REGIONS FINANCIAL CORP (RF) FY 2023 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 2023 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

After full-year 2023 growth of 2.5 percent, Regions' baseline forecast anticipates real GDP growth of 2.6 percent in 2024. While the Company did not have recession as its base forecast for 2023, the economy outperformed expectations, reflecting marked improvement on the supply side of the economy that allowed for faster growth and decelerating inflation. Growth is expected to be somewhat restrained over the first half of 2024 before picking up over the second half of the year.

The labor market proved to be resilient in 2023. While the pace of job growth slowed over the course of the year, it was driven by a slower pace of hiring as opposed to a rising pace of layoffs. This pattern is expected to continue in 2024, with further slowing in the pace of job growth putting upward pressure on the unemployment rate, but the Company does not anticipate a significant, broad-based, and sustained spike in layoffs.

A slowing pace of job growth will lead to further deceleration in growth of aggregate labor earnings, but growth in labor earnings is expected to continue to outpace inflation, thus providing support for consumer spending. Household balance sheets remain notably healthy, and the preponderance of fixed-rate debt on household balance sheets has been a buffer against the effects of higher interest rates. Full-year 2024 growth in real consumer spending is expected to be slightly faster than 2023 growth.

Real business investment in equipment and machinery is expected to remain soft before picking up over the second half of 2024. At the same time, the wave of business spending on structures seen over much of 2023 is subsiding, to the point that real spending on structures is expected to offer little, if any, support for real GDP growth in 2024. After having been displaced by spending on structures in 2023, business investment in intellectual property products is expected to return to its usual role as the fastest growing segment of real business fixed investment.

Higher mortgage interest rates weighed on single family construction and sales in 2023, but sales of new single family homes proved to be more resilient than anticipated driven by a combination of still-significant pent-up demand for home purchases and the lack of existing single family homes for sale. While mortgage rates have started to decline, helping to ease affordability constraints, it will likely not do much to unlock inventories of existing homes for sale. Builders should fare better in 2024 and real residential fixed investment should be a modest support for top-line real GDP growth in 2024.

Further deceleration in inflation in 2024, driven by a slower pace of economic growth, a modestly rising unemployment rate, and the avoidance of disruptions to the supply side of the economy would be consistent with the FOMC beginning to cut the Fed funds rate even with inflation above their 2.0 percent target rate. The real, or, inflation-adjusted, current funds rate is meaningfully restrictive, and further deceleration in inflation without cuts in the Fed funds rate would effectively make policy more restrictive. As such, we expect four twenty-five basis point cuts in the Fed funds rate by year-end 2024.

Patterns of economic activity within the Regions footprint are expected to be broadly similar to those seen for the U.S. as a whole. A number of in-footprint states 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. If, as Regions anticipates, the broader economy slows and labor market conditions loosen, it could be that migration patterns will shift over coming quarters. Job growth for the Company's footprint as a whole is expected to be faster than that for the U.S. as a whole. Some of the metro areas which had, prior to the increase in mortgage interest rates, seen the largest increases in house prices could experience declining house prices, but continued robust population growth in these markets will help stem the extent of any such declines.

The continued economic uncertainty, as described above, impacted Regions' forecast utilized in calculating the ACL as of December 31, 2023. See the "Allowance" section for further information.

2023 Results

Regions reported net income available to common shareholders of $2.0 billion or $2.11 per diluted share in 2023 compared to net income available to common shareholders of $2.1 billion or $2.28 per diluted share in 2022.

Net interest income (taxable-equivalent basis) totaled $5.4 billion in 2023 compared to $4.8 billion in 2022. The net interest margin (taxable-equivalent basis) was 3.90 percent in 2023, reflecting a 54 basis point increase from 2022. The increase in net interest income was primarily driven by a significant increase in market interest rates and average loan growth. Deposit mix and pricing normalization combined with higher overall funding costs, which are expected in a rising rate environment, partially offset the increases in net interest income.

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The provision for credit losses totaled $553 million in 2023 compared to $271 million in 2022. The provision for credit losses was higher than net charge-offs by $156 million in 2023. The increase in the provision for credit losses was driven primarily by adverse risk migration and continued credit normalization, as well as a build in qualitative adjustments for incremental risk in higher risk portfolios. Refer to the "Allowance for Credit Losses" section of Management's Discussion and Analysis for further detail.

