FIRST HORIZON CORPORATION TABLE OF ITEM 2 TOPICS General Information 69 Financial Summary 70 Results of Operations 71 Financial Condition 77 Asset Quality 78 Capital 88 Risk Management 91
Repurchase Obligations, Off-Balance Sheet Arrangements, and Other Contractual Obligations
95
Market Uncertainties and Prospective Trends 96
Critical Accounting Policies 97
Non-GAAP Information 98
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General InformationINTRODUCTION
First Horizon Corporation (FHN) is a financial holding company headquartered inMemphis, Tennessee . FHN provides diversified financial services primarily through it principal subsidiary,First Horizon Bank . FirstHorizon Bank's principal divisions and subsidiaries operate under the brands ofFirst Horizon Bank ,IBERIABANK ,First Horizon Advisors , and FHN Financial. FHN offers regional banking, mortgage lending, title insurance, specialized commercial lending, commercial leasing and equipment financing, brokerage, wealth management and capital market services through theFirst Horizon family of companies. FHN Financial, which operates partly through a division ofFirst Horizon Bank and partly through subsidiaries, is an industry leader in fixed income sales, trading, and strategies for institutional clients in theU.S. and abroad. FirstHorizon Bank has over 490 banking offices in 12 states and FHN Financial has 29 offices in 18 states across theU.S. In addition, FHN has 29 title services offices in three states and 15 stand-alone mortgage lending offices in seven states. This MD&A should be read in conjunction with the accompanying unaudited Consolidated Financial Statements and Notes to Consolidated Financial Statements in Part I, Item 1, as well as other information contained in this document and FHN's 2020 Annual Report on Form 10-K. Recent Events Merger of Equals OnJuly 1, 2020 , FHN completed its merger of equals withIBERIABANK Corporation . Reported results for FHN reflect legacy FHN prior to the completion of the merger and results from both FHN and IBKC from the merger closing date forward. As such, comparative income statement data in this MD&A for the first quarter of 2020 is only for legacy FHN. COVID-19 Pandemic Government and societal reaction to the COVID-19 pandemic caused extraordinary disruption to theU.S. economy, as well as to the local economies within FHN's footprint, during the final three quarters of 2020 and continuing into the first quarter of 2021. Business activity, especially lending, declined throughout 2020 and into first quarter this year. In certain business lines, FHN reduced or stopped new lending because of the pandemic. In the fourth quarter of 2020, two extremely effective vaccines were approved in theU.S. Administration of those vaccines began late in 2020, nationwide but on a narrowly targeted basis. In the first quarter of 2021, vaccine production and distribution increased, and a third vaccine was approved in theU.S. Public vaccination in theU.S. has accelerated during the first four months of 2021. In many of FHN's markets, COVID-19 restrictions at least partially were eased by the end of March or during April, and FHN believes further easing is likely in the rest of 2021. COVID-19 restrictions still had a substantial impact on FHN and its clients in the first quarter of 2021, but FHN expects those impacts to diminish over the rest of this year as the vaccinated percentage of theU.S. population continues to climb. Within theU.S. economy, broadly speaking, manufacturing has largely recovered while services continue to lag significantly, especially in hospitality and leisure. Risk of resurgence remains as new virus variants continue to be identified around the world. As a result, FHN continues to closely monitor the pandemic and its effects on clients, especially credit quality, on FHN's communities, and on the financial markets. FHN continues to reach out to clients to discuss challenges and solutions, to provide line draws and new extensions to existing clients, to provide support for small businesses through the Paycheck Protection Program and other stimulus programs, and to provide lending and deposit assistance through deferrals and waived fees. The pandemic has resulted in modest operational disruptions for FHN. Clients' physical access to banking centers has been restricted off and on in many markets and many non-client-facing associates have worked largely on a remote basis. FHN has also implemented additional sick time and child care assistance for associates. FIRST HORIZON CORPORATION 69 1Q21 FORM 10-Q REPORT
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Financial SummaryQuarterly Financial Performance Summary
First Quarter 2021 versus Fourth Quarter 2020 First quarter 2021 net income available to common shareholders was$225 million , or$0.40 per diluted share, compared to$234 million , or$0.42 per diluted share, in fourth quarter 2020. First quarter 2021 results produced a return on average assets of 1.12% and a return on average common equity of 12.01% compared to 1.16% and 12.53% for fourth quarter 2020. Net interest income of$508 million declined$14 million from fourth quarter 2020, driven by the impact of a decrease in average loans, day count and lower short-term rates partially offset by improved funding costs. The provision for credit losses was a benefit of$45 million for the first quarter of 2021, compared to expense of$1 million for fourth quarter 2020, largely reflecting continued improvement in the overall macroeconomic outlook and a reduction in consumer loans. Noninterest income of$298 million increased$10 million from fourth quarter 2020, primarily reflecting strong fixed income offset by decreases in mortgage banking and title income, deposit transaction and cash management fees, deferred compensation and derivative sales. Noninterest expense of$544 million increased$36 million from fourth quarter 2020, largely as a result of IBKC merger integration expenses. First Quarter 2021 versus First Quarter 2020 First quarter 2021 net income available to common shareholders was$225 million , or$0.40 per diluted share, compared to$12 million , or$0.04 per diluted share, in first quarter 2020 driven by the impact of theJuly 1, 2020 IBKC merger and a lower provision for credit losses. First quarter 2021 results produced a return on average assets of 1.12% and a return on average common equity of 12.01% compared to 0.15% and 1.05% for the first quarter 2020. Net interest income increased 68% to$508 million compared to first quarter 2020, driven by an increase in average interest-earning assets as a result of the IBKC merger and Truist branch acquisition. Results also reflect the benefit of deposit pricing discipline and PPP lending, which helped to partially offset the impact of lower interest rates. The provision for credit losses was a benefit of$45 million for the first quarter of 2021, compared to expense of$154 million for first quarter 2020. The decrease in provision was primarily attributable to improvement in the overall macro-economic outlook. Noninterest income of$298 million increased$124 million from first quarter 2020, primarily driven by the impact of the IBKC merger. Results also reflect an increase in fixed income revenue during the quarter. Noninterest expense of$544 million increased$242 million from first quarter 2020, largely as a result of the IBKC merger. Noninterest expense for the first quarter of 2021 included$70 million in merger and acquisition-related costs compared to$6 million in first quarter 2020. Financial Condition Summary Total assets atMarch 31, 2021 of$87.5 billion increased$3.3 billion , or 4%, from$84.2 billion atDecember 31, 2020 . Period-end loans and leases of$58.6 billion increased$368 million , or 1%, fromDecember 31, 2020 driven by a$1.0 billion increase in commercial loans primarily tied to PPP loans, offset by a$674 million decrease in consumer loans. Average loans and leases of$58.2 billion in first quarter 2021 increased$27.7 billion from$30.5 billion in first quarter 2020 primarily driven by the IBKC merger. Period-end deposits of$73.2 billion increased$3.2 billion , or 5%, fromDecember 31, 2020 , largely reflecting growth in noninterest-bearing deposits from the impact of stimulus checks and PPP loan funding. Average deposits of$71.0 billion for first quarter 2021 increased from$32.9 billion for first quarter 2020. FHN maintained strong capital measures. The Tier 1 risk-based capital and total risk-based capital ratios atMarch 31, 2021 were 11.05% and 12.84%, respectively, compared to 10.74% and 12.57% atDecember 31, 2020 , respectively. The CET1 ratio was 9.97% atMarch 31, 2021 compared to 9.68% atDecember 31, 2020 . FIRST HORIZON CORPORATION 70 1Q21 FORM 10-Q REPORT
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Table 1 - Key Performance Indicators
As of or for the three months ended
December 31,
(Dollars in millions, except per share data) March 31, 2021 2020 March 31, 2020
Pre-provision net revenue (a) $ 262 $ 302 $ 175
Diluted earnings per common share $ 0.40 $ 0.42 $ 0.04
Return on average assets (b) 1.12 % 1.16 % 0.15 %
Return on average common equity (c) 12.01 % 12.53 % 1.05 %
Return on average tangible common equity (a) (d) 15.90 % 16.73 % 1.59 %
Net interest margin (e) 2.63 % 2.71 % 3.16 %
Noninterest income to total revenue (f) 37.00 % 35.86 % 36.59 %
Efficiency ratio (g) 67.54 % 62.46 % 63.26 %
Allowance for loan and lease losses to total loans and leases
1.56 % 1.65 % 1.33 %
Net charge-offs to average loans and leases 0.06 % 0.19 % 0.10 %
Total period-end equity to period-end assets 9.49 % 9.86 % 10.71 %
Tangible common equity to tangible assets (a) 6.64 % 6.89 % 6.81 %
Cash dividends declared per common share $ 0.15 $ 0.15 $ 0.15
Book value per common share $ 13.65 $ 13.59 $ 14.96
Tangible book value per common share (a) $ 10.29 $ 10.23 $ 9.96
Common equity Tier 1 9.97 % 9.68 % 8.54 %
Market capitalization $ 9,341 $ 7,082 $ 2,514
(a) Represents a non-GAAP measure which is reconciled in the non-GAAP to GAAP
reconciliation in Table 20.
