FIRST HORIZON CORPORATION
TABLE OF ITEM 2 TOPICS
General Information 75
Financial Summary 75
Results of Operations 77
Financial Condition 86
Capital 97
Risk Management 100
Repurchase Obligations and Off-Balance Sheet Arrangements 104
Market Uncertainties and Prospective Trends 105
Critical Accounting Policies and Estimates 107
Non-GAAP Information 108
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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 its 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 currently has approximately 440 banking centers 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 and Transactions 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 six months of 2020 is only for legacy FHN. Preferred Stock OnMay 3, 2021 , FHN issued 1,500 shares of Series F Non-Cumulative Perpetual Preferred Stock with an aggregate liquidation preference of$150 million (the Series F Preferred Stock). Dividends on the Series F Preferred Stock, if declared, accrue and are payable quarterly, in arrears, at a rate of 4.70% per annum. For the issuance, FHN issued depositary shares, each of which represents a fractional ownership interest in a share of FHN's preferred stock. OnMay 13, 2021 , FHN provided notice of its intent to redeem all outstanding shares of Series A Preferred Stock effectiveJuly 10, 2021 . For more information on these transactions, see Note 8 - Preferred Stock. Banking Center Optimization Banking clients' utilization of digital capabilities to transact and purchase products and services has been on the rise, and the impact of the COVID-19 pandemic has accelerated this trend. In connection with the IBKC merger and the related impact of the pandemic, we conducted a comprehensive analysis of the enterprise-wide digital platforms and the banking center network. As a result, FHN determined that it was prudent to accelerate banking center closures in certain markets, resulting in the closure of 52 banking centers inJuly 2021 and plans to close an additional 20 banking centers in fourth quarter 2021. Financial Summary Second Quarter 2021 Highlights Second quarter 2021 net income available to common shareholders was$295 million , or$0.53 per diluted share, compared to$225 million , or$0.40 per diluted share, in first quarter 2021 and$52 million , or$0.17 per diluted share, in second quarter 2020. Net interest income of$497 million declined$11 million from first quarter 2021 as the impact of a decrease in average loans, lower spreads and short-term rates was partially offset by improved deposit costs. Compared with second quarter 2020, net interest income increased$192 million , or 63%, driven by the impact of the IBKC merger and Truist branch acquisition. Results also reflect the benefit of deposit pricing discipline and growth in PPP lending which partially offset the impact of lower interest rates. Provision for credit losses benefit of$115 million in second quarter 2021 compared to a benefit of$45 million in first quarter 2021 and an expense of$121 million in second quarter 2020, driven by an improved macroeconomic outlook, positive credit grade migration, and lower loan balances following the COVID-19 pandemic. Noninterest income of$285 million decreased$13 million from strong first quarter 2021 levels, largely as FIRST HORIZON CORPORATION 75 2Q21
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a decline in fixed income and mortgage banking and title fees was partially offset by an increase in other noninterest income, bankcard fees and deferred compensation income. Compared with second quarter 2020, noninterest income increased$79 million driven by the impact of the IBKC merger. Noninterest expense of$498 million decreased$46 million from first quarter 2021, driven by a decline in IBKC merger integration expenses. Compared with second quarter 2020, noninterest expense increased$178 million driven by the impact of the IBKC merger and Truist branch acquisition. Noninterest expense for the second quarter of 2021 included$32 million of merger and acquisition-related costs compared to$70 million in first quarter 2021 and$14 million in second quarter 2020. Year-to-Date and Period End Highlights For the six months endedJune 30, 2021 , net income available to common shareholders was$519 million , or$0.93 per diluted share, compared to$64 million , or$0.21 per diluted share, for the six months endedJune 30, 2020 . The increase was primarily driven by the impact of the IBKC merger and a reduction in provision for credit losses. Period-end loans and leases of$56.7 billion decreased$1.5 billion , or 3%, fromDecember 31, 2020 driven by an$860 million decrease in consumer loans and a$559 million decrease in commercial loans, largely in loans to mortgage companies. Average loans and leases of$56.8 billion in second quarter 2021 increased$22.8 billion from$34.0 billion in second quarter 2020 driven by the impact of the IBKC merger. Period-end deposits of$73.3 billion increased$3.3 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$73.2 billion in second quarter 2021 increased from$37.5 billion in second quarter 2020 driven by the IBKC merger and Truist branch acquisition. Tier 1 risk-based capital and total risk-based capital ratios atJune 30, 2021 were 11.44% and 13.14%, improved from 10.74% and 12.57% atDecember 31, 2020 , respectively. The CET1 ratio was 10.28% atJune 30, 2021 compared to 9.68% atDecember 31, 2020 . The following portions of this MD&A focus in more detail on the results of operations for the three and six months endedJune 30, 2021 , the three months endedMarch 31, 2021 , and the three and six months endedJune 30, 2020 and on information about FHN's financial condition, loan and lease portfolio, liquidity, funding resources, capital and other matters. FIRST HORIZON CORPORATION 76 2Q21
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Table 1 - Key Performance Indicators
As of or for the three months ended As of or for the six months ended
(Dollars in millions, except per
share data) June 30, 2021 March 31, 2021 June 30, 2020 June 30, 2021 June 30, 2020
Pre-provision net revenue (a) $ 284 $ 262 $ 191 $ 545 $ 366
Diluted earnings per common share $ 0.53 $ 0.40 $ 0.17 $ 0.93 $ 0.21
Return on average assets (b) 1.42 % 1.12 % 0.48 % 1.27 % 0.32 %
Return on average common equity
(c) 15.45 % 12.01 % 4.50 % 13.75 % 2.79 %
Return on average tangible common
equity (a) (d) 20.36 % 15.90 % 6.74 % 18.16 % 4.19 %
Net interest margin (e) 2.47 % 2.63 % 2.90 % 2.55 % 3.02 %
Noninterest income to total
revenue (f) 35.49 % 37.00 % 40.49 % 36.26 % 38.61 %
Efficiency ratio (g) 64.61 % 67.54 % 62.56 % 66.11 % 62.90 %
Allowance for loan and lease
losses to total loans and leases 1.44 % 1.56 % 1.64 % 1.44 % 1.64 %
Net charge-offs (recoveries) to
average loans and leases
(annualized) (0.07) % 0.06 % 0.20 % (0.01) % 0.15 %
Total period-end equity to
period-end assets 9.74 % 9.49 % 10.71 % 9.74 % 10.71 %
Tangible common equity to tangible
assets (a) 6.87 % 6.64 % 6.63 % 6.87 % 6.63 %
Cash dividends declared per common
share $ 0.15 $ 0.15 $ 0.15 $ 0.30 $ 0.30
Book value per common share $ 14.07 $ 13.65 $ 14.96 $ 14.07 $ 14.96
Tangible book value per common
share (a) $ 10.74 $ 10.30 $ 9.99 $ 10.74 $ 9.99
Common equity Tier 1 10.28 % 9.97 % 9.25 % 10.28 % 9.25 %
Market capitalization $ 9,519 $ 9,341 $ 3,111 $ 9,519 $ 3,111
(a) Represents a non-GAAP measure which is reconciled in the non-GAAP to GAAP
reconciliation in Table 24.
