Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

167K characters. Original on sec.gov · Markdown

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The following discussion and analysis is part of Regions Financial Corporation’s (“Regions” or the “Company”) Quarterly Report on Form 10-Q filed with the SEC and updates Regions’ Annual Report on Form 10-K for the year ended December 31, 2021, which was previously filed with the SEC. This financial information is presented to aid in understanding Regions’ financial position and results of operations and should be read together with the financial information contained in Regions’ Annual Report on Form 10-K. See Note 1 "Basis of Presentation" and Note 12 "Recent Accounting Pronouncements" to the consolidated financial statements for further detail. The emphasis of this discussion will be on the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of June 30, 2022 compared to December 31, 2021.

This discussion and analysis contains statements that may be considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. See pages 6 through 8 for additional information regarding forward-looking statements.

CORPORATE PROFILE

Regions is a financial holding company headquartered in Birmingham, Alabama, that operates in the South, Midwest and Texas. In addition, Regions operates several offices delivering specialty capabilities in New York, Washington D.C., Chicago and other locations nationwide. Regions provides financial solutions for a wide range of clients including retail and mortgage banking services, commercial banking services and wealth and investment services. Further, Regions and its subsidiaries deliver specialty capabilities including merger and acquisition advisory services, capital market solutions, home improvement lending and others.

Regions conducts its banking operations through Regions Bank, an Alabama state-chartered commercial bank that is a member of the Federal Reserve System. At June 30, 2022, Regions operated 1,294 total branch outlets. Regions carries out its strategies and derives its profitability from three reportable business segments: Corporate Bank, Consumer Bank, and Wealth Management, with the remainder in Other. See Note 10 "Business Segment Information" to the consolidated financial statements for more information regarding Regions’ segment reporting structure.

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.

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.

On December 17, 2021, Regions entered into an agreement to acquire Clearsight Advisors, Inc., a leading-edge mergers and acquisitions firm headquartered in McLean, Virginia. The transaction closed on December 31, 2021.

On October 4, 2021, Regions entered into an agreement to acquire Sabal Capital Partners, LLC, a diversified financial services firm that facilitates lending in the small-balance commercial real estate market headquartered in Irvine, California. The transaction closed on December 1, 2021. Refer to the "Acquisitions" section for more detail.

On June 8, 2021, Regions entered into an agreement to acquire EnerBank, a consumer lending institution specializing in home improvement lending headquartered in Salt Lake City, Utah. The transaction closed on October 1, 2021, and resulted in the addition of approximately $3.1 billion in loans to consumers. Refer to the "Acquisitions" section for more detail.

SECOND QUARTER OVERVIEW

Second Quarter Results

Regions reported net income available to common shareholders of $558 million, or $0.59 per diluted share, in the second quarter of 2022 compared to $748 million, or $0.77 per diluted share, in the second quarter of 2021. The primary drivers of the decrease in net income from the prior year period were a provision for credit losses compared to a benefit from credit losses in the prior period partially offset by higher net interest income.

For the second quarter of 2022, net interest income (taxable-equivalent basis) totaled $1.1 billion, up $144 million compared to the second quarter of 2021. The net interest margin (taxable-equivalent basis) was 3.06 percent for the second quarter of 2022 and 2.81 percent in the second quarter of 2021. The increase in net interest income and net interest margin was primarily driven by higher interest rates combined with increases in average loan balances and average debt securities balances. Even though interest rates increased in the second quarter of 2022, funding costs remained low. In the second quarter of 2022, net interest margin continued to be negatively impacted by elevated liquidity. Refer to Table 18 "Consolidated Average Daily Balances and Yield/Rate Analysis" for further details.

The provision for credit losses totaled $60 million in the second quarter of 2022, as compared to a benefit of $337 million during the second quarter of 2021. The current quarter provision reflects continued strong asset quality offset by strong loan growth and general economic uncertainty. Refer to the "Allowance for Credit Losses" section for further detail.

Net charge-offs totaled $38 million, or an annualized 0.17 percent of average loans, in the second quarter of 2022, compared to $47 million, or an annualized 0.23 percent for the second quarter of 2021. The decrease was primarily driven by broad-based improvements across most portfolios. Refer to the "Allowance for Credit Losses" section for further detail.

The allowance was 1.62 percent of total loans, net of unearned income at June 30, 2022 compared to 1.79 percent at December 31, 2021. The decrease was a result of the factors discussed above. The allowance was 410 percent of total non-performing loans at June 30, 2022 compared to 349 percent at December 31, 2021. Refer to the "Allowance for Credit Losses" section for further detail.

Non-interest income was $640 million for the second quarter of 2022, a $21 million increase from the second quarter of 2021. The increase was primarily driven by a significant increase in capital markets income, and, to a lesser degree, an increase in card and ATM fees and other miscellaneous income. These increases were partially offset by decreases in market value adjustments on employee benefit assets, bank-owned life insurance, and mortgage income. See Table 22 "Non-Interest Income" for more detail.

Total non-interest expense was $948 million in the second quarter of 2022, a $50 million increase from the second quarter of 2021. The increase was driven by an increase in salaries and employee benefits, equipment and software expense, and professional, legal and regulatory expenses. The increases were partially offset by a benefit from branch consolidation, property and equipment and a decline in marketing expense. See Table 23 "Non-Interest Expense" for more detail.

Income tax expense for the three months ended June 30, 2022 was $157 million compared to $231 million for the same period in 2021. See "Income Taxes" toward the end of the Management’s Discussion and Analysis section of this report for more detail.

Capital

Regions and Regions Bank are required to comply with regulatory capital requirements established by Federal and State banking agencies, which include quantitative requirements including the CET1 ratio. The CET1 ratio at June 30, 2022 was estimated at 9.25 percent. For additional information on Regions' regulatory capital requirements see the "Regulatory Requirements" section.

In the second quarter of 2021, as a part of the Company's voluntary participation in 2021 CCAR, the FRB communicated that the Company exceeded all minimum capital levels under the supervisory stress test and the Company's SCB for the fourth quarter of 2021 through the third quarter of 2022 will be floored at 2.5 percent. On June 27, 2022, Regions announced the Company received the results of the 2022 stress test from the FRB, reflecting that the Company exceeded all minimum capital levels and inclusive of a preliminary SCB floored at 2.5 percent. On August 4, 2022, the FRB finalized Regions’ SCB requirement, and as a result for the fourth quarter of 2022 through the third quarter of 2023 the SCB requirement will continue to be floored at 2.5 percent.

The Board authorized, on April 20, 2022, the repurchase of up to $2.5 billion of the Company's common stock, permitting purchases from the second quarter of 2022 through the fourth quarter of 2024.

On July 20, 2022, the Board approved an 18 percent increase to the quarterly common stock dividend to $0.20 per share of common stock which will be payable on October 3, 2022, to stockholders of record as of September 2, 2022.

Expectations


2022 Expectations
Category						Expectation
Total Adjusted Revenue (1)						Up 7.5-8.5%
Adjusted Non-Interest Expense						Up 4.5-5.5%
Adjusted Operating Leverage						~3%
Average Loans						Up ~8%
Net Charge-Offs / Average Loans						Toward the lower end of 20-30 bps
Effective Tax Rate						21-23%
CET1						Near the mid-point of a 9.25-9.75% operating range

(1)Expectation utilizes the 7/1/2022 forward interest rate curve.

Regions believes that expressing certain expectations as non-GAAP measures will assist investors in analyzing the operating results of the Company and predicting future performance on the same basis as that applied by management. 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-Q.

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

Cash and cash equivalents decreased approximately $8.9 billion from year-end 2021 to June 30, 2022, due primarily to a decrease in cash on deposit with the FRB partially offset by an increase in cash due from other banks. In the first six months of 2022, the Company used cash balances for securities purchases, as a part of its hedging and active cash management strategies, and to fund loan growth. Also contributing to the decline in cash balances is a decline in deposits in the first six months of 2022. See the "Debt Securities", "Loans", "Liquidity", and "Deposits" sections for more information.

DEBT SECURITIES

The following table details the carrying values of debt securities, including both available for sale and held to maturity:

Table 1—Debt Securities


	June 30, 2022		December 31, 2021
	(In millions)
U.S. Treasury securities	$	1,252	$	1,132
Federal agency securities	683		92
Obligations of states and political subdivisions	3		4
Mortgage-backed securities:
Residential agency	19,312		19,319
Residential non-agency	1		1
Commercial agency	7,138		6,915
Commercial non-agency	315		536
Corporate and other debt securities	1,184		1,381
	$	29,888	$	29,380

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. See Note 2 "Debt Securities" to the consolidated financial statements for additional information. Also see the "Market Risk-Interest Rate Risk" and "Liquidity" sections for more information.

Debt securities increased $508 million from December 31, 2021 to June 30, 2022 driven by increases in U.S Treasury, federal agency securities, and commercial agency securities partially offset by declines in commercial non-agency, corporate and other debt securities and residential agency. In the first six months of 2022, Regions made purchases of debt securities available for sale, excluding normal reinvestment of maturities and paydowns, totaling approximately $2.8 billion consisting

primarily of U.S. Treasury, federal agency, residential agency, and commercial agency securities. Approximately $2.5 billion of the purchases relate to the Company's hedging strategy with the remaining purchases related to reinvestment of proceeds from loan sales. Partially offsetting the purchases were declines in market valuations driven by an increase in market interest rates.

