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Fair Value of Assets and Liabilities | 3 Months Ended
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Mar. 31, 2025
Fair Value Disclosures [Abstract] |
Fair Value of Assets and Liabilities | Fair Value of Assets and Liabilities FHN groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. This hierarchy requires FHN to maximize the use of observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Each fair value measurement is placed into the proper level based on the lowest level of significant input. These levels are: •Level 1—Valuation is based upon quoted prices for identical instruments traded in active markets. •Level 2—Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. •Level 3—Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models, and similar techniques. The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024.
BALANCES OF ASSETS & LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS |  |
|  | March 31, 2025 |  |
(Dollars in millions) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  |
Trading securities: |  |  |  |  |  |  |  |  |  |
U.S. treasuries |  | $ | — |  |  | $ | 2 |  |  | $ | — |  |  | $ | 2 |  |  |
Government agency issued MBS |  | — |  |  | 92 |  |  | — |  |  | 92 |  |  |
Government agency issued CMO |  | — |  |  | 145 |  |  | — |  |  | 145 |  |  |
Other U.S. government agencies |  | — |  |  | 218 |  |  | — |  |  | 218 |  |  |
States and municipalities |  | — |  |  | 67 |  |  | — |  |  | 67 |  |  |
Corporate and other debt |  | — |  |  | 830 |  |  | — |  |  | 830 |  |  |
SBA interest-only strips |  | — |  |  | — |  |  | 22 |  |  | 22 |  |  |
Total trading securities |  | — |  |  | 1,354 |  |  | 22 |  |  | 1,376 |  |  |
Loans held for sale (elected fair value) |  | — |  |  | 101 |  |  | 13 |  |  | 114 |  |  |
Securities available for sale: |  |  |  |  |  |  |  |  |  |
Government agency issued MBS |  | — |  |  | 3,750 |  |  | — |  |  | 3,750 |  |  |
Government agency issued CMO |  | — |  |  | 2,913 |  |  | — |  |  | 2,913 |  |  |
Other U.S. government agencies |  | — |  |  | 1,073 |  |  | — |  |  | 1,073 |  |  |
States and municipalities |  | — |  |  | 339 |  |  | — |  |  | 339 |  |  |
Total securities available for sale |  | — |  |  | 8,075 |  |  | — |  |  | 8,075 |  |  |
Other assets: |  |  |  |  |  |  |  |  |  |
Deferred compensation mutual funds |  | 107 |  |  | — |  |  | — |  |  | 107 |  |  |
Equity, mutual funds, and other |  | 35 |  |  | — |  |  | — |  |  | 35 |  |  |
Derivatives, forwards and futures |  | 5 |  |  | — |  |  | — |  |  | 5 |  |  |
Derivatives, interest rate contracts |  | — |  |  | 423 |  |  | — |  |  | 423 |  |  |
Derivatives, other |  | — |  |  | 1 |  |  | — |  |  | 1 |  |  |
Total other assets |  | 147 |  |  | 424 |  |  | — |  |  | 571 |  |  |
Total assets |  | $ | 147 |  |  | $ | 9,954 |  |  | $ | 35 |  |  | $ | 10,136 |  |  |
Trading liabilities: |  |  |  |  |  |  |  |  |  |
U.S. treasuries |  | $ | — |  |  | $ | 548 |  |  | $ | — |  |  | $ | 548 |  |  |
Corporate and other debt |  | — |  |  | 122 |  |  | — |  |  | 122 |  |  |
Total trading liabilities |  | — |  |  | 670 |  |  | — |  |  | 670 |  |  |
Other liabilities: |  |  |  |  |  |  |  |  |  |
Derivatives, forwards and futures |  | 4 |  |  | — |  |  | — |  |  | 4 |  |  |
Derivatives, interest rate contracts |  | — |  |  | 506 |  |  | — |  |  | 506 |  |  |
Derivatives, other |  | — |  |  | 1 |  |  | 18 |  |  | 19 |  |  |
Total other liabilities |  | 4 |  |  | 507 |  |  | 18 |  |  | 529 |  |  |
Total liabilities |  | $ | 4 |  |  | $ | 1,177 |  |  | $ | 18 |  |  | $ | 1,199 |  |  |
|  | December 31, 2024
(Dollars in millions) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Trading securities: |  |  |  |  |  |  |  |
U.S. treasuries |  | $ | — |  |  | $ | 3 |  |  | $ | — |  |  | $ | 3 |
Government agency issued MBS |  | — |  |  | 98 |  |  | — |  |  | 98 |
Government agency issued CMO |  | — |  |  | 180 |  |  | — |  |  | 180 |
Other U.S. government agencies |  | — |  |  | 252 |  |  | — |  |  | 252 |
States and municipalities |  | — |  |  | 64 |  |  | — |  |  | 64 |
Corporate and other debt |  | — |  |  | 767 |  |  | — |  |  | 767 |
SBA interest-only strips |  | — |  |  | — |  |  | 23 |  |  | 23 |
Total trading securities |  | — |  |  | 1,364 |  |  | 23 |  |  | 1,387 |
Loans held for sale (elected fair value) |  | — |  |  | 69 |  |  | 16 |  |  | 85 |
Securities available for sale: |  |  |  |  |  |  |  |
Government agency issued MBS |  | — |  |  | 3,702 |  |  | — |  |  | 3,702 |
Government agency issued CMO |  | — |  |  | 2,767 |  |  | — |  |  | 2,767 |
Other U.S. government agencies |  | — |  |  | 1,073 |  |  | — |  |  | 1,073 |
