Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
- or -
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 SECURITIES EXCHANGE ACT OF 1934
For the Transition period from __________ to__________
Commission File Number: 001-15185
FIRST HORIZON CORPORATION
(Exact name of registrant as specified in its charter)
TN
(State or other jurisdiction
incorporation of organization)
165 Madison Avenue
Memphis, Tennessee
(Address of principal executive office)
62-0803242
(IRS Employer
Identification No.)
38103
(Zip Code)
Registrant’s telephone number, including area code: 901-523-4444
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
$.625 Par Value Common Capital Stock
Depositary Shares, each representing a 1/4,000th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series A
Depositary Shares, each representing a 1/400th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series B
Depositary Shares, each representing a 1/400th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series C
Depositary Shares, each representing a 1/400th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series D
Depositary Shares, each representing a 1/4,000th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series E
Trading
Symbol(s)
FHN
FHN PR A
FHN PR B
FHN PR C
FHN PR D
FHN PR E
Securities registered pursuant to Section 12(g) of the Act: None
Name of Exchange on which Registered
New York Stock Exchange LLC
New York Stock Exchange LLC
New York Stock Exchange LLC
New York Stock Exchange LLC
New York Stock Exchange LLC
New York Stock Exchange LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Table of Contents
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
☒
Smaller reporting company ☐
Accelerated filer
Emerging Growth Company ☐
☐ Non-accelerated filer
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
At June 30, 2020, the aggregate market value of registrant common stock held by non-affiliates of the registrant was
approximately $3.0 billion based on the closing stock price reported for that date. At January 29, 2021, the registrant had
555,468,634 shares of common stock outstanding.
Portions of the Proxy Statement to be furnished to shareholders in connection with the Annual Meeting of shareholders
scheduled for April 27, 2021: Part III of this Report
DOCUMENTS INCORPORATED BY REFERENCE:
Table of Contents
CONTENTS OF ANNUAL REPORT ON FORM 10-K
ITEM
Page
ITEM
Page
Glossary of Acronyms and Terms
Executive Summary of Principal Investment Risks
Forward-Looking Statements
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Supplemental Part I Information
Part II
Item 5.
Market for the Registrant’s Common Equity,
Related Stockholder Matters, and Issuer
Purchases of Equity Securities
Item 6.
[reserved]
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
3
5
7
8
26
46
46
47
47
48
50
51
52
Item 8.
Financial Statements and Supplementary Data
105
Item 9.
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Controls and Procedures
Other Information
Part III
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions
Principal Accountant Fees and Services
Part IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
230
232
232
232
233
234
234
234
236
240
241
Item 7A.
Quantitative and Qualitative Disclosures about
Market Risk
104
Signatures
MD&A and Financial Statement References
In this report: "2020 MD&A" and "2020 MD&A (Item 7)" generally refer to Management’s Discussion and Analysis
of Financial Condition and Results of Operations, inclusive of Glossary of Selected Financial Terms and Acronyms,
appearing in Item 7 within Part II of this report; and, "2020 Financial Statements" and "2020 Financial Statements
(Item 8)" generally refer to our Consolidated Balance Sheets, our Consolidated Statements of Income, our
Consolidated Statements of Comprehensive Income, our Consolidated Statements of Changes in Equity, our
Consolidated Statements of Cash Flows, and the Notes to the Consolidated Financial Statements, all appearing in
Item 8 within Part II of this report.
GLOSSARY OF ACRONYMS AND TERMS
The following is a list of common acronyms and terms used throughout this report:
ACL
ADR
AFS
AIR
Allowance for credit losses
Average daily revenue
Available for sale
Accrued interest receivable
ALCO
Asset/Liability Committee
ALLL
ALM
AOCI
ASC
Allowance for loan and lease losses
Asset/liability management
Accumulated other comprehensive
income
FASB Accounting Standards
Codification
ASU
Bank
BOLI
C&I
Accounting Standards Update
First Horizon Bank
Bank-owned life insurance
Commercial, financial, and industrial
loan portfolio
CAS
Credit Assurance Services
CARES Act
CBF
CCAR
Coronavirus Aid, Relief, and
Economic Security Act
Capital Bank Financial
Comprehensive Capital Analysis and
Review
Associate
Person employed by FHN
CD
Certificate of deposit
FIRST HORIZON CORPORATION
3
2020 FORM 10-K ANNUAL REPORT
Debt service coverage ratios
HELOC
Home equity line of credit
Table of Contents
CECL
CEO
CFPB
Current expected credit loss
Chief Executive Officer
Consumer Financial Protection
Bureau
CMO
Collateralized mortgage obligations
Company
First Horizon Corporation
Corporation First Horizon Corporation
CRA
CRE
CRMC
DSCR
DTA
DTI
DTL
ECP
EPS
ESOP
FASB
FDIC
Federal
Reserve
Fed
FFP
FFS
FHA
FHLB
FHLMC
FHN
FHNF
FICO
FINRA
FNMA
Community Reinvestment Act
Commercial Real Estate
Credit Risk Management Committee
Deferred tax asset
Debt-to-income
Deferred tax liability
Equity Compensation Plan
Earnings per share
Employee stock ownership plan
Financial Accounting Standards
Board
Federal Deposit Insurance
Corporation
Federal Reserve Board
Federal Reserve Board
Federal funds purchased
Federal funds sold
Federal Housing Administration
Federal Home Loan Bank
Federal Home Loan Mortgage
Corporation or Freddie Mac
First Horizon Corporation
FHN Financial; FHN's fixed income
division
Fair Isaac Corporation
Financial Industry Regulatory
Authority
Federal National Mortgage
Association or Fannie Mae
First Horizon First Horizon Corporation
FRB
FTBNA
FTE
FTHC
FTNF
Federal Reserve Bank or the Federal
Reserve Board
First Tennessee Bank National
Association (former name of the
Bank)
Fully taxable equivalent
First Tennessee Housing Corporation
FTN Financial (former name of
FHNF)
FTNMC
FTRESC
GAAP
GNMA
GSE
First Tennessee New Markets
Corporation
FT Real Estate Securities Company,
Inc.
Generally accepted accounting
principles
Government National Mortgage
Association or Ginnie Mae
Government sponsored enterprises,
in this filing references Fannie Mae
and Freddie Mac
HFS
HTM
HUD
IBKC
IPO
ISDA
IRS
LEP
LGD
LIBOR
LIHTC
LLC
LMC
LOCOM
LRRD
LTV
MBS
MD&A
MI
MSR
MSRB
NAICS
NII
NIM
NM
Held for Sale
Held to maturity
Department of Housing and Urban
Development
IBERIABANK Corporation
Initial public offering
International Swap and Derivatives
Association
Internal Revenue Service
Loss emergence period
Loss given default
London Inter-Bank Offered Rate
Low Income Housing Tax Credit
Limited Liability Company
Loans to mortgage companies
Lower of cost or market
Loan Rehab and Recovery
Department
Loan-to-value
Mortgage-backed securities
Management’s Discussion and
Analysis of Financial Condition and
Results of Operations
Private mortgage insurance
Mortgage servicing rights
Municipal Securities Rulemaking
Board
North American Industry
Classification System
Net interest income
Net interest margin
Not meaningful
NMTC
New Market Tax Credit
NOL
NPA
Non-PCD
Net operating loss
Nonperforming asset
Non-Purchased Credit Deteriorated
Financial Assets
FIRST HORIZON CORPORATION
4
2020 FORM 10-K ANNUAL REPORT
Table of Contents
NPL
NSF
OCC
OIS
Nonperforming loan
Non-sufficient funds
Office of the Comptroller of the
Currency
Overnight indexed swap
OREO
Other Real Estate-owned
OTC
OTTI
PCAOB
PCD
PCI
PD
PM
PPP
PSU
RE
RM
ROA
One-time close, a mortgage product
which allowed simplified conversion
of a construction loan to permanent
financing
Other than temporary impairment
Public Company Accounting
Oversight Board
Purchased Credit Deteriorated
Financial Assets
Purchased credit impaired
Probability of default
Portfolio managers
Paycheck Protection Program
Performance Stock Unit
Real estate
Relationship managers
Return on assets
ROCE
Return on average common
shareholders' equity
ROTCE
Return on tangible common equity
ROU
RPL
RSU
RWA
SBA
SEC
SVaR
TA
TCE
TCJA
TDR
TRUP
UPB
USDA
VaR
VIE
Right-of-use
Reasonably Possible Loss
Restricted stock unit
Risk-weighted assets
Small Business Administration
Securities and Exchange
Commission
Stressed Value-at-Risk
Tangible assets
Tangible common equity
Tax Cuts and Jobs Act of 2017
Troubled Debt Restructuring
Trust preferred loan
Unpaid principal balance
United States Department of
Agriculture
Value-at-Risk
Variable Interest Entities
we / us / our First Horizon Corporation
EXECUTIVE SUMMARY OF PRINCIPAL INVESTMENT RISKS
This section provides an executive summary of the
principal risks associated with an investment in our
equity or debt securities. Our businesses are
complex, and so are the risks associated with them.
This summary is not a complete statement of risks a
prospective or current investor should consider.
• The Economy. Our businesses and our industry
are heavily entwined with the U.S. economy. We
tend to perform better when economic conditions
are favorable, and our performance tends to be
weaker when the economy is weaker. That
relationship can be quite strong, which can make
our income and other key performance measures
volatile, especially when compared with
companies in many other industries. The economy
tends to rise and fall in a cyclical manner which is
difficult to predict, which in turn makes our
performance difficult to predict. For additional
information, see Cyclicality beginning on page 15
and Risks from Economic Downturns and
Changes beginning on page 31.
• Credit Loss. Our lending business—accounting
for about half of our revenues—is critically
dependent on our clients being able to pay us
back. That ability often depends on economic
conditions, but many individual factors can be
critical as well. If a client defaults on a loan,
generally we will experience a financial loss which
often is only reduced, not eliminated, by collateral
supporting the loan. Accounting rules require us to
evaluate current expected credit loss (CECL) each
quarter, booking losses based on our
expectations. That process can result in a highly
volatile pattern of recognizing credit loss each
quarter. The first two quarters of 2020
demonstrated this volatility, based on the
economic and business disruption associated with
the COVID-19 pandemic. For additional
information, see CECL Accounting and COVID-19
beginning on page 12, Credit Risks beginning on
page 33, and Risks related to COVID-19
Pandemic beginning on page 35.
• Loan Loss vs Loan Profit. Lending generally is a
high-volume, low-margin business. This means
that we often need the profits from many loans to
make up for the losses from one loan. For our
earnings to be strong, we need to hold loan losses
to a very low level, which makes our management
of credit quality a critical function for us. This
FIRST HORIZON CORPORATION
5
2020 FORM 10-K ANNUAL REPORT
Table of Contents
•
imbalance between loss and profit can amplify the
potential for volatility in our earnings. For
additional information, see Credit Risks beginning
on page 33.
Interest Rate Conditions. Interest rates and,
especially, the shape of the yield curve, are critical
drivers of our profit margin from lending. If the
yield curve is flat—with long-term rates only
slightly higher than short-term rates—our lending
margins shrink, and so does our net interest
income. Interest rate policy is controlled by federal
agencies and by market forces, not by us. For
additional information, see Monetary Policy Shifts
beginning on page 12, Cyclicality beginning on
page 15, Risks Associated with Monetary Events
beginning on page 31, and Interest Rate and Yield
Curve Risks beginning on page 40.
• Funding Balance. In our lending business, we
aggregate money and lend it out at rates which
more than cover our costs. We constantly must
balance our funding sources (deposits and
borrowings) with our funding needs (lending).
Imbalances tend to hurt our earnings. If sources
become too large, generally we can cut back
short-term borrowing or invest the excess, but our
earnings can be modestly weaker as a result. If
sources become too small, we might have to
forego profitable lending or increase funding by
increasing deposit or borrowing costs. For
additional information, see Liquidity and Funding
Risks beginning on page 39.
• Competition. Competition for clients and talent in
our industry is intense and unlikely to abate.
Competition for key revenue-producing talent is a
key method of obtaining new client relationships in
many parts of our industry. Competition in these
areas can pressure us to make concessions to
clients and to increase payroll costs. For additional
information, see Competition beginning on page
13, and Traditional Competition Risks beginning
on page 27.
• Banking Consolidation. Since the advent of
nation-wide branching in the 1980s, the banking
industry has experienced several waves of
substantial consolidation. In the past twenty years,
technological improvements have allowed
institutions to become extremely large while
maintaining adequate client service, and, due to
cost efficiencies associated with scalable
technology, have rewarded the largest institutions
disproportionately, incenting banks to grow larger,
faster. Consolidation can abruptly change the
competitive environment in our markets. In
addition, when we participate in consolidating
actions, as we did in 2017 and 2020, typically it
creates internal disruption and expense for a time
while we integrate systems, consolidate branches,
and take other consolidation-related actions.
Moreover, in our industry, the market tends to
discount, for a time, the stock price of banks that
engage in major mergers, in part due to the
transaction and integration expenses mentioned
above coupled with the risk that the combination
may not achieve management’s strategic or
tactical objectives. For additional information, see
Significant Business Developments over Past Five
Years beginning on page 10, Strategic
Transactions beginning on page 14, and
Traditional Strategic and Macro Risks beginning
on page 27.
•
Industry Disruption. Technological innovation,
and the associated changes in client preferences,
are radically transforming our industry and how
financial services are delivered to clients. Keeping
pace is expensive and difficult, while being a
consistent innovation leader is practically
impossible for a bank our size. Moreover, rapid
innovation has the potential to be destructive of
traditional companies in our industry, as it has
done and is doing in other industries. For
additional information, see Industry Disruption
beginning on page 28.
• Regulated Industry. Our principal businesses are
heavily regulated. Our two primary banking
regulators can examine us, cause us to change
our business operations, and significantly restrict
our ability to pursue lines of business, in ways not
applicable to companies in most other industries.
We also have several secondary regulators, each
with significant though less-encompassing powers.
The primary missions of the regulators are to
protect the banking system as a whole, to protect
the federal government’s deposit insurance fund
and program, and to protect clients; none exists to
enhance our profitability or promote the interests
of our investors. Moreover, regulators are
government agencies, and as such can
experience significant policy changes when the
elected branches of government experience such
changes. For additional information, see
Regulatory, Legislative, and Legal Risks beginning
on page 36.
• Security & Technology. Fraud and theft have
always been significant risks for banks.
Technology has allowed those risks to grow
substantially. Bad actors can impact us from
around the world, day or night, both directly and
through our clients or vendors. Typically, the more
a system is built to be secure and robust, the less
that system can be flexible and adaptable.
Moreover, high-security often is associated with a
sub-optimal user experience. For additional
information, see Operational Risks beginning on
page 30.
• Expense Control. In the current low-interest-rate
environment, banks in the U.S. are focused on
FIRST HORIZON CORPORATION
6
2020 FORM 10-K ANNUAL REPORT
Table of Contents
reducing operating costs as much as possible. For
additional information, see Operational Risks
beginning on page 30, and Risks of Expense
Control beginning on page 38.
For a more complete discussion of the risks
associated with our businesses and operations and
investment in our securities, see Item 1A, Risk
Factors, beginning on page 26.
FORWARD-LOOKING STATEMENTS
This report on Form 10-K, including materials
incorporated into it, contains forward-looking
statements within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect
to FHN's beliefs, plans, goals, expectations, and
estimates. Forward-looking statements are not a
representation of historical information, but instead
pertain to future operations, strategies, financial
results or other developments. The words “believe,”
“expect,” “anticipate,” “intend,” “estimate,” “should,” “is
likely,” “will,” “going forward,” and other expressions
that indicate future events and trends identify forward-
looking statements.
Forward-looking statements are necessarily based
upon estimates and assumptions that are inherently
subject to significant business, operational, economic
and competitive uncertainties and contingencies,
many of which are beyond our control, and many of
which, with respect to future business decisions and
actions (including acquisitions and divestitures), are
subject to change. Examples of uncertainties and
contingencies include, among other important factors:
•
•
the possibility that the anticipated benefits of the
IBKC merger will not be realized when expected or
at all, including as a result of the impact of, or
problems arising from, the integration of the two
companies or as a result of the strength of the
economy and competitive factors in any or all of
FHN’s market areas;
the possibility that the IBKC merger may be more
expensive to integrate than anticipated, including
as a result of unexpected factors or events;
• potential adverse reactions or changes to
business or associate relationships resulting from
the IBKC merger;
•
• global, general and local economic and business
conditions, including economic recession or
depression;
the potential impacts on FHN’s businesses of the
COVID-19 pandemic, including negative impacts
from quarantines, market declines, and volatility,
and changes in client behavior related to the
COVID-19 pandemic;
the stability or volatility of values and activity in the
residential housing and commercial real estate
markets;
•
• potential requirements for FHN to repurchase, or
compensate for losses from, previously sold or
securitized mortgages or securities based on such
mortgages;
• potential claims alleging mortgage servicing
failures, individually, on a class basis, or as master
servicer of securitized loans;
• potential claims relating to participation in
government programs, especially lending or other
financial services programs;
• expectations of and actual timing and amount of
interest rate movements, including the slope and
shape of the yield curve, which can have a
significant impact on a financial services
institution;
• market and monetary fluctuations, including
•
•
•
fluctuations in mortgage markets;
the financial condition of borrowers and other
counterparties;
competition within and outside the financial
services industry;
the occurrence of natural or man-made disasters,
global pandemics, conflicts, or terrorist attacks, or
other adverse external events;
• effectiveness and cost-efficiency of FHN’s hedging
•
•
•
•
•
•
practices;
fraud, theft, or other incursions through
conventional, electronic, or other means directly or
indirectly affecting FHN or its clients, business
counterparties or competitors;
the ability to adapt products and services to
changing industry standards and client
preferences;
risks inherent in originating, selling, servicing, and
holding loans and loan-based assets, including
prepayment risks, pricing concessions, fluctuation
in U.S. housing and other real estate prices,
fluctuation of collateral values, and changes in
client profiles;
the changes in the regulation of the U.S. financial
services industry;
changes in laws, regulations, and administrative
actions, including executive orders, whether or not
specific to the financial services industry;
changes in accounting policies, standards, and
interpretations;
• evolving capital and liquidity standards under
applicable regulatory rules;
• accounting policies and processes require
management to make estimates about matters
that are uncertain; and
• other factors that may affect future results of FHN.
FHN assumes no obligation to update or revise any
forward-looking statements that are made in this
report on Form 10-K or in any other statement,
FIRST HORIZON CORPORATION
7
2020 FORM 10-K ANNUAL REPORT
Table of Contents
release, report, or filing from time to time. Actual
results could differ and expectations could change,
possibly materially, because of one or more factors,
including those factors listed above or presented
elsewhere in this report, or in those factors listed in
material incorporated by reference into this report. In
evaluating forward-looking statements and assessing
our prospects, readers of this report should carefully
consider the factors mentioned above along with the
additional risk factors discussed in Items 1 and 1A of
this report and in 2020 MD&A (Item 7), among others.
PART I
ITEM 1. BUSINESS
Our Businesses
First Horizon Corporation is a Tennessee corporation.
We incorporated in 1968, and are headquartered in
Memphis, Tennessee. We are a bank holding
company under the Bank Holding Company Act, and
a financial holding company under the Gramm-Leach-
Bliley Act. Our common stock is listed on the New
York Stock Exchange under the symbol “FHN.” In
2020 we shortened our corporate name, which had
been First Horizon National Corporation for many
years. At December 31, 2020, we had total
consolidated assets of $84 billion. We provide
diversified financial services primarily through our
principal subsidiary, First Horizon Bank. The Bank is a
Tennessee banking corporation headquartered in
Memphis, Tennessee.
During 2020 approximately 47% of our consolidated
revenues were provided by fee and other noninterest
income, and approximately 53% of revenues were
provided by net interest income.
As a financial holding company, we coordinate the
financial resources of the consolidated enterprise and
maintain systems of financial, operational, and
administrative control intended to coordinate selected
policies and activities, including as described in Item
9A of Part II.
The Bank
The Bank was founded in 1864 as First National Bank
of Memphis. During 2020, through its various
business lines, including consolidated subsidiaries,
the Bank reported revenues (net interest income plus
noninterest income) of approximately $3.2 billion. The
Bank generated a substantial majority of First
Horizon’s consolidated revenue. At December 31,
2020, the Bank had $84 billion in total assets, $71
billion in total deposits, and $58 billion in total loans
and leases (net of unearned income and net of
reserves for credit losses).
Business Segments
Our financial results of operations are reported
through operational business segments which are not
closely related to the legal structure of our
subsidiaries. As a result of our recent merger of
equals with IBERIABANK Corporation (see
Significant Business Developments over Past Five
Years starting on page 10 below), in 2020 we
changed our segments. Before the merger, we
operated through four business segments: regional
banking, fixed income, corporate, and non-strategic.
By the end of 2020 and going forward, we operate
through three segments: regional banking, specialty
banking, and corporate. Quarterly results in 2020
were reported originally using the previous segments,
while fourth-quarter and full-year results are reported
using the current segments. In this report, segment
information related to prior periods has been
reclassified to conform with the current segments.
Financial and other additional information concerning
our segments—including information concerning
assets, revenues, and financial results—appears in
our 2020 MD&A (Item 7) and Note 20 to our 2020
Financial Statements (Item 8).
Principal Businesses and Brands
As a result of our recent merger of equals with
IBERIABANK Corporation (see Significant Business
Developments over Past Five Years starting on page
10 below), at year-end 2020 many of our principal
businesses were conducted primarily under two or
more brands. Once conversion and integration of our
two companies is completed, we expect to simplify
our branding, phasing out certain brands over time.
Our principal brands at year-end are summarized in
Table 1.1.
FIRST HORIZON CORPORATION
8
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Table 1.1
Principal Businesses & Brands
At Year End
Business
Brands
• First Horizon & First Horizon
Banking & financial
services generally
Bank
IBERIABANK
•
Fixed income / capital
markets
• FHN Financial
•
IBERIABANK Capital Markets
Mortgage lending
• First Horizon Bank
•
IBERIABANK Mortgage
Most of our loans and deposits are held in our
regional banking and specialty banking segments.
Most of our loans are commercial, and most of them
are traditional, unsecured commercial, financial, and
industrial loans, or “C&I” loans. The other two major
loan portfolios are secured commercial real estate
loans, or “CRE” loans, and secured consumer real
estate loans. Table 1.3 provides an overview of our
loan and deposit balances at December 31, 2020 or
averaged over the year 2020.
Title services
• Lenders Title Group
Table 1.3
Insurance brokerage &
management services
Wealth management &
brokerage services
IBERIA Financial Services
• First Horizon Advisors
•
• First Horizon Advisors
•
•
IBERIA Wealth Advisors
IBERIA Financial Services
Physical Business Locations
At December 31, 2020, First Horizon’s subsidiaries
had well over 500 business locations in 23 U.S.
states, excluding off-premises ATMs. Most of those
locations were banking centers. At year-end, First
Horizon had 492 banking centers in twelve states:
Table 1.2
Banking Centers at Year End
State
Tennessee
Florida
North Carolina
Louisiana
Arkansas
Alabama
#
165
97
89
64
16
14
State
Georgia
South Carolina
Texas
Virginia
Mississippi
New York
#
12
11
10
8
5
1
Many banking centers contain special-service areas
such as wealth management and mortgage lending.
At year-end, First Horizon also had client-service
offices not physically within banking centers, including
fixed income, title services, home mortgage, wealth
management, and commercial loan offices. The
largest groups of those offices were: 29 fixed income
offices in eighteen states across the U.S.; 29 title
services offices in Arkansas, Tennessee, and
Louisiana; and 15 stand-alone mortgage lending
offices in seven states. First Horizon also has
operational and administrative offices.
Loans & Deposits
Lending and deposit-taking are core businesses for
us. Our largest resource to fund our lending is our
deposit base. At year-end 2020, we had total loans
(net of unearned income) of $58 billion, total net loans
(net of unearned income and net of reserves for credit
losses) of $57 billion, and total deposits of $70 billion.
Loans & Deposits by Type
Loans*
Deposits**
Savings
38 %
Time deposits
Other interest
Noninterest
8 %
23 %
31 %
Commercial
Consumer
78 %
22 %
Commercial Portfolios
C&I
73 %
CRE 27 %
Consumer Portfolios
Real estate
91 %
Credit card/other
9 %
* Percentages at December 31, 2020; includes certain leases.
** Percentages of average deposits for 2020.
Percentages may not add to 100% due to rounding.
The C&I portfolio, more than half of total loans, was
$33.1 billion on December 31, 2020. Within C&I,
about 26% of loans are to businesses in the financial
services industry, including mortgage lending
companies, with the rest in a wide range of industries,
as shown in Table 1.4.
Table 1.4
C&I Loans* by Line of Business
Mortgage lenders
Finance & Insurance
Health care & social assistance
Real estate rental & leasing
Accommodation & food service
Wholesale trade
Manufacturing
Retail trade
Other C&I
16 %
10 %
8 %
7 %
7 %
6 %
6 %
5 %
35 %
* Percentages of C&I portfolio at December 31, 2020.
Percentages may not add to 100% due to rounding.
Geographically, a significant majority of our loans
originate from five states: Tennessee, Florida,
Louisiana, North Carolina, and Texas. The
geographic dispersion of our loans varies
considerably among our three major loan portfolios,
as shown in Table 1.5.
FIRST HORIZON CORPORATION
9
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Table 1.5
Major Loan Portfolios by Geography
C&I Loans ($33B)*
CRE Loans ($12B)*
Consumer RE Loans ($12B)*
Tennessee
Florida
Texas
Louisiana
North Carolina
California
Georgia
21 %
12 %
9 %
8 %
8 %
7 %
5 %
Florida
North Carolina
Louisiana
Texas
Tennessee
Georgia
28 %
12 %
11 %
11 %
9 %
8 %
All other states
21 %
Florida
Tennessee
Louisiana
North Carolina
Texas
All other states
31 %
25 %
10 %
9 %
5 %
20 %
All other states
30 %
*Dollars and percentages within each portfolio at December 31, 2020.
Percentages may not add to 100% due to rounding.
Further information regarding deposits and our other
major sources of funding is provided in Notes 9, 10,
and 11 beginning on pages 168, 169, and 170,
respectively, appearing in our 2020 Financial
Statements (Item 8), and under the captions
Deposits, Short-term Borrowings, and Term
Borrowings beginning on pages 65, 66, and 67,
respectively, of our 2020 MD&A (Item 7). Further
information regarding our loans is provided in Note 4
beginning on page 149 appearing in our 2020
Financial Statements (Item 8), and under the caption
Analysis of Financial Condition beginning on page 62
of our 2020 MD&A (Item 7).
Services We Provide
At December 31, 2020, we provided the following
services through our subsidiaries and divisions:
• general banking services for consumers,
businesses, financial institutions, and governments
• fixed income sales and trading; underwriting of
bank-eligible securities and other fixed-income
securities eligible for underwriting by financial
subsidiaries; loan sales; advisory services; and
derivative sales
• mortgage banking services
• title insurance and loan-closing services
• brokerage services
• correspondent banking
• transaction processing: nationwide check clearing
services and remittance processing
• trust, fiduciary, and agency services
• credit card products
• equipment finance services
• investment and financial advisory services
• mutual fund sales as agent
• retail insurance sales as agent
Information about the net interest income and
noninterest income we obtained from our largest
categories of products and services appears under
the caption Results of Operations — 2020 Compared
to 2019 beginning on page 54 of our 2020 MD&A
(Item 7).
Significant Business Developments Over Past Five Years
Over the past five years, our strategic priorities have
focused on:
• providing exceptional client experience as a primary
means to differentiate us from competitors; and
• targeted expansion of consumer and commercial
• investment in scalable technology and other
banking products and markets;
• opportunistic expansion of commercial lending,
mainly through acquisition transactions, talent
development, and talent acquisitions;
• rigorous expense management with continued
investment in revenue generating initiatives;
• managing business units and products with a
strong emphasis on risk-adjusted returns on
invested capital;
infrastructure to attract and retain clients and to
support expansion.
Examples of our implementation of these priorities
include:
• In July 2020, we completed a merger of equals
transaction with IBERIABANK Corporation and
purchased 30 branches from Truist Bank, making
2020 a transformative year. See IBKC Merger of
Equals and 30-Branch Acquisition in this Item
below for additional information.
FIRST HORIZON CORPORATION
10
2020 FORM 10-K ANNUAL REPORT
Table of Contents
• As mentioned below, the COVID-19 pandemic
caused us to recognize substantial provision for
credit loss in 2020, and reduced our transaction
volume and revenues. See CECL Accounting and
COVID-19 beginning on page 12 of this Item 1.
However, when the federal government created the
Paycheck Protection Program (“PPP”) in the
second quarter of 2020, legacy First Horizon and
legacy IBKC each were able to help clients obtain
$2 billion of PPP loans (more than $4 billion total)
over the course of a few short weeks. In doing so,
we helped our clients access financial relief to
sustain their businesses during the economic
downturn. We received significant positive feedback
from affected clients and earned origination fees
from the PPP, $15 million of which we donated to
help low and moderate income communities.
• In 2017 we merged with Capital Bank Financial
Corp., which had $10 billion of total assets and
nearly 200 banking centers in four southern U.S.
states.
• Other acquisitions during this period include: a
national leader in trading, securitization, and
analysis of Small Business Association loans
(2017); and a significant restaurant franchise
finance business and portfolio (2016).
• We have made key talent hires in critical areas
throughout our company, with the main focus on
organically growing economically profitable
business lines inside and outside our traditional
markets.
• We have pruned and adapted our physical banking
center network to reflect long-term trends in client
usage of banking centers, and are making more
efficient use of other physical facilities.
Correspondingly, we have expanded and enhanced
our digital banking products and services.
• Organic commercial loan growth has been strong in
specialty lending areas, such as lending to
mortgage companies, where margins tend to be
better but outstanding balances tend to fluctuate
seasonally and cyclically.
Table 1.6 provides selected data concerning
revenues, expenses, assets, liabilities, and
shareholders’ equity for the past five years.
Table 1.6
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in millions; period-end financial condition data shown as of December 31)
Net interest income $
Provision (provision credit) for credit losses
Noninterest income
Net income available to common shareholders
Total loans and leases
Total assets
Total deposits
Total term borrowings
Total liabilities
Preferred stock
Total shareholders’ equity
2020
1,662
503
1,492
822
58,232
84,209
69,982
1,670
75,902
470
8,307
2019
$ 1,210
2018
$ 1,220
2017
$ 842
45
654
435
31,061
43,311
32,430
791
38,235
96
5,076
8
723
539
(1)
490
159
27,536 27,659
40,832 41,423
32,683 30,620
1,218
36,047 36,843
96
4,580
96
4,785
1,171
2016
$ 729
10
552
221
19,590
28,555
22,672
1,041
25,850
96
2,705
Events Impacting Year-to-Year Comparisons
IBKC Merger of Equals in 2020
In July 2020, we closed our merger of equals with
IBERIABANK Corporation (“IBKC”). IBKC was the
parent company of IBERIABANK based in Lafayette,
Louisiana. At year-end 2019, IBKC had $31.7 billion
of total assets—nearly 75% of our size at that time—
and operated over 190 banking centers in 11 states:
Louisiana, Texas, Arkansas, Tennessee, Mississippi,
Alabama, Georgia, Florida, North and South Carolina,
and New York. IBKC’s largest concentrations of
banking centers were in Louisiana and Florida. We
and IBKC offered many of the same financial services
before the merger, but IBKC exceeded us in several
areas, most notably in equipment financing,
mortgage, and title services.
After closing, our board expanded to 17 directors, of
which nine are from legacy First Horizon and eight
are from legacy IBKC. IBKC shareholders collectively
were issued 243 million First Horizon common shares
(on a net basis), or 44% of our common shares
outstanding at year-end 2020.
Under applicable accounting guidance, none of the
income or expense recognized by IBKC prior to the
merger is included in our income or expense for
2020. As a result, our 2020 operating results
FIRST HORIZON CORPORATION
11
2020 FORM 10-K ANNUAL REPORT
Table of Contents
essentially consist of two quarters of legacy First
Horizon plus two quarters of combined First Horizon
and IBKC. In addition, operating results in 2020 were
significantly affected by merger-related expenses and
by two significant accounting impacts, described in
Large Accounting Impacts from IBKC Merger below.
30-Branch Acquisition in 2020
In July 2020, we purchased 30 branches in North
Carolina (20), Virginia (8), and Georgia (2) from
SunTrust Bank (now Truist Bank). Those branches
are in markets which we did not serve before July, or
in which we did not have a leading market position.
Along with the branch facilities, we acquired $0.4
billion of related loans and assumed $2.2 billion of
deposits.
Large Accounting Impacts from IBKC Merger
Under applicable accounting guidance, closing the
IBKC merger in July created two substantial impacts
on our operating results for 2020. First, although we
were required to record IBKC’s loans at fair value on
the closing date, we also were required to recognize,
as credit provision expense, an estimate of current
expected credit losses for certain acquired loans. A
similar process, with much smaller numbers, occurred
for the loans associated with the 30-branch purchase.
The overall incremental expense, recorded in third
quarter 2020, was $147 million. Moreover, we were
required to record, on a preliminary basis, a
nontaxable purchase accounting gain from the
merger of $533 million, driven by the stock market
decline in 2020 associated with the COVID-19
pandemic. The net result of those two impacts was a
$386 million uplift to our pretax income in 2020
unrelated to the ordinary operation of our businesses.
Expenses related to IBKC Merger
Closing the IBKC merger, integrating the business
operations and systems, and making the changes
necessary to achieve intended cost and other
synergies, resulted in noninterest expenses in 2020 in
excess of $140 million. Additional significant
expenses related to integration and optimization will
be incurred in 2021.
Low Credit Loss Rates through 2019
During 2016-2019, our provision for credit losses was
unusually low, though in 2019 it began to normalize.
When provision is low, differences from year to year
can be idiosyncratic, driven by just a few clients.
CECL Accounting and COVID-19
Starting in 2020, accounting guidance changed,
requiring us to recognize “current expected credit
loss” on all loans. The new guidance had the effect of
accelerating, compared to prior guidance, the
recognition of provision expense at times when
general economic conditions deteriorate in a rapid
manner. Starting in March 2020, government and
public reaction to the COVID-19 pandemic caused
substantial and rapid, and previously unexpected,
business disruption and economic deterioration.
Those events substantially changed our expectations
for future credit loss in the first half of 2020 and,
accordingly, our provision expense was significantly
elevated. Later in 2020, a positive change in
expectations partially moderated that impact.
Moreover, the new guidance was not applied
retroactively to prior years, making year-to-year
comparisons of provision expense less useful.
Fixed Income Volatility
For several of these years, market conditions were
quite subdued for our fixed income business. Starting
in 2019, however, increased market volatility and the
downward direction of interest rates resulted in much
higher trading volume and noninterest income in that
business. See Cyclicality—Fixed Income in this Item,
beginning on page 16, for additional information.
Sale of Visa Class B Stock in 2018
In 2018, we sold our remaining legacy stock holdings
of Visa, significantly increasing noninterest income
that year.
Capital Bank Merger in 2017
Many year-end balance sheet figures (loans,
deposits, etc.) increased substantially in 2017 due to
the Capital Bank transaction. Full-year operating
results were less noticeably impacted until 2018,
because the Capital Bank transaction closed late in
2017.
Tax Reform in 2017
Corporate tax reform in December 2017 resulted in
significant negative adjustments to net deferred tax
asset balance, driving a large net loss in fourth
quarter that year. Financial results after 2017, in
contrast, benefited significantly from lower tax rates
compared to earlier years.
Monetary Policy Shifts
Although interest rates during each of these years
were quite low by historical standards, short-term
rates were raised modestly starting in 2015 and more
vigorously in 2018. Short-term rates were reduced in
2019 and again in 2020, the latter in response to the
pandemic. Other actions by the Federal Reserve put
downward pressure on long-term interest rates as
well, especially in 2020. These changes impacted our
net interest margin, raising and lowering it over this
period. Net interest margin is a measure of the profit
we make on loans and other earning assets in
relation to our cost of deposits and other funding
sources. Because funding costs cannot realistically
fall below zero, the very low rate environment during
2020 resulted in historically low net interest margin
levels for us.
FIRST HORIZON CORPORATION
12
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Trends
Noteworthy trends during this period include:
• Net loan growth in 2019 (vs. 2018) was purely
organic. Organic loan growth occurred in other
years as well, but was masked by merger and
acquisition transactions.
• Growth in net interest income was significant
through 2018, driven by net loan growth, interest
rate increases, and (in 2018) the Capital Bank
merger. Growth flattened in 2019 as net loan
growth, especially in mortgage warehouse lending,
was offset by net interest margin declines. Margin
declines continued in 2020, but loans increased
substantially with the IBERIABANK merger.
• In 2016 and 2017, an overall down-trend in
noninterest income was due mainly to lower fixed
income revenues, driven by challenging market
conditions. The large increase in 2018 was mainly
due to the Visa stock sale, along with an uptick
following the Capital Bank merger. The 2016-17
trend reversed in 2019, and continued in 2020, as
interest rates declined, market volatility increased,
and fixed income revenues improved markedly.
Also, the second half of 2020 enjoyed a substantial
increase in noninterest income following the
IBERIABANK merger, especially in relation to
consumer mortgage originations and related
services.
• The large deposit upticks in 2017 and 2020 were
driven substantially by the Capital Bank,
IBERIABANK, and 30-branch transactions. Also in
Competition
In all aspects of the businesses in which we engage,
we face substantial competition from banks doing
business in our markets as well as from savings and
loan associations, credit unions, other financial
institutions, consumer finance companies, trust
companies, investment counseling firms, money
market and other mutual funds, insurance companies
and agencies, securities firms, mortgage banking
companies, hedge funds, and other firms offering
financial products or services.
Banking
Our regional banking business primarily competes in
those areas within the southern U.S. where we have
banking center locations. However, competition in our
industry is trending away from the traditional
geographic footprint model. That trend is happening
throughout the industry, but the rate of change is
highly uneven among different types of clients,
products, and services.
2020, the federal Paycheck Protection Program
(“PPP”) contributed to deposit growth as proceeds
from PPP loans boosted average deposit account
balances. Organic growth in deposits from core
banking clients grew throughout this period, even in
2019 and 2020 when interest rates were extremely
low. That core growth is masked in some years by
deliberate reductions in (more expensive) market-
indexed deposits, and in other years by those large
transactions.
• Throughout 2020, economic and business
disruption related to the COVID-19 pandemic
created substantial challenges for our clients and
for our company. Disruption peaked in the spring,
diminished significantly in the summer, and
resumed in the autumn and winter. Although at
some future point significant disruption from the
pandemic will end, we are not able to predict with
confidence which pre-pandemic trends will resume
and which will end or change.
Exited Businesses
Over the past decade, we have focused on traditional
banking and fixed income products and services. We
exited our legacy nation-wide mortgage banking
business in 2008, though we continue to manage
related legal exposures and the wind-down of a
related loan portfolio. We have partially or fully exited
other businesses as well. Exited businesses are
managed in our corporate segment currently, and
were managed in our non-strategic segment in prior
periods.
Our regional banking business serves both consumer
and commercial clients. The consumer businesses
remain strongly linked to our physical banking center
locations, even as our delivery of financial services to
consumers is increasingly focused on popular non-
physical delivery methods, such as online and mobile
banking. Online and mobile banking have contributed
to a decline in banking center usage, but not (so far)
an erosion of the link between banking center versus
consumer client location. Increasingly, however,
consumers are able to manage, through a single
institution, their financial accounts at multiple
institutions. If cross-institutional management features
become popular, they may hasten a de-linking of
consumers to physical banking center networks.
Our commercial businesses, especially in our
specialty banking segment, also have a geographic
linkage, but it is weaker. Some areas of specialty
lending, such franchise finance, and certain other
specialty businesses (see Fixed Income below) are
FIRST HORIZON CORPORATION
13
2020 FORM 10-K ANNUAL REPORT
Table of Contents
multi-regional or national in scope rather than being
heavily centered on banking center locations.
Key traditional competitors in many of our markets
include Wells Fargo Bank N.A., Bank of America
N.A., First-Citizens Bank & Trust Company (dba First
Citizens Bank), Synovus Bank, Truist Bank, Regions
Bank, JPMorgan Chase Bank National Association,
PNC Bank National Association, BankUnited,
Hancock Whitney Bank, and Pinnacle Bank, among
many others including many community banks and
credit unions.
A number of recent technologies created or operated
by non-banks have been integrated into the financial
systems used by traditional banks, such as the
evolution of ATM cards into debit/credit cards and the
evolution of debit/credit cards into smart phones.
These sorts of incrementally evolutionary
technologies often have expanded the market for
banking services overall while siphoning a portion of
the revenues from those services away from banks.
Prior methods of delivering those services were
disrupted, but often at a pace which all but the
weakest banks could accommodate.
Recently, some evolutionary pressures have arisen
which may prove to be less incremental and more
disruptive. For example, in financial planning and
wealth management, companies that are not
traditional banks, including both long-established
firms (such as Vanguard) and new ones (such as
Betterment), have developed highly-interactive
systems and applications. These services compete
directly with traditional banks in offering personal
financial advice. The low-cost, high-speed nature of
these “robo-advisor” services can be especially
attractive to younger, less-affluent clients and
potential clients. We and other traditional banks offer
similar services, but doing so risks cannibalizing
traditional business models for these services.
In recent years, certain financial companies or their
affiliates that traditionally were not banks have been
Other General Information
Strategic Transactions
An element of our business strategy is to consider
acquisitions and divestitures that would enhance
long-term shareholder value. Significant acquisitions
and divestitures which closed during the past three
years are described in Note 2 to our 2020 Financial
Statements (Item 8).
The most significant transactions in the past five
years are our merger of equals with IBKC in 2020 and
our merger with Capital Bank Financial Corp. in 2017.
IBKC’s assets comprised roughly three-sevenths of
our combined assets immediately after closing in July
2020. Capital Bank’s assets comprised roughly one-
able to compete more directly with the Bank for
deposits and other traditional banking services and
products. Increased fluidity across traditional
boundaries is likely to continue. Non-traditional
companies competing with us for traditional banking
products and services include investment banks,
brokerage firms, insurance company affiliates, peer-
to-peer lending arrangers, non-bank deposit
acceptors, companies offering payment facilitation
services (such as PayPal and pre-paid debit card
issuers), and extremely short-term consumer loan
companies.
Fixed Income
Our fixed income business, which is part of our
specialty banking segment, serves institutional
clients, broadly segregated into depositories
(including banks, thrifts, and credit unions) and non-
depositories (including money managers, insurance
companies, governmental units and agencies, public
funds, pension funds, and hedge funds). Both client
groups are widely dispersed geographically,
predominantly within the U.S. We have many
competitors within both groups, including major U.S.
and international securities firms as well as numerous
regional and local firms.
Additional Information
For additional information on the competitive position
of FHN and the Bank, refer to the “General”
subsection above within this Item 1. Also, refer to the
subsections entitled Supervision and Regulation and
Effect of Governmental Policies, both of which are
relevant to an analysis of our competitors. Due to the
intense competition in the financial services industry
we can make no representation that our competitive
position has or will remain constant, nor can we
predict how it may change in the future.
fourth of our combined assets immediately after
closing in November 2017. We completed systems
integration for the Capital Bank transaction in 2018,
and we expect to complete integration with IBKC in
the second half of 2021.
Other significant transactions include our purchase of
30 banking centers in July 2020, with over $2 billion
of associated deposits, and our acquisition of Coastal
Securities, Inc. in 2017, a leader in trading and
securitizing SBA loans.
FIRST HORIZON CORPORATION
14
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Subsidiaries
FHN’s consolidated operating subsidiaries at
December 31, 2020 are listed in Exhibit 21. Technical
and regulatory details follow:
• The Bank is supervised and regulated as described
in Supervision and Regulation in this Item below.
• The Bank is a government securities dealer. The
FHN Financial division of the Bank is registered
with the SEC as a municipal securities dealer and
the FHN Financial Municipal Advisors division of the
Bank is registered with the SEC as a municipal
adviser.
• Martin and Company, Inc., First Horizon Advisors,
Inc., and FHN Financial Main Street Advisors, LLC
are registered with the SEC as investment advisers.
• First Horizon Advisors, Inc., FHN Financial
Securities Corp., and IBERIA Capital Partners LLC
are registered as broker-dealers with the SEC and
all states where they conduct business for which
registration is required. After year-end 2020,
IBERIA Capital Partners LLC began the process to
withdraw its registration.
• First Horizon Insurance Services, Inc., FHIS, Inc.,
Lenders Title Company, United Title & Abstract
L.L.C., United Title of Louisiana, Inc., and First
Horizon Insurance Agency, Inc. are licensed as
insurance agencies in all states where they do
business for which licensing is required. First
Horizon Insurance Agency, Inc. is inactive.
• First Horizon Advisors, Inc. is licensed as an
insurance agency in the states where it does
business for which licensing is required for the sale
of annuity products.
• Our financial subsidiaries under the Gramm-Leach-
Bliley Act are: American Abstract & Title Company;
Asset Exchange, Inc.; FHIS, Inc.; FHN Financial
Securities Corp.; First Horizon Advisors, Inc.; First
Horizon Insurance Agency, Inc.; First Horizon
Insurance Services, Inc.; IBERIA Capital Partners
LLC; Lenders Title Company; United Title &
Abstract L.L.C.; and United Title of Louisiana, Inc.
Client Concentration
Neither we nor any of our significant subsidiaries is
dependent upon a single client or very few clients.
Calendar-Year Seasonality
We do not experience material seasonality. We do
experience seasonal variation in certain revenues,
expenses, and credit trends. Historically, these
variations have somewhat increased certain
expenses and diminished certain revenues for the
regional and specialty banking segments, principally
in the first quarter each year. In addition, we
experience seasonal variation in certain asset and
liability balances, principally in the fourth quarter
(consumer mortgages, related title services,
commercial lending related to consumer mortgages,
certain trading balances, and certain associate-
related reserves) and first quarter (consumer
mortgages, related title services, and commercial
lending related to consumer mortgages).
Cyclicality
Banking
Financial services facilitate commercial and
consumer economic activities in critical ways. In
many key respects, modern financial services make
modern types and volumes of economic activity
possible. Put more simply, we do well when our
clients do well, and vice-versa. As a result, our
banking business is broadly and strongly dependent
on the size and strength of the U.S. economy.
Generally, when the U.S. economy is in an
expansionary phase of the business cycle, our loan
balances rise, income from lending tends to rise
(assuming static interest rates), credit losses tend to
fall, and fee income tends to increase. In a
contracting phase, those patterns tend to reverse.
The impact of those factors on our operating results
can be substantial, especially if they consistently
move up or down at the same time.
Our traditional banking businesses are crucially
dependent on the level of interest rates, whether
federal monetary policy is easing or tightening, and
on the shape of the interest rate yield curve. These
factors also are cyclical, and are related in complex
ways with the business cycle mentioned above.
These factors, and their impacts on us, often are
mixed rather than consistently positive or negative.
For example: low interest rates reduce the interest
income we earn, reduce our costs of funding, tend to
stimulate economic activity and loan growth, and,
through lower debt service, tend to ease financial
pressure on clients, reducing default risk. If the yield
curve remains relatively steep, with long-term interest
rates noticeably higher than short rates, our net
interest margin will tend not to be significantly
compressed by the lower rate environment, since
lower short rates will keep our deposit costs down
while higher long rates will support the rates we can
charge on lending. But if rates fall low enough (as
they have in recent years), the yield curve will flatten
and our margins will suffer. Moreover, the Federal
Reserve tends to lower rates in response to, or to
avoid, a weakening economy. Economic weakness
tends to diminish client borrowing and other activities
which benefit our performance.
Further information on these topics is presented:
within Item 1A, in Risk from Economic Downturns and
Changes (p. 31), Risks Associated with Monetary
Events (p. 31), Liquidity and Funding Risks (p. 39),
and Interest Rate and Yield Curve Risks (p. 40); and,
FIRST HORIZON CORPORATION
15
2020 FORM 10-K ANNUAL REPORT
Table of Contents
within 2020 MD&A (Item 7), in 2020 Financial
Performance Summary (p. 53), Interest Rate Risk
Management (p. 90), and Market Uncertainties and
Prospective Trends (p. 98).
Table 1.8
Key Drivers of
Fixed Income Performance
Driver
If Driver Is:
FI Revenues Tend to Be:
Fixed Income
Our fixed income and capital markets business,
reported as part of our specialty banking segment, is
significantly affected by interest rate cycles which, in
turn, are affected by general economic and business
cycles.
In broad terms, the typical impact of Federal Reserve
interest and monetary policy on our fixed income
business is summarized in Table 1.7.
Table 1.7
Fed Policy Impact on
Fixed Income Performance
Federal Reserve Policy Phase
Easing
Neutral
Tightening
Weaker
Average
Stronger
Fixed Income
Performance
Tends to be
“Tightening” can include actions by the Federal
Reserve to raise short-term interest rates, raise long-
term rates, tighten credit, shrink the money supply,
and decelerate economic activity. “Easing” can
include actions by the Federal Reserve to lower
short-term interest rates, lower long-term rates,
loosen credit, expand the money supply, and
accelerate economic activity. Expectations of policy
actions can have impacts similar to the actions
themselves.
In terms of tightening vs. easing, the Federal Reserve
policy phase sometimes is clearly known, but
sometimes is not. Although Federal Reserve actions
at a given time can consistently support one phase,
often they are a mix. For example, The Federal
Reserve may want to flatten the yield curve by raising
short-term rates while lowering long-term rates, or
steepen the curve by taking the opposite actions.
Also, major exogenous factors, such as the
COVID-19 pandemic, can significantly impact the
capital markets and the performance of our fixed
income business. In broad terms, these relationships
are summarized in Table 1.8.
Interest rates
Market volatility
Yield curve
Credit spreads
Economy
outlook
Rising
Falling
Low
Moderate
Flatter
Steeper
Narrower
Wider
Positive
Negative
Lower
Higher
Lower
Higher
Lower
Higher
Lower
Higher
Lower
Higher
In many circumstances these drivers deliver mixed
impacts on fixed income performance, with some
pushing higher while others push lower, or with some
drivers pushing weakly while others are stronger. If
most or all drivers strongly push in the same direction
at the same time, fixed income performance usually is
strongly impacted. Revenue levels in a strongly
“higher” year can be more than double what they are
in a strongly “lower” year. As a result, fixed income
performance can be highly variable from year to year.
Mortgage Origination and Related Services
The strength of consumer mortgage lending activity in
the U.S. impacts three businesses of ours: mortgage
origination and related services, title services, and
commercial lending to other mortgage lenders.
Mortgage lending activity is strongly linked to interest
rate cycles. Activity tends to be inversely related to
prevailing mortgage rates: when rates are high,
home-buying and refinancing decrease, and when
rates are low, home-buying and refinancing increase.
Moreover, expectations about near-term future
mortgage rates can accelerate or delay those
impacts, as borrowers rush to avoid future rate
increases or wait for future rate decreases.
Human Resources Management
Firstpower Culture
Our principal business is providing financial services
to our clients. Although many financial services can
be delivered through technology today, we believe
that our clients’ experiences with our associates is a
critical way we differentiate from our competitors.
Specifically, we ask our associates to take advantage
of every opportunity to anticipate client needs and
exceed client expectations.
For this “differentiated experience” strategy to
succeed, we must build and nurture a diverse and
inclusive workplace culture that strives to attract, hire,
and retain the best people available by compensating
FIRST HORIZON CORPORATION
16
2020 FORM 10-K ANNUAL REPORT
Table of Contents
and, just as importantly, treating people fairly; ensure
that associates have opportunities for professional
growth and advancement within the company;
support associates with appropriate workplace
resources and training; promote constructive
collegiality and a sense of workplace community;
encourage innovation and the development of better
ways to address business challenges; publicly
recognize within the company associate
achievements, both great and small; and promote
behaviors that provide clients with best-in-class
service. At First Horizon, we call that culture
“Firstpower.”
We have evolved Firstpower as a part of our MOE to
incorporate aspects of both organizations—expanded
expertise, resources and geographic footprint—into
the culture of our company. We have developed the
following Purpose, Promise and Principles to guide
our associates on our core values and philosophies.
Our Purpose: First Horizon is a relationship-driven
leading provider of financial solutions.
Our Promise: To strengthen the lives of our
associates, clients and communities.
Our Principles:
• Great Place To Work – offer a collaborative and
inclusive workplace that promotes associate
development, performance and success
• Build Strong Relationships – exceed clients’
expectations by understanding their unique needs
• Deliver Results – consistently deliver shareholder
value
• Give Back – invest in strategic partnerships to build
strong communities
• Fortitude – lead with integrity, accountability, agility,
resilience and compassion
We use many tools and resources—programs,
events, promotions, communication channels—to
nurture and enhance our Firstpower culture. We
focus on offering a variety of opportunities that
promote mentoring, wellness, internships, diversity,
inclusion, volunteering, informal shout-outs and
formal recognitions, career management and
continuing education, resource groups, and parental
and care-giver support.
We believe that Firstpower is responsible for awards
and recognitions we have received. Our recent
recognitions have included: Forbes’ America’s Best
Large Employers; Forbes’ World’s Best Banks;
Fortune’s Best Workplaces in Finance and Insurance;
National Association for Female Executives – Top 50
Companies for Executive Women; Dave Thomas’
Adoption-Friendly Workplaces; Diversity Best
Practices Inclusion; and Bloomberg 2019 Gender-
Equality Index.
In addition to our Firstpower culture, we have
developed five strategic pillars for our Diversity,
Equity and Inclusion program that builds upon our
track record of success, helps to ensure adoption
throughout our organization, and defines a path for
sustainable progress. We enable our DEI strategy
through:
• Ensuring representation of diverse talent
• Strengthening leadership capabilities and
accountability
• Fostering inclusion and equality through fairness
and transparency
• Better serving diverse markets and clients
• Investing in the well-being of communities
Year-End Statistical Information
At December 31, 2020*, First Horizon had:
• 6,802 associates, or 6,697 full-time-equivalent
associates, not including contract labor for certain
services:
◦ 68% white, 19% African American, 8% Latino,
3% Asian, and 1% two or more races or
ethnicities
◦ 66% female and 34% male
• 1,661 corporate managers:
◦ 78% white, 11% African American, 8% Latino,
1% Asian, and .1% two or more races or
ethnicities
◦ 57% female and 43% male
__________
*Percentages may not add to 100% due to rounding
Other Information Associated with this Report
For additional information concerning our business,
refer to 2020 MD&A (Item 7).
External Information
Our current internet address is www.firsthorizon.com.
In the Investor Relations section of our internet
website, under the SEC Filings tab, we make
available to the public, free of charge, our annual
reports on Form 10-K, quarterly reports on Form 10-
Q, current reports on Form 8-K, proxy statements,
and amendments thereto as soon as reasonably
practicable after we file such material with, or furnish
such material to, the Securities and Exchange
Commission. Additional information regarding
materials available on our website is provided in Item
10 of this report beginning on page 232. No
information external to this report and its exhibits,
unless specifically noted otherwise, is incorporated
into this report.
FIRST HORIZON CORPORATION
17
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Supervision and Regulation
Scope of this Section
This section describes certain of the material
elements of the regulatory framework applicable to
bank and financial holding companies and their
subsidiaries, and to companies engaged in securities
and insurance activities. It also provides certain
specific information about us. To the extent that the
following information describes statutory and
regulatory provisions, it is qualified in its entirety by
express reference to each of the particular statutory
and regulatory provisions. A change in applicable
statutes, regulations, or regulatory policy may have a
material effect on our business.
Overview
The Corporation
First Horizon Corporation is a bank holding company
and financial holding company within the meaning of
the Bank Holding Company Act of 1956, as amended
(the “BHCA”), and is registered with the Federal
Reserve. We are subject to the regulation and
supervision of, and to examination by, the Federal
Reserve under the BHCA. We are required to file with
the Federal Reserve annual reports and such
additional information as the Federal Reserve may
require pursuant to the BHCA.
A bank holding company that is not a financial holding
company is limited to engaging in “banking” and
activities found by the Federal Reserve to be “closely
related to banking.” Eligible bank holding companies
that elect to become financial holding companies may
affiliate with securities firms and insurance companies
and engage in activities that are “financial in nature.”
“Financial” activities are broader in scope than those
which are “closely related to banking.” See Financial
Activities other than Banking beginning on page 23
below.
The Federal Reserve may approve an application by
a bank holding company to acquire a bank located
outside the acquirer’s principal state of operations
without regard to whether the transaction is prohibited
under state law, although state law may still impose
certain requirements. See Interstate Branching and
Mergers beginning on page 23, and Community
Reinvestment Act (“CRA”) beginning on page 23.
The Tennessee Bank Structure Act of 1974, among
other things, prohibits (subject to certain exceptions)
a bank holding company from acquiring a bank for
which the home state is Tennessee (a “Tennessee
bank”) if, upon consummation, the company would
directly or indirectly control 30% or more of the total
deposits in insured depository institutions in
Tennessee. As of June 30, 2020, the FDIC reports
that the Bank held approximately 16% of such
deposits.
The Bank
First Horizon Bank, our most significant subsidiary, is
a Tennessee banking corporation subject to the
regulation and supervision of, and to examination by,
the TDFI. In addition to general supervision and
examination powers, the TDFI has the power to
approve mergers with the Bank, the Bank’s issuance
of preferred stock or capital notes, the establishment
of banking centers, and many other corporate
actions.
The Bank has chosen to be a member of the Federal
Reserve; as a result, the Federal Reserve is the
Bank’s primary federal regulator. As a member bank,
the Bank must buy and hold stock in its district
Federal Reserve Bank equal to 6% of the Bank’s
capital stock and surplus. The Bank is paid a dividend
on its investment at a rate which varies with ten-year
U.S. Treasury rates, capped at 6%. The Bank cannot
sell its investment in Federal Reserve Bank stock,
and the investment provides the Bank with no control
over the Federal Reserve System.
Tennessee law requires the Bank, as a member of
the Federal Reserve, to comply with federal capital
and many other regulatory requirements in lieu of, or
sometimes in addition to, state requirements. For that
reason, this “Supervision and Regulation” section
focuses on federal requirements for many topics
related to the Bank, mentioning state requirements
only where significant.
From 1864 until October 2019, the Bank was a
national banking association subject to the regulation
and supervision of, and to examination by, the Office
of the Comptroller of the Currency. During October
2019, the Bank converted from a national bank to a
Tennessee state bank. Conversion did not
significantly alter the scope of the Bank’s activities:
Tennessee law generally allows a Tennessee state
bank to take any action that a Tennessee-based
national bank could take.
The Bank is insured by, and subject to regulation by,
the FDIC and is subject to regulation in certain
respects by the CFPB. The Bank is also subject to
various requirements and restrictions under federal
and state law, including requirements to maintain
reserves against deposits, restrictions on the types
and amounts of loans that may be made and the
interest that may be charged, limitations on the types
of investments that may be made, activities that may
FIRST HORIZON CORPORATION
18
2020 FORM 10-K ANNUAL REPORT
Table of Contents
be engaged in, and types of services that may be
offered. Various consumer laws and regulations also
affect the operations of the Bank. In addition, several
of the Bank’s subsidiaries are regulated separately,
as discussed in Subsidiaries beginning on page 15 of
this report.
In addition to the impact of regulation, commercial
banks are affected significantly by the actions of the
Federal Reserve as it attempts to control money
supply and credit availability in order to influence the
economy. Also, the Bank and certain of its
subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with extensions of
credit, leases or sales of property, or furnishing
products or services.
The regulatory framework governing banks and the
financial industry is intended primarily to protect
depositors and the Federal Deposit Insurance Fund,
not to protect our Bank or our security holders.
including cash flow to pay dividends on our stock or
to pay principal (including premium, if any) and
interest on debt securities, is dividends from the
Bank. There are statutory and regulatory limitations
on the payment of dividends by the Bank to us, as
well as by us to ours shareholders.
The Corporation
Under Tennessee corporate law, we are not permitted
to pay cash dividends if, after giving effect to such
payment, we would not be able to pay our debts as
they become due in the usual course of business or
our total assets would be less than the sum of our
total liabilities plus any amounts needed to satisfy any
preferential rights if we were dissolving. In addition, in
deciding whether or not to declare a dividend of any
particular size, our Board must consider our current
and prospective capital, liquidity, and other needs,
including the needs of the Bank which we are
obligated to support.
Regulatory Tiers Based on Asset Size
The Bank
Many rules dealing with critical regulatory topics
divide banks into tiers based largely or entirely on
asset size. Different topics have different cut-off
points for the tiers. Within each topic, different rules
apply to the different tiers.
Cut-off points vary significantly. However, as a rough
generalization, for many regulatory topics the critical
cut-off points are $10 billion, $100 billion, and $250
billion. Companies with less than $10 billion are less
regulated in several important ways than we are, and
companies with $250 billion or more are regulated
much more severely in many important ways than we
are. As a result, under current law, compliance costs
and restrictions grow with size, they tend to change
abruptly as a company crosses to the next tier, and
we are in a middle tier in many respects.
The remainder of this Supervision and Regulation
discussion focuses on current rules which apply to
FHN based on our current asset size.
Large-Bank Supervision Risk Categories
Federal regulators have established four risk-based
categories for applying enhanced prudential
standards (enhanced for larger banks). Category I
applies to the global systemically important
companies. Categories II, III, and IV apply (with
certain exceptions) to institutions with total
consolidated assets of at least $700 billion, $250
billion, and $100 billion, respectively. Currently, we
and the Bank are below Category IV’s floor and
therefore, generally, we are not subject to enhanced
prudential standards.
Payment of Dividends
First Horizon Corporation is a legal entity separate
and distinct from First Horizon Bank and other
subsidiaries. Our principal source of cash flow,
Under Tennessee corporate law, the Bank (like the
Corporation, discussed above) may not pay a
dividend if the Bank would not be able to pay its debts
when due or if the Bank’s assets would be
inadequate, in a dissolution, to pay liabilities and
preferential rights. Similarly, the Bank’s Board must
consider current and prospective needs in making a
decision to declare a dividend.
In addition, in order to pay cash dividends, the Bank
must obtain the prior approval of the Federal Reserve
and the TDFI Commissioner if the total of all
dividends declared by the Bank’s board of directors in
any calendar year exceeds the total of (i) the Bank’s
retained net income for that year plus (ii) the Bank’s
retained net income for the preceding two years, less
certain required capital transfers, as applicable.
Below that ceiling, approval generally is not required
(but see Other Factors Affecting Dividends
immediately following this discussion). Applying the
applicable rules, at January 1, 2021, the Bank could
legally declare cash dividends on the Bank's common
or preferred stock totaling approximately $897 million
without obtaining approval. The application of those
restrictions to the Bank is discussed in more detail in
the following sections, all of which is incorporated into
this Item 1 by reference: under the caption Liquidity
Risk Management in our 2020 MD&A (Item 7)
beginning on page 92 of this report; and under the
caption Restrictions on dividends in Note 13—
Regulatory Capital and Restrictions of our 2020
Financial Statements (Item 8), beginning on page
175.
Other Factors Affecting Dividends
If, in the opinion of the Federal Reserve, we or the
Bank are engaged in or about to engage in an unsafe
or unsound practice (which, depending on the
FIRST HORIZON CORPORATION
19
2020 FORM 10-K ANNUAL REPORT
Table of Contents
financial condition of FHN or the Bank, could include
the payment of dividends), the Federal Reserve may
require us or the Bank to cease and desist from that
practice. The federal banking agencies have
indicated that paying dividends that deplete a
depository institution’s or holding company’s capital
base to an inadequate level would be an unsafe and
unsound banking practice.
In addition, under the Federal Deposit Insurance Act,
an FDIC-insured depository institution (such as the
Bank) may not make any capital distributions, pay
any management fees to its holding company, or pay
any dividend if it is undercapitalized or if such
payment would cause it to become undercapitalized.
The payment of cash dividends by us or by the Bank
also may be affected or limited by other factors, such
as the requirement to maintain adequate capital
above regulatory guidelines and requirements
imposed by debt covenants. For example, as
discussed under Capital Adequacy starting on page
20, our ability to pay dividends would be restricted if
its capital ratios fell below minimum regulatory
requirements plus a capital conservation buffer.
The Federal Reserve generally requires insured
banks and bank holding companies to pay dividends
only out of current operating earnings. The Federal
Reserve has released a supervisory letter advising,
among other things, that a bank holding company
should inform the Federal Reserve and should
eliminate, defer, or significantly reduce its dividends if
(i) the bank holding company’s net income available
to shareholders for the past four quarters, net of
dividends previously paid during that period, is not
sufficient to fully fund the dividends; (ii) the bank
holding company’s prospective rate of earnings is not
consistent with the bank holding company’s capital
needs and overall current and prospective financial
condition; or (iii) the bank holding company will not
meet, or is in danger of not meeting, its minimum
regulatory capital adequacy ratios.
Transactions with Affiliates
The Bank’s ability to lend or extend credit to its parent
company or nonbank subsidiaries (including for
purposes of this paragraph, in certain situations,
subsidiaries of the Bank) is restricted. The Bank and
its subsidiaries generally may not extend credit to us
or to any other affiliate in an amount which exceeds
10% of the Bank’s capital stock and surplus and may
not extend credit in the aggregate to all such affiliates
in an amount which exceeds 20% of its capital stock
and surplus. Extensions of credit and other
transactions between the Bank and us or such other
affiliates must be on terms and under circumstances,
including credit standards, that are substantially the
same or at least as favorable to the Bank as those
prevailing at the time for comparable transactions
with non-affiliated companies. Further, the type,
amount, and quality of collateral which must secure
such extensions of credit is regulated.
There are similar legal restrictions on: the Bank’s
purchases of or investments in the securities of and
purchases of assets from us and our nonbank
subsidiaries; the Bank’s loans or extensions of credit
to third parties collateralized by the securities or
obligations of ours and our nonbank subsidiaries; the
issuance of guaranties, acceptances, and letters of
credit on behalf of us and our nonbank subsidiaries;
and certain bank transactions with us and our
nonbank subsidiaries, or with respect to which we
and our nonbank subsidiaries act as agent,
participate, or have a financial interest.
Capital Adequacy
Federal financial industry regulators require that
regulated institutions maintain minimum capital levels.
The capital rules in the U.S. are based on
international standards known as “Basel III.” Those
U.S. rules require the following:
• Common Equity Tier 1 Capital Ratio. For all
supervised financial institutions, including us and
the Bank, the ratio of Common Equity Tier 1 Capital
to risk-weighted assets (“Common Equity Tier 1
Capital ratio”) must be at least 4.5%. To be “well
capitalized” the Common Equity Tier 1 Capital ratio
must be at least 6.5%. Common Equity Tier 1
Capital consists of core components of Tier 1
Capital. The core components consist of common
stock plus retained earnings net of goodwill, other
intangible assets, and certain other required
deduction items. At December 31, 2020, our
Common Equity Tier 1 Capital Ratio was 9.68%
and the Bank’s was 10.46%.
• Tier 1 Capital Ratio. For all supervised financial
institutions, including us and the Bank, the ratio of
Tier 1 Capital to risk-weighted assets must be at
least 6%. To be “well capitalized” the Tier 1 Capital
ratio must be at least 8%. Tier 1 Capital consists of
the Tier 1 core components discussed in the
bulleted paragraph immediately above, plus non-
cumulative perpetual preferred stock, a limited
amount of minority interests in the equity accounts
of consolidated subsidiaries, and a limited amount
of cumulative perpetual preferred stock, net of
goodwill, other intangible assets, and certain other
required deduction items. At December 31, 2020,
our Tier 1 Capital Ratio was 10.74% and the Bank’s
was 10.93%.
• Total Capital Ratio. For all supervised financial
institutions, including us and the Bank, the ratio of
Total Capital to risk-weighted assets must be at
least 8%. To be “well capitalized” the Total Capital
ratios must be at least 10%. At December 31, 2020,
our Total Capital Ratio was 12.57% and the Bank’s
was 12.52%.
FIRST HORIZON CORPORATION
20
2020 FORM 10-K ANNUAL REPORT
Table of Contents
• Capital Conservation Buffer. If a capital
conservation buffer of an additional 2.5% above the
minimum required Common Equity Tier 1 Capital
ratio, Tier 1 Capital ratio, and Total Capital ratio is
not maintained, special restrictions would apply to
capital distributions, such as dividends and stock
repurchases, and on certain compensatory
bonuses.
• Leverage Ratio—Base. For all supervised financial
institutions, including us or the Bank, the Leverage
ratio must be at least 4%. To be “well capitalized”
the Leverage ratio must be at least 5%. The
Leverage ratio is Tier 1 Capital divided by quarterly
average assets net of goodwill, certain other
intangible assets, and certain required deduction
items. At December 31, 2020, our Leverage ratio
was 8.24% and the Bank’s was 8.36%.
• Leverage Ratio—Supplemental. For the largest
internationally active supervised financial
institutions, not including us or the Bank, a
minimum supplementary Leverage ratio must be
maintained that takes into account certain off-
balance sheet exposures.
We believe that we and the Bank were in compliance
with applicable minimum capital requirements as of
December 31, 2020.
Federal regulators have incorporated market and
interest-rate risk components into its risk-based
capital standards. Those standards explicitly identify
concentration of credit risk and certain risks arising
from non-traditional activities, and the management of
such risks, as important qualitative factors to consider
in assessing an institution’s overall capital adequacy.
Federal regulators’ market risk rules are applicable to
covered institutions—those with aggregate trading
assets and trading liabilities of at least 10% of their
total assets or at least $1 billion. We and the Bank
are covered institutions under the rule. The rules
specify the methodology for calculating the amount of
risk-weighted assets related to trading assets and
include, among other things, the addition of a
component for stressed value at risk. The rule
eliminates the use of credit ratings in calculating
specific risk capital requirements for certain debt and
securitization positions. Alternative standards of
creditworthiness are used for specific standardized
risks, such as exposures to sovereign debt, public
sector entities, other banking institutions, corporate
debt, and securitizations. In addition, an 8% capital
surcharge applies to certain covered institutions, not
including us or the Bank.
Moreover, the Federal Reserve has indicated that it
considers a “Tangible Tier 1 Capital Leverage
Ratio” (deducting all intangibles) and other indicia of
capital strength in evaluating proposals for expansion
or new activities.
Failure to meet capital guidelines could subject a
bank to a variety of enforcement remedies, including
the termination of deposit insurance by the FDIC, and
to certain restrictions on its business and in certain
circumstances to the appointment of a conservator or
receiver. See Prompt Corrective Action (PCA)
immediately below for additional information.
In addition, the Bank is required to have a capital
structure that the TDFI determines is adequate,
based on TDFI’s assessment of the Bank’s
businesses and risks. The TDFI may require the Bank
to increase its capital, if found to be inadequate.
Prompt Corrective Action (PCA)
Federal banking regulators must take “prompt
corrective action” regarding FDIC-insured depository
institutions that do not meet minimum capital
requirements. For this purpose, insured depository
institutions are divided into five capital categories.
The specific requirements applicable to us are
summarized in Table 1.9
FIRST HORIZON CORPORATION
21
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Table 1.9
REQUIREMENTS FOR PCA CAPITALIZATION CATEGORIES
Well capitalized
Adequately
capitalized
• Common Equity Tier 1 Capital ratio of at least 6.5%
• Tier 1 Capital ratio of at least 8%
• Total Capital ratio of at least 10%
• Leverage ratio of at least 5%
• Not subject to a directive, order, or written agreement to meet and
maintain specific capital levels
• Common Equity Tier 1 Capital ratio of at least 4.5%
• Tier 1 Capital ratio of at least 6%
• Total Capital ratio of at least 8%
• Leverage ratio of at least 4%
• Not subject to a directive, order, or written agreement to meet and
maintain specific capital levels
Undercapitalized
Significantly
Undercapitalized
Critically
Undercapitalized
Failure to maintain any requirement to be adequately capitalized
Failure to maintain Common Equity Tier 1 Capital ratio of at least 3%, Tier
1 Capital ratio of at least 4%, Total Capital ratio of at least 6%, or a
Leverage ratio of at least 3%
Failure to maintain a level of tangible equity equal to at least 2% of total
assets
At December 31, 2020, the Bank had sufficient capital
to qualify as “well capitalized” under the regulatory
capital requirements discussed above. An institution
may be deemed to be in a capitalization category that
is lower than is indicated by its actual capital position
if it receives an unsatisfactory examination rating.
Institutions generally are not allowed to publicly
disclose examination results.
An FDIC-insured depository institution generally is
prohibited from making any capital distribution
(including payment of dividends) or paying any
management fee to its holding company if the
depository institution would thereafter be
undercapitalized. Undercapitalized depository
institutions are subject to restrictions on borrowing
from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to
growth limitations and are required to submit capital
restoration plans. An insured depository institution’s
holding company must guarantee the capital plan, up
to an amount equal to the lesser of 5% of the
depository institution’s assets at the time it becomes
undercapitalized or the amount of the capital
deficiency when the institution fails to comply with the
plan, for the plan to be accepted by the applicable
federal regulatory authority. The federal banking
agencies may not accept a capital plan without
determining, among other things, that the plan is
based on realistic assumptions and is likely to
succeed in restoring the depository institution’s
capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it were significantly
undercapitalized.
Significantly undercapitalized depository institutions
may be subject to a number of requirements and
restrictions, including orders to sell sufficient voting
stock to become adequately capitalized, requirements
to reduce total assets and cessation of receipt of
deposits from correspondent banks.
Critically undercapitalized depository institutions are
subject to appointment of a receiver or conservator,
generally within 90 days of the date on which they
become critically undercapitalized.
Liquidity Coverage Ratio
The LCR requirement does not apply to institutions
with assets of less than $100 billion, and so does not
apply to us or the Bank. For larger institutions, the
requirement applies based on a bank’s asset size.
Holding Company Structure and Support of
Subsidiary Banks
Because we are a holding company, our right to
participate in the assets of any subsidiary upon the
latter’s liquidation or reorganization will be subject to
the prior claims of the subsidiary’s creditors (including
depositors in the case of the Bank) except to the
extent that we may be a creditor with recognized
claims against the subsidiary. In addition, depositors
of a bank, and the FDIC as their subrogee, would be
entitled to priority over the other creditors in the event
of liquidation of the bank.
Under Federal Reserve policy we are expected to act
as a source of financial strength to, and to commit
resources to support, the Bank. This support may be
required at times even if, absent such Federal
Reserve policy, we might not wish to provide it. In
addition, any capital loans by a bank holding
company to any of its subsidiary banks are
subordinate in right of payment to deposits and to
certain other indebtedness of the subsidiary bank. In
the event of a bank holding company’s bankruptcy,
any commitment by the bank holding company to a
federal bank regulatory agency to maintain the capital
of a subsidiary bank will be assumed by the
bankruptcy trustee and entitled to a priority of
payment.
FIRST HORIZON CORPORATION
22
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Cross-Guarantee Liability
Community Reinvestment Act (“CRA”)
A depository institution insured by the FDIC can be
held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC in connection
with (i) the default of a commonly controlled FDIC-
insured depository institution or (ii) any assistance
provided by the FDIC to any commonly controlled
FDIC-insured depository institution “in danger of
default.” “Default” is defined generally as the
appointment of a conservator or receiver and “in
danger of default” is defined generally as the
existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory
assistance. The FDIC’s claim for damages is superior
to claims of shareholders of the insured depository
institution or its holding company but is subordinate to
claims of depositors, secured creditors, and holders
of subordinated debt (other than affiliates) of the
commonly controlled insured depository institution.
Currently the Bank is our only depository institution
subsidiary. If we were to own or operate another
depository institution, any loss suffered by the FDIC
in respect of one subsidiary bank would likely result in
assertion of the cross-guarantee provisions, the
assessment of estimated losses against our other
subsidiary bank(s), and a potential loss of our
investment in our subsidiary banks.
The CRA requires each U.S. bank, consistent with
safe and sound operation, to help meet the credit
needs of each community where the bank accepts
deposits, including low- and moderate-income (“LMI”)
communities. The Federal Reserve assesses the
Bank periodically for CRA compliance, and that
assessment is made public. The Bank’s LMI
operations and activities traditionally are critical focal
points in those assessments.
A CRA rating below “satisfactory” can slow or halt a
bank’s plans to expand by branching, acquisition, or
merger, and can prevent a bank holding company
from becoming a financial holding company. The
Bank received a rating of “Satisfactory” in its most
recent CRA assessment, issued in 2017. The next
CRA assessment is ongoing at the time this report is
filed.