LOANS HELD FOR SALE

Loans held for sale totaled $612 million at June 30, 2022, consisting of $292 million of residential real estate mortgage loans, $286 million of commercial loans, $31 million of consumer and other performing loans, and $3 million of non-performing loans. At December 31, 2021, loans held for sale totaled $1.0 billion, consisting of $680 million of residential real estate mortgage loans, $257 million of commercial loans, $53 million of consumer and other performing loans, and $13 million of non-performing loans. The levels of residential real estate mortgage loans held for sale that are part of the Company's mortgage originations fluctuate depending on the timing of origination and sale to third parties. Commercial loans held for sale include commercial mortgage loans originated for sale to third parties and commercial loans originally recorded as held for investment when management has the intent to sell. Levels of commercial loans held for sale fluctuate based on timing of sale to third parties.

LOANS

Loans, net of unearned income, represented approximately 65 percent of Regions' interest-earning assets as of June 30, 2022. The following table presents the distribution of Regions’ loan portfolio by portfolio segment and class, net of unearned income:

Table 2—Loan Portfolio


	June 30, 2022		December 31, 2021
	(In millions, net of unearned income)
Commercial and industrial	$	48,492	$	43,758
Commercial real estate mortgage—owner-occupied (1)	5,218		5,287
Commercial real estate construction—owner-occupied (1)	266		264
Total commercial	53,976		49,309
Commercial investor real estate mortgage	5,892		5,441
Commercial investor real estate construction	1,720		1,586
Total investor real estate	7,612		7,027
Residential first mortgage	17,892		17,512
Home equity lines	3,550		3,744
Home equity loans	2,524		2,510
Consumer credit card	1,172		1,184
Other consumer—exit portfolios	775		1,071
Other consumer	5,957		5,427
Total consumer	31,870		31,448
	$	93,458	$	87,784

PORTFOLIO CHARACTERISTICS

The following sections describe the composition of the portfolio segments and classes disclosed in Table 2, explain changes in balances from 2021 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. Refer to Note 5 "Allowance for Credit Losses" to the Annual Report on Form 10-K for the year ended December 31, 2021 for additional information regarding Regions’ portfolio segments and related classes, as well as the risks specific to each.

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 $4.7 billion since year-end 2021. The increase in commercial and industrial loan balances was driven by new loan production and a continued increase in line utilization. In the first six months of 2022, commercial and industrial loan growth was broad-based and included increases primarily in the educational services, financial services, manufacturing, real estate, retail trade and wholesale goods industries. The June 30, 2022 commercial and industrial loan balance also included $254 million of PPP loans, a decrease of $494 million compared to December 31, 2021, reflecting continued PPP loan forgiveness.

The commercial portfolio 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 tables provide detail of Regions' commercial lending balances in selected industries.

Table 3—Commercial Industry Exposure


	June 30, 2022
	Loans		Unfunded Commitments		Total Exposure
	(In millions)
Administrative, support, waste and repair	$	1,518	$	1,006	$	2,524
Agriculture	335		240		575
Educational services	3,299		1,078		4,377
Energy	1,519		2,979		4,498
Financial services	6,279		6,911		13,190
Government and public sector	3,052		488		3,540
Healthcare	3,881		2,452		6,333
Information	2,188		1,485		3,673
Manufacturing	5,166		4,302		9,468
Professional, scientific and technical services	2,400		1,430		3,830
Real estate (1)	8,283		8,163		16,446
Religious, leisure, personal and non-profit services	1,623		694		2,317
Restaurant, accommodation and lodging	1,447		353		1,800
Retail trade	2,751		2,097		4,848
Transportation and warehousing	3,255		1,579		4,834
Utilities	2,332		3,055		5,387
Wholesale goods	4,438		3,108		7,546
Other (2)	210		3,255		3,465
Total commercial	$	53,976	$	44,675	$	98,651


	December 31, 2021 (3)
	Loans		Unfunded Commitments		Total Exposure
	(In millions)
Administrative, support, waste and repair	$	1,489	$	1,141	$	2,630
Agriculture	336		253		589
Educational services	2,975		948		3,923
Energy	1,361		2,678		4,039
Financial services	5,582		5,933		11,515
Government and public sector	2,845		526		3,371
Healthcare	3,918		2,270		6,188
Information	1,929		1,233		3,162
Manufacturing	4,629		4,270		8,899
Professional, scientific and technical services	2,235		1,409		3,644
Real estate (1)	7,343		7,720		15,063
Religious, leisure, personal and non-profit services	1,733		730		2,463
Restaurant, accommodation and lodging	1,658		433		2,091
Retail trade	2,247		2,307		4,554
Transportation and warehousing	3,030		1,538		4,568
Utilities	2,131		2,895		5,026
Wholesale goods	3,756		3,189		6,945
Other (2)	112		2,425		2,537
Total commercial	$	49,309	$	41,898	$	91,207

(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, comparable period changes may be impacted.

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 $585 million in comparison to 2021 year-end balances. The increase was primarily driven by growth in term lending commitments and fundings on previously committed construction facilities.

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 $380 million in comparison to 2021 year-end balances. The increase is primarily due to a decline in prepayment rate and an increase in ARM production retained on the balance sheet, partially offset by the sale of approximately $285 million of Ginnie Mae loans in the first quarter of 2022, which had been previously repurchased from their pools. Approximately $2.3 billion in new loan originations were retained on the balance sheet through the first six months of 2022.

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 $194 million in comparison to 2021 year-end balances, continuing the pace of decline experienced in the past several years as payoffs and paydowns outpaced production. Substantially all of this portfolio was originated through Regions’ branch network.

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, the predominant structure was a 20-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 June 30, 2022. 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. Home equity lines that are in repayment are reflected as revolving loans converted to amortizing.

Table 4—Home Equity Lines of Credit - Future Principal Payment Resets


	First Lien		% of Total		Second Lien		% of Total		Total
	(Dollars in millions)
2022	$	33	0.93	%	$	30	0.85	%	$	63
2023	79		2.23	%	59		1.66	%	138
2024	120		3.39	%	79		2.23	%	199
2025	113		3.19	%	124		3.48	%	237
2026	160		4.50	%	161		4.54	%	321
2027-2032	1,300		36.61	%	983		27.70	%	2,283
2032-2036	94		2.65	%	124		3.48	%	218
Thereafter	5		0.13	%	3		0.09	%	8
Revolving Loans Converted to Amortizing	48		1.36	%	35		0.98	%	83
Total	$	1,952	54.99	%	$	1,598	45.01	%	$	3,550

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. 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.

Table 5—Estimated Current Loan to Value Ranges


	June 30, 2022
	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%	$	2		$	—		$	1		$	2		$	1
Above 80% - 100%	1,341			1			3			10			5
80% and below	16,270			1,925			1,540			2,307			181
Data not available	279			26			54			14			4
	$	17,892		$	1,952		$	1,598		$	2,333		$	191


	December 31, 2021
	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%	$	5		$	1		$	—		$	2		$	1
Above 80% - 100%	1,667			6			8			16			4
80% and below	15,564			2,053			1,588			2,305			167
Data not available	276			29			59			11			4
	$	17,512		$	2,089		$	1,655		$	2,334		$	176

Consumer Credit Card

Consumer credit card lending represents primarily open-ended variable interest rate consumer credit card loans.

Other Consumer—Exit Portfolios

Other consumer—exit portfolios includes lending initiatives through third parties consisting of loans made through automotive dealerships and other point of sale lending. Regions ceased originating new loans related to these businesses prior to 2020 and therefore the portfolio balance has decreased $296 million from year-end 2021.

Other Consumer

Other consumer loans primarily include indirect and direct consumer loans, overdrafts and other revolving loans. Other consumer loans increased $530 million from year-end 2021 primarily driven by an increase in consumer home improvement lending from the fourth quarter 2021 acquisition of EnerBank.

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 3 "Loans and the 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.

The allowance totaled $1.5 billion as of June 30, 2022 compared to $1.6 billion at December 31, 2021, 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 6 below. While many of these items overlap regarding impact, they are included in the category most relevant.

Table 6— Allowance Changes


	Three Months Ended
	June 30, 2022		June 30, 2021
	(In millions)
Allowance for credit losses, beginning balance	$	1,492	$	2,068

Net charge-offs	(38)		(47)
Provision over (less than) net charge-offs:
Economic/Qualitative (1)	(2)		(265)
Changes in portfolio credit quality/uncertainty	10		(67)
Changes in specific reserves	(19)		(36)
Other portfolio changes (2)	71		31

Total provision over (less than) net charge-offs	22		(384)
Allowance for credit losses, ending balance	$	1,514	$	1,684



	Six Months Ended
	June 30, 2022		June 30, 2021
	(In millions)
Allowance for credit losses, beginning balance	$	1,574	$	2,293

Net charge-offs	(84)		(130)
Provision over (less than) net charge-offs:
Economic/Qualitative (1)	(56)		(394)
Changes in portfolio credit quality/uncertainty	(3)		(81)
Changes in specific reserves	(11)		(53)
Other portfolio changes (2)	94		49

Total provision over (less than) net charge-offs	(60)		(609)
Allowance for credit losses, ending balance	$	1,514	$	1,684

(1)Includes pandemic-related qualitative adjustments.

(2)This line item includes the net impact of portfolio growth, portfolio run-off, pay-downs and changes in the mix of total outstanding loans. This line item excludes the impact of PPP loans of $254 million and $2.9 billion as of June 30, 2022 and 2021, respectively, which are fully backed by the U.S. government and have an immaterial associated allowance.