(b) Calculated using annualized net income divided by average assets.
(c) Calculated using annualized net income available to common shareholders
divided by average common equity.
(d) Calculated using annualized net income available to common shareholders
divided by average tangible common equity.
(e) Net interest margin is computed using total net interest income adjusted to
an FTE basis assuming a statutory federal income tax rate of 21% and, where
applicable, state income taxes.
(f) Ratio is noninterest income excluding securities gains (losses) to total
revenue excluding securities gains (losses).
(g) Ratio is noninterest expense to total revenue excluding securities gains
(losses).
Results of Operations
Net Interest Income/Net Interest Margin
Net interest income is FHN's largest source of revenue and is the difference
between the interest earned on interest-earning assets (generally loans, leases
and investment securities) and the interest expense incurred in connection with
interest-bearing liabilities (generally deposits and borrowed funds). The level
of net interest income is primarily a function of the difference between the
effective yield on average interest-earning assets and the effective cost of
interest-bearing liabilities. These factors are influenced by the pricing and
mix of interest-earning assets and interest-bearing liabilities which, in turn,
are impacted by external factors such as local economic conditions, competition
for loans and deposits, the monetary policy of the FRB and market interest
rates.
First Quarter 2021 versus Fourth Quarter 2020
Net interest income for first quarter 2021 decreased $14 million from fourth
quarter 2020. This decrease
reflected a $23 million decrease in interest income, the result of lower average
loan balances, a decrease in day count, and lower short-term rates. Partially
offsetting the decrease in interest income was a $9 million decrease in interest
expense, driven by deposit pricing discipline, as the rate on deposits decreased
6 basis points from fourth quarter 2020, as well as a $243 million decrease in
average long-term borrowings.
The net interest margin was 2.63% in first quarter 2021, down 8 basis points
from fourth quarter 2020, while the net interest spread of 2.52% in first
quarter 2021 was down 7 basis points. The decline in net interest margin for the
quarter ended March 31, 2021 was primarily the result of a 13 basis point
decrease in earning asset yields, largely driven by an unfavorable mix shift to
lower yielding assets.
Average earning assets increased $1.7 billion to $78.7 billion for first quarter
2021 from $77.0 billion for fourth quarter of 2020, primarily driven by a $3.1
billion increase in average interest-bearing cash,
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partially offset by a$1.6 billion decrease in average loans and leases from a reduction in new originations, continued payoffs, and a decrease in loans to mortgage companies, partially offset by growth in asset-based lending and commercial real estate. The mix shift also contributed to a decline in earning asset yield from the prior quarter. First Quarter 2021 versus First Quarter 2020 Net interest income increased$205 million in first quarter 2021 from$303 million in first quarter 2020. The increase was primarily attributable to growth in average earning assets from the IBKC merger and Truist branch acquisition in third quarter 2020, deposit pricing discipline, and PPP lending, partially offset by the negative impact of lower interest yields on loans from the decline of LIBOR and Prime rates. The net interest margin in first quarter 2021 was down 53 basis points from 3.16% in first quarter 2020. The net interest spread of 2.52% in first quarter 2021 was down 37 basis points from the first quarter 2020. The decline in net interest margin for the quarter endedMarch 31, 2021 was primarily the result of a 108 basis point decrease in earning asset yields, as the negative impact of lower short-term interest rates was partially offset by the benefit of purchase accounting accretion and PPP lending. An increase in average excess cash also negatively impacted net interest margin relative to the prior year. Driven by disciplined deposit pricing, the cost of interest-bearing liabilities decreased 71 basis points from first quarter 2020. Average earning assets increased to$78.7 billion for first quarter 2021 from$38.8 billion for the same quarter of 2020, a$39.9 billion increase primarily driven by the IBKC merger and Truist branch acquisition. FIRST HORIZON CORPORATION 72 1Q21
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The following table presents the major components of net interest income and net
interest margin.
