FIRST HORIZON CORPORATION
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations
TABLE OF ITEM 2 TOPICS
Introduction 75
Executive Overview 75
Results of Operations 77
Analysis of Financial Condition 87
Capital 98
Risk Management 101
Repurchase Obligations 105
Market Uncertainties and Prospective Trends 106
Critical Accounting Policies 109
Accounting Changes 109
Non-GAAP Information 110
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PART I, ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents IntroductionFirst Horizon Corporation (NYSE common stock trading symbol "FHN") is a financial holding company headquartered inMemphis, Tennessee . FHN's principal subsidiary, and only banking subsidiary, isFirst Horizon Bank . Through the Bank and other subsidiaries, FHN offers regional banking, mortgage lending, title insurance, specialized commercial lending, commercial leasing and equipment financing, brokerage, wealth management, capital markets, and other financial services to commercial, consumer, and governmental clients throughout theU.S. AtJune 30, 2022 , FHN had over 500
business locations in 22 states, including over 400 banking centers in 12 states, and employed more than 7,500 associates.
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 2021 Annual Report on Form 10-K, as amended.
Executive Overview
Merger Agreement with Toronto-Dominion Bank
OnFebruary 27, 2022 , FHN entered into an Agreement and Plan of Merger (the "TD Merger Agreement") with The Toronto-Dominion Bank, a Canadian chartered bank ("TD"),TD Bank US Holding Company , aDelaware corporation and indirect, wholly owned subsidiary of TD ("TD-US"), andFalcon Holdings Acquisition Co. , aDelaware corporation and wholly owned subsidiary of TD-US ("Merger Sub"). Pursuant to the TD Merger Agreement, FHN and Merger Sub will merge (the "First Holding Company Merger"), with FHN continuing as the surviving entity in the merger. Following the First Holding Company Merger, at the election of TD, FHN and TD-US will merge (the "Second Holding Company Merger" and, together with the First Holding Company Merger, the "Holding Company Mergers"), with TD-US continuing as the surviving entity in the merger. Upon the terms and subject to the conditions set forth in the TD Merger Agreement, each share of FHN common stock, par value$0.625 per share, ("Company Common Stock"), issued and outstanding immediately prior to the effective time of the First Holding Company Merger (the "First Effective Time") will be converted into the right to receive$25.00 (USD) per share in cash, without interest. If the transaction does not close on or beforeNovember 27, 2022 , shareholders will receive an additional$0.65 per share of Company Common Stock on an annualized basis (or approximately5.4 cents per month) for the period fromNovember 27, 2022 through the day immediately prior to the closing. Each outstanding share of FHN's preferred stock, series B, C, D, E and F, will remain issued outstanding in connection with the First Holding Company Merger. If TD elects to effect the Second Holding Company Merger, at the effective time of the Second Holding Company Merger, each outstanding share of FHN's preferred stock will be converted into a share of a newly created, corresponding series of TD-US having terms as described in the Merger Agreement. Following the completion of the First Holding Company Merger, at such time as determined by TD,First Horizon Bank andTD Bank, N.A ., a national banking association ("TDBNA") will merge, with TDBNA surviving as a subsidiary of TD-US (the "Bank Merger" and together with the Holding Company Mergers, the "Proposed TD Merger"). In connection with the TD Merger Agreement, TD purchased from FHN shares of non-voting Perpetual Convertible Preferred Stock, Series G, a new series of preferred stock of FHN (the "Series G Convertible Preferred Stock") in a private placement transaction having an aggregate liquidation preference and purchase price of approximately$494 million , pursuant to a securities purchase agreement between FHN and TD entered into concurrently with the execution and delivery of the TD Merger Agreement. The Series G Convertible Preferred Stock is convertible into up to 4.9% of the outstanding shares of Company Common Stock in certain circumstances, including the closing of the Proposed TD Merger or the termination of the TD Merger Agreement.
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PART I, ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Financial Performance Summary
Second Quarter 2022 Highlights
FHN reported second quarter 2022 net income available to common shareholders of$166 million , or$0.29 per diluted share, compared to$187 million , or$0.34 per diluted share, in first quarter 2022 and$295 million , or$0.53 per diluted share, in second quarter 2021. Net interest income of$542 million increased$63 million from first quarter 2022 reflecting the benefit of higher rates, loan growth, and higher investment portfolio income, partially offset by higher funding costs. Compared to second quarter 2021, net interest income increased$45 million , driven by higher average investment portfolio balances and higher earning asset yields. Provision for credit losses was$30 million in second quarter 2022 compared to a benefit of$40 million in first quarter 2022 largely reflecting the impact of loan growth and a revised macroeconomic outlook. The provision for credit losses increased$145 million compared to a benefit of$115 million in second quarter 2021, as the benefit in the prior year reflected an improved macroeconomic outlook, positive credit grade migration, and lower loan balances.
Noninterest income of
Noninterest expense of$488 million decreased$5 million from first quarter 2022, largely reflecting decreases in personnel, contract employment and outsourcing, and legal and professional expenses, partially offset by an increase in other noninterest expense. Compared with second quarter 2021, noninterest expense decreased$10 million largely reflecting a$41 million decrease in personnel expense offset by a$26 million increase in other noninterest expense. Merger and acquisition expenses related to the IBKC and Proposed TD Mergers totaled$38 million for the second quarter of 2022 compared to$37 million in first quarter 2022 and$32 million in second quarter 2021.
Year-to-Date and Period End Highlights
For the six months ended
Period-end loans and leases of$56.5 billion increased$1.7 billion fromDecember 31, 2021 largely driven by commercial loan growth which was partially offset by a$663 million decrease in PPP loans. Average loans and leases of$55.6 billion in second quarter 2022 decreased$1.2 billion from$56.8 billion in second quarter 2021 largely driven by a decline in PPP loans partially offset by non-PPP commercial loan growth. Period-end deposits of$70.5 billion decreased$4.3 billion , or 6%, fromDecember 31, 2021 driven by a$3.6 billion decrease in interest-bearing deposits and a$769 million decrease in noninterest-bearing deposits. Average deposits decreased$1.2 billion from second quarter 2021 from higher deposit balances in the prior year associated with elevated liquidity related to the COVID-19 pandemic. Tier 1 risk-based capital and total risk-based capital ratios atJune 30, 2022 were 11.62% and 12.96%, an improvement from 11.04% and 12.34% atDecember 31, 2021 , respectively. The CET1 ratio was 9.81% atJune 30, 2022 compared to 9.92% atDecember 31, 2021 . The following portions of this MD&A focus in more detail on the results of operations for the three and six months endedJune 30, 2022 , the three months endedMarch 31, 2022 , and the three and six months endedJune 30, 2021 and on information about FHN's financial condition, loan and lease portfolio, liquidity, funding sources, capital and other matters.
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PART I, ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Table I.2.1
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, 2022 March 31, 2022
$ 215 $ 284 $ 469 $ 545
Diluted earnings per common share $ 0.29 $ 0.34 $ 0.53 $ 0.63 $ 0.93
Return on average assets (b) 0.82 % 0.90 % 1.42 % 0.86 % 1.27 %
Return on average common equity
(c) 9.12 % 9.92 % 15.45 % 9.52 % 13.75 %
Return on average tangible common
equity (a) (d) 12.07 % 12.98 % 20.36 % 12.54 % 18.16 %
Net interest margin (e) 2.74 % 2.37 % 2.47 % 2.55 % 2.55 %
Noninterest income to total
revenue (f) 27.06 % 31.75 % 35.49 % 29.34 % 36.26 %
Efficiency ratio (g) 65.76 % 70.23 % 64.61 % 67.93 % 66.11 %
Allowance for loan and lease
losses to total loans and leases 1.10 % 1.13 % 1.44 % 1.10 % 1.44 %
Net charge-offs (recoveries) to
average loans and leases
(annualized) 0.09 % 0.07 % (0.07) % 0.08 % (0.01) %
Total period-end equity to
period-end assets 10.04 % 9.81 % 9.74 % 10.04 % 9.74 %
Tangible common equity to tangible
assets (a) 6.55 % 6.44 % 6.87 % 6.55 % 6.87 %
Cash dividends declared per common
share $ 0.15 $ 0.15 $ 0.15 $ 0.30 $ 0.30
Book value per common share $ 13.50 $ 13.82 $ 14.07 $ 13.50 $ 14.07
Tangible book value per common
share (a) $ 10.18 $ 10.46 $ 10.74 $ 10.18 $ 10.74
Common equity Tier 1 9.81 % 9.97 % 10.28 % 9.81 % 10.28 %
Market capitalization $ 11,724 $ 12,557 $ 9,519 $ 11,724 $ 9,519
(a) Represents a non-GAAP measure which is reconciled in the non-GAAP to GAAP
reconciliation in Table I.2.27.
(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 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 major components of net interest income and net interest margin:
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PART I, ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
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Table I.2.2
QUARTER-TO-DATE AVERAGE BALANCES, NET INTEREST INCOME & YIELDS/RATES
Three Months Ended
(Dollars in millions) June 30, 2022 March 31, 2022 June 30, 2021
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 $ 43,589 $ 382 3.52 % $ 42,444 $ 339 3.24 % $ 44,890 $ 380 3.39 %
Consumer loans 11,987 112 3.74 11,638 108 3.71 11,939 118 3.99
Total loans and leases 55,576 494 3.57 54,082 447 3.34 56,829 498 3.52
Loans held for sale 1,027 10 3.89 1,156 10 3.51 734 7 3.94
Investment securities 9,781 46 1.87 9,668 38 1.59 8,401 29 1.39
Trading securities 1,509 13 3.43 1,594 11 2.75 1,322 7 2.03
Federal funds sold 228 1 1.11 81 - 0.19 38 - 0.13
Securities purchased under agreements
to resell (a) 629 1 0.49 672 - (0.07) 610 - (0.07)
Interest-bearing deposits with banks 10,989 21 0.79 14,902 7 0.19 13,051 3 0.10
Total earning assets / Total interest
income $ 79,739 $ 586 2.95 % $ 82,155 $ 513 2.52 % $ 80,985 $ 544 2.70 %
Cash and due from banks 1,281 1,226 1,267
Goodwill and other intangible assets,
net 1,789 1,802 1,843
Allowance for loan and lease losses (621) (658) (884)
Other assets 4,138 4,062 4,348
Total assets $ 86,326 $ 88,587 $ 87,559 Liabilities and Shareholders' Equity:
Interest-bearing deposits: Savings$ 24,841 $ 5 0.08 %$ 26,330 $ 3 0.05 %$ 27,238 $ 11 0.16 % Other interest-bearing deposits 16,273 9 0.22 16,557 4 0.09 16,029 6 0.15 Time deposits 3,040 4 0.50 3,343 4 0.51 4,487 7 0.65 Total interest-bearing deposits 44,154 18 0.16 46,230 11 0.10 47,754 24 0.20 Federal funds purchased 733 1 0.80 884 - 0.20 1,006 - 0.10 Securities sold under agreements to repurchase 770 1 0.32 1,001 - 0.10 1,116 1 0.35 Trading liabilities 585 4 2.52 614 2 1.69 560 2 1.17 Other short-term borrowings 207 - 0.81 110 1 0.13 126 - 0.07 Term borrowings 1,597 17 4.38 1,591 17 4.29 1,672 18 4.38 Total interest-bearing liabilities / Total interest expense$ 48,046 $ 41 0.34 %$ 50,430 $ 31 0.25 %$ 52,234 $ 45 0.34 % Noninterest-bearing liabilities: Noninterest-bearing deposits 27,791 27,926 25,404 Other liabilities 1,875 1,613 1,462 Total liabilities 77,712 79,969 79,100 Shareholders' equity 8,319 8,323 8,164 Noncontrolling interest 295 295 295 Total shareholders' equity 8,614 8,618 8,459 Total liabilities and shareholders' equity$ 86,326 $ 88,587 $ 87,559 Net earnings assets / Net interest income (TE) / Net interest spread$ 31,693 $ 545 2.61 %$ 31,725 $ 482 2.27 %$ 28,751 $ 499 2.36 % Taxable equivalent adjustment (3) 0.13 (3) 0.10 (2) 0.11 Net interest income / Net interest margin (b) $ 542 2.74 % $ 479 2.37 % $ 497 2.47 % (a) Negative 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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PART I, ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Second Quarter 2022 versus First Quarter 2022
Net interest income of$542 million in second quarter 2022 increased$63 million from first quarter 2022 driven by an increase in interest rates, higher average loan balances, and greater investment portfolio income, partially offset by a$6 million reduction tied to net merger-related and PPP loan portfolio benefits and higher funding costs.