States and municipalities |  | — |  |  | 354 |  |  | — |  |  | 354 |
Total securities available for sale |  | — |  |  | 7,896 |  |  | — |  |  | 7,896 |
Other assets: |  |  |  |  |  |  |  |
Deferred compensation mutual funds |  | 111 |  |  | — |  |  | — |  |  | 111 |
Equity, mutual funds, and other |  | 35 |  |  | — |  |  | — |  |  | 35 |
Derivatives, forwards and futures |  | 8 |  |  | — |  |  | — |  |  | 8 |
Derivatives, interest rate contracts |  | — |  |  | 522 |  |  | — |  |  | 522 |
Derivatives, other |  | — |  |  | 1 |  |  | — |  |  | 1 |
Total other assets |  | 154 |  |  | 523 |  |  | — |  |  | 677 |
Total assets |  | $ | 154 |  |  | $ | 9,852 |  |  | $ | 39 |  |  | $ | 10,045 |
Trading liabilities: |  |  |  |  |  |  |  |
U.S. treasuries |  | $ | — |  |  | $ | 440 |  |  | $ | — |  |  | $ | 440 |
Other U.S. government agencies |  | — |  |  | 7 |  |  | — |  |  | 7 |
Corporate and other debt |  | — |  |  | 103 |  |  | — |  |  | 103 |
Total trading liabilities |  | — |  |  | 550 |  |  | — |  |  | 550 |
Other liabilities: |  |  |  |  |  |  |  |
Derivatives, forwards and futures |  | 6 |  |  | — |  |  | — |  |  | 6 |
Derivatives, interest rate contracts |  | — |  |  | 649 |  |  | — |  |  | 649 |
Derivatives, other |  | — |  |  | 1 |  |  | 15 |  |  | 16 |
Total other liabilities |  | 6 |  |  | 650 |  |  | 15 |  |  | 671 |
Total liabilities |  | $ | 6 |  |  | $ | 1,200 |  |  | $ | 15 |  |  | $ | 1,221 |
Changes in Recurring Level 3 Fair Value Measurements The changes in Level 3 assets and liabilities measured at fair value for the three months ended March 31, 2025 and 2024 on a recurring basis are summarized as follows.
CHANGES IN LEVEL 3 ASSETS & LIABILITIES MEASURED AT FAIR VALUE
|  |  |  |  |  | Three Months Ended March 31, 2025 |  |
(Dollars in millions) |  |  |  |  |  | SBA interest-only strips |  |  |  | Loans held for sale |  |  |  |  |  | Net derivative liabilities |  |
Balance on January 1, 2025 |  |  |  |  |  | $ | 23 |  |  |  |  | $ | 16 |  |  |  |  |  |  | $ | (15) |  |  |
Total net gains (losses) included in net income |  |  |  |  |  | (2) |  |  |  |  | — |  |  |  |  |  |  | (5) |  |  |
Sales |  |  |  |  |  | (3) |  |  |  |  | (4) |  |  |  |  |  |  | — |  |  |
Settlements |  |  |  |  |  | — |  |  |  |  | — |  |  |  |  |  |  | 2 |  |  |
Net transfers into (out of) Level 3 |  |  |  |  |  | 4 |  |  | (b) |  | 1 |  |  |  |  |  |  | — |  |  |
Balance on March 31, 2025 |  |  |  |  |  | $ | 22 |  |  |  |  | $ | 13 |  |  |  |  |  |  | $ | (18) |  |  |
Net unrealized gains (losses) included in net income |  |  |  |  |  | $ | (1) |  |  | (c) |  | $ | — |  |  | (a) |  |  |  | $ | (5) |  |  | (d)
|  |  |  |  |  | Three Months Ended March 31, 2024 |  |
(Dollars in millions) |  |  |  |  |  | SBA interest-only strips |  |  |  | Loans held for sale |  |  |  |  |  | Net derivative liabilities |  |
Balance on January 1, 2024 |  |  |  |  |  | $ | 13 |  |  |  |  | $ | 26 |  |  |  |  |  |  | $ | (23) |  |  |
Total net gains (losses) included in net income |  |  |  |  |  | (1) |  |  |  |  | — |  |  |  |  |  |  | — |  |  |
Purchases |  |  |  |  |  | — |  |  |  |  | 1 |  |  |  |  |  |  | — |  |  |
Sales |  |  |  |  |  | (2) |  |  |  |  | (13) |  |  |  |  |  |  | — |  |  |
Settlements |  |  |  |  |  | — |  |  |  |  | — |  |  |  |  |  |  | 3 |  |  |
Net transfers into (out of) Level 3 |  |  |  |  |  | 9 |  |  | (b) |  | — |  |  |  |  |  |  | — |  |  |
Balance on March 31, 2024 |  |  |  |  |  | $ | 19 |  |  |  |  | $ | 14 |  |  |  |  |  |  | $ | (20) |  |  |
Net unrealized gains (losses) included in net income |  |  |  |  |  | $ | (1) |  |  | (c) |  | $ | — |  |  | (a) |  |  |  | $ | — |  |  | (d)
(a)Primarily included in mortgage banking income on the Consolidated Statements of Income. (b)Transfers into Level 3 SBA interest-only strips reflect transfers out of SBA loans held for sale, which are Level 2 assets measured on a nonrecurring basis. Refer to the nonrecurring measurement table included in the following section of this Note. (c)Primarily included in fixed income on the Consolidated Statements of Income. (d)Included in other expense on the Consolidated Statements of Income. There were no net unrealized gains (losses) for Level 3 assets and liabilities included in other comprehensive income as of March 31, 2025 and 2024. Nonrecurring Fair Value Measurements From time to time, FHN may be required to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market ("LOCOM") accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis which were still held on the Consolidated Balance Sheets at March 31, 2025 and December 31, 2024, respectively, the following tables provide the level of valuation assumptions used to determine each adjustment and the related carrying value.
