DBRS Morningstar Confirms Regions Financial Corporation’s Long-Term Issuer Rating at ‘A’; Trend Stable

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of Regions Financial Corporation (Regions or the Company), including the Company’s Long-Term Issuer Rating of ‘A’. At the same time, DBRS Morningstar confirmed the ratings of its primary banking subsidiary, Regions Bank (the Bank) including its Long-Term issuer Rating of A (high). The trend for all ratings at the Company and the Bank are Stable. The Intrinsic Assessment (IA) for the Bank is A (high), while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY CREDIT RATING CONSIDERATIONS
The confirmation of Regions’ ratings and maintenance of the Stable trends reflect the Company’s diversified banking franchise, strong pre-provision profitability levels and sound risk management practices. Additionally, Regions banking franchise includes a retail banking presence in 15 states, along with other businesses with a broader geographic reach. Regions has been investing in its business with bolt-on acquisitions that provide additional fee revenue and asset generation capabilities. The ratings are also supported by Region’s strong balance sheet, including ample low-cost core deposit funding, as well as sound capital levels.

The ratings also consider the weakening economic outlook and the expectation that earnings and asset quality may modestly weaken from their current levels. However, we view Regions as able to manage through this period given its mix of businesses and previous steps it had taken to reduce its risk profile and hedge its balance sheet.

CREDIT RATING DRIVERS
Over the longer term, further strengthening of the franchise, while achieving a top tier operating earnings performance and a similar risk profile, would result in an upgrade of the ratings. Conversely, a sustained weakening of profitability metrics, or an outsized increase in credit losses, would result in a ratings downgrade. Additionally, funding challenges or an inability to retain deposits would lead to a downgrade of ratings.

CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Strong / Good
Regions is a diversified provider of consumer and commercial banking, wealth management, and mortgage products and services. Regions is the 19th largest banking company in the U.S. by deposits, with operations in the South, Midwest and Texas as well as some businesses with greater (national or multi-regional) geographic scope.

Earnings Combined Building Block (BB) Assessment: Strong / Good
Regions’ earnings power has improved as initiatives to grow and diversify revenues, as well as expense control , have produced results. Additionally, Regions’ hedging program has helped to stabilize the net interest margin. The Company’s results thus far in 2023 have been boosted by higher interest rates enabling the Company to grow pre-provision net income. Regions reported net income of $1.68 billion for 9M23, up 8% from $1.56 billion earned in 9M22. Results equated to strong returns despite the more challenging operating environment

Risk Combined Building Block (BB) Assessment: Strong
Regions’ overall risk profile remains sound. DBRS Morningstar views the risk profile as much improved compared to pre-financial crisis levels, when it held a significantly larger percentage of CRE loans in its loan portfolio. However, while remaining manageable, asset quality metrics are expected to worsen from their current unsustainably low levels.

Funding and Liquidity Combined Building Block (BB) Assessment: Very Strong/Strong
Regions’ funding position is considered solid, reflecting its relatively low-cost deposit franchise and liquid balance sheet. Regions has strong levels of core deposits, including 35% of deposits that are non-interest bearing, resulting in one of the lowest cost of funds in the industry and a below median deposit beta thus far in the rate cycle.

Capitalization Combined Building Block (BB) Assessment: Strong/Good
DBRS Morningstar views Regions’ capitalization levels as solid. The Company generates significant capital and has deployed some for bolt-on acquisitions, as well as stock buybacks. Regulatory capital ratios, including the CET1 ratio of 10.3% as of September 30, 2023, are expected to build in anticipation of higher regulatory capital levels. Regions has indicated that if AOCI was included in regulatory capital today, that its CET1 ratio would be 7.6%.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/423065.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings. (July 4, 2023)

Notes:
All figures are in U.S. dollar unless otherwise noted.

The principal methodology is Global Methodology for Rating Banks and Banking Organizations (June 22, 2023): https://www.dbrsmorningstar.com/research/415978/global-methodology-for-rating-banks-and-banking-organisations. In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings: https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings in its consideration of ESG factors (July 4, 2023).

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

The primary sources of information used for this rating include Morningstar, Inc. and Company Documents. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The credit rating was not initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar did have access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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