First Horizon Corp (FHN) - Q3 2024 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2024. First Horizon Corporation (FHN) is a financial holding company headquartered in Memphis, Tennessee, with its principal subsidiary being First Horizon Bank. The company operates through three reportable segments: Regional Banking, Specialty Banking, and Corporate. As of the reporting date, FHN operated over 450 business locations across 24 states.
Key Financial Metrics
| Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Net Income (Common Shareholders) | $213 million | $129 million | $581 million | $689 million |
| Diluted EPS | $0.40 | $0.23 | $1.06 | $1.23 |
| Net Interest Income | $627 million | $605 million | $1,881 million | $1,923 million |
| Noninterest Income | $200 million | $173 million | $581 million | $745 million |
| Noninterest Expense | $511 million | $474 million | $1,527 million | $1,508 million |
| Provision for Credit Losses | $35 million | $110 million | $140 million | $210 million |
| Total Assets | $82.6 billion | $81.7 billion | - | - |
| Total Loans and Leases | $62.4 billion | $61.3 billion | - | - |
| Total Deposits | $66.6 billion | $65.8 billion | - | - |
| Net Interest Margin (NIM) | 3.31% | 3.17% | 3.35% | 3.47% |
| Return on Average Assets (ROA) | 1.08% | 0.68% | 1.02% | 1.19% |
| Common Equity Tier 1 Ratio | 11.23% | 11.12% | - | - |
Material Changes vs. Prior Period
- Profitability: Net income available to common shareholders increased 65% year-over-year (Q3 2024 vs. Q3 2023) to $213 million, driven by a significant reduction in the provision for credit losses and higher noninterest income. However, year-to-date net income decreased 16% compared to 2023, primarily due to the absence of a $225 million gain on merger termination recorded in Q2 2023.
- Net Interest Income: NII increased $22 million in Q3 2024 compared to the prior year, supported by higher yields on earning assets (up 24 basis points) which partially offset higher funding costs (up 4 basis points). NIM expanded to 3.31% from 3.17%.
- Provision for Credit Losses: The provision decreased significantly to $35 million in Q3 2024 from $110 million in Q3 2023. The prior year included a $72 million charge-off related to a single borrower in bankruptcy. Net charge-offs were $24 million (15 basis points) in Q3 2024.
- Noninterest Income: Increased 16% year-over-year to $200 million, largely driven by a 68% increase in fixed income production ($47 million) and higher brokerage fees. Mortgage banking income also rose 29%.
- Noninterest Expense: Increased 8% year-over-year to $511 million. This was driven by higher personnel expenses and a $15 million Visa derivative valuation expense. Excluding the Visa expense, the increase was primarily due to strategic investments and higher salaries/benefits.
- Balance Sheet: Total loans grew 2% to $62.4 billion, with growth in loans to mortgage companies and commercial real estate (CRE). Total deposits grew 1% to $66.6 billion, with interest-bearing deposits increasing $1.8 billion while noninterest-bearing deposits declined $992 million.
Guidance, Outlook, and Risks
- Capital Management: FHN remains well-capitalized, exceeding all regulatory requirements for "well-capitalized" status plus the capital conservation buffer. The company redeemed all Series D Preferred Stock in Q2 2024. In October 2024, the Board approved a new $1.0 billion common stock repurchase program, replacing the January 2024 program.
- Asset Quality: Nonperforming assets (NPAs) increased to $585 million (0.93% of loans) from $469 million at year-end 2023, driven by an increase in nonaccrual CRE loans (specifically multi-family and office). Potential problem assets rose to $1.7 billion, reflecting grade migration in CRE portfolios.
- Interest Rate Environment: Management notes that the yield curve inverted for much of 2023 and early 2024 but flattened in September 2024 following a 50 basis point Federal Reserve rate cut. The company anticipates continued competition for deposits and monitors the impact of rate cuts on loan yields versus funding costs.
- Regulatory and Climate Risks: FHN is assessing the impact of proposed SEC Climate Disclosure Rules and California GHG reporting laws, which are currently subject to legal challenges and stays. The company also faces potential increased regulatory costs if new rules for banks with assets over $100 billion are implemented, though FHN is currently under that threshold.
- Repurchase Obligations: The repurchase and foreclosure liability related to pre-2009 mortgage activities was $15 million as of September 30, 2024, down slightly from $16 million at year-end 2023.
Investor Verification Checklist
- Credit Quality Trends: Verify the trajectory of nonaccrual CRE loans and potential problem assets, which have increased significantly year-over-year.
- Deposit Cost Stability: Monitor the cost of interest-bearing deposits, which rose 14 basis points quarter-over-quarter, and the impact of the shifting yield curve on Net Interest Margin.
- Visa Derivative Liability: Confirm the valuation assumptions and potential exposure related to the $15 million Visa derivative valuation expense included in Q3 noninterest expense.
- Regulatory Capital Buffers: Review the impact of the new $1.0 billion share repurchase program on future capital ratios and ensure continued compliance with well-capitalized standards.
- Non-GAAP Reconciliations: Review the reconciliation of tangible common equity and pre-provision net revenue to ensure alignment with GAAP figures.