REGIONS FINANCIAL CORP (RF) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE OVERVIEW

Management believes the following sections provide an overview of several of the most relevant matters necessary for an understanding of the financial aspects of Regions's business, particularly regarding its 2022 results. Cross references to more detailed information regarding each topic within MD&A and the consolidated financial statements are included. This summary is intended to assist in understanding the information provided, but should be read in conjunction with the entire MD&A and consolidated financial statements, as well as the other sections of this Annual Report on Form 10-K.

Economic Environment in Regions’ Banking Markets

One of the primary factors influencing the credit performance of Regions’ loan portfolio is the overall economic environment in the U.S. and the primary markets in which it operates. After full-year 2022 real GDP growth of 2.1 percent, the January 2023 baseline forecast anticipates real GDP growth of 1.1 percent in 2023 and 1.5 percent in 2024. As 2022 came to a close, many of the distortions stemming from the pandemic and the policy response to it that had impacted the economy for the prior two years were fading while interest-sensitive sectors of the economy were impacted by the effects of significant increases in market interest rates in 2022. Regions continues to expect that by late-2024 the economy will be back on the path of growth around 2.0 percent that prevailed prior to the pandemic. As has been the case since the onset of the pandemic, however, there remains a heightened degree of uncertainty around current economic forecasts.

Many businesses across a broad range of industry groups are struggling to ascertain the level of underlying demand as 2023 begins. Firms who produce goods or provide services to consumers saw robust growth in demand from the second half of 2020 through much of 2022, reflecting in part financial transfers as part of the policy response to the pandemic and in part by a faster pace of wage growth. Consumer demand for goods began to waver over the second half of 2022, and while faster growth in consumer spending on services took up that slack, services spending is expected to slow in 2023.

Firms who produce goods or provide services to firms saw robust growth in demand from late-2020 through much of 2022, which was mainly a reflection of two factors. First, firms rushed to fill in the gaps left by production having been disrupted by the effects of the pandemic on the labor market, supply chains, and shipping networks. Second, firms built up inventories to levels higher than were considered normal prior to the pandemic, as a hedge against further supply chain/labor supply disruptions. Much of that catch-up or precautionary demand began to wane in late-2022 with order backlogs having been worked down and inventories having been built up.

With the robust growth in demand seen over much of the past two years having subsided, firms are left trying to gauge underlying demand and, in turn, appropriate levels of staffing and capital spending. In areas such as retail trade, warehousing/distribution, and technology, many firms were not anticipating a drop-off in demand and are now adjusting to lower than anticipated demand by laying off workers and decreasing capital budgets. Other firms are reassessing planned levels of staffing and capital outlays.

Subsiding demand is likely to be an ongoing challenge through much of 2023, as a period of elevated inflation and rising interest rates has had an impact on the demand side of the economy and on consumer and business confidence. While supply chain stresses have eased considerably, they have not yet fully cleared, but with the demand side of the economy easing, any lingering supply chain stresses are not as disruptive to businesses as has been the case over the past two years. One sector still being impacted is residential construction, with many builders still having difficulty sourcing building materials. While higher mortgage interest rates contributed to steep declines in home sales, builders were still sitting on sizable backlogs of unfilled orders and units in various phases of construction. This has put a floor under demand for construction materials and supplies, thus helping sustain supply-side stresses.

With a slower pace of growth in consumer spending, businesses scaling down planned growth in capital expenditures, and growth in residential construction remaining weighed down by higher mortgage interest rates, the overall pace of economic activity in 2023 is expected to be considerably slower than the pace seen over the second half of 2022. This will be accompanied by a marked slowdown in the pace of job growth, which will likely fall below the pace required to keep the jobless rate steady.

The pace of job growth slowed steadily over the second half of 2022 but remained more than sufficient to keep the unemployment rate from rising. Moreover, there were over ten million open jobs across the U.S. economy as 2022 came to a close. Given the well below-trend pace of real GDP growth anticipated over the next several quarters, Regions expects the demand for labor to decline, but there is uncertainty in how that will manifest itself. Regions expects a meaningfully slower pace of job growth coupled with a significant decline in job vacancies, with firms also resorting to reducing hours worked by current workers as a lever with which to manage total labor input. Regions believes that, given how hard and costly it has been for firms to attract and retain labor, firms will be unlikely to lay workers off in large numbers. While there were several high-profile announcements of layoffs as 2022 came to a close, the collective number of layoffs was a minute share of total nonfarm employment, and those workers losing jobs were able to find new positions relatively quickly. The rate of layoffs and discharges, measured as a share of total nonfarm employment, was still below pre-pandemic norms at year-end 2022. That

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Regions expects the unemployment rate to rise over coming quarters is more a reflection of diminished hiring than of widespread layoffs. As labor demand becomes more closely aligned with labor supply, growth in hourly wages and in total labor compensation costs will slow.

As measured by the CPI, inflation rose to 8.0 percent in 2022, the highest annual rate since 1981, with an intra-year peak rate of 9.1 percent. Inflation did decelerate over the second half of the year, in part due to what by year-end 2022 were falling prices for core consumer goods (consumer goods excluding food and energy). Services price inflation proved to be more persistent, but there were signs that it too was decelerating by year-end 2022. While the Company expects inflation to decelerate further over the course of 2023, it also expects it to end the year above the FOMC’s 2.0 percent target rate. The FOMC, however, does not yet feel confident that inflation is on a one-way track lower and, to that point, as China’s economy comes back online in 2023 there could be a new round of upward pressure on energy and commodity prices. That would in turn push headline inflation higher but, even should that prove to be the case, Regions looks for core inflation to decelerate. Regions expects 25-basis point increases in the Fed funds rate at the first two FOMC meetings of 2023, after which the expectation is for the FOMC to remain on hold. At present Regions does not expect the FOMC to cut the Fed funds rate in 2023. At the same time, the FOMC will continue to let the Fed balance sheet wind down as maturing assets are allowed to run off the balance sheet.

A number of states within the footprint have seen heightened flows of domestic in-migration since the onset of the pandemic, which has resulted in more rapid rates of job growth and more rapid growth in housing costs. It is likely that migration patterns will shift in 2023 as the broader economy and the labor market slow. That Regions' footprint has an above-average exposure to manufacturing means it could feel the contraction in the manufacturing sector more acutely, but the larger, more industrially diverse areas of the footprint are expected to continue to outperform.

The continued economic uncertainty, as described above, impacted Regions' forecast utilized in calculating the ACL as of December 31, 2022. See the "Allowance" section for further information.

2022 Results

Regions reported net income available to common shareholders of $2.1 billion or $2.28 per diluted share in 2022 compared to net income available to common shareholders of $2.4 billion or $2.49 per diluted share in 2021.