LEVEL OF VALUATION ASSUMPTIONS FOR ASSETS MEASURED AT FAIR VALUE ON A NONRECURRING BASIS
|  | Carrying value at March 31, 2025
(Dollars in millions) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Loans held for sale—SBAs and USDA |  | $ | — |  |  | $ | 371 |  |  | $ | — |  |  | $ | 371 |
Loans and leases (a) |  | — |  |  | — |  |  | 345 |  |  | 345 |
OREO (b) |  | — |  |  | — |  |  | 3 |  |  | 3 |
|  | Carrying value at December 31, 2024
(Dollars in millions) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Loans held for sale—SBAs and USDA |  | $ | — |  |  | $ | 438 |  |  | $ | — |  |  | $ | 438 |
Loans and leases (a) |  | — |  |  | — |  |  | 344 |  |  | 344 |
OREO (b) |  | — |  |  | — |  |  | 3 |  |  | 3 |
(a)Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell. Write-downs on these loans are recognized as part of provision for credit losses. (b)Represents the fair value and related losses of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government-insured mortgages. For assets measured on a nonrecurring basis which were still held on the Consolidated Balance Sheets at period end, the following table provides information about the fair value adjustments recorded during the three months ended March 31, 2025 and 2024.
FAIR VALUE ADJUSTMENTS ON ASSETS MEASURED ON A NONRECURRING BASIS
| Net gains (losses) Three Months Ended March 31, |  |
(Dollars in millions) | 2025 |  | 2024 |  |  |  |
Loans held for sale—SBAs and USDA | $ | (1) |  |  | $ | — |  |  |  |  |
Loans and leases (a) | (23) |  |  | (31) |  |  |  |  |
| $ | (24) |  |  | $ | (31) |  |  |  |  |
(a)Write-downs on these loans are recognized as part of provision for credit losses. Lease asset impairments recognized represent the reduction in value of the right-of-use assets associated with leases that are being exited in advance of the contractual lease expiration. Impairments are measured using a discounted cash flow methodology, which is considered a Level 3 valuation. Impairments of long-lived tangible assets reflect locations where the associated land and building are either owned or leased. The fair values of owned sites were determined using estimated sales prices from appraisals and broker opinions less estimated costs to sell with adjustments upon final disposition. The fair values of owned assets in leased sites (e.g., leasehold improvements) were determined using a discounted cash flow approach, based on the revised estimated useful lives of the related assets. Both measurement methodologies are considered Level 3 valuations. Impairment adjustments recognized upon disposition of a location are considered Level 2 valuations. Fixed asset and leased asset impairments were immaterial for the three months ended March 31, 2025 and 2024. Level 3 Measurements The following table provides information regarding the unobservable inputs utilized in determining the fair value of Level 3 recurring and nonrecurring measurements as of March 31, 2025 and December 31, 2024.
UNOBSERVABLE INPUTS USED IN LEVEL 3 FAIR VALUE MEASUREMENTS
(Dollars in millions) |  |  |  |  |  |  |  | Values Utilized
Level 3 Class |  | Fair Value at March 31, 2025 |  | Valuation Techniques |  | Unobservable Input |  | Range |  | Weighted Average (c)
Trading securities - SBA interest-only strips |  | $ | 22 |  |  | Discounted cash flow |  | Constant prepayment rate |  | 16% - 35% |  | 18%
|  |  |  |  |  | Bond equivalent yield |  | (4)% - 19% |  | 17%
Loans held for sale - residential real estate |  | $ | 13 |  |  | Discounted cash flow |  | Prepayment speeds - First mortgage |  | 2% - 6% |  | 3%
|  |  |  |  |  | Foreclosure losses |  | 63% - 66% |  | 64%
|  |  |  |  |  | Loss severity trends - First mortgage |  | 0.0% - 2.2% of UPB |  | 0.7%
Derivative liabilities, other |  | $ | 18 |  |  | Discounted cash flow |  | Visa covered litigation resolution amount |  | $3.5 billion - $4.5 billion |  | $4.1 billion
|  |  |  |  |  | Probability of resolution scenarios |  | 10% - 25% |  | 19%
|  |  |  |  |  | Time until resolution |  | 6 - 36 months |  | 24 months
Loans and leases (a) |  | $ | 345 |  |  | Appraisals from comparable properties |  | Marketability adjustments for specific properties |  | 0% - 25% of appraisal |  | NM
|  |  |  | Other collateral valuations |  | Borrowing base certificates liquidation adjustment |  | 25% - 50% of gross value |  | NM
|  |  |  |  |  | Financial Statements liquidation adjustment |  | 50% - 100% of reported value |  | NM
|  |  |  |  |  | Auction appraisals marketability adjustment |  | 0% - 10% of reported value |  | NM
OREO (b) |  | $ | 3 |  |  | Appraisals from comparable properties |  | Adjustment for value changes since appraisal |  | 0% - 10% of appraisal |  | NM
NM - Not meaningful (a)Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell. Write-downs on these loans are recognized as part of provision for credit losses. (b)Represents the fair value of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government-insured mortgages. (c)Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument's fair value.
