Item 7A. Quantitative and Qualitative Disclosures about Market Risk

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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 2020 results. Cross references to more detailed information regarding each topic within 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.

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 real GDP contracted by 3.5 percent in 2020, and Regions expects real GDP growth of 4.8 percent in 2021 and 4.4 percent in 2022. The February 2021 baseline forecast anticipates the level of real GDP will return to the level as of the fourth quarter of 2019, the last quarter free of the effects of COVID-19, in the third quarter of 2021. Until there has been much wider vaccine distribution, the COVID-19 virus will pose a downside risk to near-term growth, while further progress on the vaccine front poses an upside opportunity for growth in late 2021 to early 2022. As the pandemic is still ongoing, however, there remains a heightened degree of uncertainty around economic forecasts being made at present.

The surge in COVID-19 cases that began in mid-November 2020 and which led many state and local governments to impose new limitations on activity, has begun to abate, but the effects continue to act as a drag on the process of healing from the economic and financial impacts of the pandemic. The direct effects of the recent surge, however, were largely concentrated amongst a few industry groups in the services sector, such as leisure and hospitality services, as has been the case over the course of the pandemic. Still, there remain risks to the broader economy in the near term.

There are, however, reasons to expect the pace of economic growth to improve as 2021 progresses. Based on information now available, it is expected that more widespread distribution of a vaccine against the COVID-19 virus will be in place by summer 2021, which should eventually lead to state and local governments lifting any remaining restrictions on activity. While there are uncertainties as to whether, or to what extent, consumer behavior and attitudes will have changed after the experiences of the pandemic, a more widespread distribution of an effective vaccine is expected to provide a meaningful boost to economic growth. This will be amplified by what is expected to be even further fiscal policy support once the new administration and the new Congress are in place.

A second round of fiscal support was signed into law in late-December 2020, providing another round of Economic Impact Payments of up to $600 for eligible individuals and an extension of supplemental unemployment insurance benefits and pandemic-related unemployment benefit programs. In the month of January 2021, Treasury distributed more than $140 billion in Economic Impact Payments. Though some of these funds will be spent, a considerable portion will go into savings or will be used to pay down debt of our customers, as was the case with the first round of payments provided under the CARES Act. The Biden administration is expected to push for another round of Economic Impact Payments of up to $1,400 for eligible individuals and seek to further extend unemployment insurance benefits being paid by the federal government. On top of an already elevated saving rate, these additional funds add to the potential for a significant burst of spending once the economy is more fully reopened, which Regions expects to be the case at some point in 2021. It is also likely that the Biden administration will seek increased funding for health care and new funding for infrastructure spending and financial assistance to state and local governments.

While it is reasonable to expect a transition to a faster rate of economic growth at some point in 2021, the timing of any such transition is highly uncertain, and the early months of 2021 could be challenging unless the ongoing surge in COVID-19 cases subsides. Still, if economic growth does not accelerate as the year progresses, that will likely be accompanied by a faster rate of inflation. While inflation is not likely to accelerate to a degree that would lead the FOMC to respond, by raising short-term rates, it would nonetheless likely add upward pressure to longer-term interest rates, which have risen in early 2021 on the prospect of larger federal government budget deficits. With the short end of the yield curve well-anchored, persistent steepening of the yield curve could at some point lead the FOMC to alter the composition of FRB asset purchases, putting more emphasis on longer-dated assets and less emphasis on shorter-dated assets. Regions does not expect any changes in the pace of FRB asset purchases in 2021, nor any changes in the Fed funds rate target range at least through 2022.

The patterns of economic activity within the Regions footprint will be broadly similar to those seen in the U.S. as a whole. Florida’s economy has an above-average exposure to leisure and hospitality services, while Texas and Louisiana have above-average exposure to energy, so these economies could be more prone to lasting effects if the recovery does prove to be slower than is now anticipated.

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The continued economic uncertainty, as described above, impacted Regions' forecast utilized in calculating the ACL as of December 31, 2020. See the "Allowance" section for further information.

COVID-19 Pandemic

Regions' business operations and financial results are influenced by the economic environment in which the Company operates. The adverse economic conditions and uncertainty in the economic outlook as of December 31, 2020 driven by the COVID-19 pandemic impacted the 2020 financial results in the areas as described below. Regions expects that the pandemic will continue to influence economic conditions and the Company's financial results in future quarters.

In the third quarter of 2020, Regions re-opened branches for walk-in services. Regions continues to keep measures in place to ensure associate and customer safety, which include reduced occupancy levels to provide for social distancing, implementation of stringent cleaning protocols, and providing appropriate facemasks and other sanitizing supplies. As of December 31, 2020, only 3 percent of branches were temporarily closed due to COVID-related impacts; this percentage was down to less than 1 percent as of January 31, 2021. Regions is in the process of implementing a phased approach to return more remote working associates to office locations in accordance with applicable safety protocols. As of December 31, 2020, approximately 90 percent of the Company's non-branch associates were working remotely.

Beginning late in the first quarter of 2020 and throughout the remainder of the year, the Company offered special financial assistance to support customers who were experiencing financial hardships related to the COVID-19 pandemic. This assistance included offering customer payment deferrals or forbearances to existing loans over a set period of time, typically 90 days. Residential mortgage payment assistance was granted through forbearance. During the forbearance period, a borrower's payment obligation is suspended and no foreclosure action will be pursued. All payments are then due at expiration of the forbearance period, unless the loan has been modified. For most other loan products (commercial and consumer products except for residential real estate), payment assistance is granted through deferrals or extensions. Deferrals and extensions are different than forbearances in that all payments are normally not due at the end of the deferral or extension period. Instead, the payment due date is advanced. For most products, interest continues to accrue on the loan during the deferral or forbearance period, unless the loan is on non-accrual.

Regions' outstanding deferrals have declined throughout 2020, and as of December 31, 2020, more than 95 percent of the loan balances previously in deferral were either current or less than 30 days past due. The following table provides detail of the outstanding loan deferrals by quarter (the second quarter of 2020 is the first quarter shown below since most deferrals commenced in the second quarter):


	December 31, 2020					September 30, 2020				June 30, 2020
	Number of Deferrals	Deferral Balance			% Exceeding One Deferral	Number of Deferrals	Deferral Balance		% Exceeding One Deferral	Number of Deferrals	Deferral Balance
	(Dollars in rounded millions)




Total consumer	5,800	$	600		85%	8,900	$	1,000	85%	27,200	$	1,900
Total business	650	85			65%	2,600	500		68%	14,300	3,800
	6,450	$	685			11,500	$	1,500		41,500	$	5,700


Residential first mortgage- portfolio(1)	3,400	$	550	(2)	89%	4,800	$	920	88%	5,500	$	1,400
Residential first mortgage- serviced for others	6,700	$	1,100			9,300	$	1,500		18,100	$	3,000

(1) The residential first mortgage-portfolio balances are included in the total consumer balances.

(2) Approximately 60% of the residential first mortgage-portfolio loan balances in deferral at December 31, 2020 were guaranteed by the U.S. government.

As provided in the CARES Act passed into law on March 27, 2020, certain loan modifications related to COVID-19 beginning March 1, 2020 through the earlier of 60 days after the national emergency concerning the COVID-19 outbreak ends or December 31, 2020 were eligible for relief from TDR classification. On December 27, 2020, the Consolidated Appropriations Act was signed into law and extended the relief from TDR classification through the earlier of 60 days after the national emergency concerning the COVID-19 outbreak ends or January 1, 2022. Regions elected this provision. Refer to Table 23 "Troubled Debt Restructurings" for further information.

As a certified SBA lender, Regions assisted customers through the loan process under the PPP in 2020, and some of the loans originated under this program were forgiven in the fourth quarter of 2020. Under this program, Regions has approximately 42,000 loans outstanding totaling approximately $3.6 billion as of December 31, 2020. In December of 2020, additional funds were approved under the SBA's PPP. Regions is participating in this round of funding and will assist customers who meet the criteria under the program.

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Regions continues to have strong liquidity and capital levels, which have the Company well-prepared to respond to the increase in customer borrowing needs. The Company has ample sources of liquidity that include a granular and stable deposit base, cash balances held at the Federal Reserve, borrowing capacity at the FHLB, unencumbered highly liquid securities, and borrowing availability at the Federal Reserve's discount window. See the "Liquidity", "Shareholders' Equity", and "Regulatory Capital" sections for further information.

The COVID-19 pandemic also affected non-interest income. While consumer spending increased moderately in the second half of 2020 as restrictions on economic activity were eased throughout the country, spending remained below pre-pandemic levels. The Company expects consumer service charges to grow in 2021 compared to 2020; however, given current spending levels, the Company estimates consumer service charges will remain approximately 10 percent to 15 percent below 2019 levels. See Table 5 "Non-Interest Income" for more detail.

Regions assessed goodwill for impairment in light of the economic environment caused by the COVID-19 pandemic. In the second quarter of 2020, Regions concluded that a triggering event had occurred which required Regions to perform a quantitative goodwill impairment test which did not result in impairment. As of October 1, 2020, Regions completed its annual goodwill impairment test by performing a qualitative assessment and determined that it was more likely than not that the fair value of each of the Company's reporting units exceeded their respective carrying value. Refer to the "Goodwill" section for further detail.

Regions has experienced a modest increase in cyber events as a result of the COVID-19 pandemic, however the Company's layered control environment has effectively detected and prevented any material impact related to these events. Refer to the "Information Security" section for further detail.

2020 Results

Regions reported net income from continuing operations available to common shareholders of $1.0 billion, or $1.03 per diluted share, in 2020 compared to net income available to common shareholders from continuing operations of $1.5 billion, or $1.50 per diluted share, in 2019.

Net interest income (taxable-equivalent basis) totaled $3.9 billion in 2020 compared to $3.8 billion in 2019. The net interest margin (taxable-equivalent basis) was 3.21 percent in 2020, reflecting a 24 basis point decrease from 2019. The increase in net interest income was primarily driven by increases in loan balances due to PPP lending, the impact of the Company's April 2020 equipment finance acquisition, increased production of residential first mortgage loans, a decrease in deposit costs, and decreases in short and long-term borrowings through the redemption of senior notes and paydowns of FHLB advances. Net interest income also benefited from the execution of the Company's interest rate hedging strategy. The decline in net interest margin was primarily driven by elevated liquidity as evidenced by higher cash levels held at the Federal Reserve and increases in average loan balances at lower interest rates. Additionally, net interest margin was negatively impacted by the repricing of fixed rate loan portfolios and the securities portfolio at lower market interest rates.

The provision for credit losses totaled $1.3 billion in 2020 compared to the provision for loan losses of $387 million in 2019. The provision was higher than net charge-offs by $818 million in 2020. The increase in the provision for credit losses was driven primarily by CECL adoption, a change in the economic outlook due to COVID-19, and higher net charge-offs. Refer to the "Allowance for Credit Losses" section of Management's Discussion and Analysis for further detail.

Non-interest income was $2.4 billion in 2020 compared to $2.1 billion in 2019. The increase was primarily driven by an increase in capital markets income, mortgage income and other miscellaneous income during 2020. The increases were partially offset by lower service charges and card and ATM fees. See Table 5 "Non-Interest Income from Continuing Operations" for further details.

Non-interest expense was $3.6 billion in 2020 and $3.5 billion in 2019. The increase was driven primarily by higher salaries and employee benefits (which includes associates added through the Ascentium acquisition), furniture and equipment expense, branch consolidation, property and equipment charges and loss on early extinguishments of debt. These increases were partially offset by decreases in checkcard expense and other miscellaneous expenses. See Table 6 "Non-Interest Expense from Continuing Operations" for further details.

Regions' effective tax rate was 16.8 percent in 2020 compared to 20.3 percent in 2019. The effective tax rate is lower in 2020 due primarily to a consistent level of permanent income tax preferences having a proportionally larger impact relative to pre–tax earnings, which were negatively impacted in 2020 because of the COVID–19 pandemic. See the "Income Taxes" section for further details.

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

"Operating Results" section of MD&A
“Net Interest 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

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Capital

Capital Actions

On June 25, 2020, the Federal Reserve indicated that the Company exceeded all minimum capital levels under the supervisory stress test. The capital plan submitted to the Federal Reserve reflected no share repurchases through year-end 2020. During the third quarter, the FRB finalized Regions' SCB requirement for the fourth quarter of 2020 through the third quarter of 2021 at 3.0 percent. The Federal Reserve may decide at any point through March 31, 2021 to update Regions' and other firms' SCB requirement based on the results of its supervisory stress test associated with the capital plan resubmission disclosed in December 2020.

During the third quarter of 2020, the Federal Reserve mandated that banks must not increase their quarterly per share common dividend and implemented an earnings-based payout restriction in connection with the supervisory stress test, requiring the third quarter 2020 dividend to not exceed the average of the prior four quarters of net income excluding preferred dividends. This mandate was subsequently extended through the first quarter of 2021. On February 3, 2021, the Company declared a cash dividend for the first quarter of 2021 of $0.155 per share, which was in compliance with the Federal Reserve's SCB framework.

In 2019, the Board authorized the repurchase of $1.370 billion of the Company's common stock, permitting repurchases from the beginning of the third quarter of 2019 through the second quarter of 2020. Regions did not repurchase any shares under this plan or otherwise during 2020. Any repurchases in the near term will be considered with the intent to operate at the higher end of the Company's range for CET1 of 9.5 percent to 10 percent. The Company regularly performs internal stress testing which can result in modifications to the operating range.

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

"Shareholders' Equity" discussion in MD&A
"Regulatory Requirements" section of MD&A
Note 15 "Shareholders' Equity and Accumulated Other Comprehensive Income (Loss)" to the consolidated financial statements

Regulatory Capital

Regions and Regions Bank are required to comply with regulatory capital requirements established by Federal and State banking agencies. Under the Basel III Rules, Regions is designated as a standardized approach bank. The Basel III Rules 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, 2020, Regions’ Tier 1 capital and Total capital ratios were estimated to be 11.39% and 13.56%, respectively.

The Basel III Rules also officially defined CET1. Regions' CET1 ratio at December 31, 2020 was estimated to be 9.84%.

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

“Supervision and Regulation” discussion within Item 1. Business
"Regulatory Requirements" section of MD&A
Note 13 "Regulatory Capital Requirements and Restrictions" to the consolidated financial statements

Loan Portfolio and Credit

During 2020, total loans increased by $2.3 billion or 2.8 percent compared to 2019. The increase was primarily driven by an increase in the commercial portfolio of $2.7 billion, which reflected loans acquired through the Company's equipment finance acquisition, as well as loans originated through the PPP program totaling $3.6 billion as of December 31, 2020. The economy has been and will continue to be the primary factor which influences Regions’ loan portfolio. As discussed above, the COVID-19 pandemic impacted Regions' loan portfolio. Additionally, low interest rates drove growth in the residential mortgage portfolio. Refer to the "Portfolio Characteristics" section for further discussion.

Net charge-offs totaled $512 million, or 0.58 percent of average loans, in 2020, compared to $358 million, or 0.43 percent in 2019, reflecting increased charge-offs in the commercial and industrial loan portfolios. On January 1, 2020, Regions adopted CECL, which replaced the incurred loss allowance methodology with an expected loss allowance methodology. The allowance was 2.69 percent of total loans, net of unearned income at December 31, 2020, an increase from 1.10 percent at December 31, 2019. The coverage ratio of allowance to non-performing loans excluding held for sale was 308 percent at December 31, 2020, compared to 180 percent at December 31, 2019.

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

Adjusted Average Balances of Loans within the Table 2 "GAAP to Non-GAAP Reconciliations"
"Portfolio Characteristics" section of MD&A

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

Liquidity

At the end of 2020, Regions Bank had $16.4 billion in cash on deposit with the Federal Reserve and the loan-to-deposit ratio was 70 percent. Cash and cash equivalents at the parent company totaled $1.5 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, 2020, the Company’s borrowing capacity with the Federal Reserve was $12.8 billion based on available collateral. Borrowing availability with the FHLB was $16.2 billion based on available collateral at the same date. 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 authorized Regions Bank to issue up to $10 billion in aggregate principal amount of bank notes outstanding at any one time.

Regions is required to conduct liquidity stress testing and measure its available sources of liquidity against minimums as established by Regions' internal liquidity policy. Regions was fully compliant with those requirements as of year-end.

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” discussion within the “Risk Management” section of MD&A
Note 12 "Borrowings" to the consolidated financial statements

2021 Expectations


2021 Expectations
Category						Expectation
Total Adjusted Revenue(1)						Down modestly (depending on timing and amount of PPP forgiveness)
Adjusted Non-Interest Expense						Relatively stable to down modestly
Adjusted Ending Loans						Up low single digits
Adjusted Average Loans						Down low single digits
Net charge-offs/ average loans						55 - 65 basis points
Effective tax rate						20% - 22%

(1) Total revenue guidance assumes short-term rates remain near zero and the 10-year U.S Treasury yield remains between 1.0%-1.25%.

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 2021 expectations, refer to the related sub-sections discussed in more detail within Management's Discussion and Analysis of this Form 10-K.

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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 operations for the years 2020 and 2019; 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 as well as non-interest income sources. Net interest 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 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, card and ATM fees, mortgage servicing and secondary marketing, investment management and trust activities, capital markets and other customer services which Regions provides. Results of operations are also affected by the provision for credit 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 is focused on providing a competitive mix of products and services, delivering quality customer service, and continuing to develop and optimize distribution channels that include a branch distribution network with offices in convenient locations, as well as electronic and mobile banking.

Recent Acquisitions

On February 27, 2020, Regions announced that it had entered into an agreement to acquire Ascentium Capital LLC, an independent equipment financing company headquartered in Kingwood, Texas. The transaction closed on April 1, 2020, and included approximately $1.9 billion in loans and leases to small businesses. Refer to the "Ascentium Acquisition" section for more detail.

On May 31, 2019, Regions entered into an agreement to acquire Highland Associates, Inc., an institutional investment firm based in Birmingham, Alabama. The transaction closed on August 1, 2019.

Dispositions

On April 4, 2018, Regions entered into a stock purchase agreement to sell Regions Insurance Group, Inc. and related affiliates to BB&T Insurance Holdings, Inc. (now Truist Insurance Holdings, Inc). The transaction closed on July 2, 2018. The gain associated with the transaction amounted to $281 million ($196 million after-tax).

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. and Regions Trust were not included in the sale; they are 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, 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.