The net interest margin of 2.74% in second quarter 2022 increased 37 basis points from first quarter 2022 primarily due to higher interest rates, lower interest-bearing cash balances, improved security yields, and loan growth, partially offset by an increase in funding costs.
Average earning assets of$79.7 billion in second quarter 2022 decreased$2.4 billion from first quarter 2022 largely due to a$3.9 billion decrease in interest-bearing cash, offset by a$1.5 billion increase in loans and leases, driven by a$1.1 billion increase in commercial loans and a$350 million increase in consumer loans.
Second Quarter 2022 versus Second Quarter 2021
Net interest income increased
Second quarter 2022 net interest margin increased 27 basis points from 2.47% in second quarter 2021, driven by the impact of higher yields on loans, interest-bearing cash and investments.
A
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PART I, ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Table I.2.3
YEAR-TO-DATE AVERAGE BALANCES, NET INTEREST INCOME & YIELDS/RATES
Six Months Ended
June 30, 2022 June 30, 2021
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 $ 43,020 $ 721 3.38 % $ 45,294 $ 762 3.39 %
Consumer loans 11,813 220 3.72 12,227 245 4.06
Total loans and leases 54,833 941 3.45 57,521 1,007 3.53
Loans held for sale 1,091 20 3.69 788 14 3.52
Investment securities 9,725 84 1.73 8,361 58 1.40
Trading securities 1,552 24 3.07 1,370 14 2.00
Federal funds sold 155 - 0.87 41 - 0.12
Securities purchased under agreements to resell
(a) 650 1 0.21 582 - (0.10)
Interest-bearing deposits with banks 12,934 29 0.45 11,170 5 0.10
Total earning assets / Total interest income $ 80,940 $ 1,099 2.73 % $ 79,833 $ 1,098 2.77 %
Cash and due from banks 1,254 1,259
Goodwill and other intangible assets, net 1,795 1,850
Premises and equipment, net 650 734
Allowance for loan and lease losses (639) (916)
Other assets 3,450 3,726
Total assets $ 87,450 $ 86,486
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Savings $ 25,581 $ 8 0.06 % $ 27,303 $ 23 0.17 %
Other interest-bearing deposits 16,414 13 0.15 15,761 12 0.15
Time deposits 3,191 8 0.51 4,661 13 0.56
Total interest-bearing deposits 45,186 29 0.13 47,725 48 0.18
Federal funds purchased 808 2 0.47 1,001 - 0.10
Securities sold under agreements to repurchase 885 1 0.19 1,130 2 0.34
Trading liabilities 599 6 2.10 539 3 0.96
Other short-term borrowings 159 - 0.58 132 1 0.07
Term borrowings 1,594 35 4.33 1,671 37 4.38
Total interest-bearing liabilities / Total
interest expense $ 49,231 $ 73 0.30 % $ 52,198 $ 91 0.34 %
Noninterest-bearing liabilities:
Noninterest-bearing deposits 27,859 24,350
Other liabilities 1,744 1,534
Total liabilities 78,834 78,082
Shareholders' equity 8,321 8,109
Noncontrolling interest 295 295
Total shareholders' equity 8,616 8,404
Total liabilities and shareholders' equity $ 87,450 $ 86,486
Net earnings assets / Net interest income (TE) /
Net interest spread $ 31,709 $ 1,026 2.43 % $ 27,635 $ 1,007 2.43 %
Taxable equivalent adjustment (5) 0.12 (3) 0.12
Net interest income / Net interest margin (b) $ 1,021 2.55 % $ 1,004 2.55 %
(a) 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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PART I, ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
For the six months ended
Despite the decrease in average loans and leases, total average earning assets increased$1.1 billion in the first six months of 2022 from higher levels of interest-bearing cash and investment securities.
The year-to-date net interest margin of 2.55% remained unchanged compared to the same period of 2021 as the decrease in earning asset yields was offset by a decrease in the cost of interest-bearing liabilities.
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. For the second quarter 2022, provision for credit losses was$30 million compared to a benefit of$40 million in first quarter 2022, largely reflecting the impact of non-PPP loan growth and a revised macroeconomic outlook. The second quarter 2022 provision increased$145 million from second quarter 2021 and increased$150 million on a year-to-date basis. The provision benefit in 2021 reflected an improved 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 I.2.4
NONINTEREST INCOME
Three Months Ended 2Q22 vs. 1Q22 2Q22 vs. 2Q21
(Dollars in millions) June 30, 2022 March 31, 2022 June 30, 2021 $ Change % Change $ Change % Change
Noninterest income:
Fixed income $ 51 $ 73 $ 102 $ (22) (30) % $ (51) (50) %
Deposit transactions and cash
management 42 44 44 (2) (5) (2) (5)
Mortgage banking and title
income 34 22 38 12 55 (4) (11)
Brokerage, management fees
and commissions 24 24 21 - - 3 14
Card and digital banking
fees 23 20 21 3 15 2 10
Other service charges and
fees 15 13 11 2 15 4 36
Trust services and
investment management 12 13 14 (1) (8) (2) (14)
Securities gains (losses),
net - 6 11 (6) (100) (11) (100)
Deferred compensation
income (17) (4) 7 (13) 325 (24) (343)
Other income 17 18 16 (1) (6) 1 6
Total noninterest income $ 201 $ 229 $ 285 $ (28) (12) % $ (84) (29) %
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PART I, ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Second Quarter 2022 versus First Quarter 2022
Compared to first quarter 2022, noninterest income decreased$28 million , or 12%, largely reflecting lower fixed income and deferred compensation income offset by an increase in mortgage banking and title fees. Noninterest income results were also impacted by lower securities gains.
Fixed income of
Mortgage banking and title income of
Second Quarter 2022 versus Second Quarter 2021
Noninterest income of
quarter 2021, primarily reflecting lower fixed income, deferred compensation income and securities gains.
Fixed income of
Deferred compensation income decreased
Table I.2.5
NONINTEREST INCOME
Six Months Ended
(Dollars in millions) June 30, 2022 June 30, 2021 $ Change % Change
Noninterest income:
Fixed income $ 124 $ 228 $ (104) (46) %
Deposit transactions and cash management 86 86 - - %
Mortgage banking and title income 56 91 (35) (38) %
Brokerage, management fees and
commissions 48 41 7 17 %
Card and digital banking fees 43 38 5 13 %
Other service charges and fees 28 21 7 33 %
Trust services and investment management 25 26 (1) (4) %
Securities gains (losses), net 6 11 (5) (45) %
Deferred compensation income (21) 9 (30) NM
Other income 35 32 3 9 %
Total noninterest income $ 430 $
583 $ (153) (26) %
NM - Not meaningful
For the six months ended
Fixed income product revenue of$99 million decreased$107 million largely driven by less favorable market conditions. Revenue from other products of$25 million increased$3 million primarily driven by higher fees from loan and derivative sales. Mortgage banking and title income of$56 million decreased$35 million driven by lower origination volume given the impact of higher long-term rates as well as a continued mix shift toward portfolio loans, partially offset by the gain on sale of mortgage servicing rights.
Deferred compensation income decreased
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PART I, ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents Noninterest Expense
The following tables present the significant components of noninterest expense for each of the periods presented:
Table I.2.6
NONINTEREST EXPENSE
Three Months Ended 2Q22 vs. 1Q22 2Q22 vs. 2Q21
(Dollars in millions) June 30, 2022 March 31, 2022 June 30, 2021 $ Change % Change $ Change % Change
Noninterest expense:
Personnel expense $ 265 $ 280 $ 306 $ (15) (5) % $ (41) (13) %
Net occupancy expense 33 32 33 1 3 - -
Computer software 29 29 30 - - (1) (3)
Operations services 23 20 19 3 15 4 21
Legal and professional fees 17 23 16 (6) (26) 1 6
Amortization of intangible
assets 13 13 14 - - (1) (7)
Contract employment and
outsourcing 12 19 13 (7) (37) (1) (8)
Equipment expense 11 11 12 - - (1) (8)
Advertising and public
relations 10 11 5 (1) (9) 5 100
Communications and delivery 9 10 10 (1) (10) (1) (10)
Other expense 66 45 40 21 47 26 65
Total noninterest expense $ 488 $ 493 $ 498 $ (5) (1) % $ (10) (2) %
Second Quarter 2022 versus First Quarter 2022
Noninterest expense of$488 million decreased$5 million , or 1%, compared with first quarter 2022. Personnel expense decreased$15 million reflecting lower revenue-based incentives and commissions and deferred compensation expense, partially offset by higher TD transaction-related expenses. Other noninterest expense increased$21 million , primarily from$12 million in derivative valuation adjustments on prior Visa Class-B share sales and increases in fraud losses,FDIC insurance and customer relations. Results also reflect decreases in contract employment and outsourcing expense and legal and professional fees primarily attributable to lower IBKC merger-related and Proposed TD Merger-related costs.
Second Quarter 2022 versus Second Quarter 2021
Noninterest expense of
reflecting a$41 million decrease in personnel expense offset by a$26 million increase in other expense. The decrease in personnel expense was largely attributable to lower deferred compensation and incentive-based compensation costs. The increase in other expense was attributable to$12 million in derivative valuation adjustments related to prior Visa Class-B share sales and increases in fraud losses, travel and entertainment,FDIC insurance and customer relations.
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PART I, ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
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Table I.2.7
NONINTEREST EXPENSE
Six Months Ended
(Dollars in millions) June 30, 2022 June 30, 2021 $ Change % Change
Noninterest expense:
Personnel expense $ 545 $ 624 $ (79) (13) %
Net occupancy expense 64 71 (7) (10) %
Computer software 58 57 1 2 %
Operations services 43 35 8 23 %
Legal and professional fees 40 31 9 29 %
Amortization of intangible assets 26 28 (2) (7) %
Contract employment and outsourcing 31 27 4 15 %
Equipment expense 23 23 - - %
Advertising and public relations 21 9 12 133 %
Communications and delivery 19 19 - - %
Other expense 112 118 (6) (5) %
Total noninterest expense $ 982 $ 1,042 For the six months endedJune 30, 2022 , noninterest expense decreased$60 million , or 6%, largely attributable to decreases in personnel and occupancy expense. Personnel expense decreased$79 million reflecting lower revenue-based incentives and commissions and deferred compensation expense. Occupancy expense decreased$7 million largely reflecting lower IBKC merger-related expenses.