(Dollars in millions) |  |  |  |  |  |  |  | Values Utilized
Level 3 Class |  | Fair Value at December 31, 2024 |  | Valuation Techniques |  | Unobservable Input |  | Range |  | Weighted Average (c)
Trading securities - SBA interest-only strips |  | $ | 23 |  |  | Discounted cash flow |  | Constant prepayment rate |  | 16% - 30% |  | 17%
|  |  |  |  |  | Bond equivalent yield |  | 3% - 18% |  | 17%
Loans held for sale - residential real estate |  | $ | 16 |  |  | Discounted cash flow |  | Prepayment speeds - First mortgage |  | 2% - 6% |  | 3%
|  |  |  |  |  | Foreclosure losses |  | 63% - 71% |  | 64%
|  |  |  |  |  | Loss severity trends - First mortgage |  | 0.0% - 0.2% of UPB |  | 0.1%
Derivative liabilities, other |  | $ | 15 |  |  | Discounted cash flow |  | Visa covered litigation resolution amount |  | $3.1 billion - $4.1 billion |  | $3.8 billion
|  |  |  |  |  | Probability of resolution scenarios |  | 10% - 25% |  | 18%
|  |  |  |  |  | Time until resolution |  | 6 - 36 months |  | 23 months
Loans and leases (a) |  | $ | 344 |  |  | Appraisals from comparable properties |  | Marketability adjustments for specific properties |  | 0% - 25% of appraisal |  | NM
|  |  |  | Other collateral valuations |  | Borrowing base certificates liquidation adjustment |  | 25% - 50% of gross value |  | NM
|  |  |  |  |  | Financial Statements liquidation adjustment |  | 50% - 100% of reported value |  | NM
|  |  |  |  |  | Auction appraisals marketability adjustment |  | 0% - 10% of reported value |  | NM
OREO (b) |  | $ | 3 |  |  | Appraisals from comparable properties |  | Adjustment for value changes since appraisal |  | 0% - 10% of appraisal |  | NM
NM - Not meaningful (a)Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell. Write-downs on these loans are recognized as part of provision for credit losses. (b)Represents the fair value of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government-insured mortgages. (c)Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument's fair value. Trading Securities - SBA interest-only strips Increases (decreases) in estimated prepayment rates and bond equivalent yields negatively (positively) affect the value of SBA interest-only strips. Management additionally considers whether the loans underlying related SBA interest-only strips are delinquent, in default or prepaying, and adjusts the fair value down 20 - 100% depending on the length of time in default. Loans held for sale Foreclosure losses and prepayment rates are significant unobservable inputs used in the fair value measurement of FHN’s residential real estate loans held for sale. Loss severity trends are also assessed to evaluate the reasonableness of fair value estimates resulting from discounted cash flows methodologies as well as to estimate fair value for newly repurchased loans and loans that are near foreclosure. Significant increases (decreases) in any of these inputs in isolation would result in significantly lower (higher) fair value measurements. All observable and unobservable inputs are reassessed quarterly. Derivative liabilities In conjunction with pre-2020 sales of Visa Class B shares, FHN and the purchasers entered into derivative transactions whereby FHN will make, or receive, cash payments whenever the conversion ratio of the Visa Class B shares into Visa Class A shares is adjusted. FHN uses a discounted cash flow methodology in order to estimate the fair value of FHN’s derivative liabilities associated with its prior sales of Visa Class B shares. The methodology includes estimation of both the resolution amount for Visa’s Covered Litigation matters as well as the length of time until the resolution occurs. Significant increases (decreases) in either of these inputs in isolation would result in significantly higher (lower) fair value measurements for the derivative liabilities. Additionally, FHN performs a probability-weighted multiple resolution scenario to calculate the estimated fair value of these derivative liabilities. Assignment of higher (lower) probabilities to the larger potential resolution scenarios would result in an increase (decrease) in the estimated fair value of the derivative liabilities. Since this estimation process requires application of judgment in developing significant unobservable inputs used to determine the possible outcomes and the probability weighting assigned to each scenario, these derivatives have been classified within Level 3 in fair value measurements disclosures. Loans and leases and Other Real Estate Owned Collateral-dependent loans and OREO are primarily valued using appraisals based on sales of comparable properties in the same or similar markets. Other collateral (receivables, inventory, equipment, etc.) is valued through borrowing base certificates, financial statements and/or auction valuations. These valuations are discounted based on the quality of reporting, knowledge of the marketability/collectability of the collateral and historical disposition rates. Fair Value Option FHN previously elected the fair value option on a prospective basis for substantially all types of mortgage loans originated for sale purposes. FHN determined that the election reduces certain timing differences and better matches changes in the value of such loans with changes in the value of derivatives and forward delivery commitments used as economic hedges for these assets at the time of election. Repurchased loans relating to mortgage banking operations conducted prior to the IBKC merger are recognized within loans held for sale at fair value at the time of repurchase, which includes consideration of the credit status of the loans and the estimated liquidation value. FHN has elected to continue recognition of these loans at fair value in periods subsequent to reacquisition. Due to the credit-distressed nature of the vast majority of repurchased loans and the related loss severities experienced upon repurchase, FHN believes that the fair value election provides a more timely recognition of changes in value for these loans that occur subsequent to repurchase. Absent the fair value election, these loans would be subject to valuation at the LOCOM value, which would prevent subsequent values from exceeding the initial fair value, determined at the time of repurchase, but would require recognition of subsequent declines in value. Thus, the fair value election provides for a more timely recognition of any potential future recoveries in asset values while not affecting the requirement to recognize subsequent declines in value. The following table reflects the differences between the fair value carrying amount of residential real estate loans held for sale measured at fair value in accordance with management’s election and the aggregate unpaid principal amount FHN is contractually entitled to receive at maturity.