Net interest income (taxable-equivalent basis) totaled $4.8 billion in 2022 compared to $4.0 billion in 2021. The net interest margin (taxable-equivalent basis) was 3.36 percent in 2022, reflecting a 51 basis point increase from 2021. The increase in net interest income was primarily driven by an increase in market interest rates, average loan growth, which includes consumer home improvement loans from the fourth quarter 2021 acquisition of EnerBank, and a larger average securities portfolio. Modest increases in interest expense on deposits and long-term borrowings partially offset the increase in interest income. The increase in net interest margin was primarily driven by higher market interest rates and the addition of higher-yielding consumer home improvement loans from the acquisition of EnerBank in the fourth quarter of 2021.

The provision for credit losses totaled $271 million in 2022 compared to a benefit from credit losses of $524 million in 2021. The provision for credit losses was higher than net charge-offs by $8 million in 2022. The increase in the provision for credit losses was driven primarily by economic conditions, normalizing asset quality, and loan growth. Refer to the "Allowance for Credit Losses" section of Management's Discussion and Analysis for further detail.

Non-interest income was $2.4 billion in 2022 compared to $2.5 billion in 2021. The decrease was primarily driven by lower mortgage income and unfavorable market valuation adjustments on employee benefit assets. Non-interest income also includes insurance proceeds related to a settlement reached with the CFPB during the third quarter of 2022. See Table 4 "Non-Interest Income" for further details.

Non-interest expense was $4.1 billion in 2022 and $3.7 billion in 2021. The increase was driven by several expense categories, primarily salaries and employee benefits expense and professional, legal and regulatory expenses. The increase in professional, legal and regulatory expenses is related to the settlement with the CFPB discussed previously. These increases were partially offset by a loss on early extinguishment of debt in 2021. See Table 5 "Non-Interest Expense" for further details.

Regions' effective tax rate was 22.0 percent in 2022 compared to 21.6 percent in 2021. See the "Income Taxes" section for further details.

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

•"Operating Results" section of MD&A

•“Net Interest Income and Net Interest Margin” discussion within the “Operating Results” section of MD&A

•“Interest Rate Risk” discussion within the “Risk Management” section of MD&A

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Capital

Capital Actions

Regions participates in supervisory stress testing conducted by the Federal Reserve and its SCB is currently floored at 2.5 percent. See Note 14 "Shareholders' Equity and Accumulated Other Comprehensive Income (Loss)" to the consolidated financial statements for further details regarding CCAR results.

As part of the Company's capital plan, on April 21, 2021, the Board authorized the repurchase of up to $2.5 billion of the Company's common stock, permitting purchases from the second quarter of 2021 through the first quarter of 2022. On April 20, 2022, The Board authorized 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. In 2022, Regions repurchased approximately 8 million shares of common stock under these programs, which reduced shareholders' equity by $230 million.

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

•"Shareholders' Equity" discussion in MD&A

•"Regulatory Requirements" section of MD&A

•Note 14 "Shareholders' Equity and Accumulated Other Comprehensive Income (Loss)" to the consolidated financial statements

Regulatory Capital

Regions and Regions Bank are required to comply with regulatory capital requirements established by Federal and State banking agencies. Under the Basel III Rules, Regions is designated as a standardized approach bank. The Basel III Rules maintain the minimum guidelines for Regions to be considered well-capitalized for Tier 1 capital and Total capital at 6.0% and 10.0%, respectively. At December 31, 2022, Regions’ Tier 1 capital and Total capital ratios were estimated to be 10.91% and 12.54%, respectively.

The Basel III Rules also officially defined CET1. Regions' CET1 ratio at December 31, 2022 was estimated to be 9.60%.

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

•“Supervision and Regulation” discussion within Item 1. Business

•"Regulatory Requirements" section of MD&A

•Note 12 "Regulatory Capital Requirements and Restrictions" to the consolidated financial statements

Loan Portfolio and Credit

During 2022, total loans increased by $9.2 billion or 10.5 percent compared to 2021. The increase was primarily driven by an increase in the commercial portfolio of $7.0 billion, demonstrating significant growth through new loan production and an increase in line utilization. Also contributing to the increase was growth in the investor real estate and consumer portfolios of $1.4 billion and $876 million, respectively. The economy has been and will continue to be the primary factor which influences Regions’ loan portfolio. Refer to the "Portfolio Characteristics" section for further discussion.

Net charge-offs totaled $263 million, or 0.29 percent of average loans, in 2022, compared to $204 million, or 0.24 percent in 2021, reflecting increased net charge-offs in the other consumer loan portfolio driven by the sale of unsecured consumer loans at the end of the third quarter of 2022 and a full year of EnerBank charge-offs. Partially offsetting the increase were declines in the commercial and industrial and investor real estate mortgage charge-offs. The allowance was 1.63 percent of total loans, net of unearned income at December 31, 2022, a decrease from 1.79 percent at December 31, 2021. The coverage ratio of allowance to non-performing loans excluding held for sale was 317 percent at December 31, 2022, compared to 349 percent at December 31, 2021.

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

•Adjusted Net Charge-offs within the Table 1 "GAAP to Non-GAAP Reconciliations"

•"Portfolio Characteristics" section of MD&A

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

•“Provision for Credit Losses” discussion within the “Operating Results” section of MD&A

•“Loans,” “Allowance for Credit Losses,” “Troubled Debt Restructurings” and “Non-performing Assets” discussions within the “Balance Sheet Analysis” section of MD&A

•Note 4 "Loans" to the consolidated financial statements

•Note 5 "Allowance for Credit Losses" to the consolidated financial statements

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Liquidity

At the end of 2022, Regions Bank had $9.2 billion in cash on deposit with the Federal Reserve and the loan-to-deposit ratio was 74 percent. Cash and cash equivalents at the parent company totaled $1.6 billion. Cash at the Federal Reserve declined from December 31, 2021 as the Company used cash balances to fund loan growth and experienced a decline in deposits due to normalizing pandemic liquidity.

At December 31, 2022, the Company’s borrowing capacity with the Federal Reserve was $13.2 billion based on available collateral. Borrowing availability with the FHLB was $14.5 billion based on available collateral at the same date. Regions also maintains a shelf registration statement with the U.S. Securities and Exchange Commission that can be utilized by the Company to issue various debt and/or equity securities. Additionally, Regions' Board has authorized Regions Bank to issue up to $10 billion in aggregate principal amount of bank notes outstanding at any one time.

