FIRST HORIZON CORP

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:

PART I, ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)

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Table I.2.2

AVERAGE BALANCES, NET INTEREST INCOME & YIELDS/RATES

(a) 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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Net interest income of $625 million in first quarter 2024 increased $8 million from fourth quarter 2023 and the net interest margin increased 10 basis points to 3.37% from the benefit of loan and deposit repricing. Loan yield increased 9 basis points and the cost of interest-bearing deposits decreased 9 basis points.

Average earning assets of $74.8 billion in first quarter 2024 decreased $670 million from fourth quarter 2023 largely due to a $763 million decrease in average interest-bearing deposits with banks partially offset by a $196 million increase in average investment securities. Average loans and leases were relatively flat compared to the prior quarter. Average interest-bearing liabilities decreased $554 million largely reflecting a $762 million decrease in interest-bearing deposits partially offset by a $100 million increase in other short-term borrowings.

Net interest income decreased $63 million from first quarter 2023 and the net interest margin decreased 51 basis points from 3.88% in first quarter 2023, driven by the impact of higher funding costs partially offset by higher yields on earning assets. Funding costs increased 134 basis points while yields on earning assets increased 60 basis points.

Average earning assets increased $2.7 billion from first quarter 2023 largely driven by a $3.1 billion increase in loans and leases and a $325 million increase in average interest-bearing deposits with banks partially offset by a $673 million decrease in investment securities. Average interest-bearing liabilities increased $7.4 billion largely driven by a $8.8 billion increase in interest-bearing deposits.

Noninterest Income

The following table presents the significant components of noninterest income for each of the periods presented:

Table I.2.3

NONINTEREST INCOME

Noninterest income of $194 million increased $11 million, or 6%, from fourth quarter 2023, largely driven by higher fixed income production.

Fixed income of $52 million increased $15 million from the prior quarter. Fixed income average daily revenue of $731 thousand increased 58% from $463 thousand in fourth quarter 2023, driven by the market's expectation that short-term rates have peaked as well as improved liquidity conditions in the banking sector.

Mortgage banking income of $9 million increased $4 million driven by higher origination volume and improvement in gain-on-sale spreads.

Other income decreased $13 million largely driven by a $9 million gain on an FHN Financial asset disposition in fourth quarter 2023 and a $3 million decrease in FHLB dividends.

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Noninterest income for first quarter 2024 increased $23 million, or 13%, compared to first quarter 2023, primarily driven by higher fixed income.

Fixed income of $52 million increased $13 million from first quarter 2023, largely reflecting more favorable market conditions.

Mortgage banking income of $9 million increased $4 million driven by higher origination volume and improvement in gain-on-sale spreads.

Noninterest Expense

The following tables present the significant components of noninterest expense for each of the periods presented:

Table I.2.4

NONINTEREST EXPENSE

Noninterest expense of $515 million decreased $58 million, or 10%, compared with fourth quarter 2023, largely driven by lower deposit insurance expense. FHN recognized $10 million in FDIC special assessment expense compared to $68 million in the prior quarter. Personnel expense increased $22 million largely reflecting the impact of annual merit adjustments, seasonality in employee benefits, and higher incentive-based compensation from improved fixed income revenue. Advertising and public relations expense decreased $16 million largely attributable to elevated levels of expense from deposit and brand marketing campaigns in the prior quarter.

Noninterest expense of $515 million increased $37 million, or 8%, from first quarter 2023. Personnel expense increased $30 million largely attributable to annual merit adjustments, higher incentive-based compensation, and higher deferred compensation expense. Deposit insurance expense increased $12 million reflecting an increase in the estimated FDIC special assessment. The $6 million increase in legal and professional fees was largely attributable to strategic investment initiatives in first quarter 2024. The $6 million decrease in advertising and public relations expense was largely attributable to strategy and timing differences for various advertising campaigns when comparing the periods.

Provision for Credit Losses

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

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expected over the life of the loan and lease portfolio and the portfolio of unfunded loan commitments.