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

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Table 1— Financial Highlights


	2020			2019			2018			2017			2016
	(In millions, except per share data)
EARNINGS SUMMARY
Interest income(1)	$	4,262		$	4,596		$	4,337		$	3,912		$	3,711
Interest expense(1)	368			851			602			373			313
Net interest income(1)	3,894			3,745			3,735			3,539			3,398
Provision for credit losses(2)	1,330			387			229			150			262
Net interest income after provision for credit losses	2,564			3,358			3,506			3,389			3,136
Non-interest income	2,393			2,116			2,019			1,962			2,011
Non-interest expense	3,643			3,489			3,570			3,491			3,483
Income from continuing operations before income taxes	1,314			1,985			1,955			1,860			1,664
Income tax expense	220			403			387			619			510
Income from continuing operations	1,094			1,582			1,568			1,241			1,154
Income from discontinued operations before income taxes	—			—			271			19			16
Income tax expense (benefit)	—			—			80			(3)			7
Income from discontinued operations, net of tax	—			—			191			22			9
Net income	$	1,094		$	1,582		$	1,759		$	1,263		$	1,163
Net income from continuing operations available to common shareholders	$	991		$	1,503		$	1,504		$	1,177		$	1,090
Net income available to common shareholders	$	991		$	1,503		$	1,695		$	1,199		$	1,099
Earnings per common share from continuing operations – basic	$	1.03		$	1.51		$	1.38		$	0.99		$	0.87
Earnings per common share from continuing operations – diluted	1.03			1.50			1.36			0.98			0.86
Earnings per common share – basic	1.03			1.51			1.55			1.01			0.87
Earnings per common share – diluted	1.03			1.50			1.54			1.00			0.87
Return on average common shareholders' equity - continuing operations (3)	6.24		%	10.06		%	10.33		%	7.42		%	6.69		%
Return on average tangible common shareholders’ equity (non-GAAP) - continuing operations (3)(4)	9.23			14.91			15.59			10.80			9.61
Return on average assets - continuing operations (3)	0.79			1.26			1.27			1.00			0.92
BALANCE SHEET SUMMARY
As of December 31
Loans, net of unearned income	$	85,266		$	82,963		$	83,152		$	79,947		$	80,095
Allowance for credit losses	(2,293)			(914)			(891)			(987)			(1,160)
Assets	147,389			126,240			125,688			124,294			125,968
Deposits	122,479			97,475			94,491			96,889			99,035
Long-term debt	3,569			7,879			12,424			8,132			7,763
Shareholders’ equity	18,111			16,295			15,090			16,192			16,664
Average balances
Loans, net of unearned income	$	87,813		$	83,248		$	80,692		$	79,846		$	81,333
Assets	138,095			125,110			123,380			123,976			125,506
Deposits	110,794			94,413			94,438			97,341			97,921
Long-term debt	6,601			10,126			9,977			7,076			8,159
Shareholders’ equity	17,382			16,082			15,381			16,665			17,126
SELECTED RATIOS


Common equity Tier 1 ratio (5)	9.84			9.68			9.90			11.05			11.21
Tier 1 capital (5)	11.39			10.91			10.68			11.86			11.98
Total capital (5)	13.56			12.68			12.46			13.78			14.15
Leverage capital (5)	8.71			9.65			9.32			10.01			10.20
Tangible common shareholders’ equity to tangible assets (non-GAAP) (4)	7.91			8.34			7.80			8.71			8.99
Efficiency ratio	57.50			58.99			61.50			62.44			63.42
Adjusted efficiency ratio (non-GAAP) (4)	56.62			58.03			59.26			61.35			62.46

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	2020			2019			2018			2017			2016
	(In millions, except per share data)
COMMON STOCK DATA
Common equity book value per share	$	17.13		$	15.65		$	13.92		$	13.55		$	13.04
Tangible common book value per share (non-GAAP)(4)	11.71			10.58			9.19			9.16			8.95
Market value at year-end	16.12			17.16			13.38			17.28			14.36
Total trading volume (shares)	2,744			2,782			3,044			3,704			5,241
Dividend payout ratio	60.21		%	39.24		%	29.90		%	31.48		%	29.25		%
Shareholders of record at year-end (actual)	39,174			40,279			42,087			46,143			48,958
Weighted-average number of common shares outstanding
Basic	959			995			1,092			1,186			1,255
Diluted	962			999			1,102			1,198			1,261

(1)Due to the immaterial impact of other financing income and depreciation expense on operating lease assets in 2020, interest income and interest expense for prior periods have been revised to reflect the 2020 presentation.

(2)Upon adoption of CECL on January 1, 2020, the provision for credit losses is the sum of the provision for loans losses and the provision for unfunded credit commitments. Prior to the adoption of CECL, the provision for unfunded commitments was included in other non-interest expense.

(3)Due to the immaterial impact of the discontinued operations, the balance sheet has not been presented on a continuing operations basis.

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

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

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 average balances of loans”, "adjusted ending balances of loans", "ACL to loans excluding PPP, net ratio", “adjusted efficiency ratio”, “adjusted fee income ratio”, “return on average tangible common shareholders’ equity” on a consolidated and continuing operations basis, and end of period “tangible common shareholders’ equity”, 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

Average total loans are presented excluding loan balances related to commercial loans transferred to held for sale, loans originated through the SBA's PPP program, the indirect-other consumer exit portfolio, the indirect vehicles exit portfolio, and the impact of the first quarter 2018 residential first mortgage loan sale, as well as including the impact of the fourth quarter of 2018 reclassification of purchase cards to commercial and industrial loans from other assets to arrive at adjusted average total loans (non-GAAP). Regions believes adjusting average total loans provides a meaningful calculation of loan growth rates and presents them on the same basis as that applied by management.

Ending total loans are presented excluding loan balances related to loans originated through the SBA's PPP program. Regions believes the related ACL to loans excluding PPP ratio provides meaningful information about credit loss allowance levels when the SBA's PPP loans, which are fully backed by the U.S. government, are excluded from total loans and the related credit loss is excluded from the total allowance for credit losses.

The adjusted efficiency ratio (non-GAAP), which is a measure of productivity, is generally calculated as adjusted non-interest expense divided by adjusted total revenue on a taxable-equivalent basis. The adjusted fee income ratio (non-GAAP) is generally calculated as adjusted 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 on a taxable-equivalent basis (GAAP) is presented excluding certain adjustments related to Tax Reform to

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arrive at adjusted net interest income on a taxable-equivalent basis (non-GAAP). Net interest 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 shareholders’ 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 shareholders’ equity measure. Because tangible common shareholders’ 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 shareholders’ equity, Regions believes that it is useful to provide investors the ability to assess Regions’ capital adequacy on this 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 shareholders.

The following tables provide: 1) a reconciliation of average total loans (GAAP) to adjusted average total loans (non-GAAP), 2) a reconciliation of ending total loans (GAAP) to ending total loans (non-GAAP), 3) a reconciliation of ending total loans excluding PPP loans (non-GAAP) and a computation of ACL to ending loans excluding PPP loans (non-GAAP), 4) a reconciliation of net income (GAAP) to net income available to common shareholders (GAAP), 5) a reconciliation of non-interest expense (GAAP) to adjusted non-interest expense (non-GAAP), 6) a reconciliation of net interest income/margin, taxable equivalent basis (GAAP) to adjusted net interest income/margin, taxable equivalent basis (non-GAAP), 7) a reconciliation of non-interest income (GAAP) to adjusted non-interest income (non-GAAP), 8) a computation of adjusted total revenue (non-GAAP), 9) a computation of the adjusted efficiency ratio (non-GAAP), 10) a computation of the adjusted fee income ratio (non-GAAP), and 11) a reconciliation of average and ending shareholders’ equity (GAAP) to average and ending tangible common shareholders’ equity (non-GAAP) and calculations of related ratios (non-GAAP).

Table 2—GAAP to Non-GAAP Reconciliations


	Year Ended December 31
	2020		2019		2018		2017		2016
	(In millions)
ADJUSTED AVERAGE BALANCES OF LOANS
Average total loans	$	87,813	$	83,248	$	80,692	$	79,846	$	81,333

Less: Commercial loans transferred to held for sale(1)	179		—		—		—		—
Less: SBA PPP Loans	2,986		—		—		—		—

Less: Indirect—other consumer exit portfolio(2)	1,417		1,850		1,484		981		559
Less: Indirect—vehicles	1,341		2,421		3,217		3,660		4,103
Less: Balances of residential first mortgage loans sold (3)	—		—		40		254		254
Add: Purchasing card balances (4)	—		—		232		202		178
Adjusted average total loans (non-GAAP)	$	81,890	$	78,977	$	76,183	$	75,153	$	76,595


	Year Ended December 31
	2020		2019		2018		2017		2016
	(In millions)
ADJUSTED ENDING BALANCES OF LOANS
Ending total loans	$	85,266	$	82,963	$	83,152	$	79,947	$	80,095


Less: SBA PPP Loans	3,624		—		—		—		—

Less: Indirect—other consumer exit portfolio(2)	1,101		1,799		1,737		1,242		750
Less: Indirect—vehicles	934		1,812		3,053		3,326		4,040
Less: Balances of residential first mortgage loans sold (3)	—		—		—		254		254
Add: Purchasing card balances (4)	—		—		—		213		189
Adjusted ending total loans (non-GAAP)	$	79,607	$	79,352	$	78,362	$	75,338	$	75,240

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	Year Ended December 31
	2020			2019			2018			2017			2016
	(Dollars in millions)
ACL/LOANS, EXCLUDING PPP, NET
Ending total loans (GAAP)	$	85,266		$	82,963		$	83,152		$	79,947		$	80,095
Less: SBA PPP loans	3,624			—			—			—			—
Ending total loans excluding PPP, net (non-GAAP)	$	81,642		$	82,963		$	83,152		$	79,947		$	80,095
ACL at period end	$	2,293		$	914		$	891		$	987		$	1,160
Less: SBA PPP Loans' ACL	1			—			—			—			—
ACL excluding PPP Loans' ACL (non-GAAP)	$	2,292		$	914		$	891		$	987		$	1,160
ACL/Loans, excluding PPP, net (non-GAAP)	2.81		%	1.10		%	1.07		%	1.23		%	1.45		%

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		Year Ended December 31
		2020			2019			2018			2017			2016
		(Dollars in millions, except per share data)
INCOME — CONSOLIDATED
Net income (GAAP)		$	1,094		$	1,582		$	1,759		$	1,263		$	1,163
Preferred dividends (GAAP)		(103)			(79)			(64)			(64)			(64)
Net income available to common shareholders (GAAP)	A	$	991		$	1,503		$	1,695		$	1,199		$	1,099
Income from discontinued operations, net of tax		—			—			191			22			9
Net income from continuing operations available to common shareholders (GAAP)	B	$	991		$	1,503		$	1,504		$	1,177		$	1,090
ADJUSTED EFFICIENCY AND FEE INCOME RATIOS — CONTINUING OPERATIONS
Non-interest expense (GAAP)	C	$	3,643		$	3,489		$	3,570		$	3,491		$	3,483
Adjustments:
Contribution to Regions Financial Corporation foundation		(10)			—			(60)			(40)			—
Professional, legal and regulatory expenses (5)		(7)			—			—			—			(3)
Branch consolidation, property and equipment charges		(31)			(25)			(11)			(22)			(58)
Expenses associated with residential mortgage loan sale		—			—			(4)			—			—
Loss on early extinguishment of debt		(22)			(16)			—			—			(14)
Salary and employee benefits—severance charges		(31)			(5)			(61)			(10)			(21)
Acquisition expense		(1)			—			—			—			—
Adjusted non-interest expense (non-GAAP)	D	$	3,541		$	3,443		$	3,434		$	3,419		$	3,387
Net interest income (GAAP)	E	$	3,894		$	3,745		$	3,735		$	3,539		$	3,398
Reduction in leveraged lease interest income resulting from Tax Reform		—			—			—			6			—
Adjusted net interest income (non-GAAP)	F	$	3,894		$	3,745		$	3,735		$	3,545		$	3,398
Net interest income (GAAP)		$	3,894		$	3,745		$	3,735		$	3,539		$	3,398
Taxable-equivalent adjustment		48			53			51			90			84
Net interest income, taxable-equivalent basis - continuing operations	G	3,942			3,798			3,786			3,629			3,482
Reduction in leveraged lease interest income resulting from Tax Reform		—			—			—			6			—
Adjusted net interest income, taxable equivalent basis (non-GAAP)	H	$	3,942		$	3,798		$	3,786		$	3,635		$	3,482
Net interest margin (GAAP) (6)		3.21		%	3.45		%	3.50		%	3.32		%	3.14		%
Reduction in leveraged lease interest income resulting from Tax Reform		—			—			—			0.01			—
Adjusted net interest margin (non-GAAP)		3.21		%	3.45		%	3.50		%	3.33		%	3.14		%
Non-interest income (GAAP)	I	$	2,393		$	2,116		$	2,019		$	1,962		$	2,011
Adjustments:
Securities (gains) losses, net		(4)			28			(1)			(19)			(6)
Valuation gain on equity investment		(50)			—			—			—			—
Bank-owned life insurance		(25)			—			—			—			—
Insurance proceeds (8)		—			—			—			—			(50)
Leveraged lease termination gains		(2)			(1)			(8)			(1)			(8)
Gain on sale of affordable housing residential mortgage loans (9)		—			(8)			—			(5)			(5)
Adjusted non-interest income (non-GAAP)	J	$	2,312		$	2,135		$	2,010		$	1,937		$	1,942
Total revenue	E+I=K	$	6,287		$	5,861		$	5,754		$	5,501		$	5,409
Adjusted total revenue (non-GAAP)	F+J=L	$	6,206		$	5,880		$	5,745		$	5,482		$	5,340
Total revenue, taxable-equivalent basis	G+I=M	$	6,335		$	5,914		$	5,805		$	5,591		$	5,493
Adjusted total revenue, taxable-equivalent basis (non-GAAP)	H+J=N	$	6,254		$	5,933		$	5,796		$	5,572		$	5,424
Efficiency ratio (GAAP)(7)	C/M	57.50		%	58.99		%	61.50		%	62.44		%	63.42		%
Adjusted efficiency ratio (non-GAAP)(7)	D/N	56.62		%	58.03		%	59.26		%	61.35		%	62.46		%
Fee income ratio (GAAP)(7)	I/M	37.77		%	35.78		%	34.78		%	35.09		%	36.62		%
Adjusted fee income ratio (non-GAAP)(7)	J/N	36.96		%	36.00		%	34.68		%	34.80		%	35.82		%

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		Year Ended December 31
		2020			2019			2018			2017			2016
		(Dollars in millions, except share data)
RETURN ON AVERAGE TANGIBLE COMMON SHAREHOLDERS' EQUITY — CONSOLIDATED
Average shareholders’ equity (GAAP)		$	17,382		$	16,082		$	15,381		$	16,665		$	17,126
Less: Average intangible assets (GAAP)		5,239			4,943			5,010			5,103			5,125
Average deferred tax liability related to intangibles (GAAP)		(99)			(94)			(97)			(148)			(162)
Average preferred stock (GAAP)		1,509			1,151			820			820			820
Average tangible common shareholders’ equity (non-GAAP)	O	$	10,733		$	10,082		$	9,648		$	10,890		$	11,343
Return on average tangible common shareholders’ equity (non-GAAP) (7)	A/O	9.23		%	14.91		%	17.57		%	11.01		%	9.69		%


RETURN ON AVERAGE TANGIBLE COMMON SHAREHOLDERS' EQUITY — CONTINUING OPERATIONS
Average shareholders’ equity (GAAP) (10)		$	17,382		$	16,082		$	15,381		$	16,665		$	17,126
Less: Average intangible assets (GAAP) (10)		5,239			4,943			5,010			5,103			5,125
Average deferred tax liability related to intangibles (GAAP) (10)		(99)			(94)			(97)			(148)			(162)
Average preferred stock (GAAP) 109)		1,509			1,151			820			820			820
Average tangible common shareholders’ equity (non-GAAP)	P	$	10,733		$	10,082		$	9,648		$	10,890		$	11,343
Return on average tangible common shareholders’ equity (non-GAAP)(5)(7)	B/P	9.23		%	14.91		%	15.59		%	10.80		%	9.61		%
TANGIBLE COMMON RATIOS — CONSOLIDATED
Ending shareholders’ equity (GAAP)		$	18,111		$	16,295		$	15,090		$	16,192		$	16,664
Less: Ending intangible assets (GAAP)		5,312			4,950			4,944			5,081			5,125
Ending deferred tax liability related to intangibles (GAAP)		(106)			(92)			(94)			(99)			(155)
Ending preferred stock (GAAP)		1,656			1,310			820			820			820
Ending tangible common shareholders’ equity (non-GAAP)	Q	$	11,249		$	10,127		$	9,420		$	10,390		$	10,874
Ending total assets (GAAP)		$	147,389		$	126,240		$	125,688		$	124,294		$	125,968
Less: Ending intangible assets (GAAP)		5,312			4,950			4,944			5,081			5,125
Ending deferred tax liability related to intangibles (GAAP)		(106)			(92)			(94)			(99)			(155)
Ending tangible assets (non-GAAP)	R	$	142,183		$	121,382		$	120,838		$	119,312		$	120,998
End of period shares outstanding	S	960			957			1,025			1,134			1,215
Tangible common shareholders’ equity to tangible assets (non-GAAP)	Q/R	7.91		%	8.34		%	7.80		%	8.71		%	8.99		%
Tangible common book value per share (non-GAAP)(7)	Q/S	$	11.71		$	10.58		$	9.19		$	9.16		$	8.95

(1)In the fourth quarter of 2020, Regions made the decision to sell a certain portfolio of $239 million of commercial and industrial loans, which were reclassified to held for sale as of December 31, 2020. Adjustments to average loan balances assume a simple day-weighted average impact for the fourth quarter of 2020, and are equal to the ending balance of the loans moved to held for sale for the prior periods.

(2)In the fourth quarter of 2019, Regions decided not to renew a third party relationship.

(3)Adjustments to average loan balances assume a simple day-weighted average impact for the year ended December 31, 2018, and are equal to the ending balance of the residential first mortgage loans sold for the prior periods.

(4)On December 31, 2018, purchasing cards were reclassified to commercial and industrial loans from other assets.

(5)In the second quarter of 2020, Regions recorded $7 million in professional fees and related costs associated with the April 2020 equipment finance acquisition, Regions recorded $3 million of contingent legal and regulatory accruals during the second quarter of 2016 related to previously disclosed matters.

(6)Refer to Table 3 for computation of net interest margin.

(7)Amounts have been calculated using whole dollar values.

(8)Insurance proceeds recognized in the third quarter of 2016 are related to the previously disclosed settlement with the Department of Housing and Urban Development.

(9)In the first quarter of 2019, the Company sold $167 million of affordable housing residential mortgage loans for a gain of $8 million. In the fourth quarter of 2016, the Company sold affordable housing residential mortgage loans to FHLMC for a $5 million gain.

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Approximately $91 million were sold with recourse, resulting in a deferred gain of $5 million, which was recognized during the second quarter of 2017.

(10)Due to the immaterial impact of the discontinued operations, the balance sheet has not been presented on a continuing operations basis.

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, regulatory guidance, where applicable, 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. Regions determines its allowance in accordance with GAAP and applicable regulatory guidance.