Table 2-Average Balances, Net Interest Income and Yields/Rates
Three Months Ended
(Dollars in millions) March 31, 2021 December 31, 2020 March 31, 2020
Average Interest Average Interest Average Interest
Balance Income/Expense Yield/Rate Balance Income/Expense Yield/Rate Balance Income/Expense Yield/Rate
Assets:
Loans and leases:
Commercial loans and leases $ 45,703 $ 382 3.39 % $ 46,596 $ 405 3.46 % $ 23,891 $ 257 4.33 %
Consumer loans 12,519 128 4.13 13,224 129 3.89 6,633 71 4.33
Total loans and leases 58,222 510 3.55 59,820 534 3.56 30,524 328 4.33
Loans held for sale 842 7 3.16 1,030 8 3.22 590 7 4.67
Investment securities 8,321 29 1.41 8,213 27 1.29 4,467 28 2.51
Trading securities 1,418 7 2.03 1,292 7 2.05 1,831 13 2.91
Federal funds sold 45 - 0.12 34 - 0.15 10 - 1.05
Securities purchased under agreements
to resell (a) 554 - (0.14) 405 - 0.02 817 2 1.13
Interest-bearing deposits with banks 9,269 2 0.10 6,201 2 0.10 549 2 1.13
Total earning assets / Total interest
income $ 78,671 $ 555 2.86 % $ 76,995 $ 578 2.99 % $ 38,788 $ 380 3.94 %
Cash and due from banks 1,250 1,204 610
Goodwill and other intangible assets,
net 1,857 1,871 1,560
Allowance for loan and lease losses (949) (985) (354)
Other assets 4,572 4,724 2,948
Total assets $ 85,401 $ 83,809 $ 43,552 Liabilities and Shareholders' Equity:
Interest-bearing deposits: Savings$ 27,370 $ 12 0.19 %$ 27,090 $ 18 0.27 %$ 12,117 $ 26 0.87 % Other interest-bearing deposits 15,491 6 0.16 15,057 7 0.18 8,743 14 0.65 Time deposits 4,836 6 0.47 5,387 6 0.44 3,356 14 1.67 Total interest-bearing deposits 47,697 24 0.20 47,534 31 0.26 24,216 54 0.90 Federal funds purchased 996 - 0.10 831 - 0.10 747 2 1.19 Securities sold under agreements to repurchase 1,145 1 0.21 1,140 1 0.23 778 3 1.36 Trading liabilities 518 1 0.73 367 1 0.78 751 3 1.76 Other short-term borrowings 139 - 1.01 142 - 0.98 1,686 5 1.20 Term borrowings 1,670 18 4.39 1,913 20 4.16 791 8 4.01 Total interest-bearing liabilities / Total interest expense$ 52,165 $ 44 0.34 %$ 51,927 $ 53 0.40 %$ 28,969 $ 75 1.05 % Noninterest-bearing liabilities: Noninterest-bearing deposits 23,284 22,105 8,666 Other liabilities 1,603 1,568 915 Total liabilities 77,052 75,600 38,550 Shareholders' equity 8,054 7,914 4,707 Noncontrolling interest 295 295 295 Total shareholders' equity 8,349 8,209 5,002 Total liabilities and shareholders' equity$ 85,401 $ 83,809 $ 43,552 Net earnings assets / Net interest income (TE) / Net interest spread$ 26,506 $ 511 2.52 %$ 25,068 $ 525 2.59 %$ 9,819 $ 305 2.89 % Taxable equivalent adjustment (3) 0.11 (3) 0.12 (2) 0.27 Net interest income / Net interest margin (b) $ 508 2.63 % $ 522 2.71 % $ 303 3.16 % (a) First quarter 2021 yield is driven by negative market rates on reverse repurchase agreements (b) Calculated using total net interest income adjusted for FTE assuming a statutory federal income tax rate of 21% and, where applicable, state income taxes FIRST HORIZON CORPORATION 73 1Q21 FORM 10-Q REPORT
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. Provision for Credit Losses The provision for credit losses includes the provision for loan and lease losses and the provision for unfunded lending commitments. The provision for credit losses is the expense necessary to maintain the ALLL and the accrual for unfunded lending commitments at levels appropriate to absorb management's estimate of credit losses expected over the life of the loan and lease portfolio and the portfolio of unfunded loan commitments. The provision for credit losses benefit of$45 million compared to expense of$1 million in fourth quarter 2020, largely reflecting continued improvement in the overall macroeconomic outlook and a reduction in consumer loans. The provision for credit losses decreased$199 million from first quarter 2020 primarily from an improvement in the overall macroeconomic outlook. For additional information about general asset quality trends, refer to the Asset Quality section in this MD&A.
Noninterest Income
The following table presents the significant components of noninterest income for each of the periods presented:
Table 3 - Noninterest Income
Three Months Ended 1Q21 vs. 1Q20 1Q21 vs. 4Q20
December 31, March 31,
(Dollars in millions) March 31, 2021 2020 2020 $ Change % Change $Change % Change Noninterest income: Fixed income$ 126 $ 104 $ 96 $ 30 31 %$ 22 21 % Mortgage banking and title income 53 57 2 51 NM (4) (7) % Deposit transactions and cash management 42 45 30 12 40 % (3) (7) % Brokerage, management fees and commissions 20 19 16 4 25 % 1 5 % Trust services and investment management 12 12 7 5 71 % - - % Bankcard income 11 12 7 4 57 % (1) (8) % Other income 34 39 16 18 NM (5) (13) % Total noninterest income$ 298 $ 288 $ 174 $ 124 71 %$ 10 3 % Certain previously reported amounts have been reclassified to agree with current presentation. NM - Not meaningful The following table summarizes FHN's fixed income noninterest income for each of the periods presented: Table 4-Fixed Income Three Months Ended 1Q21 vs. 1Q20 1Q21 vs. 4Q20 December 31, March 31, (Dollars in millions) March 31, 2021 2020 2020 $ Change % Change $ Change % Change Noninterest income: Fixed income$ 115 $ 94 $ 78 $ 37 47 %$ 21 22 % Other product revenue 11 10 18 (7) (39 %) 1 10 % Total noninterest income$ 126 $ 104 $ 96 $ 30 31 %$ 22 21 % FIRST HORIZON CORPORATION 74 1Q21 FORM 10-Q REPORT
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First Quarter 2021 versus Fourth Quarter 2020 Compared to fourth quarter 2020, noninterest income increased$10 million , or 3%, primarily reflecting strong fixed income. Fixed income increased$22 million , or 21%, driven by continued elevated liquidity and weak loan demand among fixed income customers, as well as interest rate volatility.This increase was partially offset by decreases in mortgage banking and title income, deposit transaction and cash management fees, deferred compensation and derivative sales. First Quarter 2021 versus First Quarter 2020 Noninterest income of$298 million for first quarter 2021, increased$124 million , or 71%, compared to first quarter 2020, primarily driven by the impact of the IBKC merger as well as strong fixed income revenue during the quarter. Fixed income increased$30 million , or 31%, from first quarter 2020. Fixed income product revenue of$115 million increased 47%, largely driven by favorable market conditions including market volatility and increased depository liquidity. Revenue from other products of$11 million decreased 39%, primarily driven by lower fees from derivative and loan sales. Noninterest Expense
The following table presents the significant components of noninterest expense for each of the periods presented:
Table 5 - Noninterest Expense
Three Months Ended 1Q21 vs. 1Q20 1Q21 vs. 4Q20
December 31, March 31,