Non-interest income was $2.3 billion in 2023 compared to $2.4 billion in 2022. The decrease was primarily driven by lower capital markets income, service charges on deposit accounts and mortgage income partially offset by an increase in market valuation adjustments on employee benefit assets. See Table 4 "Non-Interest Income" for further details.

Non-interest expense was $4.4 billion in 2023 and $4.1 billion in 2022. The increase was driven by an increase in FDIC insurance assessments primarily related to the special assessment, operational losses, and salaries and employee benefits. These increases were partially offset by a decline in professional, legal and regulatory expenses related to a settled matter with the CFPB in 2022. See Table 5 "Non-Interest Expense" for further details.

Regions' effective tax rate was 20.5 percent in 2023 compared to 22.0 percent in 2022. 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

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.

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 the fourth quarter of 2023, Regions repurchased approximately 16 million shares of common stock under these programs, which reduced shareholders' equity by $252 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, 2023, Regions’ Tier 1 capital and Total capital ratios were estimated to be 11.57% and 13.35%, respectively.

The Basel III Rules also officially defined CET1. Regions' CET1 ratio at December 31, 2023 was estimated to be 10.26%.

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 2023, total loans increased by $1.4 billion or 1.4 percent compared to 2022. The increase was primarily driven by an increase in the consumer portfolio of $1.2 billion, with the combined balance of commercial and investor real estate loans also increasing by $198 million. The increase in consumer loans reflects growth in residential first mortgage and in other consumer loans, which was driven by consumer home improvement loans. Refer to the "Portfolio Characteristics" section for further discussion.

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Net charge-offs totaled $397 million, or 0.40 percent of average loans, in 2023, compared to $263 million, or 0.29 percent in 2022, with both periods reflecting an increase in consumer charge-offs due to the sale of loan portfolios. In 2023 and 2022, adjusted net charge-offs (non-GAAP) totaled $362 million, or 0.37 percent, and $200 million, or 0.22 percent, respectively. See Table 1 "GAAP to Non-GAAP Reconciliations for additional information. Commercial and industrial net charge-offs also increased from 2022 to 2023. The allowance was 1.73 percent of total loans, net of unearned income at December 31, 2023, an increase from 1.63 percent at December 31, 2022. The coverage ratio of allowance to non-performing loans excluding held for sale was 211 percent at December 31, 2023, compared to 317 percent at December 31, 2022.

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,” 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

Liquidity

At the end of 2023, Regions Bank had $4.2 billion in cash on deposit with the Federal Reserve Bank and the loan-to-deposit ratio was 77 percent. Cash and cash equivalents at the parent company totaled $1.9 billion. Cash at the Federal Reserve declined from December 31, 2022 due to an expected decline in deposits, as well as growth in loans.

At December 31, 2023, the Company’s borrowing capacity with the Federal Reserve was $21.3 billion based on available collateral. Borrowing availability with the FHLB was $15.1 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

2024 Expectations

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(1)Expectation for CET1 is to continue to manage around 10 percent over the near term.

(2)Expectation for net interest income assumes stable or lower short-term interest rates; flat long-term rate held at December 31, 2023 levels.

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 2024 expectations, refer to the related sub-sections discussed in more detail within Management's Discussion and Analysis of this Form 10-K.

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GENERAL

The following discussion and financial information is presented to aid in understanding Regions’ financial position and results of operations. The emphasis of this discussion will be on operations for the years 2023 and 2022; 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 Federal Reserve Bank, 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.

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.

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", and "adjusted total revenue, taxable-equivalent basis". 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

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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).

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), and 6) a computation of adjusted total revenue on a taxable-equivalent basis (non-GAAP).

Table 1—GAAP to Non-GAAP Reconciliations

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(1)In the fourth quarter of 2023, the Company sold substantially all of its portfolio of a third party relationship. At the end of the third quarter of 2022, the Company made the strategic decision to sell certain unsecured consumer loans. For both of these transactions, the loans were marked to fair value through charge-offs.

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

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_________

(1)See the "Executive Overview" for 2024 expectations for adjusted non-interest income and non-interest expense.

(2)In the third quarter of 2022, the Company incurred settlement expenses related to a previously disclosed matter with the CFPB. The Company received insurance proceeds related to this settlement. The 2021 professional, legal and regulatory expenses are related to professional and legal expenses for acquisitions.

(3)The 2021 amount is related to an individual BOLI claim benefit.