Year-to-date results also reflect increases in advertising and public relations, legal and professional fees, and operations services.
Total merger and acquisition expense was
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PART I, ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents Income Taxes FHN recorded income tax expense of$48 million in second quarter 2022 compared to$57 million in first quarter 2022 and$88 million in second quarter 2021. For the six months endedJune 30, 2022 and 2021, FHN recorded income tax expense of$105 million and$159 million , respectively. The effective tax rate was approximately 21.3%, 22.4%, and 22.0% for the three months endedJune 30, 2022 ,March 31, 2022 andJune 30, 2021 , respectively. The effective tax rate was approximately 21.9% and 22.6% for the six months endedJune 30, 2022 and 2021, 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 portions of: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 current enacted statutory tax rates to these temporary differences in future years. As ofJune 30, 2022 , FHN's gross DTA and gross DTL were$521 million and$406 million , respectively, resulting in a net DTA of$115 million atJune 30, 2022 , compared with a net DTA of$52 million atDecember 31, 2021 .
As of
Based on current analysis, FHN believes that its ability to realize the DTA is more likely than not. FHN monitors its DTA and the need for a valuation allowance on a quarterly basis. A significant adverse change in FHN's taxable earnings outlook could result in the need for a valuation allowance.
Business Segment Results
FHN's reportable segments include Regional Banking, Specialty Banking and Corporate. See Note 12 - Business Segment Information for additional disclosures related to FHN's segments.
Regional Banking The Regional Banking segment generated pre-tax income of$230 million for second quarter 2022, a decrease of$39 million compared to first quarter 2022, driven by an$82 million increase in provision for credit losses partially offset by a$39 million increase in net interest income and a$4 million decrease in noninterest expense. The increase in provision largely reflects the impact of loan growth and a revised macroeconomic outlook. The increase in net interest income is reflective of higher interest rates, lower interest-bearing cash balances, improved security yields, and loan growth, partially offset by an increase in funding costs. Pre-tax income for second quarter 2022 decreased$141 million compared to$371 million for second quarter 2021 largely driven by a$140 million increase in provision for credit losses. The provision benefit in the prior year reflected an improved macroeconomic outlook, positive credit grade migration, and lower loan balances. Net interest income of$465 million increased$21 million from second quarter 2021 driven by higher earning asset yields. Noninterest expense increased$27 million largely attributable to increases in personnel expense and fraud losses. Pre-tax income of$499 million for the six months endedJune 30, 2022 decreased$158 million compared to the same period of 2021, largely from a$138 million increase in provision for credit losses. Results also reflect a$33 million increase in revenue and$53 million increase in noninterest expense.
Specialty Banking
Pre-tax income in the Specialty Banking segment of$139 million for second quarter 2022 increased$23 million compared to first quarter 2022, driven by a$20 million decline in noninterest expense and lower provision for credit losses of$16 million , offset by a$13 million decline in revenue. Fixed income of$51 million decreased$22 million , reflecting the impact of higher long-term rates and macroeconomic uncertainty and volatility. Mortgage banking and title income of$34 million increased$12 million driven by a gain recognized on the sale of mortgage servicing rights. The decline in noninterest expense was largely reflective of lower personnel expense of$16 million . Pre-tax income in the Specialty Banking segment decreased$39 million compared to second quarter 2021 largely driven by lower revenue partially offset by lower noninterest expense. The decline in revenue was primarily attributable to declines in net interest income and fixed income.
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Pre-tax income of$255 million for the six months endedJune 30, 2022 decreased$117 million from the same period of 2021 largely reflecting a$134 million decrease in noninterest income tied to lower fixed income and mortgage banking and title fees. Corporate Pre-tax loss for the Corporate segment was$144 million for second quarter 2022 compared to$130 million for first quarter 2022, largely reflecting a$21 million increase in noninterest expense. Noninterest expense results for second quarter 2022 reflect$12 million in derivative valuation adjustments on prior Visa Class-B share sales. Merger and acquisition-related expenses were relatively consistent with the prior quarter. Pre-tax loss in the Corporate segment decreased$6 million compared to$150 million for second quarter 2021. Net interest expense decreased$36 million from the impact of funds transfer pricing. Noninterest income decreased$36 million compared to second quarter 2021, largely the result of lower deferred compensation income and lower securities gains. The decline in deferred compensation income was attributable to the impact of equity market valuations relative to the prior year. Noninterest expense decreased$8 million from the second quarter 2021, reflecting lower deferred compensation expense partially offset by derivative valuation adjustments on prior Visa Class-B share sales in second quarter 2022. Merger and acquisition-related expenses were$38 million compared to$32 million in second quarter 2021. Pre-tax loss of$275 million for the six months endedJune 30, 2022 decreased$49 million compared to the same period of 2021. Noninterest income of$2 million decreased$36 million reflecting lower deferred compensation income and securities gains. Noninterest expense of$132 million decreased$62 million reflecting lower deferred compensation expense and incentive-based compensation costs in the current year, as well as the impact of impairments on long-lived assets related to acquisition integration efforts in 2021.
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Analysis of Financial Condition
Total period-end assets were$85.1 billion as ofJune 30, 2022 compared to$89.1 billion atDecember 31, 2021 . The decrease in total assets during 2022 was driven by a$5.4 billion decrease in interest-bearing deposits with banks from lower customer deposits, offset by a$1.7 billion increase in loans and leases and a$209 million increase in investment securities.
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 of$56.5 billion increased$1.7 billion as ofJune 30, 2022 compared toDecember 31, 2021 . Year-to-date loan growth included a$1.0 billion increase in commercial loans and leases primarily from CRE growth and a$629 million increase in consumer loans. Total loan growth was tempered by a$663 million decrease in PPP loans. Average loans and leases of$55.6 billion increased$1.5 billion from first quarter 2022 primarily from a$1.1 billion increase in commercial loans.
Compared to second quarter 2021, average loans and leases decreased
The following table provides detail regarding FHN's loans and leases as of
Table I.2.8
LOANS & LEASES
As of June 30, 2022 As of December 31, 2021
(Dollars in millions) Amount Percent of total Amount Percent of total Growth Rate
Commercial:
Commercial, financial, and
industrial (a) $ 31,276 55 % $ 31,068 57 % 1 %
Commercial real estate 12,942 23 12,109 22 7
Total commercial 44,218 78 43,177 79 2
Consumer:
Consumer real estate 11,441 20 10,772 20 6
Credit card and other 870 2 910 1 (4)
Total consumer 12,311 22 11,682 21 5
Total loans and leases $ 56,529 100 % $ 54,859 100 % 3 %
(a)Includes equipment financing loans and leases.
C&I loans are the largest component of the loan portfolio, comprising 55% of total loans at the end of the second quarter 2022 and 57% at year-end 2021. C&I loans increased 1% fromDecember 31, 2021 , largely driven by Regional Banking growth partially offset by PPP loan run-off of$663 million . Commercial real estate loans increased$833 million in 2022 driven by growth in both Regional Banking and Specialty Banking loans.
Consumer loans of
Loans Held for Sale
In 2020, FHN obtained IBKC's mortgage banking operations which includes origination and servicing of
residential first lien mortgages that conform to standards established by GSEs that are major investors inU.S. home mortgages but can also consist of junior lien and jumbo loans secured by residential property. These loans are primarily sold to private companies that are unaffiliated with the GSEs on a servicing-released basis. For further detail, see Note 5 - Mortgage Banking Activity.
The legacy FHN loans HFS portfolio consists of small business, other consumer
loans, mortgage warehouse,
OnJune 30, 2022 andDecember 31, 2021 , loans HFS were$870 million and$1.2 billion , respectively. Held-for-sale consumer mortgage loans secured by residential real estate in process of foreclosure totaled$5 million atJune 30, 2022 and$3 million atDecember 31, 2021 .
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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 (20% of total loans at bothJune 30, 2022 and
Credit underwriting guidelines are outlined in Item 7 of FHN's Annual Report on Form 10-K, as amended, for the year endedDecember 31, 2021 in the Asset Quality Section within the Analysis of Financial Condition discussion. FHN's credit underwriting guidelines and loan product offerings as ofJune 30, 2022 are generally consistent with those reported and disclosed in FHN's Form 10-K, as amended, for the year endedDecember 31, 2021 .
Commercial Loan and Lease Portfolios
C&I
The C&I portfolio totaled
The increase in C&I loans from
geographical concentrations of balances in the C&I portfolio as ofJune 30, 2022 were inTennessee (21%),Florida (13%),Texas (10%),North Carolina (7%),Louisiana (7%),California (5%), 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, 2022 , andDecember 31, 2021 . 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 I.2.9 C&I PORTFOLIO BY INDUSTRY June 30, 2022 December 31, 2021 (Dollars in millions) Amount Percent Amount Percent Industry: Finance and insurance$ 3,667 12 % $ 3,483 11 % Loans to mortgage companies 3,441 11 4,518 15 Real estate rental and leasing (a) 3,002 9 2,771 9 Health care and social assistance 2,479 8 2,413 8 Accommodation and food service 2,206 7 2,221 7 Manufacturing 2,119 7 1,950 6 Wholesale trade 2,087 7 1,845 6 Retail trade 1,657 5 1,532 5 Energy 1,337 4 1,325 4 Other (professional, construction, transportation, etc.) (b) 9,281 30 9,010 29 Total C&I loan portfolio$ 31,276 100 % $ 31,068 100 %
(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 23% and 26% of FHN's C&I loan portfolio as of June 30,
2022 and December 31, 2021 , respectively, and as a result could be affected by
items that uniquely impact the financial services industry. As of June 30, 2022 ,
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 11% of the C&I portfolio as of June 30, 2022
and 15% as of December 31, 2021 . 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 increase
when there is a decline in mortgage rates and decrease when rates rise. In
periods of economic uncertainty, this trend may not occur even if interest rates
are declining. In second quarter 2022, 76% of the loan originations were home
purchases and 24% were refinance transactions. On a year-to-date basis, home
purchases were approximately 67% of total loan originations.
Finance and Insurance
The finance and insurance component represented 12% of the C&I portfolio as ofJune 30, 2022 and 11% as ofDecember 31, 2021 , 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, 2022 , asset-based lending to consumer finance companies represents approximately$1.5 billion of the finance and insurance component.
