FIRST HORIZON CORP

ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)

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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.

Net interest income of $2.5 billion in 2024 decreased $29 million, or 1%, from 2023. The decrease was largely attributable to higher funding costs, partially offset by higher loan yields and loan growth. Interest income increased $252 million, largely driven by higher interest on loans and leases of $299 million. Interest expense increased $281 million, largely from higher interest expense on deposits of $354 million, partially offset by a decline in interest on short-term borrowings of $80 million.

FHN's net interest margin decreased 7 basis points to 3.35% in 2024 compared to 2023 and the net interest spread decreased 6 basis points to 2.38% over the same period. The decline in the margin was attributable to a 35 basis point increase in the cost of interest-bearing liabilities, partially offset by a 29 basis point increase in earning asset yields.

Total average earning assets increased $665 million in 2024, largely driven by average loan growth of $1.8 billion, partially offset by lower levels of interest-bearing deposits with banks and investment securities. Total average interest-bearing liabilities increased $3.0 billion, largely driven by average interest-bearing deposit growth of $4.4 billion, partially offset by a decrease in other short-term borrowings.

The following table presents the major components of net interest income and net interest margin.

ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)

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Table 7.2

AVERAGE BALANCES, NET INTEREST INCOME AND 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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The following table presents the change in interest income and interest expense due to changes in both average volume and average rate.

Table 7.3

ANALYSIS OF CHANGES IN NET INTEREST INCOME

(a) The changes in interest due to both rate and volume have been allocated to change due to rate and change due to volume in proportion to the absolute amounts of the changes in each.

(b) Variances are computed on a line-by-line basis and are non-additive.

(c) Reflects taxable-equivalent adjustments, using the statutory federal income tax rate of 21%, and where applicable, state income taxes.

ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)

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

Provision for credit losses decreased to $150 million in 2024, compared to $260 million in 2023. Net charge-offs were $112 million in 2024 compared to $170 million in 2023. The higher level of provision and net charge-offs in 2023 largely reflects the impact of a $72 million idiosyncratic credit loss on a single relationship in 2023.

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 7.4

NONINTEREST INCOME

NM – Not meaningful

Noninterest income of $679 million decreased $248 million from $927 million in 2023, largely driven by the $225 million gain on merger termination in 2023. Results in 2024 also reflect higher securities losses due to an opportunistic restructuring of a portion of the securities portfolio, partially offset by improvements in fixed income and mortgage banking income. Noninterest income represented 21% and 27% of total revenue for 2024 and 2023, respectively.

Fixed income improved $54 million, or 41%, for 2024 compared to 2023. Fixed income product revenue increased $58 million, largely driven by more favorable market conditions. Revenue from other products decreased $4 million, largely driven by lower investment advisory fees due to the sale of the assets of FHN Financial Main Street Advisors in fourth quarter 2023 and lower derivative sales.

Brokerage, management fees and commissions of $101 million increased $11 million, or 12%, as strong market performance improved wealth management fees.

Mortgage banking income of $35 million increased $12 million from $23 million in 2023, largely driven by higher secondary volume.

Securities losses in 2024 reflect the impact of $91 million in losses on the sale of AFS securities tied to an opportunistic restructuring of a portion of the securities portfolio during the fourth quarter of 2024.

Other income included a gain of $9 million on the disposition of the assets of FHN Financial Main Street Advisors in 2023.

ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)

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Noninterest Expense

The following table presents the significant components of noninterest expense for each of the periods presented.

Table 7.5

NONINTEREST EXPENSE

Noninterest expense of $2.0 billion decreased $44 million, or 2%, compared to 2023.

Personnel expense of $1.1 billion increased $37 million compared to 2023, reflecting higher salaries and benefits expense and incentive-based compensation, partially offset by the decrease to merger-related expenses, as there were no merger and integration expenses in 2024 compared to $51 million in 2023.

Net occupancy expense increased $7 million, computer software expense increased $10 million and legal and professional fees increased $15 million in 2024, largely attributable to strategic investments.

Deposit insurance expense declined $58 million, largely attributable to $68 million in special assessment expense in 2023, compared to $9 million in 2024.

Advertising and public relations expense decreased $23 million from 2023, largely attributable to the end of deposit campaign and brand awareness initiatives that were launched in 2023.

Contributions decreased $43 million, largely attributable to a $50 million contribution to the First Horizon Foundation in 2023 following the termination of the TD Transaction, compared to a $10 million contribution in 2024.

There were no merger and integration related expenses in 2024 compared to $51 million in 2023. Restructuring expenses were $14 and $10 million for 2024 and 2023, respectively.

FHN recorded income tax expense of $211 million in 2024 compared to $212 million in 2023, resulting in an effective tax rate of 21.0% and 18.8%, respectively.

FHN’s effective tax rate is favorably affected by recurring items such as tax credits and other tax benefits from tax credit investments, tax-exempt income, and bank-owned life insurance. 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. During 2024, FHN recognized net favorable discrete items primarily attributable to the lapse of the statute of limitations for uncertain positions. In 2023, the reduction in the rate from the statutory U.S. federal income tax rate of 21% was primarily related to the benefit from the settlement of uncertain tax positions related to prior merger-related items, which was partially

ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)

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offset by the additional tax expense from the surrender of bank-owned life insurance policies.

A deferred tax asset ("DTA") 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. FHN’s net DTA was $227 million and $215 million at December 31, 2024 and 2023, respectively.

As of December 31, 2024, FHN had DTA balances related to federal and state income tax carryforwards of $29 million and $3 million, respectively, which will expire at various dates. Refer to Note 14 - Income Taxes for additional information.