Credit metrics are monitored throughout the quarter in order to understand external macro-views, trends and industry outlooks, as well as Regions' internal specific views of credit metrics and trends. The second quarter of 2022 exhibited solid asset quality performance. Total net charge-offs declined 4 basis points to 0.17 percent of annualized loans and commercial and investor real estate criticized balances decreased approximately $229 million. Partially offsetting these improvements were modest increases to classified balances of $169 million and to non-performing loans, excluding held for sale, and non-performing assets of $34 million and $32 million, respectively, compared to the first quarter of 2022.

Regions' June 2022 baseline forecast remained relatively stable compared to the March 2022 forecast driven by continued increases in HPI and stability in unemployment offset by a slight decline in real GDP growth. The June 2022 baseline forecast continues to anticipate real GDP growth in 2022 supported primarily by consumer spending and business investments in equipment, machinery and intellectual property, with potential for further support from government spending in 2023 and beyond. While the baseline forecast continues to anticipate a double-digit increase in the HPI for full-year 2022, quarter over quarter growth is expected to decelerate into 2023. As measured by CPI, inflation is expected to remain above the FOMC's 2.0 percent target for the remainder of 2022 and into 2023. Furthermore, ongoing disruptions in supply chains and shipping networks, further increases in elevated inflation, and geopolitical tensions provide significant uncertainty over the near-term forecast.

Patterns of economic activity within the Regions footprint are expected to be broadly similar to those seen in the U.S. as a whole. In deriving its June 2022 forecast, Regions benchmarks its internal forecast with external forecasts and external data available.

The table below reflects a range of macroeconomic factors utilized in the Base forecast over the two-year R&S forecast period as of June 30, 2022. The unemployment rate is the most significant macroeconomic factor among the CECL models. Unemployment rates in the second quarter and the forecasted periods remained normalized.

Table 7— Macroeconomic Factors in the Forecast


	Pre-R&S Period			Base R&S Forecast
June 30, 2022
2Q2022			3Q2022			4Q2022			1Q2023			2Q2023			3Q2023			4Q2023			1Q2024			2Q2024
Real GDP, annualized % change	3.2	%		2.1	%		2.2	%		1.8	%		1.9	%		1.9	%		2.0	%		2.0	%		1.9	%
Unemployment rate	3.6	%		3.5	%		3.5	%		3.4	%		3.4	%		3.4	%		3.5	%		3.5	%		3.5	%
HPI, year-over-year % change	19.3	%		15.6	%		11.7	%		7.1	%		3.0	%		2.4	%		2.5	%		2.6	%		2.8	%
S&P 500	4,208			4,256			4,336			4,419			4,506			4,584			4,645			4,707			4,769
CPI, year-over-year % change	8.3	%		8.7	%		7.8	%		6.4	%		4.8	%		3.3	%		2.7	%		2.4	%		2.2	%

In the second quarter of 2022, asset quality continued to improve; however, strong loan growth partially offset by some normalization in select sectors of the business portfolio resulted in a modest increase to the modeled results in the allowance for credit losses.

While Regions' quantitative allowance methodologies strive to reflect all risk factors, any estimate involves assumptions and uncertainties resulting in some level of imprecision. Specific adjustments to modeled results were relatively flat as declines in pandemic risk were offset by increased risks due to inflation and rising interest rates. 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 June 30, 2022 general imprecision allowance remained relatively flat compared to the first quarter of 2022 and reflects continued uncertainty in the economic environment, heightened financial volatility and supply chain issues.

Based on the overall analysis performed, management deemed an allowance of $1.5 billion to be appropriate to absorb expected credit losses in the loan and credit commitment portfolios as of June 30, 2022.

Details regarding the allowance and net charge-offs, including an analysis of activity from the previous year’s totals, are included in Table 8 "Allowance for Credit Losses." Net charge-offs decreased $46 million year-over-year, primarily driven by a decline in net charge-offs in the commercial and industrial portfolio and commercial investor real estate mortgage portfolio partially offset by $17 million in net charge-offs from the addition of the EnerBank portfolio during the first six months of 2022. As noted, economic trends such as interest rates, unemployment, volatility in commodity prices, collateral valuations and inflationary pressure will impact the future levels of net charge-offs and may result in volatility of certain credit metrics during the remainder of 2022 and beyond. See the "Quarterly Overview" section for details on expectations for net charge-offs in 2022.

Table 8—Allowance for Credit Losses


	Six Months Ended June 30
	2022		2021
	(Dollars in millions)
Allowance for loan losses at January 1	$	1,479	$	2,167

Loans charged-off:
Commercial and industrial	44		80
Commercial real estate mortgage—owner-occupied	4		2
Commercial real estate construction—owner-occupied	—		1
Commercial investor real estate mortgage	—		19

Residential first mortgage	—		1
Home equity lines	2		4
Home equity loans	1		1
Consumer credit card	20		24
Other consumer—exit portfolios	10		18
Other consumer	66		47
	147		197
Recoveries of loans previously charged-off:
Commercial and industrial	25		30
Commercial real estate mortgage—owner-occupied	1		1
Commercial real estate construction—owner-occupied	—		—
Commercial investor real estate mortgage	1		2

Residential first mortgage	3		3
Home equity lines	7		8
Home equity loans	2		2
Consumer credit card	4		6
Other consumer—exit portfolios	4		3
Other consumer	16		12
	63		67
Net charge-offs (recoveries):
Commercial and industrial	19		50
Commercial real estate mortgage—owner-occupied	3		1
Commercial real estate construction—owner-occupied	—		1
Commercial investor real estate mortgage	(1)		17

Residential first mortgage	(3)		(2)
Home equity lines	(5)		(4)
Home equity loans	(1)		(1)
Consumer credit card	16		18
Other consumer—exit portfolios	6		15
Other consumer	50		35
	84		130
Provision for (benefit from) loan losses	30		(440)

Allowance for loan losses at June 30	1,425		1,597
Reserve for unfunded credit commitments at January 1	95		126
Provision for (benefit from) unfunded credit losses	(6)		(39)
Reserve for unfunded credit commitments at June 30	89		87
Allowance for credit losses at June 30	$	1,514	$	1,684
Loans, net of unearned income, outstanding at end of period	$	93,458	$	84,074
Average loans, net of unearned income, outstanding for the period	$	89,297	$	84,653


	Six Months Ended June 30
	2022		2021
	(Dollars in millions)
Net loan charge-offs (recoveries) as a % of average loans, annualized (1):
Commercial and industrial	0.08	%	0.23	%
Commercial real estate mortgage—owner-occupied	0.12	%	0.03	%
Commercial real estate construction—owner-occupied	(0.02)	%	0.67	%
Total commercial	0.09	%	0.21	%
Commercial investor real estate mortgage	(0.03)	%	0.64	%
Commercial investor real estate construction	—	%	(0.01)	%
Total investor real estate	(0.02)	%	0.48	%
Residential first mortgage	(0.03)	%	(0.02)	%
Home equity—lines of credit	(0.24)	%	(0.17)	%
Home equity—closed-end	(0.05)	%	(0.09)	%
Consumer credit card	2.77	%	3.18	%
Other consumer—exit portfolios	1.36	%	1.76	%
Other consumer	1.80	%	3.10	%
Total consumer	0.41	%	0.43	%
Total	0.19	%	0.31	%
Ratios:
Allowance for credit losses at end of period to loans, net of unearned income	1.62	%	2.00	%
Allowance for loan losses at end of period to loans, net of unearned income	1.52	%	1.90	%
Allowance for credit losses at end of period to non-performing loans, excluding loans held for sale	410	%	253	%
Allowance for loan losses at end of period to non-performing loans, excluding loans held for sale	386	%	240	%

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

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

Table 9—Allowance Allocation


	June 30, 2022						December 31, 2021
	Loan Balance		Allowance Allocation		Allowance to Loans % (1)		Loan Balance		Allowance Allocation		Allowance to Loans % (1)
	(Dollars in millions)
Commercial and industrial	$	48,492	$	548	1.1	%	$	43,758	$	613	1.4	%
Commercial real estate mortgage—owner-occupied	5,218		100		1.9	%	5,287		118		2.2	%
Commercial real estate construction—owner-occupied	266		6		2.4	%	264		9		3.5	%
Total commercial	53,976		654		1.2	%	49,309		740		1.5	%
Commercial investor real estate mortgage	5,892		90		1.5	%	5,441		77		1.4	%
Commercial investor real estate construction	1,720		11		0.6	%	1,586		10		0.6	%
Total investor real estate	7,612		101		1.3	%	7,027		87		1.2	%
Residential first mortgage	17,892		120		0.7	%	17,512		122		0.7	%
Home equity lines	3,550		72		2.0	%	3,744		83		2.2	%
Home equity loans	2,524		27		1.1	%	2,510		28		1.1	%
Consumer credit card	1,172		127		10.9	%	1,184		120		10.2	%
Other consumer—exit portfolios	775		55		7.1	%	1,071		64		6.0	%
Other consumer	5,957		358		6.0	%	5,427		330		6.1	%
Total consumer	31,870		759		2.4	%	31,448		747		2.4	%
Total	$	93,458	$	1,514	1.6	%	$	87,784	$	1,574	1.8	%

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

TROUBLED DEBT RESTRUCTURINGS (TDRs)

TDRs are modified loans in which a concession is provided to a borrower experiencing financial difficulty. 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 3 "Loans and the Allowance for Credit Losses" to the consolidated financial statements.