Paycheck Protection Program
In 2020,
associated with the COVID-19 pandemic. Under the PPP, qualifying businesses could 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. The C&I portfolio as ofJune 30, 2022 includes 2,858 loans made under the PPP with an aggregate principal balance of$375 million , which are fully government guaranteed with the SBA. Due to the government guarantee and forgiveness provisions, PPP loans are considered to have no credit risk and do not affect the amount of provision and ALLL recorded. As a result, no ALLL is recorded for PPP loans as ofJune 30, 2022 , and FHN has assigned a risk weight of zero to PPP loans for regulatory capital purposes. For these loans, there are remaining net lender fees of approximately$2 million to be paid to FHN as ofJune 30, 2022 . During 2022, FHN continues to work with its clients that have applied for and received PPP loan forgiveness. ThroughJune 30, 2022 , over$5 billion of the original$6 billion in PPP loans originated by FHN andIBERIABANK prior to acquisition have been forgiven by the SBA.Commercial Real Estate The CRE portfolio totaled$12.9 billion as ofJune 30, 2022 and$12.1 billion as ofDecember 31, 2021 . The CRE portfolio reflects financings for both commercial construction and nonconstruction loans. The largest geographical concentrations of CRE loan balances as ofJune 30, 2022 were inFlorida (26%),North Carolina (11%),Texas (12%),Louisiana (10%),Georgia (10%), andTennessee (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 (19%), industrial (14%), hospitality (11%), land/land development (2%), and other (6%). Consumer Loan PortfoliosConsumer Real Estate The consumer real estate portfolio totaled$11.4 billion and$10.8 billion as ofJune 30, 2022 andDecember 31, 2021 , respectively, and is primarily composed of home equity lines and installment loans. The largest geographical concentrations of balances as ofJune 30, 2022 were inFlorida (31%),Tennessee (23%),Louisiana
(9%),
As ofJune 30, 2022 , approximately 88% of the consumer real estate portfolio was in a first lien position. At origination, the weighted average FICO score of this portfolio was 756 and the refreshed FICO scores averaged 753 as ofJune 30, 2022 , no significant change from FICO scores of 755 and 754, respectively, as ofDecember 31 ,
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2021. Generally, performance of this portfolio is affected by life events that affect borrowers' finances, the level of unemployment, and home prices.
As ofJune 30, 2022 andDecember 31, 2021 , FHN had held-for-investment consumer mortgage loans secured by real estate that were in the process of foreclosure totaling$29 million and$20 million , respectively. HELOCs comprised$1.9 billion and$2.0 billion of the consumer real estate portfolio as ofJune 30, 2022 andDecember 31, 2021 , 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 ofJune 30, 2022 , approximately 90% of FHN's HELOCs were in the draw period compared to 88% atDecember 31, 2021 . It is expected that$459 million , or 26%, 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 nearing the end of the draw period are closely monitored.
The following table presents HELOCs currently in the draw period, broken down by months remaining in the draw period.
Table I.2.10
HELOC DRAW TO REPAYMENT SCHEDULE
June 30, 2022 December 31, 2021
Repayment Repayment
(Dollars in millions) Amount Percent Amount Percent
Months remaining in draw period:
0-12 $ 35 2 % $ 43 2 %
13-24 38 2 42 2
25-36 76 4 50 3
37-48 128 7 136 8
49-60 182 11 160 9
>60 1,278 74 1,324 76
Total $ 1,737 100 % $ 1,755 100 %
Credit Card and Other
The credit card and other portfolio, which is primarily within the Regional
Banking segment, totaled
credits, including home equity and other personal consumer loans, credit card receivables, and automobile loans. The$40 million decrease was driven by net repayments of automobile loans, consumer construction loans, and credit cards.
Allowance for Credit Losses
The ACL is maintained at a level sufficient to provide appropriate reserves to absorb estimated future credit losses in accordance with GAAP. For additional information regarding the ACL, see Note 4 of this Report and "Critical Accounting Policies and Estimates" and Note 5 in FHN's 2021 Form 10-K, as amended. The ALLL decreased to$624 million as ofJune 30, 2022 from$670 million as ofDecember 31, 2021 . The ALLL balance as ofJune 30, 2022 reflects the continued decrease in the unfavorable impact of COVID-19, offset by potential economic instability projected in the macroeconomic forecasts resulting from inflation and interest rate increases, as well as the impact of loan growth. The ALLL to total loans and leases ratio decreased 12 basis points to 1.10%. The ACL to total loans and leases ratio decreased to 1.24% as ofJune 30, 2022 from 1.34% as ofDecember 31, 2021 .
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Net charge-offs in second quarter 2022 were
Net charge-offs in the commercial portfolio in second quarter 2022 were
gross recoveries compared to the prior year. Net charge-offs in the consumer portfolio were$2 million in second quarter 2022 compared to$6 million in net recoveries in second quarter 2021. The increase in net charge-offs from the prior year was attributable to higher gross credit card charge-offs and lower gross consumer real estate recoveries.
Table I.2.11
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES AND CHARGE-OFFS
(Dollars in millions) June 30, 2022 December 31, 2021 June 30, 2021
Allowance for loan and lease losses
C&I $ 274 $ 334 $ 385
CRE 141 154 210
Consumer real estate 183 163 203
Credit card and other 26 19 17
Total allowance for loan and lease
losses $ 624 $ 670 $ 815
Reserve for remaining unfunded commitments
C&I $ 53 $ 46 $ 57
CRE 17 12 9
Consumer real estate 10 8 9
Credit card and other - - -
Total reserve for remaining
unfunded commitments $ 80 $ 66 $ 75
Allowance for credit losses
C&I $ 327 $ 380 $ 442
CRE 158 166 219
Consumer real estate 193 171 212
Credit card and other 26 19 17
Total allowance for credit losses $ 704 $ 736 $ 890
Period-end loans and leases
C&I $ 31,276 $ 31,068 $ 32,528
CRE 12,942 12,109 12,292
Consumer real estate 11,441 10,772 10,865
Credit card and other 870 910 1,002
Total period-end loans and leases $ 56,529 $ 54,859 $ 56,687
ALLL / loans and leases %
C&I 0.88 % 1.07 % 1.18 %
CRE 1.09 1.27 1.71
Consumer real estate 1.60 1.51 1.87
Credit card and other 3.01 2.14 1.71
Total ALLL / loans and leases % 1.10 % 1.22 % 1.44 %
ACL / loans and leases %
C&I 1.04 % 1.22 % 1.37 %
CRE 1.22 1.37 1.80
Consumer real estate 1.69 1.59 1.94
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Credit card and other 3.01 2.09 1.71
Total ACL / loans and leases % 1.24 % 1.34 % 1.58 %
Quarter-to-date net charge-offs (recoveries)
C&I $ 11 $ 1 $ (3)
CRE (1) - (1)
Consumer real estate (4) (3) (7)
Credit card and other 6 3 1
Total net charge-offs (recoveries) $ 12 $ 1 $ (10)
Average loans and leases
C&I $ 30,963 $ 30,780 $ 32,540
CRE 12,626 12,221 12,350
Consumer real estate 11,120 10,738 10,926
Credit card and other 867 943 1,013
Total average loans and leases $ 55,576 $ 54,682 $ 56,829
Charge-off % (annualized)
C&I 0.14 % 0.01 % (0.04) %
CRE (0.03) (0.01) (0.02)
Consumer real estate (0.12) (0.10) (0.28)
Credit card and other 2.49 1.26 0.51
Total charge-off % 0.09 % 0.01 % (0.07) %
ALLL / annualized net charge-offs
C&I 616 % 7,238 % NM
CRE NM NM NM
Consumer real estate NM NM NM
Credit card and other 121 164 329 %
Total ALLL / net charge-offs 1,257 % 17,374 % NM
NM - not meaningful
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).
Total NPAs (including NPLs HFS) increased to $309 million as of June 30, 2022
from $285 million as of December 31, 2021 , driven by higher nonaccrual loans in
the C&I and consumer real estate portfolios. The nonperforming loans and leases
ratio increased 3 basis points to 0.53% as of June 30, 2022 .
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.
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Table I.2.12
NONACCRUAL/NONPERFORMING LOANS, FORECLOSED ASSETS, & OTHER DISCLOSURES (Dollars in millions)
Nonperforming loans and leases June 30, 2022 December 31, 2021
C&I $ 129 $ 125
CRE 11 9
Consumer real estate 159 138
Credit card and other 2 3
Total nonperforming loans and leases (a) $ 301 $ 275
Nonperforming loans held for sale (a) $ 6 $ 7
Foreclosed real estate and other assets (b) 2 3
Total nonperforming assets (a) (b) $ 309 $ 285
Nonperforming loans and leases to total loans and leases
C&I 0.41 % 0.40 %
CRE 0.08 0.08
Consumer real estate 1.39 1.29
Credit card and other 0.29 0.31
Total NPL % 0.53 % 0.50 %
ALLL / NPLs
C&I 213 % 268 %
CRE 1,331 1,671
Consumer real estate 115 118
Credit card and other 1,021 699
Total ALLL / NPLs 207 % 244 %
(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 as of both June 30, 2022 and
December 31, 2021 .
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The following table provides nonperforming assets by business segment:
Table I.2.13
NONPERFORMING ASSETS BY SEGMENT
(Dollars in millions)
Nonperforming loans and leases (a) (b) June 30, 2022 December 31, 2021
Regional Banking $ 202 $ 163
Specialty Banking 65 78
Corporate 34 34
Consolidated $ 301 $ 275Foreclosed real estate (c)
Regional Banking $ - $ 2
Specialty Banking 1 -
Corporate 1 1
Consolidated $ 2 $ 3Nonperforming Assets (a) (b) (c)
Regional Banking $ 202 $ 165
Specialty Banking 66 78
Corporate 35 35
Consolidated $ 303 $ 278Nonperforming loans and leases to loans and leases
Regional Banking 0.51 % 0.43 %
Specialty Banking 0.40 0.48
Corporate 6.41 5.39
Consolidated 0.53 % 0.50 %
NPA % (d)
Regional Banking 0.51 % 0.44 %
Specialty Banking 0.40 0.48
Corporate 6.55 5.51
Consolidated 0.54 % 0.51 %
(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 $1 million as of both June 30, 2022 and December 31, 2021 .
(d)Ratio is non-performing assets to total loans and leases plus foreclosed real
estate.
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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
Table I.2.14
CUSTOMER DEFERRALS
(Dollars in millions) As of June 30, 2022 As of December 31, 2021
Commercial:
C&I $ - $ 9
CRE - 26
Total Commercial $ - $ 35
Consumer:
HELOC $ 4 $ 5
Real estate installment loans 19 44
Credit card and other - -
Total Consumer $ 23 $ 49
Total $ 23 $ 84
To the extent that loans were past due as of
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 90 days or more past due and still accruing were$17 million as ofJune 30, 2022 compared to$40 million as ofDecember 31, 2021 . Loans 30 to 89 days past due were$106 million as ofJune 30, 2022 compared to$108
million as of
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Table I.2.15
ACCRUING DELINQUENCIES & OTHER CREDIT DISCLOSURES
(Dollars in millions)
Accruing loans and leases 30+ days past due June 30, 2022 December 31, 2021
C&I $ 28 $ 58
CRE 28 13
Consumer real estate 58 70
Credit card and other 9 7
Total accruing loans and leases 30+ days past
due $ 123 $ 148
Accruing loans and leases 30+ days past due %
C&I 0.09 % 0.19 %
CRE 0.22 0.11
Consumer real estate 0.51 0.65
Credit card and other 0.96 0.76
Total accruing loans and leases 30+ days past
due % 0.22 % 0.27 %
Accruing loans and leases 90+ days past due (a) (b) (c):
C&I $ - $ 5
Consumer real Estate 14 33
Credit card and other 3 2
Total accruing loans and leases 90+ days past
due $ 17 $ 40
Loans held for sale
30 to 89 days past due $ 5 $ 7
30 to 89 days past due - guaranteed portion (d) 2 2
90+ days past due 14 24
90+ days past due - guaranteed portion (d) 5 12
(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 $491 million on June 30, 2022 and $597 million on December 31, 2021 . 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
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financial difficulty, FHN identifies and reports that loan as a TDR.