Late in 2020, the Federal Reserve proposed changes
to its regulations under the CRA. Among other things,
the proposal would add quantitative measures to CRA
assessments, as well as several new categories of
tests. Currently the Federal Reserve, the OCC, and
the FDIC have CRA modernization proposals
outstanding, and all three differ from each other.
Financial Activities other than Banking
Interstate Branching and Mergers
Federal Law
As mentioned above, the Bank generally must have
TDFI’s approval to establish a new banking center
(technically, a “branch”). For a new banking center
located outside of Tennessee, Tennessee law
requires the Bank to comply with branching laws
applicable to the state where the new banking center
will be located. Federal law allows the Bank to
establish or acquire a branch in another state to the
same extent as a bank chartered in that other state
would be allowed to establish or acquire a branch in
Tennessee.
For an interstate merger or acquisition: the acquiring
bank must be well-capitalized and well-managed;
concentration limits on liabilities and deposits may not
be exceeded; regulators must assess the transaction
for incremental systemic risk; and the acquiring bank
must have at least “satisfactory” standing under the
federal Community Reinvestment Act (discussed
immediately below).
Once a bank has established branches in a state
through de novo or acquired branching or through an
interstate merger transaction, the bank may then
establish or acquire additional branches within that
state to the same extent that a bank chartered in that
state is allowed to establish or acquire branches
within the state.
Federal law generally allows financial holding
companies broad authority to engage in activities that
are financial in nature or incidental to a financial
activity. These include: insurance underwriting and
brokerage; merchant banking; securities underwriting,
dealing, and market-making; real estate development;
and such additional activities as the Federal Reserve
in consultation with the Secretary of the Treasury
determines to be financial in nature or incidental. A
bank holding company may engage in these activities
directly or through subsidiaries by qualifying as a
“financial holding company.” To qualify as a financial
holding company, a bank holding company must file
an initial declaration with the Federal Reserve,
certifying that all of its subsidiary depository
institutions are well-managed and well-capitalized.
Federal law also permits banks to engage in certain
of these activities through financial subsidiaries. To
control or hold an interest in a financial subsidiary, a
bank must meet the following requirements:
(1) The bank must receive approval from its primary
federal regulator for the financial subsidiary to
engage in the activities.
(2) The bank and its depository institution affiliates
must each be well-capitalized and well-managed.
(3) The aggregate consolidated total assets of all of
the bank’s financial subsidiaries must not exceed
the lesser of: 45% of the bank’s consolidated total
FIRST HORIZON CORPORATION
23
2020 FORM 10-K ANNUAL REPORT
Table of Contents
assets; or $50 billion (subject to indexing for
inflation).
(4) The bank must have in place adequate policies
and procedures to identify and manage financial
and operational risks and to preserve the
separate identities and limited liability of the bank
and the financial subsidiary.
(5) If the bank is among the 100 largest banks, the
bank must meet the long-term debt rating or
alternative standards adopted by the Federal
Reserve and the U.S. Secretary of the Treasury
from time to time. If this fifth requirement ceases
to be met after a bank controls or holds an
interest in a financial subsidiary, the bank cannot
invest additional capital in that subsidiary until the
requirement again is met.
No new activity may be commenced unless the bank
and all of its depository institution affiliates have at
least “satisfactory” CRA ratings. Certain restrictions
apply if the bank holding company or the bank fails to
continue to meet one or more of the requirements
listed above.
In addition, federal law contains a number of other
provisions that may affect the Bank’s operations,
including limitations on the use and disclosure to third
parties of client information.
At December 31, 2020, we are a financial holding
company and the Bank has a number of financial
subsidiaries, as discussed in Subsidiaries beginning
on page 15 of this report.
Tennessee Law
Tennessee law does not expressly restrict the
activities of a bank holding company or its non-bank
affiliates. However, no Tennessee bank may maintain
a branch office on the premises of an affiliate if the
affiliate is engaged in activities that are not
permissible for a bank holding company, a financial
holding company, a national bank, or a national bank
subsidiary under federal law. Tennessee law permits
Tennessee banks to establish subsidiaries and to
engage in any activities permissible for a national
bank located in Tennessee, subject to compliance
with Tennessee regulations relating to the conduct of
such activities for the purpose of maintaining bank
safety and soundness.
Interchange Fee Restrictions
Regulations severely cap interchange fees which the
Bank may charge merchants for debit card
transactions.
Volcker Rule
The Volcker rule (1) generally prohibits banks from
engaging in proprietary trading, which is engaging as
principal (for the bank’s own account) in any
purchase or sale of one or more of certain types of
financial instruments, and (2) limits banks’ ability to
invest in or sponsor hedge funds or private equity
funds.
Consumer Regulation by the CFPB
The CFPB adopts and administers significant rules
affecting consumer lending and consumer financial
services. Key rules for the Bank include detailed
regulation of mortgage servicing practices and
detailed regulation of mortgage origination and
underwriting practices. The latter rules, among other
things, establish the definition of a “qualified
mortgage” using traditional underwriting practices
involving down payments, credit history, income
levels and verification, and so forth. The rules do not
prohibit, but do tend to discourage, lenders from
originating non-qualified mortgages.
Data Privacy & Security
Federal law restricts the Bank’s ability to share
certain information with affiliates and non-affiliates for
marketing and/or non-marketing purposes, or to
contact clients with marketing offers. Federal law also
requires banks to implement a comprehensive
information security program that includes
administrative, technical and physical safeguards.
Data privacy and protection increasingly is a
significant legislative, regulatory, and societal
concern. The concern is driven by major
technological and societal shifts in the past 20 years,
led by relatively unregulated firms such as
Amazon.com, Alibaba, Facebook, and Google and
their many clients worldwide. Those firms have
gathered large amounts of personal details about
millions of people, and today have the ability to
analyze that data and act on that analysis very
quickly. These firms seek to understand enough
about a person to know what a person wants before
the person does.
Banks (as mentioned above) already are subject to
significant privacy regulations. Probably for that
reason, the banking industry is not at the political
center of these concerns today. Even so, banks are
likely to be affected by broader legislative and
regulatory responses to the perceived problems. Two
prominent responses to date include the European
Union General Data Protection Regulation and the
California Data Privacy Protection Act. Neither is a
banking industry regulation, but both apply to banks
in relation to certain clients. To date, neither has had
a material impact on the Bank.
FDIC Insurance Assessments; DIFA
U.S. bank deposits generally are insured by the
Deposit Insurance Fund (“DIF”), administered by the
FDIC. The system of FDIC insurance premium rates
charged consists of a rate grid structure in which
base rates range from 5 to 35 basis points annually,
and fully adjusted rates range from 2.5 to 45 basis
FIRST HORIZON CORPORATION
24
2020 FORM 10-K ANNUAL REPORT
Table of Contents
points annually. (A basis point is equal to 0.01%.) Key
factors in the grid include: the institution’s risk
category (I to IV); whether the institution is deemed
large and highly complex; whether the institution
qualifies for an unsecured debt adjustment; and
whether the institution is burdened with a brokered
deposit adjustment. Other factors can impact the
base against which the applicable rate is applied,
including (for example) whether a net loss is realized.
Insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in
unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations, or has
violated any applicable law, regulation, rule, order, or
condition imposed by a federal bank regulatory
agency.
Depositor Preference
Federal law provides that deposits and certain claims
for administrative expenses and associate
compensation against an insured depository
institution would be afforded a priority over other
general unsecured claims against such an institution,
including federal funds and letters of credit, in the
“liquidation or other resolution” of such an institution
by any receiver.
Securities Regulation
Certain of our subsidiaries are subject to various
securities laws and regulations and capital adequacy
requirements promulgated by the regulatory and
exchange authorities of the jurisdictions in which they
operate.
Our registered broker-dealer subsidiaries are subject
to the SEC’s net capital rule, Rule 15c3-1. That rule
requires the maintenance of minimum net capital and
limits the ability of the broker-dealer to transfer large
amounts of capital to a parent company or affiliate.
Compliance with the rule could limit operations that
require intensive use of capital, such as underwriting
and trading.
Certain of our subsidiaries are registered investment
advisers which are regulated under the Investment
Advisers Act of 1940. Advisory contracts with clients
automatically terminate under these laws upon an
assignment of the contract by the investment adviser
unless appropriate consents are obtained.
Effect of Governmental Policies
The Bank is affected by the policies of regulatory
authorities, including the Federal Reserve, the TDFI,
and the CFPB. The Federal Reserve also sets and
manages monetary policy for the U.S. In this latter
role, the Federal Reserve’s mandate from Congress
is to pursue price stability and full employment.
Insurance Activities
Certain of our subsidiaries sell various types of
insurance as agent in a number of states. Insurance
activities are subject to regulation by the states in
which such business is transacted. Although most of
such regulation focuses on insurance companies and
their insurance products, insurance agents and their
activities are also subject to regulation by the states,
including, among other things, licensing and
marketing and sales practices.
Compensation and Risk Management
The Federal Reserve has issued guidance intended
to ensure that incentive compensation arrangements
at financial organizations take into account risk and
are consistent with safe and sound practices. The
guidance is based on three “key principles” calling for
incentive compensation plans to: appropriately
balance risks and rewards; be compatible with
effective controls and risk management; and be
backed up by strong corporate governance. In
response: we operate an enhanced risk management
process for assessing risk in incentive compensation
plans; several key incentive programs use a net profit
approach rather than a revenues-only approach; and
mandatory deferral features are used in several key
programs, including an executive program.
In 2016 federal agencies proposed regulations which
could significantly change the regulation of incentive
compensation programs at financial institutions. The
proposal would create four tiers of institutions based
on asset size. Institutions in the top two tiers would be
subject to rules much more detailed and proscriptive
than are currently in effect. If interpreted aggressively
by the regulators, the proposed rules could be used
to prevent, as a practical matter, larger institutions
from engaging in certain lines of business where
substantial commission and bonus pool
arrangements are the norm. In the 2016 proposal, the
top two tiers included institutions with more than $50
billion of assets. We and the Bank currently would fall
into the lower of those top two tiers. However,
prompted by post-2016 legislation which significantly
raised several statutory asset-size tiers, if this
proposal were finalized today, the $50 billion floor
might be raised significantly, allowing us to remain in
the third tier. We cannot predict what final rules may
be adopted, nor how they may be implemented.
Among the instruments of monetary policy used by
the Federal Reserve are: purchases and sales of U.S.
government and other securities in the marketplace;
changes in the discount rate, which is the rate any
depository institution must pay to borrow from the
Federal Reserve; changes in the reserve
requirements of depository institutions; changes in
the rate paid on banks’ required and excess reserve
FIRST HORIZON CORPORATION
25
2020 FORM 10-K ANNUAL REPORT
Table of Contents
deposits at the Federal Reserve; and changes in the
federal funds rate, which is the rate at which
depository institutions lend balances to each other
overnight. These instruments are intended to
influence economic and monetary growth, interest
rate levels, and inflation.
The monetary policies of the Federal Reserve and
other governmental policies have had a significant
effect on the operating results of commercial banks in
the past and are expected to continue to do so in the
Other Proposals
Bills occasionally are introduced in the United States
Congress, the Tennessee General Assembly and
other state legislatures, and regulations occasionally
are proposed by our regulatory agencies, any of
which could affect our businesses, financial results,
and financial condition.
Sources and Availability of Funds
future. Because of changing conditions in the national
and international economies and in the money
markets, as well as the result of actions by monetary
and fiscal authorities, it is not possible to predict with
certainty future changes in interest rates, deposit
levels, loan demand, or the business and results of
our operations, or whether changing economic
conditions will have a positive or negative effect on
operations and earnings.
We are not able to predict what, if any, changes that
Congress, state legislatures, or the regulatory
agencies will enact or implement in the future, nor the
impact that those actions will have upon us.
Information concerning the sources and availability of
funds for our businesses can be found in our 2020
MD&A (Item 7), including the subsection entitled
Liquidity Risk Management on pages 92-94 of this
report, which material is incorporated herein by
reference.
ITEM 1A. RISK FACTORS
This Item outlines specific risks that could affect the
ability of our various businesses to compete, change
our risk profile, or materially impact our operating
results or financial condition. Our operating
environment continues to evolve and new risks
continue to emerge. To address that challenge we
have a risk management governance structure that
oversees processes for monitoring evolving risks and
oversees various initiatives designed to manage and
control our potential exposure.
This Item highlights risks that could impact us in
material ways by causing future results to differ
materially from past results, by causing future results
to differ materially from current expectations, or by
causing material changes in our financial condition. In
this Item we have outlined risks that we believe are
important to us at the present time. However, other
risks may prove to be important in the future, and new
risks may emerge at any time. We cannot predict all
potential developments that could materially affect
our financial performance or condition.
FIRST HORIZON CORPORATION
26
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Topic
Page
Topic
Page
TABLE OF ITEM 1A TOPICS
Traditional Competition Risks................................
Traditional Strategic and Macro Risks...................
Industry Disruption.................................................
Operational Risks..................................................
Risks from Economic Downturns and Changes ....
Risks Associated with Monetary Events................
Risks Related to Businesses We May Exit ...........
Reputation Risks...................................................
Credit Risks...........................................................
Service Risks.........................................................
Risks related to COVID-19 Pandemic ...................
Regulatory, Legislative, and Legal Risks...............
27
27
28
30
31
31
32
32
33
35
35
36
Risks of Expense Control..................................
Geographic Risks..............................................
Insurance..........................................................
Liquidity and Funding Risks..............................
Credit Ratings...................................................
Interest Rate and Yield Curve Risks..................
Asset Inventories and Market Risks..................
Mortgage Business Risks..................................
Pre-2009 Mortgage Business Risks..................
Accounting & Tax Risks....................................
Stock-Holding and Governance Risks...............
38
38
39
39
40
40
42
43
44
44
45
Traditional Competition Risks
We are subject to intense competition for clients,
and the nature of that competition is changing
quickly. Our primary areas of competition include:
consumer and commercial deposits, commercial
loans, consumer loans including home mortgages
and lines of credit, financial planning and wealth
management, fixed income products and services,
title insurance services, and other consumer and
commercial financial products and services. Our
competitors in these areas include national, state,
and non-US banks, savings and loan associations,
credit unions, consumer finance companies, trust
companies, investment counseling firms, money
market and other mutual funds, insurance companies
and agencies, securities firms, mortgage banking
companies, hedge funds, and other financial services
companies that serve in our markets. The emergence
of non-traditional, disruptive service providers (see
Industry Disruption beginning on page 28) has
intensified the competitive environment.
Some competitors are traditional banks, subject to the
same regulatory framework as we are, while others
are not banks and in many cases experience a
significantly different or reduced degree of regulation.
Traditional Strategic and Macro Risks
We may be unable to successfully implement our
strategy to grow our commercial and consumer
banking businesses and our fixed income
business. Although our current strategy is expected
to evolve as business conditions change, in 2021 our
strategy is primarily to invest resources in our banking
businesses as we integrate the businesses and
operations of First Horizon and IBKC, and seek to
exploit opportunities for cost and revenue synergies.
Organic growth, including exploitation of revenue
synergies, is expected to be coordinated with a focus
on strong and stable returns on capital.
Examples of less-regulated activities include check-
cashing services, independent ATM services, and
“peer-to-peer” lending, where investors provide debt
financing and/or capital directly to borrowers.
We expect that competition will continue to grow
more intense with respect to most of our
products and services. Heightened competition
tends to put downward pressure on revenues from
affected items, upward pressure on marketing and
other promotional costs, or both. For additional
information regarding competition for clients, refer to
Competition within Item 1 beginning on page 13 of
this report.
We compete for talent. Our most significant
competitors for clients also tend to be our most
significant competitors for top talent. See Operational
Risks beginning on page 30 of this Item 1A for
additional information concerning this risk.
We compete to raise capital in the equity and debt
markets. See Liquidity and Funding Risks beginning
on page 39 of this Item 1A for additional information
concerning this risk.
Organically, we have enhanced our market share in
our traditional banking markets with targeted hires
and marketing, expanded into other southern U.S.
markets with similar characteristics, and expanded
with specialty commercial lending and private client
banking.
In the future, we expect to continue to nurture
profitable organic growth. We may pursue
acquisitions or strategic transactions if appropriate
opportunities, within or outside of our current markets,
present themselves.
FIRST HORIZON CORPORATION
27
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Failure to achieve one or more key elements
needed for successful organic growth would
adversely affect our business and earnings. We
believe that the successful execution of organic
growth depends upon a number of key elements,
including:
• our ability to attract and retain clients in our banking
market areas, particularly as we integrate First
Horizon and IBKC;
• our ability to realize planned strategic and tactical
objectives, including operating efficiencies and
revenue synergies, within a reasonable time period
after closing the transaction;
• our ability to identify, analyze, and correctly assess
the execution, credit, contingency, and other risks in
the acquisition and to price the transaction
appropriately;
• our ability to properly evaluate loss inherent in the
• our ability to achieve and maintain growth in our
target business’ loan portfolios;
earnings while pursuing new business
opportunities;
• our ability to maintain a high level of client service
while optimizing our physical banking center count
due to changing client demand, all while expanding
our remote banking services and expanding or
enhancing our information processing, technology,
compliance, and other operational infrastructures
effectively and efficiently;
• our ability to manage the liquidity and capital
requirements associated with growth, especially
organic growth and cash-funded acquisitions; and
• our ability to manage effectively and efficiently the
changes and adaptations necessitated by a
complex, burdensome, and evolving regulatory
environment.
We have in place strategies designed to achieve
those elements that are significant to us at present.
Our challenge is to execute those strategies and
adjust them, or adopt new strategies, as conditions
change.
Failure to achieve one or more key elements
needed for successful business acquisitions
would adversely affect our business and
earnings. In relation to the IBKC merger and the 30-
branch acquisition closed in 2020, and to the extent
we engage in future bank or non-bank business
acquisitions, we face various additional risks,
including:
Industry Disruption
Through technological innovations and changes
in client habits, the manner in which clients use
financial services continues to change at a rapid
pace. We provide a large number of services
remotely (online and mobile), and physical banking
center utilization has been in long-term decline
throughout the industry for many years. Technology
has helped us reduce costs and improve service, but
also has weakened traditional geographic and
relationship ties, and has allowed disruptors to enter
traditional banking areas.
Through digital marketing and service platforms,
many banks are making client inroads unrelated to
physical presence. This competitive risk is especially
• our ability to integrate the acquired business’
operations, clients, and properties quickly and cost-
effectively;
• our ability to manage cultural assimilation risks
associated with growth through acquisitions, which
can be an often-overlooked and often-critical failure
point in mergers;
• our ability to combine the franchise values of the
two companies without significant loss from re-
branding and other similar changes; and
• our ability to retain core clients and key associates.
A type of strategic acquisition—a so-called
“merger of equals” where the company we
nominally acquire has similar size, operating
contribution, or value—presents unique
opportunities but also unique risks. Those special
risks, which continue to be present in relation to the
IBKC transaction, include:
• the potential for elevated and duplicative operating
expenses if we are unable to integrate the two
companies efficiently in a reasonable amount of
time; and
• the potential for a significant increase in the time
horizon that may be needed before substantial
economies of scale can be realized or substantial
revenue synergies can be developed effectively.
pronounced from the largest U.S. banks, and from
online-only banks, due in part to the investments they
are able to sustain in their digital platforms.
Companies as disparate as PayPal (an online
payment clearinghouse) and Starbucks (a large chain
of cafes) provide payment and exchange services
which compete directly with banks in ways not
possible traditionally. Recently, some government
leaders have discussed having the U.S. Post Office
offer banking services.
The nature of technology-driven disruption to our
industry is changing, in some cases seeking to
displace traditional financial service providers
FIRST HORIZON CORPORATION
28
2020 FORM 10-K ANNUAL REPORT
Table of Contents
rather than merely enhance traditional services or
their delivery. A number of recent technologies have
worked with the existing financial system and
traditional banks, such as the evolution of ATM cards
into debit/credit cards and the evolution of debit/credit
cards into smart phones. These sorts of technologies
often have expanded the market for banking services
overall while siphoning a portion of the revenues from
those services away from banks and disrupting prior
methods of delivering those services. But some
recent innovations may tend to replace traditional
banks as financial service providers rather than
merely augment those services.
For example, companies which claim to offer
applications and services based on artificial
intelligence are beginning to compete much more
directly with traditional financial services companies
in areas involving personal advice, including high-
margin services such as financial planning and wealth
management. The low-cost, high-speed nature of
these “robo-advisor” services can be especially
attractive to younger, less-affluent clients and
potential clients, as well as persons interested in
“self-service” investment management. Other industry
changes, such as zero-commission trading offered by
certain large firms able to use trading as a loss-
leader, may amplify this trend.
Similarly, inventions based on blockchain technology
eventually may be the foundation for greatly
enhancing transactional security throughout the
banking industry, but also eventually may reduce the
need for banks as secure deposit-keepers and
intermediaries.
We believe that, over the course of the
technology-driven evolution of our industry which
is well underway, the “winners” will be those
institutions which can know their clients and
make those clients feel they are known, even
when many clients increasingly do not visit
banking centers or have face-to-face live
interaction. Two keys to achieving a psychological
connection with such clients are (1) data
management and analytics, using artificial intelligence
processes, which allow an institution to provide a
differentiated, personalized experience for the client
at the point of interaction, and (2) seamless
integration of real-time client contact with a human
being through voice, chat, or other means.
A critical factor in successful data analytics,
allowing real-time differentiated interaction with
clients, is how traditionally uncaptured,
unstructured, or siloed data is acquired,
managed, and accessed. Some banks are
experimenting with different methods of addressing
this business need, and more will follow. In addition,
external vendors are developing processes to provide
solutions. A basic challenge for all these efforts is how
to integrate analysis of extremely disparate forms of
data and utilize that analysis in each client contact in
a manner which most clients not only accept, but
value.
Developing workable proprietary solutions to the
data analytics challenges ahead of competitors
requires substantial investment in information
technology systems and innovation. Even with a
substantial IT budget, we cannot outspend, or even
come close to matching, the largest U.S. banking
institutions. Therefore, like most U.S. banks, our
strategy must be focused on leveraging products and
solutions which are within our means, including those
developed by external vendors. Our goal must be to
keep pace with industry developments with a focus
on improving the client’s differentiated experience
with us by recognizing and responding to client
needs.
Technological innovation has tended to reduce
barriers to entry based on cost. Put another way,
once someone finds a new, better method to
accomplish a task in our industry, often others are
able to replicate or improve on that method,
sometimes quite rapidly. Key risks for us, therefore,
are whether we will be able: to catch up to
breakthroughs quickly enough to avoid client attrition;
to adopt and enhance breakthroughs frequently
enough, and without significant technical failures, to
attract clients from competitors; and, if we are able to
truly innovate, to press our advantage quickly before
competitors adopt it.
To thrive as our industry is disrupted, we will
need to embrace some of the attitudes of a
technology company, and shed some of the
attitudes of a traditional bank. This has required,
and will continue to require, an evolution in our
corporate culture which, in turn, creates
implementation risk. In this process it is critical that
we not lose sight of how our clients experience
working with us and our systems, including those
clients who still want traditionally-delivered services,
those who seek and embrace the latest innovations,
and those who just want services to be convenient,
personalized, and understandable.
Just as disruptive business changes driven by
new technologies and new client preferences can
adversely impact us and our entire industry,
similar events can adversely impact our
commercial clients. In time, a major business
disruption can cause dominant businesses to fail, and
can shrink or even end entire lines of business. An
example of this is the business failure of the
Blockbuster video distribution chain and most other
video distribution stores, and the rise of Netflix and
similar services. Many other examples of this kind of
process are ongoing today in many industries,
including publishing, retail sales, news, and the
creation as well as distribution of audio and video
entertainment. To the extent disruptions impact our
FIRST HORIZON CORPORATION
29
2020 FORM 10-K ANNUAL REPORT
Table of Contents
clients, we may experience elevated loan losses and
loss of ongoing business which we may not be able to
recapture with new clients.
Operational Risks
Fraud is a major, and increasing, operational risk
for us and all banks. Two traditional areas, deposit
fraud (check kiting, wire fraud, etc.) and loan fraud,
continue to be major sources of fraud attempts and
loss. The methods used to perpetrate and combat
fraud continue to evolve as technology changes. In
addition to cybersecurity risk (discussed below), new
technologies have made it easier for bad actors to
obtain and use client personal information, mimic
signatures, and otherwise create false documents
that look genuine.
Our anti-fraud actions are both preventive
(anticipating lines of attack, educating associates and
clients, etc.) and responsive (remediating actual
attacks). Our regulators require us to report fraud
promptly, and regulators often advise banks of new
schemes so that the entire industry can adapt as
quickly as possible. However, some level of fraud loss
is unavoidable, and the risk of a major loss cannot be
eliminated.
Our ability to conduct and grow our businesses is
dependent in part upon our ability to create,
maintain, expand, and evolve an appropriate
operational and organizational infrastructure,
manage expenses, and recruit and retain
personnel with the ability to manage a complex
business. Operational risk can arise in many ways,
including: errors related to failed or inadequate
physical, operational, information technology, or other
processes; faulty or disabled computer or other
technology systems; fraud, theft, physical security
breaches, electronic data and related security
breaches, or other criminal conduct by associates or
third parties; and exposure to other external events.
Inadequacies may present themselves in myriad
ways. Actions taken to manage one risk may be
ineffective against others. For example, information
technology systems may be insufficiently redundant
to withstand a fire, incursion, malware, or other major
casualty, and they may be insufficiently adaptable to
new business conditions or opportunities. Efforts to
make systems more robust may make them less
adaptable, and vice-versa. Also, our efforts to control
expenses, which is a significant priority for us,
increases our operational challenges as we strive to
maintain client service and compliance at high quality
and low cost.
A serious information technology security
(cybersecurity) breach can cause significant
damage and at the same time be difficult to detect
even after it occurs. Among other things, that
damage can occur due to outright theft or extortion of
our funds, fraud or identity theft perpetrated on
clients, or adverse publicity associated with a breach
and its potential effects. Perpetrators potentially can
be associates, clients, and certain vendors, all of
whom legitimately have access to some portion of our
systems, as well as outsiders with no legitimate
access. Because of the potentially very serious
consequences associated with these risks, our
electronic systems and their upgrades need to
address internal and external security concerns to a
high degree, and our systems must comply with
applicable banking and other regulations pertaining to
bank safety and client protection. Although many of
our defenses are systemic and highly technical,
others are much older and more basic. For example,
periodically we train all our associates to recognize
red flags associated with fraud, theft, and other
electronic crimes, and we educate our clients as well
through regular and episodic security-oriented
communications. We expect our systems and
regulatory requirements to continue to evolve as
technology and criminal techniques also continue to
evolve.
The operational functions we outsource to third
parties may experience similar disruptions that
could adversely impact us and over which we
may have limited control and, in some cases,
limited ability to obtain an alternate vendor
quickly. To the extent we rely on third party vendors
to perform or assist operational functions, the
challenge of managing the associated risks may
become more difficult.
The operational functions of business
counterparties may experience disruptions that
could adversely impact us and over which we
may have limited or no control. For example, in
recent years a number of major U.S. consumer-
oriented firms experienced data systems incursions
reportedly resulting in the thefts of credit and debit
card information, online account information, and
other data of millions of clients. These incursions
affected cards issued and deposit accounts
maintained by many banks, including our Bank.
Although our systems are not breached in third-party
incursions, these events can increase account fraud
and can cause us to reissue a significant number of
account cards and take other costly steps to avoid
significant theft loss to our Bank and our clients. Our
ability to recoup our losses may be limited legally or
practically in many situations. Possible points of
incursion or disruption not within our control include
retailers, utilities, insurers, health care service
FIRST HORIZON CORPORATION
30
2020 FORM 10-K ANNUAL REPORT
Table of Contents
providers, internet service and electronic mail
providers, social media portals, distant-server
(“cloud”) service providers, electronic data security
providers, telecommunications companies, and smart
phone manufacturers.
Failure to build and maintain, or outsource, the
necessary operational infrastructure, failure of
that infrastructure to perform its functions, or
failure of our disaster preparedness plans if
primary infrastructure components suffer
damage, can lead to risk of loss of service to
clients, legal actions, and noncompliance with
applicable regulatory standards. Additional
information concerning operational risks and our
management of them, all of which is incorporated into
this Item 1A by this reference, appears under the
caption Operational Risk Management beginning on
page 91 of our 2020 MD&A (Item 7).
The delivery of financial services to clients and
others increasingly depends upon technologies,
systems, and multi-party infrastructures which
are new, creating or enhancing several risks
discussed elsewhere. Examples of the risks created
or enhanced by the widespread and rapid adoption of
relatively untested technologies include: security
incursions; operational malfunctions or other
disruptions; and legal claims of patent or other
intellectual property infringement.
Competition for talent is substantial and
increasing. Moreover, revenue growth in some
Risk from Economic Downturns and Changes
Generally, in an economic downturn, our realized
credit losses increase, demand for our products
and services declines, and the credit quality of
our loan portfolio declines. Delinquencies and
realized credit losses generally increase during
economic downturns due to an increase in liquidity
problems for clients and downward pressure on
collateral values. Likewise, demand for loans (at a
given level of creditworthiness), deposit and other
products, and financial services may decline during
an economic downturn, and may be adversely
affected by other national, regional, or local economic
factors that impact demand for loans and other
Risks Associated with Monetary Events
business lines increasingly depends upon top
talent. In recent years the cost to us of hiring and
retaining top revenue-producing talent has increased,
and that trend is likely to continue. The primary tools
we use to attract and retain talent are: salaries;
commission, incentive, and retention compensation
programs; retirement benefits; change in control
severance benefits; health and other welfare benefits;
and our corporate culture. To the extent we are
unable to use these tools effectively, we face the risk
that, over time, our best talent will leave us and we
will be unable to replace those persons effectively.
Incentives might operate poorly or have
unintended adverse effects. Incentive programs are
difficult to design well, and even if well-designed often
they must be updated to address changes in our
business. A poorly designed incentive program—
where goals are too difficult, too easy, or not well
related to desired outcomes—could provide little
useful motivation to key associates, could increase
turnover, and could impact client retention. Moreover,
even where those pitfalls are avoided, incentive
programs may create unintended adverse
consequences. For example, a program focused
entirely on revenue production, without proper
controls, may result in costs growing faster than
revenues.
financial products and services. Such factors include,
for example, changes in employment rates, interest
rates, real estate prices, or expectations concerning
rates or prices. Accordingly, an economic downturn or
other adverse economic change (local, regional,
national, or global) can hurt our financial performance
in the form of higher loan losses, lower loan
production levels, lower deposit levels, compression
of our net interest margin, and lower fees from
transactions and services. Those effects can continue
for many years after the downturn technically ends.
The Federal Reserve has implemented significant
economic strategies that have impacted interest
rates, inflation, asset values, and the shape of the
yield curve. These strategies have had, and will
continue to have, a significant impact on our
business and on many of our clients. In response
to the recession in 2008 and the following uneven
recovery, the Federal Reserve implemented a series
of domestic monetary initiatives designed to lower
rates and make credit easier to obtain. The Federal
Reserve changed course in 2015, raising rates
several times through 2018. The last raise in 2018
was accompanied by a substantial and broad stock
market decline. In 2019 the Federal Reserve began
to lower rates. In 2020, in response to economic
disruption associated with the COVID-19 pandemic,
FIRST HORIZON CORPORATION
31
2020 FORM 10-K ANNUAL REPORT
Table of Contents
the Federal Reserve quickly reduced short-term rates
to extremely low levels and acted to influence the
markets to reduce long-term rates as well. For 2021,
the Federal Reserve has indicated that future actions
will depend upon changes in economic data.
Federal Reserve strategies can, and often are
intended to, affect the domestic money supply,
inflation, interest rates, and the shape of the yield
curve. Effects on the yield curve often are most
pronounced at the short end of the curve, which is of
particular importance to us and other banks. Among
other things, easing strategies are intended to lower
interest rates, flatten the yield curve, expand the
money supply, and stimulate economic activity, while
tightening strategies are intended to increase interest
rates, steepen the yield curve, tighten the money
supply, and restrain economic activity.
Many external factors may interfere with the effects of
these plans or cause them to be changed, sometimes
quickly. Such factors include significant economic
trends or events as well as significant international
monetary policies and events. Such strategies also
can affect the U.S. and world-wide financial systems
in ways that may be difficult to predict. Risks
associated with interest rates and the yield curve are
discussed in this Item 1A under the caption Interest
Rate and Yield Curve Risks beginning on page 40.
We may be adversely affected by economic and
political situations outside the U.S. The U.S.
economy, and the businesses of many of our clients,
are linked significantly to economic and market
conditions outside the U.S., especially in North and
Risks Related to Businesses We May Exit
We may be unable to successfully implement a
disposition or wind-down of businesses or units
which no longer fit our strategic plans. We could
have closures and divestitures as we continue to
adapt to a changing business and regulatory
environment. Key risks associated with exiting a
business include:
• our ability to price a sale transaction appropriately
and otherwise negotiate acceptable terms;
• our ability to identify and implement key client,
personnel, technology systems, and other transition
Reputation Risks
Our ability to conduct and grow our businesses,
and to obtain and retain clients, is highly
dependent upon external perceptions of our
business practices and financial stability. Our
reputation is, therefore, a key asset for us. Our
reputation is affected principally by our business
practices and how those practices are perceived and
Central America, Europe, and Asia, and increasingly
in South America. Although we have little direct
exposure to non-US-dollar-denominated assets or
non-US sovereign debt, in the future major adverse
events outside the U.S. could have a substantial
indirect adverse impact upon us. Key potential events
which could have such an impact include (i)
sovereign debt default (default by one or more
governments in their borrowings), (ii) bank and/or
corporate debt default, (iii) market and other liquidity
disruptions, and, if stresses become especially
severe, (iv) the collapse of governments, alliances, or
currencies, and (v) military conflicts. The methods by
which such events could adversely affect us are
highly varied but broadly include the following: an
increase in our cost of borrowed funds or, in a worst
case, the unavailability of borrowed funds through
conventional markets; impacts upon our hedging and
other counterparties; impacts upon our clients;
impacts upon the U.S. economy, especially in the
areas of employment rates, real estate values,
interest rates, and inflation/deflation rates; and
impacts upon us from our regulatory environment,
which can change substantially and unpredictably
from possible political response to major financial
disruptions.
actions to avoid or minimize negative effects on
retained businesses;
• our ability to mitigate the loss of any pretax income
that the exited business produced;
• our ability to assess and manage any loss of
synergies that the exited business had with our
retained businesses; and
• our ability to manage capital, liquidity, and other
challenges that may arise if an exit results in
significant legacy cash expenditures or financial
loss.
understood by others. Adverse perceptions regarding
the practices of our competitors, or our industry as a
whole, also may adversely impact our reputation. In
addition, negative perceptions relating to parties with
whom we have important relationships may adversely
impact our reputation. Senior management oversees
FIRST HORIZON CORPORATION
32
2020 FORM 10-K ANNUAL REPORT
Table of Contents
processes for reputation risk monitoring, assessment,
and management.
Damage to our reputation could hinder our ability to
access the capital markets or otherwise impact our
liquidity, could hamper our ability to attract new clients
and retain existing ones, could impact the market
value of our stock, could create or aggravate
regulatory difficulties, and could undermine our ability
to attract and retain talented associates, among other
things. Adverse impacts on our reputation, or the
reputation of our industry, also may result in greater
regulatory and/or legislative scrutiny, which may lead
to laws or regulations that change or constrain our
business or operations. Events that result in damage
to our reputation also may increase our litigation risk.
Political and social fragmentation in the U.S.,
combined with access to social media platforms,
can increase reputation risk in ways that might
not be easily avoided by traditional means. The
predominant culture within the banking industry
remains traditional: in order to preserve their business
reputations, banks generally prefer to avoid direct,
public involvement in political or social controversy.
Credit Risks
We face the risk that our clients may not repay
their loans and that the realizable value of
collateral may be insufficient to avoid a charge-
off. We also face risks that other counterparties, in a
wide range of situations, may fail to honor their
obligations to pay us. In our business some level of
credit charge-offs is unavoidable and overall levels of
credit charge-offs can vary substantially over time. In
the last pre-COVID credit cycle, net charge-offs were
$132 million in 2007, and increased to $573 million
and $832 million in 2008 and 2009, respectively.
Beginning in 2010, net charge-offs began to decline,
reaching $13 million by 2017 and remaining
historically very low through 2019. In 2020, however,
net charge-offs rose to $120 million, driven strongly
by the COVID-induced recession starting in March.
Our ability to manage credit risks depends primarily
upon our ability to assess the creditworthiness of loan
clients and other counterparties and the value of any
collateral, including real estate, among other things.
We further manage credit risk by diversifying our loan
portfolio, by managing its granularity, by following per-
relationship lending limits, and by recording and
managing an allowance for loan and lease losses
based on the factors mentioned above and in
accordance with applicable accounting rules. We
further manage other counterparty credit risk in a
variety of ways, some of which are discussed in other
parts of this Item 1A and all of which have as a
primary goal the avoidance of having too much risk
concentrated with any single counterparty.
Increasingly, though, certain groups—having highly
specific political or social agendas and with the ability
to communicate their views effectively using social
media platforms—have made it more difficult to
maintain a traditional approach. One group, for
example, may publicly criticize a bank for having, as a
client, a business which “exploits” persons of limited
financial means, while another group may criticize a
bank for failing to have, as a client, the same
business which “serves” such persons in
neighborhoods that many businesses avoid. As
another example, a group may demand that a bank
cease doing business with a specific business client
based on the client’s industry or a specific business
practice because that industry or practice, though
legal, is objectionable to that group. While the
potential for such demands has always existed,
special interest groups today are more able and
willing to publicize their criticisms, and some are
willing to use factual exaggerations and inflammatory
language in stating their views to the public. Those
criticisms, in turn, ultimately may be acted upon by
legislators or regulators.
We record loan charge-offs in accordance with
accounting and regulatory guidelines and rules. As
indicated in this Item 1A under the caption Accounting
& Tax Risks beginning on page 44, these guidelines
and rules could change and cause provision expense
or charge-offs to be more volatile, or to be recognized
on an accelerated basis, for reasons not always
related to the underlying performance of our portfolio.
In fact, as mentioned there, starting in 2020, such an
accounting change was made and, when the COVID
recession occurred starting in March, loan loss
recognition was significantly accelerated. Moreover,
the SEC or PCAOB could take accounting positions
applicable to our holding company that may be
inconsistent with those taken by the Federal Reserve
or other banking regulators.
A significant challenge for us is to keep the credit and
other models and approaches we use to originate and
manage loans updated to take into account changes
in the competitive environment, in real estate prices
and other collateral values, in the economy, and in
the regulatory environment, among other things,
based on our experience originating loans and
servicing loan portfolios. Changes in modeling could
have significant impacts upon our reported financial
results and condition. In addition, we use those
models and approaches to manage our loan
portfolios and lending businesses. To the extent our
models and approaches are not consistent with
underlying real-world conditions, our management
decisions could be misguided or otherwise affected
with substantial adverse consequences to us.
FIRST HORIZON CORPORATION
33
2020 FORM 10-K ANNUAL REPORT
Table of Contents
The recent low-interest rate environment has
elevated the traditional challenge for lenders and
investors to balance taking on higher risk against
the desire for higher income or yield. This
challenge applies not only to credit risk in lending
activities but also to default and rate risks regarding
investments.
When interest rates eventually rise, default risk
likely also will rise. As borrowers’ obligations to pay
interest increase, financial weaknesses generally
become more evident. Initially this results in lower
consumer credit scores and lower commercial loan
grading, and later results in higher default rates.
Realized credit losses tend to increase and
decrease in a cyclical manner, although the
duration and timing of any given credit cycle is
impossible to predict accurately. Through 2019 we
and other U.S. banks experienced an extended
period of very low credit losses.
The credit cycle was disrupted by COVID-19. Our
expectation for losses in 2020 rose sharply with the
COVID-19 pandemic and its recession, though in
many cases actual losses have significantly lagged.
Although economic impact may subside with the
distribution of vaccines in 2021, there is significant
risk that loan provisioning and eventual loss could be
elevated for some time. In any case, we do not know
what the new “normal” loan loss levels will be once
the impacts of the pandemic have fully ended, or
what long-term impact the pandemic will have on the
credit cycle. It is extremely difficult for banks, and for
investors, to know when an uptick in credit loss is
merely idiosyncratic or instead portends a major
credit cycle change.
Regulatory positions issued during the COVID-19
pandemic may mask the true extent of credit
deterioration in certain groups of loans. For
borrowers who qualify, loan payment deferrals and
other events that normally would trigger default status
are not treated as defaults by lenders or the credit
bureaus. Temporarily, these positions may obscure
credit quality deterioration in those loans.
The composition of our loans inherently
increases our sensitivity to certain credit risks. At
December 31, 2020, approximately 57% of total loans
and leases consisted of the commercial, financial,
and industrial (C&I) portfolio, while approximately
20% consisted of the consumer real estate portfolio.
The largest component of the C&I portfolio at year
end was loans to mortgage companies, a component
which represented about 16% of the C&I portfolio at
that time. The second largest component was loans
to finance and insurance companies. As a result,
approximately 26% of the C&I portfolio was sensitive
to impacts on the financial services industry. As
discussed elsewhere in this Item 1A with respect to
our company, the financial services industry is more
sensitive to interest rate and yield curve changes,
monetary policy, regulatory policy, changes in real
estate and other asset values, and changes in
general economic conditions, than many other
industries. Negative impacts on the industry could
dampen new lending in these lines of business and
could create credit impacts for the loans in our
portfolio.
The consumer real estate portfolio contains a number
of concentrations which affect credit risk assessment
of the portfolio.
• Product concentration. The consumer real estate
portfolio consists primarily of consumer installment
loans, and much of the remainder consists of home
equity lines of credit.
• Collateral concentration. This entire category is
secured by residential real estate. Approximately
14% of the consumer real estate portfolio consists
of loans secured on a second-lien basis.
• Geographic concentration. At year end, about 66%
of the consumer real estate portfolio related to
clients in three states: Florida, Tennessee, and
Louisiana.
The consumer real estate category is highly sensitive
to economic impacts on consumer clients and on
residential real estate values. Job loss or downward
job migration, as well as significant life events such
as divorce, death, or disability, can significantly
impact credit evaluations of the portfolio. Also,
regulatory changes, discussed above and elsewhere
in this Item 1A, are more likely to affect the consumer
category and our accounting estimates of credit loss
than other loan types.
Volatility in the oil and gas industry can impact
us. At year-end, approximately 3% of our total loans
were directly related to the oil and gas industry. In
addition to general credit and other risks mentioned
elsewhere in this Item 1A, these businesses and their
related assets are sensitive to a number of factors
specific to that industry. Key among those is global
demand for energy and other products from oil and
gas in relation to supply. The shifting balance
between demand and supply is expressed most
simply in prices. Significant oil-price volatility, such as
that experienced in 2020, can and often does impact
our overall business in this industry by increasing
provisioning and charge-offs, and by reducing
demand for loans. Another set of risks specific to that
industry relate to environmental concerns, including
the risks of increased regulation or other
governmental intervention, and the risks of adverse
changes in consumption habits or public perceptions
generally.
Additional information concerning credit risks and our
management of them is set forth under the caption
FIRST HORIZON CORPORATION
34
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Asset Quality beginning on page 70 of our 2020
MD&A (Item 7).
Service Risks
We provide a wide range of services to clients,
and the provision of these services may create
claims against us that we provided them in a
manner that harmed the client or a third party, or
was not compliant with applicable laws or rules.
Our services include lending, loan servicing, fiduciary,
custodial, depositary, funds management, insurance,
and advisory services, among others. We manage
these risks primarily through training programs,
Risks Related to COVID-19 Pandemic
The COVID-19 pandemic has led to periods of
significant volatility in financial, commodities
(including oil and gas) and other markets, has
adversely affected our ability to conduct normal
business, has adversely affected our clients, and
is likely to harm our businesses and future
results of operations.
In late 2019, a coronavirus (COVID-19) was reported
in China, which quickly spread to most countries in
the world. Starting in late February 2020, financial
market volatility increased dramatically based on
concerns that COVID-19, and the steps being
undertaken in many countries to mitigate its spread,
would significantly disrupt economic activity.
In March 2020, financial market volatility increased
further, with several one-day stock market swings that
resulted in significant market declines. Additionally, in
March: market pricing deteriorated in virtually all
sectors and asset classes except U.S. Treasury
securities; the World Health Organization declared
COVID-19 to be a pandemic; the U.S. President
declared the COVID-19 pandemic to be a national
emergency, allowing several federal disaster
programs to be accessed by states and cities; many
states and cities in the U.S. declared health
emergencies, lockdowns, travel restrictions, and
quarantines, prohibiting gatherings of more than a
small number of people and ordering or urging most
businesses and workplaces to close or operate on a
very restricted basis; the Federal Reserve lowered
short-term interest rates and started a “quantitative
easing” program intended to lower longer-term
interest rates and foster access to credit; the effective
yields of 10-year and 30-year U.S. Treasury securities
achieved record low rates; and the U.S. Congress
enacted relief legislation. Government actions in the
U.S. have included loan programs administered by
banks and other private-sector lenders, liquidity
programs administered by the U.S. Treasury, and
compliance programs, and supervision processes.
Additional information concerning these risks and our
management of them, all of which is incorporated into
this Item 1A by this reference, appears under the
captions Operational Risk Management and
Compliance Risk Management, beginning on pages
91 and 92, respectively, of our 2020 MD&A (Item 7).
favorable accounting and regulatory treatment (for
lenders) of certain loan payment deferrals.
During the summer of 2020, in the U.S. infection and
hospitalization rates declined, and government
restrictions on businesses and the public eased in
many locales. Late in the year, a new strain of the
virus was identified, while infection and hospitalization
rates increased sharply, prompting many
governments to re-impose earlier restrictions going
into 2021.
In 2020 and early 2021, the economic effects of these
and related actions and events in the U.S. included:
large numbers of partial or full business closures;
large numbers of people were furloughed or laid off;
large increases in unemployment; large numbers of
workers worked from home; and large numbers of
consumers were unwilling to undertake significant
discretionary spending. In addition, worldwide
demand for oil fell, resulting in significant drops in oil
prices and in the values of oil-related assets.
We are not able to predict the impact of these still-
changing circumstances on our businesses in 2021,
although we expect the overall impact to be less in
2021 than in 2020. The full extent of impacts resulting
from the COVID-19 pandemic and other events
beyond our control will depend on uncertain future
developments, including new information which may
emerge concerning the severity of new COVID
strains, the effectiveness of vaccines on existing and
new strains, and further actions governments may
take to slow the spread of the virus, treat the ill,
distribute the vaccines, and assist affected
businesses.
In addition, the pandemic has resulted in modest
operational disruptions for us. Clients’ physical
access to banking centers has been restricted off and
on in many markets, and many non-client-facing
associates have worked largely on a remote basis.
More significant disruptions in the future could
FIRST HORIZON CORPORATION
35
2020 FORM 10-K ANNUAL REPORT
Table of Contents
adversely impact our businesses, financial condition,
and results of operations. Our post-merger integration
efforts may be delayed and adversely affected by the
pandemic, and could become more costly.
Vaccines offer the hope of substantially ending
the economic disruption caused by COVID-19
during 2021; however, the lead times needed for
effective distribution to the U.S population, and
for effective immunity to develop in those people
who are inoculated, mean that economic
disruption is likely to continue for a significant
period this year. Vaccines, reportedly with unusually
high effectiveness rates, have been developed and
approved for the public in the U.S., and, early in
2021, are being distributed by the various states.
Distribution in the U.S. is hampered by special
equipment needed to transport and store the vaccine
material at very cold temperatures. Other vaccines
have been developed and are expected to be
approved in the U.S. in the first quarter of 2021. The
vaccines reportedly are not fully effective for five or
six weeks after first being administered. Also, a few
political and other prominent leaders at first publicly
signaled doubt regarding the safety or efficacy of the
vaccines. These and other similar factors make it
difficult to predict when economic restrictions will
Regulatory, Legislative, and Legal Risks
The regulatory environment continues to be
challenging. We operate in a heavily regulated
industry. Our regulatory burdens, including both
operating restrictions and ongoing compliance costs,
are substantial.
We are subject to many banking, deposit, insurance,
securities brokerage and underwriting, and consumer
lending regulations in addition to the rules applicable
to all companies publicly traded in the U.S. securities
markets and, in particular, on the New York Stock
Exchange. Failure to comply with applicable
regulations could result in financial, structural, and
operational penalties. In addition, efforts to comply
with applicable regulations may increase our costs
and/or limit our ability to pursue certain business
opportunities. See Supervision and Regulation in Item
1 of this report, beginning on page 18, for additional
information concerning financial industry regulations.
Federal and state regulations significantly limit the
types of activities in which we, as a financial
institution, may engage. In addition, we are subject to
a wide array of other regulations that govern other
aspects of how we conduct our business, such as in
the areas of employment and intellectual property.
Federal and state legislative and regulatory
authorities increasingly consider changing these
regulations or adopting new ones. Such actions could
further limit the amount of interest or fees we can
charge, could further restrict our ability to collect
loans or realize on collateral, could affect the terms or
substantially relax or end, or when a critical
percentage of the population no longer will fear the
pandemic.
Changes in interest rates due to Federal Reserve
actions and market forces, mentioned above,
negatively impacted our net interest margin (a
measure of the average profit margin applicable
to lending). Interest rates should begin to normalize
when economic conditions improve significantly, but
the timing and degree of normalization cannot be
predicted. Also, “spreads” (the difference between
U.S. Treasury borrowing rates and private sector
borrowing rates) widened in 2020. For post-COVID
loans, wider spreads should help mitigate net interest
margin compression. However, pre-COVID spreads
are fixed by the loan contracts based on pre-COVID
pricing.
Our clients and vendors have been adversely
impacted by governmental and societal
responses to COVID-19. Those impacts on clients
reduced noninterest income, created downward loan
migration (a reduction in loan-grading), and increased
provision for credit losses.
profitability of the products and services we offer, or
could materially affect us in other ways.
The following paragraphs highlight certain specific
important risk areas related to regulatory matters
currently. These paragraphs do not describe these
risks exhaustively, and they do not describe all such
risks that we face currently. Moreover, the importance
of specific risks will grow or diminish as
circumstances change.
We and our Bank both are required to maintain
certain regulatory capital levels and ratios. U.S.
capital standards are discussed in Item 1 of this
report, in tabular and narrative form, under the
caption Capital Adequacy starting on page 20.
Pressures to maintain appropriate capital levels and
address business needs in a changing economy may
lead to actions that could be dilutive or otherwise
adverse to our shareholders. Such actions could
include: reduction or elimination of dividends; the
issuance of common or preferred stock, or securities
convertible into stock; or the issuance of any class of
stock having rights that are adverse to those of the
holders of our existing classes of common or
preferred stock.
Additional information concerning these risks and our
management of them, all of which is incorporated into
this Item 1A by this reference, appears: under the
captions Capital Adequacy and Prompt Corrective
Action (PCA) in Item 1 of this report beginning on
FIRST HORIZON CORPORATION
36
2020 FORM 10-K ANNUAL REPORT
Table of Contents
pages 20 and 21, respectively; under the captions
Capital, Capital Risk Management and Adequacy,
and Market Uncertainties and Prospective Trends
beginning on pages 67, 91, and 97, respectively, of
our 2020 MD&A (Item); and under the caption
Regulatory Capital in Note 13—Regulatory Capital
and Restrictions, beginning on page 173 of our 2020
Financial Statements (Item 8).
Legal disputes are an unavoidable part of
business, and the outcome of pending or
threatened litigation cannot be predicted with any
certainty. We face the risk of litigation from clients,
associates, vendors, contractual parties, and other
persons, either singly or in class actions, and from
federal or state regulators. We manage those risks
through internal controls, personnel training,
insurance, litigation management, our compliance
and ethics processes, and other means. However, the
commencement, outcome, and magnitude of litigation
cannot be predicted or controlled with any certainty.
Typically, we are unable to estimate our loss
exposure from legal claims until relatively late in
the litigation process, which can make our
financial recognition of loss from litigation
unpredictable and highly uneven from one period
to the next. For most of our pending legal matters we
have established either no accrual (reserve) or no
significant reserve. Financial accounting guidance
requires that litigation loss be both estimable and
probable before a reserve may be established
(recorded as a liability on our balance sheet). Under
that guidance, reserves typically are not established
for most litigation matters until after preliminary
motions to dismiss or to narrow the case are
resolved, after discovery is substantially in process,
and (in many cases) after preliminary overtures
regarding settlement have occurred. Potentially
significant cases often are pending for years before
any loss is recognized and a reserve is established.
Moreover, many cases experience relatively little
progress toward resolution for a long period followed
by a brief period of rapid development. Lastly,
although most cases are resolved with little or no loss
to us, for the others our loss typically is recognized
either all at once (near the time of resolution) or very
unevenly over the life of the case.
Additional information concerning litigation risks and
our management of them, all of which is incorporated
into this Item 1A by this reference, appears: under the
caption Pre-2009 Mortgage Business Risks beginning
on page 44 of this report; under the captions
Repurchase Obligations, Off-Balance Sheet
Arrangements, and Other Contractual Obligations,
Repurchase Accrual Methodology, Market
Uncertainties and Prospective Trends, and
Contingent Liabilities beginning on pages 95, 95, 97,
and 101, respectively, of our 2020 MD&A (Item 7);
and under the caption Contingencies in Note 17—
Contingencies and Other Disclosures, beginning on
page 181 of our 2020 Financial Statements (Item 8).
Political dysfunction and volatility within the
federal government, both at the regulatory and
Congressional level, creates significant potential
for major and abrupt shifts in federal policy
regarding bank regulation, taxes, and the
economy, any of which could have significant
impacts on our business and financial
performance. Moreover, political conflict within and
among branches of government, and within and
among government agencies, can rise to a level
where day-to-day functions could be interrupted or
impaired.
Data privacy is becoming a major political
concern. The laws governing it are new, and are
likely to evolve and expand. Many non-regulated,
non-banking companies have gathered large
amounts of personal details about millions of people,
and have the ability to analyze that data and act on
that analysis very quickly. This situation has prompted
governmental responses. Two prominent responses
are the European Union General Data Protection
Regulation and the California Consumer Privacy Act.
Neither is a banking industry regulation, but both
apply to banks in relation to certain clients. Further
general regulation to protect data privacy appears
likely, and banking industry regulations might be
enlarged as well.
Public expectations concerning corporate
controls on emissions of carbon dioxide,
methane, and other greenhouse gases could
increase our operating costs in the future without
a corresponding increase in revenue, could
curtail some aspects of our business, or both. At
present, environmental regulations do not require us
to monitor the direct or indirect greenhouse gas
emissions associated with building, operating, or
maintaining our physical facilities, nor are we taxed or
fined in relation to those emissions, because such
gases generally are not considered to be pollutants
under federal law. Changing expectations could
pressure us to physically measure, monitor, and
curtail direct emissions and to estimate indirect
emissions or impacts, and eventually could result in
legal requirements to take those actions or to pay for
measured or estimated emissions. Whether or not
legally required, any such actions that we take would
increase our operating costs. In addition, such
expectations could pressure us to discontinue
business relationships with certain clients, or groups
of clients, that have suboptimal reputations for
emissions.
Although currently no proposal has been
published, future regulations could discourage us
from lending to clients in certain industries
judged to be environmentally high-risk, even if
those elevated risk factors have a long time
FIRST HORIZON CORPORATION
37
2020 FORM 10-K ANNUAL REPORT
Table of Contents
horizon or are speculative for other reasons.
Changes of that sort could curtail our ability to pursue
profitable business opportunities.
Risks of Expense Control
Our ability to successfully manage expenses is
important to our long-term success, but in part is
subject to risks beyond our control. Many factors
can influence the amount of our expenses, as well as
how quickly they grow. As our businesses change—
whether by acquisition, expansion, or contraction—
additional expenses can arise from asset purchases,
structural reorganization, evolving business
strategies, and changing regulations, among other
things.
We manage controllable expenses and risk through a
variety of means, including selectively outsourcing or
multi-sourcing various functions and procurement
coordination and processes. In recent years we have
actively sought to make strategic businesses more
efficient primarily by investing in technology, re-
thinking and right-sizing our physical facilities, and re-
thinking and right-sizing our workforce and incentive
programs. These efforts usually entail additional near-
term expenses in the form of technology purchases
and implementation, facility closure or renovation
costs, and severance costs, while expected benefits
typically are realized with some uncertainty in the
future.
We have also focused on the economic profit
generated by our business activities and prospects
Geographic Risks
We are subject to risks of operating in various
jurisdictions. To a significant degree our banking
business is exposed to economic, regulatory, natural
disaster, and other risks that primarily impact the
south-eastern and south-central U.S. states where we
do most of our traditional banking business. If those
regions of the U.S. were to experience adversity not
shared by other parts of the country, we are likely to
experience adversity to a degree not shared by those
competitors which have a broader or different
regional footprint. Examples of these kinds of risks
include: earthquakes in Memphis; hurricanes in
Florida, Louisiana, the Carolina coasts, or the Texas
coast; a major change in health insurance laws
impacting the many healthcare companies in middle
Tennessee; and automotive industry plant closures.
We have international assets, mainly in the form
of loans and letters of credit. Holding non-U.S.
rather than emphasizing revenues or ordinary profit.
Economic profit analysis attempts to relate ordinary
profit to the capital employed to create that profit with
the goal of achieving higher (more efficient) returns
on capital employed overall. Activities with higher
capital usage bear a greater burden in economic
profit analysis. The process is intended to allow us to
more efficiently manage investment and utilization of
resources. Economic profit analysis involves
significant judgment regarding capital allocation.
Mistakes in those judgments could result in a
misallocation of resources and diminished profitability
over the long run.
Despite our efforts, our costs could rise due to
adverse structural changes or market shifts. For
example, the overall cost of our health insurance
benefit is highly dependent upon regulatory factors
and market forces beyond our control.
assets creates a number of risks: the risk that taxes,
fees, prohibitions, and other barriers and constraints
may be created or increased by the U.S. or other
countries that would impact our holdings; the risk that
currency exchange rates could move unfavorably so
as to diminish the U.S. dollar value of assets, or to
enlarge the U.S. dollar value of liabilities; and the risk
that legal recourse against foreign counterparties may
be limited in unexpected ways. Our ability to manage
those and other risks depends upon a number of
factors, including: our ability to recognize and
anticipate differences in legal, cultural, and other
expectations applicable to clients, regulators,
vendors, and other business partners and
counterparties; and our ability to recognize and
manage any exchange rate risks to which we are
exposed.
FIRST HORIZON CORPORATION
38
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Insurance
Our property and casualty insurance may not
cover or may be inadequate to cover the risks
that we face, and we are or may be adversely
affected by a default by insurers. We use
insurance to manage a number of risks, including
damage or destruction of property as well as legal
and other liability. Not all such risks are insured, in
any given insured situation our insurance may be
inadequate to cover all loss, and many risks we face
are uninsurable. For those risks that are insured, we
also face the risks that the insurer may default on its
obligations or that the insurer may refuse to honor
them. We treat the risk of default as a type of credit
risk, which we manage by reviewing the insurers that
we use and by striving to use more than one insurer
when practical. The risk of refusal, whether due to
honest disagreement or bad faith, is inherent in any
contractual situation.
A portion of our consumer loan portfolio involves
mortgage default insurance. If a default insurer were
to experience a significant credit downgrade or were
to become insolvent, that could adversely affect the
carrying value of loans insured by that company,
which could result in an immediate increase in our
loan loss provision or write-down of the carrying value
of those loans on our balance sheet and, in either
case, a corresponding impact on our financial results.
If many default insurers were to experience
downgrades or insolvency at the same time, the risk
of a financial impact would be amplified.
We own certain bank-owned life insurance policies as
assets on our books. Some of those policies are
Liquidity and Funding Risks
Liquidity is essential to our business model and a
lack of liquidity, or an increase in the cost of
liquidity, may materially and adversely affect our
businesses, results of operations, financial
conditions and cash flows. In general, the costs of
our funding directly impact our costs of doing
business and, therefore, can positively or negatively
affect our financial results. Our funding requirements
in 2020 were met principally by deposits, by financing
from other financial institutions, and by funds
obtained from the capital markets.
Deposits traditionally have provided our most
affordable funds and by far the largest portion of
funding. However, deposit trends can shift with
economic conditions. If interest rates fall, deposit
levels in our Bank might fall, perhaps fairly quickly if a
tipping point is reached, as depositors become more
comfortable with risk and seek higher returns in other
vehicles. This could pressure us to raise our deposit
rates, which could shrink our net interest margin if
loan rates do not rise correspondingly.
“general account” and others are “separate account.”
The general account policies are subject to the risk
that the carrier might experience a significant
downgrade or become insolvent. The separate
account policies are less susceptible to carrier risk,
but do carry a higher risk of value fluctuations in
securities which underlie those policies. Both risks
are managed through periodic reviews of the carriers
and the underlying security values. However,
particularly for the general account policies, our ability
to liquidate a policy in anticipation of an adverse
carrier event is significantly limited by applicable
insurance contracts and regulations as well as by a
substantial tax penalty which could be levied upon
early policy termination.
When we self-insure certain exposures, our
estimates of future expenditures may be
inadequate for the actual expenditures that occur.
For example, we self-insure our associate health-
insurance benefit program. We estimate future
expenditures and establish accruals (reserves) based
on the estimates. If actual expenditures were to
exceed our estimates in a future period, our future
expenses could be adversely and unexpectedly
increased.
In the past two years deposit rates have fallen, to
remarkably low levels. Although stock market values
have climbed (broadly speaking), deposit levels also
have climbed. While difficult to explain definitively, it is
possible that while a sizable portion of available
capital holders are comfortable with risk, another
sizable portion are highly risk-averse in light of the
severe volatility experienced by the stock markets in
2018, 2019, and 2020.
The market among banks for deposits may be
impacted by current capital rules. Those rules
generally provide favorable treatment for core
deposits. Institutions with less than $100 billion of
assets are not required to maintain a minimum
Liquidity Coverage ratio. At or above $100 billion, the
requirement increases with size and certain activities.
The largest banks, which must maintain the highest
minimum ratio, may be incented to compete for core
deposits vigorously. Although mid-sized banks, like
ours, are only lightly impacted by this rule, if some
large banks in our markets take aggressive actions
FIRST HORIZON CORPORATION
39
2020 FORM 10-K ANNUAL REPORT
Table of Contents
we could lose deposit share or be compelled to adjust
our deposit pricing and practices in ways that could
increase our costs.
We also depend upon financing from private
institutional or other investors by means of the capital
markets. In spring 2020, before we closed the IBKC
merger, we issued and sold $150 million of preferred
stock, along with a total of $1.3 billion of senior and
subordinated notes. Presently we believe we could
access the capital markets again if we desired to do
so. Risk remains, however, that capital markets may
become unavailable to us for reasons beyond our
control.
A number of more general factors could make funding
more difficult, more expensive, or unavailable on
affordable terms, including, but not limited to, our
financial results, organizational or political changes,
adverse impacts on our reputation, changes in the
activities of our business partners, disruptions in the
capital markets, specific events that adversely impact
the financial services industry, counterparty
Credit Ratings
Our credit ratings directly affect the availability
and cost of our unsecured funding. Our holding
company (the Corporation) and our Bank currently
receive ratings from several rating agencies for
unsecured borrowings. A rating below investment
grade typically reduces availability and increases the
cost of market-based funding. A debt rating of Baa3
or higher by Moody’s Investors Service, or BBB- or
higher by Fitch Ratings, is considered investment
grade for many purposes. At December 31, 2020,
both rating agencies rated the unsecured senior debt
of the Corporation and of the Bank as investment
grade. The ratings outlook was stable from Moody’s
and from Fitch for both the Corporation and the Bank.
To the extent that in the future we depend on
institutional borrowing and the capital markets for
funding and capital, we could experience reduced
liquidity and increased cost of unsecured funding if
our debt ratings were lowered further, particularly if
lowered below investment grade. In addition, other
actions by ratings agencies can create uncertainty
about our ratings in the future and thus can adversely
affect the cost and availability of funding, including
placing us on negative outlook or on watchlist. Please
note that a credit rating is not a recommendation to
buy, sell, or hold securities, is subject to revision or
withdrawal at any time, and should be evaluated
independently of any other rating.
Interest Rate and Yield Curve Risks
availability, changes affecting our loan portfolio or
other assets, changes affecting our corporate and
regulatory structure, interest rate fluctuations, ratings
agency actions, general economic conditions, and the
legal, regulatory, accounting, and tax environments
governing our funding transactions. In addition, our
ability to raise funds is strongly affected by the
general state of the U.S. and world economies and
financial markets as well as the policies and
capabilities of the U.S. government and its agencies,
and may remain or become increasingly difficult due
to economic and other factors beyond our control.
Changes associated with LIBOR also may impact our
funding ability; see Interest Rate and Yield Curve
Risks beginning on page 40.
Events affecting interest rates, markets, and other
factors may adversely affect the demand for our
products and services in our fixed income
business. As a result, disruptions in those areas may
adversely impact our earnings in that business unit.
Reductions in our credit ratings could result in
counterparties reducing or terminating their
relationships with us. Some parties with whom we
do business may have internal policies restricting the
business that can be done with financial institutions,
such as the Bank, that have credit ratings lower than
a certain threshold.
Reductions in our credit ratings could allow some
counterparties to terminate and immediately force
us to settle certain derivatives agreements, and
could force us to provide additional collateral
with respect to certain derivatives agreements.
Under our margin agreements, we are required to
post collateral in the amount of our derivative liability
positions with most derivative counterparties. At this
time, only one counterparty has a defined trigger and
collateral threshold which references the lower of
Standard & Poor’s Financial Services LLC or Moody’s
ratings. If a credit rating downgrade had occurred as
of December 31, 2020, the maximum specified
additional collateral we would have been required to
post would have been less than $1 million. Contracts
with other counterparties do not have defined
thresholds and FHN could be asked to post collateral
of an undetermined amount based on changes in
credit ratings and derivative value.
We are subject to interest rate risk because a
significant portion of our business involves
borrowing and lending money, and investing in
financial instruments. A considerable portion of our
FIRST HORIZON CORPORATION
40
2020 FORM 10-K ANNUAL REPORT
Table of Contents
funding comes from short-term and demand deposits,
while a sizeable portion of our lending and investing
is in medium-term and long-term instruments.
Changes in interest rates directly impact our
revenues and expenses, and could expand or
compress our net interest margin. We actively
manage our balance sheet to control the risks of a
reduction in net interest margin brought about by
ordinary fluctuations in rates. In addition, our fixed
income business tends to perform better when rates
decline or markets are volatile, which tends to
partially offset net interest margin compression.
A flat or inverted yield curve may reduce our net
interest margin and adversely affect our lending
and fixed income businesses. The yield curve is a
reflection of interest rates applicable to short and long
term debt. The yield curve is steep when short-term
rates are much lower than long-term rates; it is flat
when short-term rates and long-term rates are nearly
the same; and it is inverted when short-term rates
exceed long-term rates. Historically, the yield curve is
usually upward sloping (higher rates for longer
terms). However, the yield curve can be relatively flat
or inverted (downward sloping), which has happened
several times in the past few years. A flat or inverted
yield curve tends to decrease net interest margin,
which would adversely impact our lending
businesses, and it tends to reduce demand for long-
term debt securities, which would adversely impact
the revenues of our fixed income business.
We appear to be at the extreme “easing” end of
the spectrum in terms of interest rate policy, with
no clear timeline when “tightening” might
resume; the uncertainties of the magnitude and
timing of future rate actions could adversely
affect us. The Federal Reserve eased substantially
in 2020 in response to the COVID pandemic. In
addition, the Fed has provided other stimulus through
open-market purchases of various bond asset
classes and the introduction of several liquidity
facilities. As a result, rates cannot move much lower
without becoming negative. The Federal Reserve
seems determined to begin normalizing rates only in
response to significant and sustained economic
improvement, maximum employment, and inflation
consistent with longer-run goals. We cannot predict
when those conditions will exist. Meanwhile, we
believe that the current low-rate, low-margin
environment will continue for some time. See Risks
Associated with Monetary Events beginning on page
31 of this report for additional information.
Market-indexed deposit products are very
sensitive to changes in short-term rates, and our
use of them increases our exposure to such
changes. If market rates rise, an increase in those
deposit rates may be necessary before we are able to
effect similar increases in loan rates.
Expectations by the market regarding the
direction of future interest rate movements can
impact the demand for fixed income investments
which in turn can impact the revenues of our
fixed income business. This risk is most apparent
during times when strong expectations have not yet
been reflected in market rates, or when expectations
are especially weak or uncertain.
The expected discontinuance of LIBOR as a
viable benchmark rate may adversely affect our
business and our operating results. In 2017, the
Chief Executive of the United Kingdom Financial
Conduct Authority, which regulates the London
InterBank Offered Rate (LIBOR), announced that it
intends to halt persuading or compelling banks to
submit rates for the calculation of LIBOR after 2021.
In late 2020 the ICE Benchmark Administration
(“Administrator” for LIBOR) posted a consultation on
definitive end dates for the publication of USD LIBOR
in which certain USD LIBOR tenors may continue to
be published in some form after 2021. The
consultation feedback and response from the
Administrator as well as domestic and foreign
regulators is pending. As a result, it is unclear if any
LIBOR tenors will continue to be published after
2021.
At this time, it is uncertain as to which reference rate
or rates may become accepted alternatives to LIBOR.
The uncertainty poses both idiosyncratic and system
wide risk. The Alternative Reference Rates
Committee (“ARRC”) is a group of private-market
participants convened by the Federal Reserve Board
and the New York Fed to help ensure a successful
transition from USD LIBOR to a more robust
reference rate. The ARRC has recommended the
Secured Overnight Financing Rate (“SOFR”) as its
preferred alternative. SOFR is published by the
Federal Reserve Bank of New York but is not directly
comparable to LIBOR and cannot easily or simply be
substituted for it in outstanding instruments. Key
differences between the two are: SOFR is based on
secured lending, LIBOR is not; and SOFR historically
has been published only as an overnight rate, while
LIBOR is published in many short-term forward
looking maturity tenors.
Since SOFR is based on secured lending, it is
generally considered a “risk-free rate” whereas
LIBOR includes an implicit credit spread. There is no
clear solution or market-accepted practice to fully
address this first difference of SOFR from LIBOR.
In response to the second difference, the Federal
Reserve Bank of New York has begun to publish
compounded average SOFR rates covering prior 30-,
90-, and 180-day periods. It remains unclear how the
market will use this data.
Another potential alternative, the American Interbank
Offered Rate (“AMBERIBOR”) Index which is
FIRST HORIZON CORPORATION
41
2020 FORM 10-K ANNUAL REPORT
Table of Contents
produced by the American Financial Exchange, has
gained some market acceptance, but it has been
limited. It remains unclear if AMERIBOR will become
widely accepted in future. Other new indices, spread
adjustments, and methodologies are in development
by various providers.
SOFR may become the primary reference rate
replacement for certain financial products such as
derivatives and adjustable rate mortgages. However,
there is no clear market leader in other products.
Further, it is impossible to predict the effect on the
value of LIBOR-based securities and variable rate
loans of adopting SOFR or another alternative.
As a lender, an owner of securities, or a
contractual counterparty, our primary exposures
to LIBOR are in variable-rate loans and in hedging
transactions. We are not able to determine the
impact on us that LIBOR discontinuance will have.
The simplicity and long history of using LIBOR, the
lack of a definite alternative, and the possibility that
different alternatives ultimately may be used in
different circumstances, means that LIBOR continues
to be used in many new instruments.
A few instruments issued by us, including certain
series of preferred stock and certain trust
preferred obligations, have floating rate terms
based on LIBOR, or have fixed rates that later will
convert to floating rate terms based on LIBOR. As
mentioned above, it is not known how long LIBOR will
continue in a workable form. We have risk that an
adverse outcome of the LIBOR transition after the
Asset Inventories and Market Risks
The trading securities inventories and loans held
for sale in our fixed income business are subject
to market and credit risks. In the course of that
business we hold trading securities inventory and
loan positions for purposes of distribution to clients,
and we are exposed to certain market risks
attributable principally to credit risk and interest rate
risk associated with those assets. We manage the
risks of holding inventories of securities and loans
through certain market risk management policies and
procedures, including, for example, hedging activities
and Value-at-Risk (“VaR”) limits, trading policies,
modeling, and stress analyses. Average fixed income
trading securities (long positions) were $1.4 billion for
2020, $1.4 billion for 2019, and $1.6 billion for 2018.
Average fixed income trading liabilities (short
positions) were $457 million, $503 million, and $683
million for 2020, 2019, and 2018, respectively.
Average loans held for sale in our fixed income
business were $554 million, $485 million, and $563
million for 2020, 2019, and 2018. Additional
information concerning these risks and our
expected discontinuation could increase our interest,
dividend, and other costs relative to those
instruments. We may not be able to refinance those
instruments on terms that reduce those costs to the
level we would have expected if LIBOR were to
continue indefinitely, unchanged. Further, some of
these contracts are governed under New York State
law where pending legislation would directly impact
how the post-LIBOR rate is set. Additional legislative
actions, both existing and those that may come in the
future, at the Federal and state level may impact
these and other facilities in an undetermined manner.
The transition from LIBOR may impact our ability
to use hedge accounting, which could impact us
as a lender, a securities owner, a counterparty, or
an issuer. However, accounting and tax agencies
have issued preliminary guidance that may ease the
transition. In late 2020, the International Swap
Dealers Association (“ISDA”) published the LIBOR
Fallbacks Protocol as a proposed standardized
methodology for LIBOR transition for derivatives
contracts. The central clearing counterparties
(“CCPs”) for derivatives, however, are currently
considering an alternative methodology for LIBOR
transition for cleared derivatives contracts which
differs from the ISDA protocol in various respects.
While the final outcome of this matter is uncertain at
this time, the alternative methodology being
considered by the CCPs, if finalized, may result in
operational and accounting implications for our
LIBOR transition process for derivatives contracts.
management of them, all of which is incorporated into
this Item 1A by this reference, appears under the
caption Market Risk Management beginning on page
88 of our 2020 MD&A (Item 7).
Declines, disruptions, or precipitous changes in
markets or market prices can adversely affect our
fees and other income sources. We earn fees and
other income related to our brokerage business and
our management of assets for clients. Declines,
disruptions, or precipitous changes in markets or
market prices can adversely affect those revenue
sources.
Significant changes to the securities market’s
performance can have a material impact upon our
assets, liabilities, and financial results. We have a
number of assets and obligations that are linked,
directly or indirectly, to major securities markets.
Significant changes in market performance can have
a material impact upon our assets, liabilities, and
financial results.
FIRST HORIZON CORPORATION
42
2020 FORM 10-K ANNUAL REPORT
Table of Contents
An example of that linkage is our obligation to fund
our pension plan so that it may satisfy benefit claims
in the future. Our pension funding obligations
generally depend upon actuarial estimates of benefits
claims, the discount rate used to estimate the present
values of those claims, and estimates of plan asset
values. Our obligations to fund the plan can be
affected by changes in any of those three factors.
Accordingly, our obligations diminish if the plan’s
investments perform better than expectations or if
estimates are changed anticipating better
performance, and can grow if those investments
perform poorly or if expectations worsen. A rise in
interest rates is likely to negatively impact the values
of fixed income assets held in the plan, but would
also result in an increase in the discount rate used to
measure the present value of future benefit
payments. Similarly, our obligations can be impacted
by changes in mortality tables or other actuarial
inputs. We manage the risk of rate changes by
investing plan assets in fixed income securities
having maturities aligned with the expected timing of
payouts. Because there are no new participants, the
actuarial-input risk should slowly diminish over time.
Changes in our funding obligation generally translate
into positive or negative changes in our pension
expense over time, which in turn affects our financial
performance. Our obligations and expenses relative
to the plan can be affected by many other things,
including changes in our participating associate
Mortgage Business Risks
We have contractual risks from our mortgage
business. Our traditional mortgage business
primarily consists of helping clients obtain home
mortgages which we sell, rather than hold, or which
qualify for a government-guarantee program. The
mortgage terms conform to the requirements of the
mortgage buyers or government agencies, and we
make representations to those buyers or agencies
concerning conformity of each mortgage at
origination. Although the buyers and agencies
generally take the risk that a mortgage defaults, we
retain the risk that our representations were materially
incorrect. In such a case, the buyer or agency
generally has the power to force us to take the loan
back for its face value, or to make the buyer or
agency whole for loss.
Some government mortgage programs could
impose penalties on us for misrepresentations at
the time of obtaining benefits under the program.
Penalties can be severe, up to three times the
agency’s loss. As a result, mortgage origination
processes need to emphasize being thorough and
correct, in compliance with all agency standards.
