DBRS Downgrades Regions Financial Corp Senior Debt to “A”; Trend Negative

DBRS has today downgraded the long-term ratings of Regions Financial Corporation (Regions or the Company) to “A” from A (high) and its short-term rating to R-1 (low) from R-1 (middle). At the same time, DBRS downgraded the long-term ratings of Regions Bank to A (high) from AA (low) and confirmed its R-1 (middle) short-term rating. The trend for all long-term ratings and the Short-Term Instruments rating for Regions Bank are Negative. All FDIC guaranteed debt remains at AAA with a Stable trend.

Today’s rating actions conclude a Review with Negative Implications initiated by DBRS in November 2008. The downgrade reflects Regions struggle with steep asset quality deterioration over the past year (total net chargeoffs of 3.2% in Q4 2008) and DBRS’s expectation of further declines in credit quality going forward as indicated by the growth in near-term delinquencies (30 to 89 day past due loans of 1.93% at Q4 2008) . The Company’s revenues, income before tax and provisions (IBPT) and earnings are also likely to be subdued throughout 2009 according to DBRS.

Regions ratings are underpinned by its large, mostly core-funded community banking franchise in attractive markets of the South, Midwest and Texas. The ratings also reflect the strength of the Company’s top-tier deposit shares in many markets and earnings diversity from its brokerage, investment banking, trust and insurance agency businesses.

Credit losses on the Company’s $9 billion stressed residential homebuilder, home equity and condominium portfolios, particularly in Florida, have impacted earnings and while Regions has already charged-off a substantial amount of loans in this credit cycle, DBRS believes that material amounts of potential losses likely remain embedded in those and other portfolios. Positively, Regions moved aggressively in 2008 disposing of some of its most troubled residential construction and condominium loans including sales of over $600 million and moving almost $1 billion more to held-for-sale. DBRS expects that other portions of the commercial real estate (5.0 times tangible common equity), commercial & industrial (3.2 times TCE) and home equity portfolios (2.2 times TCE) will have elevated credit costs in 2009.

The Company’s performance, including revenues, net earnings, net interest margin and average deposits, has been declining over the past year with the near-term outlook under pressure given the extremely difficult operating environment. Net interest margin is likely to remain under pressure due to the Company’s asset sensitive balance sheet while fee income will likely be constrained with the investment climate in turmoil. To its credit, Regions has been proactive in expense control coming off savings from the AmSouth merger and beyond by scrutinizing every budget line item. While government programs have been helpful for the Company in providing liquidity, capital and strengthening the deposit base, they come at a cost which will also weigh on the Company’s earnings in the form of higher FDIC insurance costs and preferred share dividends. DBRS believes that the amalgamation of these stresses on Regions warrant the Negative trend. Continued credit deterioration and losses beyond IBPT and/or significant revenue declines could result in negative rating actions while stronger than expected loan quality and revenue generation could return the trend to Stable.

Regions has good liquidity and a disciplined approach to funding. Core deposits continue to fund most of the loan book and customer deposits grew in Q4 2008 but the cost of the deposit funding is high relative to its large bank peers. The Company’s capital levels are relatively strong with a 5.23% tangible common equity to tangible assets ratio and Tier 1 and Total Capital Ratios of 10.38% and 14.64%, respectively.

Regions Financial Corporation, a diversified financial services corporation headquartered in
Birmingham, Alabama, reported $146 billion in consolidated assets as of December 31, 2008

Note:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are Rating Banks and Bank Holding Companies Operating in the United States, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.