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 changes 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 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.

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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.

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 one 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 $185 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 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

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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 and agency commercial real estate licenses). Goodwill totaled $5.7 billion at both December 31, 2023 and December 31, 2022. 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).

The Company completed its annual goodwill impairment test as of October 1, 2023; the Company elected to bypass the qualitative assessment and performed a quantitative assessment of goodwill at the reporting unit level to determine whether the fair value exceeded the carrying value. In performing the quantitative assessment, the estimated fair value of the reporting unit was determined using a blend of both income and market approaches.

The results of the goodwill impairment test did not require Regions to record a goodwill impairment charge as all three reporting units continued to have a fair value in excess of carrying value.

Other identifiable intangible assets such as relationship assets and agency commercial real estate licenses 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, 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, 2023, the Company’s review indicated there was no impairment in the value of the other identifiable 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 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. Refer to Note 6 "Servicing of Financial Assets" to the consolidated financial statements for quantitative disclosures reflecting the effect that changes in management's assumptions would have on the fair value of residential MSRs.

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-

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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. In 2023, balance sheet and net interest income performance were the result of post-pandemic normalization and tightening monetary policy, including a higher interest rate environment. Both net interest income and net interest margin are influenced by market interest rates and the FOMC increased the Fed funds rate by 100 basis points during the year ended December 31, 2023. See the "Executive Overview" for a discussion of recent FOMC activity and expectations for 2024 net interest income that incorporates anticipated FOMC activity.

Net interest income (taxable-equivalent basis) increased by $538 million in 2023 compared to 2022, and net interest margin increased by 54 basis points to 3.90 percent in 2023. The increases in net interest income and net interest margin were driven primarily by significantly higher short-term and long-term market interest rates and average loan growth. The loan portfolio yield, inclusive of hedging impacts, increased to 5.86 percent in 2023 from 4.46 percent in 2022. The Company's loan yields are primarily influenced by short-term interest rates such as 30-day term SOFR, which averaged 4.98 percent in 2023 compared to 1.46 percent in 2022. Additionally, fixed-rate lending production which contains significant residential mortgage fixed-rate exposure, benefited from higher middle and long-term rates. While the Company temporarily slowed reinvestment within the investment securities portfolio for much of 2023, it had returned to full reinvestment by the fourth quarter. The investment securities portfolio benefited from rising rates, with the yield increasing to 2.38 percent in 2023 from 2.20 percent in 2022.

Deposit and funding cost normalization, which are expected in a rising rate environment and were further influenced by bank industry stresses during the year, partially offset the increases in net interest income and net interest margin driven by loans and investment securities. In 2023, funding costs, which includes deposits and wholesale borrowings utilized during the year, increased to 1.19 percent compared to 0.23 percent in 2022. The increase in funding costs includes the impact of deposit remixing as depositors moved into higher interest earning products. Deposit costs increased to 99 basis points for 2023 compared to 14 basis points for 2022.

Additionally, net interest margin benefited from earning asset remixing out of cash balances held with the Federal Reserve Bank, which are the primary component of interest-bearing deposits in other banks shown in Table 2. In 2022, elevated cash balances were held to fund anticipated, post-pandemic deposit outflows, reducing the net interest margin in that period. Cash balances largely returned to normal levels by the end of 2023.

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

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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.

(3)Interest income on debt securities includes hedging expense of $1 million, hedging income of $41 million, and zero for the years ended December 31, 2023, 2022 and 2021, respectively. 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 migrated 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 expense of $236 million and hedging income of $140 million and $426 million for the years ended December 31, 2023, 2022, and 2021, respectively. Interest income on loans, net of unearned income, also includes net loan fees of $130 million, $109 million and $154 million for the years ended December 31, 2023, 2022 and 2021, 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 equaled 0.99% , 0.14% and 0.05% for the years ended December 31, 2023, 2022 and 2021, 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.

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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

______

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.

Annual changes in net interest income are due to changes in the interest rate environment, product pricing, balance sheet mix, and balance sheet growth. Over recent years, changes in the interest rate environment and the impact on product pricing and mix has been the primary contributor to changes in net interest income. 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 2023 totaled $137.9 billion, a decrease of $6.1 billion as compared to the prior year, primarily due to a decrease in interest-bearing deposits in other banks offset by a growth in loans, net of unearned income. See the "Loans", "Debt Securities", and "Cash and Cash Equivalents" sections for further details.