(Dollars in millions) March 31, 2021 2020 2020 $ Change % Change $Change % Change Noninterest expense: Personnel expense$ 318 $ 319 $ 183 $ 135 74 %$ (1) NM Net occupancy expense 37 36 20 17 85 % 1 3 % Computer software 28 27 16 12 75 % 1 4 % Legal and professional fees 14 19 9 5 56 % (5) (26) % Operations services 16 17 12 4 33 % (1) (6) % Equipment expense 11 13 9 2 22 % (2) (15) % Amortization of intangible assets 14 15 5 9 NM (1) (7) % Other expense 106 62 48 58 NM 44 71 % Total noninterest expense$ 544 $ 508 $ 302 $ 242 80 %$ 36 7 % Certain previously reported amounts have been reclassified to agree with current presentation. NM - Not meaningful First Quarter 2021 versus Fourth Quarter 2020 Compared to fourth quarter 2020, noninterest expense increased$36 million , or 7%, driven by a$36 million increase in merger and acquisition related expense largely tied to IBKC merger integration costs. First quarter 2021 also included$10 million in derivative valuation adjustments related to prior Visa Class-B share sales. First Quarter 2021 versus First Quarter 2020 Total noninterest expense of$544 million increased$242 million , or 80%, from first quarter 2020 primarily attributable to the impact of the IBKC merger and Truist branch acquisition. In addition to the impact of the merger and branch acquisition, the increase in personnel expense reflects an increase in revenue-based compensation due to increases in fixed income and mortgage banking and an increase in deferred compensation expense driven by equity market valuations. Other expense in first quarter 2021 included$33 million in asset impairments related to IBKC merger integration efforts. Total merger and acquisition expense was$70 million in first quarter 2021 compared to$6 million in first quarter 2020. Income Taxes FHN recorded income tax expense of$71 million in first quarter 2021, compared to$56 million in fourth quarter 2020 and$5 million in first quarter 2020. The effective tax rate was approximately 23.2%, 18.7%, FIRST HORIZON CORPORATION 75 1Q21
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and 22.4% for the three months endedMarch 31, 2020 ,December 31, 2020 andMarch 31, 2020 , respectively. FHN's effective tax rate is favorably affected by recurring items such as bank-owned life insurance, tax-exempt income, and tax credits and other tax benefits from tax credit investments. The effective rate is unfavorably affected by the non-deductibility of a portion of FHN'sFDIC premium, executive compensation and merger expenses. FHN's effective tax rate also may be affected by items that may occur in any given period but are not consistent from period to period, such as changes in unrecognized tax benefits. The rate also may be affected by items resulting from business combinations. A deferred tax asset or deferred tax liability is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax consequence is calculated by applying enacted statutory tax rates, applicable to future years, to these temporary differences. As ofMarch 31, 2021 , FHN's gross DTA and gross DTL were$472 million and$448 million , respectively, resulting in a net DTA of$24 million atMarch 31, 2021 , compared with a net DTA of less than$1 million atDecember 31, 2020 . As ofMarch 31, 2021 , FHN had deferred tax asset balances related to federal and state income tax carryforwards of$39 million and$9 million , respectively, which will expire at various dates. FHN believes that it will be able to realize the value of its DTA and that no valuation allowance is needed. FHN monitors its DTA and the need for a valuation allowance on a quarterly basis. Business Segment Results During fourth quarter 2020, FHN reorganized its internal management structure and, accordingly, its segment reporting structure. Historically, FHN's primary business segments were Regional Banking, Fixed Income, Corporate, and Non-strategic. OnJuly 1, 2020 , FHN and IBKC closed their merger of equals transaction. This transaction prompted organizational changes to better integrate and execute the combined Company's strategic priorities across all lines of businesses. As a result, FHN revised its reportable segments to include Regional Banking, Specialty Banking and Corporate. Segment results for the first quarter of 2020 have been recast to adjust for the realignment of the segment reporting structure. See Note 13 - Business Segment Information for additional disclosures related to FHN's operating segments. Regional Banking The Regional Banking segment generated pre-tax income of$286 million for first quarter 2021 compared to$231 million for fourth quarter 2020 and pre-tax loss of$4 million for first quarter 2020. The increase in first quarter 2021 compared to fourth quarter 2020 was primarily driven by a decrease in noninterest expense and lower provision for credit losses reflecting continued improvement in the overall macroeconomic outlook and a reduction in consumer loans. The increase for the first quarter 2021 compared to first quarter 2020 reflected an increase in revenue offset by an increase in noninterest expense resulting from the IBKC merger and a decrease in the provision for credit losses resulting from improvement in the macroeconomic outlook. Specialty Banking The Specialty Banking segment generated pre-tax income of$197 million for first quarter 2021 compared to$194 million for fourth quarter 2020 and$48 million for first quarter 2020. First quarter 2021 results compared to fourth quarter 2020 included an increase in noninterest income and lower provision for credit losses partially offset by lower net interest income and higher noninterest expense. The increase for the first quarter 2021 compared to first quarter 2020 was driven by an increase in revenue offset by an increase in noninterest expense resulting from the IBKC merger and a decrease in the provision for credit losses resulting from improvement in the macroeconomic outlook.
Corporate
The Corporate segment generated pre-tax loss of$176 million for first quarter 2021 compared to$124 million for fourth quarter 2020 and$23 million for first quarter 2020. The increase in pre-tax loss for first quarter 2021 compared to first quarter 2020 reflected an increase in noninterest expense primarily from a$64 million increase in merger and integration-related costs and the impact of the IBKC merger and a decrease in net interest income resulting from the impact of funds transfer pricing, partially offset by an increase in noninterest income primarily resulting from an increase in deferred compensation income FIRST HORIZON CORPORATION 76 1Q21
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driven by equity market valuations relative to the prior year.
Financial Condition
Total period-end assets were $87.5 billion at March 31, 2021 compared to $84.2
billion at December 31, 2020 . Asset growth during first quarter 2021 was driven
by an increase in cash from deposit growth and by loan growth, primarily C&I
loans from PPP loan originations.
Earning assets consist of loans and leases, loans held for sale, investment
securities, and other earning assets, such as trading securities and
interest-bearing deposits with banks. A detailed discussion of the major
components of earning assets is provided in the following sections.
Loans and Leases
Period-end loans and leases increased $368 million , or 1% to $58.6 billion as of
March 31, 2021 from $58.2 billion on December 31, 2020 , driven by a $1.0 billion
increase in commercial loans primarily tied to PPP loans, offset by a $674
million decrease in consumer loans. Average loans and leases decreased to $58.2
billion in first quarter 2021 compared to $59.8 billion in fourth quarter 2020
and increased from $30.5 billion in first quarter 2020 primarily from acquired
loans during third quarter 2020.
The following table provides detail regarding FHN's loans and leases as of
March 31, 2021 and December 31, 2020 .
Table 6-Loans and Leases
As of March 31, 2021 As of December 31, 2020
(Dollars in millions) Amount Percent of total Amount Percent of total Growth Rate
Commercial:
Commercial, financial, and
industrial (a) $ 33,951 58 % $ 33,104 57 % 3 %
Commercial real estate 12,470 21 12,275 21 2
Total commercial 46,421 79 45,379 78 2
Consumer:
Consumer real estate 11,053 19 11,725 20 (6)
Credit card and other 1,126 2 1,128 2 -
Total consumer 12,179 21 12,853 22 (5)
Total loans and leases $ 58,600 100 % $ 58,232 100 % 1 %
(a)Includes equipment financing loans and leases.