Those processes tend to slow the mortgage lending
population and changes to the plan itself. Although
we have taken actions intended to moderate future
volatility in this area, risk of some level of volatility is
unavoidable.
Our hedging activities may be ineffective, may not
adequately hedge our risks, and are subject to
credit risk. In the normal course of our businesses
we attempt to create partial or full economic hedges
of various, though not all, financial risks. For example:
our fixed income unit manages interest rate risk on a
portion of its trading portfolio with short positions,
futures, and options contracts; we hedge the risk of
interest rate movements related to the gap between
the time we originate mortgage loans and the time we
sell them; and we use derivatives, including swaps,
swaptions, caps, forward contracts, options, and
collars, that are designed to moderate the impact on
earnings as interest rates change. Generally, in the
last example these hedged items include certain term
borrowings and certain held-to-maturity loans.
Hedging creates certain risks for us, including the risk
that the other party to the hedge transaction will fail to
perform (counterparty risk, which is a type of credit
risk), and the risk that the hedge will not fully protect
us from loss as intended (hedge failure risk).
Unexpected counterparty failure or hedge failure
could have a significant adverse effect on our liquidity
and earnings.
process for clients, and increase the complexity of the
paperwork.
The mortgage servicing business creates
regulatory risks. Servicing requires continual
interaction with consumer clients. Federal, state, and
sometimes local laws regulate when and how we
interact with consumer clients. The requirements can
be complex and difficult for us to administer,
especially if a client is having difficulty with the
mortgage loan. Failure to follow the applicable rules
can result in significant penalties or other loss for us.
The mortgage servicing business creates
financial reporting valuation risks. Our contractual
right to service a loan generally is viewed as an asset
for financial reporting purposes. Servicing rights are
initially recognized at fair value, which affects the
gains recognized upon sale of the related loans.
Thereafter, servicing rights are amortized and
reviewed for impairment. The valuations of servicing
rights are dependent upon a number of inputs and
assumptions that require management judgment. If
our servicing rights become large in relation to our
overall size, especially in volatile times, the impact of
FIRST HORIZON CORPORATION
43
2020 FORM 10-K ANNUAL REPORT
Table of Contents
valuation changes can be significant and difficult to
predict.
Pre-2009 Mortgage Business Risks
We have risks from the mortgage-related
businesses we exited in 2008, including mortgage
loan repurchase and loss-reimbursement risk,
claims of improper foreclosure practices, and
claims of non-compliance with contractual and
regulatory requirements. In 2008 we exited our
national mortgage and related lending businesses.
We retain the risk of liability to clients and contractual
parties with whom we dealt in the course of operating
those businesses.
Additional information concerning risks related to our
former mortgage businesses and our management of
Accounting & Tax Risks
The preparation of our consolidated financial
statements in conformity with U.S. generally
accepted accounting principles requires
management to make significant estimates that
affect the financial statements. The estimate that
is consistently one of our most critical is the level of
the allowance for credit losses. However, other
estimates can be highly significant at discrete times
or during periods of varying length, for example the
valuation (or impairment) of our deferred tax assets.
Estimates are made at specific points in time. As
actual events unfold, estimates are adjusted
accordingly. Due to the inherent nature of these
estimates, it is possible that, at some time in the
future, we may significantly increase the allowance
for credit losses and/or sustain credit losses that are
significantly higher than the provided allowance, or
we may recognize a significant provision for
impairment of assets, or we may make some other
adjustment that will differ materially from the
estimates that we make today. Moreover, in some
cases, especially concerning litigation and other
contingency matters where critical information is
inadequate, often we are unable to make estimates
until fairly late in a lengthy process.
A significant merger or acquisition requires us to
make many estimates, including the fair values of
acquired assets and liabilities. With larger
transactions, fair value and other estimations can
take up to four quarters to finalize. These estimates,
and their revisions, can have a substantial effect on
the presentation of our financial condition and
operating results after the transaction closes. In
addition, the excess of the value “paid” by us in the
merger or acquisition over the fair value of the assets
acquired, net of liabilities assumed, is recorded as
goodwill. Goodwill is subject to periodic impairment
them, all of which is incorporated into this Item 1A by
this reference, is set forth: under the captions
Repurchase Obligations, Off-Balance Sheet
Arrangements, and Other Contractual Obligations
beginning on page 95, and Contingent Liabilities
beginning on page 101 of our 2020 MD&A (Item 7);
and under the captions Exposures from pre-2009
Mortgage Business and Mortgage Loan Repurchase
and Foreclosure Liability, both beginning on page 182
within Note 17—Contingencies and Other
Disclosures, of our 2020 Financial Statements (Item
8).
assessment, a process that can result in impairment
expense which may be significant and sudden.
Changes in accounting rules can significantly
affect how we record and report assets, liabilities,
revenues, expenses, and earnings. Although such
changes generally affect all companies in a given
industry, in practice changes sometimes have a
disparate impact due to differences in the
circumstances or business operations of companies
within the same industry.
One such accounting change, ASU 2016-13,
“Measurement of Credit Losses on Financial
Instruments,” substantially revised the
measurement and recognition of credit losses for
certain assets, including most loans, in a manner
that has substantially changed when and how we
recognize loan loss. ASU 2016-13 was effective
for us on January 1, 2020. Under ASU 2016-13,
when we make or acquire a new loan, we are
required to recognize immediately the “current
expected credit loss,” or “CECL,” of that loan. We will
also re-evaluate CECL each quarter that the loan is
outstanding. CECL is the difference between our cost
and the net amount we expect to collect over the life
of the loan using certain estimation methods that
incorporate macroeconomic forecasts and our
experience with other, similar loans. In contrast, the
pre-2020 accounting standard delayed recognition
until loss was “probable” (very likely). We adopted
ASU 2016-13 and CECL accounting starting in 2020,
with the impact on regulatory capital having a phase-
in period. Starting in 2020, recognition of estimated
credit loss was significantly accelerated compared to
pre-CECL practice, which was aggravated by the
actual and projected effects of the pandemic.
Additional information concerning ASU 2016-13 and
its effects upon us appears in Note 1—Summary of
FIRST HORIZON CORPORATION
44
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Significant Accounting Policies within our 2020
Financial Statements (Item 8), under the heading
Summary of Accounting Changes beginning on page
135, and in Item 1 under the caption CECL
Accounting and COVID-19 beginning on page 12, all
of which information is incorporated into this Item 1A
by reference.
In comparison with former (pre-2020) standards,
CECL accounting likely will continue to: result in
a significant increase in our provision for credit
losses (expense) and allowance (reserve) during
any period of loan growth, including organic
growth and growth created by acquisition or
merger; through the increased provision,
adversely impact our earnings and,
correspondingly, our regulatory capital levels;
and enhance volatility in loan loss provision and
allowance levels from quarter to quarter and year
to year, especially during times when the
economy is in transition or experiencing
significant volatility. Moreover, once fully phased in,
CECL creates an incentive for banks to reduce new
lending in the “down” part of the economic cycle in
order to reduce loss recognition and conserve
regulatory capital. That perverse incentive could,
Stock-Holding and Governance Risks
The principal source of cash flow to pay
dividends on our stock, as well as service our
debt, is dividends and distributions from the
Bank, and the Bank may become unable to pay
dividends to us without regulatory approval. First
Horizon Corporation primarily depends upon common
dividends from the Bank for cash to fund dividends
we pay to our common and preferred stockholders,
and to service our outstanding debt. Regulatory
constraints might constrain or prevent the Bank from
declaring and paying dividends to us in 2021 without
regulatory approval. Applying the applicable
regulatory rules, at January 1, 2021, the Bank could
legally declare cash dividends on the Bank's common
or preferred stock of approximately $897 million
without obtaining regulatory approval.
Also, we are required to provide financial support to
the Bank. Accordingly, at any given time a portion of
our funds may need to be used for that purpose and
therefore would be unavailable for dividends.
Furthermore, the Federal Reserve has issued policy
statements generally requiring insured banks and
bank holding companies only to pay dividends out of
current operating earnings. The Federal Reserve has
released a supervisory letter advising bank holding
companies, among other things, that as a general
matter a bank holding company should inform the
Federal Reserve and should eliminate, defer or
significantly reduce its dividends if (i) the bank holding
nationwide, prolong a down cycle in the economy and
delay a recovery.
Changes in regulatory rules can create significant
accounting impacts for us. Because we operate in
a regulated industry, we prepare regulatory financial
reports based on regulatory accounting standards.
Changes in those standards can have significant
impacts upon us in terms of regulatory compliance. In
addition, such changes can impact our ordinary
financial reporting, and uncertainties related to
regulatory changes can create uncertainties in our
financial reporting.
Our controls and procedures may fail or be
circumvented. Internal controls, disclosure controls
and procedures, and corporate governance policies
and procedures (“controls and procedures”) must be
effective in order to provide assurance that financial
reports are materially accurate. A failure or
circumvention of our controls and procedures or
failure to comply with regulations related to controls
and procedures could have a material adverse effect
on our business, financial condition and results of
operations.
company’s net income available to shareholders for
the past four quarters, net of dividends previously
paid during that period, is not sufficient to fully fund
the dividends; (ii) the bank holding company’s
prospective rate of earnings is not consistent with the
bank holding company’s capital needs and overall
current and prospective financial condition; or (iii) the
bank holding company will not meet, or is in danger of
not meeting, its minimum regulatory capital adequacy
ratios.
Our stockholders may suffer dilution if we raise
capital through public or private equity financings
to fund our operations, to increase our capital, or
to expand. If we raise funds by issuing equity
securities or instruments that are convertible into
equity securities, the percentage ownership of our
current common stockholders will be reduced, the
new equity securities may have rights and
preferences superior to those of our common or
outstanding preferred stock, and additional issuances
could be at a sales price which is dilutive to current
stockholders. We may also issue equity securities
directly as consideration for acquisitions we may
make that would be dilutive to stockholders in terms
of voting power and share-of-ownership, and could be
dilutive financially or economically.
The IBKC merger, for example, resulted in a
significant increase in our outstanding shares.
We issued to former IBKC shareholders common
FIRST HORIZON CORPORATION
45
2020 FORM 10-K ANNUAL REPORT
Table of Contents
shares representing about 44% of our post-closing
outstanding shares.
Our issuance of preferred stock raises regulatory
capital without issuing common shares, but
creates or expands our general obligation to pay
all preferred dividends ahead of any common
dividends. Currently we have six series of preferred
stock outstanding, one issued by the Bank and five by
First Horizon Corporation. Subject to capital needs
and market conditions, additional series may be
issued in the future.
Provisions of Tennessee law, and certain
provisions of our charter and bylaws, could make
it more difficult for a third party to acquire control
of us or could have the effect of discouraging a
third party from attempting to acquire control of
us. These provisions could make it more difficult for a
third party to acquire us even if an acquisition might
be at a price attractive to many of our stockholders. In
addition, federal banking laws prohibit non-financial-
industry companies from owning a bank, and require
regulatory approval of any change in control of a
bank.
Certain legal rights of holders of our common
stock and of depositary shares related to Series
B, C, and D of our preferred stock to pursue
claims against us or the depositary, as applicable,
are limited by our bylaws and by the terms of the
deposit agreements. Our bylaws provide that,
unless we consent in writing to an alternative forum, a
state or federal court located within Shelby County in
the State of Tennessee will be the sole and exclusive
forum for (i) any derivative action or proceeding
brought in our right or name, (ii) any action asserting
a claim of breach of a fiduciary duty owed by any
director, officer or other associate of ours to us or our
shareholders, (iii) any action asserting a claim against
us or any director, officer or other associate of ours
arising pursuant to any provision of the Tennessee
Business Corporation Act, of our charter or bylaws or
(iv) any action asserting a claim against us or any
director, officer or other associate of ours that is
governed by the internal affairs doctrine. In addition,
each deposit agreement between us and the
depositary, which govern the rights of the depositary
shares related to our Series B, C, and D preferred
stock, provide that any action or proceeding arising
out of or relating in any way to the deposit agreement
may only be brought in a state court located in the
State of New York or in the United States District
Court for the Southern District of New York.
The foregoing exclusive forum clauses may have the
effect of discouraging lawsuits against us or our
directors, officers or other associates, or against the
depositary, as applicable. Exclusive forum clauses
may also lead to increased costs to bring a claim, or
may limit the ability of holders of our common stock or
depositary shares to bring a claim in a judicial forum
they find favorable.
In addition, the exclusive forum clauses in our bylaws
and deposit agreement could apply to actions or
proceedings that may arise under the federal
securities laws, depending on the nature of the claim
alleged. To the extent these exclusive forum clauses
restrict the courts in which holders of our common
stock or depositary shares may bring claims arising
under the federal securities laws, there is uncertainty
as to whether a court would enforce such provisions.
These exclusive forum provisions do not mean that
holders of our common stock or depositary shares
have waived our obligations to comply with the
federal securities laws and the rules and regulations
thereunder.
ITEM 1B. UNRESOLVED
STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
We own or lease no single physical property that we
consider to be materially important to our financial
condition or results from operations.
Our banking centers, our fixed income and capital
markets offices, our title services offices, our wealth
management offices, and our other physical offices, in
the aggregate, remain important to our ability to
deliver financial services to a large portion of our
clients. For many years, banking center usage by
clients has slowly declined, and for many years we
have slowly consolidated banking center locations in
FIRST HORIZON CORPORATION
46
2020 FORM 10-K ANNUAL REPORT
Table of Contents
response to changing utilization patterns. We expect
that long-term trend to continue. Information
concerning our business locations, including banking
center and other client-facing facilities, at year-end
2020 is provided in Item 1 of this report under the
caption Physical Business Locations beginning on
page 9, which information is incorporated into this
Item 2 by this reference.
In addition to the banking centers and other offices
mentioned in Item 1, we own or lease other offices
and office buildings, such as our headquarters
building at 165 Madison Avenue in downtown
Memphis, Tennessee. Although some of these other
offices contain banking centers or other client-facing
offices, primarily they are used for operational and
administrative functions. Our operational and
administrative offices are located in several cities
where we have banking centers.
At December 31, 2020, we believe our physical
properties are suitable and adequate for the
businesses we conduct.
ITEM 3. LEGAL
PROCEEDINGS
The Contingencies section from Note 17-Contingencies and Other Disclosures, appearing on pages 181-183 of this
report within our 2020 Financial Statements (Item 8), is incorporated herein by reference.
ITEM 4. MINE SAFETY
DISCLOSURES
Not applicable.
FIRST HORIZON CORPORATION
47
2020 FORM 10-K ANNUAL REPORT
Table of Contents
SUPPLEMENTAL PART I
INFORMATION
Executive Officers of the Registrant
The following is a list of our executive officers, as defined by Securities and Exchange Commission rules, along with
certain supplemental information, all presented as of February 20, 2021. The executive officers generally are
elected at the April meeting of our Board of Directors (following the annual meeting of shareholders) for a term of
one year and until their successors are elected and qualified.
Name & Age
Current (Year First Elected to Office) and Recent Offices & Positions
Terry L.
Akins
Age: 57
Senior Executive Vice President—Chief Risk Officer of First Horizon & the Bank (2020)
Following the closing of the merger of equals between First Horizon and IBKC, Ms. Akins assumed the
role of Senior Executive Vice President—Chief Risk Officer of First Horizon and the Bank. Prior to the
merger, she had several roles with IBERIABANK Corporation and IBERIABANK starting in 2002, the
most recent of which was Senior Executive Vice President and Chief Risk Officer (2017-2020).
Elizabeth A.
Ardoin
Age: 51
Michael J.
Brown
Age: 57
Daryl G.
Byrd
Age: 66
Jeff L.
Fleming
Age: 59
Principal
Accounting
Officer
D. Bryan
Jordan
Age: 59
Principal
Executive
Officer
Tammy S.
LoCascio
Age: 52
Senior Executive Vice President—Chief Communications Officer of First Horizon & the Bank
(2020)
Following the closing of the merger of equals between First Horizon and IBKC, Ms. Ardoin assumed the
role of Senior Executive Vice President—Chief Communications Officer of First Horizon and the Bank.
Prior to the merger, she had several roles with IBERIABANK Corporation and IBERIABANK starting in
2002, the most recent of which was Senior Executive Vice President and Director of Communications
(2002-2020), which included marketing, public relations, human resources, and corporate real estate,
and she served as chief of staff to the CEO.
President—Regional Banking of First Horizon & the Bank (2020)
Following the closing of the merger of equals between First Horizon and IBKC, Mr. Brown assumed the
role of President—Regional Banking of First Horizon and the Bank. Prior to the merger, he had several
roles with IBERIABANK Corporation and IBERIABANK starting in 2001, the most recent of which was
Vice Chairman and Chief Operating Officer (2010-2020). In that role he was responsible for
management of banking markets, treasury management, and wealth management.
Executive Chairman of the Board of First Horizon & the Bank (2020)
Following the closing of the merger of equals between First Horizon and IBKC, Mr. Byrd assumed the
role of Executive Chairman of the Board of First Horizon and the Bank. Prior to the merger, he served as
President (1999-2020) and Chief Executive Officer (2000-2020) of IBERIABANK Corporation and
IBERIABANK.
Executive Vice President—Chief Accounting Officer and Corporate Controller of First Horizon &
the Bank (2012)
Mr. Fleming assumed the role of Executive Vice President—Chief Accounting Officer and Corporate
Controller in 2012. Previously, starting in 1984, he held several positions with us, most recently (before
his current role) Executive Vice President—Corporate Controller (2010-2011).
President and Chief Executive Officer (2008) of First Horizon & the Bank
Mr. Jordan became President and Chief Executive Officer in 2008. He was Chairman of the Board from
2012 until we closed the merger of equals between First Horizon and IBKC in 2020. From 2007 until
2008 Mr. Jordan was Executive Vice President and Chief Financial Officer of FHN and the Bank. From
2000 until 2002 Mr. Jordan was Comptroller, and from 2002 until 2007 Mr. Jordan was Chief Financial
Officer, of Regions Financial Corp. During that time he was also an Executive Vice President and a
Senior Executive Vice President of Regions.
Senior Executive Vice President—Chief Human Resources Officer of First Horizon & the Bank
(2020)
Following the closing of the merger of equals between First Horizon and IBKC, Ms. LoCascio assumed
the role of Senior Executive Vice President—Chief Human Resources Officer of First Horizon and the
Bank. Prior to the merger, starting in 2011, she served in several roles with the Bank, most recently
(before her current role) Executive Vice President—Consumer Banking (2017-2020). In that role she led
the retail, private client/wealth management, mortgage, and small business units.
FIRST HORIZON CORPORATION
48
2020 FORM 10-K ANNUAL REPORT
Table of Contents
William C.
Losch III
Age: 50
Principal
Financial
Officer
David T.
Popwell
Age: 61
Senior Executive Vice President—Chief Financial Officer of First Horizon & the Bank (2009)
Mr. Losch assumed the role of Executive Vice President—Chief Financial Officer of First Horizon & the
Bank in 2009, with “Senior” added to his title in 2020. From 1997 to 2009, Mr. Losch was with Wachovia
Corporation and its predecessors. Most recently he served as Senior Vice President and Chief Financial
Officer of Wachovia’s General Bank unit (2006-2009).
President—Specialty Banking of First Horizon & the Bank (2020)
Following the closing of the merger of equals between First Horizon and IBKC, Mr. Popwell assumed the
role of President—Specialty Banking of First Horizon and the Bank. Prior to the merger, starting in 2007,
he served in several roles, the most recent of which (before his current role) was President—Regional
Banking (2013-2020). From 2004 to 2007 Mr. Popwell was President of SunTrust Bank—Memphis, and
prior to that was an Executive Vice President of National Commerce Financial Corp.
Anthony J.
Restel
Age: 51
Senior Executive Vice President—Chief Operating Officer of First Horizon & the Bank (2020)
Following the closing of the merger of equals between First Horizon and IBKC, Mr. Restel assumed the
role of Senior Executive Vice President—Chief Operating Officer of First Horizon and the Bank. Prior to
the merger, he had several roles with IBERIABANK Corporation and IBERIABANK starting in 2001, the
most recent of which was Vice Chairman and Chief Financial Officer (2005-2020). During his tenure as
Chief Financial Officer, Mr. Restel also served as Chief Credit Officer of IBERIABANK (2007-2009).
Susan L.
Springfield
Age: 56
Senior Executive Vice President—Chief Credit Officer of First Horizon & the Bank (2013)
Ms. Springfield assumed the role of Executive Vice President—Chief Credit Officer of First Horizon & the
Bank in 2013, with “Senior” added to her title in 2020. Previously, starting in 1998, she served the Bank
in several roles, the most recent of which (before her current role) was Executive Vice President—
Commercial Banking (2011-2013)
Selected Other Corporate Officers
Clyde A. Billings, Jr.
Senior Vice President, Assistant General
Counsel, and Corporate Secretary
Dane P. Smith
Senior Vice President
Corporate Treasurer
FIRST HORIZON CORPORATION
49
2020 FORM 10-K ANNUAL REPORT
Table of Contents
PART II
ITEM 5. MARKET FOR THE
REGISTRANT’S COMMON
EQUITY, RELATED
STOCKHOLDER MATTERS,
AND ISSUER PURCHASES
OF EQUITY SECURITIES
Market for Our Common Stock; Common Shareholders
Our sole class of common stock, $0.625 par value, is
listed and trades on the New York Stock Exchange
LLC under the symbol FHN. As of December 31,
2020, there were approximately 9,987 shareholders
of record of our common stock.
Sales of Unregistered Common and Preferred Stock
Common Stock. Not applicable.
Preferred Stock. Not applicable.
Repurchases by Us of Our Common Stock
Under authorizations from our Board of Directors, we
may repurchase shares from time to time for general
purposes and for our stock option and other
compensation plans, subject to market conditions,
accumulation of excess equity, prudent capital
management, and legal and regulatory restrictions.
We evaluate the level of capital and take action
designed to generate or use capital as appropriate for
the interests of the shareholders.
Total Shareholder Return Performance Graph
The following “Total Shareholder Return 2015-2020”
performance graph, which includes the Investment
Returns tabular information, is “furnished” and not
“filed” as part of this report, and is not deemed to be
soliciting material. Notwithstanding anything to the
contrary set forth in this report or in any of our
previous filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as
amended, that might incorporate future filings by
reference, including this report in whole or in part, the
following “Total Shareholder Return 2015-2020”
performance graph shall not be incorporated by
reference into any such filings.
The following graph compares the yearly percentage
change in our cumulative total shareholder return with
Additional information concerning repurchase activity
during the final three months of 2020 is presented in
Tables 15a and 15b, and the surrounding notes and
other text under the caption Common Stock Purchase
Programs beginning on page 69 of our 2020 MD&A
(Item 7), which information is incorporated herein by
this reference.
returns based on the Standards and Poor’s 500 and
Keefe, Bruyette & Woods (KBW) Nasdaq and
Regional Bank Indices. The graph assumes $100 is
invested on December 31, 2015 and dividends are
reinvested. Returns are market-capitalization
weighted.
At year-end 2019 and earlier, First Horizon was
included in the KBW Regional Bank Index. At year-
end 2020, First Horizon is included in the KBW
Nasdaq Bank Index. The change in index resulted
from the merger of equals in 2020 between First
Horizon and IBERIABANK Corporation.
FIRST HORIZON CORPORATION
50
2020 FORM 10-K ANNUAL REPORT
Investment Returns
First Horizon Corporation
S&P 500 Index
KBW Nasdaq Bank Index (BKX)
KBW Regional Bank Index (KRX)
2015
$100.00
$100.00
$100.00
$100.00
2016
$ 140.37
2017
$ 143.10
2018
$ 96.82
2019
$ 126.29
2020
$ 103.34
$ 111.95
$ 136.38
$ 130.39
$ 171.44
$ 202.96
$ 128.51
$ 152.41
$ 125.42
$ 170.72
$ 153.12
$ 139.12
$ 141.63
$ 116.86
$ 144.76
$ 132.18
Source: Bloomberg
ITEM 6.
[reserved]
FIRST HORIZON CORPORATION
51
2020 FORM 10-K ANNUAL REPORT
ITEM 7. MANAGEMENT’S
DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
FHN is a financial holding company headquartered in
Memphis, Tennessee. FHN provides diversified
financial services primarily through its principal
subsidiary, First Horizon Bank. First Horizon Bank's
principal divisions and subsidiaries operate under the
brands of First Horizon Bank, IBERIABANK, First
Horizon Advisors, and FHN Financial. FHN offers
regional banking, mortgage lending, title insurance,
specialized commercial lending, commercial leasing
and equipment financing, brokerage, wealth
management and capital market services through the
First Horizon family of companies. FHN Financial,
which operates partly through a division of First
Horizon Bank and partly through subsidiaries, is an
industry leader in fixed income sales, trading, and
strategies for institutional clients in the U.S. and
abroad. First Horizon Bank has over 490 banking
offices in 12 states and FHN Financial has 29 offices
in 18 states across the U.S. In addition, FHN has 29
title services offices in three states and 15 stand-
alone mortgage lending offices in seven states.
The following discussion and analysis is intended to
assist readers in understanding the consolidated
financial condition and results of operations of FHN. It
should be read in conjunction with the Consolidated
Financial Statements and accompanying Notes to the
Consolidated Financial Statements in Part II, Item 8
of this Form 10-K, as well as with the other
information contained in this report.
EXECUTIVE OVERVIEW
Recent Events
Merger and Branch Purchase
On July 1, 2020, FHN and IBKC closed their merger
of equals transaction. Under the merger agreement,
each share of IBKC common stock was converted
into 4.584 shares of FHN common stock. FHN issued
243 million shares of FHN common stock and three
new series of preferred stock in a transaction valued
at $2.5 billion. At the time of closing, IBKC operated
319 offices in 12 states, mostly in the southern U.S.
In connection with this transaction, FHN recorded
preliminary purchase price allocations and recognized
a purchase accounting gain of $533 million.
On July 17, 2020, First Horizon Bank completed its
purchase of 30 branches from Truist Bank. As part of
the transaction, FHN assumed $2.2 billion of branch
deposits for a 3.40% deposit premium and purchased
$423 million of branch loans. The acquired branches
are in communities in North Carolina (20 branches),
Virginia (8 branches), and Georgia (2 branches).
In relation to these transactions, FHN's operating
results include the operating results of the acquired
assets and assumed liabilities subsequent to the
respective transaction dates. Refer to Note 2 -
Acquisitions and Divestitures for additional
information.
COVID-19 Pandemic
The COVID-19 pandemic has caused and continues
to cause significant, unprecedented disruption to the
national economy as well as the local economies
within FHN's footprint. FHN continues to closely
monitor the pandemic and its effects on clients and
the financial markets in which FHN conducts
business. The impact of the pandemic on 2020
results is discussed throughout the Results of
Operations section of this MD&A. Further detail on
FHN's response to the pandemic is discussed in the
Market Uncertainties and Prospective Trends section
included in this MD&A.
Adoption of CECL
Effective January 1, 2020, FHN adopted ASU
2016-13, "Measurement of Credit Losses on
Financial Instruments," (CECL) which resulted in a
$107 million increase to the ALLL and a $24 million
increase to the reserve for unfunded lending
commitments, resulting in a $96 million decrease in
retained earnings (net of taxes). See Note 1–
Significant Accounting Policies for additional
information.
FIRST HORIZON CORPORATION
52
2020 FORM 10-K ANNUAL REPORT
Other Recent Transactions
In April 2020, First Horizon Bank issued $450 million
of 5.75% Subordinated Notes due May 1, 2030.
Interest payments are due semi-annually on May 1
and November 1, commencing November 1, 2020.
The sale of the notes resulted in net proceeds to FHN
of approximately $447 million. The notes qualify as
Tier 2 capital for the Bank as well as FHN, up to
certain regulatory limits for minority capital
instruments.
In May 2020, FHN issued $450 million of 3.55%
Senior Notes due May 26, 2023 and $350 million of
4.00% Senior Notes due May 26, 2025. Interest
payments are due semi-annually on May 26 and
November 26, commencing November 26, 2020. The
sale of these notes resulted in net proceeds to FHN
of approximately $795 million.
In May 2020, FHN issued 1,500 shares having an
aggregate liquidation preference of $150 million of
Series E Non-Cumulative Perpetual Preferred Stock
for net proceeds of approximately $144 million.
Dividends on the Series E Preferred Stock, if
declared, accrue and are payable quarterly, in
arrears, at a rate of 6.50% per annum. For the
issuance, FHN issued depositary shares, each of
which represents a fractional ownership interest in a
share of FHN’s preferred stock. The Series E
Preferred Stock qualifies as Tier 1 Capital for FHN.
2020 Financial Performance Summary
FHN reported net income available to common
shareholders of $822 million, or $1.89 per diluted
share, compared to net income of $435 million, or
$1.38 per diluted share in 2019 driven by the impact
of the July 1, 2020 IBKC merger. FHN's results of
operations for 2020 produced a return on average
assets of 1.33% and a return on average common
equity of 13.66% compared to 1.08% and 9.60% for
2019.
Total revenue of $3.2 billion increased $1.3 billion
from 2019. Net interest income was $1.7 billion, an
increase of $452 million compared to the prior year.
The increase in net interest income was driven by an
increase in average interest-earning assets as a
result of the IBKC merger and Truist branch
acquisition. Results also reflect the benefit of deposit
pricing discipline and PPP lending, which helped to
partially offset the impact of lower interest rates.
Noninterest income of $1.5 billion increased $838
million compared to 2019 driven by the impact of the
IBKC merger, which included a $533 million
preliminary purchase accounting gain. Results also
reflect increases in fixed income and mortgage
banking and title income that helped to partially offset
a reduction in traditional banking fees.
Noninterest expense totaled $1.7 billion, a 39%
increase from 2019, largely as a result of the IBKC
merger. Results also reflect an increase in charitable
contributions, partially offset by lower restructuring
and rebranding expenses.
Provision for credit losses of $503 million increased
from $45 million in 2019 driven by the adoption of
CECL and the deterioration in the overall macro-
economic outlook tied to the COVID-19 pandemic.
Results also reflect the impact of the IBKC merger
and Truist branch acquisition, including provision
related to acquired non-PCD loans.
Total assets at December 31, 2020 were $84.2 billion,
an increase of $40.9 billion compared to
December 31, 2019. The IBKC merger and the Truist
branch acquisition contributed $36.0 billion in total
assets, including $26.3 billion in loans and leases.
Refer to Note 2 - Acquisitions and Divestitures for
additional details related to the opening balances
from these transactions.
Total deposits at December 31, 2020 of $70.0 billion
increased $37.6 billion from 2019 driven by the IBKC
merger and Truist branch acquisition which
contributed $30.4 billion in total deposits.
FHN maintained strong capital measures. The Tier 1
risk-based capital and total risk-based capital ratios at
December 31, 2020 were 10.74% and 12.57%,
respectively, compared to 10.15% and 11.22% at
December 31, 2019, respectively. The CET1 ratio
was 9.68% at December 31, 2020 compared to
9.20% in the prior year.
FIRST HORIZON CORPORATION
53
2020 FORM 10-K ANNUAL REPORT
Table 1 - Key Performance Indicators
(Dollars in millions, except per share data)
Pre-Provision Net Revenue (a)
Diluted earnings per common share
Return on average assets (b)
Return on average common equity (c)
Return on average tangible common equity (a) (d)
Net interest margin (e)
Fee income to total revenue (f)
Efficiency ratio (g)
Allowance for loan and lease losses to total loans and leases
Net charge-offs to average loans and leases
Total period-end equity to period-end assets
Tangible common equity to tangible assets (a)
Cash dividends declared per common share
Book value per common share
Tangible book value per common share (a)
Common equity Tier 1
Market capitalization
For the years ended December 31,
2020
2019
2018
$
$
1,436
1.89
$
$
631
1.38
$
$
722
1.65
1.33 %
1.08 %
1.38 %
13.66 %
9.60 %
12.75 %
19.03 %
14.71 %
20.28 %
2.86 %
3.28 %
3.45 %
47.41 %
35.08 %
29.48 %
54.37 %
66.15 %
70.54 %
1.65 %
0.64 %
0.26 %
0.09 %
0.66 %
0.06 %
9.86 %
11.72 %
11.72 %
6.89 %
7.48 %
7.15 %
$
$
$
0.60
13.59
10.23
$
$
$
0.56
15.04
10.02
$
$
$
0.48
13.79
8.81
9.68 %
9.20 %
9.77 %
$ 7,082.2
$ 5,157.9
$ 4,192.4
(a) Represents a non-GAAP measure which is reconciled in the non-GAAP to GAAP reconciliation in Table 28.
(b) Calculated using net income divided by average assets.
(c) Calculated using net income available to common shareholders divided by average common equity.
(d) Calculated using net income available to common shareholders divided by average tangible common equity.
(e) Net interest margin is computed using total net interest income adjusted to an FTE basis assuming a statutory federal
income tax rate of 21% and, where applicable, state income taxes.
(f) Ratio is fee income excluding securities gains (losses) to total revenue excluding securities gains (losses).
(g) Ratio is noninterest expense to total revenue excluding securities gains (losses).
RESULTS OF OPERATIONS — 2020 compared to
2019
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 $1.7 billion in 2020 increased
37% from 2019 driven by the impact of the IBKC
merger and Truist Branch acquisition which helped to
more than offset the impact of the challenging interest
rate environment.
FHN's net interest margin decreased 42 basis points
from 2019 to 2.86% in 2020, while the net interest
spread decreased 22 basis points to 2.68% over the
same period. Net interest margin and net interest
spread were unfavorably impacted by a 113 basis
point decrease in earning asset yields as the impact
of lower short-term interest rates was partially offset
by the benefit of purchase accounting accretion and
PPP lending. A lower yield on earning assets was
partially offset by a 91 basis point decrease in the
cost of interest-bearing liabilities driven by disciplined
deposit pricing.
The activity levels and related funding for FHN’s fixed
income activities affect the net interest margin.
Generally, fixed income activities compress the
margin, especially where there are elevated levels of
trading inventory, because of the strategy to reduce
market risk by economically hedging a portion of its
inventory on the balance sheet.
FIRST HORIZON CORPORATION
54
2020 FORM 10-K ANNUAL REPORT
The following table presents the major components of net interest income and net interest margin:
Table 2 —Average Balances, Net Interest Income and Yields/Rates
(Dollars in millions)
Assets:
Earning assets:
Loans and leases:
2020
Interest
Income/
Expense
Average
Balance
Yield/
Rate
Average
Balance
2019
Interest
Income/
Expense
Yield/
Rate
Average
Balance
2018
Interest
Income/
Expense
Yield/
Rate
Commercial loans and leases $ 36,146 $ 1,324
3.66 % $ 22,385 $ 1,091
4.87 % $ 20,079 $
973
4.84 %
Consumer loans
Total loans and leases
Loans held for sale
Investment securities
Trading securities
Other earning assets:
Federal funds sold
Securities purchased under
agreements to resell
Interest-bearing deposits with
banks
Total other earning
assets
Total earning assets / Total interest
income
Non-earning assets:
Cash and due from banks
Goodwill and other intangible
assets, net
Premises and equipment, net
Allowance for loan and lease
losses
Other assets
Total assets
10,037
46,183
835
6,464
1,433
42
505
3,006
3,553
407
4.05
1,731
3.75
30
3.60
106
1.64
35
2.44
—
0.21
2
0.45
5
0.14
6,804
29,189
578
4,510
1,415
48
555
871
311
4.57
1,402
4.80
31
5.39
121
2.69
47
3.33
1
2.63
11
1.96
20
2.18
7,135
27,214
724
4,728
1,604
38
745
624
322
4.51
1,295
4.76
45
6.23
130
2.77
59
3.70
1
2.47
12
1.63
13
1.89
7
0.19
1,474
32
2.11
1,407
26
1.77
$ 58,468 $ 1,909
3.26 % $ 37,166 $ 1,633
4.39 % $ 35,677 $ 1,555
4.36 %
852
1,696
604
(700)
3,426
602
1,575
467
(191)
2,125
585
1,570
522
(188)
2,059
$ 64,346
$ 41,744
$ 40,225
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Savings
$ 19,780 $
82
0.41 % $ 11,663 $
144
1.24 % $ 11,289 $
108
0.95 %
Other interest-bearing
deposits
Time deposits
Total interest-bearing
deposits
Federal funds purchased
Securities sold under agreements
to repurchase
Trading liabilities
Other short-term borrowings
Term borrowings
Total interest-bearing liabilities /
Total interest expense
Noninterest-bearing liabilities:
Noninterest-bearing deposits
Other liabilities
Total liabilities
11,973
4,347
36,100
862
1,109
457
626
1,578
31
39
0.26
0.90
8,345
4,262
79
84
0.94
1.97
7,932
3,682
56
53
0.70
1.44
152
0.42
24,270
307
1.27
22,903
217
0.95
3
0.34
5
6
6
0.46
1.24
0.92
738
701
503
538
64
4.02
1,117
15
2.08
13
1.89
13
13
53
2.48
2.34
4.77
405
714
683
1,046
1,212
8
1.89
10
1.40
19
19
53
2.83
1.82
4.38
$ 40,732 $
236
0.58 % $ 27,867 $
414
1.49 % $ 26,963 $
326
1.21 %
15,779
1,226
57,737
8,133
824
36,824
8,001
644
35,608
FIRST HORIZON CORPORATION
55
2020 FORM 10-K ANNUAL REPORT
Shareholders' equity
Noncontrolling interest
Total shareholders' equity
6,314
295
6,609
Total liabilities and shareholders'
equity
$ 64,346
4,625
295
4,920
4,322
295
4,617
$ 41,744
$ 40,225
Net earnings assets / Net
interest income (TE) / Net
interest spread
Taxable equivalent adjustment
Net interest income / Net
interest margin (a)
$ 17,736 $ 1,673
2.68 % $
9,299 $ 1,219
2.90 % $
8,714 $ 1,229
3.15 %
(11) 0.18
(9) 0.38
(9) 0.30
$ 1,662
2.86 %
$ 1,210
3.28 %
$ 1,220
3.45 %
(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.
FIRST HORIZON CORPORATION
56
2020 FORM 10-K ANNUAL REPORT
The following table presents the change in interest income and interest expense due to changes in both average
volume and average rate.
Table 3 - Analysis of Changes in Net Interest Income
(Dollars in millions)
Interest income:
Loans and leases
Loans held for sale
Investment securities
Trading securities
Other earning assets:
Federal funds sold
Securities purchased under agreements to
resell
Interest-bearing deposits with banks
Total other earning assets
Total change in interest income - earning assets
Interest expense:
Interest-bearing deposits:
Savings
Time deposits
Other interest-bearing deposits
Total interest-bearing deposits
Federal funds purchased
Securities sold under agreements to repurchase
Trading liabilities
Other short-term borrowings
Term borrowings
Total change in interest expense - interest-
bearing liabilities
Net interest income
2020 Compared to 2019
Increase (Decrease) Due to (a)
2019 Compared to 2018
Increase (Decrease) Due to (a)
Rate (b) Volume (b)
Total
Rate (b)
Volume (b)
Total
$
(361) $
689 $
328 $
13 $
95 $
108
(12)
(58)
(12)
(1)
(8)
(30)
(39)
11
42
—
—
(1)
15
14
(1)
(16)
(12)
(1)
(9)
(15)
(25)
(6)
(4)
(5)
—
2
2
4
(8)
(6)
(7)
—
(3)
5
2
(14)
(10)
(12)
—
(1)
7
6
$
(482) $
756 $
274 $
2 $
76 $
78
$
(129) $
66 $
(63) $
33 $
4 $
(47)
(72)
(248)
(14)
(13)
(6)
(9)
(9)
2
25
93
2
5
(1)
2
20
(45)
(47)
(155)
(12)
(8)
(7)
(7)
11
21
20
74
1
3
(2)
5
4
9
3
16
7
—
(5)
(11)
(4)
37
30
23
90
8
3
(7)
(6)
—
(299)
(183) $
$
121 $
635 $
(178)
452 $
85
(83) $
3 $
73 $
88
(10)
(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 and amounts of the changes in each.
(b) Variances are computed on a line-by-line basis and are non-additive.
FIRST HORIZON CORPORATION
57
2020 FORM 10-K ANNUAL REPORT
adoption of CECL and the impact of the COVID-19
pandemic. Results also reflect the impact of the IBKC
merger and Truist branch acquisition including $147
million related to non-PCD loans. For additional
information about general asset quality trends refer to
the Asset Quality section in this MD&A.
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 increased to $503 million in
2020, compared to $45 million in 2019 driven by the
Noninterest Income
The following table reflects noninterest income for the past three years:
Table 4—Noninterest Income
(Dollars in millions)
Noninterest income:
$
Fixed income
Deposit transactions and cash
management
Mortgage banking and title income
Brokerage, management fees and
commissions
Trust services and investment
management
Bankcard income
Securities gains (losses), net
Purchase accounting gain
Other income
Total noninterest income
NM – Not meaningful
148
129
66
39
37
(6)
533
123
$ 1,492 $
Noninterest income totaled $1.5 billion in 2020,
$654 million in 2019, and $723 million in 2018, or
47%, 35%, and 37% of total revenue, respectively.
The increase in noninterest income in 2020 was
driven by the impact of the IBKC merger and included
a preliminary purchase accounting gain of
$533 million. Results also reflected the benefit of
strong fixed income revenue during the year and
higher mortgage banking and title income from the
addition of IBKC.
The major component of fixed income revenue is
generated from the purchase and sale of fixed
income securities as both principal and agent. Other
2020
2019
2018
2020 vs. 2019
%
Change
$
Change
2019 vs. 2018
%
$
Change
Change
423 $
279 $
168 $
144
52 % $
111
66 %
132
10
55
30
28
—
—
133
11
55
30
29
213
—
120
654 $
84
723 $
16
119
12 %
NM
(1)
(1)
(1) %
(9) %
11
20 %
—
— %
9
9
(6)
533
3
838
30 %
32 %
NM
NM
3 %
128 % $
—
(1)
(213)
—
36
(69)
— %
(3) %
NM
NM
43 %
(10) %
noninterest revenues within this line item consist
principally of fees from derivative sales, portfolio
advisory services and loan sales. Securities inventory
positions are procured for distribution to clients by the
sales staff. Fixed income increased 52%, or $144
million, to $423 million in 2020. Fixed income product
revenue increased 63%, or $143 million, largely
driven by favorable market conditions including
market volatility and increased depository liquidity,
while revenue from other products increased 2%, or
$1 million in 2020, largely driven by higher fees from
derivative sales and portfolio advisory services,
somewhat offset by lower fees from loan sales.
FIRST HORIZON CORPORATION
58
2020 FORM 10-K ANNUAL REPORT
Table 5—Fixed Income
(Dollars in millions)
Noninterest income:
Fixed income
Other product revenue
2020
2019
2018
2020 vs. 2019 2019 vs. 2018
% Change
Total fixed income noninterest income $
423 $
279 $
$
371 $
228 $
52
51
132
36
168
63 %
2 %
52 %
73 %
42 %
66 %
Trust services and investment management income
of $39 million increased $9 million from 2019, driven
by the IBKC merger.
Bankcard income of $37 million in 2020 increased
$9 million from 2019, driven by the impact of the
IBKC merger.
Noninterest Expense
The following table reflects noninterest expense for
the past three years:
Fees from deposit transactions and cash
management activities of $148 million in 2020
increased $16 million, or 12%, from 2019. The
increase was primarily driven by the impact of the
IBKC merger and Truist branch acquisition which
partially offset pandemic-related impacts including
lower transaction volume and fee waivers.
Mortgage banking and title income of $129 million in
2020 increased from $10 million in 2019 driven by the
impact of the IBKC merger and higher activity due to
the low interest rate environment.
Brokerage, management fees and commissions of
$66 million increased from $55 million in 2019 driven
by the impact of the IBKC merger and an increase in
annuity income and advisory fees. Brokerage,
management fees and commissions include fees for
portfolio management, trade commissions, and
annuity and mutual funds sales.
Table 6—Noninterest Expense
2020
2019
2018
2020 vs. 2019
%
Change
$
Change
2019 vs. 2018
%
Change
$
Change
$ 1,033 $
(Dollars in millions)
Noninterest expense:
Personnel expense
Net occupancy expense
Computer software
Legal and professional fees
Operations services
Contributions
Equipment expense
Amortization of intangible assets
Communications and delivery
Advertising and public relations
Other expense
Total noninterest expense
116
85
84
56
41
42
40
31
18
172
$ 1,718 $
695 $
80
61
72
46
11
34
25
25
34
150
1,233 $
658 $
85
61
57
56
1
39
26
30
25
183
1,221 $
338
36
24
12
10
30
8
15
6
(16)
22
485
49 % $
45 %
39 %
17 %
22 %
NM
24 %
60 %
24 %
(47) %
15 %
39 % $
37
(5)
—
15
(10)
10
(5)
(1)
(5)
9
(33)
12
6 %
(6) %
— %
26 %
(18) %
NM
(13) %
(4) %
(17) %
36 %
(18) %
1 %
NM - Not meaningful
Total noninterest expense of $1.7 billion increased
$485 million driven by the impact of the IBKC merger
and Truist branch acquisition mitigated in part by a
reduction in noninterest expense as a result of both
FIRST HORIZON CORPORATION
59
2020 FORM 10-K ANNUAL REPORT
the COVID-19 shutdown and expense discipline,
including the benefit of merger cost saves.
Personnel expense of $1.0 billion increased $338
million from 2019 driven by the impact of the IBKC
merger and Truist branch acquisition. Results also
reflect an increase tied to higher revenue-based
compensation due to increased revenues in fixed
income and mortgage banking, a one-time bonus to
certain employees, and COVID-related vacation
carryover accrual costs. A decrease in restructuring
costs from 2019 to 2020 partially offset these
changes.
Net occupancy expense of $116 million in 2020
increased 45% from 2019 driven by the impact of the
IBKC merger and the Truist branch acquisition.
Computer software expense was $85 million in 2020,
a 39% increase compared to $61 million in 2019,
primarily the result of the inclusion of IBKC computer
software and service expenses in the second half of
2020, and to a lesser extent, merger- and integration-
related expenses.
Legal and professional fees increased $12 million, or
17%, to $84 million in 2020, primarily the result of an
increase in merger and integration-related expenses
and the inclusion of IBKC, partially offset by lower
restructuring costs associated with efficiency
initiatives recognized in 2019.
Operations services expense increased $10 million,
or 22%, to $56 million in 2020, primarily from the
inclusion of IBKC expenses in the second half of
2020.
Contributions increased $30 million in 2020, primarily
due to a $20 million contribution to the Louisiana First
Horizon Foundation in connection with the IBKC
merger and a $15 million donation of Paycheck
Protection Plan fees to the First Horizon Foundation
to assist low- and moderate-income communities.
Equipment expense increased $8 million, or 24%, in
2020 driven by the impact of the IBKC merger and
Truist branch acquisition.
Amortization of intangible assets of $40 million in
2020 increased $15 million compared to 2019
primarily due to the intangible assets created in the
IBKC merger.
Income Taxes
FHN recorded income tax expense of $76 million in
2020 compared to $134 million in 2019, resulting in
an effective tax rate of 8.2% and 22.8% respectively.
The decrease in the effective tax rate from 2019 to
2020 was primarily the result of the preliminary
purchase accounting gain from the IBKC merger,
which is not taxable.
FHN’s effective 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-deductibility of
a portion of FHN's FDIC premium, executive
compensation and merger expenses. The 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.
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 enacted statutory tax rates, applicable to
future years, to these temporary differences. FHN’s
net DTA was less than $1 million and $69 million at
December 31, 2020 and 2019, respectively.
As of December 31, 2020, FHN had deferred tax
asset balances related to federal and state income
tax carryforwards of $47 million and $9 million, which
will expire at various dates. Refer to Note 15 - Income
Taxes for additional information.
FHN’s gross DTA after valuation allowance was $471
million and $250 million as of December 31, 2020 and
2019, respectively. Based on current analysis, FHN
believes that its ability to realize the remaining 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.
With few exceptions, FHN tax returns are not
currently under federal or state tax examination. In
2020, FHN finalized IRS examinations for the FHN
federal consolidated tax returns for 2013 through
2015 and for the Capital Bank Financial Corporation
federal consolidated tax returns for 2010 through
2012. IBKC's federal consolidated tax returns for
FIRST HORIZON CORPORATION
60
2020 FORM 10-K ANNUAL REPORT
2017 and 2018 are currently under examination by
the IRS. See Note 15 - Income Taxes for additional
information.
Business Segment Results
During the fourth quarter of 2020, FHN reorganized
its internal management structure and, accordingly,
its segment reporting structure. Historically, FHN's
primary business segments were Regional Banking,
Fixed Income, Corporate, and Non-strategic. On July
1, 2020, FHN and IBKC closed their merger of equals
transaction. This transaction prompted organizational
changes to better integrate and execute the
combined Company's strategic priorities across all
lines of businesses. As a result, FHN revised its
reportable segments as described below.
• Regional Banking segment offers financial
products and services, including traditional
lending and deposit taking, to consumer and
commercial clients primarily in the southern
U.S. and other selected markets. Regional
Banking also provides investment, wealth
management, financial planning, trust and
asset management services for consumer
clients.
•
•
Specialty Banking segment consists of lines
of business that deliver product offerings and
services with specialized industry knowledge.
Specialty Banking’s lines of business include
asset-based lending, mortgage warehouse
lending, commercial real estate, franchise
finance, correspondent banking, equipment
finance, mortgage, and title insurance. In
addition to traditional lending and deposit
taking, Specialty Banking also delivers
treasury management solutions, loan
syndications, international banking and SBA
lending. Additionally, Specialty Banking has
a line of business focused on fixed income
securities sales, trading, underwriting, and
strategies for institutional clients in the U.S.
and abroad, as well as loan sales, portfolio
advisory services, and derivative sales.
Corporate segment consists primarily of
corporate support functions including risk
management, audit, accounting, finance,
executive office, and corporate
communications. Shared support services
such as human resources, properties,
technology, credit risk and bank operations
are allocated to the activities of Regional
Banking, Specialty Banking and Corporate.
Additionally, the Corporate segment includes
centralized management of capital and
funding to support the business activities of
the company including management of
wholesale funding, liquidity, and capital
management and allocation. Finally, the
Corporate segment also includes the revenue
and expense associated with run-off
businesses such as pre-2009 mortgage
banking elements, run-off consumer and trust
preferred loan portfolios, and other exited
businesses.
Segment results for years prior to 2020 have been
recast to adjust for the realignment of the segment
reporting structure. See Note 20 - Business Segment
Information for additional disclosures related to FHN's
operating segments.
Regional Banking
Pre-tax income within the Regional Banking segment
decreased $54 million, or 13%, in 2020 reflecting
increases in the provision for credit losses and
noninterest expense, somewhat offset by an increase
in revenue.
Net interest income increased $534 million, or 69%,
in 2020 driven by merger-related earning asset
growth, deposit pricing discipline, and PPP lending,
partially offset by the negative impact of the low rate
environment.
Noninterest income increased $54 million, or 19%,
largely attributable to increases in other fee income
driven by the addition of IBKC.
Provision for credit losses increased to $392 million in
2020 from $24 million in 2019, primarily the result of
the adoption of CECL, deterioration in the economic
forecast attributable to the effects of the COVID-19
pandemic, and provision related to acquired non-PCD
loans.
Noninterest expense was $900 million in 2020, an
increase of $274 million compared to 2019, primarily
as a result of the addition of IBKC.
Specialty Banking
Pre-tax income in the Specialty Banking segment was
$551 million in 2020 compared to $374 million in
2019. The improvement in results in 2020 was driven
by higher revenue which outpaced an increase in
expenses.
Net interest income increased $139 million, or 31%,
in 2020 primarily driven by merger-related earning
asset growth, partially offset by the negative impact of
the low rate environment.
Noninterest income increased $258 million, or 81%,
from 2019 primarily driven by strong fixed income
FIRST HORIZON CORPORATION
61
2020 FORM 10-K ANNUAL REPORT
revenue from favorable market conditions and higher
mortgage banking and title income as a result of the
IBKC merger and increased activity due to the low
rate environment.
Provision for credit losses increased to $117 million
compared to $37 million in 2019 as a result of the
same factors listed above for the Regional Banking
segment.
Noninterest expense increased $140 million, or 40%,
to $491 million in 2020, largely attributable to the
addition of IBKC in the second half of the year.
Personnel expense contributed $128 million of this
increase, a result of increased headcount from the
merger and branch acquisition as well as higher
incentive compensation.
Corporate
Pre-tax income for the Corporate segment was
$24 million for 2020 compared to a pre-tax loss of
$200 million for 2019, primarily driven by the
preliminary purchase accounting gain from the IBKC
merger.
Net interest expense was $228 million in 2020
compared to $7 million in 2019. Net interest expense
was unfavorably impacted by the funds transfer
pricing methodology, with the offset in the Regional
Banking segment.
Noninterest income was $573 million, up from
$47 million in 2019, primarily from the preliminary
purchase accounting gain related to the IBKC merger.
Noninterest expense increased to $327 million in
2020 from $256 million in 2019, primarily from a $116
million increase in merger and integration-related
charges and expenses associated with the inclusion
Table 7 - Composition of Securities Portfolio
of IBKC, somewhat offset by $40 million of
restructuring, repositioning, and efficiency initiative
costs recognized in 2019.
Restructuring, Repositioning, and Efficiency
Initiatives
Beginning in first quarter 2019, FHN initiated a
company-wide review of business practices with the
goal of optimizing its expense base to improve
profitability and create capacity to reinvest savings
into technology and revenue production activities.
The net charges for restructuring, repositioning, and
efficiency initiatives were $40 million in 2019,
primarily associated with professional fees, asset
impairments, and severance and other employee
costs. These charges were insignificant in 2020. Due
to the broad nature of the actions being taken, many
components of expense are expected to benefit from
the efficiency initiatives. See Note 25 - Restructuring,
Repositioning, and Efficiency for additional
information.
RESULTS OF OPERATIONS - 2019 compared with
2018
For a description of FHN's results of operations for
2019, see the "Income Statement Review - 2019
compared to 2018; 2018 compared to 2017" section
of Item 7 in our 2019 Form 10-K.
ANALYSIS OF FINANCIAL CONDITION
Investment Securities
The following table presents the carrying value of
securities by category as of December 31 for the
years indicated:
2020
2019
Balance
Mix
Balance
Mix
(Dollars in millions)
Securities available for sale:
U.S. treasuries
Government agency issued MBS and CMO
$
Other U.S. government agencies (a)
Corporate and other debt
States and municipalities
SBA-interest only strips
613
6,218
684
40
460
32
8 % $
77 %
9 %
— %
6 %
— %
—
4,019
307
40
60
19
—
90 %
7
1
1
1
Total securities available for sale
$
8,047
100 % $
4,445
100 %
(a) Includes securities issued by government sponsored entities which are not backed by the full faith and credit of the U.S. Government.
FIRST HORIZON CORPORATION
62
2020 FORM 10-K ANNUAL REPORT
FHN’s investment portfolio consists principally of debt
securities including government agency issued
mortgage-backed securities and collateralized
mortgage obligations, all of which are classified as
AFS. The securities portfolio provides a source of
income and liquidity and is an important tool used to
balance the interest rate risk of the loan and deposit
portfolios.The securities portfolio is periodically
evaluated in light of established ALM objectives,
changing market conditions that could affect the
profitability of the portfolio, the regulatory
environment, and the level of interest rate risk to
which FHN is exposed. These evaluations may result
in steps taken to adjust the overall balance sheet
positioning.
Investment securities were $8.0 billion and
$4.4 billion on December 31, 2020 and 2019,
representing 10% of total assets for both periods. The
increase in investment securities was due primarily to
the IBKC merger which contributed $3.5 billion in
securities. See Note 3 - Investment Securities in Item
8 for additional detail.
The following table presents an analysis of the amortized cost, remaining contractual maturities, and weighted-
average yields by contractual maturity for the debt securities portfolio.
Table 8—Contractual Maturities of Investment Securities
Within 1 year
Amount
Yield
(b)
As of December 31, 2020
After 1 year
Within 5 years
After 5 years
Within 10 years
After 10 years
Amount
Yield
(b)
Amount
Yield
(b)
Amount
Yield
(b)
$
21
2.85 % $
428
1.82 % $ 1,224
1.50 % $
4,429
1.41 %
(Dollars in millions)
Securities available for sale:
Government agency issued MBS
and CMO (a)
U.S. treasuries
613
0.13
Other U.S. government agencies
126
2.78
States and municipalities
Corporate and other debt
2
15
3.08
5.96
—
—
43
92
25
2.62
0.63
4.04
—
—
32
1.16
152
—
1.15
—
—
—
471
1.65
199
—
2.44
—
Total securities available for sale $
777
0.75 % $
588
1.78 % $ 1,408
1.45 % $
5,099
1.47 %
(a) Represents government agency-issued mortgage-backed securities and collateralized mortgage obligations which, when
adjusted for early pay downs, have an estimated average life of 3.5 years.
(b) Weighted average yields were calculated using amortized cost on a fully-taxable equivalent basis, assuming a 25% tax rate
where applicable.
FIRST HORIZON CORPORATION
63
2020 FORM 10-K ANNUAL REPORT
Loans and Leases
The following table provides detail regarding FHN's loans and leases:
Table 9— Loans and Leases
(Dollars in millions)
Commercial:
Commercial, financial,
and industrial (b)
Commercial real
estate
Total commercial
Consumer:
Consumer real estate
(c)
Credit card and other
Total consumer
Total loans and leases
$
2020 (a)
Percent
of total
2020
(a)
Growth
Rate
Percent
of total
2019
Growth
Rate
2018
Percent
of total
2018
Growth
Rate
2019
$
33,104
57 %
65 % $
20,051
65 %
21 % $
16,514
60 %
3 %
12,275
45,379
11,725
1,128
12,853
58,232
21
78
20
2
183
86
90
127
4,337
24,388
6,177
496
14
79
20
1
8
19
(5)
(4)
4,031
20,545
6,472
518
15
75
23
2
22
100 %
93
87 % $
6,673
31,061
21
100 %
(5)
13 % $
6,990
27,535
25
100 %
(4)
1
(4)
(16)
(5)
— %
(a) 2020 includes the impact of balances related to the IBKC merger on July 1, 2020 and Truist Bank branch acquisition on July
17, 2020.
(b) Includes equipment financing loans and leases.
(c) 2018 include $16 million of restricted and secured real estate loans. There were no such restricted and secured loans at
December 31, 2020 or 2019.
Total loans and leases were $58.2 billion on
December 31, 2020, up from $31.1 billion on
December 31, 2019, driven primarily by acquired
IBKC and Truist Bank loans, as well as the origination
of PPP loans.
C&I loans are the largest component of the loan and
lease portfolio, comprising 57% of total loans and
leases in 2020 and 65% in 2019. C&I loans increased
65%, or $13.1 billion, from 2019 largely driven by
acquired loans and PPP loan originations, as well as
strong loan growth within the mortgage warehouse
lending portfolio of Specialty Banking and commercial
portfolios of both Regional Banking and Specialty
Banking. Growth in other specialty lending areas
within Specialty Banking, such as energy and
healthcare, also meaningfully contributed to the
overall growth in C&I loans from 2019. Commercial
real estate loans increased 183% to $12.3 billion in
2020, also primarily driven by acquired IBKC loans.
Total consumer loans increased 93%, or $6.2 billion,
from the end of 2019, largely a result of the growth of
real estate installment loans and home equity lines of
credit within the Regional Banking segment, driven by
acquired IBKC loans, offset by the continued wind-
down of portfolios within the Corporate segment.
FIRST HORIZON CORPORATION
64
2020 FORM 10-K ANNUAL REPORT
The following table provides a detail of contractual maturities on December 31, 2020.
Table 10—Contractual Maturities of Loans and Leases
After 1 Year
Within 5
Years
As of December 31, 2020
After 5 Years
Within 15
Years
After 15 Years
17,371 $
7,022
1,093
318
25,804 $
5,278 $
2,618
2,550
154
10,600 $
451 $
82
7,790
389
8,712 $
Within 1 Year
$
10,004 $
2,553
292
267
13,116 $
$
Total
33,104
12,275
11,725
1,128
58,232
(Dollars in millions)
Commercial, financial, and industrial
Commercial real estate
Consumer real estate
Credit card and other
Total loans and leases
For maturities over one year at fixed interest
rates:
Commercial, financial, and industrial
Commercial real estate
Consumer real estate
Credit card and other
Total loans and leases at fixed interest
rates
For maturities over one year at floating
interest rates:
Commercial, financial, and industrial
Commercial real estate
Consumer real estate
Credit card and other
Total loans and leases at floating interest
rates
Total maturities over one year
Because of various factors, the contractual maturities
of consumer loans are not indicative of the actual
lives of such loans. A significant component of FHN’s
loan portfolio consists of consumer real estate loans,
a majority of which are home equity lines of credit and
home equity installment loans. These loans have an
initial period where the borrower is only required to
pay the periodic interest. After the interest-only
period, the loan will require the payment of both
principal and interest over the remaining term.
Numerous factors can contribute to the actual life of a
home equity line or installment loan. As a result, the
actual average life of home equity lines and loans is
difficult to predict and changes in any of these factors
could result in changes in projections of average
lives.
$
7,784 $
2,274
944
122
2,556 $
805
1,952
134
79 $
17
1,880
41
10,419
3,096
4,776
297
$
11,124 $
5,447 $
2,017 $
18,588
$
$
$
9,587 $
4,748
149
196
2,722 $
1,813
598
20
372 $
65
5,910
348
14,680 $
25,804 $
5,153 $
10,600 $
6,695 $
8,712 $
12,681
6,626
6,657
564
26,528
45,116
secondary market. The legacy FHN loans HFS
portfolio consists of small business, other consumer
loans, the mortgage warehouse, USDA, student, and
home equity loans. The average balance of loans
HFS increased to $835 million in 2020 from $578
million in 2019. On December 31, 2020, loans HFS
were $1.0 billion, a $428 million increase compared to
December 31, 2019. The increase in loans HFS was
primarily driven by the additional volume of mortgage
loans originated from the IBKC merger. Held-for-sale
consumer mortgage loans secured by residential real
estate in process of foreclosure totaled $2 million and
$7 million at December 31, 2020 and 2019,
respectively.
Deposits
Loans Held for Sale
FHN obtained IBKC's mortgage banking operations
which included origination and servicing of residential
first lien mortgages which primarily consist of fixed
rate single-family residential mortgage loans
originated by IBKC and committed to be sold in the
Total deposits were $70.0 billion at December 31,
2020, up $37.6 billion from $32.4 billion for year-end
2019, driven by $28.2 billion in acquired IBKC
deposits and $2.2 billion in acquired Truist deposits.
In addition, deposit balances were impacted by
significant client deposit inflows beginning in March
2020 as brokerage clients exited equity markets to
FIRST HORIZON CORPORATION
65
2020 FORM 10-K ANNUAL REPORT
move into cash positions given the market volatility
associated with the COVID-19 pandemic,
municipalities received federal stimulus payments,
and PPP funding began. As short-term rates have
come down, particularly in the latter half of the year,
bank deposits provide institutional clients with
overnight liquidity at a competitive, and often superior,
rate to other short-term cash management options.
Additionally, there has been a notable shift from
Table 11— Deposits
interest-bearing deposits to noninterest-bearing
deposits within many of FHN's institutional
relationships. The following table summarizes FHN's
deposits for 2020, 2019, and 2018. See Table 2 -
Average Balances, Net Interest Income and Yields/
Rates in this Report for information on average
deposits including average rates paid.
(Dollars in millions)
Savings
Time deposits
Other interest-bearing deposits
Interest-bearing deposits
Noninterest-bearing
Total deposits
2020
Percent
of Total
2020
Growth
Rate
2019
Percent
of Total
2019
Growth
Rate
2018
Percent
of Total
2018
Growth
Rate
$ 27,324
39 %
134 % $
11,665
36 %
(3) % $
12,064
37 %
11 %
5,070
15,415
47,809
22,173
7
22
68
32
40
77
99
163
3,618
8,718
24,001
8,429
11
27
74
26
(12)
4
(2)
4
4,106
8,372
24,542
8,141
12
26
75
25
24
—
9
1
$ 69,982
100 %
116 % $
32,430
100 %
(1) % $
32,683
100 %
7 %
Table 12 — Total Uninsured Deposits
(Dollars in millions)
2020
2019
2018
Uninsured deposits
$
33,057 $
12,176 $
12,263
For the Year Ended December 31,
Table 13 — Uninsured Time Deposits by Maturity
(Dollars in millions)
December 31, 2020
Portion of U.S. time deposits in excess of insurance limit $
Time deposits otherwise uninsured with a maturity of:
3 months or less
Over 3 months through 6 months
Over 6 months through 12 months
Over 12 months
925
300
224
275
126
Short-Term Borrowings
Short-term borrowings include federal funds
purchased, securities sold under agreements to
repurchase, trading liabilities, and other short-term
borrowings. Total short-term borrowings were
$2.6 billion on December 31, 2020, a $1.5 billion
decrease from December 31, 2019 attributable to
decreases in other short-term borrowings and trading
liabilities partially offset by increases in federal funds
purchased and securities sold under agreements to
repurchase.
The balance of other short-term borrowings fluctuates
largely based on the level of FHLB borrowing as a
result of loan demand, deposit levels and balance
sheet funding strategies. The decrease in other short-
term borrowings in 2020 was primarily attributable to
a decrease in FHLB advances as FHN was able to
use client deposits to support balance sheet
funding.Trading liabilities fluctuate based on various
factors, including levels of trading securities and
hedging strategies. Federal funds purchased fluctuate
depending on the amount of excess funding of FHN's
correspondent bank clients. Balances of securities
sold under agreements to resell fluctuate based on
cost attractiveness relative to FHLB borrowing levels
and the ability to pledge securities toward such
FIRST HORIZON CORPORATION
66
2020 FORM 10-K ANNUAL REPORT
transactions. See Note 10 - Short-Term Borrowings
for additional information.
Term Borrowings
Term borrowings include senior and subordinated
borrowings with original maturities greater than one
year. Total term borrowings were $1.7 billion on
December 31, 2020, a $879 million increase from
$791 million on December 31, 2019. The increase
was primarily the result of the issuance of $450
million of subordinated notes by First Horizon Bank,
the issuance of $800 million of senior notes by FHN,
and the acquisition of $120 million in junior
subordinated debt from IBKC. These increases were
offset by the redemption of $500 million in senior
notes. See Note 11 - Term Borrowings for additional
information.
CAPITAL
Management’s objectives are to provide capital
sufficient to cover the risks inherent in FHN’s
businesses, to maintain excess capital to well-
capitalized standards, and to assure ready access to
the capital markets. Total equity increased $3.2 billion
to $8.3 billion on December 31, 2020 from $5.1 billion
on December 31, 2019. The increase was primarily
attributable to $2.5 billion in equity issued in
connection with the IBKC merger. In addition, FHN
issued 1,500 shares of Series E Non-Cumulative
Perpetual Preferred Stock in May 2020 for net
proceeds of $144 million. Other significant changes
included net income of $857 million and an increase
in AOCI of $99 million, which were partially offset by
$286 million in common and preferred stock
dividends declared and a $96 million adjustment
related to the adoption of CECL.
The following tables provide a reconciliation of Shareholders’ equity from the Consolidated Balance Sheets to
Common Equity Tier 1, Tier 1 and Total Regulatory Capital as well as certain selected capital ratios:
Table 14—Regulatory Capital and Ratios
(Dollars in millions)
Shareholders’ equity
Modified CECL transitional amount (a)
FHN non-cumulative perpetual preferred
Common equity tier 1 before regulatory adjustments
Regulatory adjustments:
Disallowed goodwill and other intangibles
Net unrealized (gains) losses on securities available for sale
Net unrealized (gains) losses on pension and other postretirement plans
Net unrealized (gains) losses on cash flow hedges
Disallowed deferred tax assets
Other deductions from common equity tier 1
Common equity tier 1
FHN non-cumulative perpetual preferred (b)
Qualifying noncontrolling interest—First Horizon Bank preferred stock
Tier 1 capital
Tier 2 capital
Total regulatory capital
Risk-Weighted Assets
First Horizon Corporation
First Horizon Bank
Average Assets for Leverage
First Horizon Corporation
First Horizon Bank
December 31, 2020 December 31, 2019
4,781
$
—
(96)
4,685
8,012 $
191
(470)
7,733 $
$
(1,757)
(108)
260
(12)
(5)
(1)
6,110 $
377
295
6,782 $
1,153
7,935 $
63,140 $
62,508
82,347
81,709
(1,506)
(31)
274
(3)
(9)
(1)
3,409
96
256
3,761
394
4,155
37,046
36,627
41,583
40,867
$
$
$
$
FIRST HORIZON CORPORATION
67
2020 FORM 10-K ANNUAL REPORT
Common Equity Tier 1
First Horizon Corporation
First Horizon Bank
Tier 1
First Horizon Corporation
First Horizon Bank
Total
First Horizon Corporation
First Horizon Bank
Tier 1 Leverage
First Horizon Corporation
First Horizon Bank
Other Capital Ratios
Total period-end equity to period-end assets
Tangible common equity to tangible assets (c)
Adjusted tangible common equity to risk weighted assets (c)
December 31, 2020
December 31, 2019
Ratio
Amount
Ratio
Amount
9.68 % $
10.46
10.74
10.93
12.57
12.52
8.24
8.36
9.86
6.89
8.82
6,110
6,530
9.20 % $
9.38
6,782
6,825
10.15
10.18
7,935
7,819
11.22
10.77
6,782
6,825
9.04
9.12
11.72
7.48
8.34
3,409
3,434
3,760
3,729
4,155
3,945
3,760
3,729
(a) The modified CECL transitional amount is calculated as defined in the final rule issued by the banking regulators on August
26, 2020 and includes the full amount of the impact to retained earnings from the initial adoption of CECL plus 25% of the
change in the adjusted allowance for credit losses since FHN’s initial adoption of CECL through December 31, 2020.
(b) At December 31, 2020, the $93 million carrying value of the Series D preferred stock does not qualify as Tier 1 capital
because the earliest redemption date is less than five years from the issuance date.
(c) Tangible common equity to tangible assets and Adjusted tangible common equity to risk-weighted assets are non-GAAP
measures and are reconciled to total equity to total assets (GAAP) in the Non-GAAP to GAAP Reconciliation - Table 28.
Banking regulators define minimum capital ratios for
bank holding companies and their bank subsidiaries.
Based on the capital rules and definitions prescribed
by the banking regulators, should any depository
institution’s capital ratios decline below
predetermined levels, it would become subject to a
series of increasingly restrictive regulatory actions.
The system categorizes a depository institution’s
capital position into one of five categories ranging
from well-capitalized to critically under-capitalized.
For an institution the size of FHN to qualify as well-
capitalized, Common Equity Tier 1, Tier 1 Capital,
Total Capital, and Leverage capital ratios must be at
least 6.50%, 8.00%, 10.00%, and 5.00%,
respectively. Furthermore, beginning January 1,
2019, a capital conservation buffer of 50 basis points
above these levels must be maintained on the
Common Equity Tier 1, Tier 1 Capital and Total
Capital ratios to avoid restrictions on dividends, share
repurchases and certain discretionary bonuses. As of
December 31, 2020, each of FHN and First Horizon
Bank had sufficient capital to qualify as well-
capitalized institutions and to meet the capital
conservation buffer requirement. Capital ratios for
both FHN and First Horizon Bank as of December 31,
2020 are calculated under the final rule issued by the
banking regulators in late August 2020 to delay the
effects of CECL on regulatory capital for two years,
followed by a three-year transition period.
For both FHN and First Horizon Bank, the risk-based
regulatory capital ratios increased in 2020 relative to
2019 primarily from the issuance of preferred and
common equity in connection with the IBKC merger,
offset by the intangible assets created in the IBKC
merger and Truist Bank branch acquisition.
Regulatory capital ratios were also favorably
impacted by the impact of net income less dividends
during 2020. For the Bank only, the risk-based
regulatory capital ratios were impacted by a reduction
of $115 million in its equity investment in its financial
subsidiary, FHN Financial Securities Corp. In
addition, the Tier 1 Capital ratio for FHN benefited
from the issuance of $150 million of Non-Cumulative
Perpetual Preferred Stock, Series E. The Total Capital
ratios for both FHN and First Horizon Bank benefited
from the Bank’s issuance of $450 million of Tier 2
qualifying subordinated notes. The Tier 1 leverage
ratio declined for both FHN and First Horizon Bank as
average assets for leverage in 2020 increased
relative to 2019 primarily in connection with the IBKC
merger. During 2021, capital ratios are expected to
remain above well-capitalized standards plus the
required capital conservation buffer.
FIRST HORIZON CORPORATION
68
2020 FORM 10-K ANNUAL REPORT
Stress Testing
The Economic Growth, Regulatory Relief, and
Consumer Protection Act, along with an interagency
regulatory statement effectively exempted both FHN
and First Horizon Bank from Dodd-Frank Act stress
testing requirements starting in 2018.
For 2020, FHN and First Horizon Bank completed a
company run stress test using the Comprehensive
Capital Analysis and Review (CCAR) Resubmission
scenarios published in September 2020. Results of
these tests indicate that both FHN and First Horizon
Bank would be able to maintain capital well in excess
of Basel III Adequately Capitalized standards under
the hypothetical severe global recession of the 2020
CCAR Resubmission Severely Adverse scenario. A
summary of those results was posted in the “News &
Events-Stress Testing Results” section on FHN’s
investor relations website on December 28, 2020.
Neither FHN’s stress test posting, nor any other
material found on FHN’s website generally, is part of
this report or incorporated herein.
FHN anticipates that it will continue performing an
annual enterprise-wide stress test as part of its capital
and risk management process. Results of this test will
be presented to executive management and the
Board.
The disclosures in this “Stress Testing” section
include forward-looking statements. Please refer to
“Forward-Looking Statements” for additional
information concerning the characteristics and
limitations of statements of that type.
Common Stock Purchase Programs
Pursuant to Board authority, FHN may repurchase
shares of its common stock from time to time and will
evaluate the level of capital and take action designed
to generate or use capital, as appropriate, for the
interests of the shareholders, subject to legal and
regulatory restrictions. Two common stock purchase
programs currently authorized are discussed below.
FHN’s board has not authorized a preferred stock
purchase program.
In January 2021, FHN's Board of Directors approved
a new $500 million common share purchase program
that will expire on January 31, 2023. The new
program is not tied to any compensation plan, and
replaces the general share repurchase program
mentioned below, which was terminated by the
Board. Purchases may be made in the open market
or through privately negotiated transactions, including
under Rule 10b5-1 plans as well as accelerated share
repurchase and other structured transactions. The
timing and exact amount of common share
repurchases will be subject to various factors,
including FHN's capital position, financial
performance, capital impacts of strategic initiatives,
market conditions and regulatory considerations.
Table 15a—Issuer Purchases of Common Stock -
General Authority
On January 23, 2018, FHN announced a $250 million
share purchase authority with an expiration date of
January 31, 2020. On January 29, 2019, FHN
announced a $250 million increase in that authority
along with an extension of the expiration date to
January 31, 2021. Purchases could be made in the
open market or through privately negotiated
transactions and were subject to various factors,
including FHN's capital position, financial
performance, capital impacts of strategic initiatives,
market conditions, and regulatory considerations. As
of December 31, 2020, $229 million in purchases had
been made under this authority at an average price
per share of $15.09 ($15.07 excluding commissions).
(Dollar values and volume in thousands, except
per share data)
2020
October 1 to October 31
November 1 to November 30
December 1 to December 31
Total
Total number
of shares
purchased
Average price
paid per share (a)
Total number of
shares purchased
as part of publicly
announced programs
Maximum approximate
dollar value that may
yet be purchased under
the programs (b)
—
—
—
—
N/A
N/A
N/A
N/A
— $
— $
— $
—
270,654
270,654
270,654
(a) Represents total costs including commissions paid
(b) On December 31, 2020, the maximum dollar value of shares that may be purchased under the program was $271 million.
In January 2021, the current plan was terminated and FHN's Board of Directors approved a new $500 million common share
repurchase program.
N/A - Not applicable
FIRST HORIZON CORPORATION
69
2020 FORM 10-K ANNUAL REPORT
On January 27, 2021, FHN announced a $500 million
share purchase authority with an expiration date of
January 31, 2023. This new authority replaced the
previous one. Purchases may be made in the open
market or through privately negotiated transactions
and are subject to various factors, including FHN's
capital position, financial performance, capital
impacts of strategic initiatives, market conditions, and
regulatory considerations.