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

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

•“Supervision and Regulation” discussion within Item 1. Business

•“Borrowings” discussion within the “Balance Sheet Analysis” section of MD&A

•“Regulatory Requirements” section of MD&A

•“Liquidity” discussion within the “Risk Management” section of MD&A

•Note 11 "Borrowed Funds" to the consolidated financial statements

2023 Expectations

______

(1)Expectation for CET1 is to manage near the upper end of a 9.25-9.75% operating range over the near term.

(2)Expectation utilizes the December 31, 2022 forward interest rate curve.

The reconciliation with respect to these forward-looking non-GAAP measures is expected to be consistent with the actual non-GAAP reconciliations within Management's Discussion and Analysis of this Form 10-K. For more information related to the Company's 2023 expectations, refer to the related sub-sections discussed in more detail within Management's Discussion and Analysis of this Form 10-K.

GENERAL

The following discussion and financial information is presented to aid in understanding Regions’ financial position and results of operations. The emphasis of this discussion will be on operations for the years 2022 and 2021; in addition, financial information for prior years will also be presented when appropriate.

Regions’ profitability, like that of many other financial institutions, is dependent on its ability to generate revenue from net interest income as well as non-interest income sources. Net interest income is primarily the difference between the interest income Regions receives on interest-earning assets, such as loans, leases, investment securities and cash balances held at the FRB, 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, equipment and software expenses, occupancy, professional, legal and regulatory expenses, FDIC insurance assessments, and other operating expenses, as well as income taxes.

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Economic conditions, competition, new legislation and related rules impacting regulation of the financial services industry and the monetary and fiscal policies of the Federal government significantly affect most, if not all, financial institutions, including Regions. Lending and deposit activities and fee income generation are influenced by levels of business spending and investment, consumer income, consumer spending and savings, capital market activities, and competition among financial institutions, as well as customer preferences, interest rate conditions and prevailing market rates on competing products in Regions’ market areas.

Regions’ business strategy is focused on providing a competitive mix of products and services, delivering quality customer service, and continuing to develop and optimize distribution channels that include a branch distribution network with offices in convenient locations, as well as electronic and mobile banking.

Recent Acquisitions

On 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 "Sabal Acquisition" 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 "EnerBank Acquisition" section for more detail.

Business Segments

Regions provides traditional commercial, retail and mortgage banking services, as well as other financial services in the fields of asset management, wealth management, securities brokerage, and other specialty financing. Regions carries out its strategies and derives its profitability from three reportable segments: Corporate Bank, Consumer Bank, and Wealth Management, with the remainder in Other.

See Note 22 "Business Segment Information" to the consolidated financial statements for further information on Regions’ business segments.

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 net loan charge-offs", "adjusted net loan charge-offs as a percent of average loans, annualized", “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

Net loan charge-offs (GAAP) are presented excluding adjustments to arrive at adjusted net loan-charge offs (non-GAAP). Adjusted net loan charge-offs as a percentage of average loans (non-GAAP) are calculated as adjusted net loan charge-offs (non-GAAP) divided by average loans (GAAP) and annualized. 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-

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equivalent basis (non-GAAP) less the year over year percentage change in adjusted total non-interest expense (non-GAAP). 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 selected items does not represent the amount that effectively accrues directly to shareholders.

The following table provides: 1) a reconciliation of net loan charge-offs (GAAP) to adjusted net loan charge-offs (non-GAAP), 2) a computation of adjusted net loan charge-offs as a percentage of average loans, annualized (non-GAAP), 3) a reconciliation of non-interest expense (GAAP) to adjusted non-interest expense (non-GAAP), 4) a reconciliation of non-interest income (GAAP) to adjusted non-interest income (non-GAAP), 5) a computation of adjusted total revenue (non-GAAP), 6) a computation of adjusted total revenue on a taxable-equivalent basis (non-GAAP) and 7) presentation of the operating leverage ratio (GAAP) and the adjusted operating leverage ratio (non-GAAP).

Table 1—GAAP to Non-GAAP Reconciliations

_____

(1)At the end of the third quarter of 2022, the Company made the strategic decision to sell certain unsecured consumer loans. These loans were marked down to fair value through net charge-offs.

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

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_________

(1)The 2022 professional, legal and regulatory expense is related to the settlement of a previously disclosed matter with the CFPB. The Company received insurance proceeds related to this settlement. The 2021 and 2020 professional, legal and regulatory expenses are related to professional and legal expenses for acquisitions.

(2)The 2021 amount is related to an individual BOLI claim benefit. The 2020 amount is related to a gain on the exchange of BOLI policies.

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

CRITICAL ACCOUNTING ESTIMATES AND RELATED POLICIES

In preparing financial information, management is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses for the periods shown. The accounting principles followed by Regions and the methods of applying these principles conform with GAAP, regulatory guidance, where applicable, and general banking practices. Estimates and assumptions most significant to Regions are related primarily to the allowance for credit losses, fair value measurements, intangible assets (goodwill and other identifiable intangible assets), residential MSRs and income taxes, and are summarized in the following discussion and in the notes to the consolidated financial statements.

Allowance for Credit Losses

The allowance for credit losses (“allowance”) consists of two components: the allowance for loan losses and the reserve for unfunded credit commitments. Unfunded credit commitments include items such as letters of credit, financial guarantees and binding unfunded loan commitments. Regions determines its allowance in accordance with GAAP and applicable regulatory guidance.

See Note 1 "Summary of Significant Accounting Policies" and Note 5 "Allowance for Credit Losses" to the consolidated financial statements for information about areas of judgment and methodologies used in establishing the allowance.

The allowance is sensitive to a number of internal factors, such as modifications in the mix and level of loan balances outstanding, portfolio performance and assigned risk ratings. The allowance is also sensitive to external factors such as the general health of the economy, as evidenced by changes in interest rates, inflation, GDP, unemployment rates, changes in real

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estate demand and values, volatility in commodity prices, bankruptcy filings, health pandemics, government stimulus, and the effects of weather and natural disasters such as droughts, floods and hurricanes.

Management considers these variables and all other available information when establishing the final level of the allowance. These variables and others have the ability to result in actual loan losses that differ from the originally estimated amounts.

Changes in the factors used by management to determine the appropriateness of the allowance or the availability of new information could cause the allowance to be increased or decreased in future periods. In addition, bank regulatory agencies, as part of their examination process, may require changes in the level of allowance based on their judgments and estimates. Volatility in certain credit metrics is to be expected. Additionally, changes in circumstances related to individually large credits, commodity prices, or certain macroeconomic forecast assumptions may result in volatility. The scenarios discussed below, or other scenarios, have the ability to result in actual credit losses that differ, perhaps materially, from the originally estimated amounts. This analysis is not intended to estimate changes in the overall allowance, which would also be influenced by the judgment management applies to the modeled loss estimates to reflect uncertainty and imprecision based on then-current circumstances and conditions.