Average loans as a percentage of average earning assets was 71 percent and 64 percent in 2023 and 2022, 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 2023 and 2022, measures the effectiveness of management’s efforts to invest available funds into the most profitable earning instruments.

The mix of interest-bearing liabilities can also affect the interest spread. Funding for Regions’ earning assets comes from interest-bearing and non-interest-bearing sources. As previously discussed, in 2023 the Company experienced deposit balance declines and remixing into higher interest bearing deposit categories. As the percentage of earning assets funded by deposits declined during the year, the Company utilized short and long-term wholesale borrowings. The changes to interest-bearing liabilities partially offset increases to net interest income and margin.

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PROVISION FOR (BENEFIT FROM) CREDIT LOSSES

The provision for credit losses is used to maintain the allowance for loan losses and the reserve for unfunded credit losses at a level that in management's judgment is appropriate to absorb expected credit losses over the contractual life of the loan and credit commitment portfolio at the balance sheet date. During 2023, the provision for credit losses totaled $553 million and net charge-offs were $397 million. This compares to a provision for credit losses of $271 million and net charge-offs of $263 million in 2022.

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

_______

NM - Not Meaningful

(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.

Service Charges on Deposit Accounts

Service charges on deposit accounts include overdraft fees, treasury management fees and other customer transaction-related service charges, and, prior to mid-2022, non-sufficient fund fees. Service charges decreased in 2023 compared to 2022, primarily as a result of overdraft-related policy enhancements that eliminated non-sufficient fund fees in mid-June 2022. Additionally, in the second quarter of 2023, the Company added an overdraft grace feature, which compliments the overdraft-related policy enhancements and contributed to the decrease. An increase in fees from treasury management services partially offset the overall decline in service charges.

On October 25, 2023, the Federal Reserve issued a proposal for public comment that, if finalized, would lower the maximum interchange fee that a large debit card issuer can receive for a debit card transaction. Under the proposed rule the maximum interchange fee would be subject to adjustments every other year based upon issuer cost data. The Company is studying the proposal and evaluating its impact.

On January 17, 2024, the CFPB issued a proposal for public comment that, if finalized, would cap overdraft fees in line with established benchmarks ranging between $3-$14 or their actual costs. Alternatively, an institution could calculate its own fee to break even. The Company is studying the proposal and evaluating its impact.

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 decreased in 2023 compared to 2022, driven primarily by negative credit/debit valuation adjustments in 2023 due to rate and spread movements. To a lesser degree, capital markets income was negatively impacted by declines in merger and acquisition advisory services and syndication revenue. Partially offsetting these decreases were increases in securities underwriting and placement fees and real estate capital markets revenue in 2023 compared to 2022.

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Mortgage Income

Mortgage income is generated through the origination and servicing of residential mortgage loans for long-term investors and sales of residential mortgage loans in the secondary market. The decrease in mortgage income in 2023 was due primarily to lower mortgage production and sales as a result of higher market interest rates. The decrease was also a result of amortization of mortgage servicing rights. Additionally, mortgage income for 2022 included approximately $12 million in gains associated with the re-securitization and sale of Ginnie Mae loans previously repurchased from their pools. Partially offsetting the declines was an increase in servicing income associated with a bulk purchase of the rights to service $6.2 billion of residential mortgage loans in the third quarter of 2023.

Investment Services Fee Income

Investment services fee income represents income earned from investment advisory services. Investment services fee income increased during 2023 compared to 2022 due primarily to the rising interest rate environment, which has driven increases in fixed annuity rates and the related investment income. Also contributing were increases in assets under management due to additional 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 income increased during 2023 compared to 2022 driven primarily by improvement in underlying crediting rates as a result of an overall increase in interest rates.

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. The adjustments are offset in salaries and benefits and other non-interest expense.

Insurance Proceeds

Insurance proceeds recognized in 2022 were related to the settlement of a previously disclosed matter with the CFPB.

Other Miscellaneous Income

Other miscellaneous income includes net revenue from affordable housing, valuation adjustments to equity investments, 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.

NON-INTEREST EXPENSE

Table 5—Non-Interest Expense

_______

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

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for employee benefit purposes. Salaries and employee benefits increased during 2023 compared to 2022 primarily due to increases in base salaries, higher benefit expenses, and, to a lesser degree, an increase in severance costs in the second half of the year. These increases were offset by a decline in incentive compensation. Full-time equivalent headcount was relatively flat at December 31, 2023 as compared to December 31, 2022.