Table 15b—Issuer Purchase of Common Stock -
Compensation Authority
A consolidated compensation plan share purchase
program was announced on August 6, 2004. This
program consolidated all of the previously authorized
compensation plan share programs into a single
share purchase program, as well as the renewal of
the authorization to purchase shares for use in
connection with two compensation plans for which the
share purchase authority had expired. The total
amount authorized under this consolidated
compensation plan share purchase program,
inclusive of a program amendment on April 24, 2006,
is 29.6 million shares calculated before adjusting for
stock dividends distributed through January 1, 2011.
The authorization has been reduced for that portion
which relates to compensation plans for which no
options remain outstanding. The shares may be
purchased over the option exercise period of the
various compensation plans on or before
December 31, 2023. Purchases may be made in the
open market or through privately negotiated
transactions and are subject to various factors,
including FHN's capital position, financial
performance, capital impacts of strategic initiatives,
market conditions, and regulatory considerations. As
of December 31, 2020, the maximum number of
shares that may be purchased under the program
was 24 million shares. Management currently does
not anticipate purchasing a material number of shares
under this authority during 2021.
(Volume in thousands, except per share data)
2020
October 1 to October 31
November 1 to November 30
December 1 to December 31
Total
N/A - Not applicable
Total number
of shares
purchased
Average price
paid per share
Total number of
shares purchased
as part of publicly
announced programs
Maximum number
of shares that may
yet be purchased
under the programs
9 $
—
5 $
14 $
9.93
N/A
12.68
10.92
9
—
5
14
24,036
24,036
24,031
ASSET QUALITY
Loan and Lease Portfolio Composition
FHN groups its loans into portfolio segments based
on internal classifications reflecting the manner in
which the ALLL is established and how credit risk is
measured, monitored, and reported. From time to
time, and if conditions are such that certain
subsegments are uniquely affected by economic or
market conditions or are experiencing greater
deterioration than other components of the loan
portfolio, management may determine the ALLL at a
more granular level. Commercial loans are composed
of C&I loans and CRE loans. Consumer loans are
composed of consumer real estate loans and credit
card and other loans. In first quarter 2020, FHN
consolidated its permanent mortgage portfolio into
consumer real estate. Loans previously classified in
permanent mortgage included primarily jumbo
mortgages and one-time-close completed
construction loans that were originated through
pre-2009 mortgage businesses.
Underwriting Policies and Procedures
The following sections describe each portfolio as well
as general underwriting procedures for each. As
economic and real estate conditions develop,
enhancements to underwriting and credit policies and
procedures may be necessary or desirable. Loan
policies and procedures for all portfolios are reviewed
by credit risk working groups and management risk
committees comprised of business line managers and
credit administration professionals as well as by
various other reviewing bodies within FHN. Policies
and procedures are approved by key executives and/
or senior managers leading the applicable credit risk
working groups as well as by management risk
committees.
The credit risk working groups and management risk
committees strive to ensure that the approved
policies and procedures address the associated risks
and establish reasonable underwriting criteria that
appropriately mitigate risk. Policies and procedures
are reviewed, revised and re-issued periodically at
FIRST HORIZON CORPORATION
70
2020 FORM 10-K ANNUAL REPORT
established review dates or earlier if changes in the
economic environment, portfolio performance, the
size of portfolio or industry concentrations, or
regulatory guidance warrant an earlier review.
Commercial Loan and Lease Portfolios
FHN’s commercial loan approval process grants
lending authority based upon job description,
experience, and performance. The lending authority
is delegated to the business line (Market Managers,
Departmental Managers, Regional Presidents,
Relationship Managers (RM) and Portfolio Managers
(PM) and to Credit Risk Managers. While individual
limits vary, the predominant amount of approval
authority is vested with the Credit Risk Management
function. Portfolio, industry, and borrower
concentration limits for the various portfolios are
established by executive management and approved
by the Executive and Risk Committee of the Board.
FHN’s commercial lending process incorporates an
RM and a PM for most commercial credits. This
model is being implemented in the legacy IBKC
markets. The RM is primarily responsible for
communications with the borrower and maintaining
the relationship, while the PM is responsible for
assessing the credit quality of the borrower, beginning
with the initial underwriting and continuing through the
servicing period. Other specialists and the assigned
RM/PM are organized into units called deal teams.
Deal teams are constructed with specific job
attributes that facilitate FHN’s ability to identify,
mitigate, document, and manage ongoing risk. PMs
and credit analysts provide enhanced analytical
support during loan origination and servicing,
including monitoring of the financial condition of the
borrower and tracking compliance with loan
agreements. Loan closing officers and the
construction loan management unit specialize in loan
documentation and the management of the
construction lending process. FHN strives to identify
problem assets early through comprehensive policies
and guidelines, targeted portfolio reviews, more
frequent servicing on lower rated borrowers, and an
emphasis on frequent grading. For smaller
commercial credits, generally $5 million or less, and
income-producing CRE credits greater than $10
million to non-professional real estate developers and
smaller professional real estate investors/developers,
FHN utilizes a centralized underwriting unit in order to
originate and grade small business loans more
efficiently and consistently.
FHN may utilize availability of guarantors/sponsors to
support commercial lending decisions during the
credit underwriting process and when determining the
assignment of internal loan grades. Reliance on the
guaranty as a viable secondary source of repayment
is a function of an analysis proving capability to pay,
factoring in, among other things, liquidity and direct/
indirect cash flows. FHN also considers the volume
and amount of guaranties provided for all global
indebtedness and the likelihood of realization. FHN
presumes a guarantor’s willingness to perform until
there is any current or prior indication or future
expectation that the guarantor may not willingly and
voluntarily perform under the terms of the guaranty. In
FHN’s risk grading approach, it is deemed that
financial support becomes necessary generally at a
point when the loan would otherwise be graded
substandard, reflecting a well-defined weakness. At
that point, provided willingness and capacity to
support are appropriately demonstrated, a strong,
legally enforceable guaranty can mitigate the risk of
default or loss, justify a less severe rating, and
consequently reduce the level of allowance or
charge-off that might otherwise be deemed
appropriate.
C&I
The C&I portfolio was $33.1 billion on December 31,
2020 and is comprised of loans used for general
business purposes. Typical products include working
capital lines of credit, term loan financing of owner-
occupied real estate and fixed assets, direct financing
and sales-type leases, and trade credit enhancement
through letters of credit. The largest geographical
concentrations of balances as of December 31, 2020,
are in Tennessee (21%), Florida (12%), Texas (9%),
Louisiana (8%), North Carolina (8%), California (7%),
and Georgia (5%), with no other state representing
more than 5% of the portfolio.
C&I loans are underwritten in accordance with a well-
defined credit origination process. This process
includes applying minimum underwriting standards as
well as separation of origination and credit approval
roles on transaction sizes over PM authorization
limits. Underwriting typically includes due diligence of
the borrower and the applicable industry of the
borrower, analysis of the borrower’s available
financial information, identification and analysis of the
various sources of repayment and identification of the
primary risk attributes. Stress testing the borrower’s
financial capacity, adherence to loan documentation
requirements, and assigning credit risk grades using
internally developed scorecards are also used to help
quantify the risk when appropriate. Underwriting
parameters also include loan-to-value ratios which
vary depending on collateral type, use of guaranties,
loan agreement requirements, and other
recommended terms such as equity requirements,
amortization, and maturity. Approval decisions also
consider various financial ratios and performance
FIRST HORIZON CORPORATION
71
2020 FORM 10-K ANNUAL REPORT
measures of the borrowers, such as cash flow and
balance sheet leverage, liquidity, coverage of fixed
charges, and working capital. Additionally, approval
decisions consider the capital structure of the
borrower, sponsorship, and quality/value of collateral.
Generally, guideline and policy exceptions are
identified and mitigated during the approval process.
Pricing of C&I loans is based upon the determined
credit risk specific to the individual borrower. These
loans typically have variable rates tied to the LIBOR
or the prime rate of interest plus or minus the
appropriate margin.
Table 16—C&I Loan Portfolio by Industry
The following table provides the composition of the
C&I portfolio by industry as of December 31, 2020
and 2019. For purposes of this disclosure, industries
are determined based on the NAICS industry codes
used by Federal statistical agencies in classifying
business establishments for the collection, analysis,
and publication of statistical data related to the U.S.
business economy.
(Dollars in millions)
Industry:
Loans to mortgage companies
Finance and insurance
Health care and social assistance
Real estate rental and leasing (a)
Accommodation & food service
Wholesale trade
Manufacturing
Retail trade
Other (energy, construction, professional, scientific, and
technical, etc) (b)
Total C&I loan portfolio
December 31, 2020
December 31, 2019
Amount
Percent
Amount
Percent
$
5,404
3,130
2,689
2,365
2,303
2,079
1,907
1,531
16 % $
10
8
7
7
6
6
5
4,411
2,778
1,499
1,454
1,365
1,372
1,151
847
22 %
14
7
7
7
7
6
4
11,696
33,104
35
100 % $
5,174
20,051
26
100 %
$
(a) Leasing, rental of real estate, equipment, and goods.
(b)
Industries in this category each comprise less than 5% for 2020.
FIRST HORIZON CORPORATION
72
2020 FORM 10-K ANNUAL REPORT
Industry Concentrations
Loan concentrations are considered to exist for a
financial institution when there are loans to numerous
borrowers engaged in similar activities that would
cause them to be similarly impacted by economic or
other conditions. 26% of FHN’s C&I loans are to
mortgage companies or borrowers in the finance and
insurance industry, and as a result could be affected
by items that uniquely impact the financial services
industry. Except “Loans to Mortgage Companies” and
“Finance and Insurance”, as discussed below, on
December 31, 2020, FHN did not have any other
concentrations of C&I loans in any single industry of
10% or more of total loans.
Loans to Mortgage Companies
The balance of loans to mortgage companies was
16% of the C&I portfolio as of December 31, 2020,
and 22% of the C&I portfolio as of December 31,
2019, and includes balances related to both home
purchase and refinance activity. This portfolio class,
which generally fluctuates with mortgage rates and
seasonal factors, includes commercial lines of credit
to qualified mortgage companies primarily for the
temporary warehousing of eligible mortgage loans
prior to the borrower’s sale of those mortgage loans
to third party investors. Generally, lending to
mortgage lenders increases when there is a decline
in mortgage rates and decreases when rates rise.
The increase in loans to mortgage companies year
over year was due to higher client count, greater
utilization levels and moderately larger credit lines. In
2020, approximately 40% of the loans funded were
home purchases and 60% were refinance
transactions.
Finance and Insurance
The finance and insurance component represents
10% of the C&I portfolio as of December 31, 2020
compared to 14% as the end of 2019 and includes
TRUPs (i.e., long-term unsecured loans to bank and
insurance-related businesses), loans to bank holding
companies, and asset-based lending to consumer
finance companies. As of December 31, 2020, asset-
based lending to consumer finance companies
represents approximately $1.2 billion of the finance
and insurance component.
TRUPs lending was originally extended as a form of
“bridge” financing to participants in the pooled trust
preferred securitization program offered primarily to
smaller banking (generally less than $15 billion in
total assets) and insurance institutions through FHN’s
fixed income business. Origination of TRUPs lending
ceased in early 2008. Individual TRUPs are re-graded
at least quarterly as part of FHN’s commercial loan
review process. The terms of these loans generally
include a scheduled 30-year balloon payoff and
include an option to defer interest for up to 20
consecutive quarters. As of December 31, 2020, no
TRUP relationship was on interest deferral. As of
December 31, 2020, the UPB of trust preferred loans
totaled $228 million. Inclusive of an amortizing
discount on TRUPs of $18 million, total reserves
(ALLL plus the amortizing discount) for TRUPs and
other bank-related loans were $28 million or 12% of
outstanding UPB.
Commercial Real Estate
The CRE portfolio was $12.3 billion on December 31,
2020, a $7.9 billion, or 183%, increase compared to
December 31, 2019. The increase was driven
primarily by the inclusion of IBKC CRE loans. The
CRE portfolio includes both financings for commercial
construction and nonconstruction loans.
The largest geographical concentrations of balances
as of December 31, 2020, are in Florida (28%), North
Carolina (12%), Louisiana (11%), Texas (11%),
Tennessee (9%), and Georgia (8%) with no other
state representing more than 5% of the portfolio. This
portfolio contains loans and draws on lines and letters
of credit to commercial real estate developers for the
construction and mini-permanent financing of income-
producing real estate. Subcategories of income CRE
consist of multi-family (27%), office (22%), retail
(19%), hospitality (11%), industrial (10%), land/land
development (2%), and other (9%).
Residential CRE loans include loans to residential
builders and developers for the purpose of
constructing single-family homes, condominiums, and
town homes, and on a limited basis, for developing
residential subdivisions. After the fulfillment of existing
commitments over the near term, the residential CRE
class will be in a wind-down state with the expectation
of full runoff in the foreseeable future.
Income-producing CRE loans are underwritten in
accordance with credit policies and underwriting
guidelines that are reviewed at least annually and
revised as necessary based on market conditions.
Loans are underwritten based upon project type, size,
location, sponsorship, and other market-specific data.
Generally, minimum requirements for equity, debt
service coverage ratios, and level of pre-leasing
activity are established based on perceived risk in
each subcategory. Loan-to-value (value is defined as
the lower of cost or market) limits are set below
regulatory prescribed ceilings and generally range
FIRST HORIZON CORPORATION
73
2020 FORM 10-K ANNUAL REPORT
between 50% and 80% depending on underlying
product set. Term and amortization requirements are
set based on prudent standards for interim real estate
lending. Equity requirements are established based
on the quality and liquidity of the primary source of
repayment. For example, more equity would be
required for a speculative construction project or land
loan than for a property fully leased to a credit tenant
or a roster of tenants. Typically, a borrower must have
at least 15% of cost invested in a project before FHN
will fund loan dollars. Income properties are required
to achieve a debt service coverage ratio greater than
or equal to 125% at inception or stabilization of the
project based on loan amortization and a minimum
underwriting interest rate. Some product types that
possess a greater risk profile require a higher level of
equity, as well as a higher debt service coverage ratio
threshold. A proprietary minimum underwriting
interest rate is used to calculate compliance with
underwriting standards. Generally, specific levels of
pre-leasing must be met for construction loans on
income properties. A global cash flow analysis is
performed at the sponsor level. The majority of the
portfolio is on a floating rate basis tied to appropriate
spreads over LIBOR.
The credit administration and ongoing monitoring
consists of multiple internal control processes.
Construction loans are closed and administered by a
centralized control unit. Underwriters and credit
approval personnel stress the borrower’s/project’s
financial capacity utilizing numerous attributes such
as interest rates, vacancy, and discount rates. Key
information is captured from the various portfolios and
then stressed at the aggregate level. Results are
utilized to assist with the assessment of the adequacy
of the ALLL and to steer portfolio management
strategies.
Consumer Loan Portfolios
Consumer Real Estate
The consumer real estate portfolio was $11.7 billion
on December 31, 2020 and is primarily composed of
home equity lines and installment loans.
The largest geographical concentrations of balances
as of December 31, 2020 are in Florida (31%),
Tennessee (25%), Louisiana (10%), North Carolina
(9%), and Texas (5%), with no other state
representing more than 5% of the portfolio.
As of December 31, 2020, approximately 86% of the
consumer real estate portfolio was in a first lien
position. As of December 31, 2020, the weighted
average FICO score at origination of this portfolio was
753 and the refreshed FICO scores averaged 763, no
significant change from FICO scores of 755 and 753,
respectively, as of December 31, 2019.
Generally, performance of this portfolio is affected by
life events that affect borrowers’ finances, the level of
unemployment, and home prices.
As of December 31, 2020 and 2019, FHN had held-
to-maturity consumer mortgage loans secured by real
estate totaling $36 million and $19 million,
respectively, that were in the process of foreclosure.
Home equity lines of credit comprise $2.4 billion of
the consumer real estate portfolio as of December 31,
2020. FHN’s HELOCs typically have a 5 or 10 year
draw period followed by a 10 or 20 year repayment
period, respectively. During the draw period, a
borrower is able to draw on the line and is only
required to make interest payments. The line is frozen
if a borrower becomes past due on payments. Once
the draw period has concluded, the line is closed and
the borrower is required to make both principal and
interest payments monthly until the loan matures. The
principal payment generally is fully amortizing, but
payment amounts will adjust when variable rates
reset to reflect changes in the prime rate.
As of December 31, 2020, approximately 86% of
FHN's HELOCs were in the draw period compared to
76% at the end of the prior year. Based on when draw
periods are scheduled to end per the line agreement,
it is expected that $455 million, or 21%, of HELOCs
currently in the draw period will enter the repayment
period during the next 60 months. Generally,
delinquencies for HELOCs that have entered the
repayment period are initially higher than HELOCs
still in the draw period because of the increased
minimum payment requirement; however, after some
seasoning, performance of these loans usually begins
to stabilize. The home equity lines of the consumer
real estate portfolio are monitored closely for those
nearing the end of the draw period and borrowers are
initially contacted at least 6 months before the
repayment period begins to remind the client of the
terms of their agreement and to inform them of
options.
The following table shows the HELOCs currently in
the draw period and expected timing of conversion to
the repayment period.
FIRST HORIZON CORPORATION
74
2020 FORM 10-K ANNUAL REPORT
Table 17—HELOC Draw To Repayment Schedule
(Dollars in millions)
Months remaining in draw period:
0-12
13-24
25-36
37-48
49-60
>60
Total
December 31, 2020
December 31, 2019
Repayment
Amount
Percent
Repayment
Amount
Percent
$
$
73
66
62
67
187
1,662
2,117
4 % $
3
3
3
8
79
100 % $
47
59
66
68
75
666
981
5 %
6
7
7
7
68
100 %
Underwriting
For the majority of loans in this portfolio, underwriting
decisions are made through a centralized loan
underwriting center. To obtain a consumer real estate
loan, the loan applicant(s) in most cases must first
meet a minimum qualifying FICO score. Minimum
FICO score requirements are established by
management for both loans secured by real estate as
well as non-real estate loans. Management also
establishes maximum loan amounts, loan-to-value
ratios, and debt-to-income ratios for each consumer
real estate product. Applicants must have the
financial capacity (or available income) to service the
debt by not exceeding a calculated debt-to-income
ratio. The amount of the loan is limited to a
percentage of the lesser of the current appraised
value or sales price of the collateral. Identified
guideline and policy exceptions require established
mitigating factors that have been approved for use by
Credit Risk Management.
HELOC interest rates are variable and adjust with
movements in the index rate stated in the loan
agreement. Such loans can have elevated risks of
default, particularly in a rising interest rate
environment, potentially stressing borrower capacity
to repay the loan at the higher interest rate. FHN’s
current underwriting practice requires HELOC
borrowers to qualify based on a sensitized interest
rate (above the current note rate), fully amortized
payment methodology. FHN’s underwriting guidelines
require borrowers to qualify at an interest rate that is
200 basis points above the note rate. This mitigates
risk to FHN in the event of a sharp rise in interest
rates over a relatively short time horizon.
HELOC Portfolio Risk Management
FHN performs continuous HELOC account reviews in
order to identify higher-risk home equity lines and
initiate preventative and corrective actions. The
reviews consider a number of account activity
patterns and characteristics such as the number of
times delinquent within recent periods, changes in
credit bureau score since origination, score
degradation, performance of the first lien, and
account utilization. In accordance with FHN’s
interpretation of regulatory guidance, FHN may block
future draws on accounts in order to mitigate risk of
loss to FHN.
Credit Card and Other
Driven by acquired IBKC loans, FHN's credit card and
other portfolio increased $632 million from the prior
year-end to $1.1 billion as of December 31, 2020, and
primarily includes consumer-related credits, including
home equity and other personal consumer loans,
credit card receivables, and automobile loans.
Allowance for Loan and Lease Losses
Effective January 1, 2020, FHN adopted the
provisions of ASU 2016-13, "Measurement of Credit
Losses on Financial Instruments," and related ASUs.
Refer to Note 1 - Significant Accounting Policies for
additional information about the standard and its
impact on FHN.
Management’s policy is to maintain the ALLL at a
level sufficient to recognize current expected credit
losses on the amortized cost basis of the loan
portfolio. The total allowance for loan and lease
losses increased to $963 million on December 31,
FIRST HORIZON CORPORATION
75
2020 FORM 10-K ANNUAL REPORT
Net charge-offs in the C&I portfolio were $120 million,
an increase of $93 million from 2019, driven by higher
energy charge-offs in the current year. Net charge-
offs in the commercial real estate portfolio were
minimal. In the consumer portfolio, net recoveries for
both the current and prior year were minimal, as net
recoveries in the consumer real estate portfolio of $10
million were offset by net charge-offs in the credit
card and other portfolio of $9 million.
2020, or 1.65% of total loans and leases, an increase
of $763 million or 101 basis points from the end of
2019. The ALLL as of December 31, 2020 and the
increase in the ALLL from 2019 reflects the adoption
of ASU 2016-13, the steep decline in the economic
forecast attributable to the COVID-19 pandemic, an
initial allowance on acquired PCD loans of $287
million, and $147 million recognized on acquired non-
PCD loans from the IBKC merger and Truist branch
acquisition.
The provision for loan and lease losses is the charge
to (or release of) earnings necessary to maintain the
ALLL at a sufficient level reflecting management’s
estimate of current expected losses on the amortized
cost basis of the loan portfolio. Provision expense
was $489 million in 2020 compared to $47 million in
2019. The increase is primarily attributable to a $147
million provision for non-PCD assets acquired in the
IBKC merger and Truist Bank branch acquisition, as
well as from the decline in the economic forecast
attributable to the COVID-19 pandemic.
Asset quality trends may be impacted by the
economic uncertainty attributable to the COVID-19
pandemic. The C&I portfolio reflects a broad mix of
categories with the heaviest concentration in loans to
mortgage companies which carry minimal credit risk.
The C&I portfolio as of December 31, 2020 includes
$4.1 billion of loans made under the Paycheck
Protection Program of the SBA. PPP loans are fully
government guaranteed with the SBA. Due to the
government guarantee and forgiveness provisions,
PPP loans are considered to have no credit risk. The
CRE portfolio metrics could be impacted by the
COVID-19 pandemic due to travel and occupancy
restrictions set by state and local governments
affecting CRE- Hospitality and CRE-Retail. The
consumer portfolio could be impacted by the
COVID-19 pandemic if consumer unemployment
continues to remain elevated and clients are unable
to continue making loan payments. The consumer
portfolio, however, is high quality with no subprime
exposure and minimal exposure to other traditional
categories of high-risk lending.
Net Charge-offs
Net charge-offs were $120 million in 2020 compared
to $27 million in 2019. Net charge-offs in 2020
exclude loans that were immediately charged-off (with
an associated reduction in the allowance) that relate
to acquired IBKC loans that had been written off prior
to acquisition (whether full or partial), or which met
FHN's charge-off policy at the time of acquisition. See
Note 5 - Allowance for Credit Losses for additional
information.
FIRST HORIZON CORPORATION
76
2020 FORM 10-K ANNUAL REPORT
Table 18—Analysis of Allowance for Loan and Lease Losses and Charge-offs
(Dollars in millions)
Allowance for loan and lease losses (a)
C&I
CRE
Consumer Real Estate
Credit Card & Other
Total allowance for loan and lease losses
Period-end loans and leases (b)
C&I
CRE
Consumer Real Estate
Credit Card & Other
$
$
$
December 31
2020
2019
2018
453
242
242
26
963
$
$
123
$
36
28
13
200
$
99
31
37
13
180
33,104
$
20,051
$
16,514
12,275
11,725
1,128
4,337
6,177
496
4,031
6,472
519
Total period-end loans and leases
$
58,232
$
31,061
$
27,536
ALLL / loans and leases % (a)
C&I
CRE
Consumer Real Estate
Credit Card & Other
Total ALLL / loans and leases %
Net charge-offs (recoveries)
C&I
CRE
Consumer Real Estate
Credit Card & Other
Total net charge-offs
Average loans and leases (b)
C&I
CRE
Consumer Real Estate
Credit Card & Other
1.37 %
1.97 %
2.07 %
2.34 %
1.65 %
120
$
1
(10)
9
120
$
0.62 %
0.83 %
0.45 %
2.68 %
0.64 %
27
1
(12)
11
27
$
$
0.60 %
0.78 %
0.58 %
2.46 %
0.66 %
11
—
(11)
16
16
27,638
$
18,283
$
15,873
8,508
9,191
846
4,102
6,299
505
4,206
6,582
553
$
$
$
Total average loans and leases
$
46,183
$
29,189
$
27,214
Charge-off %
C&I
CRE
Consumer Real Estate
Credit Card & Other
Total charge-off %
ALLL / net charge-offs
C&I
CRE
0.43 %
0.01 %
NM
1.04 %
0.26 %
0.15 %
0.02 %
NM
2.25 %
0.09 %
0.07 %
0.01 %
NM
2.83 %
0.06 %
3.76 x
436.70 x
4.53 x
52.13 x
8.76 x
70.47 x
FIRST HORIZON CORPORATION
77
2020 FORM 10-K ANNUAL REPORT
Consumer Real Estate
Credit Card & Other
Total ALLL / net charge-offs
ALLL / NPLs
C&I
CRE
Consumer Real Estate
Credit Card & Other
Total ALLL / NPLs
NM - not meaningful
N/M
2.99 x
8.08 x
3.15 x
4.15 x
1.33 x
13.13 x
2.49 x
N/M
1.17 x
7.39 x
1.66 x
19.73 x
0.33 x
38.92 x
1.24 x
N/M
0.81 x
11.18 x
2.47 x
10.47 x
0.36 x
20.40 x
1.22 x
(a) The increase in the ALLL in 2020 is attributable to the adoption of ASU 2016-13, the allowance recorded on acquired non-
PCD loans, and the decline in the economic forecast attributable to the COVID-19 pandemic.
(b) The increase in period-end and average loans and leases in 2020 is primarily the result of $26.3 billion in acquired loans and
leases.
FIRST HORIZON CORPORATION
78
2020 FORM 10-K ANNUAL REPORT
Nonperforming Assets
Nonperforming loans are loans placed on nonaccrual
if it becomes evident that full collection of principal
and interest is at risk, if impairment has been
recognized as a partial charge-off of principal balance
due to insufficient collateral value and past due
status, or (on a case-by-case basis), if FHN continues
to receive payments but there are other borrower-
specific issues. Included in nonaccruals are loans that
FHN continues to receive payments, including
residential real estate loans where the borrower has
been discharged of personal obligation through
bankruptcy. Nonperforming loans, along with OREO
(excluding OREO from government insured
mortgages), represent nonperforming assets.
Driven by acquired NPAs, total NPAs (including NPLs
HFS) increased $224 million to $406 million on
December 31, 2020. The nonperforming assets ratio
(nonperforming assets excluding NPLs HFS to total
period-end loans plus OREO and other assets) was
0.69% as of December 31, 2020, a 12 basis point
increase compared to 0.57% as of December 31,
2019. The increase in nonperforming loans was
driven primarily by the C&I and consumer real estate
portfolios.
The ratio of the ALLL to NPLs was 2.49 times as of
December 31, 2020, compared to 1.24 times as of
December 31, 2019. Certain nonperforming loans in
both the commercial and consumer portfolios are
deemed collateral-dependent and are charged down
to an estimate of collateral value less costs to sell.
Because the estimated loss has been recognized
through a partial charge-off, typically an ALLL is not
recorded.
Table 19—Nonaccrual/Nonperforming Loans, Foreclosed Assets, and Other Disclosures (a) (b)
(Dollars in millions)
Period-end loans and leases
C&I
CRE
Consumer Real Estate
Credit Card & Other
December 31
2020
2019
2018
$
33,104
$
20,051
$
16,514
12,275
11,725
1,128
4,337
6,177
496
4,031
6,472
519
Total period-end loans and leases
$
58,232
$
31,061
$
27,536
Remaining unfunded commitments
Average loans and leases, net of unearned income
Nonperforming loans and leases
C&I
CRE
Consumer Real Estate
Credit Card & Other
Total nonperforming loans and leases (c) (d)
Nonperforming loans held-for-sale (d)
Foreclosed real estate and other assets (e)
Total nonperforming assets (d) (f)
NPL %
C&I
CRE
Consumer Real Estate
Credit Card & Other
Total NPL %
$
$
$
$
$
$
$
$
$
20,796
46,183
144
58
182
2
$
$
$
12,355
29,189
74
2
86
—
386
$
162
$
$
5
15
$
4
16
406
$
182
$
0.43 %
0.48 %
1.56 %
0.18 %
0.66 %
0.37 %
0.04 %
1.39 %
0.07 %
0.52 %
10,885
27,214
40
3
104
1
148
5
22
175
0.24 %
0.07 %
1.61 %
0.12 %
0.54 %
FIRST HORIZON CORPORATION
79
2020 FORM 10-K ANNUAL REPORT
Accruing restructured loans and leases (g)
C&I
CRE
Consumer Real Estate
Credit Card & Other
$
$
77
6
79
—
$
10
—
110
1
Total accruing restructured loans
$
162
$
121
$
Nonaccruing restructured loans and leases (g) (h)
C&I
CRE
Consumer Real Estate
Credit Card & Other
$
$
66
18
61
—
Total nonaccruing restructured loans and leases
$
145
$
13
1
128
1
143
24
—
62
—
86
11
2
54
8
75
32
1
52
—
85
9
1
43
5
58
$
$
$
$
$
$
15
23
69
10
$
117
$
0.05 %
0.19 %
0.58 %
0.87 %
0.20 %
0.05 %
0.02 %
0.70 %
0.93 %
0.19 %
0.06 %
0.06 %
0.83 %
1.63 %
0.27 %
30+ Delinquency (accruing)
C&I
CRE
Consumer Real Estate
Credit Card & Other
Total 30+ Delinquency
30+ Delinq. % (a)
C&I
CRE
Consumer Real Estate
Credit Card & Other
Total 30+ Delinquency %
(a) Balances for 2019 and 2018 do not include PCI loans even though the client may be contractually past due. PCI loans were
recorded at fair value upon acquisition and accrete interest income over the remaining life of the loan. PCI loans were
transitioned to PCD status upon adoption of CECL.
(b) Unless otherwise noted, increases in balances from 2019 to 2020 were primarily driven by acquired nonperforming assets.
The 2019 increase over 2018 was driven by three relationships transferring to nonaccrual.
(c) Under the original terms of the loans, estimated interest income would have been approximately $18 million, $11 million, and
$9 million during 2020, 2019 and 2018, respectively.
(d) Excludes loans and leases that are 90 or more days past due and still accruing interest.
(e) Foreclosed real estate from GNMA loans totaled $2 million, $2 million, and $3 million at December 31, 2020, 2019, and
2018, respectively.
(f) Balances do not include government-insured foreclosed real estate. Balances for 2019 and 2018 also do not include PCI
loans. PCI loans were transitioned to PCD status upon adoption of CECL.
(g) Excludes TDRs that are classified as held for sale, nearly all of which are accounted for under the fair value option.
(h) Amounts also included in nonperforming loans above.
FIRST HORIZON CORPORATION
80
2020 FORM 10-K ANNUAL REPORT
Nonperforming C&I loans increased $70 million from
December 31, 2019, to $144 million on December 31,
2020, while the NPL ratio increased 6 basis points to
0.43% of C&I loans, primarily driven by acquired
NPLs from IBKC. The 30+ delinquency ratio was
0.05% of total loans as of both December 31, 2020
and 2019. Net charge-offs were $120 million in 2020,
$93 million higher than in 2019, primarily driven by
losses in the energy portfolio.
In the CRE portfolio, nonperforming loans were up
$56 million from December 31, 2019. Nonperforming
loans as a percentage of total CRE loans increased
44 basis points from 2019 to 0.48% as of
December 31, 2020. Accruing delinquencies as a
percentage of period-end loans increased 17 basis
points to 0.19% as of December 31, 2020 as total
accruing delinquencies increased $22 million. Net
charge-offs were minimal in both 2020 and 2019.
Overall, performance of the consumer real estate
portfolio remained stable in 2020 despite slight
deterioration in some metrics compared to prior year.
While NPLs were up 17 basis points from the prior
year, 30+ delinquencies were down 12 basis points
from December 31, 2019. Driven by acquired loans,
nonperforming loans increased $96 million from the
end of 2019 to $182 million on December 31, 2020.
Loans delinquent 30 or more days and still accruing
increased $26 million to $69 million as of
December 31, 2020. The portfolio realized net
recoveries of $10 million in 2020 compared to net
recoveries of $12 million in 2019.
Similar to the consumer real estate portfolio, asset
quality in the credit card and other consumer loan
portfolio remained stable in 2020. Despite an uptick in
the NPL%, 30+ delinquencies decreased to 0.87% of
total loans as of December 31, 2020.
FIRST HORIZON CORPORATION
81
2020 FORM 10-K ANNUAL REPORT
The following table provides nonperforming assets by business segment:
Table 20—Nonperforming Assets by Segment
$
$
$
$
$
$
(Dollars in millions)
Nonperforming loans and leases (a) (b)
Regional Banking
Specialty Banking
Corporate
Consolidated
Foreclosed real estate (c)
Regional Banking
Specialty Banking
Corporate
Consolidated
Nonperforming Assets (a) (b) (c)
Regional Banking
Specialty Banking
Corporate
Consolidated
NPL %
Regional Banking
Specialty Banking
Corporate
Consolidated
NPA % (d)
Regional Banking
Specialty Banking
Corporate
Consolidated
December 31
2020
2019
2018
216
117
53
386
$
$
$
45
68
49
162
$
12
$
12
$
1
2
1
3
15
$
16
$
42
37
69
148
18
—
4
22
60
37
73
228
118
55
401
$
$
0.54 %
0.68
5.70
0.66 %
0.57 %
0.68
5.87
0.69 %
$
57
69
52
178
$
170
0.27 %
0.51
5.22
0.52 %
0.34 %
0.52
5.48
0.57 %
0.27 %
0.35
5.64
0.54 %
0.38 %
0.35
5.94
0.62 %
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) Excludes loans and leases that are 90 or more days past due and still accruing interest.
(b) Excludes loans classified as held for sale.
(c) Excludes foreclosed real estate and receivables related to government insured mortgages of $5 million, $10 million, $3
million during 2020, 2019, and 2018, respectively.
(d) Ratio is non-performing assets related to the loan and lease portfolio to total loans plus foreclosed real estate and other
assets.
FIRST HORIZON CORPORATION
82
2020 FORM 10-K ANNUAL REPORT
The following table provides an activity rollforward of OREO balances for December 31, 2020 and 2019. The
balance of OREO, exclusive of inventory from government insured mortgages, decreased $1 million to $15 million
as of December 31, 2020, as acquired OREO from IBKC was offset by disposals during the year.
Table 21—Rollforward of OREO
(Dollars in millions)
Beginning balance, January 1
Acquired
Valuation adjustments
New foreclosed property
Disposals
Ending balance, December 31 (a)
2020
2019
$
$
16 $
9
(1)
2
(11)
15 $
22
—
(1)
9
(14)
16
(a) Excludes OREO and receivables related to government insured mortgages of $5 million and $10 million as of December 31, 2020 and
2019, respectively.
Past Due Loans and Potential Problem Assets
Past due loans are loans contractually past due as to
interest or principal payments, but which have not yet
been put on nonaccrual status. In accordance with
revised Interagency Guidance issued in 2020, FHN is
not required to designate loans with deferrals granted
in response to COVID-19 as past due because of
such deferrals. If a borrower defers payment, this
may result in no contractual payments being past
due, and as such, loans would not be considered past
due during the period of deferral, and as a result, are
excluded from the table and discussion that follows.
For additional information on borrower deferrals, see
Lending Assistance for Borrowers in the Market
Uncertainties and Prospective Trends section of this
Report.
Loans in the portfolio that are 90 days or more past
due and still accruing were $17 million on
December 31, 2020, a decrease of $5 million
compared to December 31, 2019. Loans 30 to 89
days past due increased $64 million from year-end
2019 to $100 million on December 31, 2020. The
increase was driven by acquired loans, most notably
in the CRE and consumer real estate portfolios.
Potential problem assets represent those assets
where information about possible credit problems of
borrowers has caused management to have serious
doubts about the borrower’s ability to comply with
present repayment terms and includes loans past due
90 days or more and still accruing. This definition is
believed to be substantially consistent with the
standards established by the Federal banking
regulators for loans classified as substandard. At
year-end 2020, potential problem assets in the loan
portfolio increased $371 million from December 31,
2019 and $20 million from September 30, 2020 to
$718 million on December 31, 2020. The increase
year-over-year in potential problem assets was due to
acquired loans in 2020 and a net increase in
classified commercial loans within the C&I portfolio.
The current expectation of losses from potential
problem assets has been included in management’s
analysis for assessing the adequacy of the allowance
for loan and lease losses.
FIRST HORIZON CORPORATION
83
2020 FORM 10-K ANNUAL REPORT
Table 22—Accruing Delinquencies and Other Credit Disclosures
(Dollars in millions)
Loans past due 90 days or more and still accruing (a) (b):
Commercial:
December 31
2020
2019
2018
Commercial, financial, and industrial
$
— $
2 $
Commercial real estate
Total commercial
Consumer:
Consumer real estate
Credit card & other
Total consumer
—
—
16
1
17
—
2
18
2
20
Total loans past due 90 days or more and still accruing (a) (b)
Loans 30 to 89 days past due
Loans 30 to 89 days past due - guaranteed portion (c)
Loans held-for-sale 30 to 89 days past due (b)
Loans held-for-sale 30 to 89 days past due - guaranteed portion (b) (c)
Loans held-for-sale 90 days past due (b)
Loans held-for-sale 90 days past due - guaranteed portion (b) (c)
$
$
17 $
22 $
100 $
36 $
—
6
5
12
10
—
4
3
6
6
2
2
4
27
2
29
33
43
—
6
5
7
7
Potential problem assets (d)
$
718 $
347 $
317
(a) Excludes loans classified as held for sale.
(b) Amounts are not included in nonperforming/nonaccrual loans.
(c) Guaranteed loans include FHA, VA, and GNMA loans repurchased through the GNMA buyout program.
(d)
Includes past due loans.
Troubled Debt Restructuring and Loan
Modifications
As part of FHN’s ongoing risk management practices,
FHN attempts to work with borrowers when
appropriate to extend or modify loan terms to better
align with their current ability to repay. Extensions and
modifications to loans are made in accordance with
internal policies and guidelines which conform to
regulatory guidance. Each occurrence is unique to
the borrower and is evaluated separately. In a
situation where an economic concession has been
granted to a borrower that is experiencing financial
difficulty, FHN identifies and reports that loan as a
TDR.
For loan modifications that were made during the
year ended December 31, 2020 that met the TDR
relief provisions outlined in either the CARES Act, as
extended by the CAA, or revised Interagency
Guidance, FHN has excluded these modifications
from consideration as a TDR, and has excluded loans
with these qualifying modifications from designation
as a TDR in the information and discussion that
follows. See Note 1 - Significant Accounting Policies
and Note 4 – Loans and Leases for further discussion
regarding TDRs and loan modifications.
Commercial Loan Modifications
As part of FHN’s credit risk management governance
processes, the Loan Rehab and Recovery
Department (LRRD) is responsible for managing most
commercial relationships with borrowers whose
financial condition has deteriorated to such an extent
that the credits are being considered for impairment,
classified as substandard or worse, placed on
nonaccrual status, foreclosed or in process of
foreclosure, or in active or contemplated litigation.
LRRD has the authority and responsibility to enter
into workout and/or rehabilitation agreements with
troubled commercial borrowers in order to mitigate
and/or minimize the amount of credit losses
recognized from these problem assets. While every
circumstance is different, LRRD will generally use
forbearance agreements (generally 6-12 months) as
an element of commercial loan workouts, which might
include reduced interest rates, reduced payments,
release of guarantor, or entering into short sale
agreements.
FIRST HORIZON CORPORATION
84
2020 FORM 10-K ANNUAL REPORT
workout program. In the credit card hardship
program, borrowers may be granted rate and
payment reductions for 6 months to 1 year. In the
credit card workout program, clients are granted a
rate reduction to 0% and term extensions for up to 5
years to pay off the remaining balance.
Following classification as a TDR, modified loans
within the consumer portfolio, which were previously
evaluated for impairment on a collective basis
determined by their smaller balances and
homogenous nature, become subject to the
impairment guidance in ASC 310-10-35, which
requires individual evaluation of the debt for
impairment. However, as applicable accounting
guidance allows, FHN may aggregate certain smaller-
balance homogeneous TDRs and use historical
statistics, such as aggregated charge-off amounts
and average amounts recovered, along with a
composite effective interest rate to measure
impairment when such impaired loans have risk
characteristics in common.
On December 31, 2020 and 2019, FHN had $307
million and $206 million portfolio loans classified as
TDRs, respectively. For TDRs in the loan portfolio,
FHN had loan loss reserves of $12 million and $20
million, or 4% and 10% of TDR balances, as of
December 31, 2020 and 2019, respectively.
Additionally, FHN had $42 million and $51 million of
HFS loans classified as TDRs at year-end 2020 and
2019, respectively. Total held-to-maturity TDRs
increased $101 million, with the increase attributable
to the addition of IBKC TDRs in the current year,
primarily in the commercial portfolio.
The individual impairment assessments completed on
commercial loans in accordance with the Accounting
Standards Codification Topic related to Troubled Debt
Restructurings (“ASC 310-40”) include loans
classified as TDRs as well as loans that may have
been modified yet not classified as TDRs by
management. For example, a modification of loan
terms that management would generally not consider
to be a TDR could be a temporary extension of
maturity to allow a borrower to complete an asset
sale whereby the proceeds of such transaction are to
be paid to satisfy the outstanding debt. Additionally, a
modification that extends the term of a loan but does
not involve reduction of principal or accrued interest,
in which the interest rate is adjusted to reflect current
market rates for similarly situated borrowers, is not
considered a TDR. Nevertheless, each assessment
will take into account any modified terms and will be
comprehensive to ensure appropriate impairment
assessment. If individual impairment is identified,
management will either hold specific reserves on the
amount of impairment, or, if the loan is collateral
dependent, write down the carrying amount of the
asset to the net realizable value of the collateral.
Consumer Loan Modifications
FHN does not currently participate in any of the loan
modification programs sponsored by the U.S.
government but does generally structure modified
consumer loans using the parameters of the former
Home Affordable Modification Program. Generally, a
majority of loans modified under any such proprietary
programs are classified as TDRs.
Within the HELOC and RE installment loans classes
of the consumer portfolio segment, TDRs are typically
modified by reducing the interest rate (in increments
of 25 basis points to a minimum of 1% for up to 5
years) and a possible maturity date extension to
reach an affordable housing debt-to-income ratio.
After 5 years, the interest rate generally returns to the
original interest rate prior to modification; for certain
modifications, the modified interest rate increases 2%
per year until the original interest rate prior to
modification is achieved. Permanent mortgage TDRs
are typically modified by reducing the interest rate (in
increments of 25 basis points to a minimum of 2% for
up to 5 years) and a possible maturity date extension
to reach an affordable housing debt-to-income ratio.
After 5 years, the interest rate steps up 1 percent
every year until it reaches the Federal Home Loan
Mortgage Corporation Weekly Survey Rate cap.
Contractual maturities may be extended to 40 years
on permanent mortgages and to 30 years for
consumer real estate loans. Within the credit card
class of the consumer portfolio segment, TDRs are
typically modified through either a short-term credit
card hardship program or a longer-term credit card
FIRST HORIZON CORPORATION
85
2020 FORM 10-K ANNUAL REPORT
The following table provides a summary of TDRs for the periods ended December 31, 2020 and 2019. In
accordance with regulatory guidance, loans that were modified during the year ended December 31, 2020 whose
modifications met criteria outlined in either the CARES Act or revised interagency statement were not accounted for
as a TDR and have been excluded from the table below.
Table 23 —Troubled Debt Restructurings
(Dollars in millions)
Held to maturity:
Consumer real estate (a):
Current
Delinquent
Non-accrual (b)
Total consumer real estate
Credit card and other:
Current
Delinquent
Non-accrual
Total credit card and other
Commercial loans:
Current
Delinquent
Non-accrual
Total commercial loans
Total held to maturity
Held for sale:
Current
Delinquent
Non-accrual
Total held for sale
Total troubled debt restructurings
As of
December 31, 2020
As of
December 31, 2019
$
77 $
2
61
140
1
—
—
1
82
—
84
166
307 $
36 $
5
1
42
349 $
$
$
$
105
5
52
162
1
—
—
1
10
—
33
43
206
39
8
4
51
257
(a)
In 2020, the permanent mortgage portfolio was combined into the consumer real estate portfolio. All prior periods have been
revised for comparability.
(b) Balances as of December 31, 2020 and 2019, include $11 million and $13 million, respectively, of discharged bankruptcies.
FIRST HORIZON CORPORATION
86
2020 FORM 10-K ANNUAL REPORT
RISK MANAGEMENT
FHN derives revenue from providing services and, in
many cases, assuming and managing risk for profit
which exposes FHN to business strategy and
reputational, interest rate, liquidity, market, capital
adequacy, operational, compliance, and credit risks
that require ongoing oversight and management.
FHN has an enterprise-wide approach to risk
governance, measurement, management, and
reporting including an economic capital allocation
process that is tied to risk profiles used to measure
risk-adjusted returns. Through an enterprise-wide risk
governance structure and a statement of risk
tolerance approved by the Board, management
continually evaluates the balance of risk/return and
earnings volatility with shareholder value.
FHN’s enterprise-wide risk governance structure
begins with the Board. The Board, working with the
Executive & Risk Committee of the Board,
establishes FHN’s risk tolerance by approving
policies and limits that provide standards for the
nature and the level of risk FHN is willing to assume.
The Board regularly receives reports on
management’s performance against FHN’s risk
tolerance primarily through the Board’s Executive &
Risk and Audit Committees.
To further support the risk governance provided by
the Board, FHN has established accountabilities,
control processes, procedures, and a management
governance structure designed to align risk
management with risk-taking throughout FHN. The
control procedures are aligned with FHN’s four
components of risk governance: (1) Specific Risk
Committees; (2) the Risk Management Organization;
(3) Business Unit Risk Management; and
(4) Independent Assurance Functions.
1. Specific Risk Committees: The Board has
delegated authority to the Chief Executive
Officer to manage Business Strategy and
Reputation Risk, and the general business
affairs of FHN under the Board’s
oversight. The CEO utilizes the executive
management team and the Management
Risk Committee to carry out these duties
and to analyze existing and emerging
strategic and reputation risks and
determines the appropriate course of
action. The Management Risk Committee
is comprised of the CEO and certain
officers designated by the CEO. The
Management Risk Committee is supported
by a set of specific risk committees
focused on unique risk types (e.g. liquidity,
credit, operational, etc). These risk
committees provide a mechanism that
assembles the necessary expertise and
perspectives of the management team to
discuss emerging risk issues, monitor
FHN’s risk-taking activities, and evaluate
specific transactions and exposures.
These committees also monitor the
direction and trend of risks relative to
business strategies and market conditions
and direct management to respond to risk
issues.
2. The Risk Management Organization:
FHN’s risk management organization, led
by the Chief Risk Officer and Chief Credit
Officer, provides objective oversight of
risk-taking activities. The risk management
organization translates FHN’s overall risk
tolerance into approved limits and formal
policies and is supported by corporate
staff functions, including the Corporate
Secretary, Legal, Finance, Human
Resources, and Technology. Risk
management also works with business
units and functional experts to establish
appropriate operating standards and
monitor business practices in relation to
those standards. Additionally, risk
management proactively works with
business units and senior management to
focus management on key risks in FHN
and emerging trends that may change
FHN’s risk profile. The Chief Risk Officer
has overall responsibility and
accountability for enterprise risk
management and aggregate risk reporting.
3. Business Unit Risk Management: FHN’s
business units are responsible for
identifying, acknowledging, quantifying,
mitigating, and managing all risks arising
within their respective units. They
determine and execute their business
strategies, which puts them closest to the
changing nature of risks and they are best
able to take the needed actions to manage
and mitigate those risks. The business
units are supported by the risk
management organization that helps
identify and consider risks when making
business decisions. Management
processes, structure, and policies are
designed to help ensure compliance with
laws and regulations as well as provide
FIRST HORIZON CORPORATION
87
2020 FORM 10-K ANNUAL REPORT
FHN’s market risk appetite is approved by the
Executive & Risk Committee of the Board of Directors
and executed through management policies and
procedures of ALCO and the FHN Financial Risk
Committee. These policies contain various market
risk limits including, for example, VaR limits for the
trading securities inventory, and individual position
limits and sector limits for products with credit risk,
among others. Risk measures are computed and
reviewed on a daily basis to ensure compliance with
market risk management policies.
Value-at-Risk and Stress Testing
VaR is a statistical risk measure used to estimate the
potential loss in value from adverse market
movements over an assumed fixed holding period
within a stated confidence level. FHN employs a
model to compute daily VaR measures for its trading
securities inventory. FHN computes VaR using
historical simulation with a 1-year lookback period at
a 99 percent confidence level and 1-day and 10-day
time horizons. Additionally, FHN computes a Stressed
VaR measure. The SVaR computation uses the same
model but with model inputs reflecting historical data
from a continuous 12-month period that reflects a
period of significant financial stress appropriate for
our trading securities portfolio.
4.
organizational clarity for authority,
decision-making, and accountability. The
risk governance structure supports and
promotes the escalation of material items
to executive management and the Board.
Independent Assurance Functions:
Internal Audit, Credit Assurance Services,
and Model Validation provide an
independent and objective assessment of
the design and execution of FHN’s internal
control system, including management
processes, risk governance, and policies
and procedures. These groups’ activities
are designed to provide reasonable
assurance that risks are appropriately
identified and communicated; resources
are safeguarded; significant financial,
managerial, and operating information is
complete, accurate, and reliable; and
employee actions are in compliance with
FHN’s policies and applicable laws and
regulations. Internal Audit and CAS report
to the Chief Audit Executive, who is
appointed by and reports to the Audit
Committee of the Board. Internal Audit
reports quarterly to the Audit Committee of
the Board, while CAS reports quarterly to
the Executive & Risk Committee of the
Board. Model Validation reports to the
Chief Risk Officer and reports annually to
the Audit Committee of the Board.
MARKET RISK MANAGEMENT
Market risk is the risk that changes in market
conditions will adversely impact the value of assets or
liabilities, or otherwise negatively impact FHN’s
earnings. Market risk is inherent in the financial
instruments associated with FHN’s operations,
primarily trading activities within FHN Financial, but
also through non-trading activities which are primarily
affected by interest rate risk that is managed by the
ALCO within FHN.
FHN is exposed to market risk related to the trading
securities inventory and loans held for sale
maintained by FHN Financial in connection with its
fixed income distribution activities. Various types of
securities inventory positions are procured for
distribution to clients by the sales staff. When these
securities settle on a delayed basis, they are
considered forward contracts. Refer to the
"Determination of Fair Value - Trading securities and
trading liabilities" section of Note 24 - Fair Value of
Assets and Liabilities, which section is incorporated
into this MD&A by this reference.
FIRST HORIZON CORPORATION
88
2020 FORM 10-K ANNUAL REPORT
A summary of FHN's VaR and SVaR measures for 1-day and 10-day time horizons is as follows:
Table 24—VaR and SVaR Measures
(Dollars in millions)
1-day
VaR
SVaR
10-day
VaR
SVaR
(Dollars in millions)
1-day
VaR
SVaR
10-day
VaR
SVaR
Year Ended December 31, 2020
Mean
High
Low
As of
December 31, 2020
$
3 $
5
13
18
7 $
1 $
18
25
43
1
2
6
2
2
10
10
Year Ended December 31, 2019
Mean
High
Low
As of
December 31, 2019
$
1 $
6
3
17
2 $
1 $
10
7
28
3
1
9
1
5
2
15
2020 VaR and SVaR increased due to extreme volatility as a result of economic uncertainty associated with the COVID-19
pandemic.
FHN’s overall VaR measure includes both interest rate risk and credit spread risk. Separate measures of these
component risks are as follows:
Table 25—Schedule of Risks Included in VaR
(Dollars in millions)
Interest rate risk
Credit spread risk
The potential risk of loss reflected by FHN’s VaR
measures assumes the trading securities inventory is
static. Because FHN Financial procures fixed income
securities for purposes of distribution to clients, its
trading securities inventory turns over regularly.
Additionally, FHNF traders actively manage the
trading securities inventory continuously throughout
each trading day. Accordingly, FHN’s trading
securities inventory is highly dynamic, rather than
static. As a result, it would be rare for FHNF to incur a
negative revenue day in its fixed income activities of
the level indicated by its VaR measurements.
In addition to being used in FHN’s daily market risk
management process, the VaR and SVaR measures
are also used by FHN in computing its regulatory
market risk capital requirements in accordance with
the Market Risk Capital rules. For additional
As of December 31, 2020
As of December 31, 2019
1-day
10-day
1-day
10-day
$
1 $
2
2 $
6
1 $
—
4
1
information regarding FHN's capital adequacy refer to
the "Capital" section of this MD&A.
FHN also performs stress tests on its trading
securities portfolio to calculate the potential loss
under various assumed market scenarios. Key
assumed stresses used in those tests are:
Down 25 bps - assumes an instantaneous downward
move in interest rates of 25 basis points at all points
on the interest rate yield curve.
Up 25 bps - assumes an instantaneous upward move
in interest rates of 25 basis points at all points on the
interest rate yield curve.
Curve flattening - assumes an instantaneous
flattening of the interest rate yield curve through an
FIRST HORIZON CORPORATION
89
2020 FORM 10-K ANNUAL REPORT
increase in short-term rates and a decrease in long-
term rates. The 2-year point on the Treasury yield
curve is assumed to increase 15 basis points and the
10-year point on the Treasury yield curve is assumed
to decrease 15 basis points. Shifts in other points on
the yield curve are predicted based on their
correlation to the 2-year and 10-year points.
Curve steepening - assumes an instantaneous
steepening of the interest rate yield curve through a
decrease in short-term rates and an increase in long-
term rates. The 2-year point on the Treasury yield
curve is assumed to decrease 15 basis points and the
10-year point on the Treasury yield curve is assumed
to increase 15 basis points. Shifts in other points on
the yield curve are predicted based on their
correlation to the 2-year and 10-year points.
Credit spread widening - assumes an instantaneous
increase in credit spreads (the difference between
yields on Treasury securities and non-Treasury
securities) of 25 basis points.
Model Validation
Trading risk management personnel within FHN
Financial have primary responsibility for model risk
management with respect to the model used by FHN
to compute its VaR measures and perform stress
testing on the trading inventory. Among other
procedures, these personnel monitor model results
and perform periodic backtesting as part of an
ongoing process of validating the accuracy of the
model. These model risk management activities are
subject to annual review by FHN’s Model Validation
Group, an independent assurance group charged
with oversight responsibility for FHN’s model risk
management.
INTEREST RATE RISK MANAGEMENT
Interest rate risk is the risk to earnings or capital
arising from movement in interest rates. ALCO is
responsible for overseeing the management of
existing and emerging interest rate risk in the
company within risk tolerances established by the
Board. FHN primarily manages interest rate risk by
structuring the balance sheet to maintain a desired
level of associated earnings and to protect the
economic value of FHN’s capital.
Net interest income and the value of equity are
affected by changes in the level of market interest
rates because of the differing repricing characteristics
of assets and liabilities, the exercise of prepayment
options held by loan clients, the early withdrawal
options held by deposit clients, and changes in the
basis between and changing shapes of the various
yield curves used to price assets and liabilities. To
isolate the repricing, basis, option, and yield curve
components of overall interest rate risk, FHN employs
Gap, Earnings at Risk, and Economic Value of Equity
analyses generated by a balance sheet simulation
model.
Net Interest Income Simulation Analysis
The information provided in this section, including the
discussion regarding the outcomes of simulation
analysis and rate shock analysis, is forward-looking.
Actual results, if the assumed scenarios were to
occur, could differ because of interest rate
movements, the ability of management to execute its
business plans, and other factors, including those
presented in the Forward-Looking Statements section
of this Report.
Management uses a simulation model to measure
interest rate risk and to formulate strategies to
improve balance sheet positioning, earnings, or both,
within FHN’s interest rate risk, liquidity, and capital
guidelines. Interest rate exposure is measured by
forecasting 12 months of NII under various interest
rate scenarios and comparing the percentage change
in NII for each scenario to a base case scenario
where interest rates remain unchanged. Assumptions
are made regarding future balance sheet
composition, interest rate movements, and loan and
deposit pricing. In addition, assumptions are made
about the magnitude of asset prepayments and
earlier than anticipated deposit withdrawals. The
results of these scenarios help FHN develop
strategies for managing exposure to interest rate risk.
While management believes the assumptions used
and scenarios selected in its simulations are
reasonable, simulation modeling provides only an
estimate, not a precise calculation, of exposure to any
given change in interest rates.
Based on a static balance sheet as of December 31,
2020, NII exposures over the next 12 months
assuming rate shocks of plus 25 basis points, 50
basis points, 100 basis points, and 200 basis points
are estimated to have favorable variances of 2.0%,
3.8%, 7.5%, and 12.6%, respectively compared to
base NII. A steepening yield curve scenario where
long-term rates increase by 50 basis points and short-
term rates are static, results in a favorable NII
variance of 1.0%. A flattening yield curve scenario
where long-term rates decrease by 50 basis points
and short-term rates are static, results in an
unfavorable NII variance of 1.1%. Rate shocks of
minus 25 basis points and 50 basis points result in
unfavorable NII variances of 1.9% and 2.1%,
assuming the absence of negative rates. These
hypothetical scenarios are used to create a risk
FIRST HORIZON CORPORATION
90
2020 FORM 10-K ANNUAL REPORT
measurement framework, and do not necessarily
represent management’s current view of future
interest rates or market developments.
FHN’s net interest income has been, and likely will
continue to be, impacted by the disruption from the
COVID-19 pandemic and the low rate environment.
The increase in the unemployment rate, client loan
deferral requests, the impact of government
assistance programs, and other developments have
influenced net interest income results. FHN is
monitoring current economic trends and potential
exposures closely.
Fair Value Shock Analysis
Interest rate risk and the slope of the yield curve also
affect the fair value of FHN's trading inventory that is
reflected in noninterest income.
Generally, low or declining interest rates with a
positively sloped yield curve tend to increase income
through higher demand for fixed income products.
Additionally, the fair value of FHN's trading inventory
can fluctuate as a result of differences between
current interest rates and the interest rates of fixed
income securities in the trading inventory.
Derivatives
In the normal course of business, FHN utilizes
various financial instruments (including derivative
contracts and credit-related agreements) to manage
the risk of loss arising from adverse changes in the
fair value of certain financial instruments generally
caused by changes in interest rates including FHN's
securities inventory, certain term borrowings, and
certain loans. Additionally, FHN may enter into
derivative contracts in order to meet clients' needs.
However, such derivative contracts are typically offset
with a derivative contract entered into with an
upstream counterparty in order to mitigate risk
associated with changes in interest rates.
The simulation models and related hedging strategies
discussed above exclude the dynamics related to
how fee income and noninterest expense may be
affected by actual changes in interest rates or
expectations of changes. See Note 22 - Derivatives
for additional discussion of these instruments.
CAPITAL RISK MANAGEMENT AND ADEQUACY
The capital management objectives of FHN are to
provide capital sufficient to cover the risks inherent in
FHN’s businesses, to maintain excess capital to well-
capitalized standards and Board policy, and to assure
ready access to the capital markets. The Capital &
Stress Testing Committee, chaired by the Senior Vice
President and Corporate Treasurer, reports to ALCO
and is responsible for capital management oversight
and provides a forum for addressing management
issues related to capital adequacy. This committee
reviews sources and uses of capital, key capital
ratios, segment economic capital allocation
methodologies, coordinates the annual enterprise-
wide stress testing process, and other factors in
monitoring and managing current capital levels, as
well as potential future sources and uses of
capital. The Capital & Stress Testing Committee also
recommends capital management policies, which are
submitted for approval to ALCO and the Executive &
Risk Committee and the Board as necessary.
OPERATIONAL RISK MANAGEMENT
Operational risk is the risk of loss from inadequate or
failed internal processes, people, or systems or from
external events including data or network security
breaches of FHN or of third parties affecting FHN or
its clients. This risk is inherent in all businesses.
Operational risk is divided into the following risk
areas, which have been established at the corporate
level to address these risks across the entire
organization:
•
•
•
•
•
•
•
•
•
Business Continuity Planning
Records Management
Compliance/Legal
Program Governance
Fiduciary
Financial Crimes (including Bank Secrecy
Act, know your customer, security, and
fraud)
Financial (including disclosure controls
and procedures)
Information Technology (including
cybersecurity)
Vendor
Management, measurement, and reporting of
operational risk are overseen by the Operational Risk,
Fiduciary, Financial Governance, FHN Financial Risk,
and Investment Rationalization Board Committees.
Key representatives from the business segments,
operating units, and supporting units are represented
on these committees as appropriate. These
governance committees manage the individual
operational risk types across FHN by setting
standards, monitoring activity, initiating actions, and
reporting exposures and results. Key Committee
activities and decisions are reported to the
appropriate governance committee or included in the
Enterprise Risk Report, a quarterly analysis of risk
within the organization that is provided to the
Executive and Risk Committee. Emphasis is
dedicated to refinement of processes and tools to aid
FIRST HORIZON CORPORATION
91
2020 FORM 10-K ANNUAL REPORT
in measuring and managing material operational risks
and providing for a culture of awareness and
accountability.
COMPLIANCE RISK MANAGEMENT
Compliance risk is the risk of legal or regulatory
sanctions, material financial loss, or loss to reputation
as a result of failure to comply with laws, regulations,
rules, self-regulatory organization standards, and
codes of conduct applicable to FHN’s activities.
Management, measurement, and reporting of
compliance risk are overseen by the Operational Risk
Committee. Key executives from the business
segments, legal, risk management, and service
functions are represented on the Committee.
Summary reports of Committee activities and
decisions are provided to the appropriate governance
committees. Reports include the status of regulatory
activities, internal compliance program initiatives,
compliance testing results and evaluation of emerging
compliance risk areas.
CREDIT RISK MANAGEMENT
Credit risk is the risk of loss due to adverse changes
in a borrower’s or counterparty’s ability to meet its
financial obligations under agreed upon terms. FHN is
subject to credit risk in lending, trading, investing,
liquidity/funding, and asset management activities
although lending activities have the most exposure to
credit risk. The nature and amount of credit risk
depends on the types of transactions, the structure of
those transactions, collateral received, the use of
guarantors and the parties involved.
FHN assesses and manages credit risk through a
series of policies, processes, measurement systems,
and controls. The Credit Risk Management
Committee is responsible for overseeing the
management of existing and emerging credit risks in
the company within the broad risk tolerances
established by the Board. The CRMC reports through
the Management Risk Committee. The Credit Risk
Management function, led by the Chief Credit Officer,
provides strategic and tactical credit leadership by
maintaining policies, overseeing credit approval,
assessing new credit products, strategies and
processes, and managing portfolio composition and
performance.
While the Credit Risk function oversees FHN’s credit
risk management, there is significant coordination
between the business lines and the Credit Risk
function in order to manage FHN’s credit risk and
maintain strong asset quality. The Credit Risk function
recommends portfolio, industry/sector, and individual
client limits to the Executive & Risk Committee of the
Board for approval. Adherence to these approved
limits is vigorously monitored by Credit Risk which
provides recommendations to slow or cease lending
to the business lines as commitments near
established lending limits. Credit Risk also ensures
subject matter experts are providing oversight,
support and credit approvals, particularly in the
specialty lending areas where industry-specific
knowledge is required. Management emphasizes
general portfolio servicing such that emerging risks
are able to be spotted early enough to correct
potential deficiencies, prevent further credit
deterioration, and mitigate credit losses.
The Credit Risk Management function assesses the
asset quality trends and results, as well as lending
processes, adherence to underwriting guidelines
(portfolio-specific underwriting guidelines are
discussed further in the Asset Quality Trends section),
and utilizes this information to inform management
regarding the current state of credit quality and as a
factor of the estimation process for determining the
allowance for loan losses. The CRMC reviews on a
periodic basis various reports issued by assurance
functions which provide an independent assessment
of the adequacy of loan servicing, grading accuracy,
and other key functions. Additionally, CRMC is
presented with and discusses various portfolios,
lending activity and lending-related projects.
All of the above activities are subject to independent
review by FHN’s Credit Assurance Services Group.
CAS reports to the Chief Audit Executive, who is
appointed by and reports to the Audit Committee of
the Board, and provides quarterly reports to the
Executive & Risk Committee of the Board. CAS is
charged with providing the Executive & Risk
Committee of the Board and executive management
with independent, objective, and timely assessments
of FHN’s portfolio quality, credit policies, and credit
risk management processes.
LIQUIDITY RISK MANAGEMENT
ALCO is also responsible for liquidity management:
the funding of assets with liabilities of appropriate
duration, while mitigating the risk of unexpected cash
needs. ALCO and the Board of Directors have
adopted a Liquidity Policy. The objective of the
Liquidity Policy is to ensure that FHN meets its cash
and collateral obligations promptly, in a cost-effective
manner and with the highest degree of reliability. The
maintenance of adequate levels of asset and liability
liquidity should provide FHN with the ability to meet
both expected and unexpected cash and collateral
needs. Key liquidity ratios, asset liquidity levels and
the amount available from funding sources are
reported to ALCO on a regular basis. FHN’s Liquidity
FIRST HORIZON CORPORATION
92
2020 FORM 10-K ANNUAL REPORT
Policy establishes liquidity limits that are deemed
appropriate for FHN’s risk profile.
In accordance with the Liquidity Policy, ALCO
manages FHN’s exposure to liquidity risk through a
dynamic, real time forecasting methodology. Base
liquidity forecasts are reviewed by ALCO and are
updated as financial conditions dictate. In addition to
the baseline liquidity reports, robust stress testing of
assumptions and funds availability are periodically
reviewed. FHN maintains a contingency funding plan
that may be executed, should unexpected difficulties
arise in accessing funding that affects FHN, the
industry as a whole, or both. Subject to market
conditions and compliance with applicable regulatory
requirements from time to time, funds are available
from a number of sources including the available-for-
sale securities portfolio, dealer and commercial client
repurchase agreements, access to the overnight and
term Federal Funds markets, incremental borrowing
capacity at the FHLB ($14.7 billion was available at
December 31, 2020), brokered deposits, loan sales,
syndications, and access to the Federal Reserve
Bank.
Core deposits are a significant source of funding and
have historically been a stable source of liquidity for
banks. Generally, core deposits represent funding
from a financial institution's client base which provide
inexpensive, predictable pricing. The FDIC insures
these deposits to the extent authorized by law.
Generally, these limits are $250 thousand per
account owner for interest bearing and non-interest
bearing accounts. The ratio of total loans, excluding
loans HFS and restricted real estate loans, to core
deposits was 97% on December 31, 2020 compared
to 98% on December 31, 2019.
FHN may also use unsecured short-term borrowings
as a source of liquidity. Federal funds purchased from
correspondent bank clients are considered to be
substantially more stable than funds purchased in the
national broker markets for federal funds due to the
long, historical, and reciprocal nature of banking
services provided by FHN to these correspondent
banks. The remainder of FHN’s wholesale short-term
borrowings consists of securities sold under
agreements to repurchase transactions accounted for
as secured borrowings with business clients or broker
dealer counterparties.
Both FHN and First Horizon Bank may access the
debt markets in order to provide funding through the
issuance of senior or subordinated unsecured debt
subject to market conditions and compliance with
applicable regulatory requirements. In May 2020,
FHN issued $800 million of senior notes. In April
2020, First Horizon Bank issued $450 million of
subordinated notes. These subordinated notes qualify
as Tier 2 capital for First Horizon Bank as well as
FHN, up to certain regulatory limits for minority
interest capital instruments.
Both FHN and First Horizon Bank have the ability to
generate liquidity by issuing preferred equity, and (for
FHN) by issuing common equity, subject to market
conditions and compliance with applicable regulatory
requirements. As of December 31, 2020, FHN had
outstanding $470 million in non-cumulative perpetual
preferred stock, which includes $145 million issued in
May 2020. As of December 31, 2020, First Horizon
Bank and subsidiaries had outstanding preferred
shares of $295 million, which are reflected as
noncontrolling interest on the Consolidated Balance
Sheets.
Parent company liquidity is primarily provided by cash
flows stemming from dividends and interest payments
collected from subsidiaries. These sources of cash
represent the primary sources of funds to pay cash
dividends to shareholders and principal and interest
to debt holders of FHN. The amount paid to the
parent company through First Horizon Bank common
dividends is managed as part of FHN’s overall cash
management process, subject to applicable
regulatory restrictions. Certain regulatory restrictions
exist regarding the ability of First Horizon Bank to
transfer funds to FHN in the form of cash, common
dividends, loans, or advances. At any given time, the
pertinent portions of those regulatory restrictions
allow First Horizon Bank to declare preferred or
common dividends without prior regulatory approval
in an aggregate amount equal to First Horizon Bank’s
retained net income for the two most recent
completed years plus the current year to date. For
any period, First Horizon Bank’s ‘retained net income’
generally is equal to First Horizon Bank’s regulatory
net income reduced by the preferred and common
dividends declared by First Horizon Bank. Applying
the dividend restrictions imposed under applicable
federal and state rules as outlined above, the Bank’s
total amount available for dividends was $897 million
as of January 1, 2021. Consequently, on that date the
Bank could pay common dividends up to that amount
to its sole common stockholder, FHN, or to its
preferred shareholders without prior regulatory
approval. Additionally, a capital conservation buffer
must be maintained (as described in the Capital
section of this Report) to avoid restrictions on
dividends.
First Horizon Bank declared and paid common
dividends to the parent company in the amount of
$180 million in 2020 and $345 million in 2019. In
January 2021, First Horizon Bank declared and paid
a common dividend to the parent company in the
amount of $183 million. First Horizon Bank declared
FIRST HORIZON CORPORATION
93
2020 FORM 10-K ANNUAL REPORT
with certain derivative counterparties as discussed in
Note 22 - Derivatives.
and paid preferred dividends in each quarter of 2020
and 2019 and declared preferred dividends in the first
quarter of 2021 which are payable in April 2021.
Payment of a dividend to shareholders of FHN is
dependent on several factors which are considered
by the Board. These factors include FHN’s current
and prospective capital, liquidity, and other needs,
applicable regulatory restrictions, and also availability
of funds to FHN through a dividend from First Horizon
Bank. FHN also must meet capital conservation
buffer requirements to avoid restrictions on dividends.
Additionally, banking regulators generally require
insured banks and bank holding companies to pay
cash dividends only out of current operating earnings.
Consequently, the decision of whether FHN will pay
future dividends and the amount of dividends will be
affected by current operating results. FHN paid a
cash dividend of $0.15 per common share on January
4, 2021. FHN paid cash dividends of $1,550 per
Series A preferred share and $1,625 per Series E
preferred share on January 11, 2021 and $331.25 per
Series B preferred share and $165 per Series C
preferred share on February 1, 2021. In addition, in
January 2021, the Board approved cash dividends
per share in the following amounts:
Dividend/
Share
Record Date
Payment
Date
Common Stock
$
0.15
3/12/2021
4/1/2021
Preferred Stock
Series A
Series C
Series D
Series E
$
$
$
$
1,550.00
3/26/2021
4/12/2021
165.00
4/16/2021
305.00
4/16/2021
5/3/2021
5/3/2021
1,625.00
3/26/2021
4/12/2021
CREDIT RATINGS
FHN is currently able to fund a majority of the balance
sheet through core deposits, which are generally not
as sensitive to FHN’s credit ratings as other types of
funding. However, maintaining adequate credit ratings
on debt issues and preferred stock is critical to
liquidity should FHN need to access funding from
other sources, including from long-term debt
issuances and certain brokered deposits, at an
attractive rate. The availability and cost of funds other
than core deposits is also dependent upon
marketplace perceptions of the financial soundness of
FHN, which include such factors as capital levels,
asset quality, and reputation. The availability of core
deposit funding is stabilized by federal deposit
insurance, which can be removed only in
extraordinary circumstances, but may also be
influenced to some extent by the same factors that
affect other funding sources. FHN’s credit ratings are
also referenced in various respects in agreements
FIRST HORIZON CORPORATION
94
2020 FORM 10-K ANNUAL REPORT
The following table provides FHN’s most recent credit ratings:
Table 26 - Credit Ratings
Moody's (a)
Fitch (b)
First Horizon Corporation
Overall credit rating: Long-term/Short-term/Outlook Baa3/--/Stable
Long-term senior debt
Subordinated debt (c)
Junior subordinated debt (c)
Preferred stock
First Horizon Bank
Baa3
Baa3
Ba1
Ba2
Overall credit rating: Long-term/Short-term/Outlook Baa3/P-2/Stable
Long-term/short-term deposits
Long-term/short-term senior debt
Subordinated debt
Preferred stock
A3/P-2
Baa3/P-2
Baa3
Ba2
FT Real Estate Securities Company, Inc.
Preferred stock
Ba1
BBB/F2/Stable
BBB
BBB-
BB-
BB-
BBB/F2/Stable
BBB+/F2
BBB/F2
BBB-
BB-
A rating is not a recommendation to buy, sell, or hold securities and is subject to revision or withdrawal at any time and should be
evaluated independently of any other rating.
(a) Last change in ratings was on May 14, 2015; ratings/outlook affirmed on November 5, 2019.
(b) Last change in ratings was on May 6, 2020 and outlook was affirmed.
(c) Ratings are preliminary/implied.
REPURCHASE OBLIGATIONS, OFF-BALANCE
SHEET ARRANGEMENTS, AND OTHER
CONTRACTUAL OBLIGATIONS
Repurchase Accrual Methodology
Prior to September 2008, FHN originated loans
through its pre-2009 mortgage business, primarily
first lien home loans, with the intention of selling
them. As discussed in Note 17 - Contingencies and
Other Disclosures, FHN's principal remaining
exposures for those activities relate to (i)
indemnification claims by underwriters, loan
purchasers, and other parties which assert that FHN-
originated loans caused or contributed to losses
which FHN is legally obliged to indemnify, and (ii)
indemnification or other claims related to FHN's
servicing of pre-2009 mortgage loans.
FHN’s approach for determining the adequacy of the
repurchase and foreclosure reserve has evolved,
sometimes substantially, based on changes in
information available. Repurchase/make-whole rates
vary based on purchaser, vintage, and claim type. For
those loans repurchased or covered by a make-whole
payment, cumulative average loss severities range
between 50 and 60 percent of the UPB.
Repurchase Accrual Approach
In determining potential loss content, claims are
analyzed by purchaser, vintage, and claim type. FHN
considers various inputs including claim rate
estimates, historical average repurchase and loss
severity rates, mortgage insurance cancellations, and
mortgage insurance curtailment requests. Inputs are
applied to claims in the active pipeline, as well as to
historical average inflows to estimate loss content
related to potential future inflows. Management also
evaluates the nature of claims from purchasers and/
or servicers of loans sold to determine if qualitative
adjustments are appropriate.
Repurchase and Foreclosure Liability
The repurchase and foreclosure liability is comprised
of accruals to cover estimated loss content in the
active pipeline (consisting of mortgage loan
repurchase, make-whole, foreclosure/servicing
demands and certain related exposures), estimated
future inflows, and estimated loss content related to
certain known claims not currently included in the
active pipeline. The liability contemplates repurchase/
make-whole and damages obligations and estimates
for probable incurred losses associated with loan
populations excluded from the settlements with the
GSEs, as well as other whole loans sold, mortgage
insurance cancellations rescissions, and loans
included in bulk servicing sales effected prior to the
settlements with the GSEs. FHN compares the
estimated probable incurred losses determined under
the applicable loss estimation approaches for the
respective periods with current reserve levels.
Changes in the estimated required liability levels are
FIRST HORIZON CORPORATION
95
2020 FORM 10-K ANNUAL REPORT
recorded as necessary through the repurchase and
foreclosure provision. The repurchase and
foreclosure liability increased to $16 million on
December 31, 2020 from $15 million on December
31, 2019.
Other Contractual Obligations
Pension obligations are funded by FHN to provide
current and future benefits to participants in FHN’s
noncontributory, defined benefit pension plan. On
December 31, 2020, the annual measurement date,
pension obligations (representing the present value of
estimated future benefit payments), including
obligations of the unfunded plans, were $893 million
with $896 million of assets (measured at current fair
value) in the qualified plan’s trust to fund the qualified
plan’s obligations. The discount rate for 2020 of
2.63% for the qualified pension plan and 2.24% for
the nonqualified supplemental executive retirement
plan was determined by using a hypothetical AA yield
curve represented by a series of annualized individual
discount rates from one-half to thirty years. The
discount rates for the pension and nonqualified
supplemental executive retirement plans are selected
based on data specific to FHN’s plans and participant
populations. See Note 18 - Pension, Savings, and
Other Employee Benefits for additional information.