DIFFERENCES BETWEEN FAIR VALUE CARRYING AMOUNTS AND CONTRACTUAL AMOUNTS OF RESIDENTIAL REAL ESTATE LOANS REPORTED AT FAIR VALUE
|  | March 31, 2025
(Dollars in millions) |  | Fair value carrying amount |  | Aggregate unpaid principal |  | Fair value carrying amount less aggregate unpaid principal
Residential real estate loans held for sale reported at fair value: |  |  |  |  |  |
Total loans |  | $ | 114 |  |  | $ | 117 |  |  | $ | (3) |
Nonaccrual loans |  | 2 |  |  | 5 |  |  | (3) |
|  | December 31, 2024
(Dollars in millions) |  | Fair value carrying amount |  | Aggregate unpaid principal |  | Fair value carrying amount less aggregate unpaid principal
Residential real estate loans held for sale reported at fair value: |  |  |  |  |  |
Total loans |  | $ | 85 |  |  | $ | 89 |  |  | $ | (4) |
Nonaccrual loans |  | 3 |  |  | 5 |  |  | (2) |
Assets and liabilities accounted for under the fair value election are initially measured at fair value with subsequent changes in fair value recognized in earnings. Such changes in the fair value of assets and liabilities for which FHN elected the fair value option are included in current period earnings with classification in the income statement line item reflected in the following table.
CHANGES IN FAIR VALUE RECOGNIZED IN NET INCOME
| Three Months Ended March 31, |  |
(Dollars in millions) | 2025 |  | 2024 |  |  |  |
Changes in fair value included in net income: |  |  |  |  |  |  |
Mortgage banking noninterest income |  |  |  |  |  |  |
Loans held for sale | $ | 2 |  |  | $ | 1 |  |  |  |  |
For the three months ended March 31, 2025 and 2024, the amount for residential real estate loans held for sale included an insignificant amount of gains in pre-tax earnings that are attributable to changes in instrument-specific credit risk. The portion of the fair value adjustments related to credit risk was determined based on estimated default rates and estimated loss severities. Interest income on residential real estate loans held for sale measured at fair value is calculated based on the note rate of the loan and is recorded in the interest income section of the Consolidated Statements of Income as interest on loans held for sale. Determination of Fair Value Fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following describes the assumptions and methodologies used to estimate the fair value of financial instruments recorded at fair value in the Consolidated Balance Sheets and for estimating the fair value of financial instruments for which fair value is disclosed. Short-term financial assets Federal funds sold, securities purchased under agreements to resell, and interest-bearing deposits with other financial institutions and the Federal Reserve are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization. Trading securities and trading liabilities Trading securities and trading liabilities are recognized at fair value through current earnings. Trading inventory held for broker-dealer operations is included in trading securities and trading liabilities. Broker-dealer long positions are valued at bid price in the bid-ask spread. Short positions are valued at the ask price. Inventory positions are valued using observable inputs including current market transactions, benchmark yields, credit spreads, and consensus prepayment speeds. Trading loans are valued using observable inputs including current market transactions, swap rates, mortgage rates, and consensus prepayment speeds. Trading securities - SBA interest-only strips Interest-only strips are valued at fair value based on an income approach using an internal valuation model. The internal valuation model includes assumptions regarding projections of future cash flows, prepayment rates, default rates and interest-only strip terms. These securities bear the risk of loan prepayment or default that may result in FHN not recovering all or a portion of its recorded investment. When appropriate, valuations are adjusted for various factors including default or prepayment status of the underlying SBA loans. Because of the inherent uncertainty of valuation, those estimated values may be higher or lower than the values that would have been used had a ready market for the securities existed and may change in the near term. Securities available for sale and held to maturity Valuations of debt securities are performed using observable inputs obtained from market transactions in similar securities. Typical inputs include benchmark yields, consensus prepayment speeds, and credit spreads. Trades from similar securities and broker quotes are used to support these valuations. Loans held for sale FHN determines the fair value of loans held for sale using either current transaction prices or discounted cash flow models. Fair values are determined using current transaction prices and/or values on similar assets when available, including committed bids for specific loans or loan portfolios. Uncommitted bids may be adjusted based on other available market information. The fair value of residential real estate loans held for sale is determined using a discounted cash flow model that incorporates both observable and unobservable inputs. Inputs in the discounted cash flow model include current mortgage rates for similar products, estimated prepayment rates, foreclosure losses, and various loan performance measures (delinquency, LTV, credit score). Adjustments for delinquency and other differences in loan characteristics are typically reflected in the model’s discount rates. Loss severity trends and the value of underlying collateral are also considered in assessing the appropriate fair value for severely delinquent loans and loans in foreclosure. The valuation of HELOCs also incorporates estimated cancellation rates for loans expected to become delinquent. Non-mortgage consumer loans held for sale are valued using committed bids for specific loans or loan portfolios or current market pricing for similar assets with adjustments for differences in credit standing (delinquency, historical default rates for similar loans), yield, collateral values and prepayment rates. If pricing for similar assets is not available, a discounted cash flow methodology is utilized, which incorporates all of these factors into an estimate of investor required yield for the discount rate. FHN utilizes quoted market prices of similar instruments or broker and dealer