As provided initially in the CARES Act and subsequently extended through the Consolidated Appropriations Act, certain loan modifications related to the COVID-19 pandemic beginning March 1, 2020 through January 1, 2022 were eligible for relief from TDR classification. Regions elected this provision of both Acts; therefore, modified loans that met the required guidelines for relief were not considered TDRs and are excluded from the December 31, 2021 disclosures below. The following table summarizes the loan balance and related allowance for accruing and non-accruing TDRs for the periods presented:

Table 10—Troubled Debt Restructurings


	June 30, 2022				December 31, 2021
	Loan Balance		Allowance for Credit Losses		Loan Balance		Allowance for Credit Losses
	(In millions)
Accruing:
Commercial	$	63	$	2	$	81	$	4
Investor real estate	36		2		1		—
Residential first mortgage	289		31		220		31
Home equity lines	26		3		28		3
Home equity loans	54		8		58		8


Other consumer	3		—		4		—
	471		46		392		46
Non-accrual status or 90 days past due and still accruing:
Commercial	95		11		87		14

Residential first mortgage	27		4		31		5
Home equity lines	3		—		2		—
Home equity loans	5		1		6		1


	130		16		126		20
Total TDRs - Loans	$	601	$	62	$	518	$	66

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 3 "Loans and the 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 11—Analysis of Changes in Commercial and Investor Real Estate TDRs


	Six Months Ended June 30, 2022				Six Months Ended June 30, 2021
	Commercial		Investor Real Estate		Commercial		Investor Real Estate
	(In millions)
Balance, beginning of period	$	168	$	1	$	201	$	44
Additions	68		36		35		70
Charge-offs	(4)		—		(7)		—

Other activity, inclusive of payments and removals (1)	(74)		(1)		(43)		(39)
Balance, end of period	$	158	$	36	$	186	$	75

(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 and commercial and investor real estate loans refinanced or restructured as new loans and removed from the TDR classification.

NON-PERFORMING ASSETS

The following table presents non-performing assets as of June 30, 2022 and December 31, 2021:

Table 12—Non-Performing Assets


	June 30, 2022			December 31, 2021
	(Dollars in millions)
Non-performing loans:
Commercial and industrial	$	257		$	305
Commercial real estate mortgage—owner-occupied	29			52
Commercial real estate construction—owner-occupied	10			11
Total commercial	296			368
Commercial investor real estate mortgage	3			3

Total investor real estate	3			3
Residential first mortgage	27			33
Home equity lines	36			40
Home equity loans	7			7

Total consumer	70			80
Total non-performing loans, excluding loans held for sale	369			451
Non-performing loans held for sale	3			13
Total non-performing loans(1)	372			464
Foreclosed properties	11			10

Total non-performing assets(1)	$	383		$	474
Accruing loans 90 days past due:
Commercial and industrial	$	4		$	5
Commercial real estate mortgage—owner-occupied	1			1

Total commercial	5			6



Residential first mortgage(2)	50			74
Home equity lines	16			21
Home equity loans	9			12

Consumer credit card	11			12
Other consumer-exit portfolios	2			2
Other consumer	14			13
Total consumer	102			134
	$	107		$	140

Non-performing loans(1) to loans and non-performing loans held for sale	0.40		%	0.53		%
Non-performing assets(1) to loans, foreclosed properties, and non-performing loans held for sale	0.41		%	0.54		%

(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 Ginnie Mae where Regions has the right but not the obligation to repurchase. Total 90 days or more past due guaranteed loans excluded were $28 million at June 30, 2022 and $49 million at December 31, 2021.

Non-performing loans at June 30, 2022 decreased compared to year-end levels, primarily driven by improvements in energy, restaurant, accommodation and lodging, manufacturing, and utilities.

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.

The following table provides an analysis of non-accrual loans (excluding loans held for sale) by portfolio segment:

Table 13— Analysis of Non-Accrual Loans


	Non-Accrual Loans, Excluding Loans Held for Sale Six Months Ended June 30, 2022
	Commercial		Investor Real Estate		Consumer(1)		Total
	(In millions)
Balance at beginning of period	$	368	$	3	$	80	$	451
Additions	149		1		—		150
Net payments/other activity	(85)		(1)		(10)		(96)
Return to accrual	(81)		—		—		(81)
Charge-offs on non-accrual loans(2)	(43)		—		—		(43)
Transfers to held for sale(3)	(10)		—		—		(10)

Transfers to real estate owned	(2)		—		—		(2)

Balance at end of period	$	296	$	3	$	70	$	369


	Non-Accrual Loans, Excluding Loans Held for Sale Six Months Ended June 30, 2021
	Commercial		Investor Real Estate		Consumer(1)		Total
	(In millions)
Balance at beginning of period	$	524	$	114	$	107	$	745
Additions	282		4		—		286
Net payments/other activity	(127)		(2)		(3)		(132)
Return to accrual	(35)		—		—		(35)
Charge-offs on non-accrual loans(2)	(74)		(18)		—		(92)
Transfers to held for sale(3)	(10)		(94)		—		(104)
Transfers to real estate owned	(2)		—		—		(2)

Balance at end of period	$	558	$	4	$	104	$	666

(1)All net activity within the consumer portfolio segment other than 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 recorded upon transfer.

GOODWILL

Goodwill totaled $5.7 billion at both June 30, 2022 and December 31, 2021. Refer to Note 1 "Summary of Significant Accounting Policies" and Note 9 "Intangible Assets" to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021 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 and competitive pricing and convenient branch locations for its customers. Regions also serves customers through providing centralized, high-quality banking services through the Company's digital channels and contact center.

The following table summarizes deposits by category:

Table 14—Deposits


	June 30, 2022		December 31, 2021
	(In millions)
Non-interest-bearing demand	$	58,510	$	58,369
Interest-bearing checking	26,989		28,018
Savings	16,220		15,134
Money market—domestic	31,116		31,408
Time deposits	5,428		6,143
Total deposits	$	138,263	$	139,072

Total deposits at June 30, 2022 decreased approximately $809 million compared to year-end 2021 levels driven by declines in interest-bearing checking, money market and time deposits. The declines in interest-bearing checking and money market are driven by a return to seasonal deposit patterns observed prior to the pandemic and some commercial and wealth management customers beginning to reduce their excess balances. The decline in time deposits was driven by a decline in time deposits acquired through EnerBank as these deposits are not being replaced when they mature. Partially offsetting these declines was an increase in consumer savings due to seasonality while non-interest bearing demand deposits remained relatively stable.

LONG-TERM BORROWINGS

Table 15—Long-Term Borrowings


	June 30, 2022		December 31, 2021
	(In millions)
Regions Financial Corporation (Parent):



2.25% senior notes due May 2025	$	746	$	746
1.80% senior notes due August 2028	645		645
7.75% subordinated notes due September 2024	100		100
6.75% subordinated debentures due November 2025	154		154
7.375% subordinated notes due December 2037	298		298
Valuation adjustments on hedged long-term debt	(122)		(34)
	1,821		1,909
Regions Bank:



6.45% subordinated notes due June 2037	496		496

Other long-term debt	2		2

	498		498
Total consolidated	$	2,319	$	2,407

Long-term borrowings decreased by approximately $88 million since year-end 2021 due entirely to valuation adjustments. See the "Liquidity" section for further detail of Regions' borrowing capacity with the FHLB, which is currently not being utilized.

SHAREHOLDERS’ EQUITY

Shareholders’ equity was $16.5 billion at June 30, 2022 as compared to $18.3 billion at December 31, 2021. During the first six months of 2022, net income increased shareholders' equity by $1.1 billion, cash dividends on common stock reduced shareholders' equity by $318 million, and cash dividends on preferred stock reduced shareholders' equity by $49 million. Changes in AOCI decreased shareholders' equity by $2.4 billion, primarily due to the net change in unrealized gains (losses) on securities available for sale and derivative instruments as a result of significant changes in market interest rates during the six months ended June 30, 2022. Common stock repurchased during the first six months of 2022 decreased shareholders' equity $230 million. These shares were immediately retired and therefore are not included in treasury stock.

See Note 5 "Shareholders' Equity and Accumulated Other Comprehensive Income" section for additional information.

REGULATORY REQUIREMENTS

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. Under the Basel III Rules, Regions is designated as a standardized approach bank. Regions is a "Category IV" institution under the FRB's rules for tailoring enhanced prudential standards.

Federal banking agencies allowed a phase-in of the impact of CECL on regulatory capital. At December 31, 2021, the add-back to regulatory capital was calculated as the impact of initial adoption, adjusted for 25 percent of subsequent changes in the allowance. The amount is phased-in over a three-year period beginning in 2022. At June 30, 2022, the net impact of the add-back on CET1 was approximately $306 million, or approximately 25 basis points. The add-back amount will decrease by approximately $100 million or 10 basis points in both 2023 and 2024.

The following table summarizes the applicable holding company and bank regulatory requirements:

Table 16—Basel III Regulatory Capital Requirements


	June 30, 2022 Ratio (1)		December 31, 2021 Ratio		Minimum Requirement		To Be Well Capitalized
Common equity Tier 1 capital:
Regions Financial Corporation	9.25	%	9.57	%	4.50	%	N/A
Regions Bank	10.78		11.05		4.50		6.50	%
Tier 1 capital:
Regions Financial Corporation	10.61	%	11.03	%	6.00	%	6.00	%
Regions Bank	10.78		11.05		6.00		8.00
Total capital:
Regions Financial Corporation	12.26	%	12.74	%	8.00	%	10.00	%
Regions Bank	12.08		12.38		8.00		10.00
Leverage capital:
Regions Financial Corporation	8.16	%	8.08	%	4.00	%	N/A
Regions Bank	8.30		8.09		4.00		5.00	%

(1)The current quarter Basel III CET1 capital, Tier 1 capital, Total capital, and Leverage capital ratios are estimated.