For loan modifications 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 3 - Loans and Leases for further discussion regarding TDRs and loan modifications. OnJune 30, 2022 andDecember 31, 2021 , FHN had$199 million and$206 million portfolio loans classified as held-for-investment TDRs, respectively. For these TDRs, including specific reserves, FHN had an allowance for loan and lease losses of$6 million , or 3% of TDR balances as ofJune 30, 2022 , and$12 million , or 6% of TDR balances, as ofDecember 31, 2021 . Additionally, FHN had$32 million and$35 million of HFS loans classified as TDRs as ofJune 30, 2022 andDecember 31, 2021 , respectively.
The following table provides a summary of TDRs for the periods ended
Table I.2.16
TROUBLED DEBT RESTRUCTURINGS
(Dollars in millions) June 30, 2022 December 31, 2021
Held for investment:
Commercial loans:
Current $ 28 $ 53
Delinquent - -
Non-accrual 25 35
Total commercial loans $ 53 $ 88
Consumer real estate:
Current $ 78 $ 60
Delinquent 7 4
Non-accrual (a) 61 53
Total consumer real estate $ 146 $ 117
Credit card and other:
Current $ - $ 1
Delinquent - -
Non-accrual - -
Total credit card and other - 1
Total held for investment $ 199 $ 206
Held for sale:
Current $ 25 $ 27
Delinquent 6 7
Non-accrual 1 1
Total held for sale 32 35
Total troubled debt restructurings $ 231 $ 241
(a) Balances as of both
FHN's investment securities portfolio consists principally of debt securities available for sale. FHN maintains a highly-rated securities portfolio consisting primarily of government agency issued mortgage-backed securities and collateralized mortgage obligations. 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
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FHN is exposed. These evaluations may result in steps taken to adjust the overall balance sheet positioning.
Investment securities were
representing approximately 11% of total assets at the end of both periods. See
Note 2 -
Deposits
Total deposits of
See Tables I.2.2 and I.2.3 - Average Balances, Net Interest Income and
Yields/Rates in this Report for information on average deposits including
average rates paid. The following table summarizes the major components of
deposits as of
Table I.2.17
DEPOSITS
June 30, 2022 December 31, 2021
(Dollars in millions) Amount Percent of total Amount Percent of total Change Percent
Savings $ 24,376 35 % $ 26,457 35 % $ (2,081) (8) %
Time deposits 2,888 4 3,500 5 (612) (17)
Other interest-bearing deposits 16,172 23 17,055 23 (883) (5)
Total interest-bearing deposits 43,436 62 47,012 63 (3,576) (8)
Noninterest-bearing deposits 27,114 38 27,883 37 (769) (3)
Total deposits $ 70,550 100 % $ 74,895 100 % $ (4,345) (6) %
Short-Term Borrowings
Short-term borrowings include federal funds purchased, securities sold under
agreements to repurchase, trading liabilities, and other short-term borrowings.
Total short-term borrowings were $2.3 billion and $2.6 billion as of June 30,
2022 and December 31, 2021 , respectively.
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. Trading liabilities fluctuate based on various factors,
including levels of trading securities and hedging 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 repurchase 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.
Total term borrowings were
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, 2022 and$8.5 billion atDecember 31, 2021 . Significant changes included net income of$374 million and the issuance of$494 million in Series G preferred stock, which were offset by$181
million in common and preferred dividends and a decrease in AOCI of
The following tables provide a reconciliation of shareholders' equity from the Consolidated Balance Sheets to Common Equity Tier 1, Tier 1 andTotal Regulatory Capital as well as certain selected capital ratios:
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Table I.2.18
REGULATORY CAPITAL DATA
(Dollars in millions) June 30, 2022 December 31, 2021
Shareholders' equity $ 8,256 $ 8,199
Modified CECL transitional amount (a) 85 114
FHN non-cumulative perpetual preferred stock (1,014) (520)
Common equity tier 1 before regulatory adjustments $ 7,327 $ 7,793
Regulatory adjustments:
Disallowed goodwill and other intangibles (1,687) (1,711)
Net unrealized (gains) losses on securities available for sale
671 36
Net unrealized (gains) losses on pension and other postretirement plans
252 255
Net unrealized (gains) losses on cash flow hedges 40 (3)
Disallowed deferred tax assets - (2)
Other deductions from common equity tier 1 (1) (1)
Common equity tier 1 $ 6,602 $ 6,367
FHN non-cumulative perpetual preferred stock (b) 920 426
Qualifying noncontrolling interest- First Horizon Bank
preferred stock 295 295
Tier 1 capital $ 7,817 $ 7,088
Tier 2 capital 907 830
Total regulatory capital $ 8,724 $ 7,918
Risk-Weighted Assets
First Horizon Corporation $ 67,294 $ 64,183
First Horizon Bank 66,608 63,601
Average Assets for Leverage
First Horizon Corporation 85,724 87,683
First Horizon Bank 85,022 86,953
Table I.2.19
REGULATORY RATIOS & AMOUNTS
June 30, 2022 December 31, 2021
Ratio Amount Ratio Amount
Common Equity Tier 1
First Horizon Corporation 9.81 % $ 6,602 9.92 % $ 6,367
First Horizon Bank 10.47 6,972 10.75 6,838
Tier 1
First Horizon Corporation 11.62 7,817 11.04 7,088
First Horizon Bank 10.91 7,267 11.22 7,133
Total
First Horizon Corporation 12.96 8,724 12.34 7,918
First Horizon Bank 12.06 8,031 12.41 7,893
Tier 1 Leverage
First Horizon Corporation 9.12 7,817 8.08 7,088
First Horizon Bank 8.55 7,267 8.20 7,133
Other Capital Ratios
Total period-end equity to period-end assets 10.04 9.53
Tangible common equity to tangible assets (c) 6.55 6.73
Adjusted tangible common equity to risk-weighted assets (c)
9.11 9.20
(a)The modified CECL transitional amount includes the impact to retained
earnings from the initial adoption of CECL plus 25% of the change in the
adjusted allowance for credit losses since FHN's initial adoption of CECL
through December 31, 2021 . For June 30, 2022 , 25% of the full amount at
December 31, 2021 is phased out and not included in Common Equity Tier 1
capital.
(b)The $94 million carrying value of the Series D preferred stock does not
qualify as Tier 1 capital because the earliest redemption date is less than five
years from the issuance date, which was re-set to July 1, 2020 when the IBKC
merger closed.
(c)Tangible common equity to tangible assets and adjusted tangible common equity
to risk-weighted assets are non-GAAP measures and are reconciled to total equity
to total assets (GAAP) in the Non-GAAP to GAAP Reconciliation - Table I.2.27.
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Banking regulators define minimum capital ratios for bank holding companies and their bank subsidiaries. Based on the capital rules and definitions prescribed by the banking regulators, should any depository institution's capital ratios decline below predetermined levels, it would become subject to a series of increasingly restrictive regulatory actions. The system categorizes a depository institution's capital position into one of five categories ranging from well-capitalized to critically under-capitalized. For an institution the size of FHN to qualify as well-capitalized, Common Equity Tier 1, Tier 1 Capital, Total Capital, and Leverage capital ratios must be at least 6.50%, 8.00%, 10.00%, and 5.00%, respectively. Furthermore, a capital conservation buffer of 50 basis points above these levels must be maintained on the Common Equity Tier 1, Tier 1 Capital and Total Capital ratios to avoid restrictions on dividends, share repurchases and certain discretionary bonuses. As ofJune 30, 2022 , each ofFHN and First Horizon Bank had sufficient capital to qualify as well-capitalized institutions and to meet the capital conservation buffer requirement. Capital ratios for bothFHN and First Horizon Bank are calculated under the final rule issued by the banking regulators in 2020 to delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period. For FHN, the Tier 1 and Total risk-based regulatory capital ratios increased in second quarter 2022 relative to year-end 2021 primarily from the impact of net income less dividends during the first six months of 2022. FHN's Tier 1 Capital and Tier 1 Leverage ratios as ofJune 30, 2022 further benefited from the issuance of its Series G preferred stock.FHN and First Horizon Bank's risk-based regulatory capital ratios were negatively impacted in 2022 from an increase in risk-weighted assets fromDecember 31, 2021 .
During 2022, capital ratios are expected to remain above well-capitalized standards plus the required capital conservation buffer.
Common Stock Purchase Programs
General Purchase Program
Pursuant to Board authority, FHN may repurchase shares of its common stock from time to time and will evaluate the level of capital and take action designed to generate or use capital, as appropriate, for the interests of the shareholders, subject to legal and regulatory restrictions. FHN's Board has not authorized a preferred stock purchase program. OnJanuary 27, 2021 , FHN announced that its Board of Directors approved a new$500 million common share purchase program that was to expire onJanuary 31, 2023 , replacing the 2018 program, which was terminated. OnOctober 26, 2021 , FHN announced that the 2021 program had been increased by$500 million and extended toOctober 31, 2023 . Like the 2018 program, the 2021 program is not tied to any compensation plan. Purchases may be made in the open market or through privately negotiated transactions, including under Rule 10b5-1 plans as well as accelerated share repurchase and other structured transactions. The timing and exact amount of common share repurchases will be subject to various factors, including FHN's capital position, financial performance, capital impacts of strategic initiatives, market conditions and regulatory considerations. As ofJune 30, 2022 ,$401 million in purchases had been made life-to-date under the 2021 program at an average price per share of$16.60 , or$16.58 excluding commissions. Management does not currently anticipate purchasing additional shares under this authority. Table I.2.20 COMMON STOCK PURCHASES-GENERAL PROGRAM Total number of Maximum approximate (Dollar values and volume in Total number shares purchased dollar value that may thousands, except per share of shares Average price as part of publicly yet be purchased under data) purchased paid per share (a) announced programs the programs 2022 April 1 to April 30 - N/A - $ 598,646 May 1 to May 31 - N/A - 598,646 June 1 to June 30 - N/A - 598,646 Total - N/A -
(a) Represents total costs including commissions paid.
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Compensation Plans Purchase Program
A consolidated compensation plan share purchase program was announced onAugust 6, 2004 . This program consolidated into a single share purchase program all of the previously authorized compensation plan share programs as well as the renewal of the authorization to purchase shares for use in connection with two compensation plans for which the share purchase authority had expired.
