plan’s statements of net assets available for benefits or its changes in net assets available for benefits. In pending litigation, the costs of defense are paid by the Company and therefore are not expected to impact the Plan’s net assets.
Administrative Expenses
The Plan’s administrative expenses are paid by either the Plan or the Company, as provided by the Plan’s provisions. Other than record-keeping fees, the Company pays all legal, accounting and other services on behalf of participants. Record-keeping fees are generally charged directly to the participant's account. Expenses relating to purchases, sales or transfers of the Plan’s investments, if any, are charged to the particular investment fund to which the expenses relate. Fees incurred by the Plan for the investment management services are included in net appreciation in fair value of the investment, as they are paid through revenue sharing, rather than a direct payment. The Company pays directly any other fees related to the Plan’s operations.
Regions Financial Corporation 401(k) Plan
Notes to Financial Statements (continued)
3. Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 - Unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date for identical assets and liabilities.
Level 2 - Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
|
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•
|
quoted prices for similar assets and liabilities in active markets
|
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|
|
|
•
|
quoted prices for identical or similar assets or liabilities in markets that are not active
|
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|
|
|
•
|
observable inputs other than quoted prices that are used in the valuation of the asset or liabilities (e.g., interest rate and yield curve quotes at commonly quoted intervals)
|
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|
|
•
|
inputs that are derived principally from or corroborated by observable market data by correlation or other means
|
Level 3 - Unobservable inputs for the asset or liability (i.e., supported by little or no market activity). Level 3 inputs include management’s own assumption about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).
The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest level input that is significant to the fair value measure in its entirety.
Following is a description of the valuation methodologies used for major categories of assets measured at fair value by the Plan.
Stock Fund and Mutual Funds
: The Plan uses quoted market prices of identical assets on active exchanges, or Level 1 measurements.
Regions Financial Corporation 401(k) Plan
Notes to Financial Statements (continued)
3. Fair Value of Financial Instruments (continued)
Collective Investment Trust Funds:
The Plan uses NAV per unit to value the collective investment trust funds. The NAV, as provided by the trustee, is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments held by the fund less its liabilities divided by the number of units outstanding. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV.
The following table presents investments measured at fair value on a recurring basis as of
December 31, 2016
:
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|
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|
|
|
|
|
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Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
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|
|
|
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|
|
|
|
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|
Regions stock fund
|
|
$
|
415,528,902
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
415,528,902
|
|
|
Mutual funds
|
|
559,492,751
|
|
|
—
|
|
|
—
|
|
|
559,492,751
|
|
|
Total assets in the fair value hierarchy
|
|
$
|
975,021,653
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
975,021,653
|
|
|
Investments measured at NAV:
|
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|
|
|
|
|
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|
Collective investment trust funds
(a)
|
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—
|
|
|
—
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|
|
—
|
|
|
665,041,258
|
|
|
Total investments at fair value
|
|
$
|
975,021,653
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,640,062,911
|
|
The following table presents investments measured at fair value on a recurring basis as of December 31,
2015
:
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|
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Level 1
|
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Level 2
|
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Level 3
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Total
|
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|
|
|
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|
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|
Regions stock fund
|
|
$
|
323,535,671
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
323,535,671
|
|
|
Mutual funds
|
|
496,672,695
|
|
|
—
|
|
|
—
|
|
|
496,672,695
|
|
|
Total assets in the fair value hierarchy
|
|
$
|
820,208,366
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
820,208,366
|
|
|
Investments measured at NAV:
|
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|
|
|
|
|
|
|
|
Collective investment trust funds
(a)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
578,370,471
|
|
|
Total investments at fair value
|
|
$
|
820,208,366
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,398,578,837
|
|
(a)
In accordance with accounting guidance, certain investments that were measured at fair value using the NAV per share (or its equivalent) as a practical expedient are not required to be classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of amounts reported in the fair value hierarchy to the amounts reported in the statements of net assets available for benefits. Also, in accordance with the adoption of accounting guidance, if an investment is measured using the NAV per unit (or its equivalent) as the practical expedient in ASC 820 and that investment is in a fund that files a Form 5500, Annual Return/Report of Employee Benefit Plan, as a direct filing entity, disclosure of that investment’s strategy will no longer be required.
Assets in all levels could result in volatile and material price fluctuations.