(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.The following tables present the average balance sheets and the major
components of net interest income and net interest margin.
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Table 2-Consolidated Average Balance Sheets, Net Interest Income and
Yields/Rates
Three Months Ended
(Dollars in millions) June 30, 2021 March 31, 2021 June 30, 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 $ 44,890 $ 380 3.39 % $ 45,703 $ 382 3.39 % $ 27,404 $ 244 3.56 %
Consumer loans 11,939 118 3.99 12,519 128 4.13 6,564 65 4.00
Total loans and leases 56,829 498 3.52 58,222 510 3.55 33,968 309 3.65
Loans held for sale 734 7 3.94 842 7 3.16 731 7 3.61
Investment securities 8,401 29 1.39 8,321 29 1.41 4,541 24 2.23
Trading securities 1,322 7 2.03 1,418 7 2.03 1,420 9 2.48
Federal funds sold 38 - 0.13 45 - 0.12 28 - 0.22
Securities purchased under agreements
to resell (a) 610 - (0.07) 554 - (0.14) 394 - (0.08)
Interest-bearing deposits with banks 13,051 3 0.10 9,269 2 0.10 1,620 - 0.09
Total earning assets / Total interest
income $ 80,985 $ 544 2.70 % $ 78,671 $ 555 2.86 % $ 42,702 $ 349 3.29 %
Cash and due from banks 1,267 1,250 562
Goodwill and other intangible assets,
net 1,843 1,857 1,555
Allowance for loan and lease losses (884) (949) (476)
Other assets 4,348 4,572 3,591
Total assets $ 87,559 $ 85,401 $ 47,934 Liabilities and Shareholders' Equity:
Interest-bearing deposits: Savings$ 27,238 $ 11 0.16 %$ 27,370 $ 12 0.19 %$ 14,118 $ 13 0.36 % Other interest-bearing deposits 16,029 6 0.15 15,491 6 0.16 9,256 3 0.13 Time deposits 4,487 7 0.65 4,836 6 0.47 2,837 9 1.31 Total interest-bearing deposits 47,754 24 0.20 47,697 24 0.20 26,211 25 0.38 Federal funds purchased 1,006 - 0.10 996 - 0.10 1,037 - 0.12 Securities sold under agreements to repurchase 1,116 1 0.20 1,145 1 0.21 1,011 1 0.36 Trading liabilities 560 2 1.17 518 1 0.73 352 1 1.11 Other short-term borrowings 126 - 1.34 139 - 1.01 555 - 0.17 Term borrowings 1,672 18 4.38 1,670 18 4.39 1,426 14 3.96 Total interest-bearing liabilities / Total interest expense$ 52,234 $ 45 0.34 %$ 52,165 $ 44 0.34 %$ 30,592 $ 41 0.54 % Noninterest-bearing liabilities: Noninterest-bearing deposits 25,404 23,284 11,316 Other liabilities 1,462 1,603 908 Total liabilities 79,100 77,052 42,816 Shareholders' equity 8,164 8,054 4,823 Noncontrolling interest 295 295 295 Total shareholders' equity 8,459 8,349 5,118 Total liabilities and shareholders' equity$ 87,559 $ 85,401 $ 47,934 Net earnings assets / Net interest income (TE) / Net interest spread$ 28,751 $ 499 2.36 %$ 26,506 $ 511 2.52 %$ 12,110 $ 308 2.75 % Taxable equivalent adjustment (2) 0.11 (3) 0.11 (3) 0.15 Net interest income / Net interest margin (b) $ 497 2.47 % $ 508 2.63 % $ 305 2.90 % (a) Negative yield for all periods 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 78 2Q21 FORM 10-Q REPORT
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Second Quarter 2021 versus First Quarter 2021 Net interest income in second quarter 2021 decreased$11 million from first quarter 2021 as the impact of lower average loan balances, spreads, short-term rates and a reduction in net merger-related benefits was partially offset by an improvement tied to day count and reduced deposit costs. The net interest margin of 2.47% in second quarter 2021 decreased 16 basis points from first quarter 2021 primarily driven by an increase in excess cash. Average earning assets of$81.0 billion in second quarter 2021 increased$2.3 billion from first quarter 2021 largely due to a$3.8 billion increase in interest-bearing cash which was partially offset by a$1.4 billion decrease in loans and leases. Second Quarter 2021 versus Second Quarter 2020 Net interest income increased$192 million from second quarter 2020 to$497 million in second quarter 2021 driven by the impact of the IBKC merger and Truist branch acquisition in third quarter 2020. Results also reflect the benefit of growth in PPP lending and continued deposit pricing discipline, partially offset by the effect of lower interest rates and spreads. Second quarter 2021 net interest margin decreased 43 basis points from 2.90% in second quarter 2020, driven by the impact of lower interest earning asset yields from a decline in short-term interest rates and greater levels of excess cash. Results also reflect the benefit of higher purchase accounting accretion from the IBKC merger and additional PPP lending. Average earning assets increased$38.3 billion to$81.0 billion in second quarter 2021 from$42.7 billion in the second quarter of 2020, primarily driven by the IBKC merger and Truist branch acquisition. FIRST HORIZON CORPORATION 79 2Q21