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 decreased during 2023 compared to 2022 due to a settled matter with the CFPB in 2022. See Note 23 "Commitments, Contingencies and Guarantees" in the Annual Report on Form 10-K for the year ended December 31, 2022 for more detail.

FDIC Insurance Assessments

FDIC insurance assessments increased in 2023 compared to 2022 primarily resulting from a special assessment recorded in 2023 (discussed below) and a two basis point increase in the quarterly assessment rate schedules charged to all financial institutions effective for the first quarter of 2023.

Federal law requires that any losses to the FDIC’s DIF related to the protection of uninsured depositors under the Systemic Risk Exception be repaid by a special assessment on IDIs. In the fourth quarter of 2023, the FDIC finalized a special assessment related to the two March 2023 bank failures, totaling an estimated $16.3 billion. The rule requires the estimated amount of the entire special assessment be recognized as the accrual of a liability and related expense in the fourth quarter of 2023 pursuant to accounting guidance. The special assessment for Regions is estimated at approximately $119 million to be paid in eight quarterly installments beginning in the first quarter of 2024, which was accrued in the fourth quarter and should be deductible for income taxes.

Operational Losses

Operational losses include losses related to fraud, execution, delivery and process management, and damage to physical assets. Operational losses increased in 2023 compared to 2022 due to elevated check-related fraud losses experienced primarily during the second and third quarters of 2023.

Other Miscellaneous Expenses

Other miscellaneous expenses include expenses related to communications, postage, supplies, certain credit-related costs, foreclosed property expenses, mortgage repurchase costs, and other costs (benefits) related to employee benefit plans. Other miscellaneous expenses increased in 2023 compared to 2022 primarily due to higher non-service based pension-related expenses and, to a lesser degree, higher fees associated with licenses and taxes.

INCOME TAXES

The Company’s income tax expense for the year ended 2023 was $533 million compared to $631 million for the same period in 2022, resulting in effective tax rates of 20.5% and 22.0%, respectively. The decrease in the effective tax rate for 2023 is due to lower pre-tax income for the year as compared to 2022 causing the impact of tax preferential items to increase, as well as increased tax benefits related to investments in affordable housing in 2023 as compared to 2022. See the "Executive Overview" for the Company's expectations for the 2024 effective tax rate.

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 December 31, 2023, the Company reported a net deferred tax asset of $741 million compared to $943 million at December 31, 2022. The change in the net deferred tax position was due primarily to the deferred tax impact of decreases in unrealized losses on securities for sale and derivative instruments arising during the period.

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

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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, 2023, cash and cash equivalents totaled $6.8 billion compared to $11.2 billion at December 31, 2022. The decrease was due primarily to a decrease in cash balances on deposit with the Federal Reserve Bank driven by an expected decline in deposits and growth in loans. See the "Loans", "Deposits", and "Liquidity" sections for more information.

DEBT SECURITIES

Debt securities available for sale, comprising 21 percent of earning assets, constitute approximately 97 percent of the securities portfolio. Regions maintains a highly-rated securities portfolio consisting primarily of agency MBS. 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, 2023. 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, 2023. Debt securities increased $124 million from year-end 2022, as detailed below in Table 6 . In 2023, Regions temporarily slowed reinvestment but returned to full reinvestment in the fourth quarter of 2023.

The average life of the debt securities portfolio at December 31, 2023 was estimated to be 5.5 years, with a duration of approximately 4.5 years. These metrics compare with an estimated average life of 5.8 years and a duration of approximately 4.8 years for the portfolio at December 31, 2022.

Debt securities are an important tool used to manage interest rate sensitivity and provide a primary source of liquidity for the Company, as much of the portfolio is highly liquid. Additionally, some of the securities portfolio is eligible to be used as collateral for funding of various types of borrowings. See the "Liquidity" section for more information on these arrangements. See Note 3 "Debt Securities" to the consolidated financial statements for additional information. Also see the "Market Risk-Interest Rate Risk" section for more information.

The following table details the carrying values of debt securities, including both available for sale and held to maturity as of December 31:

Table 6—Debt Securities

Subsequent to December 31, 2023, the Company sold approximately $1.3 billion of debt securities available for sale, realizing $50 million in pre-tax losses. Proceeds were reinvested at higher current market yields. The portfolio mix, duration, and liquidity profile were largely unchanged.