In June 2022, the FRB released its estimated modeled credit losses for Regions based on the December 31, 2021 balance sheet. The FRB estimated credit losses in its severely adverse scenario of $6.0 billion, or 6.9 percent. See the Federal Reserve stress test disclosures at "Item 1. Business - Capital Requirements" for more information regarding their assumptions in this stress test.

It is difficult to estimate how potential changes in any one economic factor might affect the overall allowance because a wide variety of factors and inputs are considered in the allowance estimate. Changes in the factors and inputs may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. However, to consider the impact of a hypothetical alternate economic forecast, Regions estimated the allowance using a scenario that was 1 standard deviation unfavorable to the expected scenario for each macroeconomic variable. This unfavorable scenario resulted in an allowance approximately 16 percent higher than the allowance using the expected scenario.

Similar to the scenarios above, it is difficult to estimate how potential changes in credit risk factors might affect the overall allowance because of the wide variety of credit risk factors that are considered in estimating the allowance. Changes in risk ratings may not occur at the same rate and may not be consistent across product or industry types. Regions conducted a separate sensitivity analysis considering deteriorating conditions for commercial and investor real estate portfolio factors by stressing key portfolio drivers relative to the baseline portfolio conditions. Regions stressed risk ratings by one downgrade for commercial and investor real estate loans. This scenario generated an increase in the modeled allowance of approximately $144 million for the commercial and investor real estate portfolios.

Fair Value Measurements

A portion of the Company’s assets and liabilities is carried at fair value, with changes in fair value recorded either in earnings or accumulated other comprehensive income (loss). These include debt securities available for sale, mortgage loans held for sale, equity investments (with and without readily determinable market values), residential MSRs and derivative assets and liabilities. From time to time, the estimation of fair value also affects other loans held for sale, which are recorded at the lower of cost or fair value. Fair value determination is also relevant for certain other assets such as foreclosed property and other real estate, which are recorded at the lower of the recorded investment in the loan/property or fair value, less estimated costs to sell the property. For example, the fair value of other real estate is determined based on recent appraisals by third parties and other market information, less estimated selling costs. Adjustments to the appraised value are made if management becomes aware of changes in the fair value of specific properties or property types. The determination of fair value also impacts certain other assets that are periodically evaluated for impairment using fair value estimates, including goodwill and other identifiable intangible assets.

Fair value is generally defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) as opposed to the price that would be paid to acquire the asset or received to assume the liability (an entry price), in an orderly transaction between market participants at the measurement date under current market conditions. While management uses judgment when determining the price at which willing market participants would transact when there has been a significant decrease in the volume or level of activity for the asset or liability in relation to “normal” market activity, management’s objective is to determine the point within the range of fair value estimates that is most representative of a sale to a third-party investor under current market conditions. The value to the Company if the asset or liability were held to maturity is not included in the fair value estimates.

A fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability, including the assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. Fair value is measured based on a variety of inputs the Company utilizes. Fair value may be based on quoted market prices for identical assets or liabilities traded in active markets (Level 1 valuations). If market

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prices are not available, quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market are used (Level 2 valuations). Where observable market data is not available, the valuation is generated from model-based techniques that use significant assumptions not observable in the market, but observable based on Company-specific data (Level 3 valuations). These unobservable assumptions reflect the Company’s own estimates for assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include option pricing models, discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability.

See Note 1 "Summary of Significant Accounting Policies" to the consolidated financial statements for a detailed discussion of determining fair value, including pricing validation processes.

Intangible Assets

Regions’ intangible assets consist primarily of the excess of cost over the fair value of net assets of acquired businesses (“goodwill”) and other identifiable intangible assets (primarily relationship assets, agency commercial real estate licenses and purchased credit card relationships). Goodwill totaled $5.7 billion at both December 31, 2022 and December 31, 2021. Goodwill is allocated to each of Regions’ reportable segments (each a reporting unit: Corporate Bank, Consumer Bank, and Wealth Management). Goodwill is tested for impairment on an annual basis as of October 1 or more often if events and circumstances indicate impairment may exist (refer to Note 1 "Summary of Significant Accounting Policies" to the consolidated financial statements for further discussion).

Accounting guidance permits the Company to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit exceeds its carrying value. If, based on the weight of the evidence, the Company determines it is more likely than not that the fair value exceeds book value, then an impairment test is not necessary. If the Company elects to bypass the qualitative assessment, or concludes that it is more likely than not that the fair value is less than the carrying value, an impairment test is performed. The estimated fair value of the reporting unit is compared to its carrying amount, including goodwill. To the extent that the estimated fair value of the reporting unit exceeds the carrying value, impairment is not indicated. Conversely, if the estimated fair value of the reporting unit is below its carrying amount, a loss (which could be material) would be recognized to reduce the carrying amount to the estimated fair value. The carrying value of equity for each reporting unit is determined from an allocation based upon risk weighted assets. Adverse changes in the economic environment, declining operations of the reporting unit, or other factors could result in a decline in the estimated implied fair value of goodwill.

The Company completed its annual goodwill impairment test as of October 1, 2022, by performing a qualitative assessment of goodwill at the reporting unit level to determine whether any indicators of impairment existed. In performing the qualitative assessment, the Company evaluated events and circumstances since the last impairment analysis, recent operating performance including reporting unit performance, changes in market capitalization, regulatory actions and assessments, changes in the business climate, company-specific factors, and trends in the banking industry. After assessing the totality of the events and circumstances, the Company determined that it is more likely than not that the fair value of the Corporate Bank, Consumer Bank, and Wealth Management reporting units exceed their respective carrying values. Therefore, a quantitative impairment test was deemed unnecessary. Refer to Note 9 "Intangible Assets" to the consolidated financial statements for additional discussion of goodwill.

Specific factors as of the date of filing the financial statements that could negatively impact the assumptions used in assessing goodwill for impairment include: a protracted decline in the Company’s market capitalization; adverse business trends resulting from litigation and/or regulatory actions; higher loan losses; forecasts of high unemployment levels; future increased minimum regulatory capital requirements above current thresholds (refer to Note 12 "Regulatory Capital Requirements and Restrictions" to the consolidated financial statements for a discussion of current minimum regulatory requirements); future federal rules and regulations (e.g., such as those resulting from the Dodd-Frank Act); and/or a significant protraction in the current level of interest rates.