On January 1, 2020, Regions adopted CECL, which replaced the incurred loss allowance methodology with an expected loss allowance methodology. See Note 1 "Summary of Significant Accounting Policies" and Note 6 "Allowance for Credit Losses" to the consolidated financial statements for information about CECL adoption, areas of judgment and methodologies used in establishing the allowance.

The allowance is sensitive to a number of internal factors, such as modifications in the mix and level of loan balances outstanding, portfolio performance and assigned risk ratings. The allowance is also sensitive to external factors such as the general health of the economy, as evidenced by changes in interest rates, GDP, unemployment rates, changes in real estate demand and values, volatility in commodity prices, bankruptcy filings, health pandemics, government stimulus, 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.

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 allowance based on their judgments and estimates. Volatility in certain credit metrics is to be expected. Additionally, changes in circumstances related to individually large credits, commodity prices, or certain macroeconomic forecast assumptions may result in volatility. The scenarios discussed below, or other scenarios, have the ability to result in actual credit losses that differ, perhaps materially, from the originally estimated amounts. In addition, it is difficult to predict how changes in economic conditions, including changes resulting from various pandemic scenarios, the impact of government stimulus programs to individuals and businesses, and the timely distribution and efficacy of a vaccine could affect borrower behavior. This analysis is not intended to estimate changes in the overall allowance, which would also be influenced by the judgment management applies to the modeled loss estimates to reflect uncertainty and imprecision based on then-current circumstances and conditions.

In December 2020, the FRB released its estimated modeled credit losses for Regions as part of its second round of stress test results for 2020. The second round of FRB stress test results included two hypothetical scenarios that were more severe than the severely adverse scenario from the supervisory stress test results released in the second quarter of 2020. In the second round of stress test results, the FRB estimated credit losses in its severely adverse scenario of $6 billion for Regions. Whereas this scenario assumed a different macroeconomic outlook than Regions', it may represent a possible range of potential credit losses in such a scenario. See the Federal Reserve stress test disclosures for more information regarding their assumptions in this stress test.

It is difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs are considered in estimating the allowance. Changes in the factors and inputs considered may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. However, to consider the impact of a hypothetical alternate economic forecast, Regions compared the modeled quantitative allowance results using favorable and unfavorable scenarios ( +/- 1 standard deviation) to the base economic forecast. The difference between the base macroeconomic forecast and the favorable scenario over the two year R&S period results in an approximate 15 percent decrease to the modeled allowance results. The difference between the base and the unfavorable scenario over the two year R&S period results in an approximate 20 percent increase to the modeled allowance results.

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Similar to the scenarios above, it is difficult to estimate how potential changes in credit risk factors might affect the overall allowance because of the wide variety of credit risk factors that are considered in estimating the allowance. Changes in risk ratings may not occur at the same rate and may not be consistent across product or industry types. Regions conducted a separate sensitivity analysis considering deteriorating conditions for commercial and investor real estate portfolio factors by stressing key portfolio drivers relative to the baseline portfolio conditions. Regions stressed risk ratings by one downgrade for commercial and investor real estate loans. This scenario generated a 36 percent increase in the modeled allowance for the commercial and investor real estate portfolios.

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 debt securities available for sale, mortgage loans held for sale, equity investments (with and without readily determinable market values), 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 acquired customer relationship intangibles, core deposit intangibles and purchased credit card relationships). Goodwill totaled $5.2 billion and $4.8 billion at December 31, 2020 and December 31, 2019, respectively. Goodwill is allocated to each of Regions’ reportable segments (each a reporting unit: Corporate Bank, Consumer Bank, and Wealth Management). 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).

Accounting guidance permits the Company to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit exceeds its carrying value. If, based on the weight of the evidence, the Company determines it is more likely than not that the fair value exceeds book value, then an impairment test is not necessary. If the Company elects to bypass the qualitative assessment, or concludes that it is more likely than not that the fair value is less than the carrying value, an impairment test is performed. The estimated 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. Conversely, if the estimated fair value of the reporting unit is below its carrying amount, a loss (which could be

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material) would be recognized to reduce the carrying amount to the estimated fair value. 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.

During the second quarter of 2020, Regions assessed events and circumstances for all three reporting units that could potentially indicate goodwill impairment including analyzing the impacts from the COVID-19 pandemic. Based on these events and circumstances, and after assessing indicators such as recent operating performance, changes in market capitalization, and changes in the business climate, Regions concluded that a triggering event had occurred which required Regions to perform a quantitative goodwill impairment test. The results of the test did not require Regions to record a goodwill impairment charge as all three reporting units continued to have a fair value in excess of book value.

The Company completed its annual goodwill impairment test as of October 1, 2020, by performing a qualitative assessment of goodwill at the reporting unit level to determine whether any indicators of impairment existed. In performing the qualitative assessment, the Company evaluated events and circumstances since the last impairment analysis, recent operating performance including reporting unit performance, changes in market capitalization, regulatory actions and assessments, changes in the business climate, company-specific factors, and trends in the banking industry. After assessing the totality of the events and circumstances, the Company determined that it is more likely than not that the fair value of the Corporate Bank, Consumer Bank, and Wealth Management reporting units exceed their respective carrying values. Therefore, a quantitative impairment test was deemed unnecessary. Refer to Note 10 "Intangible Assets" to the consolidated financial statements for additional discussion of goodwill.

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; adverse business trends resulting from litigation and/or regulatory actions; higher loan losses; forecasts of high unemployment levels; future increased minimum regulatory capital requirements above current thresholds (refer to Note 13 "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 significant protraction in the current level of interest rates.

Other material identifiable intangible assets, primarily acquired customer relationship intangibles, 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 customer relationships, 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 $296 million at December 31, 2020. Based on a hypothetical sensitivity analysis, Regions estimates that a reduction in benchmark interest rates of 25 basis points and 50 basis points would reduce the December 31, 2020 fair value of residential MSRs by approximately 10 percent ($28 million) and 19 percent ($56 million), respectively. Conversely, 25 basis point and 50 basis point increases in these rates would increase the December 31, 2020 fair value of residential MSRs by approximately 9 percent ($28 million) and 18 percent ($55 million), respectively. Regions also estimates that an increase in servicing costs of approximately $10 per loan, or 16 percent, would result in a decline in the value of the residential MSRs by approximately $10 million.

The pro forma fair value analyses 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 Note 7 "Servicing of Financial Assets"to the consolidated financial statements for additional disclosure on residential mortgage servicing rights.

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.

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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 deferred tax assets by considering all positive and negative evidence available, including the impact of recent operating results, future reversals of taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards and 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. On December 22, 2017, Tax Reform was enacted. Effective January 1, 2018, Tax Reform reduced the maximum corporate statutory federal income tax rate from 35 percent to 21 percent. See Note 20 "Income Taxes" to the consolidated financial statements for further details.

OPERATING RESULTS

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest 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 (taxable-equivalent basis) increased $144 million in 2020 compared to 2019, driven primarily by increases in loan balances attributable to PPP lending, the Ascentium acquisition in the second quarter of 2020, increased production of residential first mortgage loans, a decrease in deposit costs, and active cash management strategies. This includes increases in investment securities balances and decreases in short and long-term borrowings balances through the redemption of Parent and Bank senior notes and paydowns of FHLB advances.

Net interest income also benefited from the Company's interest rate hedging strategy. The hedges are designed to protect net interest income in a low short-term rate environment, such as the one that currently exists, and had a positive impact to net interest income of approximately $260 million for all of 2020. The Company began adding hedges in 2018; however, they were designed to become effective beginning in 2020. Therefore, the hedging strategy produced no benefits before 2020.

In response to the COVID-19 pandemic, the Federal Reserve dramatically increased policy accommodation during 2020, through lowering its policy rate to near-zero and increasing the size of its balance sheet. This, coupled with a sharp revision in global economic growth trends, resulted in decreases in long-term interest rates to all-time lows in 2020. Long-term interest rates are generally represented by the yield on the 10-year U.S. Treasury note. The average yield on the 10-year U.S. Treasury rate decreased to 0.89 percent in 2020, compared to 2.14 percent in 2019.

The net interest margin decreased to 3.21 percent in 2020 from 3.45 percent in 2019. The decline was primarily driven by elevated liquidity, as indicated by higher cash levels and increases in loan balances due to PPP lending. Lower market interest rates also impacted the net interest margin in 2020. The net interest margin was negatively impacted by the repricing of fixed rate loan portfolios and the securities portfolio at lower market interest rates during 2020. However, the reduction in loan and securities yields was almost completely offset by additional hedging income and lower funding costs. Average earning asset yields were 71 basis points lower in 2020 as compared to 2019, and interest-bearing liability rates were 67 basis points lower. As a result, the net interest rate spread only decreased 4 basis points to 3.00 percent in 2020 compared to 3.04 percent in 2019.

Regions' asset yields were impacted by the lower interest rate environment. The taxable investment securities portfolio, which contains significant residential fixed-rate exposure, decreased in yield to 2.34 percent in 2020 from 2.65 percent in 2019. The yield decreased primarily due to reinvestment, adding new securities at lower yields, and higher premium amortization driven by higher premium balances as a result of securities purchases combined with increased prepayment speeds. Notably, non-economic increases to prepayment speeds on GNMA collateral based on favorable economics for servicers to purchase loans in forbearance out of pools contributed to elevated premium amortization in 2020.

The loan portfolio decreased in yield to 4.15 percent in 2020 from 4.69 percent in 2019. The Company's loan yields are primarily influenced by short-term interest rates such as 30-day LIBOR, which averaged 0.52 percent in 2020, compared to 2.22 percent in 2019. Notably the hedging program, which protects against lower short-term rates, contributed 0.30 percent to

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loan yields in 2020. Reinvestment of fixed rate loans at lower long-term interest rates throughout 2020 also contributed to the yield decrease. Loan yields were also negatively impacted by unfavorable remixing of the loan portfolio during 2020, including the intentional runoff of higher yielding unsecured consumer loans.

The Company's funding costs also decreased in 2020 as compared to 2019. Deposit costs decreased to 16 basis points for 2020 compared to 47 basis points for 2019. The decrease was due primarily to lower interest rates and active deposit cost management, coupled with a higher non-interest bearing balance mix. The average long-term borrowing balance of $6.6 billion in 2020 was lower than 2019 due to the redemption of Parent and Bank senior notes and the elimination of all FHLB advances. The cost on these borrowings decreased 76 basis points, as the majority of Regions' long-term debt is effectively converted to floating rate debt through the execution of interest rate swaps. See the "Borrowings" section in Management's Discussion and Analysis and Note 12 "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.

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Table 3 "Consolidated Average Daily Balances and Yield/Rate Analysis" presents a detail of net interest 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


	Year Ended December 31
	2020						2019						2018
	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:

Debt securities (1)	$	24,837	$	582	2.34	%	$	24,274	$	643	2.65	%	$	25,005	$	626	2.50	%

Loans held for sale	932		28		2.95		450		17		3.75		386		15		3.98
Loans, net of unearned income (2)(3)	87,813		3,658		4.15		83,248		3,919		4.69		80,692		3,664		4.52

Other earning assets	9,070		42		0.47		2,202		70		3.17		2,891		84		2.90
Total earning assets	122,652		4,310		3.50		110,174		4,649		4.21		108,974		4,389		4.01
Unrealized gains/(losses) on securities available for sale, net (1)	935						(5)						(742)
Allowance for credit losses	(1,944)						(857)						(863)
Cash and due from banks	2,047						1,895						1,975
Other non-earning assets	14,405						13,903						14,036
	$	138,095					$	125,110					$	123,380
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Savings	$	10,325	14		0.14		$	8,719	14		0.16		$	8,838	14		0.16
Interest-bearing checking	21,522		35		0.16		18,772		125		0.67		19,167		79		0.41
Money market	27,877		51		0.18		24,637		167		0.68		24,181		86		0.35
Time deposits	6,432		76		1.18		7,632		123		1.61		6,665		69		1.05
Other deposits	252		4		1.58		784		18		2.26		123		2		1.99
Total interest-bearing deposits (4)	66,408		180		0.27		60,544		447		0.74		58,974		250		0.42
Federal funds purchased and securities sold under agreements to repurchase	46		1		1.18		227		5		2.28		135		3		1.98
Other short-term borrowings	797		9		1.13		2,014		48		2.35		1,262		27		2.15
Long-term borrowings	6,601		178		2.67		10,126		351		3.43		9,977		322		3.19
Total interest-bearing liabilities	73,852		368		0.50		72,911		851		1.17		70,348		602		0.86
Non-interest-bearing deposits (4)	44,386		—		—		33,869		—		—		35,464		—		—
Total funding sources	118,238		368		0.31		106,780		851		0.79		105,812		602		0.57
Net interest spread (1)					3.00						3.04						3.15
Other liabilities	2,469						2,245						2,187
Shareholders’ equity	17,382						16,082						15,381
Noncontrolling Interest	6						3						—
	$	138,095					$	125,110					$	123,380
Net interest income/margin on a taxable-equivalent basis (5)			$	3,942	3.21	%			$	3,798	3.45	%			$	3,787	3.48	%

(1)Debt securities are included on an amortized cost basis with yield and net interest margin calculated accordingly.

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

(3)Interest income includes net loan fees of $75 million, $7 million and $21 million for the years ended December 31, 2020, 2019 and 2018, respectively.

(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 0.16%, 0.47% and 0.26% for the years ended December 31, 2020, 2019 and 2018, respectively.

(5)The computation of taxable-equivalent net interest income is based on the statutory federal income tax rate of 21% for the years ended December 31, 2020, 2019 and 2018, adjusted for applicable state income taxes net of the related federal tax benefit.

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Table 4 "Volume and Yield/Rate Variances" provides additional information with which to analyze the changes in net interest income.

Table 4— Volume and Yield/Rate Variances


	2020 Compared to 2019						2019 Compared to 2018
	Change Due to						Change Due to
	Volume		Yield/ Rate		Net		Volume		Yield/ Rate		Net
	(Taxable-equivalent basis—in millions)
Interest income on:



Debt securities	$	15	$	(76)	$	(61)	$	(19)	$	36	$	17

Loans held for sale	15		(4)		11		3		(1)		2
Loans, including fees	206		(467)		(261)		117		138		255
Other earning assets	71		(99)		(28)		(21)		7		(14)
Total earning assets	307		(646)		(339)		80		180		260
Interest expense on:
Savings	2		(2)		—		—		—		—
Interest-bearing checking	16		(106)		(90)		(2)		48		46
Money market	19		(135)		(116)		2		79		81
Time deposits	(17)		(30)		(47)		11		43		54
Other deposits	(10)		(4)		(14)		16		—		16
Total interest-bearing deposits	10		(277)		(267)		27		170		197
Federal funds purchased and securities sold under agreements to repurchase	(2)		(2)		(4)		2		—		2
Other short-term borrowings	(21)		(18)		(39)		18		3		21
Long-term borrowings	(106)		(67)		(173)		5		24		29
Total interest-bearing liabilities	(119)		(364)		(483)		52		197		249
Increase (decrease) in net interest income	$	426	$	(282)	$	144	$	28	$	(17)	$	11

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 is based on the statutory federal income tax rate of 21% for the years ended December 31, 2020, 2019, and 2018, adjusted for applicable state income taxes net of the related federal tax benefit.

The mix of earning assets can 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. Average earning assets in 2020 totaled $122.7 billion, an increase of $12.5 billion as compared to the prior year, due to increased balances at the FRB and loan balances. See the "Cash and Cash Equivalents" and "Loans" sections for further details.

Average loans as a percentage of average earning assets were 72 percent and 76 percent in 2020 and 2019, respectively. The remaining categories of earning assets are shown in Table 3 "Consolidated Average Daily Balances and Yield/Rate Analysis". The proportion of average earning assets to average total assets, which was 89 percent in 2020 and 88 percent in 2019, 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 60 percent in 2020 and 66 percent in 2019.

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PROVISION FOR CREDIT LOSSES

The provision for credit losses is used to maintain the allowance for loan losses and the reserve for unfunded credit losses at a level that in management's judgment is appropriate to absorb expected credit losses over the contractual life of the loan and credit commitment portfolio at the balance sheet date. Regions adopted CECL on January 1, 2020. Upon adoption, Regions classified the provision for unfunded credit losses as provision for credit losses. Prior to 2020, the provision for unfunded credit losses was included in non-interest expense. During 2020, the provision for credit losses totaled $1.3 billion and net charge-offs were $512 million. This compares to a provision for loan losses of $387 million and net charge-offs of $358 million in 2019.

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 2020 vs. 2019
	2020		2019		2018		Amount		Percent
	(Dollars in millions)
Service charges on deposit accounts	$	621	$	729	$	710	$	(108)	(14.8)	%
Card and ATM fees	438		455		438		(17)		(3.7)	%
Mortgage income	333		163		137		170		104.3	%
Capital markets income	275		178		202		97		54.5	%
Investment management and trust fee income	253		243		235		10		4.1	%
Bank-owned life insurance	95		78		65		17		21.8	%
Investment services fee income	84		79		71		5		6.3	%
Commercial credit fee income	77		73		71		4		5.5	%

Valuation gain on equity investment	50		—		—		50		NM
Securities gains (losses), net	4		(28)		1		32		114.3	%
Market value adjustments on employee benefit assets - defined benefit	—		5		(6)		(5)		(100.0)	%
Market value adjustments on employee benefit assets - other	12		11		(5)		1		9.1	%
Other miscellaneous income	151		130		100		21		16.2	%
	$	2,393	$	2,116	$	2,019	$	277	13.1	%

NM - Not Meaningful

Service Charges on Deposit Accounts

Service charges on deposit accounts include non-sufficient fund and overdraft fees, corporate analysis service charges, overdraft protection fees and other customer transaction-related service charges. The decrease in 2020 compared to 2019 was the result of lower customer spending due to the COVID-19 pandemic. Government stimulus programs resulting from the COVID-19 pandemic aided in the increase of customer deposits, elevation of customer liquidity and also resulted in a reduction in overdraft charges. Consumer spending continues to normalize and the Company expects consumer service charges to grow in 2021 compared to 2020 levels; however, due to changes in customer behavior and enhancements to overdraft practices and transaction posting, the expectation is that consumer service charges will remain approximately 10 percent to 15 percent below 2019 levels in 2021.

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 decrease in 2020 compared to 2019 was primarily due to decreases in bank card and consumer credit card income as a result of declines in debit and credit card spending and transaction volumes associated with the COVID-19 pandemic. Card and ATM fees began to recover late in 2020 with the expectation that such fees will increase in 2021.

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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 in 2020 compared to 2019 was due to increased loan production and sales income as lower interest rates during 2020 drove higher loan application volume. See Note 7 "Servicing of Financial Assets" to the consolidated financial statements for more information.

Capital Markets Income

Capital markets income 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 2020 compared to 2019 was primarily due to increases in fees generated from the placement of permanent financing for real estate, securities underwriting and placement fees, M&A advisory services, and positive market-related credit valuation adjustments tied to credit derivatives within commercial swap 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 2020 compared to 2019 was primarily due to an increase in assets under administration and higher sales volumes.