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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

The following table presents Regions’ loans held for sale by type as of December 31:

Table 8—Loans Held for Sale

Commercial loans held for sale include commercial 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. The levels of residential first 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.

LOANS

GENERAL

Loans, net of unearned income, represented 74 percent of interest-earning assets as of December 31, 2023 compared to 71 percent as of December 31, 2022. Lending at Regions is generally organized along three portfolio segments: commercial loans (including commercial and industrial, and owner-occupied commercial real estate mortgage and construction loans), investor real estate loans (commercial real estate mortgage and construction loans) and consumer loans (residential first mortgage, home equity lines and loans, consumer credit card, other consumer—exit portfolios, and other consumer loans). See the "Executive Overview" for expectations for loans in 2024.

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Table 9 illustrates a year-over-year comparison of loans, net of unearned income, by portfolio segment and class as of December 31, 2023 and 2022 and Table 10 provides information on selected loan maturities as of December 31, 2023:

Table 9—Loan Portfolio

Table 10— Loan Maturities

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Table 11- 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, 2023:

_________

(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.

PORTFOLIO CHARACTERISTICS

Loans, net of unearned income, increased $1.4 billion year over year, primarily due to increases in the investor real estate, residential first mortgage and other consumer portfolio classes. Regions manages loan growth with a focus on risk management and risk-adjusted return on capital. See the "Executive Overview" section for details on average loan growth expectations for 2024.

The following sections describe the composition of the portfolio segments and classes disclosed in Table 9, explain changes in balances from year-end 2022 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, and certain loan products. 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.

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 Table 12. The Company manages the related risks to this portfolio by setting certain lending limits for each significant industry. In 2023, total commercial loans decreased $273 million. The decline in commercial loan activity was the result of soft loan demand and was broad-based across industries as shown in Table 12.

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The following tables provide detail of Regions' commercial lending balances in selected industries as of December 31:

Table 12—Commercial Industry Exposure

_______

(1)Real estate includes REITs, which are unsecured commercial and industrial products that are real estate related. This portfolio, which accounts for approximately 18 percent of the total commercial exposure, is well diversified, generally has low leverage with strong access to liquidity, and the REITs included in this portfolio are primarily investment or near investment grade.

(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 $471 million in comparison to year-end 2022, primarily due to increases in fundings under previous commitments.

The Company's total non-owner-occupied commercial real estate lending consists of both unsecured commercial and industrial loans that are real estate related (including REITs) and investor real estate loans and are considered to be well diversified across property types. The following table provides detail of these loans:

Table 13— Unsecured Commercial Real Estate and Investor Real Estate Exposure

_______

(1)Amounts calculated based on whole dollar values.

(2)Apartments, often referred to as multi-family, represented 4.1 percent of total loans at December 31, 2023. Approximately 90 percent of these loans were secured, with approximately 80 percent of the secured loans located in the Sunbelt region of the U.S.

(3)Business offices represented 1.5 percent of total loans at December 31, 2023. Approximately 90 percent of these loan were secured, with approximately 60 percent of the secured loans located in the Sunbelt region of the U.S.

(4)Senior housing loans are included within the Healthcare portfolio and represented 1.4 percent of total loans at December 31, 2023.

(5)Owner-occupied commercial real estate is not included as the principal source of repayment is individual businesses, which more closely aligns with the commercial portfolio credit performance.

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. Total residential first mortgage loans increased $1.4 billion in comparison to year-end 2022 balances, driven by approximately $2.8 billion in new loan originations retained on the balance sheet in 2023.

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 $289 million in comparison to year-end 2022 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.

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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, 2023. 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 14—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.

The following table presents current LTV data for components of the residential first mortgage, home equity lines and home equity loans classes of the consumer portfolio segment. Current LTV data for some loans in the portfolio is not available due to mergers and systems integrations. The amounts in the table represent the entire loan balance. For purposes of the table below, if the loan balance exceeds the current estimated collateral the entire balance is included in the “Above 100%” category, regardless of the amount of collateral available to partially offset the shortfall.

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Table 15—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 include 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 balances have been in run-off. Additionally, in the fourth quarter of 2023, the Company sold substantially all of its unsecured consumer loans in this portfolio totaling approximately $300 million, which was the primary driver of the $527 million decrease from year-end 2022.