Other identifiable intangible assets such as relationship assets, agency commercial real estate licenses and purchased credit card relationships, are reviewed at least annually (usually in the fourth quarter) for events or circumstances which could impact the recoverability of the intangible asset. These events could include loss of customer relationships, significant losses of credit card accounts and/or balances, increased competition or adverse changes in the economy. To the extent an other identifiable intangible asset is deemed unrecoverable, an impairment loss would be recorded to reduce the carrying amount. These events or circumstances, if they occur, could be material to Regions’ operating results for any particular reporting period but the potential impact cannot be reasonably estimated. As of December 31, 2022, the Company’s review indicated there was no impairment in the value of the intangible assets.

Residential Mortgage Servicing Rights

Regions has elected to measure and report its residential MSRs using the fair value method. Although sales of residential MSRs do occur, residential MSRs do not trade in an active market with readily observable market prices and the exact terms

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and conditions of sales may not be readily available, and are therefore Level 3 valuations in the fair value hierarchy previously discussed in the "Fair Value Measurements" section. Specific characteristics of the underlying loans greatly impact the estimated value of the related residential MSRs. As a result, Regions stratifies its residential mortgage servicing portfolio on the basis of certain risk characteristics, including loan type and contractual note rate, and values its residential MSRs using discounted cash flow modeling techniques. These techniques require management to make estimates regarding future net servicing cash flows, taking into consideration historical and forecasted residential mortgage loan prepayment rates, discount rates, escrow balances and servicing costs. Changes in interest rates, prepayment speeds or other factors impact the fair value of residential MSRs which impacts earnings. The carrying value of residential MSRs was $812 million at December 31, 2022. Based on a hypothetical sensitivity analysis, Regions estimates that a reduction in benchmark interest rates of 25 basis points and 50 basis points would reduce the December 31, 2022 fair value of residential MSRs by approximately 1 percent ($10 million) and 3 percent ($22 million), respectively. Conversely, 25 basis point and 50 basis point increases in these rates would increase the December 31, 2022 fair value of residential MSRs by approximately 1 percent ($9 million) and 2 percent ($17 million), respectively. Regions also estimates that an increase in servicing costs of approximately $10 per loan, or 16 percent, would result in a decline in the value of the residential MSRs by approximately $26 million.

The pro forma fair value analyses presented above demonstrates the sensitivity of fair values to hypothetical changes in primary mortgage rates and servicing costs. This sensitivity analysis does not reflect an expected outcome. Refer to Note 6 "Servicing of Financial Assets" to the consolidated financial statements for additional disclosure on residential mortgage servicing rights.

Income Taxes

Accrued income taxes are reported as a component of either other assets or other liabilities, as appropriate, in the consolidated balance sheets and reflect management’s estimate of income taxes to be paid or received. The Company is subject to income tax in the U.S. and multiple state and local jurisdictions. The tax laws and regulations in each jurisdiction are complex and may be subject to different interpretations by the Company and the relevant government taxing authorities. Therefore, the Company is required to exercise judgment in determining tax accruals and evaluating the Company’s tax positions, including evaluating uncertain tax positions.

Deferred income taxes represent the amount of future income taxes to be paid or received and are accounted for using the asset and liability method with the net balance reported in other assets or other liabilities, as appropriate, in the consolidated balance sheets. The Company determines the realization of deferred tax assets by considering all positive and negative evidence available, including the impact of recent operating results, future reversals of taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards and tax planning strategies. In projecting future taxable income, the Company utilizes forecasted pre-tax earnings, adjusts for the estimated temporary differences and incorporates assumptions, including the amounts of income allocable to taxing jurisdictions. Determining whether deferred tax assets are realizable is subjective and requires the use of significant judgment. A valuation allowance is provided when it is more-likely-than-not that some portion of the deferred tax asset will not be realized. The Company currently maintains a valuation allowance for certain state carryforwards.

The Company’s estimate of accrued income taxes, deferred income taxes and income tax expense can also change in any period as a result of new legislative or judicial guidance impacting tax positions, as well as changes in income tax rates and changes in operating activities. Any changes, if they occur, can be significant to the Company’s consolidated financial position, results of operations or cash flows.

See Note 1 "Summary of Significant Accounting Policies" and Note 19 "Income Taxes" to the consolidated financial statements for further details and discussion.

OPERATING RESULTS

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income is Regions’ principal source of income and is one of the most important elements of Regions’ ability to meet its overall performance goals. Both net interest income and net interest margin are influenced by market interest rates and in 2022, the FOMC increased the Fed funds rate by 425 basis points during the twelve months ended December 31, 2022.

Net interest income (taxable-equivalent basis) increased by $875 million in 2022 compared to 2021, and net interest margin increased by 51 basis points to 3.36 percent in 2022. The increases in net interest income and net interest margin were driven primarily by higher interest rates and the addition of higher-yielding consumer home improvement loans from the acquisition of EnerBank in the fourth quarter of 2021. Growth in average loan and average securities portfolio balances also contributed to the increase in net interest income. A decline in average cash balances, as a result of loan growth and a decline in deposits due to normalizing pandemic liquidity, also contributed to the increase in net interest margin. Increases in average interest-bearing deposit balances and costs partially offset the increases in net interest income and net interest margin, and a decline in PPP forgiveness income in 2022 also impacted net interest income.

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Regions' asset yields in 2022 were impacted by the high interest rate environment. The loan portfolio yield increased to 4.46 percent in 2022 from 4.11 percent in 2021. The Company's loan yields are primarily influenced by short-term interest rates such as 30-day LIBOR, which averaged 1.92 percent in 2022 compared to 0.10 percent in 2021. The increase in loan yields includes the transfer from higher cash-flow hedge income in 2021 to higher loan product yields in 2022, and is also attributable to the rise in short-term rates. Additionally, fixed-rate lending production and investment securities portfolio reinvestment, which contains significant residential fixed-rate exposure, benefited from higher long-term rates. The investment securities portfolio increased in yield to 2.20 percent in 2022 from 1.86 percent in 2021.

Funding costs remained well-controlled, but increased in 2022 to 0.23 percent compared to 0.12 percent in 2021. Deposit costs increased to 14 basis points for 2022 compared to 5 basis points for 2021 due primarily to higher interest rates coupled with a higher interest-bearing balance mix.

See also the "Market Risk-Interest Rate Risk" section in Management's Discussion and Analysis for additional information.

Table 2 "Consolidated Average Daily Balances and Yield/Rate Analysis" presents a detail of net interest income (on a taxable-equivalent basis), the net interest margin, and the net interest spread.

Table 2—Consolidated Average Daily Balances and Yield/Rate Analysis

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(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.

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(3)Interest income on debt securities includes hedging income of $41 million for the year ended December 31, 2022 and zero for the years ended December 31, 2021 and 2020. Hedging income for the year ended December 31, 2022 reflects strategies designed to accelerate hedge notional maturities through the use of pay fixed swaps. Benefits will migrate to cash flow hedges from loans in the first quarter of 2023.

