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

DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings of Regions Financial Corporation (Regions or the Company), including the Company's Long-Term Issuer Rating of "A". At the same time, Morningstar DBRS confirmed the credit ratings of its primary banking subsidiary, Regions Bank (the Bank), including its Long-Term Issuer Rating of A (high). The trend for all credit ratings 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 credit ratings and Stable trends reflect the Company's diversified banking franchise. Regions is the 19th largest bank in the U.S. by total deposits, with a high-quality deposit franchise uniquely positioned in several high growth markets in the Southeast where it maintains a top 5 or better market share in 70% of the MSAs in its footprint. The credit ratings are also supported by strong profitability-metrics owing primarily to a strong net interest margin driven by a meaningfully cheaper cost of funding than peers. The Company also derives meaningful revenue from noninterest income sources including Mortgage, Wealth Management and Capital Markets. Regions has a well-balanced, diversified loan portfolio including relationship-driven commercial loans exhibiting solid credit quality trends. Finally, the Company has ample capital and liquidity.

The credit ratings also consider the somewhat uncertain near-term economic outlook including some modest weakening in some economic indicators, and the changing interest rate environment given the recent Fed pivot from tightening to loosening. An inability of the Fed to achieve the "soft landing" scenario may lead to weakening asset quality and profitability from current levels. However, Regions' diverse business mix, high quality loan book with limited exposure to some of the most problematic credits (i.e. Office CRE), and attractive deposit base positions the Company well to manage through the current environment.

CREDIT RATING DRIVERS
Further strengthening of the franchise leading to a sustained operating earnings outperformance while maintaining a similar risk profile, would result in an upgrade of the credit ratings. Conversely, a sustained weakening of profitability metrics, or an outsized deterioration in credit performance, would result in a credit ratings downgrade.

CREDIT RATING RATIONALE

Franchise Combined Building Block (BB) Assessment: Strong / Good
Regions has a strong and defensible franchise, with top 5 or better market share in 70% in the MSAs across its 15 state footprint throughout the South, Midwest and Texas. Its highly stable, retail-oriented deposit base gives it a significant funding advantage over most peers. The Company's loan portfolio is well-diversified across relationship-driven consumer and commercial loans. Additionally, Regions operates a few businesses that are nationwide in scope, including its EnerBank home improvement lending business, Ascentium equipment finance, and capital markets.

Earnings Combined Building Block (BB) Assessment: Strong
Morningstar DBRS views Regions' earnings power as strong. The Company's earnings are diversified both geographically, as well as by business line, including a solid level of non-interest income. Regions' highly attractive, low-cost, low-beta deposit base drove significant net interest margin and profitability outperformance through the post-pandemic Fed rate-hiking cycle.

Risk Combined Building Block (BB) Assessment: Strong
Regions' risk profile remains sound. Morningstar DBRS views the overall risk profile as significantly improved compared to pre-crisis levels. Regions today has less exposure than most peers to CRE, and particularly Investor RE. After a period of unusually low credit losses, credit metrics have stabilized within longer term historical ranges.

Funding and Liquidity Combined Building Block (BB) Assessment: Strong
Regions has a strong funding base with a high proportion of stable, low-cost, sticky retail / household-oriented deposits that easily funds the loan portfolio. The Company maintains significant liquidity buffers and a robust internal liquidity stress testing framework.

Capitalisation Combined Building Block (BB) Assessment: Strong/Good
Morningstar DBRS views Regions' capitalization levels as solid. The Company generates significant capital and has deployed some for bolt-on non-bank acquisitions, as well as stock buybacks. Regulatory capital ratios, including the CET1 ratio of 10.4% as of June 30, 2024, are being maintained at slightly above long-term target levels in anticipation of the start of the phase-in of Basel III rules, which will require inclusion of AOCI in capital, in addition to some other minor RWA impacts. Regions has indicated that if AOCI was included in its regulatory capital as of June 30, 2024, that its CET1 ratio would have been 8.2%.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/441028.

ENVIRONMENTAL, SOCIAL, AND 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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781.

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

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (04 June 2024) https://dbrs.morningstar.com/research/433881. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

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

The primary sources of information used for these credit ratings include Morningstar Inc. and company documents. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings 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.

Morningstar DBRS had 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. Morningstar DBRS's outlooks and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit dbrs.morningstar.com.

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