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Table 3-Consolidated YTD Average Balance Sheets, Net Interest Income and
Yields/Rates
Six Months Ended
June 30, 2021 June 30, 2020
Average Interest Average Interest
(Dollars in millions) Balance Income/Expense Yield/Rate Balance Income/Expense Yield/Rate
Assets:
Loans and leases:
Commercial loans and leases $ 45,294 $ 762 3.39 % $ 25,648 $ 500 3.92 %
Consumer loans 12,227 245 4.06 6,598 137 4.17
Total loans and leases 57,521 1,007 3.53 32,246 637 3.97
Loans held for sale 788 14 3.52 661 13 4.08
Investment securities 8,361 58 1.40 4,504 52 2.37
Trading securities 1,370 14 2.00 1,626 23 2.73
Federal funds sold 41 - 0.12 19 - 0.44
Securities purchased under agreements to resell
(a) 582 - (0.10) 605 2 0.74
Interest-bearing deposits with banks 11,170 5 0.10 1,084 2 0.35
Total earning assets / Total interest income $ 79,833 $ 1,098 2.77 % $ 40,745 $ 729 3.60 %
Cash and due from banks 1,259 586
Goodwill and other intangible assets, net 1,850 1,558
Premises and equipment, net 734 451
Allowance for loan and lease losses (916) (415)
Other assets 3,726 2,818
Total assets $ 86,486 $ 45,743
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Savings $ 27,303 $ 23 0.17 % $ 13,118 $ 39 0.60 %
Other interest-bearing deposits 15,761 12 0.15 8,999 17 0.38
Time deposits 4,661 13 0.56 3,097 23 1.51
Total interest-bearing deposits 47,725 48 0.18 25,214 79 0.63
Federal funds purchased 1,001 - 0.10 892 3 0.57
Securities sold under agreements to repurchase 1,130 2 0.21 894 4 0.79
Trading liabilities 539 3 0.96 551 4 1.56
Other short-term borrowings 132 1 1.17 1,121 5 0.94
Term borrowings 1,671 37 4.38 1,109 22 3.97
Total interest-bearing liabilities / Total
interest expense $ 52,198 $ 91 0.34 % $ 29,781 $ 117 0.79 %
Noninterest-bearing liabilities:
Noninterest-bearing deposits 24,350 9,991
Other liabilities 1,534 911
Total liabilities 78,082 40,683
Shareholders' equity 8,109 4,765
Noncontrolling interest 295 295
Total shareholders' equity 8,404 5,060
Total liabilities and shareholders' equity $ 86,486 $ 45,743
Net earnings assets / Net interest income (TE) /
Net interest spread $ 27,635 $ 1,007 2.43 % $ 10,964 $ 612 2.81 %
Taxable equivalent adjustment (3) 0.12 (4) 0.21
Net interest income / Net interest margin (b) $ 1,004 2.55 % $ 608 3.02 %
(a) 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.
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For the six months endedJune 30, 2021 , net interest income of$1.0 billion increased$396 million from the year ago period driven by the benefit of the IBKC merger and Truist branch acquisition in third quarter 2020. Results also reflect the impact of lower interest-earning asset yields and spreads in addition to deposit pricing discipline. The year-to-date 2021 net interest margin decreased 38 basis points from the year ago period largely as the impact of lower loan yields and significantly higher levels of excess cash was partially offset by a reduction in deposit costs. 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 was a benefit of$115 million compared to a benefit of$45 million in first quarter 2021, largely reflecting continued improvement in the overall macroeconomic outlook, positive credit grade migration, and lower loan balances. Similarly, the provision for credit losses decreased$236 million from second quarter 2020 and decreased$435 million on a year-to-date basis, driven by an improvement in the overall macroeconomic outlook, positive credit grade migration and lower loan balances. 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 4 - Noninterest Income
Three Months Ended 2Q21 vs. 1Q21 2Q21 vs. 2Q20
March 31, June 30,
(Dollars in millions) June 30, 2021 2021
2020 $ Change % Change $ Change
% Change
Noninterest income:
Fixed income $ 102 $ 126 $ 112 $ (24) (19) % $ (10) (9) %
Mortgage banking and title
income 38 53 4 (15) (28) % 34 NM
Deposit transactions and cash
management 44 42 31 2 5 % 13 42 %
Brokerage, management fees
and commissions 21 20 14 1 5 % 7 50 %
Trust services and investment
management 14 12 8 2 17 % 6 75 %
Bankcard income 15 11 7 4 36 % 8 NM
Securities gains (losses),
net 11 - (1) 11 NM 12 - %
Other income 40 34 31 6 18 % 9 29 %
Total noninterest income $ 285 $ 298 $ 206 $ (13) (4) % $ 79 38 %
Certain previously reported amounts have been reclassified to agree with current
presentation.