As of December 31, 2020, the plan assets exceeded
the projected benefit obligation and the accumulated
benefit obligation for the qualified pension plan.
Decisions to contribute to the plan are based upon
pension funding requirements under the Pension
Protection Act, the maximum amount deductible
under the Internal Revenue Code, the actual
performance of plan assets, and trends in the
regulatory environment. FHN made no contributions
to the qualified pension plan in 2020 and 2019 and
made an insignificant contribution to the qualified
pension plan in 2018. Management does not currently
anticipate that FHN will make a contribution to the
qualified pension plan in 2021.
The nonqualified pension plans and other
postretirement benefit plans, excluding the retiree
medical plan, are unfunded. Benefit payments under
the non-qualified plans were $5 million in 2020. FHN
anticipates 2021 benefit payments to be $5 million.
FHN has various other financial obligations which
may require future cash payments. The following
table sets forth contractual obligations representing
required and potential cash outflows as of December
31, 2020. Purchase obligations represent obligations
under agreements to purchase goods or services that
are enforceable and legally binding on FHN and that
specify all significant terms, including fixed or
minimum quantities to be purchased; fixed, minimum,
or variable price provisions; and the approximate
timing of the transaction. In addition, FHN enters into
commitments to extend credit to borrowers, including
loan commitments, standby letters of credit, and
commercial letters of credit.
These commitments do not necessarily represent
future cash requirements in that these commitments
often expire without being drawn upon and are not
included in the table.
Table 27—Contractual Obligations as of December 31, 2020
(Dollars in millions)
Contractual obligations:
Payments due by period (a)
Less than
1 year -
3 years -
After 5
1 year
< 3 years
< 5 years
years
Total
Time deposit maturities (b) (c)
$
3,952 $
933 $
153 $
32 $
Term borrowings (b) (d)
Annual rental commitments under noncancelable leases
(b) (e)
Purchase obligations
Total contractual obligations
—
52
153
450
93
132
—
78
53
1,274
257
13
5,070
1,724
480
351
$
4,157 $
1,608 $
284 $
1,576 $
7,625
(a) Excludes a $70 million liability for unrecognized tax benefits as the timing of payment cannot be reasonably estimated.
(b) Amounts do not include interest.
(c) See Note 9 - Deposits for further details.
(d) See Note 11 - Term Borrowings for further details.
(e) See Note 6 - Premises, Equipment and Leases for further details.
FIRST HORIZON CORPORATION
96
2020 FORM 10-K ANNUAL REPORT
MARKET UNCERTAINTIES AND PROSPECTIVE
TRENDS
FHN’s future results could be affected both positively
and negatively by several known trends. Key among
those are changes in the U.S. and global economy
and outlook, government actions affecting interest
rates, and the availability and administration of
stimulus relief for the economy. Additional impacts
include how the pandemic affects FHN’s clients, as
well as political uncertainty, potential changes in
federal policies and the potential impact to our clients,
and FHN’s strategic initiatives.
The global COVID-19 pandemic has led to periods of
significant volatility in financial commodities (including
oil and gas) and other markets, and has adversely
affected FHN’s and its clients' ability to conduct
normal business, and could harm FHN’s business
and future results of operations.
In March 2020, the Federal Reserve lowered short-
term interest rates twice and started a “quantitative
easing” program intended to lower longer-term
interest rates and foster access to credit. The
effective yields of 10-year and 30-year U.S. Treasury
securities achieved record low rates and the U.S.
Congress enacted relief legislation which, among
other things, was intended to provide emergency
credit to businesses at risk for failure from
government and public actions related to the
COVID-19 pandemic, and to mitigate the severity of
an economic recession. These changes in interest
rates and the volatility in the market negatively
impacted FHN’s net interest margin. Amortization of
net processing fees related to government relief
programs, including the Paycheck Protection
Program, has offset a portion of the net interest
margin decline.
The economic effects of the COVID-19 pandemic
have significantly altered business in the U.S. and
globally leading to partial or full business closures,
individuals being furloughed or laid off, significant
increases in unemployment, and workers being
partially or wholly ordered to work from home.
Disruption to FHN’s clients due to governmental and
societal responses to COVID-19 have adversely
affected FHN’s loan and deposit fee income, created
downward loan migration and a corresponding
increase in provision for credit losses. In addition,
loan charge-offs may increase over time, especially if
economic disruption related to the COVID-19
pandemic continues for an extended period of time.
Furthermore, government programs under the
CARES Act and other guidance intended to provide
relief to clients through temporary modifications and
deferrals, may in some instances mask or postpone
reporting of credit problems and potential defaults. In
these circumstances, current credit quality indicators
may not be reflective of the underlying health of
FHN's portfolios.
It is difficult to predict the impact of these still-
changing circumstances on FHN's businesses in the
future, although we expect the overall impact to be
less in 2021 than in 2020. The full extent of impacts
resulting from the COVID-19 pandemic and other
events beyond our control will depend on uncertain
future developments, including new information which
may emerge concerning the severity of new COVID
strains, the effectiveness of vaccines on existing and
new strains, and further actions governments may
take to slow the spread of the virus, treat the ill,
distribute the vaccines, and assist affected
businesses.
FHN Response to the COVID-19 Pandemic
The pandemic has resulted in modest operational
disruptions for FHN. Clients’ physical access to
banking centers has been restricted off and on in
many markets, and many non-client-facing associates
have worked largely on a remote basis. FHN has also
implemented additional sick time and child care
assistance for associates.
FHN is actively monitoring the COVID-19 pandemic
and its impact on clients and FHN’s credit quality.
FHN continues to reach out to clients to discuss
challenges and solutions, provide line draws and new
extensions to existing clients, provide support for
small businesses through the PPP (discussed in
more detail below) and other stimulus programs, as
well as provide lending and deposit assistance
through deferrals and waived fees. Additionally, in
certain sectors, FHN has reduced or stopped new
lending.
Paycheck Protection Program
In 2020, Congress created the foundation for the
PPP, under which qualifying businesses may receive
loans from private lenders, such as FHN, that are fully
guaranteed by the Small Business Administration.
These loans potentially are partly or fully forgivable,
depending upon the borrower’s use of the funds and
maintenance of employment levels; to the extent
forgiven, the borrower is relieved from payment, while
the lender still is paid from the program. Congress
revised the initial PPP multiple times during 2020 and
created a second round of PPP lending with the
Consolidated Appropriations Act, 2021 which was
signed into law in December 2020. Lenders making
PPP loans are paid a fee by the Small Business
FIRST HORIZON CORPORATION
97
2020 FORM 10-K ANNUAL REPORT
Administration. Gross lender fees range from 1% to
5% of the loan amount. Agents may be utilized to
assist in the preparation of PPP applications, with the
costs of the agent potentially being paid from the
gross lender fee. Additionally, originating banks have
certain internal costs of originating PPP loans.
At December 31, 2020, FHN had 32,510 PPP loans
with an aggregate principal of $4.1 billion. For these
loans, FHN anticipates being paid net lender fees of
approximately $37 million in relation to the PPP loans
held at year-end. FHN has decided to hold its PPP
loans for investment. Therefore, the amount of SBA
fees net of total direct origination costs are deferred
as a discount to the recorded carrying value of the
PPP loans. This discount is being amortized
prospectively to interest income. SBA loan
forgiveness payments are considered prepayments
of the related loans. Under existing accounting
principles, amortization of net origination fees can
reflect expected prepayment activity if prepayments
are determined to be probable and both the timing
and volume can be reasonably estimated. Based on
the current terms of the PPP loans, including the
expected end of the payment deferral period, FHN
estimates that substantially all of the prepayment-
eligible portions of existing PPP loans will be prepaid
by the end of 2021 as these loans are forgiven.
These estimated prepayments result in a similar
amount of the net fees being recognized in interest
income.
Since PPP loans carry a full SBA guarantee, they
do not have any credit risk and will not affect the
amount of provision and ALLL recorded. FHN has
assigned a risk weight of zero to PPP loans for
regulatory capital purposes.
Lending Assistance for Borrowers
Other client support initiatives include incremental
lending assistance for borrowers through delayed
payment programs and fee waivers. The following
table provides the UPB of loans related to deferrals
granted to FHN’s clients that have been processed
through December 31, 2020.
(Dollars in millions)
Commercial:
Commercial and industrial
Loans to mortgage
companies
Commercial real estate
Total Commercial
Consumer:
HELOC
RE installment loans
Credit Card and Other
Total Consumer
Total
As of December 31,
2020
$
$
$
$
$
104
—
194
298
14
202
4
220
518
Commercial deferrals processed in our different lines
of business were comprised primarily of professional
commercial real estate (44% or $132 million), general
commercial (40% or $119 million), and private client
(12% or $36 million).
LIBOR Reform
In 2017, the Chief Executive of the United Kingdom
Financial Conduct Authority, which regulates the
London Inter-Bank Offered Rate (LIBOR), announced
that it intends to halt persuading or compelling banks
to submit rates for the calculation of LIBOR after
2021. As a result, LIBOR as currently operated may
not continue after 2021. FHN is not currently able to
predict the impact that the transition from LIBOR will
have on FHN; however, because FHN has
instruments with floating rate terms based on LIBOR,
FHN may experience increases in interest, dividends,
and other costs relative to these instruments
subsequent to 2021. Additionally, the transition from
LIBOR could impact or change FHN’s hedge
accounting practices. FHN has initiated efforts to 1)
develop an inventory of affected loans, securities, and
derivatives, 2) evaluate and assess modifications as
needed to address loans outstanding at the time of
LIBOR discontinuance, 3) obtain an understanding of
the potential effects for applicable securities and
derivatives, 4) assess revisions to systems,
processes, and pricing needed to implement
alternative reference rates, and (5) update fallback
language for all new loans that reference LIBOR. In
March 2020, the FASB issued ASU 2020-04,
“Facilitation of the Effects of Reference Rate Reform
on Financial Reporting,” which provides several
optional expedients and exceptions to ease the
potential burden in accounting for reference rate
reform. The scope of ASU 2020-04 was expanded
with the January 2021 issuance of ASU 2021-01,
"Scope". Refer to the Accounting Changes Issued but
Not Currently Effective section of Note 1 - Significant
Accounting Policies for additional information.
Additionally, the IRS has released guidance that is
intended to facilitate the transition of existing
FIRST HORIZON CORPORATION
98
2020 FORM 10-K ANNUAL REPORT
contracts from LIBOR to new reference rates without
triggering modification accounting or taxable
exchange treatment for those contracts. This
guidance specifies what must be met in order to
qualify for the beneficial transition approach and FHN
is considering this guidance in its transition plans.
CRITICAL ACCOUNTING POLICIES AND
ESTIMATES
Allowance for Loan and Lease Losses
Management’s policy is to maintain the ALLL at a
level sufficient to absorb expected credit losses in the
loan and lease portfolio. Management performs
periodic and systematic detailed reviews of its loan
and lease portfolio to identify trends and to assess
the overall collectability of the portfolio. Management
believes the accounting estimate related to the ALLL
is a “critical accounting estimate” as: (1) changes in it
can materially affect the provision for loan and lease
losses and net income, (2) it requires management to
predict borrowers’ likelihood or capacity to repay,
including evaluation of inherently uncertain future
economic conditions, (3) prepayment activity must be
projected to estimate the life of loans that often are
shorter than contractual terms, (4) it requires
estimation of a reasonable and supportable forecast
period for credit losses for loan portfolio segments
before reversion to historical loss levels over the
remaining life of a loan and (5) expected future
recoveries of amounts previously charged off must be
estimated. Accordingly, this is a highly subjective
process and requires significant judgment since it is
difficult to evaluate current and future economic
conditions in relation to an overall credit cycle and
estimate the timing and extent of loss events that are
expected to occur prior to end of a loan’s estimated
life. The ALLL is increased by the provision for loan
and lease losses and recoveries and is decreased by
charged-off loans and leases. Principal loan amounts
are charged off against the ALLL in the period in
which the loan or any portion of the loan is deemed to
be uncollectible. A management committee
comprised of representatives from Risk Management,
Finance, Credit, and Treasury performs a quarterly
review of the assumptions used in FHN’s ALLL
analytical models, makes qualitative assessments of
the loan and lease portfolio, and determines if
qualitative adjustments should be recommended to
be added to the modeled results. On a quarterly
basis, as a part of Enterprise Risk reporting and
discussion, management addresses the credit
reserve adequacy and credit losses with the
Executive and Risk Committee of FHN’s Board of
Directors.
FHN believes that the critical assumptions underlying
the accounting estimates made by management
include: (1) the commercial loan portfolio has been
properly risk graded based on information about
borrowers in specific industries and specific issues
with respect to single borrowers; (2) borrower specific
information made available to FHN is current and
accurate; (3) the loan portfolio has been segmented
properly and individual loans have similar credit risk
characteristics and will behave similarly; (4) the lives
for loan portfolio pools have been estimated properly,
including consideration of expected prepayments;
(5) the economic forecasts utilized in the modeling of
expected credit losses are reflective of future
economic conditions; (6) entity-specific historical loss
information has been properly assessed for all loan
portfolio segments as the initial basis for estimating
expected credit losses; (7) the reasonable and
supportable periods for loan portfolio segments have
been properly determined; (8) the reversion
methodologies and timeframes for migration from the
reasonable and supportable period to the use of
historical loss rates are reasonable; (9) expected
recoveries of prior charge off amounts have been
properly estimated; and (10) qualitative adjustments
to modeled loss results reasonably reflect expected
future credit losses as of the date of the financial
statements.
While management uses the best information
available to establish the ALLL, future adjustments to
the ALLL and methodology may be necessary if
economic or other conditions differ substantially from
the assumptions used in making the estimates. Such
adjustments to original estimates, as necessary, are
made in the period in which these factors and other
relevant considerations indicate that loss levels vary
from previous estimates.
See Note 1 - Significant Accounting Policies and Note
5 - Allowance for Credit Losses for detail regarding
FHN’s processes, models, and methodology for
determining the ALLL.
Business Combinations
Pursuant to applicable accounting guidance FHN
generally recognizes assets acquired, including
identified intangible assets, and the liabilities
assumed in acquisitions at their fair values as of the
acquisition date, with the related transaction costs
expensed in the period incurred. Specified items such
as net investment in leases as lessor, acquired
operating lease assets and liabilities as lessee,
employee benefit plans and income-tax related
balances are recognized in accordance with
accounting guidance that results in measurements
that may differ from fair value. Determining the fair
FIRST HORIZON CORPORATION
99
2020 FORM 10-K ANNUAL REPORT
value of assets acquired, including identified
intangible assets, and liabilities assumed follows the
fair value hierarchy described in Note 24 – Fair Value
of Assets & Liabilities. This often involves estimates
based on internal or third-party valuations which
include appraisals, discounted cash flow analysis or
other valuation techniques that may include estimates
of attrition, inflation, asset growth rates, discount
rates, credit risk, multiples of earnings or other
relevant factors. The determination of fair value may
require management to make point-in-time estimates
about discount rates, future expected cash flows,
market conditions and other future events that can be
volatile in nature and challenging to assess. While
FHN uses the best estimates and assumptions to
accurately value assets acquired and liabilities
assumed at the acquisition date, the estimates are
inherently uncertain and subject to refinement.The
credit allowance for PCD assets is recognized within
business combination accounting. The credit
allowance for non-PCD assets is recognized as
provision expense in the same reporting period as the
business combination. Estimated credit losses for
acquired loans and leases are determined using
methodologies that are described in Note 1 -
Significant Accounting Policies.
Premiums and discounts on acquired AFS debt
securities and loans and leases held for investment
are amortized to interest income over their estimated
remaining lives, which may include prepayment
estimates in certain circumstances. Premiums and
discounts on acquired debt are amortized to interest
expense over their remaining lives. In addition, the
determination of the useful lives over which identified
finite-life intangible assets will be amortized is
subjective. Intangible assets are generally amortized
using an accelerated methodology that reflects the
cash flow projections utilized in the applicable
valuation.
Income Taxes
FHN is subject to the income tax laws of the U.S. and
the states and jurisdictions in which it operates. FHN
accounts for income taxes in accordance with ASC
740, "Income Taxes". Significant judgments and
estimates are required in the determination of the
consolidated income tax expense. FHN income tax
expense, deferred tax assets and liabilities, and
liabilities for unrecognized tax benefits reflect
management’s best estimate of current and future
taxes to be paid.
Income tax expense consists of both current and
deferred taxes. Current income tax expense is an
estimate of taxes to be paid or refunded for the
current period and includes income tax expense
related to uncertain tax positions. A DTA or a 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. Deferred taxes can be affected by changes
in tax rates applicable to future years, either as a
result of statutory changes or business changes that
may change the jurisdictions in which taxes are paid.
Additionally, DTAs are subject to a “more likely than
not” test to determine whether the full amount of the
DTAs should be realized in the financial statements.
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 or generated with
respect to the DTA. In projecting future taxable
income, FHN incorporates assumptions including the
amount of future state and federal pretax 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. If
the “more likely than not” test is not met, a valuation
allowance must be established against the DTA.
The income tax laws of the jurisdictions in which FHN
operate are complex and subject to different
interpretations by the taxpayer and the relevant
government taxing authorities. In establishing a
provision for income tax expense, FHN must make
judgments and interpretations about the application of
these inherently complex tax laws. Interpretations
may be subjected to review during examination by
taxing authorities and disputes may arise over the
respective tax positions. FHN attempts to resolve
disputes that may arise during the tax examination
and audit process. However, certain disputes may
ultimately be resolved through the federal and state
court systems.
FHN monitors relevant tax authorities and revises
estimates of accrued income taxes on a quarterly
basis. Changes in estimates may occur due to
changes in income tax laws and their interpretation by
the courts and regulatory authorities. Revisions of
estimates may also result from income tax planning
and from the resolution of income tax controversies.
Such revisions in estimates may be material to
operating results for any given period.
See also Note 15 - Income Taxes for additional
information.
FIRST HORIZON CORPORATION
100
2020 FORM 10-K ANNUAL REPORT
Contingent Liabilities
A liability is contingent if the amount or outcome is not
presently known, but may become known in the
future as a result of the occurrence of some uncertain
future event. FHN estimates its contingent liabilities
based on management’s estimates about the
probability of outcomes and their ability to estimate
the range of exposure. Accounting standards require
that a liability be recorded if management determines
that it is probable that a loss has occurred and the
loss can be reasonably estimated. In addition, it must
be probable that the loss will be confirmed by some
future event. As part of the estimation process,
management is required to make assumptions about
matters that are by their nature highly uncertain.
The assessment of contingent liabilities, including
legal contingencies, involves the use of critical
estimates, assumptions, and judgments.
Management’s estimates are based on their belief
that future events will validate the current
assumptions regarding the ultimate outcome of these
exposures. However, there can be no assurance that
future events, such as court decisions or decisions of
arbitrators, will not differ from management’s
assessments. Whenever practicable, management
consults with third-party experts (e.g., attorneys,
accountants, claims administrators, etc.) to assist with
the gathering and evaluation of information related to
contingent liabilities. Based on internally and/or
externally prepared evaluations, management makes
a determination whether the potential exposure
requires accrual in the financial statements.
See Note 17 - Contingencies and Other Disclosures
for additional information.
ACCOUNTING CHANGES WITH EXTENDED
TRANSITION PERIODS
Refer to Note 1 – Significant Accounting Policies for a
detail of accounting standards that have been issued
but are not currently effective, which section is
incorporated into this MD&A by this reference.
FIRST HORIZON CORPORATION
101
2020 FORM 10-K ANNUAL REPORT
NON-GAAP INFORMATION
Certain measures are included in the narrative and
tables in this MD&A that are “non-GAAP”, meaning
they are not presented in accordance with U.S. GAAP
and also are not codified in U.S. banking regulations
currently applicable to FHN. Although other entities
may use calculation methods that differ from those
used by FHN for non-GAAP measures, FHN’s
management believes such measures are relevant to
understanding the capital position or financial results
of FHN. Non-GAAP measures are reported to FHN’s
management and Board of Directors through various
internal reports.
Presentation of regulatory measures, even those
which are not GAAP, provide a meaningful base for
comparability to other financial institutions subject to
the same regulations as FHN, as demonstrated by
their use by banking regulators in reviewing capital
adequacy of financial institutions. Although not GAAP
terms, these regulatory measures are not considered
“non-GAAP” under U.S. financial reporting rules as
long as their presentation conforms to regulatory
standards. Regulatory measures used in this MD&A
include: common equity tier 1 capital, generally
defined as common equity less goodwill, other
intangibles, and certain other required regulatory
deductions; tier 1 capital, generally defined as the
sum of core capital (including common equity and
instruments that cannot be redeemed at the option of
the holder) adjusted for certain items under risk
based capital regulations; and risk-weighted assets,
which is a measure of total on- and off-balance sheet
assets adjusted for credit and market risk, used to
determine regulatory capital ratios.
The non-GAAP measures presented in this filing are
return on average tangible common equity, tangible
common equity to tangible assets and adjusted
tangible common equity to risk-weighted assets.
The following table provides a reconciliation of non-GAAP items presented in this MD&A to the most comparable
GAAP presentation:
Table 28—Non-GAAP to GAAP Reconciliation
(Dollars in millions; shares in thousands)
Pre-provision Net Revenue (Non-GAAP)
Net interest income (GAAP)
Plus: Noninterest income (GAAP)
Total Revenues (GAAP)
Less: Noninterest expense (GAAP)
Pre-provision Net Revenue (Non-GAAP)
Tangible Common Equity (Non-GAAP)
(A) Total equity (GAAP)
Less: Noncontrolling interest (a)
Less: Preferred stock (a)
(B) Total common equity
Less: Goodwill and other intangible assets (GAAP) (b)
(C) Tangible common equity (Non-GAAP)
Less: Unrealized gains (losses) on AFS securities, net of tax
(D) Adjusted tangible common equity (Non-GAAP)
Tangible Assets (Non-GAAP)
(E) Total assets (GAAP)
Less: Goodwill and other intangible assets (GAAP) (b)
(F) Tangible assets (Non-GAAP)
Average Tangible Common Equity (Non-GAAP)
Average total equity (GAAP)
Less: Average noncontrolling interest (a)
Less: Average preferred stock (a)
(G) Total average common equity
Less: Average goodwill and other intangible assets (GAAP) (b)
$
$
$
$
$
$
$
2020
2019
2018
$
$
$
$
$
$
$
1,662
1,492
3,154
1,718
1,436
8,307
295
470
7,542
1,865
5,677
108
5,569
84,209
1,865
82,344
6,609
295
297
6,017
1,696
$
$
$
$
$
$
$
1,210
654
1,864
1,233
631
5,076
295
96
4,685
1,563
3,122
31
3,091
43,311
1,563
41,748
4,920
295
96
4,529
1,575
1,220
723
1,943
1,221
722
4,785
295
96
4,394
1,588
2,806
(76)
2,882
40,832
1,588
39,244
4,617
295
96
4,226
1,570
FIRST HORIZON CORPORATION
102
2020 FORM 10-K ANNUAL REPORT
(H) Average tangible common equity (Non-GAAP)
Net Income Available to Common Shareholders
(I) Net income available to common shareholders
Risk Weighted Assets
(J) Risk weighted assets (c)
Period-end shares outstanding
(K) Period-end shares outstanding
$
$
4,321
$
2,954
$
2,656
822
$
435
$
539
$
63,140
$
37,046
$
33,003
555,031
311,469
318,573
Ratios
(A)/(E) Total period-end equity to period-end assets (GAAP)
(C)/(F) Tangible common equity to tangible assets (Non-GAAP)
(D)/(J) Adjusted tangible common equity to risk weighted assets (Non-GAAP)
(I)/(G) Return on average common equity (GAAP)
(I)/(H) Return on average tangible common equity (Non-GAAP)
(B)/(K) Book value per common share (GAAP)
(C)/(K) Tangible book value per common share (Non-GAAP)
$
$
9.86 %
11.72 %
11.72 %
6.89
8.82
13.66
19.03
13.59
10.23
$
$
7.48
8.34
9.60
14.72
15.04
10.02
$
$
7.15
8.73
12.75
20.28
13.79
8.81
(a) Included in Total equity on the Consolidated Balance Sheets.
(b) Includes Goodwill and other intangible assets, net of amortization.
(c) Defined by and calculated in conformity with bank regulations applicable to FHN.
FIRST HORIZON CORPORATION
103
2020 FORM 10-K ANNUAL REPORT
ITEM 7A. QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT
MARKET RISK
The information called for by this Item is incorporated
herein by reference to: 2020 MD&A (Item 7); and to
Note 22-Derivatives and Note 23-Master Netting and
Similar Agreements - Repurchase, Reverse
Repurchase, and Securities Borrowing Transactions
of 2020 Financial Statements (Item 8), which appear,
respectively, on pages 202-209 and 210-211 of 2020
Financial Statements (Item 8). Within 2020 MD&A,
these sections are especially pertinent to this Item
7A: Market Risk Management and Interest Rate Risk
Management appearing, respectively, on pages 88-90
and 90-91 of this report.
FIRST HORIZON CORPORATION
104
2020 FORM 10-K ANNUAL REPORT
ITEM 8. FINANCIAL
STATEMENTS AND
SUPPLEMENTARY DATA
Financial statements, related notes, and certain reports and other information required by this Item is presented
following this page.
FIRST HORIZON CORPORATION
105
2020 FORM 10-K ANNUAL REPORT
REPORT OF MANAGEMENT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management at First Horizon Corporation is responsible for establishing and maintaining adequate internal control
over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. First
Horizon Corporation’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.
Even effective internal controls, no matter how well designed, have inherent limitations such as the possibility of
human error or of circumvention or overriding of controls, and consideration of cost in relation to benefit of a control.
Moreover, effectiveness must necessarily be considered according to the existing state of the art of internal control.
Further, because of changes in conditions, the effectiveness of internal controls may diminish over time.
Management assessed the effectiveness of First Horizon Corporation’s internal control over financial reporting as of
December 31, 2020. This assessment was based on criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on our assessment and those criteria, management believes that First Horizon Corporation maintained
effective internal control over financial reporting as of December 31, 2020.
On July 1, 2020, First Horizon Corporation (FHN) and IBERIABANK Corporation (IBKC) closed their merger of
equals transaction. See Note 2 – Acquisitions and Divestitures of our consolidated financial statements for
additional information. IBKC represented approximately 33% of our consolidated total assets as of December 31,
2020 and approximately 18% of our consolidated total revenues for the year then ended. As permitted by the
Securities and Exchange Commission, management has elected to exclude IBKC from its assessment of internal
control over financial reporting as of December 31, 2020.
KPMG LLP, the independent registered public accounting firm that audited FHN’s financial statements, issued an
audit report on FHN’s internal control over financial reporting. That report appears on the following page.
FIRST HORIZON CORPORATION
106
2020 FORM 10-K ANNUAL REPORT
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
First Horizon Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited First Horizon Corporation and subsidiaries' (the Company) internal control over financial reporting
as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related
consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years
in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial
statements), and our report dated February 25, 2021 expressed an unqualified opinion on those consolidated
financial statements.
The Company acquired IBERIABANK Corporation during the year ended December 31, 2020, and management
excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2020, IBERIABANK Corporation’s internal control over financial reporting associated with
approximately 33% of total assets and approximately 18% of total revenue included in the consolidated financial
statements of the Company as of and for the year ended December 31, 2020. Our audit of internal control over
financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of
IBERIABANK Corporation.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report
of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
FIRST HORIZON CORPORATION
107
2020 FORM 10-K ANNUAL REPORT
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Memphis, Tennessee
February 25, 2021
FIRST HORIZON CORPORATION
108
2020 FORM 10-K ANNUAL REPORT
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
First Horizon Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of First Horizon Corporation and subsidiaries' (the
Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive
income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2020,
and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020
and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated February 25, 2021 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of
accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASC
Topic 326, Financial Instruments - Credit Losses.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that: (1)
relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Adoption of ASC 326 and allowance for loan losses for loans collectively evaluated for impairment
As discussed in Note 1 to the consolidated financial statements, the Company adopted ASU No. 2016-13,
Financial Instruments – Credit Losses (ASC Topic 326), as of January 1, 2020. The total allowance for loan
FIRST HORIZON CORPORATION
109
2020 FORM 10-K ANNUAL REPORT
losses as of January 1, 2020 was $107 million, a portion of which related to the allowance for loan losses
evaluated on a collective basis (the January 1, 2020 collective ALLL). As discussed in Notes 1 and 5 to the
consolidated financial statements, the Company’s allowance for loan losses was $963 million, of which a
portion related to the allowance for loan losses at December 31, 2020 (the December 31, 2020 collective
ALLL). The January 1, 2020 collective ALLL and the December 31, 2020 collective ALLL (both, the
collective ALLL) include the measure of expected loan losses on a collective (pooled) basis for those loans
that share similar risk characteristics. The Company estimated the collective ALLL using a current expected
loan losses methodology which is based on relevant information about historical experience, current
conditions, and reasonable and supportable forecasts that affect the collectability of the loan balances. The
expected loan losses are the product of multiplying the Company’s estimates of probability of default (PD),
loss given default (LGD), and individual loan level exposure as default (EAD) on an undiscounted basis.
The Company uses models to develop the PD and LGD, which incorporate a single macroeconomic
forecast over a four year reasonable and supportable forecast period. After the reasonable and supportable
forecast period, the Company immediately reverts to its historical loss averages, evaluated over the
historical observation period, for the remaining life of the loans. The Company uses prepayment models
which project prepayments over the life of the loans. In order to capture the unique risks of the loan portfolio
within the PD, LGD, and prepayment models, the Company segments the portfolio into pools, incorporating
loan grades for commercial loans. The Company uses qualitative adjustments to adjust historical loss
information in situations where current loan characteristics differ from those in the historical loss information
and for recent changes in economic conditions, macroeconomic forecasts and other factors.
We identified the assessment of the collective ALLL as a critical audit matter. A high degree of audit effort,
including specialized skills and knowledge, and subjective and complex auditor judgment was involved in
the assessment due to significant measurement uncertainty. Specifically, the assessment encompassed the
evaluation of the collective ALLL methodology, including the methods and models used to estimate (1) the
PD, LGD, and prepayments and their significant assumptions, including portfolio segmentation, the
economic forecast scenario and macroeconomic assumptions, the reasonable and supportable forecast
periods, the historical observation period, and loan grades for commercial loans, and (2) the qualitative
adjustments, and their significant assumptions, including the identification and evaluation of model and data
limitations and the assessment of stressed loan portfolios that are most exposed to the effects of the
COVID-19 pandemic. The assessment also included an evaluation of the conceptual soundness and
performance of the PD, LGD and prepayment models. In addition, auditor judgment was required to
evaluate the sufficiency of the audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated
the design and tested the operating effectiveness of certain internal controls related to the Company’s
measurement of the collective ALLL estimates, including controls over the:
•
•
•
•
•
•
development of the collective ALLL methodology
development of the PD, LGD, and prepayment models
performance monitoring of the PD, LGD and prepayment models for the December 31, 2020 collective
ALLL
identification and determination of the significant assumptions used in the PD, LGD, and prepayment
models
development of the qualitative adjustments, including the significant assumptions used in the
measurement of the qualitative adjustments
analysis of the collective ALLL results, trends, and ratios.
We evaluated the Company’s process to develop the collective ALLL estimates by testing certain sources of
data, factors, and assumptions that the Company used, and considered the relevance and reliability of such
data, factors and assumptions. In addition, we involved credit risk professionals with specialized skills and
knowledge, who assisted in:
•
evaluating the Company’s collective ALLL methodology for compliance with U.S. generally accepted
accounting principles
FIRST HORIZON CORPORATION
110
2020 FORM 10-K ANNUAL REPORT
•
•
•
•
•
•
•
evaluating judgments made by the Company relative to the development and performance testing of the
PD, LGD, and prepayment models by comparing to relevant Company specific metrics and trends and
the applicable industry and regulatory practices
assessing the conceptual soundness and performance testing of the PD, LGD, and prepayment models
by inspecting model documentation to determine whether the models are suitable for their intended use
evaluating the selection of the economic forecast scenario by comparing to the Company’s business
environment and relevant industry practices
evaluating the length of the historical observation period and reasonable and supportable forecast
periods by comparing to the specific portfolio risk characteristics and trends
determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the
Company’s business environment and relevant industry practices
testing individual credit risk ratings for a selection of commercial loan borrower relationships by
evaluating the financial performance of the borrower, sources of repayment, underlying collateral, and
relevant guarantees
evaluating the methodology used to develop the qualitative adjustments and the effect of those
adjustments on the collective ALLL compared with relevant credit risk factors and consistency with
credit trends and identified limitations of underlying quantitative models.
We also assessed the sufficiency of the audit evidence obtained related to the collective ALLL by evaluating
the:
•
•
•
cumulative results of the audit procedures
qualitative aspects of the Company’s accounting practice
potential bias in the accounting estimates.
Assessment of the allowance for loan losses for loans evaluated on a collective basis acquired in the
acquisition of IBERIABANK Corporation
As discussed in Notes 2 and 5 to the consolidated financial statements, on July 1, 2020, First Horizon
Corporation closed on a merger of equals with IBERIABANK Corporation (IBKC). The Company’s
allowance for loan losses for acquired loans evaluated on a collective basis was $431 million, a substantial
portion of which related to IBKC at July 1, 2020 (the July 1, 2020 IBKC collective ALLL). As discussed in
Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for loan losses was $963
million, a portion of which related to the allowance for loan losses for IBKC loans evaluated on a collective
basis at December 31, 2020 (the December 31, 2020 IBKC collective ALLL). The July 1, 2020 IBKC
collective ALLL and December 31, 2020 IBKC collective ALLL (both, the IBKC collective ALLL) includes the
measure of expected loan losses on a collective (pooled) basis for those loans that share similar risk
characteristics. The Company estimates the IBKC collective ALLL using a current expected loans losses
methodology which is based on relevant information about historical experience, current conditions, and
reasonable and supportable forecasts that affect the collectability of the loan balances. The expected loan
losses are the product of multiplying the Company’s estimates of probability of default (PD), loss given
default (LGD), and individual loan level exposure as default (EAD) on an undiscounted basis. The Company
uses models to develop the PD and LGD, which incorporate a single macroeconomic forecast over a four
year reasonable and supportable forecast period. After the reasonable and supportable forecast period, the
Company immediately reverts to its historical loss averages, evaluated over the historical observation
period, for the remaining life of the loans. The Company uses prepayment models which project
prepayments over the life of the loans. In order to capture the unique risks of the loan portfolio within the
PD, LGD, and prepayment models, the Company segments the portfolio into pools, incorporating loan
grades for C&I and CRE construction loans. The Company uses qualitative adjustments to adjust historical
FIRST HORIZON CORPORATION
111
2020 FORM 10-K ANNUAL REPORT
loss information in situations where current loan characteristics differ from those in the historical loss
information and for recent changes in economic conditions, macroeconomic forecasts and other factors.
We identified the assessment of the IBKC collective ALLL as a critical audit matter. A high degree of audit
effort, including specialized skills and knowledge, and subjective and complex auditor judgment was
involved in the assessment due to significant measurement uncertainty. Specifically, the assessment
encompassed the evaluation of the IBKC collective ALLL methodology, including the methods and models
used to estimate (1) the PD, LGD, and prepayments and their significant assumptions, including portfolio
segmentation, the economic forecast scenario and macroeconomic assumptions, the reasonable and
supportable forecast periods, the historical observation period, and loan grades for C&I and CRE
construction loans, and (2) the qualitative adjustments, and their significant assumptions, including the
identification and evaluation of model and data limitations and the assessment of stressed loan portfolios
that are most exposed to the effects of the COVID-19 pandemic. The assessment also included an
evaluation of the conceptual soundness and performance of the PD, LGD and prepayments models. In
addition, auditor judgment was required to evaluate the sufficiency of the audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated
the design of certain internal controls related to the Company’s measurement of the IBKC collective ALLL
estimates, including controls over the:
•
•
•
•
•
•
development of the IBKC collective ALLL methodology
development of the PD, LGD, and prepayment models
performance monitoring of the PD, LGD and prepayment models for the December 31, 2020 IBKC
collective ALLL
identification and determination of the significant assumptions used in the PD, LGD, and prepayment
models
development of the qualitative adjustments, including the significant assumptions used in the
measurement of the qualitative adjustments
analysis of the IBKC collective ALLL results, trends, and ratios.
In addition, we evaluated the design and tested the operating effectiveness of certain internal controls
related to the Company’s measurement of the July 1, 2020 IBKC collective ALLL, including controls over the
appropriateness of risk ratings and the evaluation of the methodology and assumptions used in the
estimation of the July 1, 2020 IBKC collective ALLL, including the development of qualitative adjustments
and analysis of results.
We evaluated the Company’s process to develop the IBKC collective ALLL estimates by testing certain
sources of data, factors, and assumptions that the Company used, and considered the relevance and
reliability of such data, factors and assumptions. In addition, we involved credit risk professionals with
specialized skills and knowledge, who assisted in:
•
•
•
•
evaluating the Company’s IBKC collective ALLL methodology for compliance with U.S. generally
accepted accounting principles
evaluating judgments made by the Company relative to the development and performance testing of the
PD, LGD, and prepayment models by comparing them to relevant Company-specific metrics and trends
and the applicable industry and regulatory practices
assessing the conceptual soundness and performance testing of the PD, LGD, and prepayment models
by inspecting model documentation to determine whether the models are suitable for their intended use
evaluating the selection of the economic forecast scenario by comparing to the Company’s business
environment and relevant industry practices
FIRST HORIZON CORPORATION
112
2020 FORM 10-K ANNUAL REPORT
•
•
•
•
evaluating the length of the historical observation period and reasonable and supportable forecast
periods by comparing to the specific portfolio risk characteristics and trends
determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the
Company’s business environment and relevant industry practices
testing individual credit risk ratings for a selection of C&I and CRE construction loan borrower
relationships by evaluating the financial performance of the borrower, sources of repayment, underlying
collateral, and relevant guarantees
evaluating the methodology used to develop the qualitative adjustments and the effect of those
adjustments on the IBKC collective ALLL compared with relevant credit risk factors and consistency with
credit trends and identified limitations of underlying quantitative models.
We also assessed the sufficiency of the audit evidence obtained related to the IBKC collective ALLL by
evaluating the:
•
•
•
cumulative results of the audit procedures
qualitative aspects of the Company’s accounting practice
potential bias in the accounting estimates.
Valuation of acquired loans and the core deposit intangible in the acquisition of IBERIABANK Corporation
As discussed in Note 2 and 7 to the consolidated financial statements, on July 1, 2020, First Horizon
Corporation (the Company) closed on a merger of equals transaction with IBERIABANK Corporation (the
Merger). The assets acquired and liabilities assumed are generally required to be measured at fair value at
the date of acquisition under the purchase method of accounting. The Company acquired loans and leases
with a fair value of $26 billion and established a core deposit intangible (CDI) asset with a fair value of $207
million. The fair value of acquired loans and leases is based on a discounted cash flow methodology that
projected principal and interest payments using key assumptions of market implied credit losses (probability
of default, loss given default), discount rate, and prepayment rate. The fair value of the CDI asset is based
on an income approach methodology whereby projected net cash flow benefits are derived from estimating
costs to carry deposits compared to alternative funding costs, and includes key assumptions related to
discount rates, interest costs, deposit attrition rates, alternative costs of funds, and net maintenance costs.
We identified the valuation of acquired loans and leases and the CDI asset in the Merger as a critical audit
matter. These fair value measurements involved a high degree of measurement uncertainty and subjectivity,
which required specialized skills and knowledge to evaluate. Specifically, the assessment of these fair value
measurements encompassed the evaluation of the methodologies used to measure the fair value of
acquired loans and leases and the CDI asset, including the key assumptions and the inputs used to develop
the key assumptions. In addition, auditor judgment was required to evaluate the sufficiency of the audit
evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated
the design and tested the operating effectiveness of certain internal control related to the Company’s
valuation of acquired loans and leases and the CDI asset, including controls over:
•
•
•
development of the fair value methodologies
identification and determination of the key assumptions
assessment of the overall valuation.
We evaluated the Company’s process to develop the valuation of acquired loans and leases and the CDI
asset by testing certain sources of data and assumptions that the Company used and considered the
relevance and reliability of such data and assumptions. We involved valuation professionals with
specialized skills and knowledge, who assisted in:
FIRST HORIZON CORPORATION
113
2020 FORM 10-K ANNUAL REPORT
•
•
•
•
•
evaluating the overall fair value methodology used by the Company to estimate the fair value for certain
acquired loans and leases and the CDI asset for compliance with U.S. generally accepted accounting
principles
developing independent ranges of fair value for certain acquired loans and leases, including the
development of independent assumptions utilizing market data for implied credit loss, discount rate and
prepayment rate assumptions
assessing the Company’s estimate of fair value for certain acquired loans and leases by comparing it to
the independently developed ranges
developing an independent range of fair value for the CDI asset, including 1) evaluating deposit attrition
rates, by calculating deposit attrition rates using the Company’s account closure data and comparing
them to publicly available deposit attrition data 2) deriving net maintenance costs, alternative cost of
funds and interest costs from publicly available data and 3) developing an independent assumption for
the discount rate, utilizing market data
assessing the Company’s estimate of the fair value for the CDI asset by comparing it to the
independently developed range.
We also assessed the sufficiency of the audit evidence obtained related to the valuation of acquired loans
and the CDI asset by evaluating the:
•
•
•
cumulative results of the audit procedures
qualitative aspects of the Company’s accounting practice
potential bias in the accounting estimates.
We have served as the Company’s auditor since 2002.
Memphis, Tennessee
February 25, 2021
FIRST HORIZON CORPORATION
114
2020 FORM 10-K ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)
Assets
Cash and due from banks
Interest-bearing deposits with banks
Federal funds sold and securities purchased under agreements to resell
Trading securities
Securities available for sale at fair value
Loans held for sale (including $405 and $14 at fair value, respectively)
Loans and leases (including $16 and $— at fair value, respectively)
Allowance for loan and lease losses
Net loans and leases
Premises and equipment
Goodwill
Other intangible assets
Other assets
Total assets
Liabilities
Noninterest-bearing deposits
Interest-bearing deposits
Total deposits
Trading liabilities
Short-term borrowings
Term borrowings
Other liabilities
Total liabilities
Equity
Preferred stock, Non-cumulative perpetual, no par value; authorized 5,000,000 shares; issued 26,250 and
1,000 shares, respectively
Common stock, $0.625 par value; authorized 700,000,000 and 400,000,000 shares, respectively; issued
555,030,652 and 311,469,056 shares, respectively
Capital surplus
Retained earnings
Accumulated other comprehensive loss, net
FHN shareholders' equity
Noncontrolling interest
Total equity
Total liabilities and equity
Certain previously reported amounts have been reclassified to agree with current presentation.
See accompanying notes to consolidated financial statements.
December 31
2020
2019
$
1,203 $
$
$
8,351
445
1,176
8,047
1,022
58,232
(963)
57,269
759
1,511
354
4,072
84,209 $
22,173 $
47,809
69,982
353
2,198
1,670
1,699
75,902
470
347
5,074
2,261
(140)
8,012
295
8,307
634
482
633
1,346
4,445
594
31,061
(200)
30,861
455
1,433
131
2,297
43,311
8,429
24,001
32,430
506
3,518
791
990
38,235
96
195
2,931
1,798
(239)
4,781
295
5,076
$
84,209 $
43,311
FIRST HORIZON CORPORATION
115
2020 FORM 10-K ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share data; shares in thousands)
Interest income
Interest and fees on loans and leases
Interest and fees on loans held for sale
Interest on securities available for sale
Interest on trading securities
Interest on other earning assets
Total interest income
Interest expense
Interest on deposits
Interest on trading liabilities
Interest on short-term borrowings
Interest on term borrowings
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Noninterest income
Fixed income
Deposit transactions and cash management
Mortgage banking and title income
Brokerage, management fees and commissions
Trust services and investment management
Bankcard income
Securities gains (losses), net
Purchase accounting gain
Other income
Total noninterest income
Noninterest expense
Personnel expense
Net occupancy expense
Computer software
Legal and professional fees
Operations services
Contributions
Equipment expense
Amortization of intangible assets
Communications and delivery
Advertising and public relations
Other expense
Total noninterest expense
Income before income taxes
Income tax expense
Net income
Year Ended December 31
2020
2019
2018
$
1,722 $
30
104
35
7
1,898
1,394 $
31
120
47
32
1,624
152
6
14
64
236
1,662
503
1,159
423
148
129
66
39
37
(6)
533
123
1,492
1,033
116
85
84
56
41
42
40
31
18
172
1,718
933
76
307
13
41
53
414
1,210
45
1,165
279
132
10
55
30
28
—
—
120
654
695
80
61
72
46
11
34
25
25
34
150
1,233
586
134
$
857 $
452 $
1,286
45
130
59
26
1,546
217
19
37
53
326
1,220
8
1,212
168
133
11
55
30
29
213
—
84
723
658
85
61
57
56
1
39
26
30
25
183
1,221
714
157
557
FIRST HORIZON CORPORATION
116
2020 FORM 10-K ANNUAL REPORT
Net income attributable to noncontrolling interest
Net income attributable to controlling interest
Preferred stock dividends
Net income available to common shareholders
Basic earnings per share
Diluted earnings per share
Weighted average common shares
Diluted average common shares
Certain previously reported amounts have been reclassified to agree with current presentation.
See accompanying notes to consolidated financial statements.
$
$
$
$
12
11
845 $
441 $
23
822 $
1.90 $
1.89 $
6
435 $
1.39 $
1.38 $
12
545
6
539
1.66
1.65
432,125
433,954
313,637
315,657
324,375
327,445
FIRST HORIZON CORPORATION
117
2020 FORM 10-K ANNUAL REPORT
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
Net income
Other comprehensive income (loss), net of tax:
Year Ended December 31
2020
2019
2018
$
857 $
452 $
557
Net unrealized gains (losses) on securities available for sale
Net unrealized gains (losses) on cash flow hedges
Net unrealized gains (losses) on pension and other
postretirement plans
Other comprehensive income (loss)
Comprehensive income
Comprehensive income attributable to noncontrolling interest
Comprehensive income attributable to controlling interest
Income tax expense (benefit) of items included in Other
comprehensive income:
Net unrealized gains (losses) on securities available for sale
Net unrealized gains (losses) on cash flow hedges
Net unrealized gains (losses) on pension and other postretirement
plans
$
$
See accompanying notes to consolidated financial statements.
77
9
13
99
956
12
107
15
15
137
589
11
944 $
578 $
25 $
35 $
3
3
5
5
(49)
(4)
—
(53)
504
12
492
(16)
(1)
—
FIRST HORIZON CORPORATION
118
2020 FORM 10-K ANNUAL REPORT
Preferred Stock
Common Sock
Shares
Amount
Shares
Amount
Capital
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
(a)
Noncontrolling
Interest
Total
326,736
$
204
$
3,148
$
1,103
$
(265) $
295 $
4,581
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Dollars in millions, except per share data, shares in
thousands)
Balance, December 31, 2017
Adjustment to reflect adoption of ASU 2018-02
Beginning balance, as adjusted
Net income
Other comprehensive income (loss)
Comprehensive income (loss)
Cash dividends declared:
Preferred stock ($6,200 per share)
Common stock $.48 per share)
Common stock repurchased (b)
Common stock issued for:
Stock options and restricted stock - equity
awards
Acquisition equity adjustment
Stock-based compensation expense
Dividends declared - noncontrolling interest of
subsidiary preferred stock
Other
Balance, December 31, 2018
Adjustment to reflect adoption of ASU 2016-02
Beginning balance, as adjusted
Net income
Other comprehensive income (loss)
Comprehensive income (loss)
Cash dividends declared:
Preferred stock ($6,200 per share)
Common stock ($.56 per share)
Common stock repurchased (b)
Common stock issued for:
Stock options and restricted stock - equity
awards
Stock-based compensation expense
Dividends declared - noncontrolling interest of
subsidiary preferred stock
Balance, December 31, 2019
Adjustment to reflect adoption of ASU 2016-13
Beginning balance, as adjusted
Net income
Other comprehensive income (loss)
Comprehensive income (loss)
Cash dividends declared:
Preferred stock
Common stock ($.60 per share)
Preferred stock issuance (1,500 shares issued
at $100,000 per share net of offering costs)
Common stock repurchased (b)
Common stock issued for:
Stock options and restricted stock - equity
awards
Issued in business combination (c)
Stock-based compensation expense
Dividends declared - noncontrolling interest of
subsidiary preferred stock
Other (d)
96
—
96
—
—
—
—
—
—
—
—
—
—
—
96
—
96
—
—
—
—
—
—
—
—
—
96
—
—
326,736
—
—
—
—
—
(6,708)
926
(2,374)
—
—
(7)
318,573
—
318,573
—
—
—
—
—
(9,100)
1,996
—
—
311,469
—
1,000
$
—
1,000
—
—
—
—
—
—
—
—
—
—
—
1,000
—
1,000
—
—
—
—
—
—
—
—
—
1,000
—
1,000
—
—
—
—
—
1,500
—
96
—
—
—
311,469
—
—
—
—
—
144
—
—
—
—
(426)
—
23,750
—
1,726
230
243,015
—
—
—
—
—
—
—
—
(753)
—
204
—
—
—
—
—
(4)
1
(1)
—
—
—
200
—
200
—
—
—
—
—
(6)
1
—
—
195
—
195
—
—
—
—
—
—
—
—
152
—
—
—
—
58
3,148
1,161
—
—
—
—
—
(101)
4
(45)
23
—
—
545
—
545
(6)
(158)
—
—
—
—
—
—
3,029
1,542
—
(1)
3,029
1,541
—
—
—
—
—
(128)
8
22
—
2,931
—
2,931
—
—
—
—
—
—
(4)
7
2,115
32
—
(7)
441
—
441
(6)
(178)
—
—
—
—
1,798
(96)
1,702
845
—
845
(23)
(263)
—
—
—
—
—
—
—
(58)
(323)
—
(53)
(53)
—
—
—
—
—
—
—
—
(376)
—
(376)
—
137
137
—
—
—
—
—
—
(239)
—
(239)
—
99
99
—
—
—
—
—
—
—
—
—
—
295
12
—
12
—
—
—
—
—
—
(12)
—
295
—
295
11
—
11
—
—
—
—
—
(11)
295
—
295
12
—
12
—
—
—
—
—
—
—
(12)
—
—
4,581
557
(53)
504
(6)
(158)
(105)
5
(46)
23
(12)
—
4,786
(1)
4,785
452
137
589
(6)
(178)
(134)
9
22
(11)
5,076
(96)
4,980
857
99
956
(23)
(263)
144
(4)
7
2,497
32
(12)
(7)
Balance, December 31, 2020
26,250
$
470
555,031
$
347
$
5,074
$
2,261
$
(140) $
295 $
8,307
See accompanying notes to consolidated financial statements.
(a) Due to the nature of the preferred stock issued by FHN and its subsidiaries, all components of Other comprehensive income (loss) have been attributed solely to
FHN as the controlling interest holder.
FIRST HORIZON CORPORATION
119
2020 FORM 10-K ANNUAL REPORT
2020, 2019, and 2018 include $4 million, $130 million, and $99 million, respectively, repurchased under share repurchase programs.
See Note 2- Acquisitions and Divestitures for additional information.
(b)
(c)
(d) Represents shares canceled in connection with the resolution of remaining CBF dissenters' appraisal process and to cover taxes on the IBKC equity compensation
grants that automatically vested as part of the merger.
FIRST HORIZON CORPORATION
120
2020 FORM 10-K ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Year Ended December 31
2019
2018
2020
$
857 $
452 $
557
Provision for credit losses
Deferred income tax expense (benefit)
Depreciation and amortization of premises and equipment
Amortization of intangible assets
Net other amortization and accretion
Net (increase) decrease in derivatives
Purchase accounting gain
Stock-based compensation expense
Securities (gains) losses, net
Net (gains) losses on sale/disposal of fixed assets
(Gain) loss on BOLI
Loans held for sale:
Purchases and originations
Gross proceeds from settlements and sales
(Gain) loss due to fair value adjustments and other
Other operating activities, net
Total adjustments
Net cash provided by (used in) operating activities
Investing Activities
Proceeds from sales of securities available for sale
Proceeds from maturities of securities available for sale
Purchases of securities available for sale
Proceeds from sales of premises and equipment
Purchases of premises and equipment
Proceeds from sales and pay down of loans classified as held to maturity
Proceeds from BOLI
Net (increase) decrease in loans and leases
Net (increase) decrease in interest-bearing deposits with banks
Cash (paid) received for acquisitions, net
Other investing activities, net
Net cash provided by (used in) investing activities
Financing Activities
Common stock:
Stock options exercised
Cash dividends paid
Repurchase of shares (a)
Cancellation of common shares
Preferred stock issuance
Cash dividends paid - preferred stock - noncontrolling interest
Cash dividends paid - preferred stock
Net increase (decrease) in deposits
Net increase (decrease) in short-term borrowings
Proceeds from issuance of term borrowings
Payments/maturities on term borrowings
Increases (decreases) in restricted and secured term borrowings
Net cash provided by (used in) financing activities
503
(18)
52
40
(30)
(223)
(533)
32
6
8
(5)
(4,710)
2,907
(81)
1,367
(685)
172
629
4,099
(4,740)
12
(58)
—
12
(819)
(6,187)
2,071
14
(4,967)
7
(222)
(4)
(7)
144
(12)
(17)
7,143
(1,529)
1,249
(1,570)
(6)
5,176
45
14
44
25
(3)
(134)
—
22
—
22
(5)
(2,075)
818
(7)
1,612
378
830
192
800
(630)
20
(49)
20
14
(3,570)
795
—
18
(2,390)
9
(171)
(134)
—
—
(11)
(6)
(253)
2,384
—
(406)
10
1,422
8
104
47
26
(14)
42
—
23
(213)
(1)
(4)
(2,345)
919
20
1,065
(323)
234
21
676
(473)
30
(48)
50
13
105
(92)
(46)
244
480
5
(139)
(105)
—
—
(12)
(6)
2,093
(2,549)
—
(69)
21
(761)
FIRST HORIZON CORPORATION
121
2020 FORM 10-K ANNUAL REPORT
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Disclosures
Total interest paid
Total taxes paid
Total taxes refunded
Transfer from loans to OREO
Transfer from loans HFS to trading securities
Transfer from loans to loans HFS
381
1,267
(138)
1,405
1,648 $
1,267 $
261 $
411 $
$
$
105
36
2
1,742
9
71
28
9
1,321
31
(47)
1,452
1,405
308
43
48
12
1,389
—
Certain previously reported amounts have been reclassified to agree with current presentation.
See accompanying notes to consolidated financial statements.
(a) 2019 and 2018 include $130 million and $99 million, respectively, repurchased under share repurchase programs.
FIRST HORIZON CORPORATION
122
2020 FORM 10-K ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
Note 1 – Significant Accounting Policies
Basis of Accounting. The consolidated financial
statements of FHN, including its subsidiaries, have
been prepared in conformity with accounting
principles generally accepted in the United States of
America and follow general practices within the
industries in which it operates. This preparation
requires management to make estimates and
assumptions that affect the amounts reported in the
financial statements and accompanying notes. These
estimates and assumptions are based on information
available as of the date of the financial statements
and could differ from actual results.
Merger with IBERIABANK Corporation. On July 1,
2020, FHN and IBERIABANK Corporation closed
their merger of equals transaction. Historical periods
prior to the closing of the merger only reflect results of
legacy FHN operations. Subsequent to closing,
results reflect all post-merger activity. Refer to Note 2
– Acquisitions and Divestitures for additional
information regarding the transaction.
Reclassification. In connection with the IBKC
merger, certain captions in the Consolidated Balance
Sheets and Consolidated Statements of Income, loan
categories, and business activities within the
segments were realigned. Amounts reported in prior
periods' consolidated financial statements, which
represent FHN's pre-merger financial results, have
been reclassified to conform to the current
presentation.
Principles of Consolidation. The consolidated
financial statements include the accounts of FHN and
other entities in which it has a controlling financial
interest. Variable Interest Entities for which FHN or a
subsidiary has been determined to be the primary
beneficiary are also consolidated. Affiliates for which
FHN is not considered the primary beneficiary and in
which FHN does not have a controlling financial
interest are accounted for by the equity method.
These investments are included in other assets, and
FHN’s proportionate share of income or loss is
included in noninterest income. All significant
intercompany transactions and balances have been
eliminated.
Business Combinations. FHN accounts for
acquisitions meeting the definition of a business
combination in accordance with ASC 805, "Business
Combinations," which requires acquired assets and
liabilities (other than tax, certain benefit plan
balances, and certain lease-related assets and
liabilities) to be recorded at fair value. Business
combinations are included in the financial statements
from the respective dates of acquisition. Acquisition
related costs are expensed as incurred.
Revenues. Revenue is recognized when the
performance obligations under the terms of a contract
with a client are satisfied in an amount that reflects
the consideration FHN expects to be entitled. FHN
derives a significant portion of its revenues from fee-
based services. Noninterest income from transaction-
based fees is generally recognized immediately upon
completion of the transaction. Noninterest income
from service-based fees is generally recognized over
the period in which FHN provides the service. Any
services performed over time generally require that
FHN render services each period and therefore FHN
measures progress in completing these services
based upon the passage of time and recognizes
revenue as invoiced.
Following is a discussion of FHN's key revenues
within the scope of ASC 606, "Revenue from
Contracts with Customers", except as noted.
Fixed Income. Fixed income includes fixed income
securities sales, trading, and strategies, loan sales
and derivative sales which are not within the scope of
revenue from contracts with customers. Fixed income
also includes investment banking fees earned for
services related to underwriting debt securities and
performing portfolio advisory services. FHN's
performance obligation for underwriting services is
satisfied on the trade date while advisory services is
satisfied over time.
Mortgage banking and title income. As a result of
the IBKC merger on July 1, 2020, mortgage banking
and title income has become a more significant
revenue source. Mortgage banking and title income
includes mortgage servicing income, title income,
mortgage loan originations and sales, derivative
settlements, as well as any changes in fair value
recorded on mortgage loans and derivatives.
Mortgage banking income from 1) sale of loans, 2)
settlement of derivatives, 3) changes in fair value of
loans, derivatives and servicing rights and 4)
servicing of loans are not within the scope of revenue
from contracts with customers. Title income is earned
when FHN fulfills its performance obligation at the
point in time when the services are completed.
Deposit Transactions and Cash Management.
Deposit transactions and cash management activities
include fees for services related to consumer and
FIRST HORIZON CORPORATION
123
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
commercial deposit products (such as service
charges on checking accounts), cash management
products and services such as electronic transaction
processing (Automated Clearing House and
Electronic Data Interchange), account reconciliation
services, cash vault services, lockbox processing,
and information reporting to large corporate clients.
FHN's obligation for transaction-based services is
satisfied at the time of the transaction when the
service is delivered while FHN's obligation for service
based fees is satisfied over the course of each
month.
Brokerage, Management Fees and Commissions.
Brokerage, management fees and commissions
include fees for portfolio management, trade
commissions, and annuity and mutual fund sales.
Asset-based management fees are charged based on
the market value of the client’s assets. The services
associated with these revenues, which include
investment advice and active management of client
assets are generally performed and recognized over
a month or quarter. Transactional revenues are based
on the size and number of transactions executed at
the client’s direction and are generally recognized on
the trade date.
Trust Services and Investment Management. Trust
services and investment management fees include
investment management, personal trust, employee
benefits, and custodial trust services. Obligations for
trust services are generally satisfied over time but
may be satisfied at points in time for certain activities
that are transactional in nature.
Bankcard Income. Bankcard income includes credit
interchange and network revenues and various card-
related fees. Interchange income is recognized
concurrently with the delivery of services on a daily
basis. Card-related fees such as late fees, currency
conversion, and cash advance fees are loan-related
and excluded from the scope of ASC 606.
Contract Balances. As of December 31, 2020,
accounts receivable related to products and services
on non-interest income were $10 million. For the year
ended December 31, 2020, FHN had no material
impairment losses on non-interest accounts
receivable and there were no material contract
assets, contract liabilities or deferred contract
costs recorded on the Consolidated Balance Sheets
as of December 31, 2020. Credit risk is assessed on
these accounts receivable each reporting period and
the amount of estimated uncollectible receivables is
not material.
Transaction Price Allocated to Remaining
Performance Obligations. For the year ended
December 31, 2020, revenue recognized from
performance obligations related to prior periods was
not material. Revenue expected to be recognized in
any future year related to remaining performance
obligations, excluding revenue pertaining to contracts
that have an original expected duration of one year or
less and contracts where revenue is recognized as
invoiced, is not material.
Refer to Note 20 - Business Segment Information for
a reconciliation of disaggregated revenue by major
product line and reportable segment.
Debt Investment Securities. Debt securities that
may be sold prior to maturity are classified as AFS
and are carried at fair value. The unrealized gains
and losses on debt securities AFS, including
securities for which no credit impairment exists, are
excluded from earnings and are reported, net of tax,
as a component of other comprehensive income
within shareholders’ equity and the Consolidated
Statements of Comprehensive Income. Debt
securities which management has the intent and
ability to hold to maturity are reported at amortized
cost. Interest-only strips that are classified as
securities AFS are valued at elected fair value. See
Note 24 - Fair Value of Assets and Liabilities for
additional information. Realized gains and losses
(i.e., from sales) for debt investment securities are
determined by the specific identification method and
reported in noninterest income.
In periods subsequent to 2019, the evaluation of
credit risk for HTM debt securities mirrors the process
described below for loans held for investment. AFS
debt securities are reviewed for potential credit
impairment at the individual security level. The
evaluation of credit risk includes consideration of
third-party and government guarantees (both explicit
and implicit), senior or subordinated status, credit
ratings of the issuer, the effects of interest rate
changes since purchase and observable market
information such as issuer-specific credit spreads.
Credit losses for AFS debt securities are generally
recognized through establishment of an allowance for
credit losses that cannot exceed the amount by which
amortized cost exceeds fair value. Charge-offs are
recorded as reductions of the security’s amortized
cost and the credit allowance. Subsequent
improvements in estimated credit losses result in
reduction of the credit allowance, but not beyond
zero. However, if FHN has the intent to sell or if it is
more-likely-than-not that it will be compelled to sell a
security with an unrecognized loss, the difference
between the security's carrying value and fair value is
FIRST HORIZON CORPORATION
124
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
recognized through earnings and a new amortized
cost basis is established for the security (i.e., no
allowance for credit losses is recognized).
FHN has elected to exclude accrued interest
receivable from the fair value and amortized cost
basis on AFS debt securities when assessing whether
these securities have experienced credit impairment.
Additionally, FHN has elected to not measure an
allowance for credit losses on AIR for AFS debt
securities based on its policy to write off uncollectible
interest in a timely manner, which generally occurs
when delinquency reaches no more than 90 days for
all security types. Any such write offs are recognized
as a reduction of interest income. AIR for AFS debt
securities is included within Other assets in the
Consolidated Balance Sheet.
In periods prior to 2020, both AFS and HTM securities
were reviewed quarterly for possible other-than-
temporary impairment. The review included an
analysis of the facts and circumstances of each
individual investment such as the degree of loss, the
length of time the fair value had been below cost, the
expectation for that security’s performance, the
creditworthiness of the issuer and FHN’s intent and
ability to hold the security.
Declines in value judged to be OTTI based on FHN’s
analysis of the facts and circumstances related to an
individual investment, including securities that FHN
had the intent to sell, were determined by the specific
identification method. For HTM debt securities, OTTI
recognized was typically credit-related and was
reported in noninterest income. For impaired AFS
debt securities that FHN did not intend to sell and
was not required to sell prior to recovery but for which
credit losses existed, the OTTI recognized was
allocated between the total impairment related to
credit losses which was reported in noninterest
income, and the impairment related to all other
factors which was excluded from earnings and
reported, net of tax, as a component of other
comprehensive income within shareholders’ equity
and the Consolidated Statements of Comprehensive
Income.
Equity Investment Securities. Equity securities are
classified in Other assets. Banks organized under
state law may apply to be members of the Federal
Reserve System. Each member bank is required to
own stock in its regional Federal Reserve Bank.
Given this requirement, FRB stock may not be sold,
traded, or pledged as collateral for loans.
Membership in the Federal Home Loan Bank network
requires ownership of capital stock. Member banks
are entitled to borrow funds from the FHLB and are
required to pledge mortgage loans as collateral.
Investments in the FHLB are non-transferable and,
generally, membership is maintained primarily to
provide a source of liquidity as needed. FRB and
FHLB stock are recorded at cost and are subject to
impairment reviews. FHN's subsidiary, First Horizon
Bank, was a state member bank throughout 2020.
Other equity investments primarily consist of mutual
funds which are marked to fair value through
earnings. Smaller balances of equity investments
without a readily determinable fair value are recorded
at cost minus impairment with adjustments through
earnings for observable price changes in orderly
transactions for the identical or a similar investment of
the same issuer.
Fed Funds Sold and Purchased. Fed funds sold
and purchased represent unsecured overnight
funding arrangements between participants in the
Federal Reserve system primarily to assist banks in
meeting their regulatory cash reserve requirements.
Fed Funds sold are evaluated for credit risk each
reporting period. Due to the short duration of each
transaction and the history of no credit losses, no
credit loss has been recognized.
Securities Purchased Under Agreements to Resell
and Securities Sold Under Agreements to
Repurchase. FHN purchases short-term securities
under agreements to resell which are accounted for
as collateralized financings except where FHN does
not have an agreement to sell the same or
substantially the same securities before maturity at a
fixed or determinable price. All of FHN’s securities
purchased under agreements to resell are recognized
as collateralized financings. Securities delivered
under these transactions are delivered to either the
dealer custody account at the FRB or to the
applicable counterparty. Securities sold under
agreements to repurchase are offered to cash
management clients as an automated, collateralized
investment account. Securities sold under
agreements to repurchase are also used by the
consumer/commercial bank to obtain favorable
borrowing rates on its purchased funds. All of FHN's
securities sold under agreements to repurchase are
secured borrowings.
Collateral is valued daily and FHN may require
counterparties to deposit additional securities or cash
as collateral, or FHN may return cash or securities
previously pledged by counterparties, or FHN may be
required to post additional securities or cash as
collateral, based on the contractual requirements for
these transactions.
FHN’s fixed income business utilizes securities
borrowing arrangements as part of its trading
FIRST HORIZON CORPORATION
125
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
operations. Securities borrowing transactions
generally require FHN to deposit cash with the
securities lender. The amount of cash advanced is
recorded within Securities purchased under
agreements to resell in the Consolidated Balance
Sheets. These transactions are not considered
purchases and the securities borrowed are not
recognized by FHN. FHN does not conduct securities
lending transactions.
Securities purchased under agreements to resell and
securities borrowing arrangements are evaluated for
credit risk each reporting period. As presented in Note
23 - Master Netting and Similar Agreements -
Repurchase, Reverse Repurchase, and Securities
Borrowing Transactions, these agreements are
collateralized by the related securities and collateral
maintenance provisions with counterparties, including
replenishment and adjustment on a transaction
specific basis. This collateral includes both the
securities collateral for each transaction as well as
offsetting securities sold under agreements to
repurchase with the same counterparty. Given the
history of no credit losses and collateralized nature of
these transactions, no credit loss has been
recognized.
Loans Held for Sale. Loans originated or purchased
for which management lacks the intent to hold are
included in loans held for sale in the Consolidated
Balance Sheets. FHN generally accounts for loans
held for sale at the lower of amortized cost or market
value, with an exception for certain mortgage loans
held for sale and repurchased loans that are not
governmentally insured which are carried under the
fair value option of reporting.
On July 1, 2020 as part of the IBKC merger, FHN
obtained operations that generate two types of loans
held for sale:
•
Fair Value Option Election. These loans,
which represent the majority of the IBKC
loans held for sale portfolio, consist of fixed
rate single-family residential mortgage loans
originated by IBKC and committed to be sold
in the secondary market. Gains and losses
on these mortgage loans are included in
mortgage banking and title income.
• Other Loans held for sale. For these loans,
net unrealized losses, if any, are recognized
through a valuation allowance that is
recorded as a charge to noninterest income.
Loans and Leases. Generally, loans are stated at
principal amounts outstanding, net of unearned
income. Interest on loans is recognized on an accrual
basis at the applicable interest rate on the principal
amount outstanding. Loan origination fees and direct
costs as well as premiums and discounts are
amortized as level yield adjustments over the
respective loan terms. Unamortized net fees or costs,
premiums and discounts are recognized in interest
income upon early repayment of the loans. Cash
collections from loans that were fully charged off prior
to acquisition are recognized in noninterest income.
Loan commitment fees are generally deferred and
amortized on a straight-line basis over the
commitment period.
As a result of the IBKC merger, FHN obtained
equipment financing leases to commercial clients,
which are primarily classified as direct financing and
sales-type leases. Equipment financing leases are
reported at the net lease investment, which
represents the sum of minimum lease payments over
the lease term and the estimated residual value, less
unearned interest income. Interest income is accrued
as earned over the term of the lease based on the net
investment in leases. Fees incurred to originate the
lease are deferred and recognized as an adjustment
of the yield on the lease.
FHN also obtained a small amount of loans held for
investment in the IBKC merger which are accounted
for at elected fair value. See Note 24 - Fair Value of
Assets and Liabilities for further discussion of these
loans.
FHN has elected to exclude accrued interest
receivable from the amortized cost basis on its held-
for-investment loan portfolio. FHN has also elected to
not measure an allowance for credit losses on AIR for
loans held for investment based on its policy to write
off uncollectible interest in a timely manner, which
occurs when a loan is placed on nonaccrual status.
Such write-offs are recognized as a reduction of
interest income. AIR for held-for-investment loans is
included within Other assets in the Consolidated
Balance Sheets.
FHN has continued to accrue interest on loans for
which payment deferrals have been extended to
borrowers affected by the COVID-19 pandemic.
Deferrals are typically made in increments of three or
six months. Cumulative deferrals of six months or
longer are beyond FHN's normal write-off practices
for accrued interest. Therefore, these interest
deferrals do not qualify for FHN's election to not
recognize a credit loss allowance for accrued interest.
Accordingly, FHN has estimated credit losses for
COVID-19 interest deferrals which is included within
AIR in Other assets in the Consolidated Balance
Sheets.
Nonaccrual and Past Due Loans. Generally, loans
are placed on nonaccrual status if it becomes evident
FIRST HORIZON CORPORATION
126
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
that full collection of principal and interest is at risk,
impairment has been recognized as a partial charge-
off of principal balance due to insufficient collateral
value and past due status, or on a case-by-case
basis if FHN continues to receive payments, but there
are other borrower-specific issues.
• The accrual status policy for commercial TDRs
follows the same internal policies and
procedures as other commercial portfolio
loans.
• Residential real estate secured loans
discharged in bankruptcy that have not been
reaffirmed by the borrower (“discharged
bankruptcies”) are placed on nonaccrual
regardless of delinquency status and are
reported as TDRs.
• Current second lien residential real estate
loans that are junior to first liens are placed on
nonaccrual status if the first lien is 90 or more
days past due, is a bankruptcy, or is a troubled
debt restructuring.
• Consumer real estate (HELOC and residential
real estate installment loans), if not already on
nonaccrual per above situations, are placed
on nonaccrual if the loan is 30 or more days
delinquent at the time of modification and is
also determined to be a TDR.
• Government guaranteed/insured residential
mortgage loans remain on accrual (even if the
loan falls into one of the above categories)
because the collection of principal and interest
is reasonably assured.
For commercial and consumer loans within each
portfolio segment and class that have been placed on
nonaccrual status, accrued but uncollected interest is
reversed and charged against interest income when
the loan is placed on nonaccrual status. Management
may elect to continue the accrual of interest when the
estimated net realizable value of collateral is sufficient
to recover the principal balance and accrued interest.
Interest payments received on nonaccrual loans are
normally applied to outstanding principal first. Once
all principal has been received, additional interest
payments are recognized on a cash basis as interest
income.
Generally, commercial and consumer loans within
each portfolio segment and class that have been
placed on nonaccrual status can be returned to
accrual status if all principal and interest is current
and FHN expects full repayment of the remaining
contractual principal and interest. This typically
requires that a borrower make payments in
accordance with the contractual terms for a sustained
period of time (generally for a minimum of six months)
before being returned to accrual status. For TDRs,
FHN may also consider a borrower’s sustained
historical repayment performance for a reasonable
time prior to the restructuring in assessing whether
the borrower can meet the restructured terms, as it
may indicate whether the borrower is capable of
servicing the level of debt under the modified terms.
Residential real estate loans discharged through
Chapter 7 bankruptcy and not reaffirmed by the
borrower are not returned to accrual status. For
current second liens that have been placed on
nonaccrual because the first lien is 90 or more days
past due or is a TDR or bankruptcy, the second lien
may be returned to accrual upon pay-off or cure of
the first lien.
Charge-offs. For all commercial and consumer loan
portfolio segments, all losses of principal are charged
to the ALLL in the period in which the loan is deemed
to be uncollectible.
For consumer loans, the timing of a full or partial
charge-off generally depends on the loan type and
delinquency status. Generally, for the consumer real
estate and permanent mortgage portfolio segments, a
loan will be either partially or fully charged-off when it
becomes 180 days past due. At this time, if the
collateral value does not support foreclosure,
balances are fully charged-off and other avenues of
recovery are pursued. If the collateral value supports
foreclosure, the loan is charged-down to net
realizable value (collateral value less estimated costs
to sell) and is placed on nonaccrual status. For
residential real estate loans discharged in Chapter 7
bankruptcy and not reaffirmed by the borrower, the
fair value of the collateral position is assessed at the
time FHN is made aware of the discharge and the
loan is charged down to the net realizable value
(collateral value less estimated costs to sell). Within
the credit card and other portfolio segment, credit
cards and installment loans secured by automobiles
are normally charged-off upon reaching 180 days
past due while other non-real estate consumer loans
are charged-off upon reaching 120 days past due.
For acquired PCD loans where all or a portion of the
loan balance had been charged off prior to
acquisition, and for which active collection efforts are
still underway, the ALLL recorded at acquisition is
immediately charged off if required by FHN’s existing
charge off policy. Additionally, FHN is required to
consider its existing policies in determining whether to
charge off any financial assets, regardless of whether
a charge-off was recorded by the predecessor
company. The initial ALLL recognized on PCD assets
includes the gross-up of the loan balance reduced by
immediate charge-offs for loans previously charged
off by the predecessor company or which meet FHN’s
charge-off policy on the date of acquisition. Charge-
FIRST HORIZON CORPORATION
127
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
offs against the allowance related to such acquired
PCD loans do not result in an income statement
impact.
Purchased Credit-Deteriorated Loans. Subsequent
to 2019, at the time of acquisition FHN evaluates all
acquired loans to determine if they have experienced
a more-than-insignificant deterioration in credit quality
since origination. PCD loans can be identified on
either an 1) individual or 2) pooled basis when the
loans share similar risk characteristics. FHN
evaluates various absolute factors to assist in the
identification of PCD loans, including criteria such as,
existing PCD status, risk rating of special mention or
lower, nonaccrual or impaired status, identification of
prior TDRs, and delinquency status. FHN also utilizes
relative factors to identify PCD loans such as
commercial loan grade migration, expansion of
borrower credit spreads, declines in external risk
ratings and changes in consumer loan characteristics
(e.g., FICO decline or LTV increase). In addition,
factors reflective of broad economic considerations
are also considered in identifying PCD loans. These
include industry, collateral type, and geographic
location for the borrower’s operations. Internal factors
for origination of new loans that are similar to the
acquired loans are also evaluated to assess loans for
PCD status, including increases in required yields,
necessity of borrowers’ providing additional collateral
and/or guarantees and changes in acceptable loan
duration. Other indicators may also be used to
evaluate loans for PCD status depending on
borrower-specific communications and actions, such
public statements, initiation of loan modification
discussions and obtaining emergency funding from
alternate sources.
Upon acquisition, the expected credit losses are
allocated to the purchase price of individual PCD
loans to determine each individual asset's amortized
cost basis, typically resulting in a reduction of the
discount that is accreted prospectively to interest
income. At the acquisition date and prospectively,
only the unpaid principal balance is incorporated
within the estimation of expected credit losses for
PCD loans. Otherwise, the process for estimation of
expected credit losses is consistent with that
discussed below. As discussed below FHN applies
undiscounted cash flow methodologies for the
estimation of expected credit losses, which results in
the calculated amount of credit losses at acquisition
that is added to the amortized cost basis of the
related PCD loans to exceed the discounted value of
estimated credit losses included in the loan valuation.