C&I loans are the largest component of the loan portfolio, comprising 58% of total loans at the end of the first quarter 2021 and 57% at year-end 2020. C&I loans increased 3% fromDecember 31, 2020 , largely driven by PPP lending and higher balances within Specialty Banking, primarily from mortgage warehouse lending and growth in both the accommodation and food services and healthcare industries. Commercial real estate loans increased 2% to$12.5 billion in first quarter 2021 driven by growth in Regional Banking and Corporate CRE loans. Total consumer loans decreased 5% from 2020 to$12.2 billion as ofMarch 31, 2021 , largely driven by paydowns in real estate installment loans and home equity lines of credit within the Regional Banking segment. Loans Held for Sale In 2020, FHN obtained IBKC's mortgage banking operations, which includes origination and servicing of residential first lien mortgage loans, primarily fixed rate single-family residential mortgage loans originated by IBKC and committed to be sold in the secondary market. The legacy FHN loans HFS portfolio consists of small business, other consumer loans, the mortgage warehouse,USDA , student, and home equity loans. OnMarch 31, 2021 andDecember 31, 2020 , loans HFS were$811 million and$1.0 billion , respectively. The decrease in loans HFS was primarily driven by a FIRST HORIZON CORPORATION 77 1Q21
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seasonal slowdown in mortgage volume, as well as a reduction in refinance
activity impacted by a recent rise in mortgage interest rates. Held-for-sale
consumer mortgage loans secured by residential real estate in process of
foreclosure totaled
ASSET QUALITY
Loan and Lease Portfolio Composition FHN groups its loans into portfolio segments based on internal classifications reflecting the manner in which the ALLL is established and how credit risk is measured, monitored, and reported. From time to time, and if conditions are such that certain subsegments are uniquely affected by economic or market conditions or are experiencing greater deterioration than other components of the loan portfolio, management may determine the ALLL at a more granular level. Commercial loans and leases are composed of C&I loans and leases and CRE loans. Consumer loans are composed of consumer real estate loans and credit card and other loans. FHN has a concentration of residential real estate loans (19% of total loans). Industry concentrations are discussed under the heading C&I below. Credit underwriting guidelines are outlined in Item 7 of FHN's Annual Report on Form 10-K for the year endedDecember 31, 2020 in the Loan Portfolio Composition discussion in the Asset Quality Section. FHN's credit underwriting guidelines and loan product offerings as ofMarch 31, 2021 are generally consistent with those reported and disclosed in FHN's Form 10-K for the year endedDecember 31, 2020 . Commercial Loan and Lease Portfolios C&I The C&I portfolio totaled$34.0 billion as ofMarch 31, 2021 and$33.1 billion as ofDecember 31, 2020 and is comprised of loans and leases used for general business purposes. Products offered in the C&I portfolio include term loan financing of owner-occupied real estate and fixed assets, direct financing and sales-type leases, working capital lines of credit, and trade credit enhancement through letters of credit. The largest geographical concentrations of balances in the C&I portfolio as ofMarch 31, 2021 were inTennessee (21%),Florida (12%),Texas (9%),Louisiana (8%),North Carolina (8%),California (7%), andGeorgia (5%). No other state represented more than 5% of the portfolio. The following table provides the composition of the C&I portfolio by industry as ofMarch 31, 2021 , andDecember 31, 2020 . For purposes of this disclosure, industries are determined based on the North American Industry Classification System (NAICS) industry codes used by Federal statistical agencies in classifying business establishments for the collection, analysis, and publication of statistical data related to theU.S. business economy. Table 7 - C&I Loan Portfolio by Industry March 31, 2021 December 31, 2020 (Dollars in millions) Amount Percent Amount Percent Industry: Loans to mortgage companies$ 5,530 16 % $ 5,404 16 % Finance and insurance 3,113 9 3,130 10 Health care and social assistance 2,832 8 2,689 8 Accommodation and food service 2,480 7 2,303 7 Real estate rental and leasing (a) 2,377 7 2,365 7 Wholesale trade 2,133 6 2,079 6 Manufacturing 1,968 6 1,907 6 Energy 1,637 5 1,686 5 Retail trade 1,566 5 1,531 5 Professional, scientific, and technical 1,567 5 1,457 4 Other (construction, transportation, etc.) (b) 8,748 26 8,553 26 Total C&I loan portfolio$ 33,951 100 % $ 33,104 100 %
(a)Leasing, rental of real estate, equipment, and goods. (b)Industries in this category each comprise less than 5% for 2021.
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Industry Concentrations Loan concentrations exist when there are loans to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. Loans to mortgage companies and borrowers in the finance and insurance industry were 25% of FHN's C&I loan portfolio as ofMarch 31, 2021 , and as a result could be affected by items that uniquely impact the financial services industry. As ofMarch 31, 2021 , FHN did not have any other concentrations of C&I loans in any single industry of 10% or more of total loans. Loans to Mortgage Companies Loans to mortgage companies were 16% of the C&I portfolio as ofMarch 31, 2021 andDecember 31, 2020 . This portfolio generally fluctuates with mortgage rates and seasonal factors and includes commercial lines of credit to qualified mortgage companies primarily for the temporary warehousing of eligible mortgage loans prior to the borrower's sale of those mortgage loans to third party investors. Generally, new loan originations to mortgage lenders increases when there is a decline in mortgage rates and decreases when rates rise. In periods of economic uncertainty, this trend may not occur even if interest rates are declining. In first quarter 2021, 33% of the loan originations were home purchases and 67% were refinance transactions. Finance and Insurance The finance and insurance component represents 9% of the C&I portfolio as ofMarch 31, 2021 compared to 10% as ofDecember 31, 2020 , and includes TRUPs (i.e., long-term unsecured loans to bank and insurance-related businesses), loans to bank holding companies, and asset-based lending to consumer finance companies. As ofMarch 31, 2021 , asset-based lending to consumer finance companies represents approximately$1.2 billion of the finance and insurance component. TRUPs lending was originally extended as a form of "bridge" financing to participants in the pooled trust preferred securitization program offered primarily to smaller banking (generally less than$15 billion in total assets) and insurance institutions through FHN's fixed income business. Origination of TRUPs lending ceased in early 2008. Individual TRUPs are re-graded at least quarterly as part of FHN's commercial loan review process. The terms of these loans generally include a scheduled 30 year balloon payoff and include an option to defer interest for up to 20 consecutive quarters. As ofMarch 31, 2021 , the unpaid principal balance (UPB) of trust preferred loans totaled$228 million . Including an amortizing discount of$18 million , total reserves (ALLL plus the amortizing discount) for TRUPs and other bank-related loans were$28 million , or 12% of outstandingUPB. As ofMarch 31, 2021 , TRUPs loans included$7 million of loans on nonaccrual, which represented a single loan relationship. Paycheck Protection Program In 2020,Congress created the Paycheck Protection Program (PPP). Under the PPP, qualifying businesses may receive loans from private lenders, such as FHN, that are fully guaranteed by theSmall Business Administration . These loans potentially are partly or fully forgivable, depending upon the borrower's use of the funds and maintenance of employment levels. To the extent forgiven, the borrower is relieved from payment while the lender is still paid from the program.Congress made revisions to the PPP during first quarter 2021, and may make further revisions in the future. AtMarch 31, 2021 , FHN had 44,717 of PPP loans with an aggregate principal balance of$5.1 billion . For these loans, FHN anticipates being paid net lender fees of approximately$81 million in relation to the PPP loans held atMarch 31, 2021 . Because PPP loans carry a full SBA guarantee, they do not have any credit risk and will not affect the amount of provision and ALLL recorded. As a result, no ALLL is recorded for PPP loans as ofMarch 31, 2021 , and FHN has assigned a risk weight of zero to PPP loans for regulatory capital purposes.Commercial Real Estate The CRE portfolio totaled$12.5 billion and$12.3 billion as ofMarch 31, 2021 andDecember 31, 2020 , respectively. The CRE portfolio reflects financings for both commercial construction and nonconstruction loans. The largest geographical concentrations of CRE loan balances as ofMarch 31, 2021 were inFlorida (28%),Louisiana (11%),Texas (11%),North Carolina (11%),Tennessee (9%), andGeorgia (9%). No other state represented more than 5% of the portfolio. This portfolio contains loans, draws on lines, and letters of credit to commercial real estate developers for the construction and mini-permanent financing of income-producing real estate. Subcategories of the CRE portfolio consist of multi-family (27%), office (22%), retail (18%), industrial (11%), hospitality (11%), land/land development (2%), and other (9%). FIRST HORIZON CORPORATION 79 1Q21 FORM 10-Q REPORT