As a result of Regions' voluntary participation in 2021 CCAR, effective October 1, 2021, Regions' SCB requirement for the fourth quarter of 2021 through the third quarter of 2022 will be floored at 2.5 percent. On June 27, 2022, Regions announced the Company received the results of the 2022 stress test from the FRB, reflecting that the Company exceeded all minimum capital levels and inclusive of a preliminary SCB floored at 2.5 percent. On August 4, 2022, the FRB finalized Regions’ SCB requirement, and as a result for the fourth quarter of 2022 through the third quarter of 2023 the SCB requirement will continue to be floored at 2.5 percent.

See the "Second Quarter Overview" section for details on expectations of a range for CET1 during 2022.

Additional discussion of the Basel III Rules, their applicability to Regions, recent proposals and final rules issued by the federal banking agencies and recent laws enacted that impact regulatory requirements is included in the “Supervision and Regulation” subsection of the “Business” section in the 2021 Annual Report on Form 10-K and the "Regulatory Requirements" section of Management's Discussion and Analysis in the 2021 Annual Report on Form 10-K. Additional discussion is also included in Note 12 "Regulatory Capital Requirements and Restrictions" to the consolidated financial statements in the 2021 Annual Report on Form 10-K.

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.

See the "Liquidity" section for more information. Also, see the “Supervision and Regulation—Liquidity Regulation” subsection of the “Business” section, the "Risk Factors" section and the "Liquidity" section in the 2021 Annual Report on Form 10-K for additional information.

NON-GAAP MEASURES

The table below presents computations of earnings and certain other financial measures, which excludes certain adjustments that are included in the financial results presented in accordance with GAAP. These non-GAAP financial measures include “adjusted non-interest expense”, "adjusted non-interest income", "adjusted total revenue", "adjusted total revenue, taxable-equivalent basis", and "adjusted operating leverage ratio". Regions believes that excluding certain items provides a meaningful base for period-to-period comparison, 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
Presentations to investors of Company performance
Metrics for incentive compensation

Non-interest expense (GAAP) is presented excluding adjustments to arrive at adjusted non-interest expense (non-GAAP). Net interest income (GAAP) is presented with taxable-equivalent adjustments to arrive at net interest income on a taxable-equivalent basis (GAAP). Non-interest income (GAAP) is presented excluding adjustments to arrive at adjusted non-interest income (non-GAAP). Net interest income (GAAP) and adjusted non-interest income (non-GAAP) are added together to arrive at adjusted total revenue (non-GAAP). Net interest income on a taxable-equivalent basis (GAAP) and adjusted non-interest income (non-GAAP) are added together to arrive at adjusted total revenue on a taxable-equivalent basis (non-GAAP). The adjusted operating leverage ratio (non-GAAP), which is a measure of productivity, is calculated as the year over year percentage change in adjusted total revenue on a taxable-equivalent basis less the year over year percentage change in adjusted total non-interest expense. Management uses this ratio to monitor performance and believes it provides meaningful information to investors.

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 certain adjustments does not represent the amount that effectively accrues directly to shareholders.

The following tables provide: 1) a reconciliation of non-interest expense (GAAP) to adjusted non-interest expense (non-GAAP), 2) a reconciliation of non-interest income (GAAP) to adjusted non-interest income (non-GAAP), 3) a computation of adjusted total revenue (non-GAAP), 4) a computation of adjusted total revenue on a taxable-equivalent basis (non-GAAP) and 5) presentation of the operating leverage ratio (GAAP) and the adjusted operating leverage ratio (non-GAAP).

Table 17—GAAP to Non-GAAP Reconciliations


		Three Months Ended June 30				Six Months Ended June 30
		2022		2021		2022			2021
		(Dollars in millions)







ADJUSTED REVENUE AND OPERATING LEVERAGE RATIOS
Non-interest expense (GAAP)	A	$	948	$	898	$	1,881		$	1,826
Adjustments:
Contribution to Regions' Financial Corporation foundation		—		(1)		—			(3)
Branch consolidation, property and equipment charges		6		—		5			(5)
Salary and employee benefits—severance charges		—		(2)		—			(5)





Adjusted non-interest expense (non-GAAP)	B	$	954	$	895	$	1,886		$	1,813
Net interest income (GAAP)	C	$	1,108	$	963	$	2,123		$	1,930
Taxable-equivalent adjustment (GAAP)		11		12		22			23
Net interest income, taxable-equivalent basis (GAAP)	D	$	1,119	$	975	$	2,145		$	1,953





Non-interest income (GAAP)	E	$	640	$	619	$	1,224		$	1,260
Adjustments:
Securities (gains) losses, net		—		(1)		—			(2)
Gain on equity investment		—		—		—			(3)
Leveraged lease termination gains		—		—		(1)			—
Bank owned life insurance (1)		—		(18)		—			(18)

Adjusted non-interest income (non-GAAP)	F	$	640	$	600	$	1,223		$	1,237
Total revenue	C+E=G	$	1,748	$	1,582	$	3,347		$	3,190
Adjusted total revenue (non-GAAP)	C+F=H	$	1,748	$	1,563	$	3,346		$	3,167
Total revenue, taxable-equivalent basis (GAAP)	D+E=I	$	1,759	$	1,594	$	3,369		$	3,213
Adjusted total revenue, taxable-equivalent basis (non-GAAP)	D+F=J	$	1,759	$	1,575	$	3,368		$	3,190
Operating leverage ratio (GAAP) (2)						1.9		%	3.9		%
Adjusted operating leverage ratio (non-GAAP) (2)						1.6		%	1.8		%

(1)The second quarter 2021 amount relates to an individual BOLI claim benefit, which is a tax-fee gain.

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

OPERATING RESULTS

NET INTEREST INCOME AND MARGIN

Table 18—Consolidated Average Daily Balances and Yield/Rate Analysis


	Three Months Ended June 30
	2022						2021
	Average Balance		Income/ Expense		Yield/ Rate (1)		Average Balance		Income/ Expense		Yield/ Rate (1)
	(Dollars in millions; yields on taxable-equivalent basis)
Assets
Earning assets:
Federal funds sold and securities purchased under agreements to resell	$	—	$	—	—	%	$	9	$	—	0.13	%

Debt securities (2)	31,429		157		2.00		28,633		131		1.83

Loans held for sale	704		10		5.39		1,382		12		3.36
Loans, net of unearned income (3)(4)	90,764		943		4.15		84,551		861		4.07
Interest-bearing deposits in other banks	22,246		45		0.81		23,337		7		0.11
Other earning assets	1,445		11		2.79		1,297		7		2.20

Total earning assets	146,588		1,166		3.18		139,209		1,018		2.92
Unrealized gains/(losses) on securities available for sale, net (2)	(2,107)						627
Allowance for loan losses	(1,419)						(1,896)
Cash and due from banks	2,386						2,094
Other non-earning assets	16,378						14,644
	$	161,826					$	154,678
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Savings	$	16,200	5		0.12		$	13,914	5		0.14
Interest-bearing checking	27,533		6		0.09		25,044		2		0.03
Money market	31,348		4		0.05		30,762		2		0.03
Time deposits	5,600		5		0.34		4,813		8		0.64
Other deposits	—		—		—		4		—		0.55
Total interest-bearing deposits (5)	80,681		20		0.10		74,537		17		0.09

Other short-term borrowings	7		—		1.01		—		—		—
Long-term borrowings	2,328		27		4.53		2,901		26		3.59
Total interest-bearing liabilities	83,016		47		0.22		77,438		43		0.22
Non-interest-bearing deposits (5)	58,911		—		—		56,595		—		—
Total funding sources	141,927		47		0.13		134,033		43		0.13
Net interest spread (2)					2.95						2.70
Other liabilities	3,495						2,645
Shareholders’ equity	16,404						18,000

	$	161,826					$	154,678
Net interest income /margin on a taxable-equivalent basis (6)			$	1,119	3.06	%			$	975	2.81	%

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

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

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

(4)Interest income includes net loan fees of $16 million and $40 million for the three months ended June 30, 2022 and 2021, respectively.

(5)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 0.06% and 0.05% for the three months ended June 30, 2022 and 2021, respectively.

(6)The computation of taxable-equivalent net interest income is based on the statutory federal income tax rate of 21% adjusted for applicable state income taxes net of the related federal tax benefit.