NM - Not meaningful
Noninterest income of $285 million decreased $13 million , or 4%, from strong
first quarter 2021 levels. Fixed income decreased $24 million , or 19%, compared
to strong first quarter results, reflecting a continued favorable operating
environment including elevated liquidity and weak loan demand among depository
customers. Mortgage banking and title income decreased $15 million , or 28%,
reflecting the intentional shift in origination mix toward portfolio loans and
lower gain on sale spreads. Bankcard
income increased $4 million compared to first quarter 2021 largely from higher
transaction volume and an increase in rebate benefits. In addition, securities
gains of $11 million were recognized in the second quarter, primarily related to
a legacy IBKC equity investment.
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Compared to second quarter 2020, noninterest income increased$79 million , or 38%, largely driven by the impact of the IBKC merger. Results also reflect the benefit of securities gains and improvements in service charges and fees and bankcard income. The following table presents the significant components of noninterest income for the year-to-date periods presented:
Table 5 - Noninterest Income - YTD
Six Months Ended
(Dollars in millions) June 30, 2021 June 30, 2020 $ Change % Change
Noninterest income:
Fixed income $ 228 $ 208 $ 20 10 %
Mortgage banking and title income 91 7 84 NM
Deposit transactions and cash management 86 61 25 41 %
Brokerage, management fees and commissions 41 29 12 41 %
Trust services and investment management 26 15 11 73 %
Bankcard income 25 14 11 79 %
Securities gains (losses), net 11 (1) 12 NM
Other income 75 48 27 56 %
Total noninterest income $ 583 $ 381 $ 202 53 %
Certain previously reported amounts have been reclassified to agree with current
presentation.
NM - Not meaningful
For the six months ended June 30, 2021 , noninterest income of $583 million
increased $202 million , or 53%, compared to the same period in 2020, driven by
the impact of the IBKC merger as well as a $20 million increase in fixed income,
higher securities gains and higher other noninterest income.
Fixed income product revenue of $206 million increased 15%, largely driven by
favorable market conditions including a steeper yield curve and increased
depository liquidity. Revenue from other products of $22 million decreased $7
million , or 24%, primarily driven by lower fees from derivative and loan sales.
Deferred compensation income (included in other income) increased $10 million
for the year-to-date period of 2021 largely driven by equity market valuations
relative to the prior year.
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Noninterest Expense
The following tables present the significant components of noninterest expense for each of the periods presented:
Table 6 - Noninterest Expense
Three Months Ended 2Q21 vs. 1Q21 2Q21 vs. 2Q20
March 31, June 30,
(Dollars in millions) June 30, 2021 2021 2020 $ Change % Change $ Change % Change
Noninterest expense:
Personnel expense $ 306 $ 318 $ 200 $ (12) (4) % $ 106 53 %
Net occupancy expense 33 37 21 (4) (11) % 12 57 %
Computer software 30 28 17 2 7 % 13 76 %
Legal and professional fees 16 14 13 2 14 % 3 23 %
Operations services 19 16 12 3 19 % 7 58 %
Equipment expense 12 11 9 1 9 % 3 33 %
Amortization of intangible
assets 14 14 5 - - % 9 NM
Other expense 68 106 43 (38) (36) % 25 58 %
Total noninterest expense $ 498 $ 544 $ 320 $ (46) (8) % $ 178 56 %
Certain previously reported amounts have been reclassified to agree with current
presentation.
NM - Not meaningful
Compared to first quarter 2021, noninterest expense of $498 million decreased
$46 million , or 8%, driven by a $38 million decrease in merger and
acquisition-related expense. Personnel expense also decreased compared to first
quarter 2021 as a result of the benefit of merger cost saves, lower levels of
medical costs, and lower incentives and commissions which included the impact of
lower fixed income and mortgage banking results.
Noninterest expense increased $178 million , or 56%, compared to second quarter
2020 largely driven by the impact of the IBKC merger and Truist branch
acquisition.
Total merger and acquisition expenses were $32 million in second quarter 2021
compared to $70 million in first quarter 2021 and $14 million in second quarter
2020.
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Table 7 - Noninterest Expense-YTD
Six Months Ended 2Q21 vs. 2Q20
(Dollars in millions) June 30, 2021 June 30, 2020 $ Change % Change
Noninterest expense:
Personnel expense $ 624 $ 384 $ 240 63 %
Net occupancy expense 71 41 30 73 %
Computer software 57 32 25 78 %
Legal and professional fees 31 22 9 41 %
Operations services 35 23 12 52 %
Equipment expense 23 17 6 35 %
Amortization of intangible assets 28 11 17 NM
Other expense 173 93 80 86 %
Total noninterest expense $ 1,042 $ 623 $ 419 67 %
For the six months ended June 30, 2021 , noninterest expense increased $419
million , or 67%, 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 and an increase in deferred compensation expense
driven by equity market valuations. Other expense in 2021 included $36 million
in merger and acquisition expense tied to asset impairments primarily related to
continuing acquisition integration efforts associated with reduction of leased
office space and banking center optimization. Total merger and acquisition
expense was $102 million in the first six months of 2021 compared to $20 million
for the same period of 2020.