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Consumer Loan PortfoliosConsumer Real Estate The consumer real estate portfolio totaled$11.1 billion and$11.7 billion as ofMarch 31, 2021 andDecember 31, 2020 , respectively , and is primarily composed of home equity lines and installment loans. The largest geographical concentrations of balances as ofMarch 31, 2021 , were inFlorida (32%),Tennessee (25%),Louisiana (10%),North Carolina (8%), andTexas (5%). No other state represented more than 5% of the portfolio. As ofMarch 31, 2021 , approximately 85% of the consumer real estate portfolio was in a first lien position. At origination, the weighted average FICO score of this portfolio was 753 and the refreshed FICO scores averaged 765 as ofMarch 31, 2021 , no significant change from FICO scores of 753 and 763, respectively, as ofDecember 31, 2020 . Generally, performance of this portfolio is affected by life events that affect borrowers' finances, the level of unemployment, and home prices. As ofMarch 31, 2021 andDecember 31, 2020 , FHN had held-for-investment consumer mortgage loans secured by real estate that were in the process of foreclosure totaling$34 million and$36 million , respectively. HELOCs comprised$2.3 billion of the consumer real estate portfolio as ofMarch 31, 2021 . FHN's HELOCs typically have a 5 or 10 year draw period followed by a 10 or 20 year repayment period, respectively. During the draw period, a borrower is able to draw on the line and is only required to make interest payments. The line is frozen if a borrower becomes past due on payments. Once the draw period has ended, the line is closed and the borrower is required to make both principal and interest payments monthly until the loan matures. The principal payment generally is fully amortizing, but payment amounts will adjust when variable rates reset to reflect changes in the prime rate. As of bothMarch 31, 2021 andDecember 31, 2020 , approximately 86% of FHN's HELOCs were in the draw period. It is expected that$438 million , or 22% of HELOCs currently in the draw period, will enter the repayment period during the next 60 months, based on current terms. Generally, delinquencies for HELOCs that have entered the repayment period are initially higher than HELOCs still in the draw period because of the increased minimum payment requirement. However, over time, performance of these loans usually begins to stabilize. HELOCs are monitored closely for those nearing the end of the draw period. The following table presents HELOCs currently in the draw period and expected timing of conversion to the repayment period.
Table 8-HELOC Draw To Repayment Schedule
March 31, 2021 December 31, 2020
Repayment Repayment
(Dollars in millions) Amount Percent Amount Percent
Months remaining in draw period:
0-12 $ 65 3 % $ 73 4 %
13-24 58 3 66 3
25-36 54 3 62 3
37-48 78 4 67 3
49-60 183 9 187 8
>60 1,551 78 1,662 79
Total $ 1,989 100 % $ 2,117 100 %
Credit Card and Other
The credit card and other portfolio, which is primarily within the Regional
Banking segment, totaled $1.1 billion as of March 31, 2021 and primarily
includes consumer-related credits, including home equity and other personal
consumer loans, credit card receivables, and automobile loans. There was no
significant change in the balance of this portfolio from December 31, 2020 .
Allowance for Loan and Lease Losses
Management's policy is to maintain the ALLL at a level sufficient to recognize
current expected credit losses on the amortized cost basis of the loan and lease
portfolio. The total allowance for loan and lease
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losses decreased to$914 million onMarch 31, 2021 from$963 million onDecember 31, 2020 . The ALLL as ofMarch 31, 2021 reflects the improvement in the economic forecast from year-end 2020. As a result, the ratio of ALLL to total loans and leases decreased 9 basis points fromDecember 31, 2020 to 1.56% onMarch 31, 2021 . The provision for loan and lease losses is the charge to or release of earnings necessary to maintain the ALLL at a sufficient level reflecting management's estimate of current expected losses on the amortized cost basis of the loan and lease portfolio. Provision credit was$41 million in first quarter 2021 compared to a provision expense of$145 million in first quarter 2020. The decrease is primarily attributable to an improving economic forecast, as first quarter 2020 was negatively impacted by the economic uncertainty around the COVID-19 pandemic. Asset quality trends may continue to be impacted by the economic uncertainty attributable to the COVID-19 pandemic. The C&I portfolio reflects a broad mix of categories with the heaviest concentration in loans to mortgage companies which carry minimal credit risk. The C&I portfolio as ofMarch 31, 2021 includes$5.1 billion of loans made under the Paycheck Protection Program of the SBA. PPP loans are fully government guaranteed with the SBA. Due to the government guarantee and forgiveness provisions, PPP loans are considered to have no credit risk. The CRE portfolio metrics may continue to be impacted by the COVID-19 pandemic due to travel and occupancy restrictions set by state and local governments affecting the hospitality and retail industries. The consumer portfolio may also continue to be impacted by the COVID-19 pandemic if consumer unemployment continues to remain elevated and clients are unable to continue making loan payments. The consumer portfolio, however, is high quality with no subprime and minimal exposure to other traditional categories of high risk lending. Consolidated Net Charge-offs Net charge-offs in first quarter 2021 were$8 million , an annualized charge-off percentage of 0.06% of total loans and leases, consistent with net charge-offs of$8 million in first quarter 2020. Net charge-offs in first quarter 2021 in the commercial portfolio were$11 million compared to$6 million in first quarter 2020. Net charge-offs were impacted by higher energy charge-offs in the current quarter, as well as a larger commercial portfolio from acquired loans in third quarter 2020. Net recoveries in the consumer portfolio were$3 million in first quarter 2021, driven by consumer real estate recoveries in the Corporate segment, compared to$2 million in net charge-offs in first quarter 2020. Table 9-Analysis of Allowance for Loan and Lease Losses and Charge-offs (Dollars in millions) Allowance for loan and lease losses (a) March 31, 2021 December 31, 2020 March 31, 2020 C&I $ 442 $ 453 $ 255 CRE 232 242 48 Consumer real estate 222 242 122 Credit card and other 18 26 19 Total allowance for loan and lease losses $ 914 $ 963 $ 444
Period-end loans and leases
C&I $ 33,951 $ 33,104 $ 22,124
CRE 12,470 12,275 4,640
Consumer real estate 11,053 11,725 6,119
Credit card and other 1,126 1,128 495
Total period-end loans and leases $ 58,600 $ 58,232 $ 33,378 ALLL / loans and leases % (a)
C&I 1.30 % 1.37 % 1.15 %
CRE 1.86 % 1.97 % 1.03 %
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Consumer real estate 2.00 % 2.07 % 2.00 %
Credit card and other 1.63 % 2.34 % 3.91 %
Total ALLL / loans and leases % 1.56 % 1.65 % 1.33 %
Quarter-to-date net charge-offs (recoveries)
C&I $ 10 $ 31 $ 6
CRE 1 (1) -
Consumer real estate (5) (3) (1)
Credit card and other 2 2 3
Total net charge-offs $ 8 $ 29 $ 8
Average loans and leases (b)
C&I $ 33,279 $ 34,196 $ 19,470
CRE 12,424 12,400 4,422
Consumer real estate 11,400 12,030 6,134
Credit card and other 1,119 1,194 498
Total average loans and leases $ 58,222 $ 59,820 $ 30,524
Charge-off %
C&I 0.12 % 0.36 % 0.12 %
CRE 0.06 % NM - %
Consumer real estate NM NM NM
Credit card and other 0.65 % 0.68 % 2.23 %
Total charge-off % 0.06 % 0.19 % 0.10 %
ALLL / annualized net charge-offs
C&I 11.47 x 3.67 x 10.89 x
CRE 33.31 x NM NM
Consumer real estate NM NM NM
Credit card and other 2.53 x 3.23 x 1.74 x
Total ALLL / net charge-offs 28.14 x 8.41 x 13.80 x
ALLL / NPLs
C&I 3.07 x 3.15 x 2.65 x
CRE 3.45 x 4.15 x 21.75 x
Consumer real estate 1.23 x 1.33 x 1.34 x
Credit card and other 7.49 x 13.13 x 53.69 x
Total ALLL / NPLs 2.32 x 2.49 x 2.34 x
NM - not meaningful
(a)The increase in the ALLL from first quarter 2020 was primarily attributable
to the allowance recorded on acquired non-PCD loans and the decline in the
economic forecast attributable to the COVID-19 pandemic, while the decrease from
fourth quarter 2020 was from an improvement in the overall economic forecast.