For PCD loans where all or a portion of the loan
balance has been previously written-off, or would be
subject to write-off under FHN’s charge-off policy, the
initial ALLL included as part of the grossed-up loan
balance at acquisition was immediately written-off,
resulting in a zero period-end allowance balance and
no impact on the ALLL rollforward.
Purchased Credit-Impaired Loans. Prior to 2020,
ASC 310-30 “Accounting for Certain Loans or Debt
Securities Acquired in a Transfer,” established
guidance for acquired loans that exhibited
deterioration of credit quality between origination and
the time of acquisition and for which the timely
collection of the interest and principal was not
reasonably assured. PCI loans were initially recorded
at fair value which was estimated by discounting
expected cash flows at acquisition date. The
expected cash flows included all contractually
expected amounts (including interest) and
incorporated an estimate for future expected credit
losses, pre-payment assumptions, and yield
requirement for a market participant, among other
things. To the extent possible, certain PCI loans were
aggregated into pools with composite interest rate
and cash flows expected to be collected for the pool.
Aggregation into loan pools was based upon common
risk characteristics that include similar credit risk or
risk ratings, and one or more predominant risk
characteristics. Each PCI pool was accounted for as
a single unit.
Accretable yield was initially established at acquisition
and is the excess of cash flows expected at
acquisition over the initial investment in the loan and
was recognized in interest income over the remaining
life of the loan, or pool of loans. Nonaccretable
difference was initially established at acquisition and
was the difference between the contractually required
payments at acquisition and the cash flows expected
to be collected at acquisition. FHN estimated
expected cash flows for PCI loans on a quarterly
basis. Increases in expected cash flows from the last
measurement resulted in reversal of any
nonaccretable difference (or allowance for loan and
lease losses to the extent any has previously been
recorded) with a prospective positive impact on
interest income. Decreases to the expected cash
flows resulted in an increase in the allowance for loan
and lease losses through provision expense.
FHN did not report PCI loans as nonperforming loans
due to the accretion of interest income. Additionally,
PCI loans that had been pooled and subsequently
modified were not reported as troubled debt
restructurings since the pool was the unit of
measurement.
Subsequent to 2019, PCI loans have transitioned to
purchased-credit-deteriorated status and are
accounted for as discussed above.
FIRST HORIZON CORPORATION
128
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
Allowance for Credit Losses. The nature of the
process by which FHN determines the appropriate
ACL requires the exercise of considerable judgment.
See Note 5 - Allowance for Credit Losses for a
discussion of FHN’s ACL methodology and a
description of the models utilized in the estimation
process for the commercial and consumer loan
portfolios. The discussion herein reflects periods
before and after the implementation of a change in
credit loss estimation processes that was effective
January 1, 2020.
Future adjustments to the ACL may be necessary if
economic or other conditions differ substantially from
the assumptions used in making the estimates or, if
required by regulators, based upon information at the
time of their examinations or upon future regulatory
guidance. Such adjustments to original estimates, as
necessary, are made in the period in which these
factors and other relevant considerations indicate that
loss levels vary from previous estimates.
Subsequent to 2019
Management's estimate of expected credit losses in
the loan and lease portfolio is recorded in the ALLL
and the reserve for unfunded lending commitments,
collectively the ACL. The ACL is maintained at a level
that management determines is sufficient to absorb
current expected credit losses in the loan and lease
portfolio and unfunded lending commitments.
Management uses analytical models to estimate
expected credit losses in the loan and lease portfolio
and unfunded lending commitments as of the balance
sheet date. The models are carefully reviewed to
identify trends that may not be captured in the
modeled loss estimates. Management uses
qualitative adjustments for those items not reflected in
the modeled loss information such as recent changes
from the macroeconomic forecasts utilized in model
calculations, results of additional stressed modeling
scenarios, observed and/or expected changes
affecting borrowers in specific industries or
geographic areas, exposure to large lending
relationships and expected recoveries of prior charge
offs. Qualitative adjustments are also used to
accommodate for the imprecision of certain
assumptions and uncertainties inherent in the model
calculations as well as to align certain differences in
models used by acquired loan portfolios to the
policies described herein. Loans accounted for at
elected fair value are excluded from CECL
measurements.
The ALLL is increased by the provision for loan and
lease losses and is decreased by loan charge-offs.
The ALLL is determined in accordance with ASC
326-20 "Financial Instruments - Credit Losses". Credit
loss estimation is based on the amortized cost of
loans, which includes the following:
1. Unpaid principal balance for originated assets
or acquisition price for purchased assets
2. Accrued interest (see elections discussed
previously)
3. Accretion or amortization of premium,
discount, and net deferred fees or costs
4. Collection of cash
5. Charge-offs
Premiums, discounts and net deferred origination
costs/fees affect the calculated amount of expected
credit losses but they are not considered when
determining the amount of expected credit losses that
are recorded.
Under CECL, a loan must be pooled when it shares
similar risk characteristics with other loans. Loans
that do not share similar risk characteristics are
evaluated individually. Expected credit loss is
estimated for the remaining life of loan(s), which is
limited to the remaining contractual term(s), adjusted
for prepayment estimates, which are included as
separate inputs into modeled loss estimates.
Renewals and extensions are not anticipated unless
they are included in existing loan documentation and
are not unconditionally cancellable by the lender.
However, losses are estimated over the estimated
remaining life of reasonably expected TDRs which
can extend beyond the current remaining contractual
term.
Management has developed multiple current
expected credit losses models which segment the
loan and lease portfolio by borrower type and loan or
lease type to estimate expected lifetime expected
credit losses for loans and leases that share similar
risk characteristics. Estimates of expected credit
losses incorporate consideration of available
information that is relevant to assessing the
collectability of future cash flows. This includes
internal and external information relating to past
events, current conditions and reasonable and
supportable forecasts of future conditions. FHN
utilizes internal and external historical loss
information, as applicable, for all available historical
periods as the initial point for estimating expected
credit losses. Given the duration of historical
information available, FHN considers its internal loss
history to fully incorporate the effects of prior credit
cycles. The historical loss information may be
adjusted in situations where current loan
characteristics (e.g., underwriting criteria) differ from
those in existence at the time the historical losses
occurred. Historical loss information is also adjusted
for differences in economic conditions,
macroeconomic forecasts and other factors
FIRST HORIZON CORPORATION
129
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
management considers relevant over a period
extending beyond the measurement date which is
considered reasonable and supportable.
FHN generally measures expected credit losses
using undiscounted cash flow methodologies. Credit
enhancements (e.g., guarantors) that are not
freestanding are considered in the estimation of
uncollectible cash flows. Estimation of expected credit
losses for loan agreements involving collateral
maintenance provisions include consideration of the
value of the collateral and replenishment
requirements, with the maximum loss limited to the
difference between the amortized cost of the loan and
the fair value of the collateral. Expected credit losses
for loans for which foreclosure is probable are
measured at the fair value of collateral, less
estimated costs to sell when disposition through sale
is anticipated. Additionally, for borrowers experiencing
financial difficulty certain loans are valued at the fair
value of collateral when repayment is expected to be
provided substantially through the operation of the
collateral. The fair value of the collateral is reduced
for estimated costs to sell when repayment is
expected through sale of the collateral. Expected
credit losses for TDRs are measured in accordance
with ASC 310-40, which generally requires a
discounted cash flow methodology, whereby the
loans are measured based on the present value of
expected future payments discounted at the loan’s
original effective interest rate.
Expected recoveries of previously charged-off
amounts are also included as a qualitative adjustment
in the estimation of expected credit losses, which
reduces the amount of the allowance recognized.
Estimates of recoveries on previously charged-off
assets included in the allowance for loan losses do
not exceed the aggregate of amounts previously
written off and expected to be written off for an
individual loan or pool.
Since CECL requires the estimation of credit losses
for the entire expected life of loans, loss estimates
are highly sensitive to changes in macroeconomic
forecasts, especially when those forecasts change
dramatically in short time periods. Additionally, under
CECL credit loss estimates are more likely to
increase rapidly in periods of loan growth.
Expected credit losses for unfunded commitments are
estimated for periods where the commitment is not
unconditionally cancellable by FHN. The
measurement of expected credit losses for unfunded
commitments mirrors that of loans with the additional
estimate of future draw rates (timing and amount).The
liability for credit losses inherent in lending-related
commitments, such as letters of credit and unfunded
loan commitments, is included in Other liabilities on
the Consolidated Balance Sheets and established
through a charge to the provision for credit losses.
Prior to 2020
The ALLL was maintained at a level that management
determined was sufficient to absorb estimated
probable incurred losses in the loan portfolio. The
ALLL was increased by the provision for loan losses
and loan recoveries and was decreased by loan
charge-offs. The ALLL was determined in accordance
with ASC 450-20-50 "Contingencies - Accruals for
Loss Contingencies" and was composed of reserves
for commercial loans evaluated based on pools of
credit graded loans and reserves for pools of smaller-
balance homogeneous consumer and commercial
loans. The reserve factors applied to these pools
were an estimate of probable incurred losses based
on management’s evaluation of historical net losses
from loans with similar characteristics. Additionally,
the ALLL included specific reserves established in
accordance with ASC 310-10-35 for loans determined
by management to be individually impaired as well as
reserves associated with PCI loans. Management
used analytical models to estimate probable incurred
losses in the loan portfolio as of the balance sheet
date. The models, which were primarily driven by
historical losses, were carefully reviewed to identify
trends that may not have been captured in the
historical loss factors used in the models.
Management used qualitative adjustments for those
items not yet captured in the models like then-current
events, recent trends in the portfolio, current
underwriting guidelines, and local and
macroeconomic trends, among other things.
Key components of the estimation process were as
follows: (1) commercial loans determined by
management to be individually impaired loans were
evaluated individually and specific reserves were
determined based on the difference between the
outstanding loan amount and the estimated net
realizable value of the collateral (if collateral
dependent), the present value of expected future
cash flows or by observable market prices; (2)
individual commercial loans not considered to be
individually impaired were segmented based on
similar credit risk characteristics and evaluated on a
pool basis; (3) reserve rates for the commercial
segment were calculated based on historical net
charge-offs and were subject to adjustment by
management to reflect current events, trends, and
conditions (including economic considerations and
trends); (4) management’s estimate of probable
incurred losses reflected the reserve rates applied
against the balance of loans in the commercial
segment of the loan portfolio; (5) consumer loans
were generally segmented based on loan type; (6)
FIRST HORIZON CORPORATION
130
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
reserve amounts for each consumer portfolio
segment were calculated using analytical models
based on delinquency trends and net loss experience
and were subject to adjustment by management to
reflect current events, trends, and conditions
(including economic considerations and trends); and
(7) the reserve amount for each consumer portfolio
segment reflected management’s estimate of
probable incurred losses in the consumer segment of
the loan portfolio.
Impairment related to individually impaired loans was
measured in accordance with ASC 310-10. All
commercial portfolio segments, commercial TDRs
and other individually impaired commercial loans
were measured based on the present value of
expected future payments discounted at the loan’s
effective interest rate (“the DCF method”), observable
market prices, or for loans that are solely dependent
on the collateral for repayment, the net realizable
value (collateral value less estimated costs to sell).
Impaired loans also included consumer TDRs.
Premises and Equipment. Premises and equipment
are carried at cost less accumulated depreciation and
amortization and include additions that materially
extend the useful lives of existing premises and
equipment. All other maintenance and repair
expenditures are expensed as incurred. Premises
and equipment held for sale are generally valued at
appraised values which reference recent disposition
values for similar property types but also consider
marketability discounts for vacant properties. The
valuations of premises and equipment held for sale
are reduced by estimated costs to sell. Impairments,
and any subsequent recoveries, are recorded in
noninterest expense. Gains and losses on
dispositions are reflected in noninterest income and
expense, respectively.
Depreciation and amortization are computed on the
straight-line method over the estimated useful lives of
the assets and are recorded as noninterest expense.
Leasehold improvements are amortized over the
lesser of the lease periods or the estimated useful
lives using the straight-line method. Useful lives
utilized in determining depreciation for furniture,
fixtures and equipment and for buildings are three
years to fifteen years and seven years to forty-five
years, respectively.
Other Real Estate Owned. Real estate acquired by
foreclosure or other real estate-owned 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. At the time
acquired, and in conjunction with the transfer from
loans to OREO, there is a charge-off against the ALLL
if the estimated fair value less costs to sell is less
than the loan’s cost basis. Subsequent declines in fair
value and gains or losses on dispositions, if any, are
charged to other expense on the Consolidated
Statements of Income. Properties acquired by
foreclosure in compliance with HUD servicing
guidelines prior to January 1, 2015, are included in
OREO and are carried at the estimated amount of the
underlying government insurance or guarantee.
Required developmental costs associated with
acquired property under construction are capitalized
and included in determining the estimated net
realizable value of the property, which is reviewed
periodically, and any write-downs are charged against
current earnings.
Goodwill and Other Intangible Assets. Goodwill
represents the excess of cost over net assets of
acquired businesses less identifiable intangible
assets. On an annual basis, or more frequently if
necessary, FHN assesses goodwill for impairment.
Other intangible assets primarily represent client lists
and relationships, acquired contracts, covenants not
to compete and premium on purchased deposits,
which are amortized over their estimated useful lives.
Intangible assets related to acquired deposit bases
are primarily amortized over 10 years using an
accelerated method. Management evaluates whether
events or circumstances have occurred that indicate
the remaining useful life or carrying value of
amortizing intangibles should be revised. Other
intangibles also include smaller amounts of non-
amortizing intangibles for title plant and state banking
licenses.
Servicing Rights. FHN recognizes the rights to
service mortgage and other loans as separate assets,
which are recorded in other assets in the
Consolidated Balance Sheets, when purchased or
when servicing is contractually separated from the
underlying loans by sale with servicing rights
retained. For loan sales with servicing retained, a
servicing right, generally an asset, is recorded at fair
value at the time of sale for the right to service the
loans sold. All servicing rights are identified by class
and amortized over the remaining life of the loan with
periodic reviews for impairment.
Transfers of Financial Assets. Transfers of financial
assets, or portions thereof which meet the definition
of a participating interest, are accounted for as sales
when control over the assets has been surrendered.
Control over transferred assets is deemed to be
surrendered when 1) the assets have been legally
isolated from FHN, 2) the transferee has the right to
pledge or exchange the assets with no conditions that
FIRST HORIZON CORPORATION
131
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
constrain the transferee and provide more than a
trivial benefit to FHN, and 3) FHN does not maintain
effective control over the transferred assets. If the
transfer does not satisfy all three criteria, the
transaction is recorded as a secured borrowing. If the
transfer is accounted for as a sale, the transferred
assets are derecognized from FHN’s balance sheet
and a gain or loss on sale is recognized. If the
transfer is accounted for as a secured borrowing, the
transferred assets remain on FHN’s balance sheet
and the proceeds from the transaction are recognized
as a liability.
Derivative Financial Instruments. FHN accounts for
derivative financial instruments in accordance with
ASC 815 which requires recognition of all derivative
instruments on the balance sheet as either an asset
or liability measured at fair value through adjustments
to either accumulated other comprehensive income
within shareholders’ equity or current earnings. Fair
value is defined as the price that would be received to
sell a derivative asset or paid to transfer a derivative
liability in an orderly transaction between market
participants on the transaction date. Fair value is
determined using available market information and
appropriate valuation methodologies. FHN has
elected to present its derivative assets and liabilities
gross on the Consolidated Balance Sheets. Amounts
of collateral posted or received have not been netted
with the related derivatives unless the collateral
amounts are considered legal settlements of the
related derivative positions. See Note 22 - Derivatives
for discussion on netting of derivatives.
FHN prepares written hedge documentation,
identifying the risk management objective and
designating the derivative instrument as a fair value
hedge or cash flow hedge as applicable, or as a free-
standing derivative instrument entered into as an
economic hedge or to meet clients’ needs. All
transactions designated as ASC 815 hedges must be
assessed at inception and on an ongoing basis as to
the effectiveness of the derivative instrument in
offsetting changes in fair value or cash flows of the
hedged item. For a fair value hedge, changes in the
fair value of the derivative instrument and changes in
the fair value of the hedged asset or liability
attributable to the hedged risk are recognized
currently in earnings. For a cash flow hedge, changes
in the fair value of the derivative instrument are
recorded in accumulated other comprehensive
income and subsequently reclassified to earnings as
the hedged transaction impacts net income. For fair
value hedges, the entire change in the fair value of
the hedging instrument included in the assessment of
effectiveness is recorded to the same financial
statement line item (e.g., interest expense) used to
present the earnings effect of the hedged item. For
cash flow hedges, the entire fair value change of the
hedging instrument that is included in the assessment
of hedge effectiveness is initially recorded in other
comprehensive income and later recycled into
earnings as the hedged transaction(s) affect net
income with the income statement effects recorded in
the same financial statement line item used to
present the earnings effect of the hedged item (e.g.,
interest income). For free-standing derivative
instruments, changes in fair values are recognized
currently in earnings. See Note 22 - Derivatives for
additional information.
Cash flows from derivative contracts are reported as
operating activities on the Consolidated Statements
of Cash Flows.
Leases. At inception, all arrangements are evaluated
to determine if they contain a lease, which is defined
as a contract, or part of a contract, that conveys the
right to control the use of identified property, plant, or
equipment for a period of time in exchange for
consideration. Control is deemed to exist when a
lessor has granted and a lessee has received both
the right to obtain substantially all of the economic
benefits from use of the identified asset and the right
to direct the use of the identified asset throughout the
period of use.
Lessee. As a lessee, FHN recognizes lease (right-of-
use) assets and lease liabilities for all leasing
arrangements with lease terms that are greater than
one year. The lease asset and lease liability are
recognized at the present value of estimated future
lease payments, including estimated renewal periods,
with the discount rate reflecting a fully-collateralized
rate matching the estimated lease term. Renewal
options are included in the estimated lease term if
they are considered reasonably certain of exercise.
Periods covered by termination options are included
in the lease term if it is reasonably certain they will
not be exercised. Additionally, prepaid or accrued
lease payments, lease incentives and initial direct
costs related to lease arrangements are recognized
within the right-of-use asset. Each lease is classified
as a financing or operating lease which depends on
the relationship of the lessee’s rights to the economic
value of the leased asset. For finance leases, interest
on the lease liability is recognized separately from
amortization of the right-of-use asset in earnings,
resulting in higher expense in the earlier portion of the
lease term. For operating leases, a single lease cost
is calculated so that the cost of the lease is allocated
over the lease term on a generally straight-line basis.
Substantially all of FHN’s lessee arrangements are
classified as operating leases. For leases with a term
of 12 months or less, FHN does not to recognize
lease assets and lease liabilities and expense is
FIRST HORIZON CORPORATION
132
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
generally recognized on a straight-line basis over the
lease term.
Lease assumptions and classification are reassessed
upon the occurrence of events that result in changes
to the estimated lease term or consideration.
Modifications to lease contracts are evaluated to
determine 1) if a right to use an additional asset has
been obtained, 2) if only the lease term and/or
consideration have been revised or 3) if a full or
partial termination has occurred. If an additional right-
of use-asset has been obtained, the modification is
treated as a separate contract and its classification is
evaluated as a new lease arrangement. If only the
lease term or consideration are changed, the lease
liability is revalued with an offset to the lease asset
and the lease classification is re-assessed. If a
modification results in a full or partial termination of
the lease, the lease liability is revalued through
earnings along with a proportionate reduction in the
value of the related lease asset and subsequent
expense recognition is similar to a new lease
arrangement.
Lease assets are evaluated for impairment when
triggering events occur, such as a change in
management intent regarding the continued
occupation of the leased space. If a lease asset is
impaired, it is written down to the present value of
estimated future cash flows and the prospective
expense recognition for that lease follows the
accelerated expense recognition methodology
applicable to finance leases, even if it remains
classified as an operating lease.
Sublease arrangements are accounted for consistent
with the lessor accounting described below. Sublease
arrangements are evaluated to determine if changes
to estimates for the primary lease are warranted or if
the sublease terms reflect impairment of the related
lease asset.
Lease assets are recognized in Other assets and
lease liabilities are recognized in Other liabilities in
the Consolidated Balance Sheets. Since substantially
all of its leasing arrangements relate to real estate,
FHN records lease expense, and any related
sublease income, within Occupancy expense in the
Consolidated Statements of Income.
Lessor. As a lessor, FHN also evaluates its lease
arrangements to determine whether a finance lease
or an operating lease exists and utilizes the rate
implicit in the lease arrangement as the discount rate
to calculate the present value of future cash flows.
Depending upon the terms of the individual
agreements, finance leases represent either sales-
type or direct financing leases, both of which require
de-recognition of the asset being leased with
offsetting recognition of a lease receivable that is
evaluated for impairment similar to loans. Other than
equipment lease entered into as part of commercial
lease financing arrangements, all of FHN's lessor
arrangements are considered operating leases.
Lease income for operating leases is recognized over
the life of the lease, generally on a straight line basis.
Lease incentives and initial direct costs are
capitalized and amortized over the estimated life of
the lease. Lease income is not significant for any
reporting periods and is classified as a reduction of
Occupancy expense in the Consolidated Statements
of Income.
Investment Tax Credit. In conjunction with the IBKC
merger, FHN has elected to utilize the deferral
method for acquired investments that generate
investment tax credits. This includes both solar and
historic tax credit investments. Under this approach
the investment tax credits are recorded as an offset to
the related investment on the balance sheet. Credit
amounts are recognized in earnings over the life of
the investment within the same income or expense
accounts as used for the investment.
Advertising and Public Relations. Advertising and
public relations costs are generally expensed as
incurred.
Income Taxes. FHN accounts for income taxes using
the asset and liability method pursuant to ASC 740,
“Income Taxes,” which requires the recognition of
deferred tax assets and liabilities for the expected
future tax consequences of events that have been
included in the financial statements. Under this
method, FHN’s deferred tax assets and liabilities are
determined based on differences between financial
statement carrying amounts and the corresponding
tax basis of certain assets and liabilities using
enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect of a
change in tax rates on DTAs and DTLs is recognized
in income in the period that includes the enactment
date.
Additionally, DTAs are subject to a “more likely than
not” test to determine whether the full amount of the
DTAs should be recognized in the financial
statements. 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. If the “more likely than
not” test is not met, a valuation allowance must be
established against the DTA. In the event FHN
determines that DTAs are realizable in the future in
excess of their net recorded amount, FHN would
FIRST HORIZON CORPORATION
133
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
make an adjustment to the valuation allowance,
which would reduce income tax expense.
FHN records uncertain tax positions in accordance
with ASC 740 on the basis of a two-step process in
which (1) it is determined whether it is more likely
than not that the tax positions will be sustained on the
basis of the technical merits of the position and (2) for
those tax positions that meet the more-likely-than-not
recognition threshold, the largest amount of tax
benefit that is more than 50 percent likely to be
realized upon ultimate settlement with the related tax
authority is recognized. FHN's ASC 740 policy is to
recognize interest and penalties related to
unrecognized tax benefits as a component of income
tax expense. Accrued interest and penalties are
included within the related tax asset/liability line in the
consolidated balance sheet.
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 state
where it conducts business operations, FHN either
files consolidated, combined, or separate returns.
Earnings per Share. Earnings per share is computed
by dividing net income or loss available to common
shareholders by the weighted average number of
common shares outstanding for each period. Diluted
earnings per share in net income periods is computed
by dividing net income available to common
shareholders by the weighted average number of
common shares outstanding adjusted to include the
number of additional common shares that would have
been outstanding if the potential dilutive common
shares resulting from performance shares and units,
restricted shares and units, and options granted
under FHN’s equity compensation plans and deferred
compensation arrangements had been issued. FHN
utilizes the treasury stock method in this calculation.
Diluted earnings per share does not reflect an
adjustment for potentially dilutive shares in periods in
which a net loss available to common shareholders
exists.
Equity Compensation. FHN accounts for its
employee stock-based compensation plans using the
grant date fair value of an award to determine the
expense to be recognized over the life of the award.
Stock options are valued using an option-pricing
model, such as Black-Scholes. Restricted and
performance shares and share units are valued at the
stock price on the grant date. Awards with post-
vesting transfer restrictions are discounted using
models that reflect market considerations for
illiquidity. For awards with service vesting criteria,
expense is recognized using the straight-line method
over the requisite service period (generally the
vesting period). Forfeitures are recognized when they
occur. For awards vesting based on a performance
measure, anticipated performance is projected to
determine the number of awards expected to vest,
and the corresponding aggregate expense is adjusted
to reflect the elapsed portion of the performance
period. If a performance period extends beyond the
required service term, total expense is adjusted for
changes in estimated achievement through the end of
the performance period. Some performance awards
include a total shareholder return modifier (“TSR
Modifier”) that operates after determination of the
performance criteria, affecting only the quantity of
awards issued if the minimum performance threshold
is attained. The effect of the TSR Modifier is included
in the grant date fair value of the related performance
awards using a Monte Carlo valuation technique. The
fair value of equity awards with cash payout
requirements, as well as awards for which fair value
cannot be estimated at grant date, is remeasured
each reporting period through vesting date.
Performance awards with pre-grant date achievement
criteria are expensed over the period from the start of
the performance period through the end of the service
vesting term. Awards are amortized using the
nonsubstantive vesting methodology which requires
that expense associated with awards having only
service vesting criteria that continue vesting after
retirement be recognized over a period ending no
later than an employee’s retirement eligibility date.
As a result of the IBKC merger, as of July 1, 2020,
FHN assumed phantom stock awards under various
plans to directors, officers, and other key employees.
Phantom stock awards are accounted for as liability
awards and are remeasured at each reporting period
based on changes in their fair value, which is based
on changes in common share prices, until the date of
settlement. Compensation cost for each reporting
period until settlement is based on the change (or a
portion of the change, depending on the percentage
of the requisite service that has been rendered at the
reporting date) in the fair value of the phantom stock
award for each reporting period.
Repurchase and Foreclosure Provision. The
repurchase and foreclosure provision is the charge to
earnings necessary to maintain the liability at a level
that reflects management’s best estimate of losses
associated with the repurchase of loans previously
transferred in whole loans sales or securitizations, or
make whole requests as of the balance sheet date.
See Note 17 - Contingencies and Other Disclosures
for discussion related to FHN’s obligations to
repurchase such loans.
FIRST HORIZON CORPORATION
134
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
Legal Costs. Generally, legal costs are expensed as
incurred.Costs related to equity issuances are netted
against Capital surplus. Costs related to debt
issuances are included in debt issuance costs that
are recorded within Term borrowings.
Contingency Accruals. Contingent liabilities arise in
the ordinary course of business, including those
related to lawsuits, arbitration, mediation, and other
forms of litigation. FHN establishes loss contingency
liabilities for matters when loss is both probable and
reasonably estimable in accordance with ASC
450-20-50 “Contingencies - Accruals for Loss
Contingencies”. If loss for a matter is probable and a
range of possible loss outcomes is the best estimate
available, accounting guidance generally requires a
liability to be established at the low end of the range.
Expected recoveries from insurance and
indemnification arrangements are recognized if they
are considered equally as probable and reasonably
estimable as the related loss contingency up to the
recognized amount of the estimated loss. Gain
contingencies and expected recoveries from
insurance and indemnification arrangements in
excess of the associated recorded estimated losses
are generally recognized when received. Recognized
recoveries are recorded as offsets to the related
expense in the Consolidated Statements of Income.
The favorable resolution of a gain contingency
generally results in the recognition of other income in
the Consolidated Statements of Income.
Contingencies assumed in business combinations are
evaluated through the end of the one-year post-
closing measurement period. If the acquisition-date
fair value of the contingency can be determined
during the measurement period, recognition occurs
as part of the acquisition-date fair value of the
acquired business. If the acquisition-date fair value of
the contingency cannot be determined, but loss is
considered probable as of the acquisition date and
can be reasonably estimated within the measurement
period, then the estimated amount is recorded within
acquisition accounting. If the requirements for
inclusion of the contingency as part of the acquisition
are not met, subsequent recognition of the
contingency is included in earnings.
Business Combinations
Assets and liabilities acquired in business
combinations are generally recognized at their fair
values as of the acquisition date, with the related
transaction costs expensed in the period incurred.
Specified items such as net investment in leases as
lessor, acquired operating lease assets and liabilities
as lessee, employee benefit plans and income-tax
related balances are recognized in accordance with
accounting guidance that results in measurements
that may differ from fair value. FHN may record
provisional amounts at the time of acquisition based
on available information. The provisional valuation
estimates may be adjusted for a period of up to one
year (“measurement period”) from the date of
acquisition if new information is obtained about facts
and circumstances that existed as of the acquisition
date that, if known, would have affected the
measurement of the amounts recognized as of that
date. Adjustments recorded during the measurement
period are recognized in the current reporting period.
The excess of purchase price over the valuation of
specifically identified assets and liabilities is recorded
as goodwill. In certain circumstances the net values
of assets and liabilities acquired may exceed the
purchase price, which is recognized within non-
interest income as a purchase accounting gain.
Summary of Accounting Changes.
In June 2016, the FASB issued ASU 2016-13,
“Measurement of Credit Losses on Financial
Instruments,” which revises the measurement and
recognition of credit losses for assets measured at
amortized cost (e.g., HTM loans and debt securities)
and AFS debt securities. Under ASU 2016-13, for
assets measured at amortized cost, the current
expected credit loss (CECL) is measured as the
difference between amortized cost and the net
amount expected to be collected. This represents a
departure from prior GAAP as the “incurred loss”
methodology for recognizing credit losses delayed
recognition until it was probable a loss had been
incurred. Under CECL the full amount of expected
credit losses will be recognized at the time of loan
origination. The measurement of current expected
credit losses is based on relevant information about
past events, including historical experience, current
conditions, and reasonable and supportable forecasts
that affect the collectability of the reported amount.
Additionally, current disclosures of credit quality
indicators in relation to the amortized cost of financing
receivables are further disaggregated by year of
origination. ASU 2016-13 leaves the methodology for
measuring credit losses on AFS debt securities
largely unchanged,with the maximum credit loss
representing the difference between amortized cost
and fair value. However, such credit losses are
recognized through an allowance for credit losses,
which permits recovery of previously recognized
credit losses if circumstances change.
ASU 2016-13 also revises the recognition of credit
losses for purchased financial assets with a more-
than insignificant amount of credit deterioration since
FIRST HORIZON CORPORATION
135
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
origination (“PCD assets”). For PCD assets, the initial
allowance for credit losses is added to the purchase
price. Only subsequent changes in the allowance for
credit losses are recorded as a credit loss expense
for PCD assets. Interest income for PCD assets is
recognized based on the effective interest rate,
excluding the discount embedded in the purchase
price that is attributable to the acquirer’s assessment
of credit losses at acquisition. Previously, credit
losses for purchased credit-impaired assets were
included in the initial basis of the assets with
subsequent declines in credit resulting in expense
while subsequent improvements in credit were
reflected as an increase in the future yield from the
assets. For non-PCD assets, expected credit losses
are recognized through earnings upon acquisition and
the entire premium or discount accreted to interest
income over the remaining life of the loan. Credit
allowances for acquired non-PCD assets are
established through immediate recognition of credit
loss expense (similar to originated loans) and do not
consider purchase discounts related to estimated
credit losses.
The provisions of ASU 2016-13 were generally
adopted through a cumulative-effect adjustment to
retained earnings as of the beginning of the first
reporting period in the year of adoption. Prospective
implementation was required for debt securities for
which an other-than-temporary-impairment (“OTTI”)
had been previously recognized. Amounts previously
recognized in accumulated other comprehensive
income (“AOCI”) as of the date of adoption that relate
to improvements in cash flows expected to be
collected continue to be accreted into income over
the remaining life of the asset. Recoveries of amounts
previously written off relating to improvements in cash
flows after the date of adoption are recorded in
earnings when received. A prospective transition
approach was used for existing PCD assets where,
upon adoption, the amortized cost basis was
increased to offset the initial recognition of the
allowance for credit losses. Thus, an entity was not
required to reassess its purchased financial assets
that existed as of the date of adoption to determine
whether they would have met at acquisition the new
criteria of more-than-insignificant credit deterioration
since origination. An entity accretes the remaining
noncredit discount (based on the revised amortized
cost basis) into interest income at the effective
interest rate at the adoption date.
ASU 2016-13 was effective for fiscal years beginning
after December 15, 2019, including interim periods
within those fiscal years. FHN’s most significant
implementation activities included review of loan
portfolio segments and classes, identification and
evaluation of collateral dependent loans and loans
secured by collateral replenishment arrangements,
selection of measurement methodologies and related
model development, data accumulation and
verification, development of loan life estimates,
identification of reasonable and supportable forecast
periods, selection of time lines and methods for
reversion to unadjusted historical information, multiple
preliminary analysis including parallel runs against
existing loan loss estimation processes, and design
and evaluation of internal controls over the new
estimation processes. FHN utilizes undiscounted
cash flow methods for loans except for troubled debt
restructurings, which require use of discounted cash
flow methodologies.
A significant portion of the adoption impact for ASU
2016-13 relates to increased reserves within the
consumer portfolios, given the longer contractual
maturities associated with many of these products as
well as increased reserves for acquired loans that
previously considered purchase discounts. Based on
its implementation efforts, FHN recorded the following
adoption adjustments effective January 1, 2020.
(Dollars in millions)
Loans and leases (a)
Allowance for loan and lease losses
Other assets (deferred taxes)
Total assets
Other liabilities (unfunded
commitments)
Retained earnings
Total liabilities and equity
$
$
$
$
January 1, 2020
3
(107)
32
(72)
24
(96)
(72)
(a) The effect on loans represents the increase in amortized cost
for recognition of the allowance for credit losses on PCD loans.
FHN also assessed several asset classes other than
loans that are within the scope of CECL and
determined that the adoption effects for the change in
measurement of credit risk were minimal for these
classes. This includes Fed funds sold which have no
history of credit losses due to their short (typically
overnight) duration and counterparty risk assessment
processes. This also includes securities borrowed
and securities purchased under agreements to resell
which have collateral maintenance agreements that
incorporate master netting provisions resulting in
minimal uncollateralized positions as of any date as
evidenced by the disclosures provided in Note 23 -
Master Netting and Similar Agreements-Repurchase,
Reverse Repurchase, and Securities Borrowing
Transactions. Additionally, FHN also evaluated the
composition of its AFS securities and determined that
the changes in ASU 2016-13 did not have an effect
on the current portfolio.
FIRST HORIZON CORPORATION
136
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
In April 2019, the FASB issued ASU 2019-04,
"Codification Improvements to Topic 326, Financial
Instruments-Credit Losses, Topic 815, Derivatives
and Hedging, and Topic 825, Financial Instruments,"
which provides an election to either 1) not measure or
2) measure separately an allowance for credit losses
for accrued interest receivable (“AIR"). Entities
electing to not measure an allowance for AIR must
write off uncollectible interest in a timely manner.
Additionally, an election is provided for the write off of
uncollectible interest to be recorded either as a
reversal of interest income or a charge against the
allowance for credit losses or a combination of both.
Disclosures are required depending upon which
elections are made.
ASU 2019-04 also clarifies that when loans and
securities are transferred between balance sheet
categories (e.g., loans from held-for-investment to
held-for-sale or securities from held-to-maturity to
available-for-sale) the associated allowance for credit
losses should be reversed to income and prospective
accounting follows the requirements for the new
classification. Further, ASU 2019-04 clarifies that
recoveries should be incorporated within the
estimation of the allowance for credit losses.
Expected recoveries should not exceed the
aggregate amount of prior write-offs and expected
future write-offs. The inclusion of expected recoveries
in the measurement of expected credit losses may
result in a negative credit allowance in certain
circumstances. Additionally, for collateral dependent
financial assets, the allowance for credit losses that is
added to the amortized cost basis should not exceed
amounts previously written off.
ASU 2019-04 also makes several changes when a
discounted cash flow approach is used to measure
expected credit losses. ASU 2019-04 removes ASU
2016-03’s prohibition of using projections of future
interest rate environments when using a discounted
cash flow method to measure expected credit losses
on variable-rate financial instruments. If an entity
uses projections or expectations of future interest rate
environments in estimating expected cash flows, the
same assumptions should be used in determining the
effective interest rate used to discount those
expected cash flows. The effective interest rate
should also be adjusted to consider the effects of
expected prepayments on the timing of expected
future cash flows. ASU 2019-04 provides an election
to adjust the effective interest rate used in discounting
expected cash flows to isolate credit risk in measuring
the allowance for credit losses. Further, the discount
rate should not be adjusted for subsequent changes
in expected prepayments if a financial asset is
restructured in a troubled debt restructuring.
Related to collateral-dependent financial assets, ASU
2019-04 requires inclusion of estimated costs to sell
in the measurement of expected credit losses in
situations where the entity intends to sell rather than
operate the collateral. Additionally, the estimated
costs to sell should be undiscounted when the entity
intends to sell rather than operate the collateral.
Finally, ASU 2019-04 specifies that contractual
renewal or extension options, except those treated as
derivatives, should be included in the determination of
the contractual term for a financial asset when
included in the original or modified contract as of the
reporting date if they are not unconditionally
cancellable by the entity.
The effective date and transition requirements for
these components of ASU 2019-04 are consistent
with the requirements for ASU 2016-13 and FHN
incorporated these changes and revisions within its
implementation efforts. Based on its previous existing
practices for the timely write off uncollectible AIR,
FHN elected to not measure an allowance for credit
losses for AIR and to continue recognition of related
write-offs as a reversal of interest income.
In May 2019, the FASB issued ASU 2019-05,
“Financial Instruments - Credit Losses, Targeted
Transition Relief,” which provides an option to
irrevocably elect the fair value option for certain
financial assets previously measured at amortized
cost basis that are in the scope of ASU 2016-13,
applied on an instrument-by-instrument basis. The
fair value option election does not apply to HTM debt
securities. The effective date and transition
requirements for ASU 2019-05 are consistent with the
requirements for ASU 2016-13. FHN did not elect to
apply the fair value option to any asset classes that
are in scope for CECL.
In November 2019, the FASB issued ASU 2019-11,
“Codification Improvements to Topic 326, Financial
Instruments-Credit Losses” which clarifies that
expected recoveries should be included in the
amortized cost basis previously written off or
expected to be written off in the valuation allowance
for PCD assets. ASU 2019-11 also clarifies that
recoveries or expected recoveries of the unamortized
noncredit discount or premium should not be included
in the allowance for credit losses. ASU 2019-11
provides specific transition relief for existing troubled
debt restructurings and extends the disclosure relief
of ASU 2019-04 for accrued interest receivable
balances to additional relevant disclosures involving
amortized cost basis. Related to the assessment of
credit risk for collateralized assets, ASU 2019-11
FIRST HORIZON CORPORATION
137
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
indicates that an entity should assess whether it
reasonably expects the borrower will be able to
continually replenish collateral securing the financial
asset to apply the practical expedient of ASU 2016-13
while also requiring an estimation of expected credit
losses for any difference between the amount of the
amortized cost basis that is greater than the fair value
of the collateral securing the financial asset.
The effective date and transition requirements for
ASU 2019-11 are consistent with the requirements for
ASU 2016-13 and FHN incorporated these changes
and revisions within its implementation efforts and the
effects are embedded within the adoption effects of
ASU 2016-13. Consistent with non-PCD assets, the
effect of including recoveries and expected recoveries
within the measurement of expected credit losses for
PCD assets may result in a negative credit allowance
in certain circumstances.
On March 22, 2020, The Board of Governors of the
Federal Reserve System, the Federal Deposit
Insurance Corporation, the National Credit Union
Administration, the Office of the Comptroller of the
Currency, and the Consumer Financial Protection
Bureau issued guidance that interprets, but does not
suspend, ASC 310-40 related to the identification of
TDRs. Also on that day, the FASB issued a statement
indicating that the Interagency Guidance had been
developed in consultation with the staff of the FASB
who concurred with the approach. The Interagency
Guidance indicates that a lender can conclude that a
borrower is not experiencing financial difficulty if
either 1) short-term (e.g., six months) modifications
are made in response to the economic effects of the
COVID-19 pandemic, such as payment deferrals, fee
waivers, extensions of repayment terms, or other
delays in payment that are insignificant related to
loans in which the borrower is less than 30 days past
due on its contractual payments at the time a
modification program is implemented, or 2) the
modification or deferral program is mandated by the
federal government or a state government.
Accordingly, any loan modification made in response
to COVID-19 pandemic that meets either of these
practical expedients would not be considered a TDR
because the borrower is not experiencing financial
difficulty. Consistent with this perspective, financial
institutions are generally not expected to designate
loans with deferrals granted due to COVID-19 as past
due or nonaccrual because of a deferral.
On March 27, 2020, the CARES Act was signed into
law. The CARES Act provides relief from certain
requirements under U.S. GAAP. Section 4013 of the
CARES Act provides entities optional temporary relief
from the accounting and disclosure requirements for
TDRs under ASC 310-40 in certain situations. Section
4013 of the CARES Act permits the suspension of
ASC 310-40 for loan modifications that are made by
financial institutions in response to the COVID-19
pandemic if 1) the borrower was not more than 30
days past due as of December 31, 2019, and 2) the
modifications are related to arrangements that defer
or delay the payment of principal or interest, or
change the interest rate on the loan. The CARES
provisions apply to loan modifications relating to
COVID-19 that are made between March 1, 2020 and
the earlier of December 31, 2020 or 60 days after the
national emergency related to COVID-19 ends.
On April 3, 2020, the Chief Accountant of the SEC
issued a statement indicating that the staff would not
object to the conclusion that elective application of
the provisions of CARES Act are in accordance with
GAAP for the periods that such elections are
available.
On April 7, 2020, revised Interagency Guidance was
issued to reflect the interaction of the CARES Act
provisions and the Interagency Guidance, clarifying
that the CARES Act guidance can be applied for
regulatory purposes. Loan modifications outside the
scope of the CARES Act and organizations that elect
to not apply the CARES Act guidance should continue
to apply ASC 310-40 as interpreted by the
Interagency Guidance.
On December 27, 2020, the Consolidated
Appropriations Act, 2021 (CAA) was signed into law.
The CAA extends the CARES Act TDR relief
provisions to apply to modifications executed
between March 1, 2020 and the earlier of (1) 60 days
following the date the COVID-19 national emergency
comes to an end and (2) January 1, 2022.
FHN has evaluated the provisions of the CARES Act
and the Interagency Guidance related to loan
modification programs instituted as a result of the
COVID-19 pandemic. FHN’s programs primarily
involve the deferral of principal and interest
payments, fee waivers and mortgage modifications
required in response to government modification
requirements. With the duration of the economic
effects from the pandemic continuing, in third quarter
2020, FHN initiated additional modification programs
for extensions of certain borrowers which result in
total deferral periods exceeding 6 months or
temporary conversion of amortizing loans to interest-
only status. Accordingly, FHN has applied the
provisions of the CARES Act to its most recent
modification programs.
FIRST HORIZON CORPORATION
138
2020 FORM 10-K ANNUAL REPORT
affected by the change in discounting convention and
because it has other bi-lateral derivative contracts
that may be modified to conform to the use of SOFR
for discounting. Adoption did not have a significant
effect on FHN's reported financial condition or
earnings.
Table of Contents
Note 1 – Significant Accounting Policies (Continued)
Accounting Changes With Extended Transition
Periods
In March 2020, the FASB issued ASU 2020-04,
“Facilitation of the Effects of Reference Rate Reform
on Financial Reporting” which provides several
optional expedients and exceptions to ease the
potential burden in accounting for (or recognizing the
effects of) reference rate reform on financial
reporting. The provisions of ASU 2020-04 primarily
affect 1) contract modifications (e.g., loans, leases,
debt, and derivatives) made in anticipation that a
reference rate (e.g., LIBOR) will be discontinued and
2) the application of hedge accounting for existing
relationships affected by those modifications. The
provisions of ASU 2020-04 are effective upon release
and apply only to contracts, hedging relationships,
and other transactions that reference LIBOR or
another reference rate expected to be discontinued
because of reference rate reform. The expedients
and exceptions provided by ASU 2020-04 do not
apply to contract modifications made and hedging
relationships entered into or evaluated after
December 31, 2022, except for hedging relationships
existing as of December 31, 2022, that an entity has
elected certain optional expedients for and that are
retained through the end of the hedging relationship.
FHN has been identifying contracts affected by
reference rate reform and developing modification
plans for those contracts. As described below FHN
has elected to utilize the optional expedients and
exceptions provided by ASU 2020-04 for certain
contract modifications made in 2020. FHN
anticipates that it will continue to utilize the
expedients and exceptions in situations where they
mitigate potential accounting outcomes that do not
faithfully represent management's intent or risk
management activities which is consistent with the
purpose of the standard.
In January 2021, the FASB issued ASU 2021-01,
"Scope" to expand the scope of ASU 2020-04 to
apply to certain contract modifications that were
implemented in October 2020 by derivative
clearinghouses for the use of Secure Overnight
Funding Rate (SOFR) in discounting, margining and
price alignment for centrally cleared derivatives,
including derivatives utilized in hedging relationships.
ASU 2021-01 also applies to derivative contracts
affected by the change in discounting convention
regardless of whether they are centrally cleared (i.e.,
bi-lateral contracts can also be modified) and
regardless of whether they reference LIBOR. ASU
2021-01 was effective immediately upon issuance
with retroactive application permitted. FHN elected to
retroactively apply the provisions of ASU 2021-01
because its centrally cleared derivatives were
FIRST HORIZON CORPORATION
139
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 2 – Acquisitions and Divestitures
On July 1, 2020, FHN and IBERIABANK Corporation
closed their merger of equals transaction. FHN issued
approximately 243 million shares of FHN common
stock, plus three new series of preferred stock (Series
B, Series C, and Series D) in a transaction valued at
$2.5 billion. At the time of closing, IBKC operated 319
offices in 12 states, mostly in the southern U.S.
The merger of equals transaction has been
accounted for as a business combination.
Accordingly, the assets acquired and liabilities
assumed are generally presented at their fair values
as of the merger date. The determination of fair value
requires management to make estimates about
discount rates, future expected cash flows, market
conditions and other future events that are highly
subjective in nature and subject to change.
The following schedule details a preliminary allocation of merger consideration to the valuations of the identifiable
tangible and intangible assets acquired and liabilities assumed from IBKC as of July 1, 2020.
(Dollars in millions)
Assets:
Cash and due from banks
Interest-bearing deposits with banks
Securities available for sale at fair value
Loans held for sale
Loans and leases (a)
Allowance for loan and lease losses
Other intangible assets
Premises and equipment
OREO
Other assets
Total assets acquired
Liabilities:
Deposits
Short-term borrowings
Term borrowings
Other liabilities
Total liabilities assumed
Net assets acquired
Consideration paid:
Consideration for outstanding common stock
Consideration for equity awards
Consideration for preferred stock
Total consideration paid
Preliminary purchase accounting gain
IBERIABANK Corporation
395
1,683
3,544
320
25,921
(284)
240
311
9
1,153
33,292
28,232
209
1,200
616
30,257
3,035
2,243
28
231
2,502
(533)
$
$
$
$
$
$
$
$
(a) Includes $1.3 billion of initial net investments in sales-type and direct financing leases.
In relation to the merger of equals, FHN recorded a
preliminary $533 million purchase accounting gain,
representing the shortfall of the purchase price under
the acquisition accounting value of net assets
acquired, net of deferred taxes. The preliminary
purchase accounting gain is not taxable. Due to the
fact that back office functions (including loan and
deposit processing) still have not been integrated, the
evaluation of post-merger activity, and the extended
information gathering and management review
processes required to properly record acquired
assets and liabilities, FHN considers its valuations of
IBKC's loans and leases, other assets, tax
receivables and payables, other liabilities and
acquired contingencies to be provisional as
management continues to identify and assess
information regarding the nature of these assets and
liabilities and reviews the associated valuation
FIRST HORIZON CORPORATION
140
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 2 – Acquisitions and Divestitures (Continued)
assumptions and methodologies. Accordingly, the
amounts recorded for current and deferred tax assets
and liabilities are also considered provisional as FHN
continues to evaluate the nature and extent of
permanent and temporary (timing) differences
between the book and tax bases of the acquired
assets and liabilities assumed. Additionally, the
accounting policies of both FHN and IBKC are in the
process of being reviewed in detail. Upon completion
of such review, conforming adjustments or financial
statement reclassification may be determined.
The following is a description of the methods used to determine the fair values of significant assets acquired and
liabilities assumed presumed above.
Cash and due from banks and interest-bearing
deposits with banks: The carrying amount of these
assets is a reasonable estimate of fair value based on
the short-term nature of these assets.
Securities available for sale: Fair values for securities
were based on quoted market prices where available.
If quoted market prices are not available, fair value
estimates are based on observable inputs obtained
from market transactions in similar securities.
Securities held to maturity were reclassified to
securities available for sale based on FHN's intent at
closing.
Loans: Fair values for loans were based on a
discounted cash flow methodology that considered
factors including loan type and related collateral,
classification status, remaining term of the loan, fixed
or variable interest rate, amortization status and
current discount rates. Expected cash flows were
derived using inputs consistent with management's
assessment of credit risk for allowance measurement
with adjustments for consistency with fair value
measurement concepts. Large loans were
specifically reviewed to evaluate credit risk. Loans
were valued individually although multiple inputs were
applied to loans with similar characteristics as
appropriate. The discount rate did not include an
explicit factor for credit losses, as that was included
as a reduction to the estimated cash flows.
Leases: Sales-type and direct financing leases were
valued at the net investment in the lease which
consists of both the lease receivable (including both
the remaining lease payments and the guaranteed
residual asset value) and the unguaranteed residual
asset, if any. Discounting of the lease receivable was
performed using the rate implicit in the lease. The
unguaranteed residual asset represents the
difference in the fair value of the underlying asset and
the lease receivable and therefore includes
consideration of all terms and conditions in the lease.
Intangible assets: Core deposit intangible asset
represents the value of the relationships with deposit
clients. The fair value for the core deposit intangible
asset was estimated based on a discounted cash flow
methodology that gave appropriate consideration to
expected client attrition rates, net maintenance cost
of the deposit base, alternative costs of funds, and
the interest costs associated with the client deposits.
The core deposit intangible asset is being amortized
over its estimated useful life of approximately ten
years utilizing an accelerated method. Client
relationship intangibles are valued using a discounted
cash flow methodology that reflects the estimated
value of the future net earnings from the relationships
which includes adjustments for estimated attrition.
Loans Held for Sale: The valuation of loans held for
sale, primarily conforming mortgages, reflected
quotes or bids on these loans directly from the
purchasing financial institutions.
Allowance for Loan and Lease Losses: As discussed
in Note 1, the adoption of ASU 2016-13 impacted the
way in which the allowance for credit losses is
determined for acquired loans. Prior to the IBKC
merger, on January 1, 2020, IBKC also adopted ASU
2016-13 through the development of multiple current
expected credit loss models (ECL Models) which
segmented IBKC’s loan and lease portfolio by
borrower and loan type to estimate lifetime expected
credit losses for loans and leases. Within each ECL
Model, loans and leases were further segregated
based on additional risk characteristics specific to that
loan or lease type and the ECL Models used both
internal and external historical loss data, as
appropriate.
While there were significant similarities in the manner
of adoption of ASU 2016-13 by legacy FHN and
legacy IBKC, numerous steps were taken to align the
IBKC process to ensure that the ACL reported at the
time of the IBKC merger in the table below and in all
subsequent reporting periods is consistent with the
ACL policies as outlined in Note 1 – Significant
Accounting Policies and Note 5 – Allowance for Credit
Losses. This included conforming certain IBKC
assumptions (e.g., the reasonable and supportable
forecast of future economic conditions and the
reasonable and supportable forecast period, among
others) to that of FHN. This was accomplished
primarily through qualitative adjustments for
alignment.
FIRST HORIZON CORPORATION
141
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 2 – Acquisitions and Divestitures (Continued)
Derivatives: Derivative assets and liabilities are
included in Other assets and Other liabilities.
Forward sales contracts are valued using current
transactions involving identical securities. Interest
rate swaps, interest rate locks, interest rate collars,
interest rate floors, and equity indexed derivatives are
estimated using prices of financial instruments with
similar characteristics and observable inputs. Risk
participations also incorporate an estimate of credit
risk.
Lease Assets and Lease Liabilities: Lease assets and
lease liabilities were measured using a methodology
that involved estimating the future rental payments
over the remaining lease term with discounting using
a fully-collateralized discount rate. The lease term
was determined for individual leases based on
management's assessment of the probability of
exercising existing renewal options. The net effect of
any off-market terms in a lease were also discounted
and applied to the balance of the lease asset.
Premises and Equipment: Land and buildings held for
use are valued at appraised values, which reflect
considerations of recent disposition values for similar
property types with adjustments for characteristics of
individual properties. Locations held for sale are
valued at appraised values which also reference
recent disposition values for similar property types but
also considers marketability discounts for vacant
properties. The valuations of locations held for sale
are reduced by estimated costs to sell. Other fixed
assets are valued using a discounted cash flow
methodology which reflects estimates of future value
of assets to a hypothetical buyer.
OREO: OREO properties are valued at estimated fair
value less estimated costs to sell the real estate.
Estimated fair value is determined using appraised
values which includes consideration of recent
disposition values for similar property types with
adjustments for characteristics of individual
properties.
Deposits: The fair values used for the demand and
savings deposits by definition equal the amount
payable on demand at the acquisition date. Fair
values for time deposits were estimated using a
discounted cash flow analysis applying interest rates
currently offered to the contractual interest rates on
such time deposits.
Short-term borrowings: The carrying amount of these
liabilities is a reasonable estimate of fair value based
on the short-term nature of these liabilities.
Term Borrowings: The fair values of long-term debt
instruments are estimated based on quoted market
prices for instrument if available, or for similar
instruments if not available. For redeemable debt
instruments, an evaluation of the debt terms in
comparison to current financing alternatives was
performed to evaluate if the redemption value
represented the fair value relevant to a market
participant. If pricing for similar instruments is not
available, a discounted cash flow analysis is utilized
based on estimated current borrowing rates for
similar types of instruments and considers whether
the debt is currently callable. Estimated discount
rates are determined from the perspective of the post-
merger combined entity rather than the acquiree and/
or original issuers.
FHN's operating results for the year ended December
31, 2020 include the operating results of the acquired
assets and assumed liabilities of IBKC subsequent to
the merger of equals transaction on July 1, 2020. Due
to various system conversions of IBKC during the
second half of 2020, as well as other streamlining and
integration of the operating activities into those of the
Company, historical reporting for the former IBKC
operations is impracticable and thus disclosures of
the revenue from the assets acquired and income
before income taxes is impracticable for the period
subsequent to acquisition.
FIRST HORIZON CORPORATION
142
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 2 – Acquisitions and Divestitures (Continued)
The following table presents pro forma information as if the IBKC transaction occurred on January 1, 2019. The pro
forma information does not necessarily reflect the results of operations that would have occurred had the two
companies combined on January 1, 2019. Furthermore, cost savings and other business synergies related to the
transaction are not reflected in the pro forma amounts.
Pro Forma Information for the Years Ended
(Dollars in millions)
Net interest income
Noninterest income
Net income (loss)
December 31, 2020
$
December 31, 2019 (a)
2,256
888
881
2,247 $
1,071
677
(a) Does not include the impact of CECL which was adopted January 1, 2020.
Total merger and integration expenses for the IBKC merger recognized for the years ended December 31, 2020 and
2019 are presented in the table below:
(Dollars in millions)
Legal and professional fees (a)
Personnel expense (b)
Contribution expense (c)
Miscellaneous expense (d)
Total IBKC merger expense
$
$
2020
2019
41 $
61
20
18
140 $
8
3
—
—
11
(a) Primarily comprised of fees for legal, accounting, and merger consultants.
(b) Primarily comprised of fees for severance and retention.
(c) Comprised of contribution expense related to the establishment of the Louisiana First Horizon Foundation.
(d) Primarily comprised of fees for travel and entertainment, contract employment and other miscellaneous expenses.
On July 17, 2020, First Horizon Bank completed its
purchase of 30 branches from Truist Bank. As part of
the transaction, FHN assumed approximately $2.2
billion of branch deposits for a 3.40% deposit
premium and purchased approximately $423 million
of branch loans. The branches are in communities in
North Carolina (20 branches), Virginia (8 branches),
and Georgia (2 branches). This transaction qualifies
as a business combination.
As of December 31, 2020, the valuation of the
acquired assets and liabilities from the Truist
branches acquisition was final.
FIRST HORIZON CORPORATION
143
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 2 – Acquisitions and Divestitures (Continued)
The following schedule details the fair value of the identifiable tangible and intangible assets acquired and liabilities
assumed from Truist Bank as of July 17, 2020.
(Dollars in millions)
Assets:
Cash and due from banks
Loans and leases
Allowance for loan and lease losses
Other intangible assets
Premises and equipment
Other assets
Total assets acquired
Liabilities:
Deposits
Other liabilities
Total liabilities assumed
Net assets acquired
Consideration paid:
Cash
Total consideration paid
Goodwill
Truist Bank
2,202
423
(2)
7
11
27
2,668
2,195
30
2,225
443
521
521
78
$
$
$
$
$
$
$
$
In relation to the acquisition, FHN recorded
$78 million in goodwill, representing the excess of
acquisition consideration over the estimated fair value
of net assets acquired. All goodwill has been
attributed to FHN's Regional Banking segment (refer
to Note 7 - Intangible Assets for additional
information). This goodwill is the result of expected
synergies, operational efficiencies and other factors.
FHN's operating results for the year ended December
31, 2020 include the operating results of the acquired
assets and assumed liabilities of Truist Bank
subsequent to the acquisition on July 17, 2020.
Expenses related to FHN's merger and integration
activities are recorded in FHN's Corporate segment.
FIRST HORIZON CORPORATION
144
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 2 – Acquisitions and Divestitures (Continued)
Total other merger and integration expense recognized for the years ended December 31, 2020 and 2019 are
presented in the table below:
(Dollars in millions)
Legal and professional fees (a)
Personnel expense (b)
Contract employment and outsourcing (c)
Net occupancy expense (d)
Miscellaneous expense (e)
All other expense (f)
Total
Years ended December 31,
2020
2019
$
2 $
6
1
1
4
6
$
20 $
11
1
—
1
2
7
22
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) Primarily comprised of fees for legal, accounting, and merger consultants.
(b) Primarily comprised of fees for severance and retention.
(c) Primarily relates to fees for temporary assistance for merger and integration activities.
(d) Primarily relates to expenses associated with lease exits.
(e) Consists of fees for operations services, communications and courier, equipment rentals, depreciation and maintenance,
supplies, travel and entertainment, computer software, and advertising and public relations.
(f) Primarily relates to contract termination charges, internal technology development costs, costs of shareholder matters and
asset impairments, as well as other miscellaneous expenses.
In addition to the transactions mentioned above, FHN
acquires or divests assets from time to time in
transactions that are considered business
combinations or divestitures but are not material to
FHN individually or in the aggregate. In April 2019,
FHN sold a subsidiary acquired as part of the CBF
merger in 2017 that did not fit within FHN's risk
profile. The sale resulted in the removal of
approximately $25 million UPB of subprime consumer
loans from Loans held for sale on FHN's
Consolidated Balance Sheets.
FIRST HORIZON CORPORATION
145
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 3 – Investment Securities
The following tables summarize FHN’s investment securities on December 31, 2020 and 2019:
(Dollars in millions)
Securities available for sale:
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
Corporate and other debt
States and municipalities
AFS securities recorded at fair value through
earnings:
SBA-interest only strips (a)
Total securities available for sale (b)
Amortized
Cost
December 31, 2020
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
613 $
— $
— $
613
3,722
2,380
672
40
445
7,872 $
92
29
12
1
15
149 $
$
(2)
(3)
—
(1)
—
(6)
$
3,812
2,406
684
40
460
8,015
32
8,047
(a) SBA-interest only strips are recorded at elected fair value. See Note 24 - Fair Value of Assets and Liabilities for additional
(b)
information.
Includes $6.4 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for
other purposes.
(Dollars in millions)
Securities available for sale:
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
Corporate and other debt
States and municipalities
AFS securities recorded at fair value through
earnings:
SBA-interest only strips (a)
Total securities available for sale (b)
Amortized
Cost
December 31, 2019
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
$
— $
2,316
1,668
304
40
57
4,385 $
— $
35
10
4
—
3
52 $
— $
(3)
(7)
(1)
—
—
(11)
$
—
2,348
1,671
307
40
60
4,426
19
4,445
(a) SBA-interest only strips are recorded at elected fair value. See Note 24 - Fair Value of Assets and Liabilities for additional
(b)
information.
Includes $3.8 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for
other purposes.
FIRST HORIZON CORPORATION
146
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 3 – Investment Securities (Continued)
The amortized cost and fair value by contractual maturity for the available-for-sale debt securities portfolio on
December 31, 2020 is provided below:
(Dollars in millions)
Within 1 year
After 1 year through 5 years
After 5 years through 10 years
After 10 years
Subtotal
Government agency issued MBS and CMO (a)
Total
Available for Sale
Amortized
Cost
Fair
Value
$
$
756 $
160
184
670
1,770
6,102
7,872 $
758
162
192
717
1,829
6,218
8,047
(a) Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Gross gains on sales of debt investment securities for the years ended December 31, 2020, 2019 and 2018 were
insignificant. Gross losses on sales of debt investment securities were $4 million for the year ended 2020 and
insignificant for the years ended December 31, 2019 and 2018. Cash proceeds from the sale of available-for-sale
securities during 2020 and 2019 were $629 million and $192 million, respectively and were not material in 2018.
The following tables provide information on investments within the available-for-sale portfolio that had unrealized
losses as of December 31, 2020 and 2019:
(Dollars in millions)
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
States and municipalities
Total
As of December 31, 2020
Less than 12 months
12 months or longer
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
307 $
— $
— $
— $
307 $
426
586
80
1
(2)
(3)
(1)
—
—
—
—
—
—
—
—
—
426
586
80
1
$
1,400 $
(6) $
— $
— $
1,400 $
—
(2)
(3)
(1)
—
(6)
(Dollars in millions)
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
States and municipalities
Total
As of December 31, 2019
Less than 12 months
12 months or longer
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
175 $
(1) $
193 $
379
98
4
(2)
(1)
—
361
—
—
(2) $
(5)
—
—
368 $
740
98
4
(3)
(7)
(1)
—
$
656 $
(4) $
554 $
(7) $
1,210 $
(11)
For periods subsequent to 2019, FHN has evaluated
all AFS debt securities that were in unrealized loss
positions in accordance with its accounting policy for
recognition of credit losses. No AFS debt securities
were determined to have credit losses because the
primary cause of the decline in value was attributable
to changes in interest rates. Total AIR not included in
the fair value or amortized cost basis of AFS debt
securities was $22 million as of December 31, 2020.
FIRST HORIZON CORPORATION
147
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 3 – Investment Securities (Continued)
Consistent with FHN's review of the related securities,
there were no credit-related write downs of AIR for
AFS securities during the reporting period.
Additionally, for AFS debt securities with unrealized
losses as of the balance sheet date, FHN does not
intend to sell them and it is more-likely-than-not that
FHN will not be required to sell them prior to recovery.
Therefore, no write downs of these investments to fair
value occurred during the reporting period.
For periods prior to 2020, FHN reviewed debt
investment securities that were in unrealized loss
positions in accordance with its accounting policy for
OTTI and did not consider them other-than-
temporarily impaired. For debt securities with
unrealized losses, FHN did not intend to sell them
and it is more-likely-than-not that FHN would not be
required to sell them prior to recovery. The decline in
value was primarily attributable to changes in interest
rates and not credit losses.
The carrying amount of equity investments without a
readily determinable fair value was $57 million and
$26 million at December 31, 2020 and 2019,
respectively. The year-to-date 2020 and 2019 gross
amounts of upward and downward valuation
adjustments were not significant.
Unrealized gains of $7 million and unrealized losses
of $7 million were recognized during 2020 and 2019,
respectively, for equity investments with readily
determinable fair values.
FIRST HORIZON CORPORATION
148
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 4 – Loans and Leases
Tables and data as of December 31, 2020 include the
loan and lease balances acquired in the IBKC merger
and Truist Bank branch acquisition, which were
recorded at fair value on their respective transaction
closing dates. See Note 2 - Acquisitions and
Divestitures for further information.
As discussed in Note 1 - Significant Accounting
Policies, the ALLL estimation process was revised on
January 1, 2020 to reflect the adoption of ASU
2016-13. All information contained in the following
disclosures reflects the application of requirements
from the adoption of ASU 2016-13 for periods after
2019. Information for periods prior to 2020 has been
retained with the content consistent with prior
disclosures.
The loan and lease portfolio is disaggregated into
portfolio segments and then further disaggregated
into classes for certain disclosures. GAAP defines a
portfolio segment as the level at which an entity
develops and documents a systematic method for
determining its allowance for credit losses. A class is
generally a disaggregation of a portfolio segment and
is generally determined based on risk characteristics
of the loan and FHN’s method for monitoring and
assessing credit risk and performance. FHN's loan
and lease portfolio segments are commercial and
consumer. The classes of loans and leases are: (1)
commercial, financial, and industrial, which includes
commercial and industrial loans and leases and loans
to mortgage companies, (2) commercial real estate,
(3) consumer real estate, which includes both real
estate installment and home equity lines of credit, and
(4) credit card and other.
(Dollars in millions)
Commercial:
Commercial and industrial (a) (b)
Loans to mortgage companies
Total commercial, financial, and industrial
Commercial real estate
Consumer:
HELOC
Real estate installment loans
Total consumer real estate
Credit card and other
Loans and leases
Allowance for loan and lease losses
Total net loans and leases
The following table provides the amortized cost basis
of loans and leases by portfolio segment and class as
of December 31, 2020 and 2019, excluding accrued
interest of $180 million and $85 million, respectively,
which is included in Other assets in the Consolidated
Balance Sheets.
December 31,
2020
2019
$
27,700 $
5,404
33,104
12,275
2,420
9,305
11,725
1,128
$
$
58,232 $
(963)
57,269 $
15,640
4,411
20,051
4,337
1,287
4,890
6,177
496
31,061
(200)
30,861
FIRST HORIZON CORPORATION
149
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 4 – Loans and Leases (Continued)
(a) December 31, 2020 balance includes equipment financing leases of $587 million.
(b)
Includes PPP loans fully guaranteed by the SBA of $4.1 billion as of December 31, 2020.
Restrictions
Loans and leases with carrying values of $38.6 billion
and $19.2 billion were pledged as collateral for
borrowings at December 31, 2020 and 2019,
respectively.
At December 31, 2020 and 2019, FHN had pledged
$7.8 billion and $5.2 billion of commercial loans to
secure potential discount window borrowings from the
Federal Reserve Bank, which included all of its first
and second lien mortgages, HELOCs, and
commercial real estate loans to secure potential
borrowings from the FHLB-Cincinnati.
Concentrations of Credit Risk
Most of the FHN’s business activity is with clients
located in the southern United States. FHN’s lending
activity is concentrated in its market areas within
those states. As of December 31, 2020, FHN had
loans to mortgage companies totaling $5.4 billion and
loans to finance and insurance companies total $3.1
billion. As a result, 26% of the C&I segment is
sensitive to impacts on the financial services industry.
Credit Quality Indicators
FHN employs a dual grade commercial risk grading
methodology to assign an estimate for the probability
of default and the loss given default for each
commercial loan using factors specific to various
industry, portfolio, or product segments that result in a
rank ordering of risk and the assignment of grades
PD 1 to PD 16. This credit grading system is intended
to identify and measure the credit quality of the loan
and lease portfolio by analyzing the migration
between grading categories. It is also integral to the
estimation methodology utilized in determining the
ALLL since an allowance is established for pools of
commercial loans based on the credit grade
assigned. Each PD grade corresponds to an
estimated one-year default probability percentage.
PD grades are continually evaluated, but require a
formal scorecard annually. As a response to the
COVID-19 pandemic, FHN identified a segment of its
commercial portfolio that requires a quarterly re-
grading process. As borrowers recover, they can be
removed from the quarterly re-grading process with
credit officer concurrence.
PD 1 through PD 12 are “pass” grades. PD grades
13-16 correspond to the regulatory-defined categories
of special mention (13), substandard (14), doubtful
(15), and loss (16). Special mention loans and leases
have potential weaknesses that, if left uncorrected,
may result in deterioration of FHN's credit position at
some future date. Substandard commercial loans and
leases have well-defined weaknesses and are
characterized by the distinct possibility that FHN will
sustain some loss if the deficiencies are not
corrected. Doubtful commercial loans and leases
have the same weaknesses as substandard loans
and leases with the added characteristics that the
probability of loss is high and collection of the full
amount is improbable.
The following tables provide the amortized cost basis of the commercial loan and lease portfolio by year of
origination and credit quality indicator as of December 31, 2020:
(Dollars in millions)
2020
2019
2018
2017
2016
Prior to
2016
LMC (a)
Revolving
Loans
Revolving
Loans
Converted
to Term Loans
(b)
Total
C&I
Credit Quality Indicator:
Pass (PD grades 1 through
12) (c)
Special Mention (PD grade
13)
Substandard, Doubtful, or
Loss (PD grades 14,15, and
16)
$ 9,081 $ 5,145 $ 2,640 $ 1,762 $ 1,161 $ 2,163 $ 5,404 $ 4,575 $
62 $
31,993
89
93
70
161
70
102
31
36
37
42
64
40
—
—
127
91
1
57
512
599
Total C&I
$ 9,331 $ 5,308 $ 2,812 $ 1,829 $ 1,240 $ 2,267 $ 5,404 $ 4,793 $
120 $
33,104
(a) LMC includes non-revolving commercial lines of credit to qualified mortgage companies primarily for the temporary
warehousing of eligible mortgage loans prior to the borrower's sale of those mortgage loans to third party investors. The
loans are of short duration with maturities less than one year.
(b) $50 million of C&I loans were converted from revolving to term in 2020.
(c) 2020 balance includes PPP loans.
FIRST HORIZON CORPORATION
150
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 4 – Loans and Leases (Continued)
(Dollars in millions)
Credit Quality Indicator:
Pass (PD grades 1 through
12)
Special Mention (PD grade
13)
Substandard, Doubtful, or
Loss (PD grades 14,15, and
16)
Total CRE
2020
2019
2018
2017
2016
CRE
Prior to
2016
Revolving
Loans
Revolving
Loans
Converted
to Term Loans
Total
$ 2,501 $ 3,311 $ 1,750 $ 1,140 $
946 $ 1,800 $
277 $
19 $
11,744
48
24
117
6
13
21
75
42
71
27
54
33
—
—
—
—
389
142
$ 2,555 $ 3,348 $ 1,888 $ 1,257 $ 1,044 $ 1,887 $
277 $
19 $
12,275
The following tables provide the balances of commercial loan portfolio classes with associated allowance,
disaggregated by PD grade as of December 31, 2019:
(Dollars in millions)
PD Grade:
Pass (PD grades 1 through 12)
Special Mention (PD grade 13)
Substandard, Doubtful, or Loss (PD grades 14, 15,
and 16)
Collectively evaluated for impairment
Individually evaluated for impairment
Purchased credit-impaired loans
Total commercial loans
Loans to
Mortgage
Companies
C&I (a)
CRE
Total
Percentage
of Total
Allowance
for Loan
Losses
$ 15,036 $
4,411 $
4,252 $ 23,699
98 % $
233
263
—
—
34
44
267
307
15,532
4,411
4,330
24,273
82
26
—
—
2
5
84
31
1
1
100
—
—
114
8
30
152
6
1
$ 15,640 $
4,411 $
4,337 $ 24,388
100 % $
159
(a) C&I includes TRUPS loans, which are presented net of a $19 million valuation allowance.
The consumer portfolio is comprised primarily of
smaller-balance loans which are very similar in nature
in that most are standard products and are backed by
residential real estate. Because of the similarities of
consumer loan types, FHN is able to utilize the FICO
score, among other attributes, to assess the credit
quality of consumer borrowers. FICO scores are
refreshed on a quarterly basis in an attempt to reflect
the recent risk profile of the borrowers. Accruing
delinquency amounts are indicators of asset quality
within the credit card and other consumer portfolio.
The following table reflects the amortized cost basis by year of origination and refreshed FICO scores for consumer
real estate loans as of December 31, 2020. Within consumer real estate, classes include HELOC and real estate
installment. HELOCs are loans which during their draw period are classified as revolving loans. Once the draw
period ends and the loan enters its repayment period, the loan converts to a term loan and is classified as revolving
loans converted to term loans. All loans classified in the following table as revolving loans or revolving loans
converted to term loans are HELOCs. Real estate installment loans are originated as a fixed term loan and are
classified below in their vintage year from prior to 2016 to 2020. All loans in the following table classified in a vintage
year are real estate installment loans.
FIRST HORIZON CORPORATION
151
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 4 – Loans and Leases (Continued)
(Dollars in millions)
FICO score 740 or greater
FICO score 720-739
FICO score 700-719
FICO score 660-699
FICO score 620-659
FICO score less than 620
2020
2019
2018
2017
2016
Prior to
2016
Revolving
loans
Revolving
Loans
converted
to term
loans (a)
Total
Consumer real estate
$
1,186 $
1,167 $
703 $
610 $
674 $
1,719 $
1,275 $
159 $
7,493
157
122
130
45
107
158
107
141
61
36
100
78
123
37
52
77
76
75
28
54
92
73
85
35
95
197
221
296
127
261
186
177
264
92
61
29
34
59
36
48
996
888
1,173
461
714
Total
$
1,747 $
1,670 $
1,093 $
920 $
1,054 $
2,821 $
2,055 $
365 $
11,725
(a) $36 million of HELOC loans were converted from revolving to term in 2020.
The following table reflects the amortized cost basis by year of origination and refreshed FICO scores for credit card
and other loans as of December 31, 2020.
2020
2019
2018
2017
2016
Prior to
2016
Revolving
loans
Revolving
Loans
converted
to term
loans
Total
Credit card and other
$
57 $
52 $
59 $
37 $
23 $
116 $
159 $
5 $
7
9
30
5
14
7
8
12
5
7
9
9
15
7
8
8
8
9
5
11
8
4
9
10
9
27
38
48
24
26
91
37
46
20
20
2
3
3
1
1
508
159
116
172
77
96
$
122 $
91 $
107 $
78 $
63 $
279 $
373 $
15 $
1,128
(Dollars in millions)
FICO score 740 or greater
FICO score 720-739
FICO score 700-719
FICO score 660-699
FICO score 620-659
FICO score less than 620
Total
The following table reflects the percentage of balances outstanding by average refreshed FICO scores, for the
HELOC and real estate installment classes of loans as of December 31, 2019 :
FICO score 740 or greater
FICO score 720-739
FICO score 700-719
FICO score 660-699
FICO score 620-659
FICO score less than 620 (a)
Total
HELOC
62 %
RE Installment
Loans
72 %
8
8
11
5
6
8
6
8
3
3
100 %
100 %
(a) For this group, a majority of the loan balances had FICO scores at the time of the origination that exceeded 620 but have
since deteriorated as the loans have seasoned.
Nonaccrual and Past Due Loans and Leases
Loans and leases are placed on nonaccrual if it
becomes evident that full collection of principal and
interest is at risk, impairment has been recognized as
a partial charge-off of principal balance due to
insufficient collateral value and past due status, or on
a case-by-case basis if FHN continues to receive
payments but there are other borrower-specific
FIRST HORIZON CORPORATION
152
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 4 – Loans and Leases (Continued)
issues. Included in nonaccrual are loans for which
FHN continues to receive payments including
residential real estate loans where the borrower has
been discharged of personal obligation through
bankruptcy.
Past due loans are loans contractually past due as to
interest or principal payments, but which have not yet
been put on nonaccrual status. In accordance with
revised Interagency Guidance issued in 2020, FHN is
not required to designate loans with deferrals granted
in response to COVID-19 as past due because of
such deferrals. If a borrower defers payment, this
may result in no contractual payments being past
due, and as such, loans would not be considered past
due during the period of deferral, and as a result, are
excluded from loans past due 30-89 days and loans
90+ days past due in the table below.