Income Taxes
FHN recorded income tax expense of $88 million in second quarter 2021, compared
to $71 million in first quarter 2021 and $13 million in second quarter 2020. For
the six months ended June 30, 2021 and 2020, FHN recorded income tax expense of
$159 million and $18 million , respectively. The effective tax rate was
approximately 22.0%, 23.2%, and 18.4% for the three months ended June 30, 2021 ,
March 31, 2021 and June 30, 2020 , respectively. The effective tax rate was
approximately 22.6% and 19.4% for the six months ended June 30, 2021 and
June 30, 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's FDIC 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 of June 30, 2021 , FHN's gross
DTA and gross DTL were $433 million and $439 million , respectively, resulting in
a net DTL of $6 million at June 30, 2021 , compared with a net DTA of less than
$1 million at December 31, 2020 .
As of June 30, 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.
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Business Segment Results
During 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. The closing
of the FHN and IBKC merger of equals 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 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 $361 million for second
quarter 2021 compared to $286 million for first quarter 2021 primarily driven by
lower provision for credit losses from continued improvement in the overall
macroeconomic outlook, positive credit migration, and lower loan balances. In
addition, total revenue increased $25 million on a linked quarter basis largely
due to higher net interest income.
Pre-tax income for second quarter 2021 increased $348 million compared to
$13 million for second quarter 2020. The Regional Banking segment generated
pre-tax income of $646 million for the six months ended June 30, 2021 compared
to $9 million for the six months ended June 30, 2020 . These increases 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 $177 million for
second quarter 2021 compared to $197 million for first quarter 2021. The
decrease reflected lower revenue partially offset by lower provision for credit
losses and lower noninterest expense. The decline in revenue was primarily
attributable to lower fixed income and mortgage banking and title fees. Fixed
income decreased $23 million compared to strong first quarter results reflecting
a continued favorable operating environment including elevated liquidity and
weak loan demand among depository customers. Mortgage banking and title income
decreased $14 million
reflecting the impact of higher long-term rates, housing supply constraints,
lower gain on sale spreads and an intentional shift in origination mix toward
portfolio loans.
Pre-tax income in the Specialty Banking segment increased $52 million for second
quarter 2021 compared to $125 million for second quarter 2020.
Pre-tax income of $374 million for the six months ended June 30, 2021 increased
$200 million compared to $174 million for the six months ended June 30, 2020 .
These increases were largely 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 $139 million for second quarter
2021 compared to $176 million for first quarter 2021, reflecting a decrease in
noninterest expense primarily from lower merger and integration-related costs
and an increase in noninterest income primarily resulting from securities gains
related to a legacy IBKC equity investment. These improvements were partially
offset by higher net interest expense.
Pre-tax loss in the Corporate segment increased $71 million compared to second
quarter 2020. Pre-tax loss of $315 million for the six months ended June 30,
2021 increased $223 million compared to $92 million for the six months ended
June 30, 2020 . The increase in pre-tax loss for these periods was attributable
to merger and integration-related costs, 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 deferred compensation income driven
by equity market valuations relative to the prior year and securities gains
related to a legacy IBKC equity investment.
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Financial Condition
Total period-end assets were $87.9 billion at June 30, 2021 compared to $84.2
billion at December 31, 2020 . Asset growth during 2021 was driven by a $5.2
billion increase in cash from deposit growth, offset by a $1.5 billion decrease
in loans and leases.
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 decreased $1.5 million , or 3% to $56.7 billion as of
June 30, 2021 from $58.2 billion on December 31, 2020 , driven by a $559 million
decrease in commercial loans primarily tied to PPP loans, as well as a $986
million decrease in consumer loans. Average loans and leases decreased to $56.8
billion in second quarter 2021 compared to $58.2 billion in first quarter 2021
and increased from $34.0 billion in second quarter 2020 primarily from acquired
loans during third quarter 2020.
The following table provides detail regarding FHN's loans and leases as of
June 30, 2021 and December 31, 2020 .
Table 8-Loans and Leases
As of June 30, 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) $ 32,528 57 % $ 33,104 57 % (2) %
Commercial real estate 12,292 22 12,275 21 -
Total commercial 44,820 79 45,379 78 (1)
Consumer:
Consumer real estate 10,865 19 11,725 20 (7)
Credit card and other 1,002 2 1,128 2 (11)
Total consumer 11,867 21 12,853 22 (8)
Total loans and leases $ 56,687 100 % $ 58,232 100 % (3) %
(a)Includes equipment financing loans and leases.