Bank-owned Life Insurance

Bank-owned life insurance increased in 2020 compared to 2019 primarily due to a $25 million gain associated with a policy exchange completed during the fourth quarter of 2020, partially offset by a reduction in claims benefits during 2020.

Valuation Gain on Equity Investment

Valuation gain on equity investment is associated with an unrealized holding gain on an equity investment in a company which executed an initial public offering during the third quarter of 2020. Subsequent to December 31, 2020, at the end of the 180-day lockup period, Regions executed a trade of all positions on this equity investment realizing an additional gain of approximately $3 million.

Securities Gains (Losses), net

Net securities gains (losses) primarily result from the Company's asset/liability management process. The net loss incurred during 2019 was primarily due to a securities portfolio optimization strategy which included repositioning MBS. See Table 7 "Debt Securities" section and Note 4 "Debt Securities" to the consolidated financial statements for more information.

Market Value Adjustments on Employee Benefit Assets

Market value adjustments on employee benefit assets, both defined benefit and other, are the reflection of market value variations related to assets held for certain employee benefits. The adjustments reported as employee benefit assets - other are offset in salaries and benefits expense. Changes to market valuation adjustments in 2020 compared to 2019 were driven by the overall performance of the equity markets. Furthermore, the Company repositioned its defined employee benefits assets portfolio during the second quarter of 2019 into investments that are no longer subject to the volatility of the equity markets.

Other Miscellaneous Income

Other miscellaneous income includes net revenue from affordable housing, valuation adjustments to equity investments (other than the item referenced above), fees from safe deposit boxes, check fees and other miscellaneous income. Net revenue from affordable housing includes actual gains and losses resulting from the sale of affordable housing investments, cash distributions from the investments and any related impairment charges. Other miscellaneous income increased in 2020 compared to 2019 primarily due to an increase in additional revenue derived from the Company's April 2020 equipment finance acquisition, commercial loan related fee income, and commercial leasing income driven by higher loan balances in 2020.

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NON-INTEREST EXPENSE

Table 6—Non-Interest Expense from Continuing Operations


	Year Ended December 31						Change 2020 vs. 2019
	2020		2019		2018		Amount		Percent
	(Dollars in millions)
Salaries and employee benefits	$	2,100	$	1,916	$	1,947	$	184	9.6	%
Furniture and equipment expense	348		325		325		23		7.1	%
Net occupancy expense	313		321		335		(8)		(2.5)	%
Outside services	170		189		187		(19)		(10.1)	%
Marketing	94		97		92		(3)		(3.1)	%
Professional, legal and regulatory expenses	89		95		119		(6)		(6.3)	%
Credit/checkcard expenses	50		68		57		(18)		(26.5)	%
FDIC insurance assessments	48		48		85		—		—	%
Branch consolidation, property and equipment charges	31		25		11		6		24.0	%

Visa class B shares expense	24		14		10		10		71.4	%
Loss on early extinguishment of debt	22		16		—		6		37.5	%


Provision (credit) for unfunded credit losses(1)	—		(6)		(2)		6		100.0	%
Other miscellaneous expenses	354		381		404		(27)		(7.1)	%
	$	3,643	$	3,489	$	3,570	$	154	4.4	%

(1)Upon adoption of CECL on January 1, 2020, the provision for credit losses presented within net interest income after provision for credit losses is the sum of the provision for loan losses and the provision for unfunded credit commitments. Prior to the adoption of CECL, the provision for unfunded commitments was included in other non-interest expense.

Salaries and Employee Benefits

Salaries and employee benefits consist 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 2020 compared to 2019 primarily due to higher production-based incentives, the addition of associates through the Company's April 2020 equipment finance acquisition and annual merit raises that occurred in the second quarter of 2020. Also contributing to the increase for 2020 was increased pay related to the COVID-19 pandemic that did not occur in 2019. Full-time equivalent headcount decreased to 19,406 at December 31, 2020 from 19,564 at December 31, 2019, reflecting the continuing impact of the Company's efficiency initiatives implemented as part of its strategic priorities which offset the addition of approximately 450 associates from the April 2020 equipment finance acquisition.

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 2020 compared to 2019 primarily due to investments in technology.

Net Occupancy Expense

Net occupancy expense includes rent, depreciation, ad valorem taxes, utilities, insurance, and maintenance. Net occupancy expense decreased during 2020 compared to 2019 primarily due to lower operating expenses resulting from the shelter in place orders during the COVID-19 pandemic and continued occupancy optimization initiatives which included branch closures and square footage reductions.

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 decreased in 2020 compared to 2019 primarily due to Regions exiting a third party lending relationship in late 2019.

Credit/Checkcard Expenses

Credit/checkcard expenses include credit and checkcard fraud and expenses. Credit/checkcard expenses decreased in 2020 compared to 2019 primarily due to a decline in debit card fraud.

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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.

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 the finalization of certain covered litigation. Visa class B shares expense increased during 2020 compared to 2019 as a result of increases in Visa's stock price and changes in the status of the covered litigation.

Loss on Early Extinguishment of Debt

In the second quarter of 2020, Regions executed a partial tender of two Regions Bank senior notes due April 2021. In the third quarter of 2020, Regions redeemed the principal outstanding of two Regions Bank senior notes due August 2021. In the fourth quarter of 2020, Regions called its 2.75% Parent senior notes due August 2022. In conjunction with these actions and early terminations of all FHLB advances, Regions incurred related early extinguishment pre-tax charges totaling $22 million. In 2019, Regions commenced a tender offer and received tenders for $740 million of its outstanding 3.20% senior notes due 2021, incurring a related early extinguishment pre-tax charge of approximately $16 million. See Note 12 "Borrowings" to the consolidated financial statements for additional information.

Provision (Credit) for Unfunded Credit Losses

Provision (credit) for unfunded credit losses is the adjustment to the reserve for unfunded credit commitments, which can fluctuate based on the amount of outstanding commitments and the level of risk associated with those commitments. Beginning in 2020, adjustments to the reserve for unfunded credit commitments are included within the provision for credit losses.

Other Miscellaneous Expenses

Other miscellaneous expenses include expenses related to communications, postage, supplies, certain credit-related costs, foreclosed property expenses, mortgage repurchase costs, operational losses and other costs (benefits) related to employee benefit plans. Other miscellaneous expenses decreased during 2020 compared to 2019 primarily driven by lower operational losses, declines in expenses related to non-service related pension costs and lower expenses associated with limited travel as a result of the COVID-19 pandemic.

INCOME TAXES

The Company’s income tax expense for the year ended 2020 was $220 million compared to income tax expense of $403 million for the same period in 2019, resulting in effective tax rates of 16.8 percent and 20.3 percent, respectively. The effective tax rate is lower in 2020 due primarily to a consistent level of permanent income tax preferences having a proportionally larger impact relative to pre–tax earnings, which were negatively impacted in 2020 because of the COVID–19 pandemic.

The 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, bank-owned life insurance, tax-exempt interest and nondeductible expenses. 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, share-based payments, valuation allowance changes and changes to unrecognized tax benefits. Accordingly, the comparability of the effective tax rate between periods may be impacted.

On January 1, 2020, the Company adopted CECL. This resulted in an adjustment to the opening balance of the allowance. The tax impact of this adjustment increased deferred tax assets by approximately $126 million. See Note 1 "Summary of Significant Accounting Policies" to the consolidated financial statements for further information.

At December 31, 2020, the Company reported a net deferred tax liability of $505 million compared to a net deferred liability of $328 million at December 31, 2019. The increase in the net deferred tax liability was due principally to the increase in unrealized gains in derivative instruments and available for sale securities, which was partially offset by an increase in the deferred tax asset related to the allowance.

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; and 3) 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.

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History of earnings - In 2020, the Company has continued its positive earnings trend with positive earnings from 2012 through 2020. 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 $1.2 billion of deferred tax assets, which is significantly larger than the $785 million deferred tax asset balance net of valuation allowance at December 31, 2020.
Creation of future taxable income - The Company has projected future taxable income that could offset excess deferred tax assets.
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 established a valuation allowance in the amount of $31 million at December 31, 2020 and $32 million at December 31, 2019 because the Company believes that a portion of state net operating loss 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

On July 2, 2018, Regions sold Regions Insurance Group, Inc. and related affiliates. On April 2, 2012, Morgan Keegan was sold. Regions' results from discontinued operations are presented in Note 3 "Discontinued Operations" to the consolidated financial statements. The results from discontinued operations in 2020 and 2019 were immaterial.

BALANCE SHEET ANALYSIS

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

Cash and Cash Equivalents

At December 31, 2020, cash and cash equivalents totaled $18.0 billion compared to $4.1 billion at December 31, 2019. The increase was due primarily to an increase in cash on deposit with the FRB. Significant deposit growth during the last half of 2020 contributed to elevated liquidity sources for the Company. Commercial customer deposit levels significantly increased as customers brought excess deposits back to Regions. Additionally, consumers kept government stimulus payments as well as continued to adjust their spending and saving behavior in response to the economic environment. Regions deployed some excess liquidity as opportunities existed given market interest rates, primarily through securities purchases and long-term borrowing extinguishment activities. See the "Borrowings" and "Securities" sections for further details. The remaining excess liquidity is held at the FRB. See the "Liquidity" and "Deposits" sections for more information.

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Debt Securities

Debt securities available for sale, which constitute the majority of the securities portfolio, are an important tool used to manage interest rate sensitivity and provide a primary source of liquidity for the Company. Regions maintains a highly rated securities portfolio consisting primarily of agency mortgage-backed securities. Regions’ investment policy emphasizes credit quality and liquidity. Debt securities rated in the highest category by nationally recognized rating agencies and debt securities backed by the U.S. Government and government sponsored agencies, both on a direct and indirect basis, represented approximately 96% percent of the investment portfolio at December 31, 2020. All other debt securities rated below AAA, not backed by the U.S. Government or government sponsored agencies, or which are not rated represented approximately 4% percent of total debt securities at December 31, 2020. 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 average life of the debt securities portfolio at December 31, 2020 was estimated to be 4.59 years, with a duration of approximately 4.0 years. These metrics compare with an estimated average life of 5.3 years, with a duration of approximately 4.2 years for the portfolio at December 31, 2019.

Despite the low interest rate environment in 2020, Regions' comprehensive securities repositioning executed in late 2019 positioned the portfolio to react favorably to the current economic environment. The increase from year-end 2019 was the result of improved market valuation and purchases of mortgage-backed securities. During the third quarter of 2020, as part of its cash deployment strategy, Regions added $2.6 billion of residential agency mortgage-backed securities and $391 million of commercial agency mortgage-backed securities.

See Note 4 "Debt Securities" to the consolidated financial statements for additional information.

Table 7 "Debt Securities" details the carrying values of debt securities, including both available for sale and held to maturity.

Table 7—Debt Securities


	2020		2019		2018
	(In millions)
U.S. Treasury securities	$	183	$	182	$	280
Federal agency securities	105		43		43
Mortgage-backed securities:
Residential agency	19,611		16,226		17,475
Residential non-agency	1		1		2
Commercial agency	6,586		5,388		4,466
Commercial non-agency	586		647		760
Corporate and other debt securities	1,204		1,451		1,185
	$	28,276	$	23,938	$	24,211

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Table 8 "Relative Contractual Maturities" details the contractual maturities of debt securities, including held to maturity and available for sale, and the related weighted-average yields.

Table 8— Relative Contractual Maturities


	Debt Securities Maturing as of December 31, 2020
	Within One Year			After One But Within Five Years			After Five But Within Ten Years			After Ten Years			Total
	(Dollars in millions)
U.S. Treasury securities	$	54		$	121		$	1		$	7		$	183
Federal agency securities	1			10			1			93			105

Mortgage-backed securities:
Residential agency	—			139			716			18,756			19,611
Residential non-agency	—			—			1			—			1
Commercial agency	56			1,334			4,629			567			6,586
Commercial non-agency	—			—			—			586			586
Corporate and other debt securities	147			742			298			17			1,204
	$	258		$	2,346		$	5,646		$	20,026		$	28,276
Weighted-average yield (1)	2.88		%	2.61		%	2.34		%	2.18		%	2.25		%

(1)The weighted-average yields are calculated on the basis of the yield to maturity based on the carrying value of each debt security. The yields presented in Table 3 are calculated based on the amortized cost of each debt security and yields earned throughout each year.

Loans Held For Sale

At December 31, 2020, loans held for sale totaled $1.9 billion, consisting of $1.4 billion of residential real estate mortgage loans, $460 million of commercial mortgage and other loans, and $6 million of non-performing loans. In the fourth quarter of 2020, Regions made the decision to sell a certain portfolio of $239 million commercial and industrial loans, which were reclassified to held for sale as of December 31, 2020. At December 31, 2019, loans held for sale totaled $637 million, consisting of $436 million of residential real estate mortgage loans, $188 million of commercial mortgage and other loans, and $13 million of non-performing loans. The levels of residential real estate and commercial mortgage loans held for sale that are part of the Company's mortgage originations to be sold fluctuate depending on the timing of origination and sale to third parties.

Loans

GENERAL

Loans, net of unearned income, represented 64 percent of interest-earning assets as of December 31, 2020, compared to 74 percent as of December 31, 2019. 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 lines and loans, indirect-vehicles, indirect-other consumer, consumer credit card and other consumer loans).

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Table 9 illustrates a year-over-year comparison of loans, net of unearned income, by portfolio segment and class as of December 31 and Table 10 provides information on selected loan maturities as of December 31:

Table 9—Loan Portfolio


	2020		2019		2018		2017		2016
	(In millions, net of unearned income)
Commercial and industrial	$	42,870	$	39,971	$	39,282	$	36,115	$	35,012
Commercial real estate mortgage—owner-occupied	5,405		5,537		5,549		6,193		6,867
Commercial real estate construction—owner-occupied	300		331		384		332		334
Total commercial	48,575		45,839		45,215		42,640		42,213
Commercial investor real estate mortgage	5,394		4,936		4,650		4,062		4,087
Commercial investor real estate construction	1,869		1,621		1,786		1,772		2,387
Total investor real estate	7,263		6,557		6,436		5,834		6,474
Residential first mortgage	16,575		14,485		14,276		14,061		13,440
Home equity lines	4,539		5,300		5,871		6,571		7,233
Home equity loans	2,713		3,084		3,386		3,593		3,454
Indirect—vehicles	934		1,812		3,053		3,326		4,040
Indirect—other consumer	2,431		3,249		2,349		1,467		920
Consumer credit card	1,213		1,387		1,345		1,290		1,196
Other consumer	1,023		1,250		1,221		1,165		1,125
Total consumer	29,428		30,567		31,501		31,473		31,408
	$	85,266	$	82,963	$	83,152	$	79,947	$	80,095

Table 10— Selected Loan Maturities


	Loans Maturing as of December 31, 2020 (1)
	Within One Year		After One But Within Five Years		After Five Years		Total
	(In millions)
Commercial and industrial (2)	$	5,738	$	28,674	$	8,265	$	42,677
Commercial real estate mortgage—owner-occupied	360		2,076		2,969		5,405
Commercial real estate construction—owner-occupied	16		39		245		300
Total commercial	6,114		30,789		11,479		48,382
Commercial investor real estate mortgage	1,504		3,594		296		5,394
Commercial investor real estate construction	287		1,581		1		1,869
Total investor real estate	1,791		5,175		297		7,263
	$	7,905	$	35,964	$	11,776	$	55,645


	Predetermined Rate		Variable Rate
	(In millions)
Due after one year but within five years	$	10,107	$	25,857
Due after five years	8,753		3,023
	$	18,860	$	28,880

(1)Excludes consumer portfolio segment.

(2)Excludes $193 million of small business credit card accounts.

Loans, net of unearned income, totaled $85.3 billion at December 31, 2020, an increase of $2.3 billion from year-end 2019 levels. Regions manages loan growth with a focus on risk management and risk-adjusted return on capital. Loan balances increased year over year in the commercial and investor real estate portfolio segments but decreased in the consumer portfolio segment. Within the consumer portfolio segment, the year over year balance decline is attributable to declines across all

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categories except for residential first mortgage. Regions' decision in 2019 to discontinue its indirect auto lending and indirect other businesses contributed to declines in indirect portfolios.

PORTFOLIO CHARACTERISTICS

The following sections describe the composition of the portfolio segments and classes disclosed in Table 9, explain changes in balances from the 2019 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.

Many classes within Regions' portfolio segments continue to experience the impact of the COVID-19 pandemic. The extent to which Regions' borrowers are ultimately impacted will be influenced by the duration and severity of the economic impact, the timely distribution and efficacy of a vaccine, as well as the effectiveness of the various government stimulus programs in place to support individuals and businesses. See Tables 11 through 16 below for more detail.

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 increased $2.9 billion or 7 percent since year-end 2019. This balance includes $3.6 billion of PPP loans and the addition of $1.9 billion in loans related to the Ascentium acquisition that occurred at the beginning of the second quarter of 2020 (see the "Ascentium Acquisition" section for more information). In the first half of 2020, the commercial portfolio experienced elevated draws on commercial lines of credit; however line utilization levels normalized and declined to historic lows in the second half of 2020 driven by excess liquidity and customer deleveraging.

Commercial also includes owner-occupied commercial real estate mortgage loans to operating businesses, which are loans for long-term financing on land and buildings, and are repaid by cash generated by business operations. 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 portfolio balances in selected industries as of December 31:

Table 11—Commercial Industry Exposure


	2020
	Loans		Unfunded Commitments		Total Exposure
	(In millions)
Administrative, support, waste and repair	$	1,605	$	1,017	$	2,622
Agriculture	424		332		756
Educational services	3,055		852		3,907
Energy	1,676		2,337		4,013
Financial services	4,416		4,905		9,321
Government and public sector	2,907		621		3,528
Healthcare	4,141		2,468		6,609
Information	1,699		1,096		2,795
Manufacturing	4,555		4,216		8,771
Professional, scientific and technical services	2,467		1,594		4,061
Real estate (1)	7,285		7,456		14,741
Religious, leisure, personal and non-profit services	1,966		810		2,776
Restaurant, accommodation and lodging	2,196		341		2,537
Retail trade	2,578		2,178		4,756
Transportation and warehousing	2,731		1,415		4,146
Utilities	1,829		2,758		4,587
Wholesale goods	3,050		3,303		6,353
Other (2)	(5)		1,774		1,769
Total commercial	$	48,575	$	39,473	$	88,048

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	2019 (3)
	Loans		Unfunded Commitments		Total Exposure
	(In millions)
Administrative, support, waste and repair	$	1,402	$	888	$	2,290
Agriculture	456		225		681
Educational services	2,724		676		3,400
Energy	2,172		2,528		4,700
Financial services	4,588		4,257		8,845
Government and public sector	2,825		522		3,347
Healthcare	3,646		1,802		5,448
Information	1,394		847		2,241
Manufacturing	4,347		3,912		8,259
Professional, scientific and technical services	1,970		1,299		3,269
Real estate	7,067		7,224		14,291
Religious, leisure, personal and non-profit services	1,748		769		2,517
Restaurant, accommodation and lodging	1,780		420		2,200
Retail trade	2,439		2,039		4,478
Transportation and warehousing	1,885		1,250		3,135
Utilities	1,774		2,437		4,211
Wholesale goods	3,335		2,637		5,972
Other (2)	287		2,095		2,382
Total commercial	$	45,839	$	35,827	$	81,666

(1)"Real estate" includes REITs, which are unsecured commercial and industrial products that are real estate related.