	Six Months Ended June 30
	2022						2021
	Average Balance		Income/ Expense		Yield/ Rate (1)		Average Balance		Income/ Expense		Yield/ Rate (1)
	(Dollars in millions; yields on taxable-equivalent basis)
Assets
Earning assets:
Federal funds sold and securities purchased under agreements to resell	$	1	$	—	0.18	%	$	4	$	—	0.13	%
Debt securities (2)	30,391		295		1.94		27,910		264		1.89

Loans held for sale	743		19		5.13		1,492		24		3.22
Loans, net of unearned income (3)(4)	89,297		1,830		4.11		84,653		1,726		4.09
Interest-bearing deposits in other banks	24,414		58		0.48		19,942		11		0.11
Other earning assets (5)	1,376		27		3.84		1,288		17		2.73
Total earning assets	146,222		2,229		3.06		135,289		2,042		3.03
Unrealized gains (losses) on securities available for sale, net (2)	(1,333)						746
Allowance for loan losses	(1,445)						(2,017)
Cash and due from banks	2,294						2,013
Other non-earning assets	16,040						14,607
	$	161,778					$	150,638
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Savings	$	15,871	10		0.13		$	13,132	10		0.15
Interest-bearing checking	27,651		8		0.06		24,610		4		0.03
Money market	31,375		6		0.04		30,097		5		0.03
Time deposits	5,752		9		0.32		4,984		17		0.69
Other deposits	—		—		—		4		—		1.19
Total interest-bearing deposits (5)	80,649		33		0.08		72,827		36		0.10

Other short-term borrowings	8		—		0.54		—		—		—
Long-term borrowings	2,359		51		4.29		3,046		53		3.50
Total interest-bearing liabilities	83,016		84		0.20		75,873		89		0.24
Non-interest-bearing deposits (5)	58,516		—		—		54,230		—		—
Total funding sources	141,532		84		0.12		130,103		89		0.14
Net interest spread (2)					2.85						2.79
Other liabilities	3,188						2,516
Shareholders’ equity	17,058						18,019

	$	161,778					$	150,638
Net interest income /margin on a taxable-equivalent basis (6)			$	2,145	2.96	%			$	1,953	2.91	%

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

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

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

(4)Interest income includes net loan fees of $34 million and $74 million for the six months ended June 30, 2022 and 2021, respectively.

(5)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 0.05% and 0.06% for the six months ended June 30, 2022 and 2021, respectively.

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. Both net interest income and net interest margin are influenced by market interest rates, and in the first six months of 2022, the FOMC increased the Fed funds rate by 150 basis points, with additional rate increases expected in the remaining half of 2022.

Net interest income (taxable-equivalent basis) increased in the second quarter and first six months of 2022 compared to the same periods in 2021. The increases in net interest income were driven primarily by rising interest rates, strong average loan growth and a larger securities portfolio. While interest rates increased in the first half of 2022, funding costs remained relatively stable. These increases were partially offset by a decline in PPP forgiveness income as compared to the same periods in 2021.

Net interest margin also increased in the second quarter and first six months of 2022 compared to the same periods in 2021, benefiting from the rising interest rate environment and controlled deposit costs. Elevated liquidity continues to impact

net interest margin, as average cash balances remained higher in the second quarter and first six months of 2022 compared to the same periods in 2021.

See the "Second Quarter Overview" section for the Company's expectations for interest income as a component of total revenue. See also the "Market Risk-Interest Rate Risk" section below for additional information.

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 and minus 100 and 200 basis points. Importantly, the falling rate shock scenarios incorporate historical observations. Rates along the yield curve are not allowed to fall below levels consistent with historical 12-month average rate minimums. 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 June 30, 2022, Regions was asset sensitive to both gradual and instantaneous parallel yield curve shifts as compared to the base case for the 12-month measurement horizon ending June 2023.

In the second quarter of 2022, Regions experienced stability in low-cost deposits acquired through the pandemic. Retention of these deposits remains uncertain and some amount may be more rate sensitive in a rising rate environment. Therefore, additional sensitivity analysis focused on pandemic-related "surge" deposit pricing behavior and retention is outlined in Table 19.

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. Currently, net interest income is projected to benefit from rising short-term interest rates (i.e. asset sensitive profile). An increase or reduction in short-term interest rates (such as the Fed Funds rate, the rate of Interest on Excess Reserves, 1-month LIBOR, SOFR and BSBY) will drive the yield on assets and liabilities contractually tied to such rates higher or lower. Under either environment, it is expected that changes in funding costs and balance sheet hedging income will only somewhat offset the change in asset yields. Importantly, the potential to retain "surge" deposits with lower than expected repricing behavior represents an opportunity for further net interest income growth in the increasing rate scenario as well.

Net interest income remains exposed to intermediate yield curve tenors. While this was a headwind to net interest income during the pandemic, it represents a tailwind to net interest income growth as the yield curve rises. 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.

The interest rate sensitivity analysis presented below in Table 19 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 monetary policy tightening on the pace of interest rate movement and industry liquidity levels, management evaluates the impact to its sensitivity analysis from 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 management's best estimate for balance sheet growth in the coming 12 months. However, the behavior of pandemic-related "surge" deposits under a rising rate scenario is uncertain. Since year-end 2019, the last period-end free from the effects of the pandemic, deposit balances have increased by approximately $40 billion, exclusive of deposits acquired in the EnerBank acquisition, and approximately $25 billion of the increase was determined to be attributable to pandemic-related surge deposits. Therefore, Table 19 includes two balance sheet scenarios to help inform a potential range of outcomes. The first is an opportunity scenario, and assumes that these deposits behave more like stable, legacy balances, which is consistent with historical disclosures. The second scenario assumes that these depositors will be more sensitive to rate, requiring a higher interest rate in order to hold their balances with the bank. These deposits, including non-interest bearing products, are attributed with an approximate 70 percent repricing beta in rising rate scenarios. Importantly, the impact to net interest income under a changing rate environment is the same whether the "surge" deposit balances are held at a higher beta or the balances attrite and the funding is replaced with wholesale sources. Given the evolving nature of the environment, estimates have been conservatively derived. Should the balances remain with the Company longer or demonstrate less sensitivity to interest rates, there is potential for upside (e.g. the opportunity scenario). The disclosure in Table 19 does not prescribe a view as to the longevity of surge deposits on the balance sheet.

The behavior of deposit pricing in response to changes in interest rate levels is largely informed by analyses of prior rate cycles. In the base case scenario in Table 19, interest-bearing deposits reprice using an approximately 30 percent cumulative beta. The deposit beta model is dynamic across both interest rate level and time. Currently, the Scenario One gradual +100 basis point shock outlined in the table below includes an approximate 25 percent to 30 percent interest-bearing deposit beta for legacy deposits. Again, the "surge" deposit interest-bearing deposit beta is bookended in each scenario, assuming legacy betas and a 70 percent beta, respectively. Deposit pricing outperformance or underperformance of 5 percent in that scenario would increase or decrease net interest income by approximately $39 million, respectively.

In rising rate scenarios only, management assumes that the mix of legacy 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 19.

The table below summarizes Regions' positioning over the next 12 months in various parallel yield curve shifts (i.e., including all yield curve tenors). The scenarios are inclusive of all interest rate hedging activities. All forward-starting swaps have starting dates beyond the next 12 months. Therefore, while not impactful to the reported exposure, hedges will meaningfully reduce the net interest income sensitivity to changes in market interest rates over the coming year as they enter the measurement window. More information regarding hedges is disclosed in Table 20 and its accompanying description.

Table 19—Interest Rate Sensitivity


	Scenario One: Estimated Annual Change in Net Interest Income June 30, 2022(1)(2)(3)	Scenario Two: Estimated Annual Change in Net Interest Income June 30, 2022 (1)(2)(4)
	(In millions)
Gradual Change in Interest Rates
+ 200 basis points	$412	$219
+ 100 basis points	215	119
- 100 basis points	(244)	(244)

- 200 basis points (floored)(5)	(513)	(513)
Instantaneous Change in Interest Rates
+ 200 basis points	$508	$242
+ 100 basis points	277	144
- 100 basis points	(344)	(344)
- 200 basis points (floored)(5)	(771)	(771)

(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)Active cash flow hedges reflected within the measurement horizon (See Table 21 for additional information regarding hedge start and maturity dates).

(3)Scenario One assumes all deposits (including "surge" deposits) perform consistently with historical experiences.

(4)Scenario Two accounts for uncertainty in "surge" deposit balances (approximately $25 billion) and assumes an approximate 70% beta.

(5)The -200 basis points (floored) scenario represents a rate shock where all rates decline by 200 basis points, or are floored at their 12-month average historical low.

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, equates to the lesser of the shock scenario amount, or a rate equal to the historical 12-month average minimum. The falling rate scenarios in Table 19 above quantify the expected impact for both gradual and instantaneous shocks under this environment.

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' comprehensive interest rate risk management approach uses derivatives, as discussed further below, and debt securities to manage its interest rate risk position. During the second quarter of 2022, as part of its current hedging strategy, the Company executed $8.3 billion of notional value cash flow hedging derivative trades (included in Table 20 below) and purchased $1.2 billion in debt securities available for sale in addition to the trades and purchases that were executed in the first quarter of 2022. The cash flow hedging relationships are forward starting receive fixed/pay variable interest rate swaps, that have start dates in the third quarter of 2023 and mature within three to four years of their start dates. The receive fixed rates on these cash flow hedges averaged 2.99 percent, paying overnight SOFR. The purchased debt securities available for sale consisted primarily of federal agency and residential agency securities, and yield approximately 3.30 percent.

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, to effectively convert a portion of its fixed-rate debt securities available for sale portfolio to a variable-rate position, and to effectively convert a portion of its floating-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 20—Hedging Derivatives by Interest Rate Risk Management Strategy


	June 30, 2022
			Weighted-Average
	Notional Amount		Maturity (Years)	Receive Rate(2)(3)		Pay Rate(2)
	(Dollars in millions)
Derivatives in fair value hedging relationships:
Receive variable/pay fixed - debt securities available for sale(1)	$	6,523	0.5	3.0	%	0.8	%
Receive fixed/pay variable - borrowed funds	1,400		4.3	0.6		1.5

Derivatives in cash flow hedging relationships:
Receive fixed/pay variable - floating-rate loans(1)(2)(3)	33,100		2.6	1.5		2.1
Total derivatives designated as hedging instruments	$	41,023

(1)Floating rates represent the most recent fixing for active derivatives and the first forward fixing for future starting derivatives.