C&I loans are the largest component of the loan portfolio, comprising 57% of total loans at the end of the second quarter 2021 and year-end 2020. C&I loans decreased 2% fromDecember 31, 2020 , largely driven by a decrease in PPP loans and lower balances within Specialty Banking, primarily from mortgage warehouse lending. Commercial real estate loans increased slightly in second quarter 2021 driven by growth in Regional Banking loans. Total consumer loans decreased 8% from year-end 2020 to$11.9 billion as ofJune 30, 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. OnJune 30, 2021 andDecember 31, 2020 , loans HFS were$977 million and$1.0 billion , respectively. The decrease in loans HFS was primarily driven by a 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$2 million at bothJune 30, 2021 andDecember 31, 2020 . FIRST HORIZON CORPORATION 86 2Q21 FORM 10-Q REPORT
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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 C&I heading 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 ofJune 30, 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$32.5 billion as ofJune 30, 2021 and$33.1 billion as ofDecember 31, 2020 and is comprised of loans and leases used for general business purposes. Products offered in the C&I portfolio include term loan financing of owner-occupied real estate and fixed assets, PPP loans, direct financing and sales-type leases, working capital lines of credit, and trade credit enhancement through letters of credit. The largest geographical concentrations of balances in the C&I portfolio as ofJune 30, 2021 were inTennessee (20%),Florida (12%),Texas (10%),Louisiana (8%),North Carolina (8%),California (6%), andGeorgia (5%). No other state represented more than 5% of the portfolio. The following table provides the composition of the C&I portfolio by industry as ofJune 30, 2021 , andDecember 31, 2020 . For purposes of this disclosure, industries are determined based on the North American Industry Classification System (NAICS) industry codes used by Federal statistical agencies in classifying business establishments for the collection, analysis, and publication of statistical data related to theU.S. business economy. Table 9 - C&I Loan Portfolio by Industry June 30, 2021 December 31, 2020 (Dollars in millions) Amount Percent Amount Percent Industry: Loans to mortgage companies$ 4,876 15 % $ 5,404 16 % Finance and insurance 3,199 10 3,130 10 Health care and social assistance 2,741 8 2,689 8 Real estate rental and leasing (a) 2,502 8 2,365 7 Accommodation and food service 2,480 8 2,303 7 Wholesale trade 2,062 6 2,079 6 Manufacturing 2,065 6 1,907 6 Retail trade 1,570 5 1,531 5 Energy 1,469 5 1,686 5 Other (professional, construction, transportation, etc.) (b) 9,564 29 10,010 30 Total C&I loan portfolio$ 32,528 100 % $ 33,104 100 %
(a)Leasing, rental of real estate, equipment, and goods.
(b)Industries in this category each comprise less than 5% as of
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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 ofJune 30, 2021 , and as a result could be affected by items that uniquely impact the financial services industry. As ofJune 30, 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 15% of the C&I portfolio as ofJune 30, 2021 and 16% as ofDecember 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 second quarter 2021, 53% of the loan originations were home purchases and 47% were refinance transactions. On a year-to-date basis, approximately 58% of originations were refinance transactions. Finance and Insurance The finance and insurance component represented 10% of the C&I portfolio as ofJune 30, 2021 andDecember 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 ofJune 30, 2021 , asset-based lending to consumer finance companies represents approximately$1.3 billion of the finance and insurance component. 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 in 2021, and may make further revisions in the future. AtJune 30, 2021 , FHN had 38,075 of PPP loans with an aggregate principal balance of$3.8 billion . For these loans, there are remaining net lender fees of approximately$70 million to be paid to FHN as ofJune 30, 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 ofJune 30, 2021 , and FHN has assigned a risk weight of zero to PPP loans for regulatory capital purposes.Commercial Real Estate The CRE portfolio totaled$12.3 billion as of bothJune 30, 2021 andDecember 31, 2020 . The CRE portfolio reflects financings for both commercial construction and nonconstruction loans. The largest geographical concentrations of CRE loan balances as ofJune 30, 2021 were inFlorida (27%),North Carolina (12%),Louisiana (12%),Texas (12%),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 (26%), office (22%), retail (18%), industrial (12%), hospitality (11%), land/land development (2%), and other (9%). Consumer Loan PortfoliosConsumer Real Estate The consumer real estate portfolio totaled$10.9 billion and$11.7 billion as ofJune 30, 2021 andDecember 31, 2020 , respectively, and is primarily composed of home equity lines and installment loans. The largest geographical concentrations of balances as ofJune 30, 2021 , were inFlorida (32%),Tennessee (25%),Louisiana (10%),North Carolina (8%), andTexas (5%). No other state represented more than 5% of the portfolio. As ofJune 30, 2021 , approximately 86% 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 764 as ofJune 30, 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. FIRST HORIZON CORPORATION 88 2Q21 FORM 10-Q REPORT
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As ofJune 30, 2021 andDecember 31, 2020 , FHN had held-for-investment consumer mortgage loans secured by real estate that were in the process of foreclosure totaling$31 million and$36 million , respectively. HELOCs comprised$2.2 billion and$2.4 billion of the consumer real estate portfolio as ofJune 30, 2021 andDecember 31, 2020 , respectively. 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 bothJune 30, 2021 andDecember 31, 2020 , approximately 87% of FHN's HELOCs were in the draw period. It is expected that$435 million , or 23% 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 10-HELOC Draw To Repayment Schedule
June 30, 2021 December 31, 2020
Repayment Repayment
(Dollars in millions) Amount Percent Amount Percent
Months remaining in draw period:
0-12 $ 56 3 % $ 73 4 %
13-24 51 3 66 3
25-36 51 3 62 3
37-48 105 5 67 3
49-60 172 9 187 8
>60 1,464 77 1,662 79
Total $ 1,899 100 % $ 2,117 100 %
Credit Card and Other
The credit card and other portfolio, which is primarily within the Regional
Banking segment, totaled $1.0 billion as of June 30, 2021 and primarily includes
consumer-related credits, including home equity and other personal consumer
loans, credit card receivables, and automobile loans. The $126 decrease from
December 31, 2020 was driven by net repayments of consumer construction loans.