(2)"Other" contains balances related to non-classifiable and invalid business industry codes offset by payments in process and fee accounts that are not available at the loan level.

(3)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.

Regions has identified certain industry sectors within the commercial and investor real estate portfolio segments that have the highest risk due to COVID-19. A bottom-up review was performed in the fourth quarter of 2020, which narrowed high-risk industry sectors compared to the third and second quarters. As of December 31, 2020, these high-risk industries include energy, healthcare, consumer services and travel, retail, restaurants, and hotels. Industries identified as high-risk may change in future periods depending on how the macroeconomic environment conditions develop over time. These identified high-risk industries, and specified sectors within these industries, are detailed in Table 12 below. PPP loan balances are not included in Table 12 as these loans are not considered high risk, as they are fully guaranteed by the U.S government. Regions is closely monitoring customers in these industries and has frequent dialogue with these customers. Certain of these exposures are also represented in Table 12 through Table 16 below. All loans within these tables are in the commercial portfolio segment, unless specifically identified as IRE.

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Table 12—COVID-19 High-Risk Industries


	December 31, 2020
	Balance Outstanding		% of Total Loans		Utilization %		Leveraged % of Balance		SNC % of Balance		% Deferral		% Criticized
	($ in millions)
Commercial
Energy - E&P, oilfield services, coal	$	1,133	1.3	%	53	%	—	%	78	%	—	%	39	%
Healthcare - offices of physicians and other health practitioners	955		1.1	%	72	%	6	%	10	%	1	%	3	%
Consumer services & travel - amusement, arts and recreation, personal care services, charter bus industry	648		0.8	%	67	%	37	%	36	%	2	%	13	%
Retail (non-essential) - furniture & furnishings, miscellaneous store retailers, clothing	504		0.6	%	43	%	3	%	22	%	—	%	8	%
Restaurants - full service	705		0.8	%	83	%	31	%	37	%	—	%	64	%
Total commercial	3,945		4.6	%	61	%	13	%	40	%	—	%	27	%

REITs and IRE
Hotels - full service, limited service, extended stay	269		0.3	%	91	%	—	%	—	%	—	%	94	%
Retail (non-essential) - malls and outlet centers	749		0.9	%	96	%	—	%	27	%	—	%	26	%
Total REITs and IRE	1,018		1.2	%	95	%	—	%	20	%	—	%	44	%

Total COVID-19 high-risk industries	$	4,963
Other specifically identified at-risk assets (1)	188
Total COVID-19 high-risk balances	$	5,151

(1) Represents balances considered high-risk that are not included in high-risk industries.

Energy

Regions' direct energy portfolio is comprised mostly of E&P and midstream sector borrowers. As of December 31, 2020, oil prices have rebounded from all-time lows in April 2020, but have not yet reached pre-pandemic levels. None of Regions' direct energy credits are leveraged loans and Regions has no second lien energy exposure. Throughout 2020, Regions recognized approximately $136 million in energy charge-offs, of which 83% is associated with loans originated prior to 2016 and were unable to restructure after the 2015 downturn. Since first quarter 2015, utilization rates have remained between 40-60%. Hedge positions are adequate for oil producers and strong for natural gas providers, and less than one percent of energy loans are currently operating under a COVID-19 payment deferral.

Table 13—Energy Industry Exposure


	December 31, 2020
	Balance Outstanding		% of Total Outstanding		Utilization Rate		Criticized Balances		% Criticized
	(In millions)
Oilfield services and supply	$	289	17	%	64	%	$	66	23	%
E&P	787		47	%	57	%	346		44	%
Midstream	485		29	%	32	%	135		28	%
Downstream	48		3	%	14	%	—		—	%
Other	57		3	%	19	%	30		53	%
PPP	10		1	%	100	%	—		—	%
Total energy	$	1,676	100	%	42	%	$	577	34	%

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Restaurant

The quick service sector comprises over half of Regions' restaurant portfolio balances outstanding. Quarantining, social distancing, and reduced business travel as a result of the COVID-19 pandemic has and will continue to result in lost demand, much of which may not be recoverable. The $705 million in COVID high-risk balances disclosed in Table 12 above include loans in the quick service, casual dining and other sectors disclosed in Table 14 below. Casual dining is the sector under the most stress in the current environment. While the quick service sector does include COVID high risk loans, they represent a smaller portion of the sector's total outstanding balance compared to other restaurant sectors. The quick service restaurants focus on fast food service and limited menus, and have performed relatively well during the pandemic given their digital platforms, drive-through and delivery capabilities. Approximately 19% of restaurant outstandings are leveraged. Prior to the COVID-19 pandemic, Regions strategically exited some higher risk restaurant relationships at par. Less than one percent of restaurant, accommodation and lodging portfolio balances are in payment deferrals as of December 31, 2020. During 2020, Regions has recognized approximately $40 million in restaurant charge-offs.

Table 14—Restaurant Industry Exposure


	December 31, 2020
	Balance Outstanding		% of Total Outstanding		Utilization Rate		Criticized Balances		% Criticized
	(In millions)
Quick service	$	1,127	56	%	82	%	$	98	9	%
Casual dining	429		21	%	88	%	389		91	%
Other	120		6	%	81	%	97		81	%
PPP	347		17	%	100	%	—		—	%
Total restaurant	$	2,023	100	%	86	%	$	584	29	%

Hotel-related

Regions' hotel-related portfolio is the most impacted property type given cancellations of events, conventions, and most business and leisure travel. While demand is expected to increase in 2021, the average daily rate will likely be slower to recover. Regions' hotel-related portfolio is primarily comprised of 11 REIT customers. These loans are unsecured commercial and industrial loans; however, they are real estate related. The REIT portfolio benefits from low leverage, strong liquidity, and diversity of property holdings. Companies have also taken proactive steps to reduce capital expenditures, cut dividends, and reduce overhead to preserve cash. SNCs comprise 55% of Regions' total hotel-related loans. As noted above, less than one percent of restaurant, accommodation and lodging portfolio balances are in payment deferrals as of December 31, 2020. The consumer services and PPP balances included in the table below along with the total restaurants balance in Table 14 above comprise the restaurant, accommodation and lodging balance in Table 11 above.

Table 15—Hotel-Related Industry Exposure


	December 31, 2020
	Balance Outstanding		% of Total Outstanding		Utilization Rate		Criticized Balances		% Criticized
	(In millions)
Commercial:
REITs	$	606	58	%	74	%	$	602	99	%
Consumer services	140		13	%	95	%	7		5	%
PPP	33		3	%	100	%	—		—	%
Total commercial	779		74	%			609		78	%

IRE:
IRE - mortgage	202		20	%	94	%	187		93	%
IRE - construction	66		6	%	83	%	66		100	%
Total IRE	268		26	%			253		94	%

Total hotel-related	$	1,047	100	%	81	%	$	862	82	%

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Retail-related

Regions' retail-related industry is primarily comprised of REITs and non-leveraged commercial and industrial sectors. Approximately $319 million of outstanding balances across the REIT and IRE portfolios relate to shopping malls and outlet centers. Portfolio exposure to REITs specializing in enclosed malls consists of a small number of credits. Approximately 30% of mall REIT balances are investment grade with low leverage. The IRE portfolio is widely distributed. The largest tenants typically include "basic needs" anchors. The commercial and industrial retail portfolio is also widely distributed. The largest categories include motor vehicle and parts dealers, gasoline stations, building materials, garden equipment and supplies, and non-store retailers. Owner-occupied CRE consists primarily of small strip malls and convenience stores which are largely term loans where a higher utilization rate is expected. Less than one percent of retail trade and retail only lending is operating in a deferral as of December 31, 2020. In 2020, Regions has recognized approximately $13 million in retail-related lending charge-offs. The commercial and industrial leveraged and non-leveraged, asset-based lending, PPP and CRE owner-occupied balances totaling $2.6 billion in the table below comprise the retail trade commercial industry sector balance in Table 11.

Table 16—Retail-Related Industry Exposure


	December 31, 2020
	Balance Outstanding		% of Total Outstanding		Utilization Rate		Criticized balances		Criticized percentage
	(In millions)
Commercial:
REITs	$	1,210	27	%	43	%	$	—	—	%
Commercial and industrial- leveraged	155		3	%	58	%	—		—	%
Commercial and industrial- not leveraged	1,099		24	%	48	%	25		2	%
Asset-based lending	300		6	%	27	%	110		37	%
PPP	264		6	%	100	%	—		—	%
CRE- owner-occupied	760		17	%	95	%	25		3	%
Total commercial	3,788		83	%			160		4	%

IRE	749		17	%	96	%	194		26	%

Total commercial and IRE retail-related	$	4,537	100	%	54	%	$	354	8	%

Investor Real Estate

Loans for real estate development are repaid through cash flows 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 increased $706 million in comparison to 2019 year-end balances reflecting new fundings and draws on investor real estate construction lines.

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 increased $2.1 billion in comparison to 2019 year-end balances. The increase in residential first mortgage loans was primarily driven by an increase in originations due to historically low market interest rates during 2020. Approximately $7.2 billion in new loan originations were retained on the balance sheet through the year ended December 31, 2020.

Home Equity Lines

Home equity lines are secured by a first or second mortgage on the borrower's residence and allow customers to borrow against the equity in their homes. Home equity lines decreased by $761 million in comparison to 2019 year-end balances. Substantially all of this portfolio was originated through Regions’ branch network.

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Beginning in 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, home equity lines of credit had a 10-year draw period and a 10-year repayment term. Prior to May 2009, home equity lines of credit had a 20-year repayment 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.

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, 2020. 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 17—Home Equity Lines of Credit - Future Principal Payment Resets


	First Lien		% of Total		Second Lien		% of Total		Total
	(Dollars in millions)
2021	$	131	2.88	%	$	108	2.39	%	$	239
2022	88		1.93		84		1.86		172
2023	118		2.61		94		2.06		212
2024	165		3.65		125		2.76		290
2025	170		3.74		193		4.25		363
2026-2031	1,808		39.83		1,443		31.79		3,251
2031-2035	2		0.04		3		0.06		5
Thereafter	3		0.06		4		0.09		7
Total	$	2,485	54.74	%	$	2,054	45.26	%	$	4,539

Home Equity Loans

Home equity loans are also secured by a first or second mortgage on the borrower's residence, are primarily originated as amortizing loans, and allow customers to borrow against the equity in their homes. Home equity loans decreased by $371 million in comparison to 2019 year-end balances. Substantially all of this portfolio was originated through Regions’ branch network.

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, home equity lines and home equity loans classes of the consumer portfolio segment. Current LTV data for some loans in the portfolio is not 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.

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Table 18—Estimated Current Loan to Value Ranges


	December 31, 2020
	Residential First Mortgage			Home Equity Lines of Credit						Home Equity Loans
			1st Lien			2nd Lien			1st Lien			2nd Lien
	(In millions)
Estimated current LTV:
Above 100%	$	20		$	4		$	2		$	5		$	4
Above 80% - 100%	2,510			32			82			22			12
80% and below	13,790			2,417			1,888			2,452			207
Data not available	255			32			82			7			4
	$	16,575		$	2,485		$	2,054		$	2,486		$	227


	December 31, 2019
	Residential First Mortgage			Home Equity Lines of Credit						Home Equity Loans
			1st Lien			2nd Lien			1st Lien			2nd Lien
	(In millions)
Estimated current LTV:
Above 100%	$	32		$	8		$	18		$	9		$	5
Above 80% - 100%	1,745			76			187			32			24
80% and below	12,438			2,669			2,216			2,738			257
Data not available	270			35			91			14			5
	$	14,485		$	2,788		$	2,512		$	2,793		$	291

Indirect—Vehicles

Indirect-vehicles lending, which is lending initiated through third-party business partners, largely consists of loans made through automotive dealerships. This portfolio decreased $878 million from year-end 2019. The decrease was due to the termination of a third-party arrangement during the fourth quarter of 2016 and Regions' decision in January 2019 to discontinue its indirect auto lending business. The Company remains in the direct auto lending business.

Indirect—Other Consumer

Indirect-other consumer lending represents other lending initiatives through third parties, including point of sale lending. This portfolio class decreased $818 million from year-end 2019 due to exiting a third party relationship during the fourth quarter of 2019.

Consumer Credit Card

Consumer credit card lending represents primarily open-ended variable interest rate consumer credit card loans. These balances decreased $174 million from year-end 2019 reflecting lower credit card transaction volume as customers reacted to the economic environment.

Other Consumer

Other consumer loans primarily include direct consumer loans, overdrafts and other revolving loans. Other consumer loans decreased $227 million from year-end 2019.

Regions 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 and refreshed FICO scores are obtained by the Company quarterly for all consumer loans. For more information on credit quality indicators refer to Note 6 "Allowance for Credit Losses".

Allowance

The allowance consists of two components: the allowance for loan losses and the reserve for unfunded credit commitments. Unfunded credit commitments includes items such as letters of credit, financial guarantees and binding unfunded loan commitments.

On January 1, 2020, Regions adopted CECL, which replaced the incurred loss allowance methodology with an expected loss allowance methodology. See Note 1 "Summary of Significant Accounting Policies", Note 5 "Loans", Note 6 "Allowance for Credit Losses"and Note 13 "Regulatory Capital Requirements and Restrictions" for information about CECL adoption, areas of judgment and methodologies used in establishing the allowance.

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Since the adoption of CECL on January 1, 2020, Regions has increased the allowance by $878 million from $1.4 billion to $2.3 billion as of December 31, 2020, which represents management's best estimate of expected losses over the life of the loan and credit commitment portfolios. Key drivers of the change in the allowance are presented in Table 19 below. While many of these items overlap regarding impact, they are included in the category most relevant.

Table 19— Allowance Changes


	Three Months Ended
	December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020
	(In millions)
Allowance for credit losses, beginning balance (as adjusted for change in accounting guidance on January 1, 2020) (1)	$	2,425	$	2,425	$	1,665	$	1,415
Initial allowance on acquired PCD loans	—		—		60		—
Net charge-offs	(94)		(113)		(182)		(123)
Provision (credit) over net charge-offs:
Economic outlook and adjustments	(137)		(22)		287		223
Changes in portfolio credit quality/uncertainty	147		115		382		42
Changes in specific reserves	(5)		52		(10)		36
Portfolio growth (run-off) (2)	(43)		(32)		147		72
Initial provision impact of non-PCD acquired loans(3)	—		—		76		—
Total provision (credit) versus net charge-offs	(132)		—		700		250
Allowance for credit losses, ending balance	$	2,293	$	2,425	$	2,425	$	1,665


	Twelve months ended December 31, 2020
	(In millions)
Allowance for credit losses at January 1 (as adjusted for change in accounting guidance) (1)	$	1,415
Initial allowance on acquired PCD loans	60
Net charge-offs	(512)
Provision over net charge-offs:
Economic outlook and adjustments	351
Changes in portfolio credit quality/uncertainty	686
Changes in specific reserves	73
Portfolio growth (run-off) (2)	144
Initial provision impact of non-PCD acquired loans(3)	76
Total provision over net charge-offs	818
Allowance for credit losses at December 31	$	2,293

(2)Portfolio growth does not include PPP loans of $3.6 billion, $4.6 billion and $4.5 billion as of December 31, 2020, September 30, 2020 and June 30, 2020, respectively, which are fully backed by the U.S. government and have an immaterial associated allowance.

(3)This balance includes $64 million related to the initial allowance for non-PCD loans acquired as part of the second quarter 2020 Ascentium acquisition.

The 2020 allowance was impacted by the economic conditions caused by the COVID-19 pandemic. In the first half of 2020, the economic environment showed signs of deterioration in reaction to the public health crisis. While the second half of 2020 showed signs of economic improvement and stabilization, there continues to be uncertainty surrounding the economic environment due to the status of the COVID-19 pandemic. Credit metrics improved during the fourth quarter, and deferrals and forbearance balances declined. Additionally, stimulus continues to work its way through the economic system, as evidenced by a moderate increase in consumer spend later in 2020. While economic growth improved and vaccines were approved for distribution in the fourth quarter of 2020, the public health crisis is not resolved and continued economic uncertainty remains. While the initial economic stimulus for those on unemployment expired in the third quarter of 2020, an additional stimulus package was approved in the fourth quarter of 2020. Additionally, mortgage LTVs are holding up well and the HPI showed robust appreciation. As the credit risk within Regions' loan portfolio continues to be evaluated, both negative and positive factors of the ever-evolving economic landscape were considered in determining the allowance as of year-end.

Credit metrics are monitored throughout the year in order to understand external macro-views of credit metrics, trends and industry outlooks as well as Regions' internal specific views of credit metrics and trends. The fourth quarter of 2020 exhibited improving credit metrics as economic conditions stabilized. While commercial and investor real estate criticized balances increased approximately $66 million, classified balances decreased $326 million compared to the third quarter. Non-performing

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loans excluding held for sale decreased $22 million compared to the third quarter. Additionally net charge-offs decreased $19 million during the fourth quarter. Regions performed a bottom-up review of commercial and IRE loan portfolios during the fourth quarter, which resulted in fewer sectors considered high-risk compared to the third quarter. Approximately $5.2 billion of commercial and investor real estate loans are in COVID-19 high-risk industry segments or are considered COVID-19 at-risk-assets. These high-risk industries include energy, healthcare, consumer services and travel, retail, restaurants, and hotels. Refer to the "Portfolio Characteristics" section for more information about the high-risk industries.

Regions purchased Ascentium, an independent equipment financing company on April 1, 2020. The purchase included approximately $1.9 billion in loans and leases to small businesses, of which approximately 46% were considered to be PCD. Regions considered loan payment status, COVID-19 deferral status, and loans in high-risk industries in COVID-19 highly-impacted states in its determination of PCD. The Ascentium acquisition resulted in $136 million in additional allowance in the second quarter, of which $76 million was recorded through the provision for credit losses and the remaining $60 million was for acquired PCD loans and did not impact the provision for credit losses. See the "Ascentium Acquisition" section for more information.

Changes in the macroeconomic environment can be extremely impactful to the allowance estimate under CECL. Regions' economic forecast utilized in the January 1, 2020 allowance upon adoption of CECL considered a relatively benign economic environment. The forecast utilized in the March 31, 2020 allowance considered a more stressed economic environment due to the onset of the COVID-19 pandemic based on early stage pandemic information. The economic forecast utilized in the June 30, 2020 allowance included further deterioration primarily due to higher levels of unemployment. The economic forecast utilized in the September 30, 2020 allowance included normalization of economic activity, albeit at an uneven pace across individual states and industry groups. The economic forecast used in the December 31, 2020 allowance included stabilizing economic conditions. Refer to the "Economic Environment in Regions' Banking Markets" section for more information. Regions benchmarked its internal forecast with external forecasts and available external data.