quotations to value the SBA and USDA guaranteed loans. FHN values SBA-unguaranteed interests in loans held for sale based on individual loan characteristics, such as industry type and pay history which generally follows an income approach. Furthermore, these valuations are adjusted for changes in prepayment estimates and are reduced due to restrictions on trading. The fair value of other non-residential real estate loans held for sale is approximated by their carrying values based on current transaction values. Mortgage loans held for investment at fair value option The fair value of mortgage loans held for investment at fair value option is determined by a third party using a discounted cash flow model using various assumptions about future loan performance (constant prepayment rate, constant default rate and loss severity trends) and market discount rates. Loans held for investment The fair values of mortgage loans are estimated using an exit price methodology that is based on present values using the interest rate that would be charged for a similar loan to a borrower with similar risk, weighted for varying maturity dates and adjusted for a liquidity discount based on the estimated time period to complete a sale transaction with a market participant. Other loans and leases are valued based on present values using the interest rate that would be charged for a similar instrument to a borrower with similar risk, applicable to each category of instruments, and adjusted for a liquidity discount based on the estimated time period to complete a sale transaction with a market participant. For loans measured using the estimated fair value of collateral less costs to sell, fair value is estimated using appraisals of the collateral. Collateral values are monitored and additional write-downs are recognized if it is determined that the estimated collateral values have declined further. Estimated costs to sell are based on current amounts of disposal costs for similar assets. Carrying value is considered to reflect fair value for these loans. Derivative assets and liabilities The fair value for forwards and futures contracts is based on current transactions involving identical securities. Futures contracts are exchange-traded and thus have no credit risk factor assigned as the risk of non-performance is limited to the clearinghouse used. Valuations of other derivatives (primarily interest rate contracts) are based on inputs observed in active markets for similar instruments. Typical inputs include benchmark yields, option volatility and option skew. Centrally cleared derivatives are discounted using SOFR as required by clearinghouses. In measuring the fair value of these derivative assets and liabilities, FHN has elected to consider credit risk based on the net exposure to individual counterparties. Credit risk is mitigated for these instruments through the use of mutual margining and master netting agreements as well as collateral posting requirements. For derivative contracts with daily cash margin requirements that are considered settlements, the daily margin amount is netted within derivative assets or liabilities. Any remaining credit risk related to interest rate derivatives is considered in determining fair value through evaluation of additional factors such as client loan grades and debt ratings. Foreign currency related derivatives also utilize observable exchange rates in the determination of fair value. The determination of fair value for FHN’s derivative liabilities associated with its prior sales of Visa Class B shares are classified within Level 3 in the fair value measurements disclosure as previously discussed in the unobservable inputs discussion. The fair value of risk participations is determined in reference to the fair value of the related derivative contract between the borrower and the lead bank in the participation structure, which is determined consistent with the valuation process discussed above. This value is adjusted for the pro rata portion of the reference derivative’s notional value and an assessment of credit risk for the referenced borrower. OREO OREO primarily consists of properties that have been acquired in satisfaction of debt. These properties are carried at the lower of the outstanding loan amount or estimated fair value less estimated costs to sell the real estate. Estimated fair value is determined using appraised values with subsequent adjustments for deterioration in values that are not reflected in the most recent appraisal. Other assets For disclosure purposes, other assets consist of tax credit investments, FRB and FHLB Stock, deferred compensation mutual funds and equity investments (including other mutual funds) with readily determinable fair values. For periods prior to 2024, tax credit investments accounted for under the equity method were written down to estimated fair value quarterly based on the estimated value of the associated tax credits which incorporated estimates of required yield for hypothetical investors. Subsequent to 2023, the fair value of tax credit investments is estimated using recent transaction information with adjustments for differences in individual investments. Deferred compensation mutual funds are recognized at fair value, which is based on quoted prices in active markets. Investments in the stock of the Federal Reserve Bank and Federal Home Loan Banks are recognized at historical cost in the Consolidated Balance Sheets which is considered to approximate fair value. Investments in mutual funds are measured at the funds’ reported closing net asset values. Investments in equity securities are valued using quoted market prices when available. Defined maturity deposits The fair value of these deposits is estimated by discounting future cash flows to their present value. Future cash flows are discounted by using the current market rates of similar instruments applicable to the remaining maturity. For disclosure purposes, defined maturity deposits include all time deposits. Short-term financial liabilities The fair value of federal funds purchased, securities sold under agreements to repurchase, and other short-term borrowings are approximated by the book value. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization. Loan commitments Fair values of these commitments are based on fees charged to enter into similar agreements taking into account the remaining terms of the agreements and the counterparties’ credit standing. Other commitments Fair values of these commitments are based on fees charged to enter into similar agreements. The following fair value estimates are determined as of a specific point in time utilizing various assumptions and estimates. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, reduces the comparability of fair value disclosures between financial institutions. Due to market illiquidity, the fair values for loans and leases, loans held for sale, and term borrowings as of March 31, 2025 and December 31, 2024 involve the use of significant internally developed pricing assumptions for certain components of these line items. The assumptions and valuations utilized for this disclosure are considered to reflect inputs that market participants would use in transactions involving these instruments as of the measurement date. The valuations of legacy assets, particularly consumer loans and TRUPs loans within the Corporate segment, are influenced by changes in economic conditions since origination and risk perceptions of the financial sector. These considerations affect the estimate of a potential acquirer’s cost of capital and cash flow volatility assumptions from these assets and the resulting fair value measurements may depart significantly from FHN’s internal estimates of the intrinsic value of these assets. Assets and liabilities that are not financial instruments — such as premises and equipment, goodwill, other intangible assets such as the value of long-term relationships with deposit and trust clients, deferred taxes, and certain other assets and other liabilities — have not been included in the following table. Additionally, the fair value measurements presented in the following table are solely for financial instruments as of the measurement date and do not consider the earnings potential of our various business lines. Accordingly, the total of the fair value amounts does not represent, and should not be construed to represent, the underlying value of FHN. The following table summarizes the book value and estimated fair value of financial instruments recorded in the Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024
BOOK VALUE AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
|  | March 31, 2025
|  | Book Value |  | Fair Value
(Dollars in millions) |  |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |
Loans and leases, net of allowance for loan and lease losses |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |
Commercial, financial, and industrial |  | $ | 33,009 |  |  | $ | — |  |  | $ | — |  |  | $ | 32,468 |  |  | $ | 32,468 |
Commercial real estate |  | 13,914 |  |  | — |  |  | — |  |  | 13,665 |  |  | 13,665 |
Consumer: |  |  |  |  |  |  |  |  |  |
Consumer real estate |  | 13,859 |  |  | — |  |  | — |  |  | 13,398 |  |  | 13,398 |
Credit card and other |  | 611 |  |  | — |  |  | — |  |  | 626 |  |  | 626 |
Total loans and leases, net of allowance for loan and lease losses |  | 61,393 |  |  | — |  |  | — |  |  | 60,157 |  |  | 60,157 |
Short-term financial assets: |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits with banks |  | 1,164 |  |  | 1,164 |  |  | — |  |  | — |  |  | 1,164 |
Federal funds sold |  | 47 |  |  | — |  |  | 47 |  |  | — |  |  | 47 |
Securities purchased under agreements to resell |  | 681 |  |  | — |  |  | 681 |  |  | — |  |  | 681 |
Total short-term financial assets |  | 1,892 |  |  | 1,164 |  |  | 728 |  |  | — |  |  | 1,892 |
Trading securities (a) |  | 1,376 |  |  | — |  |  | 1,354 |  |  | 22 |  |  | 1,376 |
Loans held for sale: |  |  |  |  |  |  |  |  |  |
Mortgage loans (elected fair value) (a) |  | 114 |  |  | — |  |  | 101 |  |  | 13 |  |  | 114 |
USDA & SBA loans - LOCOM |  | 372 |  |  | — |  |  | 372 |  |  | — |  |  | 372 |
Mortgage loans - LOCOM |  | 24 |  |  | — |  |  | — |  |  | 24 |  |  | 24 |
Total loans held for sale |  | 510 |  |  | — |  |  | 473 |  |  | 37 |  |  | 510 |
Securities available for sale (a) |  | 8,075 |  |  | — |  |  | 8,075 |  |  | — |  |  | 8,075 |
Securities held to maturity |  | 1,258 |  |  | — |  |  | 1,092 |  |  | — |  |  | 1,092 |
Derivative assets (a) |  | 429 |  |  | 5 |  |  | 424 |  |  | — |  |  | 429 |
Other assets: |  |  |  |  |  |  |  |  |  |
Tax credit investments |  | 747 |  |  | — |  |  | — |  |  | 715 |  |  | 715 |
Deferred compensation mutual funds |  | 107 |  |  | 107 |  |  | — |  |  | — |  |  | 107 |
Equity, mutual funds, and other (b) |  | 304 |  |  | 35 |  |  | — |  |  | 269 |  |  | 304 |
Total other assets |  | 1,158 |  |  | 142 |  |  | — |  |  | 984 |  |  | 1,126 |
Total assets |  | $ | 76,091 |  |  | $ | 1,311 |  |  | $ | 12,146 |  |  | $ | 61,200 |  |  | $ | 74,657 |
Liabilities: |  |  |  |  |  |  |  |  |  |
Defined maturity deposits |  | $ | 5,918 |  |  | $ | — |  |  | $ | 5,896 |  |  | $ | — |  |  | $ | 5,896 |
Trading liabilities (a) |  | 670 |  |  | — |  |  | 670 |  |  | — |  |  | 670 |
Short-term financial liabilities: |  |  |  |  |  |  |  |  |  |
Federal funds purchased |  | 812 |  |  | — |  |  | 812 |  |  | — |  |  | 812 |
Securities sold under agreements to repurchase |  | 1,760 |  |  | — |  |  | 1,760 |  |  | — |  |  | 1,760 |
Other short-term borrowings |  | 1,223 |  |  | — |  |  | 1,223 |  |  | — |  |  | 1,223 |
Total short-term financial liabilities |  | 3,795 |  |  | — |  |  | 3,795 |  |  | — |  |  | 3,795 |
Term borrowings: |  |  |  |  |  |  |  |  |  |
Real estate investment trust-preferred |  | 47 |  |  | — |  |  | — |  |  | 47 |  |  | 47 |
Notes payable—new market tax credit investments |  | 74 |  |  | — |  |  | — |  |  | 71 |  |  | 71 |
Secured borrowings |  | 35 |  |  | — |  |  | — |  |  | 35 |  |  | 35 |
Junior subordinated debentures |  | 152 |  |  | — |  |  | — |  |  | 142 |  |  | 142 |
Other long-term borrowings |  | 1,383 |  |  | — |  |  | 1,376 |  |  | — |  |  | 1,376 |
Total term borrowings |  | 1,691 |  |  | — |  |  | 1,376 |  |  | 295 |  |  | 1,671 |
Derivative liabilities (a) |  | 529 |  |  | 4 |  |  | 507 |  |  | 18 |  |  | 529 |
Total liabilities |  | $ | 12,603 |  |  | $ | 4 |  |  | $ | 12,244 |  |  | $ | 313 |  |  | $ | 12,561 |
(a)Classes are detailed in the recurring measurement table. (b)Level 1 primarily consists of mutual funds with readily determinable fair values. Level 3 includes restricted investments in FHLB-Cincinnati stock of $66 million and FRB stock of $203 million.