Provision for credit losses remained unchanged at $50 million for the first quarter 2024 compared to both the

prior quarter and first quarter 2023. For additional information about general asset quality trends, refer to the Asset Quality section in this MD&A.

Income Taxes

FHN recorded income tax expense of $57 million in first quarter 2024 compared to an income tax benefit of $11 million in fourth quarter 2023 and income tax expense of $76 million in first quarter 2023.

The effective tax rate was approximately 22.5%, -6.2%, and 22.7% for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023, respectively.

FHN’s effec tive 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-deductible 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. For the three months ended December 31, 2023, the reduction in the rate was primarily related to the benefit from the settlement of uncertain tax positions related to prior merger-related items.

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 of March 31, 2024, FHN’s gross DTA and gross DTLwere $792 million and $488 million, respectively, resulting in a net DTA of $304 million at March 31, 2024, compared with a net DTA of $215 million at December 31, 2023.

As of March 31, 2024, FHN had deferred tax asset balances related to federal and state income tax carryforwards of $29 million and $3 million, respectively, which will expire at various dates.

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 $285 million for first quarter 2024, a decrease of $7 million compared to fourth quarter 2023, largely driven by a decrease in net interest income, partially offset by a decrease in noninterest expense. Net interest income of $532 million decreased $16 million driven by a decline in noninterest-bearing deposits and thus lower earnings credit under the fund transfer pricing methodology. The provision for credit losses of $28 million remained unchanged from the prior quarter. Noninterest income decreased $1 million compared to the prior quarter. Noninterest expense decreased $11 million compared to fourth quarter 2023 largely from a reduction in outside services.

Pre-tax income for first quarter 2024 decreased $30 million compared to $315 million for first quarter 2023. Net interest income decreased $29 million from first quarter 2023 driven by the impact of higher funding costs

partially offset by higher yields on earning assets. The provision for credit losses decreased $9 million. Noninterest expense increased $11 million compared to first quarter 2023 largely due to higher personnel expense. Results also reflect a $1 million increase in noninterest income compared to first quarter 2023.

Specialty Banking

Pre-tax income in the Specialty Banking segment of $98 million for first quarter 2024 increased $12 million compared to fourth quarter 2023, driven by a $7 million increase in revenue and an $8 million decrease in provision for credit losses, offset by a $4 million increase in noninterest expense.

Fixed income of $52 million increased $15 million, driven by the market's expectation that short-term rates have peaked as well as improved liquidity conditions in the banking sector. Mortgage banking income of $9 million increased $4 million driven by higher origination volume and improvement in gain-on-sale spreads. Other noninterest income decreased $10 million, primarily from a $9 million gain on an FHN Financial asset disposition in fourth quarter 2023.

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Pre-tax income in the Specialty Banking segment increased $5 million compared to first quarter 2023 driven by higher revenue of $18 million, offset by higher provision for credit losses of $9 million and higher noninterest expense of $4 million. The increase in revenue was primarily attributable to higher fixed income and mortgage banking income. The increase in noninterest expense was largely driven by higher incentive-based compensation expense tied to the improvement in fixed income.

Corporate

Pre-tax loss for the Corporate segment was $129 million for first quarter 2024 compared to $200 million for fourth quarter 2023, largely reflecting a $30 million increase in revenue and a $50 million decrease in noninterest expense. The increase in revenue was largely driven by a $25 million increase in net interest income. The decline in noninterest expense was largely attributable to lower deposit insurance expense partially offset by higher

personnel expense. Results for first quarter 2024 also reflect $5 million in restructuring costs, primarily related to personnel initiatives which will contribute to operational efficiencies.

Pre-tax loss for the Corporate segment was $129 million compared to $77 million for first quarter 2023, largely reflecting a $36 million decline in net interest income tied to the impact of funds transfer pricing and a $22 million increase in noninterest expense tied to higher personnel and deposit insurance expense. Personnel expense of $103 million increased $20 million reflecting annual merit adjustments, higher incentive-based compensation, and higher deferred compensation expense. Deposit insurance expense increased $11 million, primarily from the FDIC special assessment. Noninterest income increased $6 million compared to the first quarter 2023, largely reflecting higher deferred compensation income.