(b)The increase in period-end and average loans and leases from 1st quarter 2020
is primarily the result of $26.3 billion in acquired loans and leases in third
quarter 2020.
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Nonperforming Assets Nonperforming loans are loans placed on nonaccrual if it becomes evident that full collection of principal and interest is at risk, if impairment has been recognized as a partial charge-off of principal balance due to insufficient collateral value and past due status, or (on a case-by-case basis), if FHN continues to receive payments but there are other borrower-specific issues. Included in nonaccruals are loans that FHN continues to receive payments, including residential real estate loans where the borrower has been discharged of personal obligation through bankruptcy. NPAs consist of nonperforming loans and OREO (excluding OREO from government insured mortgages). Total NPAs (including NPLs HFS) increased to$410 million as ofMarch 31, 2021 from$406 million as ofDecember 31, 2020 . Despite the marginal increase, the nonperforming assets ratio (nonperforming assets excluding NPLs HFS to total period-end loans plus OREO) was 0.69% as of bothMarch 31, 2021 andDecember 31, 2020 . The ratio of the ALLL to NPLs was 2.3 times as ofMarch 31, 2021 compared to 2.5 times as ofDecember 31, 2020 . Certain nonperforming loans in both the commercial and consumer portfolios are deemed collateral-dependent and are charged down to an estimate of collateral value less costs to sell. Because the estimated loss has been recognized through a partial charge-off, typically an ALLL is not recorded. Table 10-Nonperforming Assets by Loan Portfolio (Dollars in millions) March 31, 2021 December 31, 2020
Nonperforming loans and leases
C&I $ 144 $ 144
CRE 67 58
Consumer real estate 180 182
Credit card and other 3 2
Total nonperforming loans and leases
(a) $ 394 $ 386
Nonperforming loans held for sale (a) $ 5 $ 5
Foreclosed real estate and other assets (b) 11 15
Total nonperforming assets (a) (c) $ 410 $ 406
Nonperforming loans and leases to total loans and leases
C&I 0.42 % 0.43 %
CRE 0.54 % 0.48 %
Consumer real estate 1.63 % 1.56 %
Credit card and other 0.22 % 0.18 %
Total NPL % 0.67 % 0.66 %
(a)Excludes loans and leases that are 90 or more days past due and still
accruing interest.
(b)Foreclosed real estate from GNMA loans totaled $2 million at both March 31,
2021 and December 31, 2020 .
(c)Balances do not include government-insured foreclosed real estate.
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The following table provides nonperforming assets by business segment:
Table 11-Nonperforming Assets by Segment
(Dollars in millions) March 31, 2021 December 31, 2020
Nonperforming loans and leases (a) (b)
Regional Banking $ 226 $ 216
Specialty Banking 111 117
Corporate 57 53
Consolidated $ 394 $ 386
Foreclosed real estate (c)
Regional Banking $ 10 $ 12
Specialty Banking - 1
Corporate 1 2
Consolidated $ 11 $ 15
Nonperforming Assets (a) (b) (c)
Regional Banking $ 236 $ 228
Specialty Banking 111 118
Corporate 58 55
Consolidated $ 405 $ 401
Nonperforming loans and leases to loans and leases
Regional Banking 0.56 % 0.54 %
Specialty Banking 0.64 0.68
Corporate 6.20 5.70
Consolidated 0.67 % 0.66 %
NPA % (d)
Regional Banking 0.58 % 0.57 %
Specialty Banking 0.64 0.68
Corporate 6.28 5.87
Consolidated 0.69 % 0.69 %
(a)Excludes loans and leases that are 90 or more days past due and still
accruing interest.
(b)Excludes loans classified as held for sale.
(c)Excludes foreclosed real estate and receivables related to government insured
mortgages of $4 million and $5 million at March 31, 2021 , and December 31, 2020 ,
respectively.
(d)Ratio is non-performing assets to total loans and leases plus foreclosed real
estate.
Lending Assistance for Borrowers
In addition to PPP loans, other customer support initiatives in response to the
COVID-19 pandemic include incremental lending assistance for borrowers through
delayed payment programs and fee waivers.
The following table provides the UPB of loans related to deferrals granted to
FHN's customers that have been processed through March 31, 2021 .
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Table 12 - Customer Deferrals
(Dollars in millions) As of March 31, 2021
Commercial:
C&I $ 51
CRE 178
Total Commercial $ 229
Consumer:
HELOC $ 12
R/E installment loans 138
Credit card and other 6
Total Consumer 156
Total $ 385
Commercial deferrals were comprised primarily of general commercial (59% or
To the extent that loans were past due atMarch 31, 2021 orDecember 31, 2020 and had been granted a deferral, they were excluded from loans past due 30 to 89 days and loans past due 90 days or more in the table and discussion below. Past Due Loans and Potential Problem Assets Past due loans are loans contractually past due as to interest or principal payments, but which have not yet been put on nonaccrual status. Loans in the portfolio that are 90 days or more past due and still accruing were$13 million onMarch 31, 2021 , compared to$17 million onDecember 31, 2020 . The decrease was primarily driven by consumer real estate loans. Loans 30 to 89 days past due were$81 million onMarch 31, 2021 , compared to$100 million onDecember 31, 2020 . The decrease included a$14 million decrease in consumer real estate loans, a$12 million decrease in CRE loans, and a$4 million decrease in credit card and other consumer loans, partially offset by an increase in C&I loans past due 30 to 89 days. FIRST HORIZON CORPORATION 85 1Q21 FORM 10-Q REPORT
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Table 13-Accruing Delinquencies (Dollars in millions) March 31, 2021 December 31, 2020
Accruing loans and leases 30+ days past due
C&I $ 26 $ 15
CRE 11 23
Consumer real estate 52 69
Credit card and other 5 10
Total 30+ Delinquency $ 94 $ 117
Accruing loans and leases 30+ days past due %
C&I 0.08 % 0.05 %
CRE 0.09 % 0.19 %
Consumer real estate 0.47 % 0.58 %
Credit card and other 0.45 % 0.87 %
Total 30+ Delinquency % 0.16 % 0.20 %
Accruing loans and leases 90+ days past due (a) (b) (c):
C&I $ - $ -
CRE - -
Consumer real Estate 13 16
Credit card and other - 1
Total accruing loans and leases 90+ days past due $ 13 $ 17
Loans held for sale
30 to 89 days past due (b) 7 6
30 to 89 days past due - guaranteed portion (b) (d) 6 5
90+ days past due (b) 13 12
90+ days past due - guaranteed portion (b) (d) 11 10
(a)Excludes loans classified as held for sale.