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 ALLL decreased to $815 million on June 30, 2021 from $963 million
on December 31, 2020 reflecting improvement in the macroeconomic forecast
compared to 2020, positive grade migration,
and lower loan balances. The ratio of ALLL to total loans and leases decreased
21 basis points from December 31, 2020 to 1.44% on June 30, 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 $109 million in second quarter 2021
compared to a provision expense of $110 million in second quarter 2020. The
decrease is primarily attributable to an improving economic forecast, as second
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
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broad mix of categories with the heaviest concentration in loans to mortgage companies which carry minimal credit risk. The C&I portfolio as ofJune 30, 2021 includes$3.8 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 recoveries in second quarter 2021 were$10 million , or an annualized 7 basis points of total loans and leases, compared to net charge-offs of$17 million , or 20 basis points in second quarter 2020. Net recoveries in the commercial portfolio in second quarter 2021 were$4 million compared to charge-offs of$17 million in second quarter 2020. The decrease in net charge-offs reflected continued improvement in overall asset quality. Net recoveries in the consumer portfolio were$6 million in second quarter 2021, driven by consumer real estate recoveries in the Corporate and Regional Banking segments, compared to minimal net recoveries in second quarter 2020. Table 11-Analysis of Allowance for Loan and Lease Losses and Charge-offs (Dollars in millions) Allowance for loan and lease losses (a) June 30, 2021 December 31, 2020 June 30, 2020 C&I $ 385 $ 453 $ 319 CRE 210 242 57 Consumer real estate 203 242 144 Credit card and other 17 26 18 Total allowance for loan and lease losses $ 815 $ 963 $ 538
Period-end loans and leases (b)
C&I $ 32,528 $ 33,104 $ 21,394
CRE 12,292 12,275 4,813
Consumer real estate 10,865 11,725 6,053
Credit card and other 1,002 1,128 449
Total period-end loans and leases $ 56,687 $ 58,232 $ 32,709
ALLL / loans and leases %
C&I 1.18 % 1.37 % 1.49 %
CRE 1.71 1.97 1.19
Consumer real estate 1.87 2.07 2.38
Credit card and other 1.71 2.34 4.03
Total ALLL / loans and leases % 1.44 % 1.65 % 1.64 %
Quarter-to-date net charge-offs (recoveries)
C&I $ (3) $ 31 $ 17
CRE (1) (1) -
Consumer real estate (7) (3) (2)
Credit card and other 1 2 2
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Total net charge-offs (recoveries) $ (10) $ 29 $ 17
Average loans and leases (b)
C&I $ 32,540 $ 34,196 $ 22,694
CRE 12,350 12,400 4,710
Consumer real estate 10,926 12,030 6,088
Credit card and other 1,013 1,194 476
Total average loans and leases $ 56,829 $ 59,820 $ 33,968 Charge-off % (annualized)
C&I (0.04) % 0.36 % 0.30 %
CRE (0.02) (0.02) (0.01)
Consumer real estate (0.28) (0.12) (0.13)
Credit card and other 0.51 0.68 1.35
Total charge-off % (0.07) % 0.19 % 0.20 %
ALLL / annualized net charge-offs
C&I NM 3.67 x 4.63 x
CRE NM NM NM
Consumer real estate NM NM NM
Credit card and other 3.29 x 3.23 x 2.82 x
Total ALLL / net charge-offs NM 8.41 x 8.05 x
ALLL / NPLs
C&I 3.14 x 3.15 x 2.50 x
CRE 3.00 x 4.15 x 27.71 x
Consumer real estate 1.36 x 1.33 x 1.49 x
Credit card and other 7.25 x 13.13 x 71.14 x
Total ALLL / NPLs 2.37 x 2.49 x 2.38 x
NM - not meaningful
(a)The increase in the ALLL from second 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
first quarter 2021 was from an improvement in the overall economic forecast.
(b)The increase in period-end and average loans and leases from second quarter
2020 is primarily the result of $26.3 billion in acquired loans and leases in
third quarter 2020.
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 for which 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).
Reflecting an overall improvement in asset quality, total NPAs (including NPLs
HFS) decreased to $362 million as of June 30, 2021 from $406 million as of
December 31, 2020 . The nonperforming assets ratio (nonperforming assets
excluding NPLs HFS to total period-end loans plus OREO) was 0.62% as of June 30,
2021 , down 7 basis points from 0.69% as of December 31, 2020 . The ratio of the
ALLL to NPLs was 2.4 times as of June 30, 2021 compared to 2.5 times as of
December 31, 2020 .
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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 12-Nonperforming Assets by Loan Portfolio
(Dollars in millions)
Nonperforming loans and leases June 30, 2021 December 31, 2020
C&I $ 123 $ 144
CRE 70 58
Consumer real estate 149 182
Credit card and other 2 2
Total nonperforming loans and leases (a) $ 344 $ 386
Nonperforming loans held for sale (a) $ 8 $ 5
Foreclosed real estate and other assets (b) 10 15
Total nonperforming assets (a) (b) $ 362 $ 406
Nonperforming loans and leases to total loans and leases
C&I 0.38 % 0.43 %
CRE 0.57 0.48
Consumer real estate 1.37 1.56
Credit card and other 0.24 0.18
Total NPL % 0.61 % 0.66 %
(a)Excludes loans and leases that are 90 or more days past due and still
accruing interest.
(b)Balances do not include government-insured foreclosed real estate. Foreclosed
real estate from GNMA loans totaled $1 million at June 30, 2021 and $2 million
at December 31, 2020 .
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The following table provides nonperforming assets by business segment:
Table 13-Nonperforming Assets by Segment
(Dollars in millions)
Nonperforming loans and leases (a) (b) June 30, 2021 December 31, 2020
Regional Banking $ 209 $ 216
Specialty Banking 91 117
Corporate 44 53
Consolidated $ 344 $ 386Foreclosed real estate (c)
Regional Banking $ 8 $ 12
Specialty Banking 1 1
Corporate 1 2
Consolidated $ 10 $ 15Nonperforming Assets (a) (b) (c)
Regional Banking $ 217 $ 228
Specialty Banking 92 118
Corporate 45 55
Consolidated $ 354 $ 401Nonperforming loans and leases to loans and leases
Regional Banking 0.53 % 0.54 %
Specialty Banking 0.55 0.68
Corporate 5.09 5.70
Consolidated 0.61 % 0.66 %
NPA % (d)
Regional Banking 0.55 % 0.57 %
Specialty Banking 0.55 0.68
Corporate 5.17 5.87
Consolidated 0.62 % 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 June 30, 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 as of June 30, 2021 and December 31, 2020 .