The total amount authorized under this consolidated compensation plan share
purchase program is 29.6 million shares calculated before adjusting for stock
dividends distributed through
compensation plans for which no stock option awards remain outstanding. The shares may be purchased over the option exercise periods of the various compensation plans on or beforeDecember 31, 2023 . Purchases may be made in the open market or through privately negotiated transactions and are subject to various factors including FHN's capital position, financial performance, capital impacts of strategic initiatives, market conditions and regulatory restrictions. As ofJune 30, 2022 , the maximum number of shares that may be purchased under the program was 22.6 million shares. Management currently does not anticipate purchasing a material number of shares under this authority during 2022. Table I.2.21 COMMON STOCK PURCHASES-COMPENSATION PLANS PROGRAM Total number of Maximum number Total number shares purchased of shares that may (Volume in thousands, except of shares Average price as part of publicly yet be purchased per share data) purchased paid per share announced programs under the programs 2022 April 1 to April 30 9$ 23.31 9 22,955 May 1 to May 31 238 21.65 238 22,717 June 1 to June 30 88 22.35 88 22,629 Total 334$ 21.87 334 Risk Management There have been no significant changes to FHN's risk management practices as described under "Risk Management" included in Item 7 of FHN's 2021 Annual Report on Form 10-K, as amended. Market Risk Management
Value-at-Risk and Stress Testing
VaR is a statistical risk measure used to estimate the potential loss in value from adverse market movements over an assumed fixed holding period within a stated confidence level. FHN employs a model to compute daily VaR measures for its trading securities inventory. FHN computes VaR using historical simulation with a 1-year lookback period at a 99% confidence level with 1-day and 10-day time horizons. Additionally, FHN computes a Stressed VaR measure. The SVaR computation uses the same model but with model inputs reflecting historical data from a continuous 12-month period that reflects a period of significant financial stress appropriate for the trading securities portfolio. A summary of FHN's VaR and SVaR measures for 1-day and 10-day time horizons is presented in the following table: [[Image Removed: fhn-20220630_g2.jpg]] 101 2Q22 FORM 10-Q REPORT
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Table I.2.22
VaR & SVaR MEASURES
Three Months Ended Six Months Ended As of
June 30, 2022 June 30, 2022 June 30, 2022
(Dollars in millions) Mean High Low Mean High Low
1-day
VaR $ 2 $ 2 $ 2 $ 2 $ 2 $ 2 $ 2
SVaR 5 6 4 5 7 4 5
10-day
VaR 8 11 4 6 11 3 8
SVaR 24 28 20 24 34 18 20
Three Months Ended Six Months Ended As of
June 30, 2021 June 30, 2021 June 30, 2021
(Dollars in millions) Mean High Low Mean High Low 1-day VaR$ 1 $ 2 $ 1 $ 2 $ 4 $ 1 $ 1 SVaR 4 6 2 4 6 2 4 10-day VaR 3 5 1 7 21 1 2 SVaR 17 23 11 16 23 11 16 Year Ended As of December 31, 2021 December 31, 2021
(Dollars in millions) Mean High Low
1-day
VaR $ 1 $ 4 $ 1 $ 2
SVaR 4 7 2 5
10-day
VaR 5 21 1 5
SVaR 18 27 11 22
FHN's overall VaR measure includes both interest rate risk and credit spread risk. Separate measures of these component risks are as follows:
Table I.2.23
SCHEDULE OF RISKS INCLUDED IN VaR
As of As of As of
June 30, 2022 June 30, 2021 December 31, 2021
(Dollars in millions) 1-day 10-day 1-day 10-day 1-day 10-day
Interest rate risk $ 1 $ 1 $ - $ 2 $ 1 $ 1
Credit spread risk - 1 1 1 1 1
The potential risk of loss reflected by FHN's VaR measures assumes the trading
securities inventory is static. Because FHN Financial procures fixed income
securities for purposes of distribution to clients, its trading securities
inventory turns over regularly. Additionally, FHNF traders actively manage the
trading securities inventory continuously throughout each trading day.
Accordingly, FHNF's trading securities inventory is highly dynamic, rather than
static. As a result, it would be rare for FHNF to
incur a negative revenue day in its fixed income activities at the levels
indicated by its VaR measures.
In addition to being used in FHN's daily market risk management process, the VaR
and SVaR measures are also used by FHN in computing its regulatory market risk
capital requirements in accordance with the Market Risk Capital rules. For
additional information regarding FHN's capital adequacy refer to the Capital
section of this MD&A.
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FHN also performs stress tests on its trading securities portfolio to calculate the potential loss under various assumed market scenarios. Key assumed stresses used in those tests are:
Down 25 bps - assumes an instantaneous downward move in interest rates of 25 basis points at all points on the interest rate yield curve.
Up 25 bps - assumes an instantaneous upward move in interest rates of 25 basis points at all points on the interest rate yield curve.
Curve flattening - assumes an instantaneous flattening of the interest rate yield curve through an increase in short-term rates and a decrease in long-term rates. The 2-year point on theTreasury yield curve is assumed to increase 15 basis points and the 10-year point on theTreasury yield curve is assumed to decrease 15 basis points. Shifts in other points on the yield curve are predicted based on their correlation to the 2-year and 10-year points.
Curve steepening - assumes an instantaneous steepening of the interest rate yield curve through a decrease in short-term rates and an increase in long-
term rates. The 2-year point on theTreasury yield curve is assumed to decrease 15 basis points and the 10-year point on theTreasury yield curve is assumed to increase 15 basis points. Shifts in other points on the yield curve are predicted based on their correlation to the 2-year and 10-year points.
Credit spread widening - assumes an instantaneous increase in credit spreads
(the difference between yields on
Model Validation
Trading risk management personnel within FHN Financial have primary responsibility for model risk management with respect to the model used by FHN to compute its VaR measures and perform stress testing on the trading inventory. Among other procedures, these personnel monitor model results and perform periodic backtesting as part of an ongoing process of validating the accuracy of the model. These model risk management activities are subject to annual review byFHN's Model Validation Group , an independent assurance group charged with oversight responsibility for FHN's model risk management.
Interest Rate Risk Management
Net Interest Income Simulation Analysis
The information provided in this section, including the discussion regarding the outcomes of simulation analysis and rate shock analysis, is forward-looking. Actual results, if the assumed scenarios were to occur, could differ because of interest rate movements, the ability of management to execute its business plans, and other factors, including those presented in the Forward-Looking Statements section of this Report. Management uses a simulation model to measure interest rate risk and to formulate strategies to improve balance sheet positioning, earnings, or both, within FHN's interest rate risk, liquidity, and capital guidelines. Interest rate exposure is measured by forecasting 12 months of NII under various interest rate scenarios and comparing the percentage change in NII for each scenario to a base case scenario where interest rates remain unchanged. Assumptions are made regarding future balance sheet composition, interest rate movements, and loan and deposit pricing. In addition, assumptions are made about the magnitude of asset prepayments and earlier than anticipated deposit withdrawals. The results of these scenarios help FHN develop strategies for managing exposure to interest rate risk. While management believes the assumptions used and scenarios selected in its simulations are reasonable, simulation modeling provides only an estimate, not a precise calculation, of exposure to any given change in interest rates. Based on a static balance sheet as ofJune 30, 2022 , NII exposures over the next 12 months assuming rate shocks of plus/minus 25 basis points, plus/minus 50 basis points, plus/minus 100 basis points, and plus 200 basis points are estimated to have variances as shown in the table below. Table I.2.24 INTEREST RATE SENSITIVITY Shifts in Interest Rates % Change in Projected (in bps) Net Interest Income -100 -15.4% -50 -7.6% -25 -3.7% +25 +3.0% +50 +5.9% +100 +11.8% +200 +20.5% A steepening yield curve scenario where long-term rates increase by 50 basis points and short-term rates are static, results in a favorable NII variance of 0.3%. A flattening yield curve scenario where long-term rates decrease by 50 basis points and short-term rates are static, results in an unfavorable NII variance of 0.4%. These hypothetical scenarios are used to create a risk measurement framework, and do not necessarily represent management's current view of future interest rates or market developments. FHN's net interest income had been impacted by the disruption from the COVID-19 pandemic and its variants as well as the low-rate environment. The impact of [[Image Removed: fhn-20220630_g2.jpg]] 103 2Q22 FORM 10-Q REPORT
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government stimulus programs and other developments continue to influence net interest income results, although the impacts from these programs have abated.
Interest rates have been increasing over the past two quarters as theFederal Reserve has pivoted its monetary policy actions to curb inflation pressures, with the expectation that rates will increase further in the future. FHN continues to monitor current economic trends and potential exposures closely.
Liquidity Risk Management
Among other things, ALCO is responsible for liquidity management: the funding of assets with liabilities of appropriate duration, while mitigating the risk of unexpected cash needs. ALCO and the Board of Directors have adopted a Liquidity Policy of which the objective is to ensure that FHN meets its cash and collateral obligations promptly, in a cost-effective manner and with the highest degree of reliability. The maintenance of adequate levels of asset and liability liquidity should provide FHN with the ability to meet both expected and unexpected cash and collateral needs. Key liquidity ratios, asset liquidity levels, and the amount available from funding sources are reported to ALCO on a regular basis. FHN's Liquidity Policy establishes liquidity limits that are deemed appropriate for FHN's risk profile. In accordance with the Liquidity Policy, ALCO manages FHN's exposure to liquidity risk through a dynamic, real time forecasting methodology. Base liquidity forecasts are reviewed by ALCO and are updated as financial conditions dictate. In addition to the baseline liquidity reports, robust stress testing of assumptions and funds availability are periodically reviewed. FHN maintains a contingency funding plan that may be executed should unexpected difficulties arise in accessing funding that affects FHN, the industry, or both. Subject to market conditions and compliance with applicable regulatory requirements from time to time, funds are available from a number of sources, including the available-for-sale securities portfolio, dealer and commercial customer repurchase agreements, access to the overnight and term Federal Funds markets, incremental borrowing capacity at the FHLB ($12.9 billion was available as ofJune 30, 2022 ), brokered deposits, loan sales, syndications, and access to theFederal Reserve Bank . Core deposits are a significant source of funding and have historically been a stable source of liquidity for banks. Generally, core deposits represent funding from a financial institution's client base which provides inexpensive, predictable pricing. The ratio of average loans, excluding loans HFS and restricted real estate loans, to average core deposits was 76% forJune 30, 2022 and 80% forDecember 31, 2021 . FHN may also use unsecured short-term borrowings as a source of liquidity. Federal funds purchased from correspondent bank clients are considered to be substantially more stable than funds purchased in the national broker markets for federal funds due to the long, historical, and reciprocal nature of banking services provided by FHN to these correspondent banks. The remainder of FHN's wholesale short-term borrowings consists of securities sold under agreements to repurchase transactions accounted for as secured borrowings with business clients or broker dealer counterparties. BothFHN and First Horizon Bank have the ability to generate liquidity by issuing senior or subordinated unsecured debt, preferred equity, and common equity, subject to market conditions and compliance with applicable regulatory requirements. InFebruary 2022 , FHN issued and sold to TD 4,936 shares of Series G Perpetual Convertible Preferred Stock in a private placement transaction for$494 million . As ofJune 30, 2022 , FHN had outstanding$1.3 billion in senior and subordinated unsecured debt and$1.0 billion in non-cumulative perpetual preferred stock. As ofJune 30, 2022 ,First Horizon Bank and subsidiaries had outstanding preferred shares of$295 million , which are reflected as noncontrolling interest on the Consolidated Balance Sheets. Parent company liquidity is primarily provided by cash flows stemming from dividends and interest payments collected from subsidiaries. These sources of cash represent the primary sources of funds to pay cash dividends to shareholders and principal and interest to debt holders of FHN. Applying the dividend restrictions imposed under applicable federal and state rules as outlined above, the Bank's total amount available for dividends was$1.2 billion as ofJuly 1, 2022 . InMarch 2022 , FHN agreed to suspend the Dividend Reinvestment Plan in connection with the TD acquisition. As a result of the suspension of the Plan, participants in the Plan received their first quarter 2022 FHN dividend, paid onApril 1, 2022 , in cash. During the suspension period, dividend payments of FHN will not be automatically reinvested in additional shares of FHN common stock and participants in the Plan will be unable to purchase shares of FHN common stock through optional cash investments under the Plan. FirstHorizon Bank declared and paid common dividends to the parent company in the amounts of$180 million ,$85 million , and$85 million in first, second and third quarter 2022 and$770 million in 2021. FirstHorizon Bank declared and paid preferred dividends in first and second quarter 2022 and in each quarter of 2021. Additionally,First Horizon Bank declared preferred dividends in third quarter 2022, payable inOctober 2022 .
