VARIABLE INTEREST ENTITIES
Regions is involved in various entities that are considered to be VIEs, as defined by authoritative accounting literature. Generally, a VIE is a corporation, partnership, trust or other legal structure that either does not have equity investors with substantive voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities. The following discusses the VIEs in which Regions has a significant interest.
Regions owned the common stock of subsidiary business trusts, which had issued mandatorily redeemable preferred capital securities (“trust preferred securities”) in the aggregate of approximately $1 billion at the time of issuance. The aggregate principal amount of trust preferred securities outstanding at December 31, 2012 was approximately $498 million. These trusts met the definition of a VIE of which Regions was not the primary beneficiary; the trusts’ only assets were junior subordinated debentures issued by Regions, which were acquired by the trusts using the proceeds from the issuance of the trust preferred securities and common stock. These junior subordinated debentures were all redeemed during 2013. Prior to the redemption, these junior subordinated debentures were included in long-term borrowings and Regions’ equity interests in the business trusts were included in other assets. Interest expense on the junior subordinated debentures was reported in interest expense on long-term borrowings.
Regions periodically invests in various limited partnerships that sponsor affordable housing projects, which are funded through a combination of debt and equity. These partnerships meet the definition of a VIE. Due to the nature of the management activities of the general partner, Regions is not the primary beneficiary of these partnerships and accounts for these investments in other assets on the consolidated balance sheets using the equity method. Regions reports its equity share of the partnership gains and losses as an adjustment to non-interest income. Regions reports its commitments to make future investments in other liabilities on the consolidated balance sheets. The Company also receives tax credits, which are reported as a reduction of income tax expense (or increase to income tax benefit). Additionally, Regions has short-term construction loans or letters of credit commitments with certain limited partnerships. The funded portion of the short-term loans and letters of credit is classified as commercial and industrial loans or investor real estate construction loans, as applicable, on the consolidated balance sheets. Regions also has long-term mortgage loans with certain limited partnerships. These long-term loans are classified as investor real estate mortgage loans in Note 5.
A summary of Regions’ equity method investments and related loans and letters of credit, representing Regions’ maximum exposure to loss as of December 31 is as follows:
|
| | | | | | | |
| 2013 | | 2012 |
| (In millions) |
Equity method investments included in other assets | $ | 863 |
| | $ | 774 |
|
Unfunded commitments included in other liabilities | 267 |
| | 197 |
|
Short-term construction loans and letters of credit commitments | 227 |
| | 165 |
|
Funded portion of short-term loans and letters of credit | 110 |
| | 82 |
|