The following table reflects accruing and non-accruing loans and leases by class on December 31, 2020:
(Dollars in millions)
Commercial, financial,
and industrial:
C&I (a) (b)
Loans to mortgage
companies
Total commercial,
financial, and industrial
Commercial real estate:
CRE
Consumer real estate:
HELOC
RE installment loans
Total consumer real estate
Credit card and other:
Credit card
Other
Total credit card and other
Accruing
30-89
Days
Past Due
90+
Days
Past Due
Current
Non-Accruing
Total
Accruing
Current
30-89
Days
Past Due
90+
Days
Past Due
Total
Non-
Accruing
Total
Loans
$ 27,541 $
15 $ — $ 27,556 $
88 $
12 $
44 $
144 $ 27,700
5,404
32,945
12,194
2,336
9,138
11,474
279
838
1,117
—
15
23
13
40
53
3
6
9
—
—
—
11
5
16
1
—
1
5,404
32,960
12,217
2,360
9,183
11,543
283
844
1,127
—
88
10
43
63
106
—
1
1
—
12
42
3
9
12
—
—
—
—
44
6
14
50
64
—
1
1
—
5,404
144
33,104
58
12,275
60
122
182
—
2
2
2,420
9,305
11,725
283
845
1,128
Total loans and leases
$ 57,730 $
100 $
17 $ 57,847 $
205 $
66 $
115 $
386 $ 58,232
(a) $101 million of C&I loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.
(b) C&I loans include TRUPs loans of $210 million, which is net of an amortizing discount of $18 million.
FIRST HORIZON CORPORATION
153
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 4 – Loans and Leases (Continued)
The following table reflects accruing and non-accruing loans by class on December 31, 2019:
(Dollars in millions)
Commercial, financial,
and industrial:
C&I (a)
Loans to mortgage
companies
Purchased credit-impaired
loans
Total commercial,
financial, and industrial
Commercial real estate:
Total commercial real
estate
Purchased credit-impaired
loans
Total commercial real
estate
Consumer real estate:
HELOC
RE installment loans
Purchased credit-impaired
loans
Total consumer real estate
Credit card and other:
Credit card
Other
Purchased credit-impaired
loans
Total credit card and other
Accruing
30-89
Days
Past Due
90+
Days
Past Due
Current
Non-Accruing
Total
Accruing
Current
30-89
Days
Past Due
90+
Days
Past Due
Total
Non-
Accruing
Total
Loans
$ 15,533 $
7 $ — $ 15,540 $
36 $
14 $
24 $
74 $ 15,614
4,411
24
19,968
4,329
5
4,334
1,217
4,812
19
6,048
199
292
—
491
—
—
7
1
—
1
9
13
3
25
1
2
—
3
—
4,411
2
2
—
—
—
6
9
3
18
1
1
—
2
26
19,977
4,330
5
4,335
1,232
4,834
25
6,091
201
294
—
496
—
—
36
—
—
—
43
21
—
64
—
—
—
—
—
—
14
1
—
1
4
1
—
5
—
—
—
—
—
—
24
1
—
1
8
9
—
17
—
—
—
—
—
—
74
2
—
2
55
31
—
86
—
—
—
—
4,411
26
20,051
4,332
5
4,337
1,287
4,865
25
6,177
201
294
1
496
Total loans
$ 30,841 $
36 $
22 $ 30,899 $
100 $
20 $
42 $
162 $ 31,061
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) C&I loans include $218 million in TRUPs loans, which are presented net of a valuation allowance of $19 million.
Collateral-Dependent Loans
Collateral-dependent loans are defined as loans for
which repayment is expected to be derived
substantially through the operation or sale of the
collateral and where the borrower is experiencing
financial difficulty. At a minimum, the estimated value
of the collateral for each loan equals the current book
value.
As of December 31, 2020, FHN had C&I loans with
amortized cost of approximately $167 million that was
based on the value of underlying collateral. The
collateral for these loans generally consists of
business assets including land, buildings, equipment
and financial assets. During the year ended
December 31, 2020, FHN recognized total charge-
offs of approximately $36 million on collateral
dependent loans related to reductions in estimated
collateral values, $26 million of which were on
collateral dependent loans at December 31, 2020.
Consumer HELOC and installment loans with
amortized cost based on the value of underlying real
estate collateral were approximately $9 million and
$26 million, respectively, as of December 31, 2020.
Charge-offs during the year ended December 31,
2020 were not significant for either portfolio class.
Troubled Debt Restructurings
As part of FHN’s ongoing risk management practices,
FHN attempts to work with borrowers when
necessary to extend or modify loan terms to better
align with their current ability to repay. Extensions and
modifications to loans are made in accordance with
internal policies and guidelines which conform to
FIRST HORIZON CORPORATION
154
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 4 – Loans and Leases (Continued)
regulatory guidance. Each occurrence is unique to
the borrower and is evaluated separately.
A modification is classified as a TDR if the borrower is
experiencing financial difficulty and it is determined
that FHN has granted a concession to the borrower.
FHN may determine that a borrower is experiencing
financial difficulty if the borrower is currently in default
on any of its debt, or if it is probable that a borrower
may default in the foreseeable future. Many aspects
of a borrower’s financial situation are assessed when
determining whether they are experiencing financial
difficulty. Concessions could include extension of the
maturity date, reductions of the interest rate (which
may make the rate lower than current market for a
new loan with similar risk), reduction or forgiveness of
accrued interest, or principal forgiveness. The
assessments of whether a borrower is experiencing
(or is likely to experience) financial difficulty, and
whether a concession has been granted, are
subjective in nature and management’s judgment is
required when determining whether a modification is
classified as a TDR. In accordance with regulatory
guidance, loans were not accounted for as a TDR
and have been excluded from the disclosures below.
For loan modifications that were made during the
year ended December 31, 2020 that met the TDR
relief provisions outlined in either the CARES Act, as
extended by the CAA, or revised Interagency
Guidance, FHN has excluded these modifications
from consideration as a TDR, and has excluded loans
with these qualifying modifications from designation
as a TDR in the information and discussion that
follows. See Note 1 - Significant Accounting Policies
and Note 4 – Loans and Leases for further discussion
regarding TDRs and loan modifications.
For all classes within the commercial portfolio
segment, TDRs are typically modified through
forbearance agreements (generally 6 to 12 months).
Forbearance agreements could include reduced
interest rates, reduced payments, release of
guarantor, or entering into short sale agreements.
FHN’s proprietary modification programs for
consumer loans are generally structured using
parameters of U.S. government-sponsored programs
such as the former Home Affordable Modification
Program. Within the HELOC and RE installment
loans classes of the consumer portfolio segment,
TDRs are typically modified by reducing the interest
rate (in increments of 25 basis points to a minimum of
1% for up to 5 years) and a possible maturity date
extension to reach an affordable housing debt-to-
income ratio. After 5 years, the interest rate generally
returns to the original interest rate prior to
modification; for certain modifications, the modified
interest rate increases 2% per year until the original
interest rate prior to modification is achieved.
Permanent mortgage TDRs are typically modified by
reducing the interest rate (in increments of 25 basis
points to a minimum of 2% for up to 5 years) and a
possible maturity date extension to reach an
affordable housing debt-to-income ratio. After 5 years,
the interest rate steps up 1% every year until it
reaches the Federal Home Loan Mortgage
Corporation Weekly Survey Rate cap. Contractual
maturities may be extended to 40 years on
permanent mortgages and to 30 years for consumer
real estate loans. Within the credit card class of the
consumer portfolio segment, TDRs are typically
modified through either a short-term credit card
hardship program or a longer-term credit card
workout program. In the credit card hardship
program, borrowers may be granted rate and
payment reductions for 6 months to 1 year. In the
credit card workout program, clients are granted a
rate reduction to 0% and term extensions for up to 5
years to pay off the remaining balance.
Despite the absence of a loan modification, the
discharge of personal liability through bankruptcy
proceedings is considered a concession. As a result,
FHN classifies all non-reaffirmed residential real
estate loans discharged in Chapter 7 bankruptcy as
nonaccruing TDRs.
On December 31, 2020 and 2019, FHN had $307
million and $206 million of portfolio loans classified as
TDRs, respectively. For TDRs in the loan portfolio,
FHN had an ALLL of $12 million, or 4% as of
December 31, 2020, and $20 million, or 10% as of
December 31, 2019. Additionally, $42 million and $51
million of loans held for sale as of December 31, 2020
and 2019, respectively, were classified as TDRs.
FIRST HORIZON CORPORATION
155
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 4 – Loans and Leases (Continued)
The following tables present the end of period balance for loans modified in a TDR during the years ended
December 31, 2020 and 2019:
2020
2019
Pre-Modification
Outstanding
Recorded Investment
Number
Post-Modification
Outstanding
Recorded Investment Number
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
(Dollars in millions)
Commercial, financial, and
industrial:
C&I
Commercial real estate:
CRE
Consumer real estate:
HELOC
RE installment loans
Total consumer real estate
Credit card and other
112 $
195 $
188
4 $
14 $
19
64
117
181
56
15
5
20
25
1
15
—
5
19
24
1
74
104
178
85
—
8
12
20
1
14
—
8
12
20
1
35
Total TDRs
368 $
236 $
228
267 $
35 $
The following tables present TDRs which re-defaulted during 2020 and 2019, and as to which the modification
occurred 12 months or less prior to the re-default. For purposes of this disclosure, FHN generally defines payment
default as 30 or more days past due.
(Dollars in millions)
Commercial, financial, and industrial:
C&I
Consumer real estate:
HELOC
RE installment loans
Total consumer real estate
Credit card and other
Total TDRs
2020
2019
Number
Recorded
Investment
Number
Recorded
Investment
9 $
8
18
26
24
59 $
1
—
1
1
—
2
— $
7
4
11
32
43 $
—
1
—
1
—
1
Loans Acquired with Deteriorated Credit Quality
Upon FHN's adoption of CECL, PCD loans are
recorded at an initial amortized cost, which is the sum
of the purchase price and the estimated credit losses
recorded in the ALLL. Subsequent to this initial
recognition, PCD loans are accounted for under the
same methodology as non-PCD loans.
As discussed in Note 2, on July 1, 2020, FHN and
IBKC closed their merger of equals transaction. On
July 17, 2020, First Horizon Bank completed its
purchase of 30 branches from Truist Bank. In
connection with these transactions, FHN acquired
approximately $25.9 billion in loans from IBKC and
purchased approximately $423 million of branch
loans from Truist Bank.
FIRST HORIZON CORPORATION
156
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 4 – Loans and Leases (Continued)
For PCD loans acquired or purchased during 2020, a reconciliation of the unpaid principal balance, contractual cash
flow owed to FHN at acquisition date, and purchase price is presented in the following table.
(Dollars in millions)
Par value (UPB)
Allowance for loan and lease losses
(Discount) premium
Purchase price
C&I
CRE
Consumer Real
Estate
Credit Card and
Other
Total
$
$
4,075 $
6,435 $
2,394 $
193 $
13,097
(138)
(64)
(100)
3
(44)
(32)
(5)
—
(287)
(93)
3,873 $
6,338 $
2,318 $
188 $
12,717
Purchased Credit-Impaired Loans
Before the adoption of CECL on January 1, 2020, FHN applied the guidance in ASC 310-30 to loans that were
identified as PCI loans at the acquisition date. The following table presents a rollforward of the accretable yield for
the year ended December 31, 2019 and 2018:
(Dollars in millions)
Balance, beginning of period
Accretion
Adjustment for payoffs
Adjustment for charge-offs
Increase in accretable yield (a)
Other
Balance, end of period
Year Ended December 31,
2019
2018
$
13 $
(6)
(2)
(1)
6
—
$
10 $
16
(10)
(4)
(1)
13
(1)
13
(a)
Includes changes in the accretable yield due to both transfers from the nonaccretable difference and the impact of changes
in the expected timing of the cash flows.
At December 31, 2019, the ALLL related to PCI loans
was $2 million. Net charge-offs related to PCI loans
during 2019 were $6 million, compared to $7 million
in 2018. The provision for loan losses related to PCI
loans during both 2019 and 2018 was $1 million.
The following table reflects the outstanding principal balance and carrying amounts of the acquired PCI loans as of
December 31, 2019:
(Dollars in millions)
Commercial, financial and industrial
Commercial real estate
Consumer real estate
Credit card and other
Total
December 31, 2019
Carrying value
Unpaid balance
$
$
25 $
5
23
1
54 $
26
5
26
1
58
Impaired Loans
The following tables provide additional disclosures previously required by ASC Topic 310 related to FHN's
December 31, 2019 balances. Information on impaired loans at December 31, 2019 was as follows:
FIRST HORIZON CORPORATION
157
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 4 – Loans and Leases (Continued)
(Dollars in millions)
Impaired loans with no related allowance
recorded:
Commercial:
C&I
Loans to mortgage companies
CRE
Total
Consumer:
HELOC (a)
RE installment loans (a)
Total
Impaired loans with related allowance
recorded:
Commercial:
C&I
Consumer:
HELOC
RE installment loans
Credit card and other
Total
Total commercial
Total consumer
Total impaired loans
December 31, 2019
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
$
$
$
$
$
$
$
$
$
53 $
64 $
— $
61 $
—
1
—
1
—
—
9
2
54 $
65 $
— $
72 $
5 $
7
12 $
10 $
10
20 $
— $
—
— $
7 $
8
15 $
30 $
32 $
6 $
17 $
56 $
59 $
7 $
61 $
94
1
151 $
84 $
163 $
247 $
104
1
164 $
97 $
184 $
281 $
13
—
20 $
6 $
20 $
26 $
104
1
166 $
89 $
181 $
270 $
1
—
—
1
—
—
—
—
2
3
—
5
1
5
6
(a) All discharged bankruptcy loans are charged down to an estimate of net realizable value and do not carry any allowance.
FIRST HORIZON CORPORATION
158
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 5 – Allowance for Credit Losses
Management's estimate of expected credit losses in
the loan and lease portfolios is recorded in the ALLL
and the reserve for unfunded lending commitments,
collectively the ACL. Upon adoption of CECL effective
January 1, 2020, FHN's ACL methodology changed to
estimate expected credit losses over the contractual
life of loans and leases. See Note 1 - Significant
Accounting Policies for a further discussion of FHN's
ACL methodology for periods prior to 2020.
As previously discussed, on July 1, 2020 FHN
completed the IBKC merger. This resulted in an
increase in the ACL during the third quarter of 2020 to
reflect the estimate of expected credit losses on the
acquired IBKC loan portfolio. Of the increase,
$284 million reflects the initial allowance on legacy
IBKC loans acquired with purchased credit
deterioration. See Note 2 – Acquisition and
Divestitures for discussion of the alignment of the
ACL policies.
The ACL is maintained at a level management
believes to be appropriate to absorb expected lifetime
credit losses over the contractual life of the loan and
lease portfolio and unfunded lending commitments.
The determination of the ACL is based on periodic
evaluation of the loan and lease portfolios and
unfunded lending commitments considering a number
of relevant underling factors, including key
assumptions and evaluation of quantitative and
qualitative information.
The expected loan losses are the product of
multiplying FHN’s estimates of probability of default
(PD), loss given default (LGD), and individual loan
level exposure as default (EAD) on an undiscounted
basis. FHN uses models to develop the PD and
LGD, which incorporates a single macroeconomic
forecast over a four year reasonable and supportable
forecast period. After the reasonable and supportable
forecast period, the Company immediately reverts to
its historical loss averages, evaluated over the
historical observation period, for the remaining
estimated life of the loans. FHN uses prepayment
models which project prepayments over the life of the
loans. In order to capture the unique risks of the loan
portfolio within the PD, LGD, and prepayment
models, FHN segments the portfolio into pools,
incorporating loan grades for commercial loans. FHN
uses qualitative adjustments to adjust historical loss
information in situations where current loan
characteristics differ from those in the historical loss
information and for differences in economic
conditions, macroeconomic forecasts and other
factors.
The evaluation of quantitative and qualitative
information is performed through assessments of
groups of assets that share similar risk characteristics
and certain individual loans and leases that do not
share similar risk characteristics with the collective
group. As described in Note 4 - Loans and Leases,
loans are grouped generally by product type and
significant loan portfolios are assessed for credit
losses using analytical models. The quantitative
evaluation of the adequacy of the ACL utilizes a
single economic forecast as its foundation, and is
primarily based on analytical models that use known
or estimated data as of the balance sheet date and
forecasted data over the reasonable and supportable
period. The ACL may also be affected by a variety of
qualitative factors that FHN considers to reflect
current judgment of various events and risks that are
not measured in the statistical procedures.
In accordance with its accounting policy elections,
FHN does not recognize a separate allowance for
expected credit losses for AIR and records reversals
of AIR as reductions of interest income. FHN reverses
previously accrued but uncollected interest when an
asset is placed on nonaccrual status. As of
December 31, 2020, FHN recognized approximately
$1 million in allowance for expected credit losses on
COVID-19 deferrals that do not qualify for the election
which is not reflected in the table below. AIR and the
related allowance for expected credit losses is
included as a component of other assets. The total
amount of interest reversals from loans placed on
nonaccrual status and the amount of income
recognized on nonaccrual loans during the year
ended December 31, 2020 were not material.
Expected credit losses for unfunded commitments are
estimated for periods where the commitment is not
unconditionally cancellable. The measurement of
expected credit losses for unfunded commitments
mirrors that of loans and leases with the additional
estimate of future draw rates (timing and amount).
The following table provides a rollforward of the
allowance for loan and lease losses and the reserve
for unfunded lending commitments by portfolio type
for December 31, 2020, 2019 and 2018:
FIRST HORIZON CORPORATION
159
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 5 – Allowance for Credit Losses (Continued)
(Dollars in millions)
Allowance for loan and lease losses:
Balance as of January 1, 2020
Adoption of ASU 2016-13
Balance as of January 1, 2020, as adjusted
Charge-offs (b)
Recoveries
Initial allowance on loans purchased with credit
deterioration (b)
Provision for loan and lease losses (c)
Balance as of December 31, 2020
Reserve for unfunded lending commitments:
Balance as of January 1, 2020
Adoption of ASU 2016-13
Balance as of January 1, 2020, as adjusted
Initial reserve on loans acquired
Provision for unfunded lending commitments
Balance as of December 31, 2020
Allowance for loan losses:
Balance as of January 1, 2019
Charge-offs
Recoveries
Provision (provision credit) for loan losses
Balance as of December 31, 2019
Reserve for unfunded lending commitments:
Balance as of January 1, 2019
Provision (provision credit) for unfunded lending
commitments
Balance as of December 31, 2019
Allowance for loan losses:
Balance as of January 1, 2018
Charge-offs
Recoveries
Provision (provision credit) for loan losses
Balance as of December 31, 2018
Reserve for unfunded lending commitments:
Balance as of January 1, 2018
Provision (provision credit) for unfunded lending
commitments
Commercial,
Financial, and
Industrial (a)
Commercial
Real Estate
Consumer
Real Estate
Credit Card
and Other
Total
$
123 $
36 $
28 $
13 $
19
142
(129)
9
138
293
453
4
17
21
12
32
(7)
29
(5)
4
100
114
242
2
1
3
26
(19)
93
121
(8)
18
44
67
242
—
6
6
3
1
2
15
(14)
5
5
15
26
—
—
—
—
—
65 $
10 $
10 $
— $
99 $
31 $
37 $
(34)
7
51
123
4
—
4 $
98 $
(15)
4
12
99
3
1
(1)
1
5
36
3
(1)
2 $
(8)
20
(21)
28
—
—
13 $
(16)
4
12
13
—
—
— $
— $
28 $
53 $
(1)
1
3
31
2
1
(10)
21
(27)
37
—
—
10 $
(20)
4
19
13
—
—
$
$
$
$
200
107
307
(156)
36
287
489
963
6
24
30
41
14
85
180
(59)
32
47
200
7
(1)
6
189
(46)
30
7
180
5
2
7
Balance as of December 31, 2018
$
4 $
3 $
— $
— $
(a) C&I loans as of December 31, 2020 include $4.1 billion in PPP loans which due to the government guarantee and
forgiveness provisions are considered to have no credit risk and therefore have no ALLL.
(b) The year ended December 31, 2020 excludes day 1 charge-offs and the related initial allowance on PCD loans is net of these
amounts. Under the new CECL standard, the initial ALLL recognized on PCD assets included an additional $237 million for
charged-off loans that had been written off prior to acquisition (whether full or partial) or which met FHN's charge-off policy at
the time of acquisition. After charging these amounts off immediately upon acquisition, the net impact was $287 million of
additional ALLL for PCD loans.
FIRST HORIZON CORPORATION
160
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 5 – Allowance for Credit Losses (Continued)
(c) Provision for loan and lease losses for the year ended December 31, 2020 includes $147 million recognized on non-PCD
loans from the IBKC merger and Truist branch acquisition.
The difference in the ACL as of December 31, 2020 as compared to December 31, 2019 continues to be driven by
the Company's adoption of CECL on January 1, 2020, as well as the COVID-19 pandemic and the resulting
economic impacts, including to economic forecasts. Additionally, the ACL increased during the third quarter of 2020
to reflect the estimate of expected credit losses on the acquired IBKC loan portfolio.
deferral or forbearance period ends. The analysis
was utilized to develop an additional qualitative
adjustment to increase the recorded ALLL for
consumer real estate loans. Management also made
qualitative adjustments to reflect estimated recoveries
based on a review of prior charge off and recovery
levels, for default risk associated with large balances
with individual borrowers, for estimated loss amounts
not reflected in historical factors due to specific
portfolio risk and for instances where limited data for
acquired loans is considered to affect modeled
results.
In developing credit loss estimates for its loan and
lease portfolios, FHN selected Moody’s baseline
forecast as the primary source for its macroeconomic
inputs, which included assumptions that were
generally in line with Blue Chip Economic Indicators,
including:
•
An unemployment rate of 7.4% and 6.2% for
2021 and 2022, respectively
• GDP growth rates of 4.1% and 4.7% for 2021
and 2022, respectively
•
•
No further serious business disruption related
to COVID-19, and
An unchanged target Fed funds range until
late 2023.
As there can be no certainty that actual economic
performance will precisely follow any specific
macroeconomic forecast, FHN also evaluated other
macroeconomic forecasts provided by Moody’s and
adjusted the modeled outputs through a qualitative
adjustment to account for uncertainties inherent in the
macroeconomic forecast process. Additionally, where
macroeconomic forecast variables used in the models
did not take into effect the impact of federal stimulus
and bank-supported payment deferral and
forbearance programs on the timing of grade
migration and recognition of loss content,
management adjusted model outputs qualitatively to
account for this assistance.
During the year ended December 31, 2020, FHN also
utilized targeted reviews of higher stressed loan
portfolios or industries that are most exposed to the
effects of the COVID-19 pandemic, including
Franchise Finance, Energy, Non-Profit, Arts and
Entertainment, Restaurants outside of Franchise
Finance, Nursing/Assisted Living and Hospitality
within the C&I segment and CRE-Hospitality and
CRE-Retail within the Commercial Real Estate
segment. This analysis reviewed the level of impact
from COVID-19 and the likelihood of additional
financial assistance needed beyond 180 days. This
analysis was utilized in developing qualitative
adjustments to increase the recorded ALLL
attributable to these components beyond the modeled
results. FHN reviewed consumer deferrals and
forbearance payment rates to analyze the likelihood
clients will have difficulty making payments after the
FIRST HORIZON CORPORATION
161
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 6 – Premises, Equipment, and Leases
Premises and equipment were comprised of the following at December 31, 2020 and 2019:
(Dollars in millions)
Land
Buildings
Leasehold improvements
Furniture, fixtures, and equipment
Fixed assets held for sale (a)
Total premises and equipment
Less accumulated depreciation and amortization
Premises and equipment, net
(a) Primarily comprised of land and buildings.
December 31, 2020 December 31, 2019
99
182 $
$
429
594
50
73
205
269
10
18
793
1,136
(338)
(377)
455
759 $
$
In 2020 and 2019, FHN recognized $12 million and $27 million, respectively, of fixed asset impairments and lease
abandonment charges related to branch closures which are included in Other expense on the Consolidated
Statements of Income. In 2020 and 2019, FHN had an insignifcant amount and $2 million of net gains, respectively,
related to the sales of bank branches which are included in Other income on the Consolidated Statements of
Income.
First Horizon as Lessee
FHN has operating, financing, and short-term leases for branch locations, corporate offices and certain equipment.
Substantially all of these leases are classified as operating leases.
The following table provides a detail of the classification of FHN's right-of-use assets and lease liabilities included in
the Consolidated Balance Sheets.
(Dollars in millions)
Lease Right-of-Use Assets:
Classification
December 31, 2020
December 31, 2019
Operating lease right-of use assets
Other assets
$
Finance lease right-of use assets
Other assets
Total Lease Right-of Use Assets
$
Lease Liabilities:
Operating lease liabilities
Finance lease liabilities
Total Lease Liabilities
Other liabilities $
Other liabilities
$
367 $
4
371 $
407 $
4
411 $
202
2
204
223
3
226
FIRST HORIZON CORPORATION
162
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 6 – Premises, Equipment, and Leases (Continued)
The calculated amount of the ROU assets and lease
liabilities in the table above are impacted by the
length of the lease term and the discount rate used to
present value the minimum lease payments. The
following table details the weighted average
remaining lease term and discount rate for FHN's
operating and finance leases as of December 31,
2020 and 2019.
December 31, 2020 December 31, 2019
Weighted Average Remaining Lease Terms
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
12.49 years
11.45 years
12.36 years
9.61 years
2.39 %
3.05 %
3.24 %
4.77 %
The following table provides a detail of the components of lease expense and other lease information for the years
ended December 31, 2020 and 2019:
(Dollars in millions)
Lease cost
Operating lease cost
Sublease income
Total lease cost
Other information
(Gain) loss on right-of-use asset impairment - operating leases
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases
Finance leases
2020
2019
$
$
$
39 $
(1)
38 $
6 $
41
216
2
25
—
25
3
23
48
1
The following table provides a detail of the maturities of FHN's operating and finance lease liabilities as of
December 31, 2020:
(Dollars in millions)
2021
2022
2023
2024
2025
2026 and thereafter
Total lease payments
Less lease liability interest
Total
December 31, 2020
$
$
52
49
44
40
38
257
480
(69)
411
FHN had no aggregate undiscounted contractual obligations for lease arrangements that have not commenced as
of December 31, 2020.
FIRST HORIZON CORPORATION
163
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 6 – Premises, Equipment, and Leases (Continued)
First Horizon as Lessor
As a lessor, FHN engages in the leasing of equipment
to commercial clients primarily through direct
financing and sales-type leases. Direct financing and
sales-type leases are similar to other forms of
installment lending in that lessors generally do not
retain benefits and risks incidental to ownership of the
property subject to leases. Such arrangements are
essentially financing transactions that permit lessees
to acquire and use property. As lessor, the sum of all
minimum lease payments over the lease term and the
estimated residual value, less unearned interest
income, is recorded as the net investment in the
lease on the commencement date and is included in
loans and leases in the Consolidated Balance
Sheets. Interest income is accrued as earned over
the term of the lease based on the net investment in
leases. Fees incurred to originate the lease are
deferred on the commencement date and recognized
as an adjustment of the yield on the lease.
FHN’s portfolio of direct financing and sales-type
leases contains terms of 2 to 23 years. Some of these
leases contain options to extend the leases for up to
12 months and/or to terminate the lease within one
year. These direct financing and sales-type leases
typically include a payment structure set at lease
inception and do not provide any additional services.
Expenses associated with the leased equipment,
such as maintenance and insurance, are paid by the
lessee directly to third parties. The lease agreement
typically contains an option for the purchase of the
leased property by the lessee at the end of the lease
term at either the property’s residual value or a
specified price. In all cases, FHN expects to sell or re-
lease the equipment at the end of the lease term. Due
to the nature and structure of FHN’s direct financing
and sales-type leases, there is no selling profit or loss
on these transactions.
The components of the Company’s net investment in leases as of December 31, 2020 were as follows:
(Dollars in millions)
Lease receivable
Unearned income
Guaranteed residual
Unguaranteed residual
Total net investment
$
$
535
(99)
92
68
596
For the year ended December 31, 2020, interest income for direct financing or sales-type leases totaled $10 million.
During the year ended December 31, 2020, there was no profit or loss recognized at the commencement date for
direct financing or sales-type leases.
Maturities of the Company's lease receivables as of December 31, 2020 were as follows:
(Dollars in millions)
2021
2022
2023
2024
2025
2026 and thereafter
Total future minimum lease payments
December 31, 2020
$
$
97
92
75
54
38
179
535
FIRST HORIZON CORPORATION
164
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 7 – Goodwill and Other Intangible Assets
Goodwill
On July 1, 2020, FHN completed its merger of equals
transaction with IBERIABANK Corporation. In
connection with the merger, FHN recorded a
$533 million purchase accounting gain, based on
preliminary fair value estimates.
On July 17, 2020, FHN completed its purchase of 30
branches from Truist Bank. In relation to the
acquisition, FHN recorded $78 million in goodwill,
based on preliminary fair value estimates. See Note 2
- Acquisitions and Divestitures for additional
information regarding these transactions.
FHN performed the required annual goodwill
impairment test as of October 1, 2020. The annual
impairment test did not indicate impairment in any of
FHN’s reporting units as of the testing date. Following
the testing date, management evaluated the events
and circumstances that could indicate that goodwill
might be impaired and concluded that a subsequent
interim test was not necessary.
As further discussed in Note 20 - Business Segment
Information, FHN reorganized its management
reporting structure during the fourth quarter of 2020
and, accordingly, its segment reporting structure and
goodwill reporting units. In connection with the
reorganization, management reallocated goodwill to
the new reporting units using a relative fair value
approach.
Accounting estimates and assumptions were made
about FHN’s future performance and cash flows, as
well as other prevailing market factors (e.g., interest
rates, economic trends, etc.) when determining fair
value as part of the goodwill impairment test. While
management used the best information available to
estimate future performance for each reporting unit,
future adjustments to management’s projections may
be necessary if conditions differ substantially from the
assumptions used in making the estimates.
The following table presents goodwill allocated to each reportable segment at December 31, 2020:
(Dollars in millions)
December 31, 2017
Additions
December 31, 2018
Additions
December 31, 2019
Additions
December 31, 2020
Other intangible assets
Regional
Banking
Specialty
Banking
Total
$
$
$
$
773 $
29
802 $
—
802 $
78
880 $
614 $
17
631 $
—
631 $
—
631 $
1,387
46
1,433
—
1,433
78
1,511
In connection with the IBKC merger and the Truist
branch acquisition, FHN recorded $207 million and
$7 million of core deposit intangible assets,
respectively. Core deposit intangible assets are
subject to amortization over a ten year period. In
connection with the IBKC merger, FHN recorded
$14 million of client relationship intangible assets,
$10 million of purchased credit card intangible assets,
and $10 million of title plant related to title company
operations. The following table, which excludes fully
amortized intangibles, presents other intangible
assets included in the Consolidated Balance Sheets:
FIRST HORIZON CORPORATION
165
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 7 – Goodwill and Other Intangible Assets (Continued)
(Dollars in millions)
Core deposit
intangibles
Client relationships
Other (a)
Total
Gross Carrying
Amount
December 31, 2020
Accumulated
Amortization
Net Carrying
Value
Gross Carrying
Amount
December 31, 2019
Accumulated
Amortization
Net Carrying
Value
$
$
371 $
37
41
449 $
(81) $
(8)
(6)
(95) $
290 $
29
35
354 $
157 $
78
6
241 $
(47) $
(60)
(3)
(110) $
110
18
3
131
(a)
Includes noncompete covenants and purchased credit card intangible assets. Also includes title plant intangible assets and
state banking licenses which are not subject to amortization.
Amortization expense was $40 million, $25 million,
and $26 million for the years ended December 31,
2020, 2019 and 2018, respectively. As of
December 31, 2020 the estimated aggregated
amortization expense is expected to be:
(Dollars in millions)
Year
2021
2022
2023
2024
2025
Amortization
$
56
51
48
44
37
FIRST HORIZON CORPORATION
166
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 8 – Mortgage Banking Activity
On July 1, 2020 as part of the IBKC merger, FHN
obtained IBKC mortgage banking operations which
included origination and servicing of residential first
lien mortgages that conform to standards established
by GSEs that are major investors in U.S. home
mortgages, but can also consist of junior lien loans
secured by residential property. These loans are
primarily sold to private companies that are
unaffiliated with the GSEs on a servicing-released
basis. Gains and losses on these mortgage loans are
included in mortgage banking and title income on the
Consolidated Statements of Income. Prior to the
merger, FHN’s mortgage banking operations were not
significant; however, at December 31, 2020 FHN had
approximately $55 million of loans that remained from
pre-2009 Mortgage Business operations. Activity
related to the pre-2009 mortgage loans was primarily
limited to payments and write-offs in 2020, with no
new originations or loan sales and only an
insignificant amount of repurchases and is excluded
from the disclosure below.
The following table summarizes activity relating to residential mortgage loans held for sale for the year ended
December 31, 2020:
(Dollars in millions)
Balance at beginning of period
Acquired
Originations and purchases
Sales, net of gains
Mortgage loans transferred to held for investment
Balance at end of period
Year ended December 31, 2020
$
$
4
320
2,499
(2,405)
(9)
409
Mortgage Servicing Rights
Effective with the IBKC merger, FHN made an
election to record mortgage servicing rights at the
lower of cost or market value and amortize over the
remaining servicing life of the loans, with
consideration given to prepayment assumptions.
Mortgage servicing rights are included in Other
assets on the Consolidated Balance Sheets.
Mortgage servicing rights had the following carrying
values as of the period indicated.
(Dollars in millions)
Mortgage servicing rights
Gross Carrying
Amount
December 31, 2020
Accumulated
Amortization
Net Carrying Amount
$
28 $
(3) $
25
In addition, there was an insignificant amount of non-
mortgage and commercial servicing rights as of
December 31, 2020 and 2019. Total mortgage
servicing fees included in Mortgage banking and title
income were $2 million for the years ended
December 31, 2020 and 2019.
FIRST HORIZON CORPORATION
167
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 9 – Deposits
The composition of deposits is presented in the following table:
2020
2019
$
27,324 $
(Dollars in millions)
Savings
Time deposits
Other interest-bearing deposits
Interest-bearing deposits
Noninterest-bearing
Total deposits
5,070
15,415
47,809
22,173
$
69,982 $
11,665
3,618
8,718
24,001
8,429
32,430
Time deposits that exceed the FDIC insurance limit of $250,000 at December 31, 2020 and 2019 were $1.4 billion
and $0.9 billion, respectively.
Scheduled maturities of time deposits as of December 31, 2020 were as follows:
(Dollars in millions)
2021
2022
2023
2024
2025
2026 and after
Total
$
$
3,952
776
157
91
62
32
5,070
FIRST HORIZON CORPORATION
168
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 10 – Short-Term Borrowings
A summary of short-term borrowings for the years 2020, 2019 and 2018 is presented in the following table:
(Dollars in millions)
2020
Average balance
Year-end balance
Maximum month-end outstanding
Average rate for the year
Average rate at year-end
2019
Average balance
Year-end balance
Maximum month-end outstanding
Average rate for the year
Average rate at year-end
2018
Average balance
Year-end balance
Maximum month-end outstanding
Average rate for the year
Average rate at year-end
Trading
Liabilities
Federal Funds
Purchased
Securities Sold
Under
Agreements to
Repurchase
Other Short-
term
Borrowings
$
$
$
$
$
$
457
353
983
1.24 %
0.77
503
506
754
2.48 %
2.07
683
335
891
2.83 %
3.21
$
$
$
862
845
1,487
0.34 %
0.10
738
548
1,282
2.08 %
1.55
405
257
503
1.89 %
2.50
$
$
$
1,109
1,187
1,661
0.46 %
0.26
701
717
772
1.89 %
1.72
714
763
891
1.40 %
1.66
626
166
4,061
0.92 %
0.09
538
2,253
2,276
2.34 %
2.14
1,047
115
2,229
1.82 %
2.48
Federal funds purchased and securities sold under
agreements to repurchase generally have maturities
of less than 90 days. Trading liabilities, which
represent short positions in securities, are generally
held for less than 90 days. Other short-term
borrowings have original maturities of one year or
less. On December 31, 2020, fixed income trading
securities with a fair value of $2 million were pledged
to secure other short-term borrowings.
FIRST HORIZON CORPORATION
169
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 11 – Term Borrowings
The following table presents information pertaining to term borrowings on December 31,:
(Dollars in millions)
First Horizon Bank:
Subordinated notes (a)
2020
2019
Maturity date – May 1, 2030 - 5.75% on December 31, 2020
$
447 $
Other collateralized borrowings - Maturity date – December 22, 2037
0.52% on December 31, 2020 and 2.19% on December 31, 2019 (b)
Other collateralized borrowings - SBA loans (c)
First Horizon Corporation:
Senior notes
Maturity date – December 15, 2020 – 3.50% on December 31, 2019 (d)
Maturity date – May 26, 2023 - 3.55% on December 31, 2020
Maturity date – May 26, 2025 - 4.00% on December 31, 2020
Junior subordinated debentures (e)
Maturity date - July 31, 2031 - 3.51% on December 31, 2020
Maturity date - November 15, 2032 - 3.50% on December 31, 2020
Maturity date - March 26, 2033 - 3.40% on December 31, 2020
Maturity date - June 17, 2033 - 3.40% on December 31, 2020
Maturity date - March 17, 2034 - 3.02% on December 31, 2020
Maturity date - September 20, 2034 - 2.25% on December 31, 2020
Maturity date - June 28, 2035 - 1.90% on December 31, 2020 and 3.57% on
December 31, 2019
Maturity date - December 15, 2035 - 1.59% on December 31, 2020 and 3.26% on
December 31, 2019
Maturity date - March 15, 2036 - 1.62% on December 31, 2020 and 3.29% on
December 31, 2019
Maturity date - March 15, 2036 - 1.76% on December 31, 2020 and 3.43% on
December 31, 2019
Maturity date - June 30, 2036 - 1.56% on December 31, 2020 and 3.28% on
December 31, 2019
Maturity date - July 7, 2036 - 1.79% on December 31, 2020 and 3.54% on
December 31, 2019
Maturity date - October 7, 2036 - 1.88% on December 31, 2020
Maturity date - December 30, 2036 - 1.84% on December 31, 2020
Maturity date - June 15, 2037 - 1.87% on December 31, 2020 and 3.54% on
December 31, 2019
Maturity date - September 6, 2037 - 1.66% on December 31, 2020 and 3.32% on
December 31, 2019
Maturity date - September 15, 2037 - 1.65% on December 31, 2020
Maturity date - December 15, 2037 - 2.76% on December 31, 2020
Maturity date - December 15, 2037 - 2.97% on December 31, 2020
Maturity date - June 15, 2038 - 3.72% on December 31, 2020
Notes payable - New market tax credit investments, 7 to 35 year term, 1.27% to
4.95% on December 31, 2020
FT Real Estate Securities Company, Inc.:
Cumulative preferred stock (f)
Maturity date – March 31, 2031 – 9.50%
Total
82
15
—
447
348
7
9
5
9
6
8
3
18
9
12
27
18
6
10
51
9
7
10
10
6
45
46
$
1,670 $
—
81
22
496
—
—
—
—
—
—
—
—
3
18
9
12
26
18
—
—
51
9
—
—
—
—
—
46
791
FIRST HORIZON CORPORATION
170
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 11 – Term Borrowings (Continued)
(a) Qualifies for Tier 2 capital under the risk-based capital guidelines for First Horizon Bank as well as First Horizon Corporation,
up to certain limits for minority interest capital instruments.
(b) Secured by trust preferred loans.
(c) Collateralized borrowings associated with SBA loan sales that did not meet sales criteria. The loans have remaining terms of 2
to 24 years. These borrowings had a weighted average interest rate of 3.90% and 3.95% on December 31, 2020 and 2019,
respectively.
(d) Early redeemed on November 15, 2020. Changes in the fair value of debt attributable to interest rate risk are hedged. Refer to
Note 22 – Derivatives.
(e) Acquired in conjunction with the acquisitions of CBF and merger with IBKC. A portion qualifies for Tier 2 capital under the risk-
(f)
based capital guidelines.
In 2020, a portion qualifies for Tier 2 capital under the risk-based capital guidelines for both First Horizon Bank and First
Horizon Corporation. In 2019, only a portion qualified as Tier 2 capital.
Annual principal repayment requirements as of December 31, 2020 are as follows:
(Dollars in millions)
2021
2022
2023
2024
2025 and after
$
—
—
450
—
1,274
In conjunction with its transactions, FHN obtained
junior subordinated debentures, each of which is held
by a wholly-owned trust that has issued trust
preferred securities to external investors and loaned
the funds to FHN as junior subordinated debt. The
book value for each issuance represents the
purchase accounting fair value as of the closing date
less accumulated amortization of the associated
discount, as applicable. Through various contractual
arrangements FHN assumed a full and unconditional
guarantee for each trust’s obligations with respect to
the securities. While the maturity dates are typically
30 years from the original issuance date, FHN has
the option to redeem each of the junior subordinated
debentures at par on any future interest payment
date, which would trigger redemption of the related
trust preferred securities. A portion of FHN's junior
subordinated notes qualify as Tier 2 capital under the
risk-based capital guidelines.
FIRST HORIZON CORPORATION
171
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 12 – Preferred Stock
FHN Preferred Stock
The following table presents a summary of FHN's non-cumulative perpetual preferred stock:
December 31,
2020
2019
(Dollars in
millions)
Issuance
Date
Earliest
Redemption
Date (a)
Annual
Dividend
Rate
Dividend
Payments
Shares
Outstanding
Liquidation
Amount
Carrying
Amount
Carrying
Amount
Series A
Series B
Series C
Series D
Series E
1/31/2013
4/10/2018
7/2/2020
7/2/2020
7/2/2020
8/1/2025
5/1/2026
5/1/2024
5/28/2020
10/10/2025
6.200 %
6.625 % (b)
6.600 % (c)
6.100 % (d)
6.500 %
Quarterly
Semi-annually
Quarterly
Semi-annually
Quarterly
1,000 $
100 $
96 $
8,000
5,750
10,000
1,500
80
58
100
150
77
59
93
145
26,250 $
488 $
470 $
96
—
—
—
—
96
(a) Denotes earliest optional redemption date. Earlier redemption is possible, at FHN's election, if certain regulatory capital
events occur.
(b) Fixed dividend rate will reset on August 1, 2025 to three-month LIBOR plus 4.262%
(c) Fixed dividend rate will reset on May 1, 2026 to three-month LIBOR plus 4.920%
(d) Fixed dividend rate will reset on May 1, 2024 to three-month LIBOR plus 3.859%
The Class B Preferred Shares are mandatorily
redeemable on March 31, 2031, and redeemable at
the discretion of FTRESC in the event that the
Class B Preferred Shares cannot be accounted for as
Tier 2 regulatory capital or there is more than an
insubstantial risk that dividends paid with respect to
the Class B Preferred Shares will not be fully
deductible for tax purposes.
Subsidiary Preferred Stock
First Horizon Bank has issued 300,000 shares of
Class A Non-Cumulative Perpetual Preferred Stock
(Class A Preferred Stock) with a liquidation
preference of $1,000 per share. Dividends on the
Class A Preferred Stock, if declared, accrue and are
payable each quarter, in arrears, at a floating rate
equal to the greater of the three month LIBOR plus
0.85% or 3.75% per annum. These securities qualify
fully as Tier 1 capital for First Horizon Bank, while for
FHN they qualify partially as Tier 1 capital and
partially as Tier 2 capital. On December 31, 2020 and
2019, $295 million of Class A Preferred Stock was
recognized as Noncontrolling interest on the
Consolidated Balance Sheets.
FT Real Estate Securities Company, Inc. (FTRESC),
an indirect subsidiary of FHN, has issued 50 shares
of 9.50% Cumulative Preferred Stock, Class B
(Class B Preferred Shares), with a liquidation
preference of $1 million per share; of those shares,
47 were issued to nonaffiliates. FTRESC is a real
estate investment trust established for the purpose of
acquiring, holding, and managing real estate
mortgage assets. Dividends on the Class B Preferred
Shares are cumulative and are payable semi-
annually. At December 31, 2020, the Class B
Preferred Shares partially qualified as Tier 2
regulatory capital. For all periods presented, these
securities are presented in the Consolidated Balance
Sheets as Term borrowings.
FIRST HORIZON CORPORATION
172
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 13 – Regulatory Capital and Restrictions
Regulatory Capital. FHN is subject to various
regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory,
and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct
material effect on FHN’s financial statements. Under
capital adequacy guidelines and the regulatory
framework for prompt corrective action, FHN must
meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and
certain off-balance sheet items calculated pursuant to
regulatory directives. Capital amounts and
classification are also subject to qualitative judgment
by the regulators such as capital components, asset
risk weightings, and other factors.
Management believes that, as of December 31, 2020,
FHN and First Horizon Bank met all capital adequacy
requirements to which they were subject. As of
December 31, 2020, First Horizon Bank was
classified as well-capitalized under the regulatory
framework for prompt corrective action. To be
categorized as well-capitalized, an institution must
maintain minimum Total Risk-Based, Tier 1 Risk-
Based, Common Equity Tier 1 and Tier 1 Leverage
ratios as set forth in the following table. Management
believes that no events or changes have occurred
subsequent to year-end that would change this
designation.
Quantitative measures established by regulation to
ensure capital adequacy require FHN to maintain
minimum ratios as set forth in the following table.
FHN and First Horizon Bank are also subject to a
2.5% capital conservation buffer which is an amount
above the minimum levels designed to ensure that
banks remain well-capitalized, even in adverse
economic scenarios.
FIRST HORIZON CORPORATION
173
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 13 – Regulatory Capital and Restrictions (Continued)
The actual capital amounts and ratios of FHN and First Horizon Bank are presented in the table below.
(Dollars in millions)
On December 31, 2020
Actual:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
Minimum Requirement for Capital Adequacy
Purposes:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
Minimum Requirement to be Well Capitalized
Under Prompt Corrective Action Provisions:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
On December 31, 2019
Actual:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
Minimum Requirement for Capital Adequacy
Purposes:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
Minimum Requirement to be Well Capitalized
Under Prompt Corrective Action Provisions:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
First Horizon Corporation
Ratio
Amount
First Horizon Bank
Amount
Ratio
$
$
7,935
6,782
6,110
6,782
5,051
3,788
2,841
3,294
4,155
3,761
3,409
3,761
2,964
2,223
1,667
1,663
12.57 % $
10.74
9.68
8.24
8.00
6.00
4.50
4.00
11.22 % $
10.15
9.20
9.04
8.00
6.00
4.50
4.00
7,819
6,825
6,530
6,825
5,001
3,751
2,813
3,268
6,251
5,001
4,063
4,085
3,945
3,729
3,434
3,729
2,930
2,198
1,648
1,635
3,663
2,930
2,381
2,043
12.52 %
10.93
10.46
8.36
8.00
6.00
4.50
4.00
10.00
8.00
6.50
5.00
10.77 %
10.18
9.38
9.12
8.00
6.00
4.50
4.00
10.00
8.00
6.50
5.00
FIRST HORIZON CORPORATION
174
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 13 – Regulatory Capital and Restrictions (Continued)
Restrictions on cash and due from banks. Under
the Federal Reserve Act and Regulation D, First
Horizon Bank is required to maintain a certain amount
of cash reserves. However, as a result of the
COVID-19 pandemic, the Fed announced it has
reduced its reserve requirement to zero, and as a
result, on December 31, 2020, First Horizon Bank
was not required to maintain cash reserves after the
consideration of $397 million in average vault cash.
On December 31, 2019, First Horizon Bank's net
required reserves were $396 million. The remaining
net reserve requirement was met with Federal
Reserve Bank deposits.
Restrictions on dividends. Cash dividends are paid
by FHN from its assets, which are mainly provided by
dividends from its subsidiaries. Certain regulatory
restrictions exist regarding the ability of First Horizon
Bank to transfer funds to FHN in the form of cash,
dividends, loans, or advances. As of December 31,
2020, First Horizon Bank had undivided profits of $1.8
billion, of which a limited amount was available for
distribution to FHN as dividends without prior
regulatory approval. At any given time, the pertinent
portions of those regulatory restrictions allow First
Horizon Bank to declare preferred or common
dividends without prior regulatory approval in an
amount equal to First Horizon Bank's retained net
income for the two most recent completed years plus
the current year to date. For any period, First Horizon
Bank’s ‘retained net income’ generally is equal to First
Horizon Bank’s regulatory net income reduced by the
preferred and common dividends declared by First
Horizon Bank. Applying the dividend restrictions
imposed under applicable federal and state rules,
First Horizon Bank’s total amount available for
dividends was $897 million at January 1, 2021. First
Horizon Bank declared and paid common dividends
to the parent company in the amount of $180 million
in 2020 and $345 million in 2019. During 2020 and
2019, First Horizon Bank declared and paid dividends
on its preferred stock according to the payment terms
of its issuances as noted in Note 12 - Preferred
Stock.
The payment of cash dividends by FHN and First
Horizon Bank may also be affected or limited by other
factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
Furthermore, the Federal Reserve generally requires
insured banks and bank holding companies only to
pay dividends out of current operating earnings.
Restrictions on intercompany transactions. Under
current Federal banking laws, First Horizon Bank may
not enter into covered transactions with any affiliate
including the parent company and certain financial
subsidiaries in excess of 10% of the bank’s capital
stock and surplus, as defined, or $804 million, on
December 31, 2020. Covered transactions include a
loan or extension of credit to an affiliate, a purchase
of or an investment in securities issued by an affiliate
and the acceptance of securities issued by the
affiliate as collateral for any loan or extension of
credit. The equity investment, including retained
earnings, in certain of a bank’s financial subsidiaries
is also treated as a covered transaction. On
December 31, 2020, the parent company had
covered transactions of less than $1 million from First
Horizon Bank and two of the bank’s financial
subsidiaries, FHN Financial Securities Corp. and First
Horizon Advisors, Inc., had covered transactions from
First Horizon Bank totaling $394 million and $42
million, respectively. In addition, the aggregate
amount of covered transactions with all affiliates, as
defined, is limited to 20% of the bank’s capital stock
and surplus, as defined, or $1.6 billion, on
December 31, 2020. First Horizon Bank’s total
covered transactions with all affiliates including the
parent company on December 31, 2020 were $436
million.
FIRST HORIZON CORPORATION
175
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 14 – Components of Other Comprehensive Income (Loss)
The following table provides the changes in accumulated other comprehensive income (loss) by component, net of
tax, for the years ended December 31, 2020, 2019, and 2018:
(Dollars in millions)
Balance as of December 31, 2017
Adjustment to reflect adoption of ASU 2018-02
Balance as of December 31, 2017, as adjusted
Net unrealized gains (losses)
Amounts reclassified from AOCI
Other comprehensive income (loss)
Balance as of December 31, 2018
Net unrealized gains (losses)
Amounts reclassified from AOCI
Other comprehensive income (loss)
Balance as of December 31, 2019
Net unrealized gains (losses)
Amounts reclassified from AOCI
Other comprehensive income (loss)
Balance as of December 31, 2020
Securities AFS
$
(22) $
(5)
(27)
(49)
—
(49)
(76)
107
—
107
31
74
3
77
$
108 $
Cash Flow
Hedges
Pension and
Post-retirement
Plans
Total
(6) $
(2)
(8)
(6)
2
(4)
(12)
11
4
15
3
15
(6)
9
12 $
(237) $
(51)
(288)
(9)
9
—
(288)
8
7
15
(273)
3
10
13
(260) $
(265)
(58)
(323)
(64)
11
(53)
(376)
126
11
137
(239)
92
7
99
(140)
Reclassifications from AOCI, and related tax effects, were as follows:
(Dollars in millions)
Details about AOCI
Securities AFS:
2020
2019
2018
Affected line item in the
statement where net income is
presented
Realized (gains) losses on securities AFS
$
4 $ — $ — Securities gains (losses), net
Tax expense (benefit)
Cash flow hedges:
Realized (gains) losses on cash flow
hedges
Tax expense (benefit)
Pension and Postretirement Plans:
Amortization of prior service cost and net
actuarial (gain) loss
Tax expense (benefit)
(1)
3
—
—
—
—
Income tax expense
(8)
5
Interest and fees on loans and
leases
3
2
(6)
(1)
(1) Income tax expense
4
2
13
10
12 All other expense
(3)
(3)
(3) Income tax expense
Total reclassification from AOCI
10
7
$
7 $
11 $
9
11
FIRST HORIZON CORPORATION
176
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 15 – 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:
(Dollars in millions)
Consolidated Statements of Income:
Income tax expense
Consolidated Statements of Changes in Equity:
Income tax expense (benefit) related to:
2020
2019
2018
$
76 $
134 $
157
Net unrealized gains on pension and other postretirement plans
Net unrealized gains (losses) on securities available for sale
Net unrealized gains (losses) on cash flow hedges
Total
3
25
3
107 $
5
35
5
179 $
$
The components of income tax expense (benefit) for the years ended December 31, were as follows:
(Dollars in millions)
Current:
Federal
State
Deferred:
Federal
State
Total
2020
2019
2018
$
$
80 $
14
(15)
(3)
76 $
106 $
14
5
9
134 $
—
(16)
(1)
140
43
10
82
22
157
The TCJA was signed into law at the end of 2017 and
companies were provided up to a year to complete
their assessment of its effects. In 2018, FHN
recorded a tax benefit of $7 million related to the
finalization of tax items for the 2017 tax return.
A reconciliation of expected income tax expense (benefit) at the federal statutory rate of 21% for 2020, 2019, and
2018, respectively to the total income tax expense follows:
(Dollars in millions)
Federal income tax rate
Tax computed at statutory rate
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit
Bank-owned life insurance
401(k) – employee stock ownership plan
Tax-exempt interest
Non-deductible expenses
LIHTC credits and benefits, net of amortization
Other tax credits
Other changes in unrecognized tax benefits
Purchase accounting gain
Effect of TCJA
Other
2020
21%
2019
21%
2018
21%
$
196 $
123 $
151
9
(6)
(1)
(8)
13
(9)
(5)
(9)
(112)
—
8
15
(5)
(1)
(6)
11
(4)
—
4
—
—
(3)
134 $
25
(4)
(1)
(7)
8
(7)
(3)
6
—
(7)
(4)
157
Total
$
76 $
FIRST HORIZON CORPORATION
177
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 15 – Income Taxes (Continued)
As of December 31, 2020, FHN had net deferred tax asset balances related to federal and state income tax
carryforwards of $47 million and $9 million, respectively, which will expire at various dates as follows:
(Dollars in millions)
Losses - federal
Net operating losses - states
Credits - federal
Expiration
Dates
2026 - 2035
2026 - 2040
2040
Net Deferred Tax
Asset Balance
$
44
9
3
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 pretax 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, 2020, FHN's net DTA was less
than $1 million compared to $69 million at
December 31, 2019. At December 31, 2020, FHN's
gross DTA (net of a valuation allowance) and gross
DTL were $471 million and $471 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, 2020 and
2019 were as follows:
(Dollars in millions)
Deferred tax assets:
Loss reserves
Employee benefits
Accrued expenses
Lease liability
Federal loss carryforwards
State loss carryforwards
Other
Gross deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Investment in debt securities (ASC 320) (a)
Equity investments
Other intangible assets
Prepaid expenses
ROU lease asset
Leasing
Other
Gross deferred tax liabilities
Net deferred tax assets
2020
2019
$
205 $
86
7
100
44
9
20
471
83 $
35
11
93
15
89
135
10
471
— $
$
$
58
68
4
56
44
1
19
250
51
10
4
56
10
50
—
—
181
69
(a) Tax effects of unrealized gains and losses are tracked on a security-by-security basis.
FIRST HORIZON CORPORATION
178
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 15 – Income Taxes (Continued)
The total unrecognized tax benefits at December 31,
2020 and 2019, was $70 million and $24 million,
respectively. To the extent such unrecognized tax
benefits as of December 31, 2020 are subsequently
recognized, $29 million of tax benefits could impact
tax expense and FHN’s effective tax rate in future
periods.
FHN is currently in audit in several jurisdictions. It is
reasonably possible that the unrecognized tax
benefits related to federal and state exposures could
decrease by $44 million and $7 million, respectively,
during 2021 if audits are completed and settled and if
The rollforward of unrecognized tax benefits is shown below:
(Dollars in millions)
Balance at December 31, 2018
Increases related to prior year tax positions
Increases related to current year tax positions
Lapse of statutes
Balance at December 31, 2019
Increases related to prior year tax positions
Increases related to current year tax positions
Settlements
Lapse of statutes
Balance at December 31, 2020
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 $11 million and $3
million accrued for the payment of interest as of
December 31, 2020 and 2019, respectively. The total
amount of interest and penalties recognized in the
Consolidated Statements of Income during 2020 and
2019 was an expense of $8 million and $1 million,
respectively.
$
$
$
20
3
2
(1)
24
56
1
(10)
(1)
70
FIRST HORIZON CORPORATION
179
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 16 – Earnings Per Share
The following table provides reconciliations of net income to net income available to common shareholders and the
difference between average basic common shares outstanding and average diluted common shares outstanding:
(Dollars in millions, except per share data, shares in thousands)
Net income
Net income attributable to noncontrolling interest
Net income attributable to controlling interest
Preferred stock dividends
Net income available to common shareholders
Weighted average common shares outstanding—basic
Effect of dilutive securities
Weighted average common shares outstanding—diluted
Basic earnings per common share
Diluted earnings per common share
2020
2019
2018
857 $
12
845
23
822 $
452 $
11
441
6
435 $
432,125
1,829
433,954
313,637
2,020
315,657
1.90 $
1.89 $
1.39 $
1.38 $
557
12
545
6
539
324,375
3,070
327,445
1.66
1.65
$
$
$
$
The following table presents outstanding options and other equity awards that were excluded from the calculation of
diluted earnings per share because they were either anti-dilutive (the exercise price was higher than the weighted-
average market price for the period) or the performance conditions have not been met:
(Shares in thousands)
Stock options excluded from the calculation of diluted EPS
Weighted average exercise price of stock options excluded
from the calculation of diluted EPS
Other equity awards excluded from the calculation of diluted
EPS
2020
2019
2018
4,595
2,359
2,256
$
17.47 $
21.12 $
24.33
3,639
2,224
608
FIRST HORIZON CORPORATION
180
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 17 – Contingencies and Other Disclosures
CONTINGENCIES
Contingent Liabilities Overview
Contingent liabilities arise in the ordinary course of
business. Often they are related to lawsuits,
arbitration, mediation, and other forms of litigation.
Various litigation matters are threatened or pending
against FHN and its subsidiaries. Also, FHN at times
receives requests for information, subpoenas, or
other inquiries from federal, state, and local
regulators, from other government authorities, and
from other parties concerning various matters relating
to FHN’s current or former businesses. Certain
matters of that sort are pending at most times, and
FHN generally cooperates when those matters arise.
Pending and threatened litigation matters sometimes
are settled by the parties, and sometimes pending
matters are resolved in court or before an arbitrator,
or are withdrawn. Regardless of the manner of
resolution, frequently the most significant changes in
status of a matter occur over a short time period,
often following a lengthy period of little substantive
activity. In view of the inherent difficulty of predicting
the outcome of these matters, particularly where the
claimants seek very large or indeterminate damages,
or where the cases present novel legal theories or
involve a large number of parties, or where claims or
other actions may be possible but have not been
brought, FHN cannot reasonably determine what the
eventual outcome of the matters will be, what the
timing of the ultimate resolution of these matters may
be, or what the eventual loss or impact related to
each matter may be. FHN establishes a loss
contingency liability for a litigation matter when loss is
both probable and reasonably estimable as
prescribed by applicable financial accounting
guidance. If loss for a matter is probable and a range
of possible loss outcomes is the best estimate
available, accounting guidance requires a liability to
be established at the low end of the range.
Based on current knowledge, and after consultation
with counsel, management is of the opinion that loss
contingencies related to threatened or pending
litigation matters should not have a material adverse
effect on the consolidated financial condition of FHN,
but may be material to FHN’s operating results for
any particular reporting period depending, in part, on
the results from that period.
Material Loss Contingency Matters
Summary
As used in this Note, except for matters that are
reported as having been substantially settled or
otherwise substantially resolved, FHN's “material loss
contingency matters” generally fall into at least one of
the following categories: (i) FHN has determined
material loss to be probable and has established a
material loss liability in accordance with applicable
financial accounting guidance; (ii) FHN has
determined material loss to be probable but is not
reasonably able to estimate an amount or range of
material loss liability; or (iii) FHN has determined that
material loss is not probable but is reasonably
possible, and the amount or range of that reasonably
possible material loss is estimable. As defined in
applicable accounting guidance, loss is reasonably
possible if there is more than a remote chance of a
material loss outcome for FHN. FHN provides
contingencies note disclosures for certain pending or
threatened litigation matters each quarter, including
all matters mentioned in categories (i) or (ii) and,
occasionally, certain matters mentioned in category
(iii). In addition, in this Note, certain other matters, or
groups of matters, are discussed relating to FHN’s
pre-2009 mortgage origination and servicing
businesses. In all litigation matters discussed in this
Note, unless settled or otherwise resolved, FHN
believes it has meritorious defenses and intends to
pursue those defenses vigorously.
FHN reassesses the liability for litigation matters each
quarter as the matters progress. At December 31,
2020, the aggregate amount of liabilities established
for all such loss contingency matters was $1 million.
These liabilities are separate from those discussed
under the heading Mortgage Loan Repurchase and
Foreclosure Liability below.
In each material loss contingency matter, except as
otherwise noted, there is more than a remote chance
that any of the following outcomes will occur: the
plaintiff will substantially prevail; the defense will
substantially prevail; the plaintiff will prevail in part; or
the matter will be settled by the parties. At December
31, 2020, FHN estimates that for all material loss
contingency matters, estimable reasonably possible
losses in future periods in excess of currently
established liabilities could aggregate in a range from
zero to less than $1 million.
As a result of the general uncertainties discussed
above and the specific uncertainties discussed for
each matter mentioned below, it is possible that the
FIRST HORIZON CORPORATION
181
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 17 - Contingencies and Other Disclosures (Continued)
ultimate future loss experienced by FHN for any
particular matter may materially exceed the amount, if
any, of currently established liability for that matter.
Material Matters
A former shareholder of CBF has filed a putative
class action suit, Searles v. DeMartini et al, No.
2020-0136 (Del. Chancery), against certain former
directors, officers, and shareholders of CBF, alleging,
among other things, that defendants breached certain
fiduciary duties in connection with CBF's merger with
FHN in 2017. Plaintiff claims unspecified damages
related to the merger consideration and opportunity
loss. FHN is unable to estimate an RPL range for this
matter due to significant uncertainties regarding:
whether a class will be certified and, if so, the
composition of the class; the amount of potential
damages that might be awarded, if any; of any such
damages amount, the amount that FHN would be
obliged to indemnify; the availability of applicable
insurance; and the outcome of discovery.
Exposures from pre-2009 Mortgage Business
FHN is contending with indemnification claims related
to "other whole loans sold," which were mortgage
loans originated by FHN before 2009 and sold
outside of an FHN securitization. These claims
generally assert that FHN-originated loans
contributed to losses in connection with mortgage
loans securitized by the buyer of the loans. The
claims generally do not include specific deficiencies
for specific loans sold by FHN. Instead, the claims
generally assert that FHN is liable for a share of the
claimant's loss estimated by assessing the totality of
the other whole loans sold by FHN to claimant in
relation to the totality of the larger number of loans
securitized by claimant. FHN is unable to estimate an
RPL range for these matters due to significant
uncertainties regarding: the number of, and the facts
underlying, the loan originations which claimants
assert are indemnifiable; the applicability of FHN’s
contractual indemnity covenants to those facts and
originations; and, in those cases where an indemnity
claim may be supported, whether any legal defenses,
counterclaims, other counter-positions, or third-party
claims might eliminate or reduce claims against FHN
or their impact on FHN.
FHN also has indemnification claims related to
servicing obligations. The most significant is from
Nationstar Mortgage LLC, currently doing business as
“Mr. Cooper.” Nationstar was the purchaser of FHN’s
mortgage servicing obligations and assets in 2013
and 2014 and, was FHN’s subservicer. Nationstar
asserts several categories of indemnity obligations in
connection with mortgage loans under the
subservicing arrangement and under the purchase
transaction. This matter currently is not in litigation,
but litigation in the future is possible. FHN is unable to
estimate an RPL range for this matter due to
significant uncertainties regarding: the exact nature of
each of Nationstar’s claims and its position in respect
of each; the number of, and the facts underlying, the
claimed instances of indemnifiable events; the
applicability of FHN’s contractual indemnity
covenants to those facts and events; and, in those
cases where the facts and events might support an
indemnity claim, whether any legal defenses,
counterclaims, other counter-positions, or third-party
claims might eliminate or reduce claims against FHN
or their impact on FHN.
FHN has additional potential exposures related to its
pre-2009 mortgage businesses. A few of those
matters have become litigation which FHN currently
estimates are immaterial, some are non-litigation
claims or threats, some are mere subpoenas or other
requests for information, and in some areas FHN has
no indication of any active or threatened dispute.
Some of those matters might eventually result in
settlements, and some might eventually result in
adverse litigation outcomes, but none are included in
the material loss contingency liabilities mentioned
above or in the RPL range mentioned above.
Mortgage Loan Repurchase and Foreclosure Liability
FHN’s repurchase and foreclosure liability, primarily
related to its pre-2009 mortgage businesses, is
comprised of accruals to cover estimated loss content
in the active pipeline (consisting of mortgage loan
repurchase, make-whole, foreclosure/servicing
demands and certain related exposures), estimated
future inflows, and estimated loss content related to
certain known claims not currently included in the
active pipeline. FHN compares the estimated
probable incurred losses determined under the
applicable loss estimation approaches for the
respective periods with current reserve levels.
Changes in the estimated required liability levels are
recorded as necessary through the repurchase and
foreclosure provision.
Based on currently available information and
experience to date, FHN has evaluated its loan
repurchase, make-whole, foreclosure, and certain
related exposures and has accrued for losses of $16
million and $15 million as of December 31, 2020 and
December 31, 2019, respectively. Accrued liabilities
for FHN’s estimate of these obligations are reflected
in Other liabilities on the Consolidated Balance
Sheets. Charges/expense reversals to increase/
decrease the liability are included within Other
income on the Consolidated Statements of Income.
FIRST HORIZON CORPORATION
182
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 17 - Contingencies and Other Disclosures (Continued)
The estimates are based upon currently available
information and fact patterns that exist as of each
balance sheet date and could be subject to future
changes. Changes to any one of these factors could
significantly impact the estimate of FHN’s liability.
The extent of FHN’s obligations under these
agreements depends upon the occurrence of future
events; therefore, it is not possible to estimate a
maximum potential amount of payouts that could be
required by such agreements.
OTHER DISCLOSURES
Indemnification Agreements and Guarantees
In the ordinary course of business, FHN enters into
indemnification agreements for legal proceedings
against its directors and officers and standard
representations and warranties for underwriting
agreements, merger and acquisition agreements,
loan sales, contractual commitments, and various
other business transactions or arrangements.
FIRST HORIZON CORPORATION
183
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 18 – Pension, Savings, and Other Employee Benefits
Pension plan. FHN sponsors a noncontributory,
qualified defined benefit pension plan to employees
hired or re-hired on or before September 1, 2007.
Pension benefits are based on years of service,
average compensation near retirement or other
termination, and estimated social security benefits at
age 65. Benefits under the plan are “frozen” so that
years of service and compensation changes after
2012 do not affect the benefit owed. Minimum
contributions are based upon actuarially determined
amounts necessary to fund the total benefit
obligation. Decisions to contribute to the plan are
based upon pension funding requirements under the
Pension Protection Act, the maximum amount
deductible under the Internal Revenue Code, the
actual performance of plan assets, and trends in the
regulatory environment. FHN made no contributions
to the qualified pension plan in 2020 and 2019, and
made an insignificant contribution to the qualified
pension plan in 2018. Management does not currently
anticipate that FHN will make a contribution to the
qualified pension plan in 2021.
FHN also maintains non-qualified plans including a
supplemental retirement plan that covers certain
employees whose benefits under the qualified
pension plan have been limited by tax rules. These
other non-qualified plans are unfunded, and
contributions to these plans cover all benefits paid
under the non-qualified plans. Payments made under
the non-qualified plans were $5 million for 2020. FHN
anticipates making benefit payments under the non-
qualified plans of $5 million in 2021.
Savings plan. FHN provides all qualifying full-time
employees with the opportunity to participate in
FHN's tax qualified 401(k) savings plan. The qualified
plan allows employees to defer receipt of earned
salary, up to tax law limits, on a tax-advantaged
basis. Accounts, which are held in trust, may be
invested in a wide range of mutual funds and in FHN
common stock. Up to tax law limits, FHN provides a
100 percent match for the first 6 percent of salary
deferred, with company matching contributions
invested according to a participant’s current
investment election. Through a non-qualified savings
restoration plan, FHN provides a restorative benefit to
certain highly-compensated employees who
participate in the savings plan and whose contribution
elections are capped by tax limitations.
FHN also provides “flexible dollars” to assist
employees with the cost of annual benefits and/or
allow the employee to contribute to his or her
qualified savings plan account. These “flexible
dollars” are pre-tax contributions and are based upon
the employees’ years of service and qualified
compensation. Contributions made by FHN through
the flexible benefits plan and the company matches
were $37 million for 2020, $28 million for 2019, and
$29 million for 2018.
Other employee benefits. FHN provides
postretirement life insurance benefits to certain
employees and also provides postretirement medical
insurance benefits to retirement-eligible employees.
The postretirement medical plan is contributory with
FHN contributing a fixed amount for certain
participants. FHN’s postretirement benefits include
certain prescription drug benefits.
Actuarial assumptions. FHN’s process for
developing the long-term expected rate of return of
pension plan assets is based on capital market
exposure as the source of investment portfolio
returns. Capital market exposure refers to the plan’s
allocation of its assets to asset classes, which
primarily represent fixed income investments. FHN
also considers expectations for inflation, real interest
rates, and various risk premiums based primarily on
the historical risk premium for each asset class. The
expected return is based upon a time horizon of thirty
years. Given its funded status, the asset allocation
strategy for the qualified pension plan utilizes fixed
income instruments that closely match the estimated
duration of payment obligations. Consequently, FHN
selected a 3.45% assumption for 2020 for the
qualified defined benefit pension plan and a 0.90%
assumption for postretirement medical plan assets
dedicated to employees who retired prior to January
1, 1993. FHN selected a 6.40% assumption for 2020
for postretirement medical plan assets dedicated to
employees who retired after January 1, 1993.
The discount rates for the three years ended 2020 for
pension and other benefits were determined by using
a hypothetical AA yield curve represented by a series
of annualized individual discount rates from one-half
to thirty years. The discount rates are selected based
upon data specific to FHN’s plans and employee
population. The bonds used to create the hypothetical
yield curve were subjected to several requirements to
ensure that the resulting rates were representative of
the bonds that would be selected by management to
fulfill the company’s funding obligations. In addition to
the AA rating, only non-callable bonds were included.
Each bond issue was required to have at least $300
million par outstanding so that each issue was
sufficiently marketable. Finally, bonds more than two
standard deviations from the average yield were
removed. When selecting the discount rate, FHN
FIRST HORIZON CORPORATION
184
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 18 – Pension, Savings, and Other Employee Benefits (Continued)
matches the duration of high quality bonds with the
duration of the obligations of the plan as of the
measurement date. For all years presented, the
measurement date of the benefit obligations and net
periodic benefit costs was December 31.
The actuarial assumptions used in the defined benefit pension plans and other employee benefit plans were as
follows:
2020
Benefit Obligations
2019
2018
2020
Net Periodic Benefit Cost
2019
2018
Discount rate
Qualified pension
2.63%
2.24%
3.31%
3.08%
4.43%
4.26%
3.31%
3.08%
4.43%
4.26%
3.75%
3.59%
Nonqualified
pension
Other
nonqualified
pension
Postretirement
benefits
Expected long-
term rate of
return
Qualified pension/
postretirement
benefits
Postretirement
benefit (retirees
post
January 1, 1993)
Postretirement
benefit (retirees
prior to
January 1, 1993)
1.41%
2.57%
3.83%
2.57%
3.83%
3.19%
1.92%-2.81% 2.85% - 3.44% 4.03% - 4.56% 2.87%-3.44% 4.04% - 4.56% 3.35% - 3.87%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
3.45%
4.80%
4.20%
N/A
6.40%
6.85%
5.95%
N/A
0.90%
0.05%
2.15%
Since the benefits in the defined benefit pension plan are frozen, the rate of compensation increase has no effect on
qualified pension benefits.
FHN has one pension plan where participants' benefits are affected by interest crediting rates. The plan's projected
benefit obligation as of December 31, 2020, 2019 and 2018 and interest crediting rates for the respective years are:
(Dollars in millions)
Projected benefit obligation
Interest crediting rate
2020
2019
2018
$
15
$
16
$
17
8.2 %
9.66 %
10.12 %
FIRST HORIZON CORPORATION
185
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 18 – Pension, Savings, and Other Employee Benefits (Continued)
The components of net periodic benefit cost for the plan years 2020, 2019 and 2018 were as follows:
(Dollars in millions)
Components of net periodic
benefit cost
Interest cost
Expected return on plan assets
Amortization of unrecognized:
Actuarial (gain) loss
Net periodic benefit cost
$
$
Pension Benefits
2019
2020
2018
2020
Other Benefits
2019
2018
24 $
(26)
30 $
(37)
28 $
(33)
13
11 $
10
12
3 $
7 $
1 $
(1)
—
— $
1 $
(1)
—
— $
1
(1)
—
—
The long-term expected rate of return is applied to the
market-related value of plan assets in determining the
expected return on plan assets. FHN determines the
market-related value of plan assets using a calculated
value that recognizes changes in the fair value of plan
assets over five years, as permitted by GAAP.
FHN utilizes a spot rate approach which applies
duration-specific rates from the full yield curve to
estimated future benefit payments for the
determination of interest cost.
The following tables set forth the plans’ benefit obligations and plan assets for 2020 and 2019:
(Dollars in millions)
Change in benefit obligation
Benefit obligation, beginning of year
Interest cost
Plan amendments
Actuarial (gain) loss (a)
Actual benefits paid
Premium paid for annuity purchase (b)
Benefit obligation, end of year
Change in plan assets
Fair value of plan assets, beginning of year
Actual return on plan assets
Employer contributions
Actual benefits paid – settlement payments
Actual benefits paid – other payments
Premium paid for annuity purchase (b)
Fair value of plan assets, end of year
Funded (unfunded) status of the plans
Amounts recognized in the Balance
Sheets
Other assets
Other liabilities
Net asset (liability) at end of year
$
$
$
$
$
$
$
Pension Benefits
Other Benefits
2020
2019
2020
2019
836 $
24
—
70
(37)
—
893 $
826 $
103
4
(36)
(1)
—
896 $
3 $
40 $
(37)
3 $
765 $
30
—
103
(38)
(24)
836 $
731 $
154
3
—
(38)
(24)
826 $
(10) $
27 $
(37)
(10) $
42 $
1
—
4
(1)
—
46 $
20 $
3
1
(1)
—
—
23 $
(23) $
20 $
(43)
(23) $
35
1
1
7
(2)
—
42
18
3
1
(2)
—
—
20
(22)
18
(40)
(22)
(a) Variances in the actuarial (gain) loss are due to normal activity such as changes in discount rates, updates to participant
demographic information and revisions to life expectancy assumptions.
(b) 2019 amounts represent settlements of certain retired participants in the qualified pension plan that occurred during the
year.
FIRST HORIZON CORPORATION
186
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 18 – Pension, Savings, and Other Employee Benefits (Continued)
The projected benefit obligation for unfunded plans was as follows:
(Dollars in millions)
Projected benefit obligation
Pension Benefits
Other Benefits
2020
2019
2020
2019
$
37 $
37 $
43 $
39
The qualified pension plan was overfunded as of
December 31, 2020 by $41 million. Because of the
pension freeze as of the end of 2012, the pension
benefit obligation and the accumulated benefit
obligation are the same as of December 31, 2020 and
2019. The qualified pension plan was overfunded as
of December 31, 2019 by $27 million. FHN's funded
post retirement plan was also in an overfunded status
as of December 31, 2020 and 2019.