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Payment of a dividend to shareholders of FHN is dependent on several factors
which are considered by the Board. These factors include FHN's current and
prospective capital, liquidity, and other needs, applicable regulatory
restrictions (including capital conservation buffer requirements) and
availability of funds to FHN through a dividend from
FHN paid a cash dividend of$0.15 per common share onJuly 1, 2022 . FHN paid cash dividends of$1,625 per Series E preferred share and$1,175 per Series F preferred share onJuly 11, 2022 and$331.25 per Series B preferred share and$165 per Series C preferred share onAugust 1, 2022 . In addition, inJuly 2022 , the Board approved cash dividends per share in the following amounts: Table I.2.25 CASH DIVIDENDS APPROVED BUT NOT PAID Dividend/Share Record Date Payment Date Common Stock $ 0.15 09/09/2022 10/03/2022 Preferred Stock Series C$ 165.00 10/17/2022 11/01/2022 Series D$ 305.00 10/17/2022 11/01/2022 Series E$ 1,625.00 09/23/2022 10/11/2022 Series F$ 1,175.00 09/23/2022 10/11/2022
Off-Balance Sheet Arrangements
In the normal course of business, FHN is a party to a number of activities that contain credit, market and operational risk that are not reflected in whole or in part in the consolidated financial statements. Such activities include traditional off-balance sheet credit-related financial instruments. FHN enters into commitments to extend credit to borrowers, including loan commitments, lines of credit, standby letters of credit, and commercial letters of credit. Many of the commitments are expected to expire unused or be only partially used; therefore, the total amount of commitments does not necessarily represent future cash requirements. Based on its available liquidity and available borrowing capacity, FHN anticipates it will continue to have sufficient funds to meet its current commitments. Repurchase Obligations Prior toSeptember 2008 , legacyFirst Horizon originated loans through its pre-2009 mortgage business, primarily first lien home loans, with the intention of selling them. As discussed in Note 10 - Contingencies and Other Disclosures, FHN's principal remaining exposures for those activities relate to (i) indemnification claims by underwriters, loan purchasers, and other parties which assert that FHN-originated loans caused or contributed to losses which FHN is legally obliged to indemnify, and (ii) indemnification or other claims related to FHN's servicing of pre-2009 mortgage loans. FHN's approach for determining the adequacy of the repurchase and foreclosure reserve has evolved, sometimes substantially, based on changes in information available. Repurchase/make-whole rates vary based on purchaser, vintage, and claim type. For those loans repurchased or covered by a make-whole payment, cumulative average loss severities range between 50 and 60 percent of the UPB.
Repurchase Accrual Approach
In determining potential loss content, claims are analyzed by purchaser, vintage, and claim type. FHN considers various inputs including claim rate estimates, historical average repurchase and loss severity rates, mortgage insurance cancellations, and mortgage insurance curtailment requests. Inputs are applied to claims in the
active pipeline, as well as to historical average inflows to estimate loss content related to potential future inflows. Management also evaluates the nature of claims from purchasers and/or servicers of loans sold to determine if qualitative adjustments are appropriate.
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Repurchase and Foreclosure Liability
FHN's repurchase and foreclosure liability, primarily related to its pre-2009 mortgage business, is comprised of accruals to cover estimated loss content in the active pipeline (consisting of mortgage loan repurchase, make-whole, foreclosure/servicing demands and certain related exposures), estimated future inflows, and estimated loss content related to certain known claims not currently included in the active pipeline. The liability contemplates repurchase/make-whole and damages obligations and estimates for probable incurred losses associated with loan populations excluded from the settlements with the GSEs, as well as other whole loans sold, mortgage insurance cancellation rescissions, and loans included in bulk servicing sales effected prior to the settlements with the GSEs. FHN compares the estimated probable incurred losses determined under the applicable loss estimation approaches for the respective periods with current reserve levels. Changes in the estimated required liability levels are recorded as necessary through the repurchase and foreclosure provision. The repurchase and foreclosure liability was$17 million as ofJune 30, 2022 andDecember 31, 2021 .
Market Uncertainties and Prospective Trends
FHN's future results could be affected both positively and negatively by several known trends. Key among those are changes in theU.S. and global economy and outlook, government actions affecting interest rates, and government actions and proposals which could have positive or negative impacts on the economy at large or on certain businesses, industries, or sectors. Additional risks relate to how the COVID-19 pandemic continues to affect FHN's clients, political uncertainty, changes in federal policies (including those publicly discussed, formally proposed, or recently implemented) and the potential impacts of those changes on our businesses and clients, and whether FHN's strategic initiatives will succeed.
Inflation, Recession, and Federal Reserve Policy
InMarch 2020 , in response to the economic downturn associated with the COVID-19 pandemic along with societal and government reactions to it, theFederal Reserve "eased" by lowering short-term interest rates and operating an asset purchase program intended to lower longer-term interest rates and foster access to credit. The effective yields of 10-year and 30-yearU.S. Treasury securities achieved record low rates. These changes in interest rates and the volatility in the market negatively impacted FHN's net interest margin. Amortization of net processing fees related to government relief programs associated with the COVID-19 pandemic, including the Paycheck Protection Program, offset a portion of the net interest margin decline. During 2021, easing policy continued. Interest rates fluctuated but remained very low, continuing to adversely impact FHN's net interest margin. Inflation in theU.S. rose significantly during 2021 but, in 2021, was viewed as transitory. The first half of 2022 has been marked by: inflation continuing strongly; theFederal Reserve reversing course to implement a "tightening" policy to contain inflation by increasing short-term interest rates and ending asset purchases; many broad indicators suggesting near-term recession, including contractions in theU.S. economy during the first and second quarters; continuing supply-chain difficulties impacting many industries; and low unemployment rates. Historically, while it is common for unemployment to rise only after a recession has begun, it is unusual for unemployment to remain low in the context of the events in 2022 so far. The delayed reaction is likely to be temporary, however: if recessionary pressures continue to grow, demand for labor eventually will abate. Amplifying inflationary pressures and general uncertainties this year, the Russian military invadedUkraine in February. Much ofEurope and the rest of the world, including theU.S. , has imposed economic sanctions onRussia for its attack, its ongoing military campaign resulting in substantial civilian casualties, and the manner in which it has prosecuted the war which, reportedly, has significantly violated several international conventions and treaties. The war and sanctions resulted in global oil and gas prices rising precipitously in early 2022, along with the prices of several other commodities exported byRussia ,Ukraine , or both, including certain grains and vegetable oils. Also, severalU.S. and European multi-national companies have pulled operations and assets out
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of
TheFederal Reserve's recent public comments indicate that short-term rates are expected to be raised several more times during 2022, until inflation is judged to be adequately controlled. Moreover, theFederal Reserve has expressed its intent to bring inflation under control even at the risk of creating, or deepening, an economic recession. During this still-ongoing and still-volatile transition period, the yield curve has flattened and modestly inverted at times. Unusual yield curve effects, including inversion, may continue. A traditional measure of inversion occurs when the two-year rate is higher than the ten-year rate. Inversion incidents have been more frequent early in the third quarter. Traditional inversion occurred briefly several times during the first two quarters of 2022, but has not been sustained. Sustained traditional yield curve inversion is viewed, with statistical support, as a harbinger of economic recession. As a result of the prospects for recession, coupled with the uncertainties associated with the war in easternEurope , financial markets world-wide have been volatile in 2022. Financial asset values broadly fell during the first half of 2022, especially during the second quarter.
FHN cannot predict exactly when or how much short-term rates will be raised, nor how market-driven long-term
rates will behave, nor how those actions may affect financial markets, during the remainder of 2022.
In several respects FHN is likely to benefit from rising rates, as long as the rise in lending rates outpaces the inevitable rise in deposit and other funding rates. For instance, FHN's net interest margin widened significantly in the second quarter of 2022. However, the general increase in interest rates this year has pushed home mortgage rates in theU.S. higher. FHN's direct mortgage lending, lending to mortgage companies, and title insurance activities have seen business decline in 2022. If mortgage rates continue to rise, FHN's revenues and earnings from those areas likely will continue to fall compared with 2021. More generally, a recession accompanying rising rates likely would have a significant negative impact on FHN's businesses overall. Demand for loans is likely to fall, reserves for loan losses are likely to rise, many commercial activities that generate fee income are likely to decline, and competition for clients is likely to sharpen. FHN already has begun to experience some of these impacts in 2022. The deeper or longer a recession lasts, the more significant these negative impacts are likely to be for FHN.
LIBOR & Reference Rate Reform
LIBOR
The London Inter-Bank Offered Rate ("LIBOR") for many years was the most widely
used reference rate in the world. A large but declining portion of FHN's
floating rate loans use LIBOR, denominated in U.S. Dollars ("USD"), as the
reference rate to determine the interest rate paid by the client/borrower. In
addition, certain floating-rate securities issued by FHN use USD LIBOR as the
reference rate.
LIBOR is based on a mix of transaction-based data and expert judgment about market conditions. It is published in different tenors, which are time periods such as 1-week, 1-month, 12-month, etc.
LIBOR Discontinuance
About a decade ago, evidence emerged that some members of the panel that set LIBOR may have manipulated the published LIBOR rates rather than using strictly good-faith judgments. Several banks were fined. In 2017, the Chief Executive of theUnited Kingdom Financial Conduct Authority (the "FCA")-the governmental regulator of LIBOR-announced that it intended to halt persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. In 2021, theFCA announced that tenors of USD LIBOR would no longer be published as follows:
•One week and 2-month USD LIBOR would not be published after
•All other USD LIBOR tenors (e.g., overnight, 1-month, 3-month, 6-month and
12-month tenors) would not be published after
In 2020, the
InMarch 2022 ,Congress passed the Adjustable Interest Rate (LIBOR) Act. The legislation addresses loans that will remain on LIBOR as of theJune 30, 2023 , and that either have no fallback provisions or that contain fallback provisions that do not identify a specific benchmark replacement. Per the legislation, at the final cessation of USD LIBOR, banks may cause such loans to fall back to a SOFR-based benchmark rate, with such rate to be selected by theFederal Reserve Board . The LIBOR Act also provides safe harbor from liability for banks that select the Board-
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selected replacement benchmark rate at the cessation of LIBOR.