|  | December 31, 2024
|  | Book Value |  | Fair Value
(Dollars in millions) |  |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |
Loans and leases, net of allowance for loan and lease losses |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |
Commercial, financial, and industrial |  | $ | 33,083 |  |  | $ | — |  |  | $ | — |  |  | $ | 32,511 |  |  | $ | 32,511 |
Commercial real estate |  | 14,194 |  |  | — |  |  | — |  |  | 13,894 |  |  | 13,894 |
Consumer: |  |  |  |  |  |  |  |  |  |
Consumer real estate |  | 13,826 |  |  | — |  |  | — |  |  | 13,262 |  |  | 13,262 |
Credit card and other |  | 647 |  |  | — |  |  | — |  |  | 657 |  |  | 657 |
Total loans and leases, net of allowance for loan and lease losses |  | 61,750 |  |  | — |  |  | — |  |  | 60,324 |  |  | 60,324 |
Short-term financial assets: |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits with banks |  | 1,538 |  |  | 1,538 |  |  | — |  |  | — |  |  | 1,538 |
Federal funds sold |  | 59 |  |  | — |  |  | 59 |  |  | — |  |  | 59 |
Securities purchased under agreements to resell |  | 572 |  |  | — |  |  | 572 |  |  | — |  |  | 572 |
Total short-term financial assets |  | 2,169 |  |  | 1,538 |  |  | 631 |  |  | — |  |  | 2,169 |
Trading securities (a) |  | 1,387 |  |  | — |  |  | 1,364 |  |  | 23 |  |  | 1,387 |
Loans held for sale: |  |  |  |  |  |  |  |  |  |
Mortgage loans (elected fair value) (a) |  | 85 |  |  | — |  |  | 69 |  |  | 16 |  |  | 85 |
USDA & SBA loans - LOCOM |  | 439 |  |  | — |  |  | 439 |  |  | — |  |  | 439 |
Mortgage loans - LOCOM |  | 27 |  |  | — |  |  | — |  |  | 27 |  |  | 27 |
Total loans held for sale |  | 551 |  |  | — |  |  | 508 |  |  | 43 |  |  | 551 |
Securities available for sale (a) |  | 7,896 |  |  | — |  |  | 7,896 |  |  | — |  |  | 7,896 |
Securities held to maturity |  | 1,270 |  |  | — |  |  | 1,083 |  |  | — |  |  | 1,083 |
Derivative assets (a) |  | 531 |  |  | 8 |  |  | 523 |  |  | — |  |  | 531 |
Other assets: |  |  |  |  |  |  |  |  |  |
Tax credit investments |  | 706 |  |  | — |  |  | — |  |  | 692 |  |  | 692 |
Deferred compensation mutual funds |  | 111 |  |  | 111 |  |  | — |  |  | — |  |  | 111 |
Equity, mutual funds, and other (b) |  | 289 |  |  | 35 |  |  | — |  |  | 254 |  |  | 289 |
Total other assets |  | 1,106 |  |  | 146 |  |  | — |  |  | 946 |  |  | 1,092 |
Total assets |  | $ | 76,660 |  |  | $ | 1,692 |  |  | $ | 12,005 |  |  | $ | 61,336 |  |  | $ | 75,033 |
Liabilities: |  |  |  |  |  |  |  |  |  |
Defined maturity deposits |  | $ | 6,613 |  |  | $ | — |  |  | $ | 6,591 |  |  | $ | — |  |  | $ | 6,591 |
Trading liabilities (a) |  | 550 |  |  | — |  |  | 550 |  |  | — |  |  | 550 |
Short-term financial liabilities: |  |  |  |  |  |  |  |  |  |
Federal funds purchased |  | 259 |  |  | — |  |  | 259 |  |  | — |  |  | 259 |
Securities sold under agreements to repurchase |  | 2,096 |  |  | — |  |  | 2,096 |  |  | — |  |  | 2,096 |
Other short-term borrowings |  | 1,045 |  |  | — |  |  | 1,045 |  |  | — |  |  | 1,045 |
Total short-term financial liabilities |  | 3,400 |  |  | — |  |  | 3,400 |  |  | — |  |  | 3,400 |
Term borrowings: |  |  |  |  |  |  |  |  |  |
Real estate investment trust-preferred |  | 47 |  |  | — |  |  | — |  |  | 47 |  |  | 47 |
Notes payable—new market tax credit investments |  | 74 |  |  | — |  |  | — |  |  | 70 |  |  | 70 |
Secured borrowings |  | 37 |  |  | — |  |  | — |  |  | 37 |  |  | 37 |
Junior subordinated debentures |  | 151 |  |  | — |  |  | — |  |  | 142 |  |  | 142 |
Other long-term borrowings |  | 886 |  |  | — |  |  | 866 |  |  | — |  |  | 866 |
Total term borrowings |  | 1,195 |  |  | — |  |  | 866 |  |  | 296 |  |  | 1,162 |
Derivative liabilities (a) |  | 671 |  |  | 6 |  |  | 650 |  |  | 15 |  |  | 671 |
Total liabilities |  | $ | 12,429 |  |  | $ | 6 |  |  | $ | 12,057 |  |  | $ | 311 |  |  | $ | 12,374 |
(a)Classes are detailed in the recurring measurement table. (b)Level 1 primarily consists of mutual funds with readily determinable fair values. Level 3 includes restricted investments in FHLB-Cincinnati stock of $51 million and FRB stock of $203 million. The following table presents the contractual amount and fair value of unfunded loan commitments and standby and other commitments as of March 31, 2025 and December 31, 2024.
UNFUNDED COMMITMENTS
|  | Contractual Amount |  | Fair Value
(Dollars in millions) |  | March 31, 2025 |  | December 31, 2024 |  | March 31, 2025 |  | December 31, 2024
Unfunded Commitments: |  |  |  |  |  |  |  |
Loan commitments |  | $ | 21,158 |  |  | $ | 20,992 |  |  | $ | 1 |  |  | $ | 1 |
Standby and other commitments |  | 709 |  |  | 753 |  |  | 9 |  |  | 9 |

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