Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The aggregate amount of income taxes included in the Consolidated Statements of Income and the Consolidated Statements of Changes in Equity for the years ended December 31, were as follows:

Table 8.14.1

INCOME TAX EXPENSE

(Dollars in millions)	2023		2022		2021
Consolidated Statements of Income:
Income tax expense	$	212	$	247	$	274
Consolidated Statements of Changes in Equity:
Income tax expense (benefit) related to:
Net unrealized gains (losses) on pension and other postretirement plans	(1)		(5)		2
Net unrealized gains (losses) on securities available for sale	44		(302)		(46)
Net unrealized gains (losses) on cash flow hedges	15		(42)		(3)
Total	$	270	$	(102)	$	227

The components of income tax expense (benefit) for the years ended December 31, were as follows:

Table 8.14.2

INCOME TAX EXPENSE COMPONENTS

(Dollars in millions)	2023		2022		2021
Current:
Federal	$	140	$	123	$	235
State	28		33		39
Deferred:
Federal	37		87		(1)
State	7		4		1
Total	$	212	$	247	$	274

A reconciliation of expected income tax expense (benefit) at the federal statutory rate of 21% for 2023, 2022, and 2021, respectively, to the total income tax expense follows:

Table 8.14.3

RECONCILIATION FROM STATUTORY RATES

(Dollars in millions)	2023			2022			2021
Federal income tax rate	21		%	21		%	21		%
Tax computed at statutory rate	$	237		$	243		$	270
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit	34			31			32
Bank-owned life insurance	(6)			(4)			(7)
Tax-exempt interest	(12)			(10)			(10)
FDIC premium	11			7			5
Non-deductible expenses	9			4			3
LIHTC credits and benefits, net of amortization	(15)			(16)			(14)
Other tax credits	(5)			(4)			(4)
Other changes in unrecognized tax benefits	(50)			(2)			4
Termination of BOLI policies	21			—			—
Other	(12)			(2)			(5)
Total	$	212		$	247		$	274

As of December 31, 2023, FHN had net deferred tax asset balances related to federal and state income tax carryforwards of $32 million and $3 million, respectively, which will expire at various dates as follows:

Table 8.14.4

TAX CARRYFORWARD DTA EXPIRATION DATES

(Dollars in millions)	Expiration Dates	Net Deferred Tax Asset Balance
Losses - federal	2028 - 2035	$	32
Net operating losses - states	2024 - 2033	2
Net operating losses - states	2034 - 2041	1

We believe it is more likely than not that the benefit from certain state NOL carryforwards will not be realized. In recognition of this risk, we have provided an immaterial valuation allowance on the DTAs related to these state NOL carryforwards. If our assumptions change and we determine that we will be able to realize these NOLs, the tax benefits related to any reversal of the valuation allowance on DTAs will be recognized as a reduction of income tax expense.

A DTA or DTL 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 enacted statutory tax rates, applicable to future years, to these temporary differences. In order to support the recognition of the DTA, FHN’s management must believe that the realization of the DTA is more likely than not. FHN evaluates the likelihood of realization of the DTA based on both positive and negative evidence available at the time, including (as appropriate) scheduled reversals of DTLs, projected future taxable income, tax planning strategies,

and recent financial performance. Realization is dependent on generating sufficient taxable income prior to the expiration of the carryforwards attributable to the DTA. In projecting future taxable income, FHN incorporates assumptions including the estimated amount of future state and federal pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates used to manage the underlying business.

As of December 31, 2023, FHN's net DTA was $215 million compared to $313 million at December 31, 2022. At December 31, 2023, FHN's gross DTA (net of a valuation allowance) and gross DTL were $737 million and $522 million, respectively. Although realization is not assured, FHN believes that it meets the more-likely-than-not requirement with respect to the net DTA after valuation allowance.

Temporary differences which gave rise to deferred tax assets and deferred tax liabilities on December 31, 2023 and 2022 were as follows:

Table 8.14.5

COMPONENTS OF DTAs & DTLs

(Dollars in millions)	2023		2022
Deferred tax assets:
Loan valuations and loss reserves	$	107	$	108
Employee benefits	128		93
Accrued expenses	21		22
Depreciation and amortization	37		24
Lease liability	85		91
Federal loss carryforwards	32		34
State loss carryforwards	3		2
Securities available for sale and financial instruments (a)	296		355
Other	28		32
Gross deferred tax assets	737		761
Deferred tax liabilities:
Equity investments	$	31	$	3
Other intangible assets	75		80
Prepaid expenses	20		17
ROU lease asset	76		82
Leasing	316		265
Other	4		1
Gross deferred tax liabilities	522		448
Net deferred tax assets	$	215	$	313

(a)    Tax effects of unrealized gains and losses are tracked on a security-by-security basis.

Total unrecognized tax benefits at December 31, 2023 and 2022 were $15 million and $89 million, respectively. To the extent such unrecognized tax benefits as of December 31, 2023 are subsequently recognized, $15 million of tax benefits could impact tax expense and FHN’s effective tax rate in future periods.

During 2023, FHN settled audits which allowed it to reduce unrecognized benefits by $76 million, this resulted in a reduction of tax expense by $32 million. A reduction of accrued interest related to unrecognized benefits resulted in a reduction of tax expense of $14 million.

It is reasonably possible that the unrecognized tax benefits related to federal and state exposures could decrease by

$1 million during 2024 if the applicable statutes of limitations expire as scheduled. FHN recognizes interest accrued and penalties related to unrecognized tax benefits within income tax expense. FHN had approximately $3 million and $17 million accrued for the payment of interest as of December 31, 2023 and 2022, respectively. The total amount of interest and penalties recognized in the Consolidated Statements of Income during 2023 and 2022 were a benefit of $14 million and an expense of $3 million, respectively.

The rollforward of unrecognized tax benefits is shown in the following table:

Table 8.14.6

ROLLFORWARD OF UNRECOGNIZED TAX BENEFITS

(Dollars in millions)
Balance at December 31, 2021	$	92
Increases related to prior year tax positions	3
Increases related to current year tax positions	1
Decreases related to prior year tax positions	(7)
Balance at December 31, 2022	$	89
Increases related to prior year tax positions	1
Increases related to current year tax positions	2
Settlements	(76)
Lapse of statutes	(1)
Balance at December 31, 2023	$	15