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

(5)Interest income on loans, net of unearned income, includes hedging income of $140 million, $426 million, and $260 million for the years ended December 31, 2022, 2021 and 2020, respectively. Interest income on loans, net of unearned income, also includes net loan fees of $64 million, $152 million and $75 million for the years ended December 31, 2022, 2021 and 2020, respectively.

(6)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 0.14%, 0.05% and 0.16% for the years ended December 31, 2022, 2021 and 2020, respectively.

(7)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.

Table 3 "Volume and Yield/Rate Variances" provides additional information with which to analyze the changes in net interest income.

Table 3— Volume and Yield/Rate Variances

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Notes:

•The change in interest not due solely to volume or yield/rate has been allocated to the volume column and yield/rate column in proportion to the relationship of the absolute dollar amounts of the change in each.

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

The mix of earning assets can affect the interest rate spread. Regions’ primary types of earning assets are loans and investment securities. Certain types of earning assets have historically generated larger spreads; for example, loans typically generate larger spreads than other assets, such as securities or interest bearing deposits in other banks. Average earning assets in 2022 totaled $144.0 billion, an increase of $5.3 billion as compared to the prior year, primarily due to increases in loans, net of unearned income, and securities. These increases were partially offset by a decline in cash balances as a result of loan growth and deposit declines due to normalizing pandemic liquidity. See the "Loans", "Debt Securities", and "Cash and Cash Equivalents" sections for further details.

Average loans as a percentage of average earning assets were 64 percent and 61 percent in 2022 and 2021, respectively. The remaining categories of earning assets are shown in Table 2 "Consolidated Average Daily Balances and Yield/Rate Analysis". The proportion of average earning assets to average total assets, which was 90 percent in both 2022 and 2021, measures the effectiveness of management’s efforts to invest available funds into the most profitable earning vehicles. Funding for Regions’ earning assets comes from interest-bearing and non-interest-bearing sources. Another significant factor affecting the net interest margin is the percentage of earning assets funded by interest-bearing liabilities. The percentage of average earning assets funded by average interest-bearing liabilities was 57 percent in 2022 and 56 percent in 2021.

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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. During 2022, the provision for credit losses totaled $271 million and net charge-offs were $263 million. This compares to a benefit from credit losses of $524 million and net charge-offs of $204 million in 2021.

For further discussion and analysis of the total allowance for credit losses, see the "Allowance for Credit Losses" and “Risk Management” sections found later in this report. See also Note 5 "Allowance for Credit Losses" to the consolidated financial statements.

NON-INTEREST INCOME

Table 4—Non-Interest Income

_______

(1) In the third quarter of 2022, the Company settled a previously disclosed matter with the CFPB. The Company received an insurance reimbursement in the fourth quarter of 2022 related to the settlement.

(2) The 2021 amount is a gain on the sale of an equity investment, whereas the 2020 amount is a valuation gain on the investment that was sold in the first quarter 2021.

Service Charges on Deposit Accounts

Service charges on deposit accounts include overdraft fees, corporate analysis service charges, non-sufficient fund fees, and other customer transaction-related service charges. During the current year, service charges have been impacted by overdraft-related policy enhancements throughout 2022 and the elimination of non-sufficient fund fees in mid-June 2022.

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 slightly in 2022, driven primarily by higher commercial swap income, which benefited from positive credit/ debit valuation adjustments due to rate and spread movements. Additionally, capital markets income includes revenue from the fourth quarter 2021 acquisitions of Sabal and Clearsight. Offsetting these increases were declines in securities underwriting and placement fees and M&A advisory fees. M&A advisory fees were impacted by timing delays due to market volatility during 2022.

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 2022 was due primarily to lower mortgage production and sales as a result of higher market interest rates. The decline in production and sales was partially offset by an increase in servicing income and improvement in the valuation of mortgage servicing rights and related hedges. Mortgage income for 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.

Investment Services Fee Income

Investment services fee income represents income earned from investment advisory services. Investment services fee income increased during 2022 compared to 2021 due primarily to the rising interest rate environment, which has driven

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increases in fixed annuity rates and the related investment income. Also contributing was an increase in assets under management due to an increase in financial advisors.

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 2022 compared to 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 2022 compared to 2021 due to market volatility. The adjustments are offset in salaries and benefits and other non-interest expense.

Securities Gains (Losses), net

Net securities gains (losses) primarily result from the Company's asset/liability management process. See Table 6 "Debt Securities" section and Note 3 "Debt Securities" to the consolidated financial statements for more information.

Insurance Proceeds

Insurance proceeds recognized in 2022 were related to the settlement of a previously disclosed matter with the CFPB. See Note 23 "Commitments, Contingencies and Guarantees" for more detail.

Other Miscellaneous Income

Other miscellaneous income includes net revenue from affordable housing, valuation adjustments to equity investments (other than the item listed separately in Table 4 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 decreased in 2022 compared to 2021 primarily due to a decline in commercial loan and leasing related fee income, a decrease in SBIC income, and adjustments made in 2021 to increase the values of other equity investments.

NON-INTEREST EXPENSE

Table 5—Non-Interest Expense

Salaries and Employee Benefits

Salaries and employee benefits consist of salaries, incentive compensation, long-term incentives, payroll taxes, and other employee benefits such as 401(k), pension, and medical, life and disability insurance, as well as, expenses from liabilities held for employee benefit purposes. Salaries and employee benefits increased during 2022 compared to 2021 primarily due to a full year of expense related to the additional associates from acquisitions in the fourth quarter of 2021. There was also growth in full-time equivalent headcount during the year from 19,626 at December 31, 2021 to 20,073 at December 31, 2022. Also contributing to the increase were annual merit increases that occurred in the second quarter of 2022. These increases were partially offset by a decline in benefits expense.

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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 2022 compared to 2021 primarily due to a settlement reached with the CFPB in the third quarter of 2022 related to a previously disclosed matter. See Note 23 "Commitments, Contingencies and Guarantees" for more detail.

FDIC Insurance Assessments

FDIC insurance assessments increased during 2022 compared to 2021 due to higher FDIC premium expenses as a result of loan growth and declining cash balances.

Loss on Early Extinguishment of Debt

In 2021, Regions redeemed its 3.80% senior bank notes and incurred related early extinguishment pre-tax charges totaling $20 million.

INCOME TAXES

The Company’s income tax expense for the year ended 2022 was $631 million compared to income tax expense of $694 million for the same period in 2021, resulting in effective tax rates of 22.0% percent and 21.6% percent, respectively. See the "Executive 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.