FHN’s gross DTA after valuation allowance was $768 million and $737 million as of December 31, 2024 and 2023, respectively. 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.

FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based on the laws of the applicable states where it conducts business operations, FHN either files consolidated, combined, or separate returns. The statute of limitations for FHN’s consolidated federal income tax returns remains open for tax years 2021 through 2023. On occasion, as federal or state auditors examine the tax returns of FHN and its subsidiaries, FHN may extend the statute of limitations for a reasonable period. Otherwise, the statutes of limitations remain open only for tax years in accordance with federal and state statutes. See Note 14 - Income Taxesto the Consolidated Financial Statements in Part II, Item 8 of this Report for additional information.

Business Segment Results

During 2024, FHN reorganized its internal management structure and, accordingly, its segment reporting structure. Prior to the restructure, FHN's reportable segments were Regional Banking, Specialty Banking, and Corporate. As a result of the restructure, FHN revised its reportable segments to include: (1) Commercial, Consumer & Wealth, (2) Wholesale, and (3) Corporate. Segment results for years prior to 2024 have been recast to adjust for the realignment of the segment reporting structure. See Note 19 - Business Segment Information to the Consolidated Financial Statements in Part II, Item 8 of this Report for additional disclosures related to FHN's segments.

2024 vs. 2023

Commercial, Consumer & Wealth

The Commercial, Consumer & Wealth segment generated pre-tax income of $1.4 billion in 2024 compared to $1.5 billion in 2023, a decrease of $83 million.

Net interest income of $2.5 billion decreased $151 million, reflecting higher funding costs, partially offset by the benefit of higher interest rates and average loan balances.

Provision for credit losses decreased $102 million, largely reflecting the impact of a $72 million credit loss on a single relationship in 2023.

Noninterest income increased $13 million, largely driven by an $11 million increase in brokerage, management fees and commissions as strong market performance improved wealth management fees.

Noninterest expense increased $47 million, largely driven by higher personnel expense and other expenses related to strategic investments.

Wholesale

Pre-tax income of $122 million in the Wholesale segment increased $56 million compared to 2023, largely reflecting a $67 million increase in revenue tied to improvements in fixed income and mortgage banking income. Fixed income of $187 million increased $53 million, largely driven by more favorable market conditions. Mortgage banking income of $33 million increased $12 million, largely driven by higher secondary volume.

Noninterest expense of $299 million increased $23 million, largely due to an increase in incentive-based compensation expense tied to the improvement in fixed income and mortgage banking income.

Corporate

Pre-tax loss for the Corporate segment was $546 million for 2024 compared to $450 million for 2023.

Net interest income (expense) improved $111 million compared to 2023, primarily driven by the impact of the funds transfer pricing methodology.

Noninterest income decreased $317 million, largely attributable to the $225 million gain on merger termination in 2023 and $91 million in net securities losses tied to an opportunistic restructuring of a portion of the AFS securities portfolio in 2024.

Noninterest expense of $319 million for 2024 decreased $114 million compared to 2023, largely driven by lower FDIC special assessment expense, lower contributions to the First Horizon Foundation, and a decline in advertising and public relations expense. Restructuring expenses totaled $14 million and $10 million for 2024 and 2023,

ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)

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respectively. There were no merger and integration expenses in 2024 compared to $51 million in 2023.

2023 vs. 2022

Commercial, Consumer & Wealth

The Commercial, Consumer & Wealth segment generated pre-tax income of $1.5 billion in 2023 compared to $1.3 billion in 2022, an increase of $164 million, driven by a $400 million increase in revenue largely tied to higher net interest income, partially offset by a $175 million increase in provision for credit losses and a $61 million increase in noninterest expense.

Net interest income of $2.7 billion increased $429 million, reflecting the benefit of higher interest rates and average loan balances, partially offset by higher funding costs.

The increase in the provision for credit losses largely reflected loan growth, macroeconomic uncertainty, and modest grade migration.

The increase in noninterest expense was largely driven by higher personnel, deposit insurance, advertising and public relations, and technology-related expenses.

Wholesale

Pre-tax income of $66 million in the Wholesale segment decreased $91 million compared to 2022, largely reflecting a $155 million decrease in revenue tied to lower fixed income, mortgage banking income, and net interest income. The decrease in revenue was partially offset by a $68 million decrease in noninterest expense.

Income from the fixed income business of $134 million decreased $71 million, largely driven by less favorable market conditions.

Mortgage banking income of $21 million decreased $25 million largely driven by lower origination volume given the impact of higher long-term rates. Results in 2022 also reflected a $12 million gain on sale of mortgage servicing rights.

Noninterest expense of $276 million decreased $68 million, largely due to lower incentive-based compensation expense tied to the decline in fixed income and mortgage banking income.

Corporate

Pre-tax loss for the Corporate segment was $450 million for 2023 compared to $346 million for 2022.

Noninterest income increased $226 million, largely driven by the gain on merger termination. Noninterest income results also reflect lower securities gains of $22 million in 2023 and a $22 million gain on sale of the title business in 2022.

Noninterest expense of $433 million for 2023 increased $133 million compared to 2022, largely driven by higher deposit insurance expense, a $50 million contribution to the First Horizon Foundation, and higher personnel expense. Merger and integration expense was $51 million in 2023 compared to $136 million in 2022.

For a description of FHN's results of operations for 2023, see Results of Operations - 2023 compared to 2022 in Item 7 in the 2023 Form 10-K which is incorporated herein by reference.