Alternatives to LIBOR
LIBOR became the market-preferred reference rate because it was perceived by
lenders and borrowers as being superior to alternatives in a wide range of
circumstances. Now that the origination of LIBOR-indexed loans has ended, no
single alternative reference rate has replaced LIBOR for USD transactions.
Instead, a number of different reference rates are being used in different
circumstances. These include:
•Daily SOFR. The Alternative Reference Rates Committee ("ARRC") is a group of
private-market and financial regulator participants convened by the Federal
Reserve and the New York Federal Reserve Bank to help ensure a successful
transition from USD LIBOR to a more robust reference rate. The ARRC has
recommended the Secured Overnight Financing Rate ("SOFR") as its preferred
alternative. SOFR resets daily and is based on actual transaction data for the
U.S. Treasury repurchase market. Accordingly, SOFR represents a nearly risk-free
secured overnight rate.
•CME Term SOFR. Published by CME Group, Term SOFR is a forward-looking rate,
with 1-month, 3-month, 6-month and 12-month tenors, and is based on SOFR futures
contracts. The ARRC has recommended conventions for Term SOFR rates and has
recommended CME Group as the administrator for Term SOFR.
•AMERIBOR. The American Interbank Offered Rate ("AMERIBOR") Index is produced by
the American Financial Exchange. AMERIBOR is based on actual transaction data
involving credit decisions by many financial institutions, on an unsecured
basis.
•BSBY. The Bloomberg short-term bank yield index ("BSBY") is a proprietary rate
index calculated and published by
•Prime. Although traditional prime rates (with each bank setting its own) are not likely to regain the prominence they had decades ago whenU.S. banks were much smaller and the industry was more fragmented, for some clients and products banks may increase their usage of prime rates. The alternatives listed above were made available to the majority of FHN's commercial clients starting inNovember 2021 . In accordance with theU.S. regulatory position, FHN ceased entering into new LIBOR based contracts as ofDecember 31, 2021 . Other alternative reference rates are being developed and FHN may consider them at a future time.
Each alternative reference rate has advantages and disadvantages compared with other alternatives in various
circumstances. Despite being supported by the ARRC, Daily SOFR has not gained significant traction among middle market commercial borrowers. When assessing Daily SOFR, some borrowers have observed that the adoption of a rate with a daily reset introduces operational complexities, including changes to the loan's interest calculation and billing cycle. By contrast, CME Term SOFR is a rate that: 1) like LIBOR, has rate reset tenors of monthly or longer and 2) like Daily SOFR, carries the endorsement of the ARRC. For these reasons, CME Term SOFR has gained traction among many middle market commercial borrowers. All of the alternative reference rates selected by FHN to date meet theInternational Organization of Securities Commissions ("IOSCO") Principles for Financial Benchmarks, as affirmed by the rate administrator and/or an independent auditor. While banking regulators have stated that banks are free to choose the index rates they offer clients, some public sector officials have urged caution in using the new credit sensitive alternative reference rates (a category that includes BSBY and AMERIBOR), primarily due to the robustness of underlying data used to derive the rates. More specifically, there is concern of an "inverted pyramid" effect where a large number of financial contracts could be priced using an index derived from a relatively low volume of transactions. In an interagency statement onOctober 20, 2021 ,U.S. banking regulatory agencies noted that "supervised institutions should understand how their chosen reference rate is constructed and be aware of any fragilities associated with that rate and the markets that underlie it". IOSCO has also warned of the potential for the "inverted pyramid" problem and will monitor how the IOSCO label is used by administrators. FHN is monitoring the credit sensitive reference rates and regulatory guidance around use of such rates. FHN plans to limit use of credit sensitive rates to commercial loans (approximately 2% of global USD LIBOR market) and related customer swaps (pending development of derivatives markets for these rates). Additionally, FHN expects that each financial contract will contain fallback language to guide transition from a credit sensitive rate to an alternative should that action be deemed necessary in the future.
FHN's Actions to Date & Transition Plans
Starting in 2019, FHN modernized the fallback language used in its loan documentation to better handle how floating rate loans would be re-set if LIBOR ceased to be published during the loan term.
In the fourth quarter of 2021, FHN ceased using USD LIBOR for new lending and renegotiated terms with clients whose loans are based on 1-week or 2-month USD LIBOR, which ceased publication at the end of 2021. Only a small portion of FHN's clients had such loans.
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On the consumer side, FHN began transitioning from LIBOR-based adjustable rate
mortgages ("ARMS") to SOFR-based ARMs in November 2021 , and no longer offers
LIBOR-based ARMs. SOFR has emerged as a market standard for ARMs in the U.S. and
is the conforming convention for Fannie Mae and Freddie Mac.
For all products, FHN developed a go-to-market strategy which included pricing
considerations, associate training, and client communications. All required
systems, processes, and reporting were updated to accommodate the transition.
FHN ceased origination of new contracts tied to LIBOR on December 31, 2021
In addition, FHN has established a LIBOR Transition Office to assist associates
in working with their clients to re-negotiate terms of loan and derivative
contracts that extend past the June 30, 2023 cessation date for the remaining
USD LIBOR tenors noted above. FHN bankers have begun amending the pricing of
existing LIBOR-based commercial loans via a rate change at the time of renewal
or via amendments to the loan documents to change the benchmark rate.
Additionally, FHN bankers have begun amending interest rate derivative contracts
whose tenors extend beyond the June 30, 2023 final cessation date of LIBOR.
While FHN has exposure to LIBOR in various contracts (e.g. securities,
derivatives), FHN's primary exposure to LIBOR is in floating rate loans to
customers and derivative contracts issued to customers through FHN Financial.
Below is a summary of these exposures as of
Table I.2.26
LIBOR EXPOSURES
Mature after
(Dollars in billions) As of June 30, 2022 June 2023
Commercial loans (a) $ 19 $ 15
Consumer loans (a) 3 3
Customer swaps (b) 9 9
(a) Amounts represent outstanding loan balances as of
Financial Accounting Aspects
In 2020, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides several optional expedients and exceptions to ease the potential burden in accounting for reference rate reform. The scope of ASU 2020-04 was expanded in 2021 with ASU 2021-01, "Scope". Refer to the Accounting Changes With Extended Transition Periods section of Note 1 - Basis of Presentation and Accounting Policies for additional information.
In
On
Critical Accounting Policies and Estimates
FHN has made no significant changes in its critical accounting policies and estimates from those disclosed in its 2021 Annual Report on Form 10-K, as amended.
Accounting Changes
Refer to Note 1 - Basis of Presentation and Accounting Policies for a detail of accounting changes with extended transition periods and accounting changes issued but not currently effective, which section is incorporated into MD&A by this reference. [[Image Removed: fhn-20220630_g2.jpg]] 109 2Q22 FORM 10-Q REPORT
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NON-GAAP TO GAAP RECONCILIATION
Three Months Ended Six Months Ended
(Dollars in millions; shares in thousands)
June 30, 2021 June 30, 2022 June 30, 2021
Pre-provision Net Revenue (Non-GAAP)
Net interest income (GAAP) $ 542 $ 479 $ 497 $ 1,021 $ 1,004
Plus: Noninterest income (GAAP) 201 229 285 430 583 Total revenues (GAAP) 743 708 782 1,451 1,587 Less: Noninterest expense (GAAP) 488 493 498 982
1,042
Pre-provision net revenue (Non-GAAP) $ 255 $ 215 $ 284 $ 469 $
545
Average Tangible Common Equity (Non-GAAP) Average total equity (GAAP)$ 8,614 $ 8,618 $ 8,459 $ 8,616 $
8,404
Less: Average noncontrolling interest (a) 295 295 295 295
295
Less: Average preferred stock (a) 1,014 695 513 855
492
(A) Total average common equity$ 7,305 $ 7,628 $ 7,651 $ 7,466 $
7,617
Less: Average goodwill and other intangible assets (GAAP) (b) 1,789 1,802 1,843 1,795
1,850
(B) Average tangible common equity (Non-GAAP)$ 5,516 $ 5,826 $ 5,808 $ 5,671 $
5,767
Net Income Available to Common Shareholders (C) Net income available to common shareholders (annualized) (GAAP) $ 666 $ 756$ 1,182 $ 711 $
1,047
Tangible Common Equity (Non-GAAP) (D) Total equity (GAAP)$ 8,551 $ 8,696 $ 8,565 $ 8,551 $
8,565
Less: Noncontrolling interest (a) 295 295 295 295 295 Less: Preferred stock (a) 1,014 1,014 520 1,014 520 (E) Total common equity$ 7,242 $ 7,387 $ 7,750 $ 7,242 $ 7,750 Less:Goodwill and other intangible assets (GAAP) (b) 1,783 1,796 1,836 1,783
1,836
(F) Tangible common equity (Non-GAAP) 5,459 5,591 5,914 5,459
5,914
Less: Unrealized gains (losses) on AFS securities, net of tax (671) (440) 43 (671)
43
(G) Adjusted tangible common equity (Non-GAAP)$ 6,130 $ 6,031 $ 5,871 $ 6,130 $ 5,871 Tangible Assets (Non-GAAP) (H) Total assets (GAAP)$ 85,132 $ 88,660 $ 87,908 $ 85,132 $ 87,908 Less:Goodwill and other intangible assets (GAAP) (b) 1,783 1,796 1,836 1,783
1,836
(I) Tangible assets (Non-GAAP)$ 83,349 $ 86,864 $ 86,072 $ 83,349 $
86,072
Risk-Weighted Assets (J) Risk-weighted assets (c)$ 67,294 $ 65,042 $ 61,991 $ 67,294 $
61,991
Period-end Shares Outstanding (K) Period-end shares outstanding 536,333 534,587 550,865 536,333
550,865
Ratios
(C)/(A) Return on average common equity (GAAP) 9.12 % 9.92 % 15.45 % 9.52 % 13.75 % (C)/(B) Return on average tangible common equity (Non-GAAP) 12.07 12.98 20.36 12.54
18.16
(D)/(H) Total period-end equity to period-end assets (GAAP) 10.04 9.81 9.74 10.04
9.74
(F)/(I) Tangible common equity to tangible assets (Non-GAAP) 6.55 6.44 6.87 6.55
6.87
(G)/(J) Adjusted tangible common equity to risk-weighted assets (Non-GAAP) 9.11 9.27 9.47 9.11
9.47
(E)/(K) Book value per common share (GAAP)
13.82 $ 14.07 $ 13.50 $ 14.07
(F)/(K) Tangible book value per common share (Non-GAAP)$ 10.18 $ 10.46 $ 10.74 $ 10.18 $
10.74
Loans and leases excluding PPP loans (Non-GAAP) Commercial loans and leases excluding PPP loans$ 43,843 $ 42,643 $ 40,980 $ 43,843 $ 40,980 PPP loans 375 642 3,840 375 3,840 Total commercial loans and leases 44,218 43,285 44,820 44,218 44,820 Total consumer loans 12,311 11,727 11,867 12,311 11,867 Total loans and leases$ 56,529 $ 55,012 $ 56,687 $ 56,529 $ 56,687 (a) Included in total equity on the Consolidated Balance Sheets. (b) Includes goodwill and other intangible assets, net of amortization. (c) Defined by and calculated in conformity with bank regulations applicable to FHN. [[Image Removed: fhn-20220630_g2.jpg]] 110 2Q22 FORM 10-Q REPORT
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