See Note 1 "Summary of Significant Accounting Policies" and Note 19 "Income Taxes" to the consolidated financial statements for additional information about income taxes.

BALANCE SHEET ANALYSIS

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

Cash and Cash Equivalents

At December 31, 2022, cash and cash equivalents totaled $11.2 billion compared to $29.4 billion at December 31, 2021. The decrease was due primarily to a decrease in cash on deposit with the FRB partially offset by an increase in cash due from other banks. In 2022, the Company used cash balances to fund loan growth and experienced a decline in deposits. Also contributing to the decline in cash balances was securities purchases as a part of hedging and active cash management strategies. See the "Debt Securities", "Loans", "Liquidity", and "Deposits" sections for more information.

Debt Securities

Debt securities available for sale, which constitute the majority of the securities portfolio, are an important tool used to manage interest rate sensitivity and provide a primary source of liquidity for the Company. Regions maintains a highly rated securities portfolio consisting primarily of agency mortgage-backed securities. Regions’ investment policy emphasizes credit quality and liquidity. Debt securities rated in the highest category by nationally recognized rating agencies and debt securities backed by the U.S. Government and government sponsored agencies, both on a direct and indirect basis, represented approximately 96 percent of the investment portfolio at December 31, 2022. All other debt securities rated below AAA, not backed by the U.S. Government or government sponsored agencies, or which are not rated represented approximately 4 percent of total debt securities at December 31, 2022. The “Market Risk-Interest Rate Risk” and "Liquidity Risk" sections, found later in this report, further explain Regions’ interest rate and liquidity risk management practices.

The average life of the debt securities portfolio at December 31, 2022 was estimated to be 5.77 years, with a duration of approximately 4.81 years. These metrics compare with an estimated average life of 4.93 years and a duration of approximately 4.25 years for the portfolio at December 31, 2021.

The decrease in debt securities from year-end 2021 was primarily driven by declines in market valuations due to an increase in market interest rates. Regions made purchases of debt securities available for sale, in addition to normal reinvestment of maturities and paydowns, totaling approximately $2.8 billion consisting primarily of U.S. Treasury, federal agency, residential agency mortgage, and commercial agency mortgage-backed securities in 2022, which partially offset the market value declines. 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.

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See Note 3 "Debt Securities" to the consolidated financial statements for additional information.

Table 6 "Debt Securities" details the carrying values of debt securities, including both available for sale and held to maturity.

Table 6—Debt Securities

Table 7 "Relative Contractual Maturities" details the contractual maturities of debt securities, including held to maturity and available for sale, and the related weighted-average yields.

Table 7— Relative Contractual Maturities

_________

(1)The weighted-average yields are calculated on the basis of the yield to maturity based on the carrying value of each debt security. The yields presented in Table 2 are calculated based on the amortized cost of each debt security and yields earned throughout each year. Yields are calculated based on whole dollar amounts.

Loans Held For Sale

At December 31, 2022, loans held for sale totaled $354 million, consisting of $160 million of residential real estate mortgage loans, $153 million of commercial loans, $38 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 production and retention levels, as well as 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

GENERAL

Loans, net of unearned income, represented 71 percent of interest-earning assets as of December 31, 2022 compared to 60 percent as of December 31, 2021. Lending at Regions is generally organized along three portfolio segments: commercial loans (including commercial and industrial, and owner-occupied commercial real estate mortgage and construction loans), investor

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real estate loans (commercial real estate mortgage and construction loans) and consumer loans (residential first mortgage, home equity lines and loans, consumer credit card, other consumer—exit portfolios, and other consumer loans).

Table 8 illustrates a year-over-year comparison of loans, net of unearned income, by portfolio segment and class as of December 31, 2022 and 2021 and Table 9 provides information on selected loan maturities as of December 31, 2022:

Table 8—Loan Portfolio

Table 9— Loan Maturities

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Table 10- Loan Distribution by Rate Type

The following table shows the distribution of those loans with maturities greater than one year between predetermined and variable interest rate loans as of December 31, 2022:

_________

(1)The lending reported in variable rate disclosure is based upon the rate in the underlying lending agreements. For some lending arrangements, Regions enters into interest rate swap and floor agreements to manage overall cash flow changes related to interest rate risk exposure on variable rate loans. The agreements effectively modify the Company’s exposure to interest rate risk by utilizing receive fixed/pay variable interest rate swaps and interest rate floors. The impact of hedging is not considered within this disclosure.

Loans, net of unearned income, totaled $97.0 billion at December 31, 2022, an increase of $9.2 billion from year-end 2021 levels. Regions manages loan growth with a focus on risk management and risk-adjusted return on capital. Loan balances increased year over year primarily due to increases in the commercial and industrial, commercial investor real estate mortgage and residential first mortgage portfolio classes. See the "Executive Overview" section for details on expectations of loan growth in 2023.

PORTFOLIO CHARACTERISTICS

The following sections describe the composition of the portfolio segments and classes disclosed in Table 8, explain changes in balances from year-end 2021 and highlight the related risk characteristics. Regions believes that its loan portfolio is well diversified by product, client, and geography throughout its footprint. However, the loan portfolio may be exposed to certain concentrations of credit risk which exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, certain loan products, or certain regions of the country. See Note 4 "Loans" and Note 5 "Allowance for Credit Losses" to the consolidated financial statements for additional discussion.

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 $7.1 million or 16 percent 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 2022, commercial and industrial loan growth was broad-based and included increases in the real estate, financial services, information, manufacturing, and wholesale goods industries. The December 31, 2022 commercial and industrial loan balance included $135 million of PPP loans, a decrease of $613 million compared to year-end 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.

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The following table provides detail of Regions' commercial portfolio balances in selected industries as of December 31:

Table 11—Commercial Industry Exposure

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

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

(3)As customers' businesses evolve (e.g. up or down the vertical manufacturing chain), Regions may need to change the assigned business industry code used to define the customer relationship. When these changes occur, Regions does not recast the customer history for prior periods into the new classification because the business industry code used in the prior period was deemed appropriate. As a result, year over year changes may be impacted.

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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 $1.4 billion 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 $1.3 billion 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. The increase was 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 $4.0 billion in new loan originations were retained on the balance sheet through the year ended December 31, 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 $234 million in comparison to 2021 year-end balances, as payoffs and paydowns continue to outpace 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 December 31, 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.

Table 12—Home Equity Lines of Credit - Future Principal Payment Resets

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.

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.

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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 13—Estimated Current Loan to Value Ranges

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 $501 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 $270 million from year-end 2021 primarily driven by by increases in consumer home improvement loans partially offset by the sale of $1.2 billion of unsecured consumer loans at the end of the third quarter of 2022.