(2)Variable rate indexes on hedge contracts reference a combination of short-term benchmarks, primarily 1-month LIBOR with approximately $11.0 billion of hedges pay SOFR.

(3)$12.5 billion of the cash flow swaps were added in 2022 with a receive rate of 2.74%, mostly paying overnight SOFR; 2.84% LIBOR equivalent.

The following table presents the average asset hedge notional amounts that are active during each of the remaining quarterly periods in 2022 and later annual periods. Asset hedge notional amounts mature prior to the end of 2031, with an immaterial amount of notional maturing in early 2032.

Table 21—Schedule of Notional for Asset Hedging Derivatives


	Average Active Notional Amount
	Quarters Ended (1)				Years Ended
	9/30/2022(2)		12/31/2022		2023		2024		2025		2026		2027		2028		2029		2030		2031
	(in millions)
Asset Hedging Relationships:
Receive fixed/pay variable swaps	$	20,650	$	16,988	$	13,322	$	18,926	$	13,895	$	8,776	$	3,958	$	1,654	$	4	$	—	$	—
Receive variable/pay fixed swaps	1,130		5,299		—		—		—		—		15		23		23		23		23
Net receive fixed/pay variable swaps	$	19,520	$	11,689	$	13,322	$	18,926	$	13,895	$	8,776	$	3,943	$	1,631	$	(19)	$	(23)	$	(23)

(1)All cash flow hedges are reflected within the 12-month measurement horizon and included in income sensitivity levels as disclosed in Table 19.

(2)Subsequent to June 30, 2022, the Company terminated $2.5 billion in receive fixed/ pay variable notional maturing on October 1, 2022.

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. Most 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 8 "Derivative Financial Instruments and Hedging Activities" to the consolidated financial statements for a tabular summary of Regions’ quarter-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

On March 5, 2021, the FCA announced that LIBOR will not be available for use after December 31, 2021. Further, existing contracts referencing 1-week or 2-month USD LIBOR settings must be remediated no later than December 31, 2021. Regions successfully remediated contracts referencing 1-week or 2-month USD LIBOR prior to December 31, 2021. Additionally, Regions ceased origination of all new LIBOR-based lending prior to December 31, 2021. Existing contracts referencing all other USD LIBOR settings must be remediated no later than June 30, 2023. Regions holds instruments that may be impacted by the discontinuance of LIBOR, including loans, investments, derivative products, floating-rate obligations, and other financial instruments that use LIBOR as a benchmark rate. However, Regions' LIBOR exposure is primarily in settings other than 1-week or 2-month USD LIBOR. 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 of LIBOR. Steps to mitigate risks associated with the transition are being overseen by Regions’ Executive LIBOR Steering Committee. Regions is following industry efforts to develop alternative reference rates and is operationally ready to offer new benchmarks as they are adopted by regulatory agencies and industry groups.

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 products.
The adoption of new products linked to alternative reference rates, such as adjustable-rate mortgages, consistent with guidance provided by the US regulators, ARRC, and GSEs.
The discontinuation of LIBOR-based commercial lending prior to December 31, 2021, consistent with regulatory guidelines. The Company is providing multiple alternative rates based on market competition and demand, including SOFR, BSBY, and AMERIBOR.

Regions continues to evaluate its financial and operational infrastructure in its effort to transition all financial and strategic processes, systems, and models to reference rates other than LIBOR. Regions has also implemented processes to educate all client-facing associates and coordinate communications with customers regarding the transition.

Regions has exposure to LIBOR-based products throughout several lines of business. As of June 30, 2022, Regions had the following exposures that reference LIBOR:

Approximately $24.8 billion of total outstanding commercial and investor real estate loans and approximately $784 million of total consumer loans;
Securities within the investment portfolio of approximately $261 million;
Notional amount of interest rate derivatives totaling approximately $130 billion;
Series B and C preferred stock with total carrying values of $433 million and $490 million, respectively that reference LIBOR when their dividend rate begins to float after 2023.

On March 15, 2022, the Adjustable Interest Rate Act was signed into law with the purpose of establishing a clear and uniform process for replacing LIBOR in existing contracts. Among the provisions of this legislation, contracts may be transitioned to SOFR to gain a legal safe harbor. The Company has assessed the impact of this legislation and expects to allow certain clients to fallback to SOFR upon the cessation of LIBOR, consistent with the guidelines in the legislation.

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” in Regions’ Annual Report on Form 10-K for the year ended December 31, 2020 for details.

LIQUIDITY

Liquidity is an important factor in the financial condition of Regions and affects Regions’ ability to meet the needs of the Company and its customers. Regions’ goal in liquidity management is to maintain liquidity sources and reserves sufficient to satisfy the cash flow requirements of depositors and borrowers, under normal and stressed conditions. Accordingly, Regions maintains a variety of liquidity sources to fund its obligations, as further described below. Furthermore, Regions performs specific procedures, including scenario analyses and stress testing to evaluate and maintain appropriate levels of available liquidity in alignment with liquidity risk.

Regions' operation of its business provides a generally balanced liquidity base which is comprised of customer assets, consisting principally of loans, and funding provided by customer deposits and borrowed funds. Maturities in the loan portfolio provide a steady flow of funds, and are supplemented by Regions' relatively steady deposit base.

The securities portfolio also serves as a primary source and storehouse of liquidity. Proceeds from maturities and principal and interest payments of securities provide a continual flow of funds available for cash needs (see Note 2 "Debt Securities" to the consolidated financial statements). Furthermore, the highly liquid nature of the portfolio (for example, the agency guaranteed MBS portfolio) can be readily used as a source of cash through various secured borrowing arrangements. Cash reserves, liquid assets and secured borrowing capabilities (including borrowing capacity at the FHLB, as discussed below) aid in the management of liquidity in normal and stressed conditions, and/or meeting the need of contingent events such as obligations related to potential litigation. See Note 11 "Commitments, Contingencies and Guarantees" to the consolidated financial statements for additional discussion of the Company’s funding requirements. Liquidity needs can also be met by borrowing funds in national money markets, though Regions does maintain limits on short-term unsecured funding due to the volatility that can affect such markets.

The balance with the FRB is the primary component of the balance sheet line item, “interest-bearing deposits in other banks.” At June 30, 2022, Regions had approximately $18.2 billion in cash on deposit with the FRB and other depository institutions, a decrease from approximately $28.1 billion at December 31, 2021, as cash balances have been used fund loan growth and for securities purchases in the first six months of 2022. The average balance held with the FRB was approximately $22.2 billion and $23.3 billion for the three months ended June 30, 2022 and 2021, respectively. Refer to the "Cash and Cash Equivalents" section for more information.

Regions’ borrowing availability with the FRB as of June 30, 2022, based on assets pledged as collateral on that date, was $15.1 billion.

Regions’ financing arrangement with the FHLB adds additional flexibility in managing the Company's liquidity position. As of June 30, 2022, Regions had no FHLB borrowings and its total borrowing capacity from the FHLB totaled approximately $15.4 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.

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 11 "Borrowed Funds" to the consolidated financial statements in the 2021 Annual Report on Form 10-K 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. See Note 5 "Shareholders' Equity and Accumulated Other Comprehensive Income" to the consolidated financial statements for additional information.

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 $1.2 billion at June 30, 2022. Overall liquidity 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.

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 of the Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of risk characteristics of each loan type.

INFORMATION SECURITY RISK

Regions faces information security risks, such as evolving and adaptive cyber attacks that are conducted regularly against financial institutions in attempts to compromise or disable information systems. Such attempts have increased in recent years, and the trend is expected to continue for a number of reasons, including increases in technology-based products and services used by us and our customers, the growing use of mobile, cloud, and other emerging technologies, 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.

Even when 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 that enable customer transactions. The related fraud losses, as well as the costs of re-issuing new cards, may impact Regions' financial results. In addition, Regions also relies on some vendors to provide certain business infrastructure components, 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. Refer to the "Information Security Risk" section in Management's Discussion and Analysis included in the Annual Report on Form 10-K for the year ended December 31, 2021 for further discussion of Regions' information security risk.

PROVISION FOR (BENEFIT FROM) CREDIT LOSSES

The provision for (benefit from) 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. The provision for credit losses totaled $60 million in the second quarter of 2022 compared to a benefit from credit losses of $337 million during the second quarter of 2021. The provision for credit losses totaled $24 million for the first six months of 2022 compared to a benefit from credit losses of $479 million for the first six months of 2021. Refer to the "Allowance" section for further detail.