Risks to the economic forecasts included a high degree of uncertainty around how wide the COVID-19 pandemic could spread, how long it could persist, and if any public health changes could trigger another round of shutdowns. However, the development of vaccines in the fourth quarter of 2020 and passage of an additional round of stimulus are positive signs. The CECL model produced unintuitive results in the second quarter of 2020, primarily due to the transient spike in unemployment rates. In the third quarter of 2020, unemployment levels normalized, but remained elevated, and the CECL models reacted directionally as expected. In the fourth quarter of 2020, the modeled results acted directionally consistent with the updated forecast reflecting improving economic conditions and resulted in a decline to modeled results. In consideration of economic uncertainty, several points of analysis including spikes in unemployment rates, stress analyses on industries most acutely impacted by the COVID-19 pandemic, and certain other loan portfolio-specific adjustments were considered and resulted in model adjustments to partially offset the reduction in modeled results. Refer to the "Portfolio Characteristics" section for more information about COVID-19 impacted industries.

While Regions' quantitative allowance methodologies strive to reflect all risk factors, any estimate involves assumptions and uncertainties resulting in some level of imprecision. The qualitative framework has a general imprecision component which is meant to acknowledge that model and forecast errors are inherent in any modeling estimate. The December 31, 2020 general imprecision allowance considered incremental risks of the current economic environment including uncertainty specific to COVID-19, vaccine distribution, future government assistance and consumer spending. A key consideration for the commercial models' general imprecision was the continued impacts of spikes in variables other than unemployment rates. Additionally, general imprecision was considered for certain consumer models that are not economically conditioned and as such do not fully consider these risks.

The table below reflects a range of macroeconomic factors utilized in the Base forecast over the two-year R&S forecast period as of December 31, 2020. The unemployment rate is the most significant macroeconomic factor among the CECL models.

Table 20— Macroeconomic Factors in the Forecast


	Pre-R&S Period			Base R&S Forecast
December 31, 2020
4Q2020			1Q2021			2Q2021			3Q2021			4Q2021			1Q2022			2Q2022			3Q2022			4Q2022
Real GDP, annualized % change	3.40	%		0.50	%		1.60	%		5.00	%		5.30	%		3.90	%		2.90	%		2.40	%		2.40	%
Unemployment rate	6.80	%		6.60	%		6.40	%		6.10	%		5.80	%		5.40	%		5.20	%		5.00	%		4.90	%
HPI, year-over-year % change	7.20	%		7.20	%		6.80	%		5.40	%		3.80	%		3.10	%		3.00	%		2.90	%		3.00	%
S&P 500	3,579			3,705			3,755			3,803			3,850			3,900			3,944			3,988			4,028

Based on the overall analysis performed, management deemed an allowance of $2.3 billion to be appropriate to absorb expected credit losses in the loan and credit commitment portfolios as of December 31, 2020.

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Details regarding the allowance and net charge-offs, including an analysis of activity from the previous year’s totals, are included in Table 21 "Allowance for Credit Losses". As noted, economic trends such as interest rates, unemployment, volatility in commodity prices and collateral valuations as well as the length and depth of the COVID-19 pandemic, the impact of the CARES Act and other policy accommodations, and the timely distribution and efficacy of a vaccine will impact the future levels of net charge-offs and may result in volatility of certain credit metrics during 2021 and beyond.

Table 21—Allowance for Credit Losses


	2020		2019		2018		2017		2016
	(Dollars in millions)
Allowance for loan losses at January 1	$	869	$	840	$	934	$	1,091	$	1,106
Cumulative change in accounting guidance (1)	438		—		—		—		—
Allowance for loan losses, January 1 (as adjusted for change in accounting guidance) (1)	1,307		840		934		1,091		1,106
Loans charged-off:
Commercial and industrial	358		138		130		159		120
Commercial real estate mortgage—owner-occupied	10		11		18		17		22
Commercial real estate construction—owner-occupied	—		1		—		—		1
Commercial investor real estate mortgage	1		1		9		2		2
Commercial investor real estate construction	—		—		—		—		—
Residential first mortgage	6		4		14		11		15
Home equity lines	12		21		25		29		48
Home equity loans	3		5		6		6		8
Indirect—vehicles	18		28		38		49		51
Indirect—other consumer	78		77		48		32		15
Consumer credit card	58		67		61		54		42
Other consumer	69		90		84		75		74
	613		443		433		434		398
Recoveries of loans previously charged-off:
Commercial and industrial	38		24		37		33		32
Commercial real estate mortgage—owner-occupied	5		5		8		9		11
Commercial real estate construction—owner-occupied	—		—		—		—		—
Commercial investor real estate mortgage	3		3		5		21		10
Commercial investor real estate construction	—		1		3		2		3
Residential first mortgage	3		3		6		4		3
Home equity lines	12		12		13		17		22
Home equity loans	3		4		4		4		4
Indirect—vehicles	9		12		15		18		18
Indirect—other consumer	2		—		—		2		1
Consumer credit card	10		9		7		6		6
Other consumer	16		12		12		11		11
	101		85		110		127		121

Net charge-offs (recoveries):
Commercial and industrial	320		114		93		126		88
Commercial real estate mortgage—owner-occupied	5		6		10		8		11
Commercial real estate construction—owner-occupied	—		1		—		—		1
Commercial investor real estate mortgage	(2)		(2)		4		(19)		(8)
Commercial investor real estate construction	—		(1)		(3)		(2)		(3)
Residential first mortgage	3		1		8		7		12
Home equity lines	—		9		12		12		26
Home equity loans	—		1		2		2		4
Indirect—vehicles	9		16		23		31		33
Indirect—other consumer	76		77		48		30		14
Consumer credit card	48		58		54		48		36
Other consumer	53		78		72		64		63
	512		358		323		307		277
Provision for loan losses	1,312		387		229		150		262
Initial allowance on acquired PCD loans	60		—		—		—		—
Allowance for loan losses at December 31	2,167		869		840		934		1,091

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	2020			2019			2018			2017			2016
	(Dollars in millions)
Reserve for unfunded credit commitments at January 1	$	45		$	51		$	53		$	69		$	52
Cumulative change in accounting guidance (1)	63			—			—			—			—
Reserve for unfunded credit commitments, as adjusted for change in accounting guidance	108			51			53			69			52
Provision (credit) for unfunded credit losses	18			(6)			(2)			(16)			17
Reserve for unfunded credit commitments at December 31	$	126		$	45		$	51		$	53		$	69
Allowance for credit losses at December 31	$	2,293		$	914		$	891		$	987		$	1,160
Loans, net of unearned income, outstanding at end of period	$	85,266		$	82,963		$	83,152		$	79,947		$	80,095
Average loans, net of unearned income, outstanding for the period	$	87,813		$	83,248		$	80,692		$	79,846		$	81,333

Net loan charge-offs (recoveries) as a % of average loans, annualized
Commercial and industrial	0.71		%	0.28		%	0.25		%	0.35		%	0.24		%
Commercial real estate mortgage—owner-occupied	0.09		%	0.09		%	0.17		%	0.13		%	0.16		%

Total commercial	0.64		%	0.26		%	0.24		%	0.32		%	0.23		%
Commercial investor real estate mortgage	(0.03)		%	(0.04)		%	0.11		%	(0.46)		%	(0.19)		%
Commercial investor real estate construction	—		%	(0.05)		%	(0.16)		%	(0.12)		%	(0.11)		%
Total investor real estate	(0.03)		%	(0.04)		%	0.02		%	(0.35)		%	(0.16)		%
Residential first mortgage	0.02		%	0.01		%	0.06		%	0.06		%	0.09		%
Home equity- lines of credit	(0.01)		%	0.15		%	0.19		%	0.18		%	0.34		%
Home equity- closed end	0.01		%	0.05		%	0.06		%	0.05		%	0.12		%
Indirect—vehicles	0.64		%	0.67		%	0.71		%	0.87		%	0.80		%
Indirect—other consumer	2.59		%	2.83		%	2.54		%	2.58		%	1.97		%
Consumer credit card	3.84		%	4.44		%	4.21		%	4.00		%	3.29		%
Other consumer	4.71		%	6.37		%	6.13		%	5.55		%	5.89		%
Total	0.58		%	0.43		%	0.40		%	0.38		%	0.34		%
Ratios:
Allowance for credit losses at end of period to loans, net of unearned income	2.69		%	1.10		%	1.07		%	1.23		%	1.45		%
Allowance for credit losses at end of period to loans, excluding PPP, net (non-GAAP) (2)	2.81		%	1.10		%	1.07		%	1.23		%	1.45		%
Allowance for loan losses to loans, net of unearned income	2.54		%	1.05		%	1.01		%	1.17		%	1.36		%
Allowance for credit losses at end of period to non-performing loans, excluding loans held for sale	308		%	180		%	180		%	152		%	117		%
Allowance for loan losses to non-performing loans, excluding loans held for sale	291		%	171		%	169		%	144		%	110		%

(2)See Table 2 for calculation.

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

Table 22—Allowance Allocation


	2020						2019
	Loan Balance		Allowance Allocation(1)		Allowance to Loans %(2)			Loan Balance		Allowance Allocation(1)		Allowance to Loans %(2)
	(Dollars in millions)
Commercial and industrial	$	42,870	$	1,027	2.4	%		$	39,971	$	442	1.1	%
Commercial real estate mortgage—owner-occupied	5,405		242		4.5			5,537		86		1.6
Commercial real estate construction—owner-occupied	300		24		8.0			331		9		2.7
Total commercial	48,575		1,293		2.7			45,839		537		1.2
Commercial investor real estate mortgage	5,394		167		3.1			4,936		30		0.6
Commercial investor real estate construction	1,869		30		1.6			1,621		15		1.0
Total investor real estate	7,263		197		2.7			6,557		45		0.7
Residential first mortgage	16,575		155		0.9			14,485		37		0.3
Home equity lines	4,539		122		2.7			5,300		18		0.3
Home equity loans	2,713		33		1.2			3,084		9		0.3
Indirect—vehicles	934		19		2.0			1,812		13		0.7
Indirect—other consumer	2,431		241		9.9			3,249		91		2.8
Consumer credit card	1,213		161		13.3			1,387		69		5.0
Other consumer	1,023		72		7.0			1,250		50		4.0
Total consumer	29,428		803		2.7			30,567		287		0.9
Total	$	85,266	$	2,293	2.7	%		$	82,963	$	869	1.0	%
Less: SBA PPP loans	3,624		1		—			—		—		N/A
Total, excluding PPP loans(3)	$	81,642	$	2,292	2.8	%		$	82,963	$	869	1.0	%


	2018						2017					2016
	Loan Balance		Allowance Allocation(1)		Allowance to Loans %(2)			Loan Balance		Allowance Allocation(1)		Allowance to Loans %(2)		Loan Balance		Allowance Allocation(1)		Allowance to Loans %(2)

Commercial and industrial	$	39,282	$	421	1.1	%		$	36,115	$	455	1.3	%	$	35,012	$	585	1.7	%
Commercial real estate mortgage—owner-occupied	5,549		91		1.6			6,193		127		2.0		6,867		161		2.3
Commercial real estate construction—owner-occupied	384		8		2.0			332		9		2.9		334		7		2.2
Total commercial	45,215		520		1.1			42,640		591		1.4		42,213		753		1.8
Commercial investor real estate mortgage	4,650		42		0.9			4,062		42		1.0		4,087		54		1.3
Commercial investor real estate construction	1,786		16		0.9			1,772		22		1.3		2,387		31		1.3
Total investor real estate	6,436		58		0.9			5,834		64		1.1		6,474		85		1.3
Residential first mortgage	14,276		37		0.3			14,061		62		0.4		13,440		68		0.5
Home equity lines	5,871		22		0.4			6,571		24		0.4		7,233		29		0.4
Home equity loans	3,386		7		0.2			3,593		16		0.4		3,454		16		0.5
Indirect—vehicles	3,053		26		0.8			3,326		34		1.0		4,040		39		1.0
Indirect—other consumer	2,349		61		2.6			1,467		34		2.3		920		15		1.6
Consumer credit card	1,345		67		5.0			1,290		66		5.1		1,196		45		3.8
Other consumer	1,221		42		3.5			1,165		43		3.7		1,125		41		3.6
Total consumer	31,501		262		0.8			31,473		279		0.9		31,408		253		0.8
	$	83,152	$	840	1.0	%		$	79,947	$	934	1.2	%	$	80,095	$	1,091	1.4	%

(1)Regions adopted the CECL accounting guidance on January 1, 2020 and recorded the cumulative effect of the change in accounting guidance as a reduction to retained earnings and an increase to deferred tax assets. The allowance allocation after January 1, 2020 is the allowance for credit losses compared to the allowance for loan losses prior to January 1, 2020. See Note 1 for additional details.

(2)Amounts have been calculated using whole dollar values.

(3)Non-GAAP; see Table 2 for reconciliation.

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TROUBLED DEBT RESTRUCTURINGS (TDRs)

TDRs are modified loans in which a concession is provided to a borrower experiencing financial difficulty. As provided in the CARES Act passed into law on March 27, 2020, certain loan modifications related to the COVID-19 pandemic beginning March 1, 2020 through the earlier of 60 days after the end of the pandemic or December 31, 2020 were eligible for relief from TDR classification. Regions elected this provision of the CARES Act; therefore, modified loans that met the required guidelines for relief are not considered TDRs and are excluded from the disclosures below. Further, on December 27, 2020, the Consolidated Appropriations Act was signed into law and extended the relief from TDR classification through the earlier of 60 days after the national emergency concerning the COVID-19 outbreak ends or January 1, 2022. Regions elected this provision.

Under Regions' COVID-19 deferral and forbearance programs, customer payments are deferred for a period of time, typically 90 days. Upon expiration of the deferral period, customers may apply for additional relief or resume making payments on their loans. Repayment plans for the deferrals differ depending on the loan type and repayment ability of the borrower. The CARES Act relief and short-term nature of most COVID-19 deferrals precluded the majority of these modifications from being classified as TDRs as of December 31, 2020. See "The Executive Overview" section for additional details on deferrals as of December 31, 2020.

Residential first mortgage, home equity, 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. Insignificant modifications are not considered TDRs. More detailed information 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 23—Troubled Debt Restructurings


	2020				2019
	Loan Balance		Allowance for Credit Losses		Loan Balance		Allowance for Credit Losses
	(In millions)
Accruing:
Commercial	$	77	$	6	$	106	$	15
Investor real estate	44		1		32		3
Residential first mortgage	188		23		177		18
Home equity lines	35		5		42		2
Home equity loans	78		8		109		5
Consumer credit card	1		—		1		—
Other consumer	4		—		4		—
	427		43		471		43
Non-accrual status or 90 days past due and still accruing:
Commercial	124		18		139		20
Investor real estate	—		—		1		—
Residential first mortgage	42		6		40		4
Home equity lines	2		—		2		$	—
Home equity loans	7		1		6		$	—
	175		25		188		24
Total TDRs - Loans	$	602	$	68	$	659	$	67

TDRs- Held For Sale	1		—		1		—
Total TDRs	$	603	$	68	$	660	$	67

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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 additions 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 following conditions are met: 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, the loan has not been restructured as an "A" note/"B" note, the loan has been reported as a TDR over one fiscal year-end and the loan is subsequently refinanced or restructured at market terms such that it qualifies as a new loan.

For the consumer portfolio, changes in TDRs are primarily due to additions 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 24—Analysis of Changes in Commercial and Investor Real Estate TDRs


	2020				2019
	Commercial		Investor Real Estate		Commercial		Investor Real Estate
	(In millions)
Balance, beginning of year	$	245	$	33	$	291	$	19
Additions	252		40		192		13
Charge-offs	(67)		—		(33)		—
Other activity, inclusive of payments and removals(1)	(229)		(29)		(205)		1
Balance, end of year	$	201	$	44	$	245	$	33

(1)The majority of this category consists of payments and sales. It also includes normal amortization/accretion of loan basis adjustments, loans transferred to held for sale, removals and reclassifications between portfolio segments. Additionally, it includes $21 million of commercial loans and $12 million of investor real estate loans refinanced or restructured as new loans and removed from TDR classification during 2020. During 2019, $6 million of commercial loans and $1 million of investor real estate loans were refinanced or restructured as new loans and removed from TDR classification.

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NON-PERFORMING ASSETS

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

Table 25—Non-Performing Assets


	2020			2019			2018			2017			2016
	(Dollars in millions)
Non-performing loans:
Commercial and industrial	$	418		$	347		$	307		$	404		$	623
Commercial real estate mortgage—owner-occupied	97			73			67			118			210
Commercial real estate construction—owner-occupied	9			11			8			6			3
Total commercial	524			431			382			528			836
Commercial investor real estate mortgage	114			2			11			5			17
Commercial investor real estate construction	—			—			—			1			—
Total investor real estate	114			2			11			6			17
Residential first mortgage	53			27			40			47			50
Home equity lines	46			41			53			59			79
Home equity loans	8			6			10			10			13

Total consumer	107			74			103			116			142

Total non-performing loans, excluding loans held for sale	745			507			496			650			995
Non-performing loans held for sale	6			13			10			17			13
Total non-performing loans(1)	751			520			506			667			1,008
Foreclosed properties	25			53			52			73			90
Non-marketable investments received in foreclosure	—			5			8			—			—
Total non-performing assets(1)	$	776		$	578		$	566		$	740		$	1,098
Accruing loans 90 days past due:
Commercial and industrial	$	7		$	11		$	8		$	4		$	6
Commercial real estate mortgage—owner-occupied	1			1			—			1			2

Total commercial	8			12			8			5			8
Commercial investor real estate mortgage	—			—			—			1			—

Total investor real estate	—			—			—			1			—
Residential first mortgage(2)	99			70			66			92			99
Home equity lines	19			32			24			27			22
Home equity loans	13			10			10			10			11
Indirect—vehicles	4			7			9			9			10
Indirect—other consumer	5			3			1			—			—
Consumer credit card	14			19			20			19			15
Other consumer	2			5			5			4			5
Total consumer	156			146			135			161			162
	$	164		$	158		$	143		$	167		$	170

Non-performing loans(1) to loans and non-performing loans held for sale	0.88		%	0.63		%	0.61		%	0.83		%	1.26		%
Non-performing assets(1) to loans, foreclosed properties, non-marketable investments, and non-performing loans held for sale	0.91		%	0.70		%	0.68		%	0.92		%	1.37		%

(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 $57 million at December 31, 2020, $66 million at December 31, 2019, $84 million at December 31, 2018, $124 million at December 31, 2017 and $113 million at December 31, 2016.