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 most consumer loans. For more information on credit quality indicators refer to Note 5 "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 $1.6 billion at both of December 31, 2022 and 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 by

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quarter from year-end 2021 to year-end 2022 are presented in Table 14 below. While many of these items overlap regarding impact, they are included in the category most relevant.

Table 14— Allowance Changes

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(1)This line item includes the net impact of portfolio growth, portfolio run-off, pay-downs, changes in the mix of total outstanding loans, and credit quality changes. This line item excludes the impact of PPP loans of $135 million as of December 31, 2022, $177 million as of September 30, 2022, $254 million as of June 30, 2022 and $437 million as of March 31, 2022, which are fully backed by the U.S. government and have an immaterial associated allowance.

(2)Includes pandemic-related qualitative adjustments.

(3)Includes an incremental provision for estimated hurricane-related loan losses of $20 million for the third quarter of 2022. The hurricane-related allowance was released in the fourth quarter of 2022.

(4)At the end of the third quarter of 2022, the Company sold certain unsecured consumer loans with an associated allowance of $94 million at the time of the sale. There was a $63 million fair value mark recorded through charge-offs in conjunction with the sale, which resulted in a net provision benefit of $31 million associated with the sale.

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The table below reflects a range of macroeconomic factors utilized in the Base forecast over the two-year R&S forecast period as of December 31, 2022. The unemployment rate is the most significant macroeconomic factor among the allowance models. The unemployment rate in the fourth quarter continued to be lower than the pre-pandemic levels with forecasted periods expected to remain relatively consistent.

Table 15— Macroeconomic Factors in the Forecast

In deriving its December 2022 forecast, Regions benchmarked its internal forecast with external forecasts and external data available. Regions' December 2022 baseline forecast weakened slightly compared to the September 2022 forecast driven by a slight decline in real GDP growth. The December 2022 baseline forecast continues to anticipate real GDP growth in 2023 supported primarily by consumer spending and business investments in equipment, machinery and intellectual property. While the baseline forecast continues to anticipate a strong HPI, quarter over quarter growth is expected to decelerate in 2023 compared to double-digit levels experienced in recent quarters. As measured by CPI, inflation is expected to remain above the FOMC's 2.0 percent target into 2024. Furthermore, ongoing disruptions in supply chains and shipping networks, monetary policy tightening, and heightened financial volatility provide significant uncertainty over the near-term forecast. See the "Economic Environment in Regions' Banking Markets" discussion in the "Executive Overview" section for additional information.

Credit metrics are monitored throughout each quarter in order to understand external macro-views, trends and industry outlooks, as well as Regions' internal specific views of credit metrics and trends. In the fourth quarter of 2022, asset quality continued to normalize, as expected, within certain select sectors of the commercial and consumer portfolios. Total net charge-offs declined $41 million, but increased $22 million excluding the impact of the consumer loan sale in the third quarter of 2022. Commercial and investor real estate criticized balances increased approximately $378 million, which included an increase in classified balances of $254 million compared to the third quarter of 2022. Non-performing loans, excluding held for sale, and non-performing assets both increased approximately $5 million compared to the third quarter of 2022. This normalization resulted in a modest increase to the modeled results in the allowance for credit losses.

Loan growth in the fourth quarter, much of which was in high quality risk rating categories, also contributed to the increase in the allowance for credit losses modeled results. Additionally, the fourth quarter allowance reflects the full release of the $20 million adjustment to the modeled results for Hurricane Ian established in the third quarter of 2022.

While Regions' quantitative allowance methodologies strive to reflect all risk factors, any estimate involves assumptions and uncertainties resulting in some level of imprecision. The qualitative framework has a general imprecision component which is meant to acknowledge that model and forecast errors are inherent in any modeling estimate. The December 31, 2022 general imprecision allowance decreased slightly compared to the third quarter of 2022 and reflects balanced risk in the economic forecast.

Based on the overall analysis performed, management deemed an allowance of $1.6 billion to be appropriate to absorb expected credit losses in the loan and credit commitment portfolios as of December 31, 2022.

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Details regarding the allowance and net charge-offs, including an analysis of activity from previous years' totals, are included in Table 16 "Allowance for Credit Losses".

Table 16—Allowance for Credit Losses

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(1)Regions adopted accounting guidance on January 1, 2020 and recorded the cumulative effect of the change in accounting guidance. See Note 1 for additional details.

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

Net charge-offs increased $59 million year-over-year, primarily driven by an increase in net charge-offs in the other consumer portfolio due to the sale of unsecured consumer loans at the end of the third quarter of 2022. See Table 1 "GAAP to Non-GAAP Reconciliations" for further details. Also contributing to the increase in other consumer net charge offs is $39 million in net charge-offs from the addition of the EnerBank portfolio for 2022 compared to $7 million in 2021. Partially offsetting the increase in net charge-offs were declines in the commercial and industrial and commercial investor real estate mortgage portfolios. See the "Executive Overview" section for details on expectations for net charge-offs in 2023.

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

Table 17—Allowance Allocation

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

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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 5 "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 ending December 31:

Table 18—Troubled Debt Restructurings

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The following table provides an analysis of the changes in commercial and investor real estate TDRs. TDRs with subsequent restructurings that meet the definition of a TDR are only reported as TDR additions in the period they were first modified. Other than resolutions such as charge-offs, foreclosures, payments, sales and transfers to held for sale, Regions may remove loans from TDR classification if the following conditions are met: the borrower's financial condition improves such that the borrower is no longer in financial difficulty, the loan has not had any forgiveness of principal or interest, the loan has not been restructured as an "A" note/"B" note, the loan has been reported as a TDR over one fiscal year-end and the loan is subsequently refinanced or restructured at market terms such that it qualifies as a new loan.

For the consumer portfolio, changes in TDRs are primarily due to additions from CAP modifications and outflows from payments and charge-offs. Given the types of concessions currently being granted under the CAP as detailed in Note 5 "Allowance for Credit Losses" to the consolidated financial statements, Regions does not expect that the market interest rate condition will be widely achieved.

Table 19—Analysis of Changes in Commercial and Investor Real Estate TDRs

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(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.

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NON-PERFORMING ASSETS

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

Table 20—Non-Performing Assets

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(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 $34 million at December 31, 2022 and $49 million at December 31, 2021.

Non-performing loans increased during 2022 driven primarily by increases in agriculture, business offices, and professional, scientific and technical services segments which were partially offset by improvements in the energy, restaurant, accommodation, and lodging, and utilities segments. 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.

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

Table 21— Analysis of Non-Accrual Loans