First Horizon Corporation (FHN) — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 3, 2024. First Horizon is a Memphis-based financial holding company operating through First Horizon Bank and specialty financial businesses, primarily across the southern U.S. Dollar amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior year-end |
|---|---|---|
| Net interest income | $625; net interest margin 3.37% | $688 and 3.88% in Q1 2023 |
| Net income / income available to common shareholders | $197 / $184; diluted EPS $0.33 | $255 / $243; diluted EPS $0.43 in Q1 2023 |
| Noninterest income / expense | $194 / $515 | $171 / $478 in Q1 2023 |
| Provision for credit losses | $50 | $50 in Q1 2023 |
| Loans and leases, gross | $61.8 billion | $61.3 billion at December 31, 2023 |
| Total deposits | $65.7 billion | $65.8 billion at December 31, 2023 |
| Cash flows | Operating +$838; investing −$876; financing −$127; cash and cash equivalents decreased $165 | Operating −$69; investing −$2,022; financing +$1,844 in Q1 2023 |
| Capital and equity | CET1 11.31%; total risk-based capital 13.93%; total equity $9.2 billion | CET1 11.40%; total risk-based capital 13.96%; equity $9.3 billion at year-end |
Quarterly results improved sequentially: net interest income rose $8 from Q4 2023, and net income available to common shareholders rose from $175. Year over year, net interest income fell $63 as funding costs increased faster than earning-asset yields; funding costs rose 134 basis points while earning-asset yields rose 60 basis points. Noninterest income increased, mainly on stronger fixed-income activity. Noninterest expense rose year over year, reflecting personnel and deposit-insurance costs.
At March 31, deposits included $49.3 billion of interest-bearing and $16.4 billion of noninterest-bearing balances. Estimated uninsured deposits were $27.4 billion, or 42% of deposits; $5.5 billion were collateralized. Short-term borrowings were $2.7 billion and term borrowings $1.2 billion. The company reported $36.4 billion of available liquidity capacity, including cash at the Federal Reserve, FHLB capacity, discount-window capacity and unencumbered securities; some sources are collateral-dependent. Loans-to-deposits were 94%.
Credit, balance-sheet and capital developments
- Net charge-offs were $40, or an annualized 0.27% of loans, versus $16 and 0.11% in Q1 2023. Nonperforming loans and leases rose to $505 from $462 at year-end; the NPL ratio increased to 0.82% from 0.75%.
- The allowance for loan and lease losses was $787, or 1.27% of loans, versus $773 and 1.26% at year-end. Total allowance for credit losses, including unfunded commitments, was $866. Management cited the evolving macroeconomic outlook, modest credit-grade migration and commercial loan growth.
- Commercial real estate loans were $14.4 billion. Office loans were $2.77 billion, or 19% of CRE. Loans to mortgage companies and finance and insurance companies together represented 19% of the C&I portfolio, exposing part of the portfolio to financial-services conditions.
- Available-for-sale securities had $1.181 billion of gross unrealized losses at quarter-end; held-to-maturity securities had a $180 fair-value shortfall to amortized cost. Management reported no identified credit losses on AFS securities and stated it did not intend, and was not more likely than not required, to sell them before recovery.
- FHN repurchased $159 of common stock during the quarter, including $154 under its share-purchase program. The board authorized a $650 program through January 31, 2025. The common dividend declared was $0.15 per share.
Outlook, management commentary and risks
The filing provides no specific earnings or revenue guidance. Management said it expected capital ratios to remain above well-capitalized standards plus the required conservation buffer during 2024. It described uncertain rate and yield-curve conditions: inflation rose modestly in Q1, market expectations for near-term rate cuts diminished, and management said it could not predict the timing or magnitude of rate moves. Its static-balance-sheet sensitivity analysis estimated 12-month net interest income would change −5.0% under a 200-basis-point rate decline and +1.7% under a 200-basis-point increase; management cautioned that simulations are estimates, not forecasts.
- FDIC special-assessment expense was $10 in Q1 2024, following $68 in Q4 2023; FHN recorded an additional estimated $10 in Q1 after the FDIC indicated a larger industry loss, with an updated assessment expected in June.
- FHN redeemed all Series D preferred shares on May 1, 2024, for $94 carrying value. The filing said the shares did not qualify as Tier 1 capital, so redemption did not affect regulatory capital ratios.
- Management highlighted risks from recession or weaker growth, sustained yield-curve inversion, deposit competition, CRE and residential property conditions, higher coastal insurance costs, and proposed regulatory changes. Climate-disclosure rules adopted by the SEC were stayed pending judicial review.
- Legacy pre-2009 mortgage repurchase and foreclosure liability was $16. The most significant described servicing-indemnification claim has uncertain scope and no estimable reasonably possible loss range. Separately, established liabilities for material litigation matters were $2; estimated reasonably possible losses above those liabilities ranged from zero to less than $1.
- FHN recognized $5 of restructuring costs in Q1. Adoption of a tax-credit accounting standard increased retained earnings by $8, net of tax, on January 1, 2024.
Important facts for investors to verify
- Whether deposit pricing and mix stabilize, especially given the 42% estimated uninsured-deposit share, and how that affects funding costs and net interest margin.
- Whether credit deterioration continues: monitor charge-offs, nonperforming loans, criticized/problem assets, CRE office exposure and the adequacy of the allowance.
- How the FDIC’s updated special assessment changes expense beyond the $10 estimated in Q1.
- Whether the stated liquidity sources remain available in stress, including collateral and operational conditions for FHLB and discount-window borrowing.
- Actual progress and capital effects of the remaining share-repurchase authorization, dividends and Series D redemption.
- Developments in the Nationstar/Mr. Cooper claim, other litigation and regulatory or climate-disclosure requirements; the filing says outcomes or timing may be uncertain.
Non-GAAP measures, including pre-provision net revenue and tangible capital measures, are company-defined; the filing provides reconciliations. Interim results are not necessarily indicative of full-year results.