Non-performing loans increased during 2020 primarily driven by downgrades in the commercial and industrial and the commercial investor real estate mortgage classes. Retail IRE and restaurant sectors within these classes have experienced stress due to recent declines in demand brought on by the COVID-19 pandemic.

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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.

At December 31, 2020, Regions estimates that the amount of commercial and investor real estate loans that have the potential to migrate to non-accrual status for the next quarter is within the range of $135 million to $225 million.

In order to arrive at the estimated range of potential problem loans for the next quarter, credit personnel forecast certain larger dollar loans that may potentially be downgraded to non-accrual at a future time, depending upon the occurrence of future events. A variety of factors are included in the assessment of potential problem loans, including a borrower’s capacity and willingness to meet 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. For other loans (for example, smaller dollar loans), a trend analysis is also incorporated to determine an estimate of potential future downgrades. In addition, the economic environment and industry trends are evaluated in the establishment of the estimated range of potential problem loans for the next quarter. Current trends will additionally influence the size of the estimated range. Because of the inherent uncertainty in forecasting future events, the estimated range of potential problem loans ultimately represents the estimated aggregate dollar amounts of loans, as opposed to an individual listing of loans.

Many 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:

Table 26— Analysis of Non-Accrual Loans


	Non-Accrual Loans, Excluding Loans Held for Sale for the Year Ended December 31, 2020
	Commercial		Investor Real Estate		Consumer(1)		Total
	(In millions)
Balance at beginning of year	$	431	$	2	$	74	$	507
Additions	797		121		35		953
Net payments/other activity	(261)		(8)		(2)		(271)
Return to accrual	(85)		—		—		(85)
Charge-offs on non-accrual loans(2)	(321)		—		—		(321)
Transfers to held for sale(3)	(19)		(1)		—		(20)
Transfers to real estate owned	(4)		—		—		(4)
Sales	(14)		—		—		(14)
Balance at end of year	$	524	$	114	$	107	$	745


	Non-Accrual Loans, Excluding Loans Held for Sale for the Year Ended December 31, 2019
	Commercial		Investor Real Estate		Consumer(1)		Total
	(In millions)
Balance at beginning of year	$	382	$	11	$	103	$	496
Additions	469		4		—		473
Net payments/other activity	(206)		(8)		(29)		(243)
Return to accrual	(19)		(3)		—		(22)
Charge-offs on non-accrual loans(2)	(126)		(1)		—		(127)
Transfers to held for sale(3)	(43)		(1)		—		(44)
Transfers to real estate owned	(6)		—		—		(6)
Sales	(20)		—		—		(20)
Balance at end of year	$	431	$	2	$	74	$	507

(1)All net activity within the consumer portfolio segment other than additions, 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 $7 million and $11 million recorded upon transfer for the years ended December 31, 2020 and 2019, respectively.

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Other Earning Assets

Other earning assets consist primarily of investments in FRB and FHLB stock, marketable equity securities and operating lease assets. The balance at December 31, 2020 totaled $1.2 billion compared to $1.5 billion at December 31, 2019. Refer to Note 8 "Other Earning Assets" to the consolidated financial statements for additional information.

Goodwill

Goodwill totaled $5.2 billion at December 31, 2020 and $4.8 billion at December 31, 2019. 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 the goodwill impairment analysis.

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 convenient branch locations and hours for its customers, all while trying to keep branch employees safe during the COVID-19 pandemic. Regions also serves customers through providing centralized, high-quality banking services and the Company's digital channels and contact center.

Deposits are Regions’ primary source of funds, providing funding for 90 percent of average earning assets in 2020 and 86 percent of average earning assets in 2019. Table 27 "Deposits" details year-over-year deposits on a period-ending basis. Total deposits at December 31, 2020 increased approximately $25.0 billion compared to year-end 2019 levels. The increase in deposits was primarily driven by increases in non-interest-bearing demand, interest-bearing transaction, savings and money market categories. These increases were partially offset by decreases in customer time deposits and corporate treasury other deposits.

Deposit costs decreased to 16 basis points for 2020, compared to 47 basis points for 2019 and 26 basis points for 2018. The rate paid on interest-bearing deposits decreased to 0.27 percent in 2020 compared to 0.74 percent for 2019 and 0.42 percent for 2018. The decrease in the rate paid on interest-bearing deposits during 2020 is largely due to the decline of short-term interest rates. Low deposit costs are driven primarily by the composition of the Company's deposit base, which includes a significant amount of low-cost and relatively small account balance consumer and private wealth deposits. The deposit base composition is a key component of the Company's franchise value.

The following table summarizes deposits by category as of December 31:

Table 27—Deposits


	2020		2019		2018
	(In millions)
Non-interest-bearing demand	$	51,289	$	34,113	$	35,053
Savings	11,635		8,640		8,788
Interest-bearing transaction	24,484		20,046		19,175
Money market—domestic	29,719		25,326		24,111

Time deposits	5,341		7,442		7,122
Customer deposits	122,468		95,567		94,249
Corporate treasury time deposits	11		108		242
Corporate treasury other deposits	—		1,800		—
	$	122,479	$	97,475	$	94,491

Non-interest-bearing demand deposits increased $17.2 billion to $51.3 billion at year-end 2020 due primarily to consumer reaction to the COVID-19 pandemic which has impacted customer liquidity levels. Customers have chosen to keep excess funds from government stimulus programs. Corporate customers consolidated sources of liquidity and brought cash balances back to Regions. Also, businesses are focused on supply chain efficiencies and turnover of receivables which has increased their cash levels and resulting deposits. Non-interest-bearing demand deposits accounted for approximately 42 percent of total deposits for 2020 compared to 35 percent for 2019.

Interest-bearing transaction deposits increased $4.4 billion to $24.5 billion and money market accounts increased $4.4 billion to $29.7 billion at year-end 2020. Interest-bearing transaction deposits accounted for approximately 20 percent of total deposits for 2020 compared to 21 percent for 2019. Money market accounts accounted for approximately 24 percent of total deposits at year-end 2020 compared to 26 percent at year end 2019. A large driver of the increase in interest-bearing transaction and money market balances was due to customers choosing to keep excess cash from government stimulus, as discussed above. Additionally, lower consumer spend in response to the economic environment contributed to deposit growth.

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Included in time deposits are certificates of deposit and individual retirement accounts. Customer time deposits decreased $2.1 billion to $5.3 billion at year-end 2020 due to maturities and continued lower interest rates resulting in a decrease in the utilization of time deposit accounts throughout 2020. Time deposits accounted for 4 percent and 8 percent of total deposits in 2020 and 2019, respectively. See Table 28 "Maturity of Time Deposits of $100,000 or More" for maturity information.

Corporate treasury other deposits decreased as these deposits were used to supplement incremental balance sheet funding at year-end 2019, but not utilized during 2020.

Table 28—Maturity of Time Deposits of $100,000 or More


	2020		2019
	(In millions)
Time deposits of $100,000 or more, maturing in:
3 months or less	$	504	$	1,226
Over 3 through 6 months	434		372
Over 6 through 12 months	662		1,018
Over 12 months	633		1,034
	$	2,233	$	3,650

Borrowings

Short-Term Borrowings

Short-term borrowings, which consist of FHLB advances, totaled zero at December 31, 2020 compared to $2.1 billion at December 31, 2019. The levels of these borrowings can fluctuate depending on the Company’s funding needs and the sources utilized. FHLB advances decreased in 2020 as the increase in deposits reduced the need for short-term funding from the FHLB.

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 continue to provide reliable funding at attractive rates. See the "Liquidity" section for further detail of Regions' borrowing capacity with the FHLB.

Long-Term Borrowings

Total long-term borrowings decreased approximately $4.3 billion to $3.6 billion at December 31, 2020. The decrease was primarily due to a $2.5 billion decrease in FHLB advances. The increase in deposits also reduced the need for long-term borrowings from the FHLB. Additionally, Regions executed partial tenders and redeemed senior notes in their entirety. The issuance of $750 million of senior notes due 2025 was a partial offset to the tenders and redemptions. The overall decrease was also partially offset by the Ascentium acquisition, through which Regions acquired securitized borrowings, which the Company will manage within its broader liability management process and in line with the allowable terms of the contracts.

See Note 12 "Borrowings" to the consolidated financial statements for further discussion of both short-term and long-term borrowings.

Ratings

Table 29 "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, 2020 and 2019.

Table 29—Credit Ratings


	As of December 31, 2020
	S&P	Moody’s	Fitch	DBRS
Regions Financial Corporation
Senior unsecured debt	BBB+	Baa2	BBB+	AL
Subordinated debt	BBB	Baa2	BBB	BBBH
Regions Bank
Short-term	A-2	P-1	F1	R-IL
Long-term bank deposits	N/A	A2	A-	A

Senior unsecured debt	A-	Baa2	BBB+	A
Subordinated debt	BBB+	Baa2	BBB	AL
Outlook	Stable	Stable	Stable	Stable

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	As of December 31, 2019
	S&P	Moody’s	Fitch	DBRS
Regions Financial Corporation
Senior unsecured debt	BBB+	Baa2	BBB+	AL
Subordinated debt	BBB	Baa2	BBB	BBBH
Regions Bank
Short-term	A-2	P-1	F1	R-IL
Long-term bank deposits	N/A	A2	A-	A
Senior unsecured debt	A-	Baa2	BBB+	A
Subordinated debt	BBB+	Baa2	BBB	AL
Outlook	Stable	Positive	Positive	Stable

N/A - not applicable.

On April 3, 2020 Moody's revised outlooks for Regions Bank and Regions Financial Corporation to stable from positive citing expectations for a contracting economy in 2020 which is expected to have a direct negative impact on U.S. banks' asset quality and profitability.

On April 9, 2020 Fitch revised outlooks for Regions Financial Corporation to stable from positive as part of an overall revision of its U.S. bank sector and rating outlook. Revision to the overall outlook was driven by concerns over the negative financial and economic impacts from the COVID-19 pandemic.

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.

Shareholders' Equity

Shareholders’ equity was $18.1 billion at December 31, 2020 as compared to $16.3 billion at December 31, 2019. During 2020, net income increased shareholders’ equity by $1.1 billion. Cash dividends on common stock and cash dividends on preferred stock reduced shareholders' equity by $595 million and $103 million, respectively. Changes in accumulated other comprehensive income increased shareholders' equity by $1.4 billion, primarily due to the net change in unrealized gains (losses) on securities available for sale and derivative instruments as a result of changes in market interest rates during 2020. The cumulative effect from the adoption of CECL decreased shareholders' equity by $377 million. See Note 1 "Summary of Significant Accounting Policies" for information about the CECL adoption. Lastly, during the second quarter of 2020, the Company issued Series D preferred stock, which increased shareholders' equity by $346 million.

See Note 15 "Shareholders' 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 the Company's assets, liabilities and selected 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 13 "Regulatory Capital Requirements and Restrictions" to the consolidated financial statements for a tabular presentation of the applicable holding company and bank regulatory capital requirements.

Under the Basel III Rules, Regions is designated as a standardized approach bank. The Basel III Rules are now fully phased in, and among other things, (i) impose a capital 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. The Basel III Rules also prescribe a standardized approach for risk-weightings of assets and off-balance sheet exposures to derive the capital ratios.

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The Basel III Rules provide for a number of deductions from and adjustments to CET1. For example, goodwill and selected other intangible assets, and disallowed deferred tax assets are deducted. MSRs, certain other deferred tax assets and significant investments in non-consolidated financial entities are also deducted from CET1 if they exceed defined thresholds. 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, were allowed to 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, including the impact of interest rate fluctuations on the fair value of their securities portfolios.

In the third quarter of 2020, the federal banking agencies finalized a rule related to the impact of CECL on regulatory capital requirements. The rule allows an addback to regulatory capital for the impacts of CECL for a two-year period. At the end of the two years, the impact is then phased-in over the following three years. The addback is calculated as the impact of initial adoption, adjusted for 25 percent of subsequent changes in the allowance. At December 31, 2020, the impact of the addback on CET1 was approximately $582 million, or approximately 54 basis points.

In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”). Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including by recalibrating risk-weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provide a new standardized approach for operational risk capital. Under the Basel framework, these standards will generally be effective on January 1, 2022, with an aggregate output floor phasing in through January 1, 2027. Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approach institutions, and not to Regions or Regions Bank. The impact of Basel IV on the Company will depend on the manner in which it is implemented by the federal banking regulators.

In October of 2020, the SCB framework that was finalized in the first quarter of 2020, was implemented. This new framework created a firm-specific risk sensitive buffer that is applied to regulatory minimum capital levels to help determine effective minimum ratio requirements. The SCB is now floored at 2.5 percent to ensure effective minimum capital levels do not decline as a result of this rule change. At implementation, the SCB replaced the Capital Conservation Buffer, which was a static 2.5 percent in addition to the minimum risk-weighted asset ratios shown in Note 13 "Regulatory Capital Requirements and Restrictions".

During the third quarter, and in connection with the results of its supervisory stress test released in June 2020, the Federal Reserve finalized Regions' SCB requirement for the fourth quarter of 2020 through the third quarter of 2021 at 3.0 percent. The 3.0 percent requirement represented the amount of capital degradation under the supervisory severely adverse scenario, inclusive of four quarters of planned common stock dividends. In December 2020, the Federal Reserve disclosed the results of its supervisory stress test associated with the capital plan resubmission. While the Federal Reserve did not recalibrate SCBs as a part of the resubmission for participating banks, Regions’ implied SCB would have been floored at 2.5 percent based on capital degradation in the supervisory severely adverse scenario had the SCB been updated. Although the decision to update SCB requirements based on the resubmission results was deferred, the Federal Reserve may decide at any point through March 31, 2021 to update Regions' and other firms' SCB requirement based on the results.

EGRRCPA was enacted on May 24, 2018, and makes limited amendments to the Dodd-Frank Act as well as modifications to other post-crisis regulatory requirements. As a result of EGRRCPA, Regions is no longer subject to company-run stress testing requirements and changes Regions’ supervisory stress testing cycle from annual to biennial. In October 2019, the federal banking agencies finalized rules that would tailor the application of enhanced prudential standards per the EGRRCPA and would assign each institution with $100 billion or more in total consolidated assets, as well as its bank subsidiaries, to one of four categories based on its size and five risk-based indicators. Regions is a “Category IV” institution. Broader discussion of the impact of EGRRCPA on Regions and Regions Bank is included under the “Supervision and Regulation” section of the “Business” section of this Annual Report on Form 10-K.

Additional discussion of the Basel III Rules and their applicability to Regions is included in Note 13 "Regulatory Capital Requirements and Restrictions" to the consolidated financial statements. Discussion of the final rule to provide relief for the initial capital decrease at adoption of CECL is included in the “Risk Factors” section and in Note 1 "Summary of Significant Accounting Policies" to the consolidated financial statements.

LIQUIDITY

Regions maintains a robust liquidity management framework designed to effectively manage liquidity risk in accordance with sound risk management principals and regulatory expectations. The framework establishes sustainable processes and tools to effectively identify, measure, mitigate, monitor, and report liquidity risks beginning with Regions’ Liquidity Management Policy and the Liquidity Risk Appetite Statements approved by the Board. Processes within the liquidity management framework include, but are not limited to, liquidity risk governance, cash management, liquidity stress testing, liquidity risk limits, contingency funding plans, and collateral management. While the framework is designed to comply with liquidity regulations, the processes are further tailored to be commensurate with Regions’ operating model and risk profile.

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See the “Supervision and Regulation—Liquidity Regulation” subsection of the “Business” section, the "Risk Factors" section and the "Liquidity" section later in this report 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. While the implications differ for a bank, inflation does have influence on the growth of total assets in the banking industry and the resulting level of capitalization. Inflation also affects the level of market interest rates, and therefore, the pricing of financial instruments.

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. The Company was modestly asset sensitive as of December 31, 2020, primarily driven by exposure to middle and long term rates from future fixed-rate business originations. However, recent hedging activity has reduced the exposure to net interest income and other financing income due to changes in short-term interest rates. Regions' hedging strategy is designed to protect net interest income and net interest margin against a continued low short-term interest rate environment. Refer to Table 30 "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 reduced balance sheet growth and less favorable product pricing, as well as impairment in the ability of borrowers to repay loans.

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 market and credit related 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 the Company’s 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 the Company cannot easily unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions (referred to as "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 defined as the risk associated with the failure to meet Regions' legal obligations from legislative, regulatory, or contractual perspectives.
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.

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Reputational risk is the potential that negative publicity regarding the Company’s 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 projected financial condition and resilience 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:

Collaborative Risk Culture - A strong, collaborative risk culture is fundamental to the Company's core values and operating principles. It 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. The Company's risk culture requires that risks be promptly identified, escalated, and challenged; thereby, benefiting the overall performance of the Company. Sustaining a collaborative risk culture is critical to the Company's success and is a clear expectation of executive management and the Board.
Sound Risk Appetite - The Company's risk appetite statements define the types and levels of risk the Company is willing to take to achieve its objectives.
Sustainable Risk Processes - Effective risk management requires sustainable processes and tools to effectively identify, measure, mitigate, monitor, and report risk.
Responsible 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 shareholders, 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

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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 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 in various interest rate scenarios compared to a base case scenario. Net interest 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 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 results 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 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 derived using “market forward rates.” The standard set of interest rate scenarios includes the traditional instantaneous parallel rate shifts of plus 100 and 200 basis points. Given low market rates by historical standards, the Company also focuses on a falling rate shock scenario with most yield curve tenors floored near zero and a reduction in mortgage indices based on historical minimums as explained in the following section. 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, 2020, Regions was asset sensitive to both gradual and instantaneous parallel yield curve shifts as compared to the base case for the measurement horizon ending December 2021. The fourth quarter continued the trend of strong balance sheet growth in low-cost deposits and cash balances held with the Federal Reserve. These trends increase reported asset sensitivity levels in the near-term assuming modest deposit normalization. Given the uncertainty surrounding balance sheet liquidity in the current environment, interest rate risk under various deposit scenarios is explored in more detail later in this section.

The estimated exposure associated with the rising and falling rate scenarios in the table below reflects the combined impacts of movements in short-term and long-term interest rates. A decline in short-term interest rates (such as the Fed Funds rate, the rate of Interest on Excess Reserves and 1 month LIBOR) will lead to a reduction of yield on assets and liabilities contractually tied to such rates. Under that environment, it is expected that declines in funding costs and increases in balance sheet hedging income will completely offset the decline in asset yields. Therefore, net interest income sensitivity to short-term rates is approximately neutral in a falling rate scenario. An increase in short-term rates will result in an increase in net interest income, though this is largely due to elevated deposit balances resulting from outsized growth in 2020. Net interest income remains exposed to longer yield curve tenors. An increase in intermediate and long-term interest rates (such as intermediate to longer-term U.S. Treasuries, swap and mortgage rates) will drive yields higher on certain fixed rate, newly originated or renewed loans, increase prospective yields on certain investment portfolio purchases, and reduce amortization of premium expense on existing securities in the investment portfolio. The opposite is true in an environment where intermediate and long-term interest rates fall.