(b)Amounts are not included in nonperforming/nonaccrual loans.
(c)Amounts are also included in accruing loans and leases 30+ days past due.
(d)Guaranteed loans include FHA, VA , and GNMA loans repurchased through the GNMA
buyout program.
Potential problem assets represent those assets where information about possible
credit problems of borrowers has caused management to have serious doubts about
the borrower's ability to comply with present repayment terms and includes loans
past due 90 days or more and still accruing. This definition is believed to be
substantially consistent with the standards established by Federal banking
regulators for loans classified as substandard. Potential problem assets in the
loan portfolio were $738 million on March 31, 2021 and $718 million on
December 31, 2020 . The increase in potential problem assets was from a net
increase in classified commercial loans within the C&I portfolio from a limited
number of
customer migrations to substandard loans in the current quarter. The current
expectation of losses from potential problem assets has been included in
management's analysis for assessing the adequacy of the allowance for loan and
lease losses.
Troubled Debt Restructurings and Loan Modifications
As part of FHN's ongoing risk management practices, FHN attempts to work with
borrowers when appropriate to extend or modify loan terms to better align with
their current ability to repay. Extensions and modifications to loans are made
in accordance with
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internal policies and guidelines which conform to regulatory guidance. Each occurrence is unique to the borrower and is evaluated separately. In a situation where an economic concession has been granted to a borrower that is experiencing financial difficulty, FHN identifies and reports that loan as a TDR. For loan modifications that were made during 2021 and 2020 that met the TDR relief provisions outlined in either the CARES Act, as extended by the CAA, or revised Interagency Guidance, FHN has excluded these modifications from consideration as a TDR, and has excluded loans with these qualifying modifications from designation as a TDR in the information and discussion that follows. See Note 4 - Loans and Leases for further discussion regarding TDRs and loan modifications. OnMarch 31, 2021 andDecember 31, 2020 , FHN had$288 million and$307 million portfolio loans classified as TDRs, respectively. For TDRs in the loan portfolio, FHN had loan loss reserves of$11 million and$12 million , or 4% of TDR balances as of bothMarch 31, 2021 andDecember 31, 2020 , respectively. Additionally, FHN had$41 million and$42 million of HFS loans classified as TDRs as ofMarch 31, 2021 andDecember 31, 2020 , respectively. The following table provides a summary of TDRs for the periods endedMarch 31, 2021 andDecember 31, 2020 : Table 14-Troubled Debt Restructurings As of As of (Dollars in millions) March 31, 2021 December 31, 2020 Held-to-maturity: Consumer real estate: Current $ 71 $ 77 Delinquent 2 2 Non-accrual (a) 57 61 Total consumer real estate 130 140 Credit card and other: Current 1 1 Delinquent - - Non-accrual - - Total credit card and other 1 1 Commercial loans: Current 74 82 Delinquent - - Non-accrual 83 84 Total commercial loans 157 166 Total held-to-maturity $ 288 $ 307 Held-for-sale: Current $ 35 $ 36 Delinquent 5 5 Non-accrual 1 1 Total held-for-sale 41 42 Total troubled debt restructurings $ 329 $
349
(a)Balances as ofMarch 31, 2021 andDecember 31, 2020 , include$13 million and$11 million , respectively, of discharged bankruptcies.Investment Securities FHN's investment portfolio consists principally of debt securities, including government agency issued mortgage-backed securities and government agency issued collateralized mortgage obligations, all of which are classified as AFS. The securities portfolio provides a source of income and liquidity and is an important tool used to balance the interest rate risk of the loan and deposit portfolios. The securities portfolio is periodically evaluated in light of established ALM objectives, changing market FIRST HORIZON CORPORATION 87 1Q21 FORM 10-Q REPORT
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conditions that could affect the profitability of the portfolio, the regulatory environment, and the level of interest rate risk to which FHN is exposed. Investment securities were$8.4 billion onMarch 31, 2021 , up from$8.0 billion onDecember 31, 2020 and represented approximately 10% of total assets for both periods. See Note 3 -Investment Securities for more information about the securities portfolio, including gross unrealized gains and losses by type of security, contractual maturities, and securities pledged. Deposits Total deposits as ofMarch 31, 2021 increased 5% to$73.2 billion from$70.0 billion onDecember 31, 2020 driven by an increase in non-interest bearing deposits largely reflecting the impact of government stimulus checks and PPP loan funding. The following table summarizes the major components of deposits as ofMarch 31, 2021 andDecember 31, 2020 . Table 15- Deposits March 31, 2021 December 31, 2020 (Dollars in millions) Amount Percent of total Amount Percent of total Change Percent Savings$ 27,023 37 % $ 27,324 39 %$ (301) (1) % Time deposits 4,653 6 5,070 7 (417) (8) Other interest-bearing deposits 16,444 23 15,415 22 1,029 7 Interest-bearing deposits 48,120 66 47,809 68 311 1 Noninterest-bearing deposits 25,046 34 22,173 32 2,873 13 Total deposits$ 73,166 100 % $ 69,982 100 %$ 3,184 5 % Short-Term Borrowings Total short-term borrowings were$2.2 billion as ofMarch 31, 2021 andDecember 31, 2020 . Short-term borrowings balances fluctuate largely based on the level of FHLB borrowing as a result of loan demand, deposit levels and balance sheet funding strategies. Federal funds purchased fluctuates depending on the amount of excess funding of FHN's correspondent bank customers. Balances of securities sold under agreements to resell fluctuate based on cost attractiveness relative to FHLB borrowing levels and the ability to pledge securities toward such transactions. Term Borrowings Term borrowings include senior and subordinated borrowings with original maturities greater than one year. Term borrowings were$1.7 billion as ofMarch 31, 2021 andDecember 31, 2020 . Capital Management's objectives are to provide capital sufficient to cover the risks inherent in FHN's businesses, to maintain excess capital to well-capitalized standards, and to assure ready access to the capital markets. Total equity was$8.3 billion at bothMarch 31, 2021 andDecember 31, 2020 . Significant changes included net income of$236 million which was offset by a decrease in AOCI of$101 million ,$92 million in common and preferred dividends, and$62 million in common share repurchases.
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