NON-INTEREST INCOME

Table 22—Non-Interest Income


	Three Months Ended June 30				Quarter-to-Date Change 6/30/2022 vs. 6/30/2021
	2022		2021		Amount		Percent
	(Dollars in millions)
Service charges on deposit accounts	$	165	$	163	$	2	1.2	%
Card and ATM fees	133		128		5		3.9	%
Capital markets income	112		61		51		83.6	%
Investment management and trust fee income	72		69		3		4.3	%
Mortgage income	47		53		(6)		(11.3)	%
Investment services fee income	30		27		3		11.1	%
Commercial credit fee income	23		23		—		—	%
Bank-owned life insurance	16		33		(17)		(51.5)	%

Market value adjustments on employee benefit assets - other	(17)		8		(25)		(312.5)	%

Securities gains (losses), net	—		1		(1)		(100.0)	%

Other miscellaneous income	59		53		6		11.3	%
	$	640	$	619	$	21	3.4	%



	Six Months Ended June 30				Year-to-Date 6/30/2022 vs. 6/30/2021
	2022		2021		Amount		Percent
	(Dollars in millions)
Service charges on deposit accounts	$	333	$	320	$	13	4.1	%
Card and ATM fees	257		243		14		5.8	%
Capital markets income	185		161		24		14.9	%
Investment management and trust fee income	147		135		12		8.9	%
Mortgage income	95		143		(48)		(33.6)	%
Investment services fee income	56		52		4		7.7	%
Commercial credit fee income	45		45		—		—	%
Bank-owned life insurance	30		50		(20)		(40.0)	%
Market value adjustments on employee benefit assets - other	(31)		15		(46)		(306.7)	%

Gain on equity investment	—		3		(3)		(100.0)	%
Securities gains (losses), net	—		2		(2)		(100.0)	%


Other miscellaneous income	107		91		16		17.6	%
	$	1,224	$	1,260	$	(36)	(2.9)	%

*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.

*Capital markets income—*Capital markets income primarily relates to capital raising activities that include securities underwriting and placement, loan syndication, as well as foreign exchange, derivatives, merger and acquisition and other advisory services. Capital markets income increased in both the second quarter of 2022 and first six months of 2022 compared to the same periods in 2021. The increase in the second quarter of 2022 was driven primarily by real estate capital markets, commercial swap income, and M&A advisory fees. The increase in commercial swap income benefited from positive credit/debit valuation adjustments due to rate and spread movement. M&A advisory fees were positively impacted by the acquisition of Clearsight Advisors in the fourth quarter of 2021. The increase for the first six months of 2022 was driven by increases in real estate capital markets, loan syndication revenue, and commercial swap income. In both periods, the increases in capital markets income were partially offset by declines in securities underwriting and placement fees.

*Investment management and trust fee income—*Investment management and trust fee income represents income from asset management services provided to individuals, businesses and institutions.

*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 decrease in mortgage income in the

second quarter of 2022 and first six months of 2022 compared to the same periods in 2021 was due primarily to lower mortgage production as a result of higher interest rates. The decline in production and sales was partially offset by an improvement in the valuation of mortgage servicing rights and related hedges. Mortgage income for the six months ended June 30, 2022 also includes approximately $12 million in gains associated with the re-securitization and sale of Ginnie Mae loans previously repurchased from their pools in the first quarter of 2022.

*Bank-owned life insurance—*Bank-owned life insurance income primarily represents income earned from the appreciation of the cash surrender value of insurance contracts held and the proceeds of insurance benefits. Bank-owned life insurance decreased in the second quarter of 2022 and first six months of 2022 compared to the same periods in 2021 primarily due to an $18 million individual BOLI claim benefit recognized in the second quarter of 2021.

*Market value adjustments on employee benefit assets—*Market value adjustments on employee benefit assets are the reflection of market value variations related to assets held for certain employee benefits. Market value adjustments on employee benefit assets decreased in the three and six months ended June 30, 2022 compared to the same periods in 2021 due to market volatility. The adjustments are offset in salaries and benefits.

*Securities gains (losses), net—*Net securities gains (losses) primarily result from the Company's asset/liability management process. See Table 1 "Debt Securities" section for additional information.

Other miscellaneous income—Other miscellaneous income includes net revenue from affordable housing, valuation adjustments to equity investments (other than the item shown separately 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 the three and six months ended June 30, 2022 compared to the same periods of 2021 primarily due to an increase in commercial loan and leasing related fee income generated from Ascentium, low income housing tax credit disposition gains, and, to a lesser degree, an increase in other consumer income. The increase in income for the first six months of 2022 compared to the same period in 2021 was partially offset by a decline in SBIC income.

NON-INTEREST EXPENSE

Table 23—Non-Interest Expense


	Three Months Ended June 30				Quarter-to-Date Change 6/30/2022 vs. 6/30/2021
	2022		2021		Amount		Percent
	(Dollars in millions)
Salaries and employee benefits	$	575	$	532	$	43	8.1	%
Equipment and software expense	97		89		8		9.0	%
Net occupancy expense	75		75		—		—	%
Outside services	38		39		(1)		(2.6)	%
Marketing	22		29		(7)		(24.1)	%
Professional, legal and regulatory expenses	24		15		9		60.0	%
Credit/checkcard expenses	13		17		(4)		(23.5)	%
FDIC insurance assessments	13		11		2		18.2	%
Visa class B shares expense	9		6		3		50.0	%

Branch consolidation, property and equipment charges	(6)		—		(6)		NM
Other miscellaneous expenses	88		85		3		3.5	%
	$	948	$	898	$	50	5.6	%



	Six Months Ended June 30				Year-to-Date 6/30/2022 vs. 6/30/2021
	2022		2021		Amount		Percent
	(Dollars in millions)
Salaries and employee benefits	$	1,121	$	1,078	$	43	4.0	%
Equipment and software expense	192		179		13		7.3	%
Net occupancy expense	150		152		(2)		(1.3)	%
Outside services	76		77		(1)		(1.3)	%
Marketing	46		51		(5)		(9.8)	%
Professional, legal and regulatory expenses	41		44		(3)		(6.8)	%
Credit/checkcard expenses	39		31		8		25.8	%
FDIC insurance assessments	27		21		6		28.6	%
Visa class B shares expense	14		10		4		40.0	%

Branch consolidation, property and equipment charges	(5)		5		(10)		(200.0)	%

Other miscellaneous expenses	180		178		2		1.1	%




	$	1,881	$	1,826	$	55	3.0	%

NM - Not Meaningful

*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. Full-time equivalent headcount increased to 19,673 at June 30, 2022 from 18,814 at June 30, 2021, reflecting the additional associates from acquisitions in the fourth quarter of 2021. Salaries and employee benefits expense also increased in the second quarter of 2022 and the first six months of 2022 compared to the same periods in 2021 primarily due to annual merit increases that occurred early in the second quarter of 2022 and, to a lesser degree, higher production-based incentive compensation. These increases were partially offset by a decline in 401(k) related expenses.

*Professional, legal and regulatory expenses—*Professional, legal, and regulatory expenses consist of amounts related to legal, consulting, other professional fees and regulatory charges. Professional, legal, and regulatory expenses increased in the second quarter of 2022 compared to the same period in 2021 primarily due to [an increase in legal expenses].

*Credit/checkcard expenses—*Credit/checkcard expenses include credit and checkcard fraud and expenses. Credit/checkcard expenses increased the first six months of 2022 compared to the same period in 2021 primarily due to an accrual increase associated with a previous debit card matter that occurred during the first quarter of 2022, which was partially offset by a slight decline in debit card servicing expenses.

*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. During the second quarter of 2022, the Company recognized gains on the disposition of branch properties.

INCOME TAXES

The Company’s income tax expense for the three months ended June 30, 2022 was $157 million compared to $231 million for the three months ended June 30, 2021, resulting in effective tax rates of 21.2 percent and 22.6 percent, respectively. The income tax expense for six months ended June 30, 2022 was $311 million compared to $411 million for the six months ended June 30, 2021, resulting in effective tax rates of 21.6 percent and 22.3 percent, respectively. See the "Second Quarter Overview" for the Company's near-term expectations for future tax rates.

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, enacted tax legislation, net tax benefits related to affordable housing investments, bank-owned life insurance income, 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.

At June 30, 2022, the Company reported a net deferred tax asset of $429 million compared to a net deferred tax liability of $306 million at December 31, 2021. The change in the net deferred tax position was due primarily to the deferred tax impact of unrealized losses on securities available for sale and derivative instruments arising during the period.

ACQUISITIONS

EnerBank

On October 1, 2021, Regions completed its acquisition of home improvement lender EnerBank. The acquisition of EnerBank allows Regions to provide customers with home improvement financing solutions using EnerBank's loan programs and digital solutions to support a wide range of home improvement needs.

As a result of the acquisition, Regions recorded approximately $3.3 billion of assets of which $3.1 billion were loans that are included in Regions' other consumer loan portfolio. Regions also assumed $2.8 billion of liabilities, consisting almost entirely of time deposits that the Company expects will attrite over time. The premiums recorded related to the acquired assets and assumed liabilities were immaterial.

Fair value estimates are considered preliminary as of June 30, 2022. 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.

Regions recorded PCD loans of $198 million as a result of the acquisition. Regions recorded an immaterial ALLL related to these loans, which was included in the total acquired asset value as part of the acquisition.

In conjunction with the acquisition, Regions recognized initial goodwill of $361 million and other intangible assets of $176 million. The other intangible assets were primarily comprised of customer relationship intangibles and will be amortized over the expected useful life of each recognized asset.

Sabal

On December 1, 2021, Regions completed its acquisition of Sabal, a financial services firm that leverages technology to facilitate off-balance-sheet lending in the small balance commercial real estate market.

As a result of the acquisition, Regions recorded approximately $360 million of assets, which included loans held for sale totaling $82 million, as well as a commercial mortgage servicing asset and securities that were immaterial. Regions also assumed $114 million of liabilities, consisting primarily of borrowings that were paid off following closing.

In conjunction with the acquisition, Regions recognized initial goodwill of $146 million and other intangible assets that were immaterial.

Fair value estimates are considered preliminary as of June 30, 2022. Fair value estimates, including acquired assets and goodwill, are subject to change for up to one year after the acquisition date as additional information becomes available.

Previous: Item 1. Financial Statements (Unaudited) · Next: Item 3. Quantitative and Qualitative Disclosures about Market Risk