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The table below summarizes Regions' positioning in various parallel yield curve shifts (i.e., including all yield curve tenors). The scenarios are inclusive of all interest rate risk hedging activities. All forward starting hedges were due to become active in January 2021. More information regarding forward starting hedges is disclosed in Table 31 and its accompanying description.

Table 30—Interest Rate Sensitivity


	Estimated Annual Change in Net Interest Income December 31, 2020(1)(2)
	(In millions)
Gradual Change in Interest Rates
+ 200 basis points	$	319
+ 100 basis points	178
- 100 basis points (floored)(3)	(97)


Instantaneous Change in Interest Rates
+ 200 basis points	414
+ 100 basis points	246
- 100 basis points (floored)(3)	(132)

(1)Disclosed interest rate sensitivity levels represent the 12 month forward looking net interest income changes as compared to market forward rate cases and include expected balance sheet growth and remixing.

(2)All cash flow hedges transacted are now fully reflected within the measurement horizon (see Table 32 for additional information regarding hedge start and maturity dates).

(3)The -100 basis point (floored) scenario represents a 12 month average rate shock of -13 basis points and -99 basis points to approximately zero for 1 month LIBOR and the 10 year U.S. Treasury yield, respectively. Mortgage yield shocks are floored at their historical minimums -35 basis points.

Regions has established scenarios by which yield curve tenors will fall to a consistent level. The shock magnitude for each tenor, when compared to market forward rates, equated to the lesser of the shock scenario amount, or a rate 35 basis points lower than the historical all-time minimum. Recent market volatility and new historic lows established for longer yield curve tenors have resulted in a shock scenario where the majority of rates now fall to approximately zero. Mortgage rates, which have retained somewhat elevated levels, are still being shocked in the manner previously described. Further, the scenarios presented do not allow for negative rates. The falling rate scenarios in Table 30 above quantify the expected impact for both gradual and instantaneous shocks under this environment.

As discussed above, the interest rate sensitivity analysis presented in Table 30 is informed by a variety of assumptions and estimates regarding the progression 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, those pertaining to deposit pricing, deposit mix and overall balance sheet composition are particularly impactful. Given the uncertainties associated with the prolonged period of low interest rates and industry liquidity, 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 assumptions include loan and deposit projections 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 environment. In the base case scenario and falling rate scenarios in Table 30, interest-bearing deposit rates move into the single digits. The deposit beta model is dynamic across both interest rate level and time. Currently, the gradual +100 basis point, parallel interest rate shock scenario outlined above includes an approximately 20% to 25% interest-bearing deposit beta. Deposit pricing outperformance or underperformance of 5% in that scenario would increase or decrease net interest income by $26 million, respectively.

In rising rate scenarios only, management assumes that the mix of deposits will change versus the base case as 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 and equates to approximately $3 billion over 12 months in the gradual +100 basis point scenario in Table 30. Since the end of 2019, Regions has seen sizable deposit growth, which has contributed to its higher interest rate risk sensitivity year-to-date. The Company estimates that every $5 billion decline in total deposit balances would reduce NII sensitivity in Table 30 by approximately -$35 million and +$12 million in the gradual +100 basis point and the gradual -100 basis point floored shock scenarios, respectively. While estimates should be used as a guide, differences may result driven by the pace of rate changes, and other market competitive factors.

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Interest rate movements may also have an impact on the value of Regions’ securities portfolio, which can directly impact the carrying value of shareholders’ 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 and floors in balance sheet hedging strategies to effectively convert a portion of its fixed-rate funding position 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 hedging interest rate derivatives used by Regions to manage interest rate risk:

Table 31—Hedging Derivatives by Interest Rate Risk Management Strategy


	December 31, 2020
	Notional Amount		Weighted-Average
	Maturity (Years)		Receive Rate	Pay Rate (1)		Strike Price (1)
	(Dollars in millions)
Derivatives in fair value hedging relationships:
Receive fixed/pay variable swaps	$	2,100	2.7	1.7	%	0.2	%	—	%

Derivatives in cash flow hedging relationships:
Receive fixed/pay variable swaps	16,000		4.3	1.9		0.2		—
Interest rate floors	5,750		3.7	—		—		2.1
Total derivatives designated as hedging instruments	$	23,850	4.0	1.9	%	0.2	%	2.1	%

(1)Variable rate indexes on swap and floor contracts reference a combination of short-term LIBOR benchmarks, primarily 1 month LIBOR.

As of December 31, 2020, $20.8 billion notional of the cash flow hedging relationships designated above in Table 31 were active. The remaining $1.0 billion forward starting notional amount is due to become active in January 2021. This includes $250 million in floors and $750 million in swaps. Total cash flow hedges have a current weighted average maturity of approximately four years.

The following table presents cash flow hedge notional amounts with start dates prior to the year-end periods shown through 2026. All cash flow hedge notional amounts mature prior to the end of 2027.

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Table 32—Schedule of Notional for Cash Flow Hedging Derivatives


	Notional Amount
	Years Ended
		2020(1)(2)		2021(1)(2)		2022		2023		2024		2025		2026
	(Dollars in millions)

Receive fixed/pay variable swaps		15,250		16,000		16,000		13,700		12,700		3,750		1,250
Interest rate floors		5,500		5,750		5,750		5,750		3,000		250		—
Cash flow hedges		$	20,750	$	21,750	$	21,750	$	19,450	$	15,700	$	4,000	$	1,250

(1)All cash flow hedges transacted are now fully reflected within the 12-month measurement horizon and are fully included in income sensitivity levels as disclosed in Table 30.

(2)Start dates for all remaining forward starting hedge notional are in January 2021; includes $750 million in interest rate swaps and $250 million in interest rate floors.

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. All hedging interest rate swap 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 derivative 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 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.

LIBOR Transition—In 2017, the FCA, which regulates LIBOR, announced that panel banks will no longer be required to submit estimates that are used to construct LIBOR by the end of 2021, confirming that the continuation of LIBOR will not be guaranteed beyond that date. In the fourth quarter of 2020, the FCA, in coordination with ICE Benchmark Administration and the Federal Reserve announced a consultation process that could potentially amend the LIBOR cessation date. If the consultation is finalized as proposed, the LIBOR cessation date would be modified to June 30, 2023 for most rate tenors. Regions holds instruments that may be impacted by the likely discontinuance of LIBOR, including loans, investments, derivative products, floating-rate obligations, and other financial instruments that use LIBOR as a benchmark rate. The Company has established a LIBOR Transition Program, which includes dedicated leadership and staff, with all relevant business lines and support groups engaged. As part of this program, the Company continues to identify, assess, and monitor risks associated with the discontinuation, unavailability, or non-representativeness of LIBOR. While significant uncertainty remains, steps to mitigate risks associated with the transition are being overseen by Regions’ Executive LIBOR Steering Committee. Regions is also coordinating with regulatory agencies and industry groups to identify appropriate alternative rates

Regions has taken proactive steps to facilitate the transition on behalf of customers, which include:

The adoption and ongoing implementation of fallback provisions that provide for the determination of replacement rates for LIBOR-linked financial institutions.

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The adoption of new products linked to alternative reference rates, such as adjustable-rate mortgages, consistent with guidance provided by the official sector and Government-Sponsored Enterprises.

Regions has also continued to evaluate its financial and operational infrastructure, and continued its efforts to transition all financial and strategic processes, systems, and models; and implemented processes to coordinate communications with customers. In the third quarter of 2020, Regions adopted temporary accounting relief for affected transactions that reference LIBOR. See Note 1 “Summary of Significant Accounting Policies” to the consolidated financial statements for details.

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. 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 MSRs. Regions actively monitors prepayment exposure as part of its overall net interest income forecasting and interest rate risk management.

LIQUIDITY

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. Regions maintains strong liquidity levels that position the Company to respond to stressed environments. As discussed below, Regions has a variety of liquidity sources, which it continues to utilize to fund customer needs.

On March 27, 2020, the CARES Act was signed into law as a response to the economic uncertainty amid the COVID-19 pandemic. A focus of the Act is the establishment of federally guaranteed loans for small businesses under the PPP. Regions, a certified SBA lender, has and will continue to assist its customers through the process of utilizing this program. As a lending institution in this program, additional liquidity is available to the Company through the Federal Reserve's Paycheck Protection Program Liquidity Facility. As of December 31, 2020, Regions had not used the Paycheck Protection Program Liquidity Facility.

Regions intends to fund its obligations primarily through cash generated from normal operations. Regions also 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 shareholders’ 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 in normal and stressed conditions. 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. Cash and cash equivalents at the holding company totaled $1.5 billion at December 31, 2020. 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. These minimum requirements are informed by internal stress testing measures which are reflective of Regions' portfolio and business mix. The Bank's funding and contingency planning does not currently assume any reliance on short-term unsecured sources. Risk limits are established by the Board through its Risk Appetite Statement and Liquidity Policy. The Company's Board, LROC and ALCO regularly review 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 "Debt Securities" to the

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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. 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 assume reliance on short-term unsecured sources of 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, 2020, Regions had approximately $16.4 billion in cash on deposit with the FRB, an increase from approximately $2.5 billion at December 31, 2019, due to the significant increase in deposits associated with government programs offered in relation to COVID-19. The average balance held with the FRB was approximately $7.7 billion and $666 million during 2020 and 2019, respectively. Refer to the "Cash and Cash Equivalents" section for more information.

Regions’ borrowing availability with the FRB as of December 31, 2020, based on assets pledged as collateral on that date, was $12.8 billion.

Regions’ financing arrangement with the FHLB adds additional flexibility in managing the Company's liquidity position. As of December 31, 2020, Regions had no FHLB borrowings and its total borrowing capacity from the FHLB totaled approximately $16.2 billion. FHLB borrowing capacity is contingent on the amount of collateral pledged to the FHLB. Regions Bank pledged certain eligible securities and loans as collateral for the outstanding FHLB advances. Additionally, investment in FHLB stock is required in relation to the level of outstanding borrowings. The FHLB has been and is expected to continue to be a reliable and economical source of funding. Refer to Note 8 "Other Earning Assets" to the consolidated financial statements for additional information.

Regions maintains a shelf registration statement with the SEC that can be utilized by Regions to issue various debt and/or equity securities. Additionally, Regions' Board has authorized Regions Bank to issue up to $10 billion in aggregate principal amount of bank notes outstanding at any one time. Refer to Note 12 "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.

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

Table 33— Contractual Obligations


	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)	$	3,721	$	1,289	$	251	$	91	$	117,127	$	122,479

Long-term borrowings	616		1,061		1,096		796		—		3,569
Lease obligations (3)	118		221		152		251		—		742
Purchase obligations	26		43		10		—		—		79
Benefit obligations (4)	35		49		26		63		—		173
Commitments to fund low income housing partnerships (5)	622		—		—		—		—		622
Unrecognized tax benefits (6)	—		—		—		—		12		12


	$	5,138	$	2,663	$	1,535	$	1,201	$	117,139	$	127,676

(1)See Note 24 "Commitments, Contingencies and Guarantees" to the consolidated financial statements for the Company’s commercial commitments at December 31, 2020.

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

(3)Includes month-to-month and finance leases that are not included in Note 14 "Leases" to the consolidated financial statements.

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

(5)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.

(6)See Note 20 "Income Taxes" to the consolidated financial statements.

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CREDIT RISK

Regions’ objective regarding credit risk is to maintain a 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 risk characteristics of each loan type. See further discussion of the current U.S. economic environment in the "Economic Environment in Regions' Banking Markets" section 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 Regions' 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 for credit losses that management considers adequate to absorb expected losses 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 21 "Allowance for Credit Losses". Also, refer to Table 22 "Allowance Allocation" for details pertaining to management’s allocation of the allowance 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. 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.

Counterparty Risk

Counterparty risk 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 a commercial bank, an insurance company, a broker dealer, etc.) or a corporate client.

Regions has a centralized approach to approval, management, and monitoring of counterparty exposure. The Counterparty Risk Management Group is responsible for the independent credit risk management of financial institution counterparties and their affiliates. Market Risk Management is responsible for the measurement and stress testing of counterparty exposures. The Corporate and Commercial Credit groups are 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. Aggregate 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 that are conducted regularly 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, increase in technology-based products and services used by

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us and our customers, the growing use of mobile devices and cloud technologies, the ability to conduct more financial transactions online, and the increasing sophistication and activities of organized crime, hackers, terrorists, nation-states, activists and other external parties or fraud on the part of employees.

Regions devotes significant financial and non-financial 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 regularly tests its control environment utilizing practices such as penetration testing and more targeted assessments to ensure its controls are working as expected. 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 respond to evolving disruptive technology and to protect its systems from attacks or unauthorized access. In addition, Regions maintains a strong commitment to a comprehensive risk management program that includes due diligence and oversight of third-party relationships with vendors.

As a result of the COVID-19 pandemic, Regions has experienced a modest increase in cyber events, such as phishing attacks and malicious traffic from outside the United States. However, the Company's layered control environment has effectively detected and prevented any material impact related to these events.

Regions’ system of internal controls also incorporates an organization-wide protocol for the appropriate reporting and escalation of information security matters to management and the Board, to ensure effective and efficient resolution and, if necessary, disclosure of any matters. The Board is actively engaged in the oversight of Regions’ continuous efforts to reinforce and enhance its operational resilience and receives education to ensure that their oversight efforts accommodate for the ever-evolving information security threat landscape. The Board monitors Regions’ information management risk policies and practices primarily through its Risk Committee, which oversees areas of operational risk such as information technology activities; risks associated with development, infrastructure, and cybersecurity; approval and oversight of internal and third-party information security risk assessments, strategies, policies and programs; and disaster recovery, business continuity, and incident response plans. Additionally, the Board’s Audit Committee regularly reviews Regions’ cybersecurity practices, mainly by receiving reports on the cybersecurity management program prepared by the Chief Information Security Officer, Risk Management, and Internal Audit. The Board annually reviews the information security program and, 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 with 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 to other members for the greater good of the membership. In addition to FS-ISAC, Regions is a member of BITS. 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 committed the necessary resources to support Regions in the event of a cyber event. 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 engaged a computer forensics firm and an industry-leading consulting firm on retainer in case of a cyber event. Regions has also developed and maintains robust business continuity and disaster recovery plans that it could implement in the event of a cyber event to mitigate the effects of any such event and minimize necessary recovery time. Some of Regions' financial risk exposure with respect to data breaches may be offset by applicable insurance.

Even if Regions successfully prevents cyber attacks to its own network, the Company may still incur losses that result from customers' account information being 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, may impact Regions' financial results. In addition, Regions also relies on some vendors to provide certain components of its business infrastructure, and although Regions actively assesses and monitors the information security capabilities of these vendors, Regions' reliance on them may also increase exposure to information security risk.

In the event of a cyber attack or other data breach, Regions may be required to incur significant expenses, including with respect to remediation costs, costs of implementing additional preventative measures, addressing any reputational harm and addressing any related regulatory inquiries or civil litigation arising from the event.

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FINANCIAL DISCLOSURE AND INTERNAL CONTROLS

Regions maintains 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 also has 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, tax, finance, 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 continually assesses and monitors disclosure controls and procedures and internal controls over financial reporting, and makes refinements as necessary.

COMPARISON OF 2019 WITH 2018—CONTINUING OPERATIONS

Refer to the “2019 Results” and "Operating Results" sections of Management's Discussion and Analysis of the Annual Report on Form 10-K for the year ended December 31, 2019, for comparisons of 2019 with 2018.

Table 34— Quarterly Results of Operations


	2020								2019
	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	$	1,061	$	1,059	$	1,063	$	1,079	$	1,098	$	1,150	$	1,177	$	1,171
Total interest expense	55		71		91		151		180		213		235		223
Net interest income	1,006		988		972		928		918		937		942		948
Provision (credit) for credit losses(1)	(38)		113		882		373		96		108		92		91
Net interest income after provision (credit) for credit losses	1,044		875		90		555		822		829		850		857
Total non-interest income, excluding securities gains (losses), net	680		652		572		485		564		558		513		509
Securities gains (losses), net	—		3		1		—		(2)		—		(19)		(7)
Total non-interest expense	987		896		924		836		897		871		861		860
Income (loss) before income taxes	737		634		(261)		204		487		516		483		499
Income tax expense (benefit)	121		104		(47)		42		98		107		93		105





Net income (loss)	$	616	$	530	$	(214)	$	162	$	389	$	409	$	390	$	394

Net income (loss) available to common shareholders	$	588	$	501	$	(237)	$	139	$	366	$	385	$	374	$	378



Earnings (loss) per common share: (2)
Basic	$	0.61	$	0.52	$	(0.25)	$	0.15	$	0.38	$	0.39	$	0.37	$	0.37
Diluted	0.61		0.52		(0.25)		0.14		0.38		0.39		0.37		0.37

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(1)Upon adoption of CECL on January 1, 2020, the provision for credit losses is the sum of the provision for loan losses and the provision for unfunded credit commitments. Prior to the adoption of CECL, the provision for unfunded commitments was included in other non-interest expense.

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

ASCENTIUM ACQUISITION

On April 1, 2020, Regions completed its acquisition of an equipment finance company Ascentium Capital, LLC. The acquisition gives Regions the ability to increase business loans and leases to small business customers using Ascentium's tech-enabled same-day credit decision and funding capabilities.

As a result of the acquisition Regions recorded approximately $2.4 billion of assets and assumed $1.9 billion of liabilities. Of the total assets acquired, $1.9 billion were loans and leases that are included in Regions' commercial and industrial loan portfolio. Of the liabilities assumed, $1.8 billion were long-term borrowings. Regions subsequently paid down a significant portion of the borrowings, and as of December 31, 2020, $97 million of long-term debt remained. Assets acquired and liabilities assumed were recorded at estimated fair value.

These fair value estimates are considered preliminary as of December 31, 2020. Fair value estimates, including loans, intangible assets and goodwill, are subject to change for up to one year after the acquisition date as additional information becomes available.

Of the loans acquired, a portion were determined to be credit deteriorated on the date of purchase. Purchased loans that have experienced a more than insignificant deterioration in credit quality since origination are considered to be credit deteriorated. PCD loans are initially recorded at purchase price less the ALLL recognized at acquisition. Subsequent credit loss activity is recorded within the provision for credit losses.

Regions recorded PCD loans of $873 million as a result of the acquisition, which was reflective of a nominal discount. Regions recorded an ALLL related to these loans of $60 million, which was included in the total acquired asset value as part of the acquisition.

The non-credit discount related to Ascentium's PCD loans and the fair value mark on non-PCD loans will be amortized to interest income over the contractual life of the loan using the effective interest method. The amortization will not be material.

In conjunction with the acquisition, Regions recognized goodwill of $345 million and other intangible assets of $47 million. Intangible assets are comprised of trademarks, customer lists and other intangibles. Intangible assets will be amortized over the expected useful life of each recognized asset.

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