Other Consumer

Other consumer loans primarily include indirect and direct consumer loans, overdrafts and other revolving loans. Other consumer loans increased $548 million from year-end 2022 primarily driven by increases in consumer home improvement loans.

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. The allowance totaled $1.7 billion as of December 31, 2023 compared to $1.6 billion at December 31, 2022, 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 quarter are presented in Table 16 below. While many of these items overlap regarding impact, they are included in the category most relevant.

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Table 16— Allowance Changes

_______

(1)See Note 1 for additional information.

(2)This line item includes the net impact of portfolio growth, portfolio run-off, pay-downs, charge-offs, changes in the mix of total outstanding loans, changes to specific reserves and credit quality changes.

(3)In the fourth quarter of 2023, the Company sold substantially all of its portfolio of a third-party relationship with an associated allowance of $27 million at the time of the sale. As discussed before Table 18 below, there was a $35 million fair value mark recorded through charge-offs, which resulted in a net provision expense of $8 million associated with the sale.

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, 2023. The unemployment rate is the most significant macroeconomic factor among the allowance models and continues to be at a normalized level with forecasted periods expected to remain relatively consistent.

Table 17— Macroeconomic Factors in the Forecast

In deriving any forecast, Regions benchmarks its internal forecast with external forecasts and external data available. Regions' December 2023 baseline forecast indicated overall improvement compared to the September 2023 forecast. Slower

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growth in consumer spending and reduced business investment in equipment, machinery and structures were drags on real GDP growth in the fourth quarter of 2023. The trend of job growth is slowing, and the baseline forecast anticipates further deceleration into 2024. The unemployment rate is expected to increase modestly over the forecast horizon, with the increase constrained by the labor force participation rate remaining below pre-pandemic levels. As measured by CPI, inflation is expected to slow further but remain above the FOMC's 2.0 percent target through 2024. The risks to the baseline forecast are considered to be balanced. 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 2023, asset quality continued to normalize, as expected. Commercial and investor real estate criticized balances increased approximately $492 million, which included an increase in classified balances of $135 million compared to the third quarter of 2023. Non-performing loans, excluding held for sale, and non-performing assets increased approximately $163 million and $164 million, respectively, compared to the third quarter of 2023. Total net charge-offs increased by 14 basis points to 0.54% of average loans; however, excluding the impact of charge-offs associated with the fourth quarter sale of unsecured consumer loans, adjusted net charge-offs (non-GAAP) decreased one basis point compared to the third quarter of 2023. See Table 1 "GAAP to Non-GAAP Reconciliations" for further details, and Table 20 for more details regarding non-performing assets.

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. In the fourth quarter of 2023, the general imprecision remained stable.

Based upon the factors discussed above, the December 31, 2023 allowance increased compared to the third quarter of 2023 due to adverse risk migration and continued credit normalization, as well as a build in qualitative adjustments for incremental risk in higher risk portfolios (see further discussion in Table 20 below). Based on the overall analysis performed, management deemed an allowance of $1.7 billion to be appropriate to absorb expected credit losses in the loan and credit commitment portfolios as of December 31, 2023.

Net charge-offs increased $134 million year-over-year, primarily driven by an increase in commercial and industrial net charge-offs resulting from expected normalization. The increase in other consumer—exit portfolios charge-offs includes $35 million in net charge-offs from the sale of unsecured consumer loans. Additionally, net charge-offs for 2022 include $63 million in net charge-offs in the other consumer portfolio due to the sale of unsecured consumer loans. See Table 1 "GAAP to Non-GAAP Reconciliations" for further details. 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 in 2024 and beyond. See the "Executive Overview" section for details on expectations for net charge-offs in 2024.

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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 18 "Allowance for Credit Losses".

Table 18—Allowance for Credit Losses

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_______

(1)See Note 1 for additional information.

(2)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 19—Allowance Allocation

_____

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

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NON-PERFORMING ASSETS

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

Table 20—Non-Performing Assets

_________

(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, 2023 and $34 million at December 31, 2022.

Non-performing loans at December 31, 2023 increased $305 million as compared to year-end 2022 levels as a result of continued asset quality normalization and downgrades within industries previously identified as higher risk such as information, healthcare, transportation and warehousing, and office industries partially offset by improvement in agriculture. The same economic trends that impact net charge-offs, as discussed above, 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