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Table 14-Customer Deferrals
(Dollars in millions) As of June 30, 2021 As of December 31, 2020
Commercial:
C&I $ 38 $ 104
CRE 124 194
Total Commercial $ 162 $ 298
Consumer:
HELOC $ 8 $ 14
R/E installment loans 102 202
Credit card and other 3 4
Total Consumer $ 113 $ 220
Total $ 275 $ 518
Commercial deferrals at June 30, 2021 were comprised primarily of professional
commercial real estate (48% or $78 million ) and general commercial (37% or $61
million ).
To the extent that loans were past due at June 30, 2021 or December 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 $14 million on June 30, 2021 , compared to $17
million on December 31, 2020 . The decrease was primarily driven by consumer real
estate loans. Loans 30 to 89 days past due were $83 million on June 30, 2021 ,
compared to $100 million on December 31, 2020 . The decrease included a $23
million decrease in consumer real estate loans, a $17 million decrease in CRE
loans, and a $2 million decrease in credit card and other consumer loans,
partially offset by a $25 million increase in C&I loans past due 30 to 89 days.
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Table 15-Accruing Delinquencies
(Dollars in millions)
Accruing loans and leases 30+ days past due June 30, 2021 December 31, 2020
C&I $ 41 $ 15
CRE 6 23
Consumer real estate 42 69
Credit card and other 8 10
Total 30+ Delinquency $ 97 $ 117
Accruing loans and leases 30+ days past due %
C&I 0.13 % 0.05 %
CRE 0.05 0.19
Consumer real estate 0.39 0.58
Credit card and other 0.80 0.87
Total 30+ Delinquency % 0.17 % 0.20 %
Accruing loans and leases 90+ days past due (a) (b) (c):
C&I $ 1 $ -
CRE - -
Consumer real Estate 12 16
Credit card and other 1 1
Total accruing loans and leases 90+ days past due $ 14 $ 17
Loans held for sale
30 to 89 days past due (b) $ 5 $ 6
30 to 89 days past due - guaranteed portion (b) (d) 3 5
90+ days past due (b) 26 12
90+ days past due - guaranteed portion (b) (d) 12 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 $715 million on June 30, 2021 and $718 million on
December 31, 2020 . 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 internal policies and guidelines which conform to regulatory
guidance. Each occurrence is unique to the borrower and is evaluated separately.
In a
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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. OnJune 30, 2021 andDecember 31, 2020 , FHN had$274 million and$307 million portfolio loans classified as TDRs, respectively. For these TDRs, including specific reserves, FHN had an allowance for loan and lease losses of$16 million , or 6% of TDR balances as ofJune 30, 2021 , and$15 million , or 5% of TDR balances, as ofDecember 31, 2020 . Additionally, FHN had$38 million and$42 million of HFS loans classified as TDRs as ofJune 30, 2021 andDecember 31, 2020 , respectively. The following table provides a summary of TDRs for the periods endedJune 30, 2021 andDecember 31, 2020 : Table 16-Troubled Debt Restructurings (Dollars in millions) June 30, 2021 December 31, 2020 Held-for-investment: Consumer real estate: Current $ 74 $ 77 Delinquent 2 2 Non-accrual (a) 47 61 Total consumer real estate 123 140 Credit card and other: Current 1 1 Delinquent - - Non-accrual - - Total credit card and other 1 1 Commercial loans: Current 68 82 Delinquent - - Non-accrual 82 84 Total commercial loans 150 166 Total held-for-investment $ 274 $ 307 Held-for-sale: Current $ 33 $ 36 Delinquent 4 5 Non-accrual 1 1 Total held-for-sale 38 42 Total troubled debt restructurings $ 312 $ 349
(a)Balances as of
FIRST HORIZON CORPORATION 96 2Q21 FORM 10-Q REPORT
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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 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 onJune 30, 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 ofJune 30, 2021 increased 5% to$73.3 billion from$70.0 billion onDecember 31, 2020 , driven by an increase in non-interest bearing deposits largely reflecting the impact of government stimulus checks and PPP loan funding. The following table summarizes the major components of deposits as ofJune 30, 2021 andDecember 31, 2020 . Table 17- Deposits June 30, 2021 December 31, 2020 (Dollars in millions) Amount Percent of total Amount Percent of total Change Percent Savings$ 27,415 37 % $ 27,324 39 %$ 91 - % Time deposits 4,304 6 5,070 7 (766) (15) Other interest-bearing deposits 15,728 22 15,415 22 313 2 Interest-bearing deposits 47,447 65 47,809 68 (362) (1) Noninterest-bearing deposits 25,833 35 22,173 32 3,660 17 Total deposits$ 73,280 100 % $ 69,982 100 %$ 3,298 5 % Short-Term Borrowings Total short-term borrowings were$2.2 billion as ofJune 30, 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 ofJune 30, 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$8.6 billion atJune 30, 2021 and$8.3 billion atDecember 31, 2020 . Significant changes included net income of$546 million and the issuance of$145 million in Series F preferred stock, which were offset by$185 million in common and preferred dividends,$126 million in common share repurchases,$100 million from the call of Series A preferred stock and a decrease in AOCI of$63 million .
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