Regions Financial Corporation 401(k) Plan
Notes to Financial Statements (continued)
3. Fair Value of Financial Instruments (continued)
The following table summarizes the Plan’s investments with a reported fair value using NAV per unit at December 31:
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2016
|
|
2015
|
|
Unfunded Commitment
|
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Redemption Period
|
|
Redemption Notice Period
|
|
Morley Stable Value Fund
|
$
|
228,723,844
|
|
|
$
|
194,432,282
|
|
|
$
|
—
|
|
|
Daily
|
|
N/A
|
|
Pioneer Large Cap Core Equity Trust
|
38,150,830
|
|
|
36,881,437
|
|
|
—
|
|
|
Daily
|
|
N/A
|
|
Pioneer US Balanced Trust
|
119,985,796
|
|
|
120,985,905
|
|
|
—
|
|
|
Daily
|
|
N/A
|
|
T. Rowe Price Retirement 2005 Trust
|
1,530,838
|
|
|
1,430,847
|
|
|
—
|
|
|
Daily
|
|
90 days
|
|
T. Rowe Price Retirement 2010 Trust
|
2,457,276
|
|
|
2,682,504
|
|
|
—
|
|
|
Daily
|
|
90 days
|
|
T. Rowe Price Retirement 2015 Trust
|
11,302,461
|
|
|
10,850,914
|
|
|
—
|
|
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Daily
|
|
90 days
|
|
T. Rowe Price Retirement 2020 Trust
|
24,980,399
|
|
|
21,551,710
|
|
|
—
|
|
|
Daily
|
|
90 days
|
|
T. Rowe Price Retirement 2025 Trust
|
29,831,777
|
|
|
22,031,601
|
|
|
—
|
|
|
Daily
|
|
90 days
|
|
T. Rowe Price Retirement 2030 Trust
|
31,343,262
|
|
|
23,585,100
|
|
|
—
|
|
|
Daily
|
|
90 days
|
|
T. Rowe Price Retirement 2035 Trust
|
25,382,271
|
|
|
20,140,670
|
|
|
—
|
|
|
Daily
|
|
90 days
|
|
T. Rowe Price Retirement 2040 Trust
|
25,588,289
|
|
|
20,388,620
|
|
|
—
|
|
|
Daily
|
|
90 days
|
|
T. Rowe Price Retirement 2045 Trust
|
22,407,081
|
|
|
15,067,831
|
|
|
—
|
|
|
Daily
|
|
90 days
|
|
T. Rowe Price Retirement 2050 Trust
|
15,577,097
|
|
|
10,913,730
|
|
|
—
|
|
|
Daily
|
|
90 days
|
|
T. Rowe Price Retirement 2055 Trust
|
11,643,570
|
|
|
7,145,578
|
|
|
—
|
|
|
Daily
|
|
90 days
|
|
T. Rowe Price Retirement 2060 Trust
|
3,394,735
|
|
|
—
|
|
|
—
|
|
|
Daily
|
|
90 days
|
|
T. Rowe Price Retirement Balanced Trust
|
2,939,638
|
|
|
2,338,378
|
|
|
—
|
|
|
Daily
|
|
90 days
|
|
EB US Small-Mid Cap Growth Equity Fund
|
69,802,094
|
|
|
67,943,364
|
|
|
—
|
|
|
Daily
|
|
N/A
|
4. Related-Party Transactions
Regions Bank (a wholly-owned subsidiary of the Company) serves as the directed trustee of the Plan. Participants can direct how their contributions are invested within the Plan. During the years ended
December 31, 2016
and
2015
, the Plan received $8,179,241 and $7,878,562 in common stock dividends from the Regions Stock Fund (an affiliate of the Company). These transactions qualify as party-in-interest transactions; however, they are exempt from the prohibited transaction rules under ERISA.
Regions Financial Corporation 401(k) Plan
Notes to Financial Statements (continued)
5. Tax Status
The Plan received a determination letter from the IRS dated February 22, 2016, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the Code) and, therefore, the related trust is exempt from taxation. Although the Plan has been amended subsequent to receiving the determination letter, the Plan Administrator believes the Plan is in compliance with and is being operated in compliance with the applicable requirements of the Code and, therefore, the Plan is qualified and the related trust is tax-exempt.
Accounting principles generally accepted in the United States require plan management to evaluate uncertain tax positions taken by the Plan. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of
December 31, 2016
, there were no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
6. Subsequent Events
Effective January 1, 2017, the Company amended the Plan document so individual insurance policies are no longer a feature of the Plan.
The Plan entered a Blackout Period on December 23, 2016. No trades were allowed during the Blackout Period while Transamerica (formerly Mercer) transferred records and assets to MassMutual, the Plan’s new recordkeeper effective January 1, 2017.
Effective April 1, 2017, the Company amended the Plan document by adding a one-time automatic escalation to any non-excluded participant whose elective deferral election was 2% or 3% of compensation. The elective deferral election increased by 1%, from 2% to 3%, or from 3% to 4%, as applicable.
Supplemental Schedule