Unrecognized actuarial gains and losses and unrecognized prior service costs and credits are recognized as a
component of accumulated other comprehensive income. Balances reflected in accumulated other comprehensive
income on a pre-tax basis for the years ended December 31, 2020 and 2019 consist of:
(Dollars in millions)
Amounts recognized in accumulated other
comprehensive income
Net actuarial (gain) loss
Pension Benefits
2020
2019
Other Benefits
2020
2019
$
342 $
363 $
1 $
(2)
The pre-tax amounts recognized in other comprehensive income during 2020 and 2019 were as follows:
(Dollars in millions)
Changes in plan assets and benefit
obligation recognized in other
comprehensive income
Net actuarial (gain) loss arising during
measurement period
Items amortized during the measurement
period:
Pension Benefits
2020
2019
Other Benefits
2020
2019
$
(8) $
(14) $
3 $
Net actuarial gain (loss)
(13)
(10)
—
Total recognized in other comprehensive
income
$
(21) $
(24) $
3 $
5
—
5
FHN utilizes the minimum amortization method in
determining the amount of actuarial gains or losses to
include in plan expense. Under this approach, the net
deferred actuarial gain or loss that exceeds a
threshold is amortized over the average remaining
service period of active plan participants. The
threshold is measured as the greater of: 10 percent of
a plan’s projected benefit obligation as of the
beginning of the year or 10 percent of the market
related value of plan assets as of the beginning of the
year. FHN amortizes actuarial gains and losses using
the estimated average remaining life expectancy of
the remaining participants since all participants are
considered inactive due to the freeze.
The following table provides detail on expected benefit payments, which reflect expected future service, as
appropriate:
(Dollars in millions)
2021
2022
2023
2024
2025
2026-2030
$
Pension
Benefits
Other
Benefits
41 $
41
43
44
45
231
2
2
2
2
2
12
FIRST HORIZON CORPORATION
187
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 18 – Pension, Savings, and Other Employee Benefits (Continued)
Plan assets. FHN’s overall investment goal is to
create, over the life of the pension plan and retiree
medical plan, an adequate pool of sufficiently liquid
assets to support the qualified pension benefit
obligations to participants, retirees, and beneficiaries,
as well as to partially support the medical obligations
to retirees and beneficiaries. Thus, the qualified
pension plan and retiree medical plan seek to achieve
a level of investment return consistent with changes
in projected benefit obligations.
Qualified pension plan assets primarily consist of
fixed income securities which include U.S. treasuries,
corporate bonds of companies from diversified
industries, municipal bonds, and foreign bonds. Fixed
income investments generally have long durations
consistent with the estimated pension liabilities of
FHN. This duration-matching strategy is intended to
hedge substantially all of the plan’s risk associated
with future benefit payments. Retiree medical funds
are kept in short-term investments, primarily money
market funds and mutual funds. On December 31,
2020 and 2019, FHN did not have any significant
concentrations of risk within the plan assets related to
the pension plan or the retiree medical plan.
The fair value of FHN’s pension plan assets at
December 31, 2020 and 2019, by asset category
classified using the Fair Value measurement
hierarchy is shown in the table below. See Note 24 –
Fair Value of Assets and Liabilities for more details
about fair value measurements.
(Dollars in millions)
Cash equivalents and money market funds $
Fixed income securities:
U.S. treasuries
Corporate, municipal and foreign bonds
Common and collective funds:
Fixed income
Total
$
(Dollars in millions)
Cash equivalents and money market funds $
Fixed income securities:
U.S. treasuries
Corporate, municipal and foreign bonds
Common and collective funds:
Fixed income
Total
$
December 31, 2020
Level 1
Level 2
Level 3
Total
23 $
— $
— $
—
—
—
23 $
6
488
379
873 $
—
—
—
— $
December 31, 2019
Level 1
Level 2
Level 3
Total
9 $
— $
— $
—
—
—
9 $
5
515
297
817 $
—
—
—
— $
23
6
488
379
896
9
5
515
297
826
The Pension and Savings Investment Committees,
comprised of senior managers within the
organization, meet regularly to review asset
performance and potential portfolio revisions.
Adjustments to the qualified pension plan asset
allocation primarily reflect changes in anticipated
liquidity needs for plan benefits.
The fair value of FHN’s retiree medical plan assets at December 31, 2020 and 2019 by asset category are as
follows:
(Dollars in millions)
Mutual funds:
Equity mutual funds
Fixed income mutual funds
Total
Level 1
Level 2
Level 3
Total
December 31, 2020
$
$
15 $
8
23 $
— $
—
— $
— $
—
— $
15
8
23
FIRST HORIZON CORPORATION
188
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 18 – Pension, Savings, and Other Employee Benefits (Continued)
(Dollars in millions)
Mutual funds:
Equity mutual funds
Fixed income mutual funds
Total
Level 1
Level 2
Level 3
Total
December 31, 2019
$
$
13 $
7
20 $
— $
—
— $
— $
—
— $
13
7
20
FIRST HORIZON CORPORATION
189
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 19 - Stock Options, Restricted Stock, and Dividend Reinvestment Plans
Equity compensation plans
FHN currently has two plans which authorize the
grant of new stock-based awards, the Equity
Compensation Plan (ECP) and the IBERIABANK
Corporation 2019 Stock Incentive Plan (SIP). New
awards under the ECP may be granted to any of
FHN's directors, officers, or associates. New awards
under the SIP are limited to directors, officers, and
associates who had one or more of those roles with
IBKC before the merger closed. Most awards
outstanding at year end were granted under these
plans, though older stock options and certain deferred
stock units remain outstanding under several plans
which are no longer active.
The ECP authorizes a broad range of award types,
including restricted shares, stock units, and stock
options. Stock units may be paid in shares or cash,
depending upon the terms of the award. The ECP
also authorizes the grant of stock appreciation rights,
though no such grants have been made. The SIP
authorizes the granting of awards in the form of stock
options, restricted stock, and restricted share units.
Unvested awards have service and/or performance
conditions which must be met in order for the shares
to vest. Awards generally have service-vesting
conditions, meaning that the associate must remain
employed by FHN for certain periods in order for the
award to vest. Some outstanding awards also have
performance conditions, and one outstanding award
has performance conditions associated with FHN’s
stock price. FHN operates the ECP by establishing
award programs, each of which is intended to cover a
specific need. Programs are created, changed, or
terminated as needs change.
On December 31, 2020, there were 3,115,117 shares
available for new awards under the ECP and
10,558,375 shares available for new awards under
the SIP. The ECP imposes a separate limit on full-
value (non-option) awards which is included within
the overall limit. At December 31, 2020, there were
2,311,791 shares available to be granted as full-value
awards under the ECP and 5,279,187 shares
available to be granted as full-value awards under the
SIP.
Service condition full-value awards. Awards may
be granted with service conditions only. In recent
years, programs using these awards have included
annual programs for executives and selected
management associates, a mandatory deferral
program for executives tied to annual bonuses
earned, other mandatory or elective deferral
programs, various retention programs, and special
hiring-incentive situations. Details of the awards vary
by program, but most are settled in shares at vesting
rather than cash, and vesting rarely begins earlier
than the first anniversary of grant and rarely extends
beyond the fifth anniversary of grant. Annual
programs tend to use multiple annual vesting dates
while retention programs tend to use a single vesting
date, but there are exceptions.
Performance condition awards. Under FHN’s long-
term incentive and corporate performance programs,
performance stock units (PSUs) (executives) and
cash units (selected management employees) are
granted annually and vest only if predetermined
performance measures are met. The measures are
changed each year based on goals and
circumstances prevailing at the time of grant. In
recent years the performance periods have been
three years, with service-vesting near the third
anniversary of the grant. PSUs granted after 2014
also have a post-vest holding period of two years.
Recent annual performance awards require pro-rated
forfeiture for performance falling between a threshold
level and a maximum. Performance awards
sometimes are used to provide a narrow, targeted
incentive to a single person or small group; one such
award which includes a market performance condition
to FHN’s CEO is discussed in the next paragraph. Of
the annual program awards paid during 2020 or
outstanding on December 31, 2020: the 2015 units
vested in 2018 and their two year post-vesting
holding period ended during 2020, 2016 and 2017
units vested in 2019 and 2020 at the 104.2% payout
level, respectively, and remain in a two year post-
vesting holding period; the three years performance
period of the 2018 units has ended but performance
is measured relative to peers and has not yet been
determined; and, the three years performance
periods for the 2019 and 2020 units have not ended.
Market condition award. In 2016, FHN made a
special grant of performance stock units to FHN’s
CEO which will vest at the end of a performance
period of seven years. The award has no provision for
pro-rated payment based on partial performance. The
award’s performance goal is based on achievement
of a specific level of total shareholder return during
the performance period.
Director awards. Non-employee directors receive
cash and annual grants of service-conditioned stock
units under a program approved by the board of
directors. Director stock units granted prior to the
IBKC merger vest in the year following the year of
FIRST HORIZON CORPORATION
190
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 19 - Stock Options, Restricted Stock, and Dividend Reinvestment Plans (Continued)
grant, require a payment deferral of two years, and
settle in shares after the deferral period. In 2020 and
2019, each director received $85,000 or prorated
equivalent of stock units, representing a portion of
their annual retainer. Effective with the IBKC merger
on July 1, 2020, the annual grant of director stock
units was increased to $122,000 or prorated
equivalent of stock units and all directors then in
office received a supplemental grant to bring all
directors up to the new annual grant level. Prior to
2005, directors could elect to defer cash
compensation in the form of discount-priced stock
options, some of which remain outstanding.
Stock and stock unit awards. A summary of restricted and performance stock and unit activity during the year
ended December 31, 2020, is presented below:
January 1, 2020
Shares/units converted from IBKC
Shares/units granted
Shares/units vested/distributed
Shares/units canceled
December 31, 2020
Weighted
average
grant date
fair value
(per share) (b)
Shares/
Units (a)
4,709,987 $
2,663,116
2,610,929
(1,551,877)
(161,939)
8,270,216 $
16.25
9.40
9.89
15.15
12.55
12.47
Includes only units that settle in shares; nonvested performance units are included at 100% payout level.
(a)
(b) The weighted average grant date fair value for shares/units granted in 2019 and 2018 was $16.25 and $18.70, respectively.
On December 31, 2020, there was $38 million of
unrecognized compensation cost related to
nonvested restricted stock awards. That cost is
expected to be recognized over a weighted-average
period of 2.5 years. The total grant date fair value of
shares vested during 2020, 2019 and 2018, was $24
million, $15 million, and $13 million, respectively.
Stock option awards. Currently FHN operates only a
single option program, calling for annual grants of
service-vested options to executives. In the past,
however, option programs varied widely in their uses
and terms, and many old-program options, granted
under the ECP or its predecessor plans, remain
outstanding today. All options granted since 2005
provide for the issuance of FHN common stock at a
price fixed at its fair market value on the grant date.
Except for converted options and a special retention
stock option award to the CEO in 2016, all options
granted since 2008 vest fully no later than the fourth
anniversary of grant, and all such options expire 7
years from the grant date. CBF converted options and
IBKC converted options granted prior to November 3,
2019 (the merger agreement date) are fully vested
and expire ten years from grant date. IBKC converted
options granted subsequent to the merger agreement
vest fully no later than the fifth anniversary of the
grant date and expire ten years from grant date. The
2016 retention award vests beginning on the fourth
anniversary of grant and extends through the sixth
anniversary of grant. A deferral program, which was
discontinued in 2005, allowed for foregone
compensation plus the exercise price to equal the fair
market value of the stock on the date of grant if the
grantee agreed to receive the options in lieu of
compensation. Deferral options still outstanding
expire 20 years from the grant date.
FIRST HORIZON CORPORATION
191
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 19 - Stock Options, Restricted Stock, and Dividend Reinvestment Plans (Continued)
The summary of stock option activity for the year ended December 31, 2020, is shown below:
January 1, 2020
Converted IBKC
Options granted
Options exercised
Options expired/canceled
December 31, 2020
Options exercisable
Options expected to vest
Options
Outstanding
Weighted
Average
Exercise Price
(per share)
4,931,781 $
3,597,856
584,881
(597,686)
(767,750)
7,749,082 $
5,766,528
1,982,554
15.61
14.39
15.90
11.55
17.44
15.20
15.02
15.70
Weighted
Average
Remaining
Contractual
Term
(years)
Aggregate
Intrinsic Value
(millions)
3.85 $
3.16
5.86
5
4
—
value of $2.13, $2.69, and $3.89 per option at grant
date in 2020, 2019 and 2018, respectively.
The total intrinsic value of options exercised during
2020, 2019 and 2018 was $3 million, $4 million, and
$3 million, respectively. On December 31, 2020, there
was $1 million of unrecognized compensation cost
related to nonvested stock options. That cost is
expected to be recognized over a weighted-average
period of 2.6 years.
FHN granted or converted 4,182,737, 530,787 and
394,296 stock options with a weighted average fair
FHN used the Black-Scholes Option Pricing Model to estimate the fair value of stock options granted or converted in
2020, 2019, and 2018 with the following assumptions:
Expected dividend yield
Expected weighted-average lives of options granted
Expected weighted-average volatility
Expected volatility range
Risk-free interest rate
Expected lives of options granted are determined
based on the vesting period, historical exercise
patterns and contractual term of the options. FHN
uses a blend of historical and implied volatility in
determining expected volatility. A portion of the
weighted average volatility rate is derived by
compiling daily closing stock prices over a historical
period approximating the expected lives of the
options. Additionally, because of market volatility due
to economic conditions and the impact on stock
prices of financial institutions, FHN also incorporates
a measure of implied volatility so as to incorporate
more recent market conditions in the estimation of
future volatility.
Phantom stock awards. As a result of the IBKC
merger, FHN assumed phantom stock awards under
various plans to officers and other key associates.
The awards are subject to a vesting period of five
years and are paid out in cash upon vesting. The
2020
3.77%
6.25 years
23.94%
23.32 - 24.56%
1.47%
2019
3.63%
6.24 years
24.76%
23.07 - 26.45%
2.53%
2018
2.57%
6.21 years
24.61%
23.95 - 25.26%
2.69%
amount paid per vesting period is calculated as the
number of vested share equivalents multiplied by
closing market price of a share of the Company's
common stock on the vesting date. Share equivalents
are calculated on the date of grant as the total
award's dollar value divided by the closing market
price of a share of the Company's common stock on
the grant date. As of December 31, 2020, there were
659,597 share equivalents of phantom stock awards
outstanding. See Note 1 - Significant Accounting
Policies for more discussion on FHN's phantom stock
awards.
Compensation Cost. The compensation cost that
has been included in the Consolidated Statements of
Income pertaining to stock-based awards was $32
million, $22 million, and $23 million for 2020, 2019,
and 2018, respectively. The corresponding total
income tax benefits recognized were $8 million in
2020, $6 million in 2019, and $6 million in 2018.
FIRST HORIZON CORPORATION
192
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 19 - Stock Options, Restricted Stock, and Dividend Reinvestment Plans (Continued)
Authorization. Consistent with Tennessee state law,
only authorized, but unissued, stock may be utilized
in connection with any issuance of FHN common
stock which may be required as a result of stock
based compensation awards. FHN has obtained
authorization from the Board of Directors to
repurchase up to certain numbers of shares related to
issuance under the ECP and several older stock
award plans. These authorizations are automatically
adjusted for stock splits and stock dividends.
Repurchases are authorized to be made in the open
market or through privately negotiated transactions
and will be subject to market conditions, accumulation
of excess equity, legal and regulatory restrictions, and
prudent capital management. FHN does not currently
expect to repurchase a material number of shares
under the compensation plan-related repurchase
program during 2021.
Dividend reinvestment plan. The Dividend
Reinvestment and Stock Purchase Plan authorizes
the sale of FHN’s common stock from stock acquired
on the open market to shareholders who choose to
invest all or a portion of their cash dividends or make
optional cash payments of $25 to $10,000 per quarter
without paying commissions. The price of stock
purchased on the open market is the average price
paid.
FIRST HORIZON CORPORATION
193
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 20 - Business Segment Information
During the fourth quarter of 2020, FHN reorganized
its internal management structure and, accordingly,
its segment reporting structure. Historically, FHN's
reportable business segments were Regional
Banking, Fixed Income, Corporate, and Non-
strategic. On July 1, 2020, FHN and IBKC closed
their merger of equals transaction. This transaction
prompted organizational changes to better integrate
and execute the combined Company's strategic
priorities across all lines of businesses. As a result,
FHN revised its reportable segments as described
below. Prior period segment information has been
reclassified to conform to the current period
presentation.
FHN is composed of the following operating
segments:
•
•
Regional Banking segment offers financial
products and services, including traditional
lending and deposit taking, to consumer and
commercial clients primarily in the southern
U.S. and other selected markets. Regional
Banking also provides investment, wealth
management, financial planning, trust and
asset management services for consumer
clients.
Specialty Banking segment consists of lines
of business that deliver product offerings and
services with specialized industry knowledge.
Specialty Banking’s lines of business include
asset-based lending, mortgage warehouse
lending, commercial real estate, franchise
finance, correspondent banking, equipment
finance, mortgage, and title insurance. In
addition to traditional lending and deposit
taking, Specialty Banking also delivers
treasury management solutions, loan
syndications, international banking and SBA
lending. Additionally, Specialty Banking has
•
a line of business focused on fixed income
securities sales, trading, underwriting, and
strategies for institutional clients in the U.S.
and abroad, as well as loan sales, portfolio
advisory services, and derivative sales.
Corporate segment consists primarily of
corporate support functions including risk
management, audit, accounting, finance,
executive office, and corporate
communications. Shared support services
such as human resources, properties,
technology, credit risk and bank operations
are allocated to the activities of Regional
Banking, Specialty Banking and Corporate.
Additionally, the Corporate segment includes
centralized management of capital and
funding to support the business activities of
the company including management of
wholesale funding, liquidity, and capital
management and allocation. The Corporate
segment also includes the revenue and
expense associated with run-off businesses
such as pre-2009 mortgage banking
elements, run-off consumer and trust
preferred loan portfolios, and other exited
businesses.
Periodically, FHN adapts its segments to reflect
managerial or strategic changes. FHN may also
modify its methodology of allocating expenses and
equity among segments which could change
historical segment results. Business segment
revenue, expense, asset, and equity levels reflect
those which are specifically identifiable or which are
allocated based on an internal allocation method.
Because the allocations are based on internally
developed assignments and allocations, to an extent
they are subjective. Generally, all assignments and
allocations have been consistently applied for all
periods presented.
FIRST HORIZON CORPORATION
194
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 20 - Business Segment Information (Continued)
The following tables present financial information for each reportable segment for the years ended December 31:
$
2018
2019
2020
(Dollars in millions)
Consolidated
Net interest income
1,220
Provision for credit losses (a)
8
Noninterest income
723
Noninterest expense
1,221
Income before income taxes
714
Income tax expense
157
Net income
557
Average assets
40,225
59
Depreciation and amortization
38
Expenditures for long-lived assets
(a) Increase in provision for credit losses in 2020 is primarily due to provision related to non-PCD loans acquired in the IBKC merger and Truist
branch acquisition and the economic forecast attributable to the COVID-19 pandemic.
1,210 $
45
654
1,233
586
134
452 $
41,744 $
65
49
1,662 $
503
1,492
1,718
933
76
857 $
64,346 $
46
379
$
$
FIRST HORIZON CORPORATION
195
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 20 - Business Segment Information (Continued)
(Dollars in millions)
Regional Banking
Net interest income
Provision for credit losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Average assets
Depreciation and amortization
Expenditures for long-lived assets
Specialty Banking
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Average assets
Depreciation and amortization
Expenditures for long-lived assets
Corporate
Net interest expense
Provision credit for loan losses
Noninterest income (a)
Noninterest expense (b)(c)(d)
Income (loss) before income taxes
Income tax benefit
Net income (loss)
Average assets
Depreciation and amortization
Expenditures for long-lived assets
$
$
$
$
$
$
$
$
$
2020
2019
2018
1,307 $
392
343
900
358
77
281 $
31,802 $
(46)
283
583 $
117
576
491
551
134
417 $
19,713 $
3
6
(228) $
(6)
573
327
24
(135)
159 $
12,831 $
89
90
773 $
24
289
626
412
94
318 $
18,252 $
22
29
444 $
37
318
351
374
93
281 $
15,508 $
14
4
(7) $
(16)
47
256
(200)
(53)
(147) $
7,984 $
29
16
815
4
264
707
368
82
286
17,263
18
36
417
15
210
302
310
76
234
14,420
19
2
(12)
(11)
249
212
36
(1)
37
8,542
22
—
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) 2020 includes $533 million purchase accounting gain associated with the IBKC merger; 2018 includes a $213 million pre-tax gain from the
sale of Visa Class B shares.
(b) 2019 includes restructuring-related costs associated with efficiency initiatives; refer to Note 25 - Restructuring, Repositioning, and Efficiency
for additional information. 2020, 2019 and 2018 include merger-related expenses; refer to Note 2 - Acquisitions and Divestitures for
additional information.
(c) 2019 includes $21 million of asset impairments, professional fees, and other client-contact and technology-related expenses associated with
rebranding initiatives.
(d) 2020 and 2019 include $41 million and $11 million, respectively of contributions to FHN's foundations.
FIRST HORIZON CORPORATION
196
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 20 - Business Segment Information (Continued)
The following tables reflect a disaggregation of FHN’s noninterest income by major product line and reportable
segment for the years ended December 31, 2020, 2019, and 2018:
(Dollars in millions)
Noninterest income:
Fixed income (a)
Deposit transactions and cash management
Mortgage banking and title income
Brokerage, management fees and commissions
Trust services and investment management
Bankcard income
Securities gains (losses), net (b)
Purchase accounting gain
Other income (c)
Total noninterest income
(Dollars in millions)
Noninterest income:
Fixed income (a)
Deposit transactions and cash management
Mortgage banking and title income
Brokerage, management fees and commissions
Trust services and investment management
Bankcard income
Other income (c)
December 31, 2020
Regional
Banking
Specialty
Banking
Corporate
Consolidated
$
1 $
422
$
— $
131
—
66
39
34
—
—
72
11
128
—
—
2
—
—
13
6
1
—
—
1
(6)
533
38
$
343 $
576
$
573 $
423
148
129
66
39
37
(6)
533
123
1,492
December 31, 2019
Regional
Banking
Specialty
Banking
Corporate
Consolidated
$
— $
278
$
1 $
114
—
55
30
26
64
11
8
—
—
2
19
7
2
—
—
—
37
279
132
10
55
30
28
120
654
Total noninterest income
$
289 $
318
$
47 $
(Dollars in millions)
Noninterest income:
Fixed income (a)
Deposit transactions and cash management
Mortgage banking and title income
Brokerage, management fees and commissions
Trust services and investment management
Bankcard income
Securities gains (losses), net (b)
Other income (c)
Total noninterest income
December 31, 2018
Regional
Banking
Specialty
Banking
Corporate
Consolidated
$
— $
164
$
4 $
110
—
55
30
28
—
41
17
8
—
—
1
—
20
6
3
—
—
—
213
23
$
264 $
210
$
249 $
168
133
11
55
30
29
213
84
723
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) For years ended 2020, 2019 and 2018, includes $39 million, $34 million and $29 million, respectively, of underwriting, portfolio advisory, and
other noninterest income in scope of ASC 606, "Revenue From Contracts With Customers." 2019 and 2018 include $1 million and $4
million, respectively, of gains from the reversal of a previous valuation adjustment due to sales and payoffs of TRUPS loans excluded from
the scope of ASC 606 in the Corporate segment.
(b) Represents noninterest income excluded from the scope of ASC 606. Amount is presented for informational purposes to reconcile total non-
interest income. 2018 includes a pre-tax gain of $213 million from the sale of FHN's remaining holdings of Visa Class B shares.
Includes other service charges, ATM and interchange fees, electronic banking fees, and insurance commissions in scope of ASC 606.
(c)
FIRST HORIZON CORPORATION
197
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 21 - Variable Interest Entities
FHN makes equity investments in various entities that
are considered VIEs, as defined by GAAP. A VIE
typically does not have sufficient equity at risk to
finance its activities without additional subordinated
financial support from other parties. The Company’s
variable interest arises from contractual, ownership or
other monetary interests in the entity, which change
with fluctuations in the fair value of the entity's net
assets. FHN consolidates a VIE if it is the primary
beneficiary of the entity. FHN is the primary
beneficiary of a VIE if its variable interest provides it
with the power to direct the activities that most
significantly impact the VIE and the right to receive
benefits (or the obligation to absorb losses) that could
potentially be significant to the VIE. To determine
whether or not a variable interest held could
potentially be significant to the VIE, FHN considers
both qualitative and quantitative factors regarding the
nature, size and form of its involvement with the VIE.
FHN assesses whether or not it is the primary
beneficiary of a VIE on an ongoing basis.
Consolidated Variable Interest Entities
FHN has established certain rabbi trusts related to
deferred compensation plans offered to its
employees. FHN contributes employee cash
compensation deferrals to the trusts and directs the
underlying investments made by the trusts. The
assets of these trusts are available to FHN’s creditors
only in the event that FHN becomes insolvent. These
trusts are considered VIEs as there is no equity at
risk in the trusts since FHN provided the equity
interest to its employees in exchange for services
rendered. FHN is considered the primary beneficiary
of the rabbi trusts as it has the power to direct the
activities that most significantly impact the economic
performance of the rabbi trusts through its ability to
direct the underlying investments made by the trusts.
Additionally, FHN could potentially receive benefits or
absorb losses that are significant to the trusts due to
its right to receive any asset values in excess of
liability payoffs and its obligation to fund any liabilities
to employees that are in excess of a rabbi trust’s
assets.
The following table summarizes the carrying value of assets and liabilities associated with rabbi trusts used for
deferred compensation plans which are consolidated by FHN as of December 31, 2020 and 2019:
(Dollars in millions)
Assets:
Other assets
Total assets
Liabilities:
Other liabilities
Total liabilities
Nonconsolidated Variable Interest Entities
Low Income Housing Tax Credit Partnerships.
Through designated wholly-owned subsidiaries, First
Horizon Bank, makes equity investments as a limited
partner in various partnerships that sponsor
affordable housing projects utilizing the LIHTC. The
purpose of these investments is to achieve a
satisfactory return on capital and to support FHN’s
community reinvestment initiatives. LIHTC
partnerships are managed by unrelated general
partners that have the power to direct the activities
December 31, 2020
December 31, 2019
$
$
$
$
164
164
142
142
$
$
$
$
92
92
71
71
which most significantly affect the performance of the
partnerships. FHN is therefore not the primary
beneficiary of any LIHTC partnerships. Accordingly,
FHN does not consolidate these VIEs and accounts
for these investments in other assets on the
Consolidated Balance Sheets.
FHN accounts for all qualifying LIHTC investments
under the proportional amortization method. Under
this method an entity amortizes the initial cost of the
investment in proportion to the tax credits and other
tax benefits received and recognizes the net
investment performance as a component of income
tax expense. LIHTC investments that do not qualify
FIRST HORIZON CORPORATION
198
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 21 - Variable Interest Entities (Continued)
for the proportional amortization method are
accounted for using the equity method. Expenses
associated with non-qualifying LIHTC investments
were not material during 2020, 2019, and 2018.
The following table summarizes the impact to Income tax expense on the Consolidated Statements of Income for
the years ended December 31, 2020, 2019 and 2018 for LIHTC investments accounted for under the proportional
amortization method.
(Dollars in millions)
Income tax expense (benefit):
2020
2019
2018
Amortization of qualifying LIHTC investments
$
Low income housing tax credits
Other tax benefits related to qualifying LIHTC
investments
23 $
(22)
(10)
15 $
(14)
(6)
11
(10)
(7)
Other Tax Credit Investments.Through designated
subsidiaries, First Horizon Bank, periodically makes
equity investments as a non-managing member in
various LLCs that sponsor community development
projects utilizing the NMTC. First Horizon Bank also
makes equity investments as a limited partner or non-
managing member in entities that receive tax credits
from solar and historic tax credits. The purpose of
these investments is to achieve a satisfactory return
on capital and to support FHN’s community
reinvestment initiatives. These entities are considered
VIEs as First Horizon Bank's subsidiaries represent
the holders of the equity investment at risk, but do not
have the ability to direct the activities that most
significantly affect the performance of the entities.
Small Issuer Trust Preferred Holdings. First
Horizon Bank holds variable interests in trusts which
have issued mandatorily redeemable preferred capital
securities (“trust preferreds”) for smaller banking and
insurance enterprises. First Horizon Bank has no
voting rights for the trusts’ activities. The trusts’ only
assets are junior subordinated debentures of the
issuing enterprises. The creditors of the trusts hold no
recourse to the assets of First Horizon Bank. Since
First Horizon Bank is solely a holder of the trusts’
securities, it has no rights which would give it the
power to direct the activities that most significantly
impact the trusts’ economic performance and thus it is
not considered the primary beneficiary of the trusts.
First Horizon Bank has no contractual requirements
to provide financial support to the trusts.
On-Balance Sheet Trust Preferred Securitization.
In 2007, First Horizon Bank executed a securitization
of certain small issuer trust preferreds for which the
underlying trust meets the definition of a VIE as the
holders of the equity investment at risk do not have
the power through voting rights, or similar rights, to
direct the activities that most significantly impact the
entity’s economic performance. Since First Horizon
Bank did not retain servicing or other decision making
rights, First Horizon Bank is not the primary
beneficiary as it does not have the power to direct the
activities that most significantly impact the trust’s
economic performance. Accordingly, First Horizon
Bank has accounted for the funds received through
the securitization as a term borrowing in its
Consolidated Balance Sheets. First Horizon Bank has
no contractual requirements to provide financial
support to the trust.
Holdings in Agency Mortgage-Backed Securities.
FHN holds securities issued by various Agency
securitization trusts. Based on their restrictive nature,
the trusts meet the definition of a VIE since the
holders of the equity investments at risk do not have
the power through voting rights, or similar rights, to
direct the activities that most significantly impact the
entities’ economic performance. FHN could potentially
receive benefits or absorb losses that are significant
to the trusts based on the nature of the trusts’
activities and the size of FHN’s holdings. However,
FHN is solely a holder of the trusts’ securities and
does not have the power to direct the activities that
most significantly impact the trusts’ economic
performance, and is not considered the primary
beneficiary of the trusts. FHN has no contractual
requirements to provide financial support to the trusts.
Commercial Loan Troubled Debt Restructurings.
For certain troubled commercial loans, First Horizon
Bank restructures the terms of the borrower’s debt in
an effort to increase the probability of receipt of
amounts contractually due. Following a troubled debt
restructuring, the borrower entity typically meets the
definition of a VIE as the initial determination of
whether an entity is a VIE must be reconsidered as
events have proven that the entity’s equity is not
sufficient to permit it to finance its activities without
additional subordinated financial support or a
restructuring of the terms of its financing. As First
Horizon Bank does not have the power to direct the
activities that most significantly impact such troubled
commercial borrowers’ operations, it is not considered
the primary beneficiary even in situations where,
based on the size of the financing provided, First
Horizon Bank is exposed to potentially significant
FIRST HORIZON CORPORATION
199
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 21 - Variable Interest Entities (Continued)
benefits and losses of the borrowing entity. First
Horizon Bank has no contractual requirements to
provide financial support to the borrowing entities
beyond certain funding commitments established
upon restructuring of the terms of the debt that allows
for preparation of the underlying collateral for sale.
Proprietary Trust Preferred Issuances. In
conjunction with its acquisitions, FHN acquired junior
subordinated debt underlying multiple issuances of
trust preferred debt. All of the trusts are considered
VIEs because the ownership interests from the capital
contributions to these trusts are not considered “at
risk” in evaluating whether the holders of the equity
investments at risk in the trusts have the ability to
direct the activities that most significantly impact the
entities’ economic performance. Thus, FHN cannot be
the trusts’ primary beneficiary because its ownership
interests in the trusts are not considered variable
interests as they are not considered “at risk”.
Consequently, none of the trusts are consolidated by
FHN.
Other. Prior to 2020, FHN had other investments that
were determined to be VIE's, which included a sale
leaseback transaction and proprietary residential
mortgage securitizations.
First Horizon Bank had entered into an agreement
with a single asset leasing entity whereby First
Horizon Bank entered into a construction loan
agreement with the leasing entity for renovation of the
building. Upon adoption of ASU 2016-02, the
transaction qualified as a seller-financed sale-
leaseback. First Horizon Bank was not considered the
primary beneficiary and thus was precluded from
consolidating the leasing entity. The maximum loss
exposure at December 31, 2019 was $18 million.
Prior to 2020, FHN also held variable interests in
proprietary residential mortgage securitization trusts
that were established prior to 2008 as a source of
liquidity for its mortgage banking operations. First
Horizon Bank was not considered the primary
beneficiary and thus did not consolidate the leasing
entity. The maximum loss exposure at December 31,
2019 was $1 million.
The following table summarizes FHN’s nonconsolidated VIEs as of December 31, 2020:
(Dollars in millions)
Type:
Low income housing partnerships
Other tax credit investments (b)
Small issuer trust preferred holdings (c)
On-balance sheet trust preferred securitization
Holdings of agency mortgage-backed securities (c)
Commercial loan troubled debt restructurings (f)
Proprietary trust preferred issuances (g)
Maximum
Loss Exposure
Liability
Recognized
$
338 $
64
210
32
7,063
186
—
132
42
—
82
—
—
287
Classification
(a)
Other assets
Loans and leases
(d)
(e)
Loans and leases
Term borrowings
(a) Maximum loss exposure represents $206 million of current investments and $132 million of accrued contractual funding commitments.
Accrued funding commitments represent unconditional contractual obligations for future funding events, and are recognized in Other
liabilities. FHN currently expects to be required to fund these accrued commitments by the end of 2024.
(b) Maximum loss exposure represents the value of current investments.
(c) Maximum loss exposure represents the value of current investments. A liability is not recognized as FHN is solely a holder of the trusts’
securities.
(d) Includes $112 million classified as Loans and leases, and $2 million classified as Trading securities which are offset by $82 million classified
as Term borrowings.
(e) Includes $0.8 billion classified as Trading securities and $6.2 billion classified as Securities available for sale.
(f) Maximum loss exposure represents $176 million of current receivables and $10 million of contractual funding commitments on loans related
to commercial borrowers involved in a troubled debt restructuring.
(g) No exposure to loss due to nature of FHN's involvement.
FIRST HORIZON CORPORATION
200
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 21 - Variable Interest Entities (Continued)
The following table summarizes FHN’s nonconsolidated VIEs as of December 31, 2019:
Maximum
Loss Exposure
Liability
Recognized
$
(Dollars in millions)
Type:
Low income housing partnerships
Other tax credit investments (b) (c)
Small issuer trust preferred holdings (d)
On-balance sheet trust preferred securitization
Proprietary residential mortgage securitizations
Holdings of agency mortgage-backed securities (d)
Commercial loan troubled debt restructurings (g)
Sale-leaseback transaction
Proprietary trust preferred issuances (i)
(a) Maximum loss exposure represents $101 million of current investments and $137 million of accrued contractual funding commitments.
(a)
Other assets
Loans and leases
(e)
Trading securities
(f)
Loans and leases
(h)
Term borrowings
238 $
6
238
33
1
4,538
45
18
—
136
—
—
81
—
—
—
—
167
Classification
Accrued funding commitments represent unconditional contractual obligations for future funding events, and are also recognized in Other
liabilities.
(b) A liability is not recognized as investments are written down over the life of the related tax credit.
(c) Maximum loss exposure represents current investment balance. As of December 31, 2019, there were no investments funded through loans
from community development enterprises.
(d) Maximum loss exposure represents the value of current investments. A liability is not recognized as FHN is solely a holder of the trusts’
(e)
securities.
Includes $112 million classified as Loans and leases and $2 million classified as Trading securities, which are offset by $81 million classified
as Term borrowings.
Includes $0.5 billion classified as Trading securities and $4.0 billion classified as Securities available for sale.
(f)
(g) Maximum loss exposure represents $43 million of current receivables and $2 million of contractual funding commitments on loans related to
commercial borrowers involved in a troubled debt restructuring.
(h) Maximum loss exposure represents the current loan balance plus additional funding commitments less amounts received from the buyer-
lessor.
(i) No exposure to loss due to nature of FHN's involvement.
FIRST HORIZON CORPORATION
201
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 22 - Derivatives
In the normal course of business, FHN utilizes
various financial instruments (including derivative
contracts and credit-related agreements) through its
fixed income and risk management operations, as
part of its risk management strategy and as a means
to meet clients’ needs. Derivative instruments are
subject to credit and market risks in excess of the
amount recorded on the balance sheet as required by
GAAP. The contractual or notional amounts of these
financial instruments do not necessarily represent the
amount of credit or market risk. However, they can be
used to measure the extent of involvement in various
types of financial instruments. Controls and
monitoring procedures for these instruments have
been established and are routinely reevaluated. The
ALCO controls, coordinates, and monitors the usage
and effectiveness of these financial instruments.
Credit risk represents the potential loss that may
occur if a party to a transaction fails to perform
according to the terms of the contract. The measure
of credit exposure is the replacement cost of
contracts with a positive fair value. FHN manages
credit risk by entering into financial instrument
transactions through national exchanges, primary
dealers or approved counterparties, and by using
mutual margining and master netting agreements
whenever possible to limit potential exposure. FHN
also maintains collateral posting requirements with
certain counterparties to limit credit risk. Daily margin
posted or received with central clearinghouses is
considered a legal settlement of the related derivative
contracts which results in a net presentation for
each contract in the Consolidated Balance Sheets.
Treatment of daily margin as a settlement has no
effect on hedge accounting or gains/losses for the
applicable derivative contracts. On December 31,
2020 and 2019, respectively, FHN had $280 million
and $137 million of cash receivables and $166 million
and $53 million of cash payables related to collateral
posting under master netting arrangements, inclusive
of collateral posted related to contracts with
adjustable collateral posting thresholds and over-
collateralized positions, with derivative counterparties.
With exchange-traded contracts, the credit risk is
limited to the clearinghouse used. For non-exchange
traded instruments, credit risk may occur when there
is a gain in the fair value of the financial instrument
and the counterparty fails to perform according to the
terms of the contract and/or when the collateral
proves to be of insufficient value. See additional
discussion regarding master netting agreements and
collateral posting requirements later in this note under
the heading “Master Netting and Similar Agreements.”
Market risk represents the potential loss due to the
decrease in the value of a financial instrument caused
primarily by changes in interest rates or the prices of
debt instruments. FHN manages market risk by
establishing and monitoring limits on the types and
degree of risk that may be undertaken. FHN
continually measures this risk through the use of
models that measure value-at-risk and earnings-at-
risk.
Derivative Instruments. FHN enters into various
derivative contracts both to facilitate client
transactions and as a risk management tool. Where
contracts have been created for clients, FHN enters
into upstream transactions with dealers to offset its
risk exposure. Contracts with dealers that require
central clearing are novated to a clearing agent who
becomes FHN’s counterparty. Derivatives are also
used as a risk management tool to hedge FHN’s
exposure to changes in interest rates or other defined
market risks.
Forward contracts are over-the-counter contracts
where two parties agree to purchase and sell a
specific quantity of a financial instrument at a
specified price, with delivery or settlement at a
specified date. Futures contracts are exchange-
traded contracts where two parties agree to purchase
and sell a specific quantity of a financial instrument at
a specified price, with delivery or settlement at a
specified date. Interest rate option contracts give the
purchaser the right, but not the obligation, to buy or
sell a specified quantity of a financial instrument, at a
specified price, during a specified period of time.
Caps and floors are options that are linked to a
notional principal amount and an underlying indexed
interest rate. Interest rate swaps involve the
exchange of interest payments at specified intervals
between two parties without the exchange of any
underlying principal. Swaptions are options on
interest rate swaps that give the purchaser the right,
but not the obligation, to enter into an interest rate
swap agreement during a specified period of time.
Trading Activities
FHNF trades U.S. Treasury, U.S. Agency,
government-guaranteed loan, mortgage-backed,
corporate and municipal fixed income securities, and
other securities for distribution to clients. When these
securities settle on a delayed basis, they are
considered forward contracts. FHNF also enters into
interest rate contracts, including caps, swaps, and
floors for its clients. In addition, FHNF enters into
futures and option contracts to economically hedge
interest rate risk associated with a portion of its
FIRST HORIZON CORPORATION
202
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 22 - Derivatives (Continued)
securities inventory. These transactions are
measured at fair value, with changes in fair value
recognized in noninterest income. Related assets and
liabilities are recorded on the Consolidated Balance
Sheets as derivative assets and derivative liabilities
within Other assets and Other liabilities. The FHNF
Risk Committee and the Credit Risk Management
Committee collaborate to mitigate credit risk related
to these transactions. Credit risk is controlled through
credit approvals, risk control limits, and ongoing
monitoring procedures. Total trading revenues were
$371 million, $228 million and $132 million for the
years ended December 31, 2020, 2019 and 2018,
respectively. Trading revenues are inclusive of both
derivative and non-derivative financial instruments,
and are included in Fixed income on the Consolidated
Statements of Income.
The following tables summarize derivatives associated with FHNF's trading activities as of December 31, 2020 and
2019:
(Dollars in millions)
Customer interest rate contracts
Offsetting upstream interest rate contracts
Forwards and futures purchased
Forwards and futures sold
(Dollars in millions)
Customer interest rate contracts
Offsetting upstream interest rate contracts
Option contracts purchased
Forwards and futures purchased
Forwards and futures sold
Interest Rate Risk Management
FHN’s ALCO focuses on managing market risk by
controlling and limiting earnings volatility attributable
to changes in interest rates. Interest rate risk exists to
the extent that interest-earning assets and interest-
bearing liabilities have different maturity or repricing
characteristics. FHN uses derivatives, primarily
swaps, that are designed to moderate the impact on
earnings as interest rates change. Interest paid or
received for swaps utilized by FHN to hedge the fair
value of long term debt is recognized as an
adjustment of the interest expense of the liabilities
whose risk is being managed. FHN’s interest rate risk
management policy is to use derivatives to hedge
interest rate risk or market value of assets or
liabilities, not to speculate. In addition, FHN has
entered into certain interest rate swaps and caps as a
part of a product offering to commercial clients that
$
$
December 31, 2020
Notional
Assets
Liabilities
3,950 $
3,950
10,795
11,633
207 $
2
62
1
December 31, 2019
Notional
Assets
Liabilities
2,698 $
2,698
40
9,217
9,403
66 $
3
—
17
4
7
17
—
65
7
4
—
3
17
includes customer derivatives paired with upstream
offsetting market instruments that, when completed,
are designed to mitigate interest rate risk. These
contracts do not qualify for hedge accounting and are
measured at fair value with gains or losses included
in current earnings in Noninterest expense on the
Consolidated Statements of Income.
FHN had designated derivative transactions in
hedging strategies to manage interest rate risk on
$400 million of senior debt prior to its maturity in 2019
and on $500 million of senior debt with a maturity in
December 2020. These transactions qualified for
hedge accounting using the long-haul method. FHN
early redeemed the $400 million senior debt in 2019
and the $500 million senior debt in November 2020.
FIRST HORIZON CORPORATION
203
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 22 - Derivatives (Continued)
The following tables summarize FHN’s derivatives associated with interest rate risk management activities as of
December 31, 2020 and 2019:
(Dollars in millions)
Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items:
Customer interest rate contracts
Offsetting upstream interest rate contracts
(Dollars in millions)
Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items:
Customer interest rate contracts
Offsetting upstream interest rate contracts
Debt Hedging
Hedging Instruments:
Interest rate swaps
Hedged Items:
Term borrowings:
December 31, 2020
Notional
Assets
Liabilities
$
6,868 $
6,868
436 $
5
1
35
December 31, 2019
Notional
Assets
Liabilities
$
3,044 $
3,044
90 $
4
4
10
$
500
N/A $
—
Par
Cumulative fair value hedging adjustments
Unamortized premium (discount) and issuance costs
Total carrying value
N/A
N/A
N/A
N/A
N/A $
N/A
N/A
N/A $
500
(2)
(1)
497
The following table summarizes gains (losses) on FHN’s derivatives associated with interest rate risk management
activities for the years ended December 31, 2020, 2019, and 2018:
(Dollars in millions)
Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items:
Customer interest rate contracts (a)
Offsetting upstream interest rate contracts (a)
Debt Hedging
Hedging Instruments:
Interest rate swaps (b)
Hedged Items:
Term borrowings (a) (c)
Year Ended December 31,
2020
2019
2018
Gains (Losses)
Gains (Losses)
Gains (Losses)
$
$
357 $
(357)
92 $
(92)
2 $
13 $
(2)
(13)
2
(2)
(2)
2
(a) Gains (losses) included in Other expense within the Consolidated Statements of Income.
(b) Gains (losses) included in Interest expense.
(c) Represents gains and losses attributable to changes in fair value due to interest rate risk as designated in ASC 815-20
hedging relationships.
Cash Flow Hedges
FHN has outstanding pay floating, receive fixed
interest rate swaps designed to manage its exposure
to the variability in cash flows related to interest
payments on debt instruments, which primarily
consist of held-to-maturity trust preferred loans. In
conjunction with the IBKC merger, FHN acquired
interest rate contracts (floors and collars) which have
been re-designated as cash flow hedges. The debt
instruments primarily consist of held-to-maturity
FIRST HORIZON CORPORATION
204
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 22 - Derivatives (Continued)
commercial loans that have variable interest
payments based on 1-month LIBOR.
In a cash flow hedge, the entire change in the fair
value of the interest rate swap included in the
assessment of hedge effectiveness is initially
recorded in OCI and is subsequently reclassified from
OCI to current period earnings (interest income or
interest expense) in the same period that the hedged
item affects earnings.
The following tables summarize FHN’s derivative activities associated with cash flow hedges as of December 31,
2020 and 2019:
(Dollars in millions)
Cash Flow Hedges
Hedging Instruments:
Interest rate contracts
Hedged Items:
December 31, 2020
Notional
Assets
Liabilities
$
1,500 $
32 $
—
Variability in cash flows related to debt instruments
(primarily loans)
N/A $
1,500
N/A
(Dollars in millions)
Cash Flow Hedges
Hedging Instruments:
Interest rate contracts
Hedged Items:
December 31, 2019
Notional
Assets
Liabilities
$
900
N/A $
—
Variability in cash flows related to debt instruments
(primarily loans)
N/A $
900
N/A
The following table summarizes gains (losses) on FHN’s derivatives associated with cash flow hedges for the years
ended December 31, 2020, 2019, and 2018:
(Dollars in millions)
Cash Flow Hedges
Hedging Instruments:
Interest rate contracts (a)
Gain (loss) recognized in Other comprehensive income (loss)
Gain (loss) reclassified from AOCI into Interest income
Year Ended December 31,
2020
2019
2018
Gains (Losses)
Gains (Losses)
Gains (Losses)
$
3 $
15
(6)
21 $
11
4
(6)
(6)
2
(a) Approximately $28 million of pre-tax gains are expected to be reclassified into earnings in the next twelve
months.
Other Derivatives
As part of the merger with IBKC, FHN acquired
mortgage banking operations that include the
origination and sale of loans into the secondary
market. As part of the origination of loans, FHN enters
into interest rate lock commitments with borrowers.
Additionally, FHN enters into forward sales contracts
with buyers for delivery of loans at a future date. Both
of these contracts qualify as freestanding derivatives
and are recognized at fair value through earnings.
The notional and fair values of these contracts are
presented in the table below. Balances and activity for
periods prior to the IBKC merger were not significant.
FIRST HORIZON CORPORATION
205
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 22 - Derivatives (Continued)
(Dollars in millions)
Mortgage Banking Hedges
Option contracts written
Forward contracts purchased
December 31, 2020
Notional
Assets
Liabilities
$
667 $
725
20 $
—
—
6
The following table summarizes gains (losses) on FHN's derivatives associated with mortgage banking activities for
the year ended December 31, 2020.
(Dollars in millions)
Mortgage Banking Hedges
Option contracts written
Forward contracts purchased
In conjunction with the sales of a portion of its Visa
Class B shares in 2010 and 2011, FHN and the
purchaser 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 is
also required to make periodic financing payments to
the purchasers until all of Visa's covered litigation
matters are resolved. In third quarter 2018, FHN sold
the remainder of its Visa Class B shares, entering into
a similar derivative arrangement with the
counterparty. All of these derivatives extend until the
end of Visa’s Covered Litigation matters. In
September 2018, Visa reached a preliminary
settlement for one class of plaintiffs in its Payment
Card Interchange matter, which later received final
court approval in December 2019. In accordance with
the agreement terms, several individual plaintiffs
opted out of the settlement and have the opportunity
to separately pursue resolution with Visa. Settlement
has not been reached with the second class of
plaintiffs in this matter and other covered litigation
matters are also pending judicial resolution.
Accordingly, the value and timing for completion of
Visa’s Covered Litigation matters are uncertain.
The derivative transaction executed in third quarter
2018 includes a contingent accelerated termination
clause based on the credit ratings of FHN and First
Horizon Bank. FHN has not received or paid collateral
related to this contract.
As of December 31, 2020 and December 31, 2019,
the derivative liabilities associated with the sales of
Visa Class B shares were $13 million and $23 million,
respectively. See Note 24 - Fair Value of Assets and
Liabilities for discussion of the valuation inputs and
processes for these Visa-related derivatives.
Year Ended
December 31,
2020
Gains (Losses)
$
15
(37)
FHN utilizes cross currency swaps and cross
currency interest rate swaps to economically hedge
its exposure to foreign currency risk and interest rate
risk associated with non-U.S. dollar denominated
loans. As of December 31, 2020 and December 31,
2019, these loans were valued at $12 million and $18
million, respectively. The balance sheet amount and
the gains/losses associated with these derivatives
were not significant.
Related to its loan participation/syndication activities,
FHN enters into risk participation agreements, under
which it assumes exposure for, or receives
indemnification for, borrowers’ performance on
underlying interest rate derivative contracts. FHN’s
counterparties in these contracts are other lending
institutions involved in the loan participation/
syndication arrangements for which the underlying
interest rate derivative contract is intended to hedge
interest rate risk for the borrower. FHN will make
(other institution is the lead bank) or receive (FHN is
the lead bank) payments for risk participations if the
borrower defaults on its obligation to perform under
the terms of its interest rate derivative agreement with
the lead bank in the participation. As of December 31,
2020, the notional values of FHN’s risk participations
were $233 million of derivative assets and
$464 million of derivative liabilities. The notional value
for risk participation/syndication agreements is
consistent with the percentage of participation in the
lending arrangement. FHN’s maximum exposure or
benefit in the risk participation agreements is
contingent on the fair value of the underlying interest
rate derivative contracts for which the borrower is in a
liability position at the time of default. FHN monitors
the credit risk associated with the borrowers to which
the risk participations relate through the same credit
risk assessment process utilized for establishing
FIRST HORIZON CORPORATION
206
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 22 - Derivatives (Continued)
credit loss estimates for its loan portfolio. These credit
risk estimates are included in the determination of fair
value for the risk participations. As of December 31,
2020, FHN had recognized $280 thousand of
derivative assets and $820 thousand of derivative
liabilities associated with risk participation
agreements.
In conjunction with the IBKC merger, FHN obtained
certain certificates of deposit with the rate of return
based on an equity index which is considered an
embedded derivative as a written option that must be
separately recognized. The risks of the written option
are offset by purchasing an option with terms that
mirror the written option, which is also carried at fair
value on the Company’s Consolidated Balance
Sheets. As of December 31, 2020, FHN had
recognized $1 million of both assets and liabilities
associated with these contracts.
Master Netting and Similar Agreements
FHN uses master netting agreements, mutual
margining agreements and collateral posting
requirements to minimize credit risk on derivative
contracts. Master netting and similar agreements are
used when counterparties have multiple derivatives
contracts that allow for a “right of setoff,” meaning
that a counterparty may net offsetting positions and
collateral with the same counterparty under the
contract to determine a net receivable or payable.
The following discussion provides an overview of
these arrangements which may vary due to the
derivative type and market in which a derivative
transaction is executed.
Interest rate derivatives are subject to agreements
consistent with standard agreement forms of the
ISDA. Currently, all interest rate derivative contracts
are entered into as over-the-counter transactions and
collateral posting requirements are based on the net
asset or liability position with each respective
counterparty. For contracts that require central
clearing, novation to a counterparty with access to a
clearinghouse occurs and initial margin is posted.
Cash margin received (posted) that is considered
settlements for the derivative contracts is included in
the respective derivative asset (liability) value. Cash
margin that is considered collateral received (posted)
for interest rate derivatives is recognized as a liability
(asset) on FHN’s Consolidated Balance Sheet.
Interest rate derivatives with clients that are smaller
financial institutions typically require posting of
collateral by the counterparty to FHN. This collateral
is subject to a threshold with daily adjustments based
upon changes in the level or fair value of the
derivative position. Positions and related collateral
can be netted in the event of default. Collateral
pledged by a counterparty is typically cash or
securities. The securities pledged as collateral are not
recognized within FHN’s Consolidated Balance
Sheets. Interest rate derivatives associated with
lending arrangements share the collateral with the
related loan(s). The derivative and loan positions may
be netted in the event of default. For disclosure
purposes, the entire collateral amount is allocated to
the loan.
The net fair value, determined by individual
counterparty, of all derivative instruments with
adjustable collateral posting thresholds was $200
million of assets and $5 million of liabilities on
December 31, 2020, and $63 million of assets and $6
million of liabilities on December 31, 2019. As of
December 31, 2020 and 2019, FHN had received
collateral of $320 million and $149 million and posted
collateral of $34 million and $18 million, respectively,
in the normal course of business related to these
agreements.
Certain agreements entered into prior to required
central clearing also contain accelerated termination
provisions, inclusive of the right of offset, if a
counterparty’s credit rating falls below a specified
level. If a counterparty’s debt rating (including FHN’s
and First Horizon Bank's) were to fall below these
minimums, these provisions would be triggered, and
the counterparties could terminate the agreements
and require immediate settlement of all derivative
contracts under the agreements. The net fair value,
determined by individual counterparty, of all interest
rate derivative instruments with credit-risk-related
contingent accelerated termination provisions was
$216 million of assets and $17 million of liabilities on
December 31, 2020, and $63 million of assets and
$10 million of liabilities on December 31, 2019. As of
December 31, 2020 and 2019, FHN had received
collateral of $343 million and $149 million and posted
collateral of $53 million and $23 million, respectively,
in the normal course of business related to these
contracts.
FHNF buys and sells various types of securities for its
clients. When these securities settle on a delayed
basis, they are considered forward contracts, and are
generally not subject to master netting agreements.
For futures and options, FHN transacts through a
third party, and the transactions are subject to margin
and collateral maintenance requirements. In the event
of default, open positions can be offset along with the
associated collateral.
For this disclosure, FHN considers the impact of
master netting and other similar agreements which
FIRST HORIZON CORPORATION
207
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 22 - Derivatives (Continued)
allow FHN to settle all contracts with a single
counterparty on a net basis and to offset the net
derivative asset or liability position with the related
securities and cash collateral. The application of the
collateral cannot reduce the net derivative asset or
liability position below zero, and therefore any excess
collateral is not reflected in the following tables.
The following table provides details of derivative assets and collateral received as presented on the Consolidated
Balance Sheets as of December 31, 2020 and 2019:
(Dollars in millions)
Derivative assets:
December 31, 2020
Interest rate derivative
contracts
Forward contracts
December 31, 2019
Interest rate derivative
contracts
Forward contracts
Gross amounts
of recognized
assets
Gross amounts
offset in the
Balance
Sheets
Net amounts of
assets presented
in the Balance
Sheets (a)
Derivative
liabilities
available for
offset
Collateral
received
Net amount
Gross amounts not
offset in the
Balance Sheets
$
$
$
$
702 $
63
765 $
162 $
21
183 $
— $
—
— $
— $
—
— $
702 $
63
765 $
(7) $
(327) $
(14)
(21) $
(20)
(347) $
368
29
397
162 $
(6) $
(143) $
21
(13)
(2)
183 $
(19) $
(145) $
13
6
19
(a)
Included in Other assets on the Consolidated Balance Sheets. As of December 31, 2020 and 2019, $4 million and $0.1
million, respectively, of derivative assets have been excluded from these tables because they are generally not subject to
master netting or similar agreements.
FIRST HORIZON CORPORATION
208
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 22 - Derivatives (Continued)
The following table provides details of derivative liabilities and collateral pledged as presented on the Consolidated
Balance Sheets as of December 31, 2020 and 2019:
Gross amounts not offset
in the
Balance Sheets
Gross amounts
of recognized
liabilities
Gross
amounts
offset in the
Balance
Sheets
Net amounts of
liabilities presented
in the Balance
Sheets (a)
Derivative
assets
available for
offset
Collateral
pledged
Net amount
$
$
$
$
60 $
65
125 $
24 $
20
44 $
— $
—
— $
— $
—
— $
60 $
65
125 $
(7) $
(14)
(21) $
(31) $
(51)
(82) $
24 $
20
44 $
(6) $
(13)
(19) $
(18) $
(7)
(25) $
22
—
22
—
—
—
(Dollars in millions)
Derivative liabilities:
December 31, 2020
Interest rate derivative
contracts
Forward contracts
December 31, 2019
Interest rate derivative
contracts
Forward contracts
(a)
Included in Other liabilities on the Consolidated Balance Sheets. As of December 31, 2020 and 2019, $22 million and $23
million, respectively, of derivative liabilities (primarily Visa-related derivatives) have been excluded from these tables
because they are generally not subject to master netting or similar agreements.
FIRST HORIZON CORPORATION
209
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 23 - Master Netting and Similar Agreements - Repurchase, Reverse Repurchase, and Securities
Borrowing Transactions
For repurchase, reverse repurchase and securities
borrowing transactions, FHN and each counterparty
have the ability to offset all open positions and related
collateral in the event of default. Due to the nature of
these transactions, the value of the collateral for each
transaction approximates the value of the
corresponding receivable or payable. For repurchase
agreements through FHN’s fixed income business
(securities purchased under agreements to resell and
securities sold under agreements to repurchase),
transactions are collateralized by securities and/or
government guaranteed loans which are delivered on
the settlement date and are maintained throughout
the term of the transaction. For FHN’s repurchase
agreements through banking activities (securities sold
under agreements to repurchase), securities are
typically pledged at settlement and not released until
maturity. For asset positions, the collateral is not
included on FHN’s Consolidated Balance Sheets. For
liability positions, securities collateral pledged by FHN
is generally represented within FHN’s trading or
available-for-sale securities portfolios.
For this disclosure, FHN considers the impact of
master netting and other similar agreements that
allow FHN to settle all contracts with a single
counterparty on a net basis and to offset the net asset
or liability position with the related securities
collateral. The application of the collateral cannot
reduce the net asset or liability position below zero,
and therefore any excess collateral is not reflected in
the tables below.
Securities purchased under agreements to resell is
included in Federal funds sold and securities
purchased under agreements to resell in the
Consolidated Balance Sheets. Securities sold under
agreements to repurchase is included in Short-term
borrowings.
The following table provides details of securities purchased under agreements to resell and collateral pledged by
counterparties as of December 31:
Gross amounts
of recognized
assets
Gross amounts
offset in the
Balance
Sheets
Net amounts of
assets presented
in the Balance
Sheets
Offsetting
securities sold
under agreements
to repurchase
Securities collateral
(not recognized on
FHN’s Balance
Sheets)
Net amount
Gross amounts not offset in the
Balance Sheets
$
380 $
587
— $
—
380 $
587
— $
(21)
(379) $
(563)
1
3
(Dollars in millions)
Securities purchased
under agreements to
resell:
2020
2019
The following table provides details of securities sold under agreements to repurchase and collateral pledged by
FHN as of December 31:
Gross amounts
of recognized
liabilities
Gross amounts
offset in the
Balance
Sheets
Net amounts of
liabilities presented
in the Balance
Sheets
Offsetting
securities
purchased under
agreements to resell
Securities/
government
guaranteed
loans
collateral
Net amount
Gross amounts not offset in the
Balance Sheets
$
1,187 $
717
— $
—
1,187 $
717
— $
(1,187) $
(21)
(696)
—
—
(Dollars in millions)
Securities sold under
agreements to
repurchase:
2020
2019
FIRST HORIZON CORPORATION
210
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 23 - Master Netting and Similar Agreements - Repurchase, Reverse Repurchase, and Securities
Borrowing Transactions (Continued)
Due to the short duration of securities sold under
agreements to repurchase and the nature of collateral
involved, the risks associated with these transactions
are considered minimal. The following tables provide
details, by collateral type, of the remaining contractual
maturity of securities sold under agreements to
repurchase as of December 31:
(Dollars in millions)
Securities sold under agreements to repurchase:
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
Government guaranteed loans (SBA and USDA)
December 31, 2020
Overnight and
Continuous
Up to 30 Days
Total
$
284 $
— $
616
10
151
126
—
—
—
—
284
616
10
151
126
Total securities sold under agreements to repurchase
$
1,187 $
— $
1,187
(Dollars in millions)
Securities sold under agreements to repurchase:
U.S. treasuries
Government agency issued MBS
Other U.S. government agencies
Government guaranteed loans (SBA and USDA)
Total securities sold under agreements to repurchase
December 31, 2019
Overnight and
Continuous
Up to 30 Days
Total
$
$
41 $
— $
341
55
275
5
—
—
712 $
5 $
41
346
55
275
717
FIRST HORIZON CORPORATION
211
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - 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
use of option pricing models, discounted cash
flow models, and similar techniques.
FIRST HORIZON CORPORATION
212
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - Fair Value of Assets and Liabilities (Continued)
Recurring Fair Value Measurements
The following tables present the balances of assets and liabilities measured at fair value on a recurring basis as of
December 31, 2020 and 2019:
(Dollars in millions)
Trading securities:
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
States and municipalities
Corporate and other debt
Total trading securities
Loans held for sale (elected fair value)
Loans held for investment (elected fair value)
Securities available for sale:
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
States and municipalities
Corporate and other debt
Interest-only strips (elected fair value)
Total securities available for sale
Other assets:
Deferred compensation mutual funds
Equity, mutual funds, and other
Derivatives, forwards and futures
Derivatives, interest rate contracts
Derivatives, other
Total other assets
Total assets
Trading liabilities:
U.S. treasuries
Government issued agency MBS
Corporate and other debt
Total trading liabilities
Other liabilities:
Derivatives, forwards and futures
Derivatives, interest rate contracts
Derivatives, other
Total other liabilities
Total liabilities
$
$
$
$
Level 1
Level 2
Level 3
Total
December 31, 2020
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
118
25
63
—
—
206
206 $
— $
—
—
—
71
—
—
71
71 $
81 $
633
212
62
7
181
1,176
393
—
613
3,812
2,406
684
460
40
—
8,015
—
—
—
702
4
706
10,290 $
307 $
3
43
353
—
60
4
64
417 $
— $
—
—
—
—
—
—
12
16
—
—
—
—
—
—
32
32
—
—
—
—
—
—
60 $
— $
—
—
—
—
—
14
14
14 $
81
633
212
62
7
181
1,176
405
16
613
3,812
2,406
684
460
40
32
8,047
118
25
63
702
4
912
10,556
307
3
43
353
71
60
18
149
502
FIRST HORIZON CORPORATION
213
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - Fair Value of Assets and Liabilities (Continued)
(Dollars in millions)
Trading securities:
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
States and municipalities
Corporate and other debt
Equity, mutual funds, and other
Total trading securities
Trading securities—mortgage banking
Loans held for sale (elected fair value)
Securities available for sale:
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
States and municipalities
Corporate and other debt
Interest-only strips (elected fair value)
Total securities available for sale
Other assets:
Deferred compensation mutual funds
Equity, mutual funds, and other
Derivatives, forwards and futures
Derivatives, interest rate contracts
Total other assets
Total assets
Trading liabilities:
U.S. treasuries
Corporates and other debt
Total trading liabilities
Other liabilities:
Derivatives, forwards and futures
Derivatives, interest rate contracts
Derivatives, other
Total other liabilities
Total liabilities
$
$
$
Level 1
Level 2
Level 3
Total
December 31, 2019
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
47
23
20
—
90
90 $
— $
—
—
20
—
—
20
135 $
268
250
125
121
445
1
1,345
—
—
2,349
1,670
306
61
40
—
4,426
—
—
—
163
163
5,934 $
407 $
99
506
—
24
—
24
— $
—
—
—
—
—
—
—
1
14
—
—
—
—
—
19
19
—
—
—
—
—
34 $
— $
—
—
—
—
23
23
135
268
250
125
121
445
1
1,345
1
14
2,349
1,670
306
61
40
19
4,445
47
23
20
163
253
6,058
407
99
506
20
24
23
67
$
20 $
530 $
23 $
573
FIRST HORIZON CORPORATION
214
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - Fair Value of Assets and Liabilities (Continued)
Changes in Recurring Level 3 Fair Value Measurements
The changes in Level 3 assets and liabilities measured at fair value for the years ended December 31, 2020, 2019
and 2018 on a recurring basis are summarized as follows:
Year Ended December 31, 2020
(Dollars in millions)
Balance on January 1, 2020
Acquired
Total net gains (losses) included in net
income
Purchases
Sales
Settlements
Net transfers into (out of) Level 3
Balance on December 31, 2020
Net unrealized gains (losses) included in net
income
$
$
(Dollars in millions)
Balance on January 1, 2019
Total net gains (losses) included in net income
Purchases
Sales
Settlements
Net transfers into (out of) Level 3
(Dollars in millions)
Balance on January 1, 2018
Total net gains (losses) included in net income
Purchases
Sales
Settlements
Net transfers into (out of) Level 3
Trading
securities
$
1
—
Interest-
only strips-
AFS
Loans held
for sale
$
$
$
19
—
(6)
6
(11)
—
24 (b)
32
$
14
—
1
—
—
(3)
—
12
Loans
held for
investment
$
— $
14
—
—
(4)
(3)
9
$
16 $
(1)
—
—
—
—
—
Net
derivative
liabilities
(23)
—
(1)
—
—
10
—
(14)
— (a) $
(4) (c) $
1 (a) $
— $
(1) (d)
Trading
securities
$
Trading
securities
$
2
—
—
—
(1)
—
1
2
1
—
—
(1)
—
2
Year Ended December 31, 2019
Interest-
only strips-
AFS
Loans held
for sale
Net
derivative
liabilities
$
$
10
(5)
—
(47)
—
61 (b)
19
$
$
16
2
—
—
(4)
—
14
$
$
(32)
(4)
—
—
13
—
(23)
Year Ended December 31, 2018
Interest-
only strips-
AFS
Loans held
for sale
Net
derivative
liabilities
$
$
1
—
—
(17)
—
26 (b)
10
$
$
19
1
—
—
(4)
—
16
$
$
(6)
(5)
(28) (e)
—
7
—
(32)
(5) (d)
Balance on December 31, 2019
Net unrealized gains (losses) included in net income
$
$
—
(a) $
(2) (c) $
2 (a) $
(4) (d)
Balance on December 31, 2018
Net unrealized gains (losses) included in net income
$
$
—
(a) $
(1) (c) $
1 (a) $
(a) Primarily included in mortgage banking and title income on the Consolidated Statements of Income.
(b) Transfers into interest-only strips - AFS level 3 measured on a recurring basis reflect movements from loans held for sale
(Level 2 nonrecurring).
(c) Primarily included in fixed income on the Consolidated Statements of Income.
(d)
(e)
Included in Other expense.
Increase related to Visa-related derivatives, see Note 22-Derivatives.
There were no net unrealized gains (losses) for Level
3 assets and liabilities included in other
comprehensive income as of December 31, 2020,
2019 and 2018.
FIRST HORIZON CORPORATION
215
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - Fair Value of Assets and Liabilities (Continued)
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 December 31, 2020, 2019 and 2018,
respectively, the following tables provide the level of
valuation assumptions used to determine each
adjustment and the related carrying value.
(Dollars in millions)
Loans held for sale—SBAs and USDA $
Loans held for sale—first mortgages
Loans and leases (a)
OREO (b)
Other assets (c)
Carrying value at December 31, 2020
Year Ended December 31,
2020
Level 1
Level 2
Level 3
Total
Net gains (losses)
— $
—
—
—
—
508 $
—
—
—
—
1 $
1
77
15
9
509 $
1
77
15
9
$
(3)
—
(12)
(1)
(2)
(18)
(Dollars in millions)
Loans held for sale—SBAs and USDA $
Loans held for sale—first mortgages
Loans and leases (a)
OREO (b)
Other assets (c)
Carrying value at December 31, 2019
Year Ended December 31,
2019
Level 1
Level 2
Level 3
Total
Net gains (losses)
— $
—
—
—
—
493 $
—
—
—
—
1 $
1
42
16
11
494 $
1
42
16
11
$
(2)
—
(7)
(1)
(2)
(12)
(Dollars in millions)
Loans held for sale—other consumer
Loans held for sale—SBAs and USDA
Loans held for sale—first mortgages
$
Loans and leases (a)
OREO (b)
Other assets (c)
Carrying value at December 31, 2018
Year Ended December 31,
2018
Level 1
Level 2
Level 3
Total
Net gains (losses)
— $
19 $
— $
19 $
—
—
—
—
—
577
—
—
—
—
1
1
48
22
9
578
1
48
22
9
$
(2)
(2)
—
(1)
(2)
(5)
(12)
(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.
(c) Represents tax credit investments accounted for under the equity method.
In 2020, FHN recognized $7 million of fixed asset
impairments and $6 million of impairments for lease
assets primarily related to continuing merger and
acquisition integration efforts associated with
reduction of leased office space and branch
optimization. These amounts were primarily
recognized in the Corporate segment.
In 2019, FHN recognized $5 million of impairments
and $1 million of impairment reversals, respectively,
related to dispositions of acquired properties and $2
million of impairments for lease assets related to
continuing acquisition integration efforts associated
with reduction of leased office space and branch
optimization. Related to its restructuring,
FIRST HORIZON CORPORATION
216
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - Fair Value of Assets and Liabilities (Continued)
repositioning, and efficiency efforts, FHN recognized
$14 million of impairments and $1 million of
impairment reversals, respectively, for tangible long-
lived assets and lease assets. Related to its
rebranding initiative, FHN recognized $7 million of
impairments for long-lived tangible assets, primarily
signage, related to FHN's rebranding initiative. These
amounts were recognized in the Corporate segment.
In 2018, FHN recognized $4 million of impairments of
long-lived assets primarily related to optimization
efforts for its facilities. Also, in 2018, $2 million of
impairment charges previously recognized in 2017 in
the Corporate segment were reversed based on the
disposition prices for the applicable locations.
Lease asset impairments recognized in 2020 and
2019 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.
FIRST HORIZON CORPORATION
217
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - Fair Value of Assets and Liabilities (Continued)
Level 3 Measurements
The following tables provide information regarding the unobservable inputs utilized in determining the fair value of
Level 3 recurring and non-recurring measurements as of December 31, 2020 and 2019:
(Dollars in millions)
Level 3 Class
Available for sale
securities SBA -
interest only strips
Loans held for sale -
residential real
estate
Loans held for sale -
unguaranteed
interest in SBA
loans
Loans held for
investment
Derivative liabilities,
other
$
$
$
$
$
Fair Value at
December 31,
2020
32
Valuation Techniques
Discounted cash flow
Unobservable Input
Constant prepayment
rate
Range
12%
Weighted
Average (d)
12%
Values Utilized
13
Discounted cash flow
1
Discounted cash flow
16
Discounted cash flow
Bond equivalent yield
15% - 17%
Prepayment speeds -
First mortgage
5% - 15%
Foreclosure losses
59% - 70%
Loss severity trends -
First mortgage
3% - 19% of
UPB
Constant prepayment
rate
8% - 12%
Bond equivalent yield
7%-8%
Constant prepayment
rate
Constant default rate
0% - 26%
0% - 14%
Loss severity trends
0% -100%
15%
5%
63%
12%
10%
7%
11%
1%
11%
14
Discounted cash flow
Visa covered litigation
resolution amount
$5.4 billion -
$6.0 billion
$5.8 billion
Loans and leases
(a)
$
77
Appraisals from
comparable properties
Other collateral
valuations
OREO (b)
Other assets (c)
$
$
15
Appraisals from
comparable properties
9
Discounted cash flow
Appraisals from
comparable properties
Probability of
resolution scenarios
Time until resolution
Marketability
adjustments for
specific properties
Borrowing base
certificates
adjustment
Financial Statements/
Auction values
adjustment
Adjustment for value
changes since
appraisal
Adjustments to
current sales yields
for specific properties
Marketability
adjustments for
specific properties
10% - 50%
16%
3 - 27
months
0% - 10% of
appraisal
20% - 50%
of gross
value
0% - 25% of
reported
value
0% - 10% of
appraisal
0% - 15%
adjustment
to yield
0% - 25% of
appraisal
19 months
NM
NM
NM
NM
NM
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) Represents tax credit investments accounted for under the equity method.
(d) Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument's
fair value.
FIRST HORIZON CORPORATION
218
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - Fair Value of Assets and Liabilities (Continued)
(Dollars in millions)
Level 3 Class
Available for sale
securities SBA -
interest only strips
Loans held for sale -
residential real
estate
$
$
Fair Value at
December 31,
2019
19
Valuation Techniques
Discounted cash flow
Unobservable Input
Constant
prepayment rate
Values Utilized
Range
12%
Weighted
Average (d)
12%
15
Discounted cash flow
Bond equivalent
yield
Prepayment speeds
- First mortgage
16% - 17%
3% - 14%
Prepayment speeds
- HELOC
Foreclosure losses
Loss severity trends
- First mortgage
Loss severity trends
- HELOC
Constant
prepayment rate
0% - 12%
50% - 66%
3% - 24% of
UPB
0% - 72% of
UPB
8% - 12%
16%
4%
8%
64%
14%
50%
10%
Bond equivalent
yield
Visa covered
litigation resolution
amount
Probability of
resolution scenarios
Time until resolution
Marketability
adjustments for
specific properties
Borrowing base
certificates
adjustment
Financial
Statements/Auction
values adjustment
Adjustment for value
changes since
appraisal
Adjustments to
current sales yields
for specific
properties
Marketability
adjustments for
specific properties
9%
9%
$5.4 billion -
$6.0 billion
$5.8 billion
10% - 50%
16%
15 - 39
months
0% - 10% of
appraisal
20% - 50%
of gross
value
0% - 25% of
reported
value
0% - 10% of
appraisal
0% - 15%
adjustment
to yield
0% - 25% of
appraisal
29 months
NM
NM
NM
NM
NM
NM
Loans held for sale -
unguaranteed
interest in SBA
loans
$
1
Discounted cash flow
Derivative liabilities,
other
$
23
Discounted cash flow
Loans and leases
(a)
$
42
Appraisals from
comparable properties
Other collateral
valuations
OREO (b)
Other assets (c)
$
$
16
Appraisals from
comparable properties
11
Discounted cash flow
Appraisals from
comparable properties
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) Represents tax credit investments accounted for under the equity method.
(d) Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument's
fair value.
Securities AFS. 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
FIRST HORIZON CORPORATION
219
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - Fair Value of Assets and Liabilities (Continued)
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 re-assessed quarterly.
Increases (decreases) in estimated prepayment rates
and bond equivalent yields negatively (positively)
affect the value of unguaranteed interests in SBA
loans. Unguaranteed interest in SBA loans held for
sale are carried at less than the outstanding balance
due to credit risk estimates. Credit risk adjustments
may be reduced if prepayment is likely or as
consistent payment history is realized. Management
also considers other factors such as delinquency or
default and adjusts the fair value accordingly.
Loans held for investment. Constant prepayment
rate, constant default rate and loss severity trends are
significant unobservable inputs used in the fair value
measurement of loans held for investment. Increases
(decreases) in each of these inputs in isolation result
in negative (positive) effects on the valuation of the
associated loans.
Derivative liabilities. In conjunction with the sales of
its 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.
Other assets – tax credit investments. The
estimated fair value of tax credit investments
accounted for under the equity method is generally
determined in relation to the yield (i.e., future tax
credits to be received) an acquirer of these
investments would expect in relation to the yields
experienced on current new issue and/or secondary
market transactions. Thus, as tax credits are
recognized, the future yield to a market participant is
reduced, resulting in consistent impairment of the
individual investments. Individual investments are
reviewed for impairment quarterly, which may include
the consideration of additional marketability discounts
related to specific investments which typically
includes consideration of the underlying property’s
appraised value.
Fair Value Option
FHN has elected the fair value option on a
prospective basis for substantially all types of
mortgage loans originated for sale purposes except
for mortgage origination operations which utilize the
platform acquired from CBF. 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
FIRST HORIZON CORPORATION
220
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - Fair Value of Assets and Liabilities (Continued)
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.
FHN also has a portion of mortgage loans held for
investment for which the fair value option was elected
upon origination and which continue to be accounted
for at fair value.
The following tables reflect the differences between the fair value carrying amount of residential real estate loans
held for sale and held for investment measured at fair value in accordance with management’s election and the
aggregate unpaid principal amount FHN is contractually entitled to receive at maturity.
(Dollars in millions)
Residential real estate loans held for sale reported at fair
value:
Total loans
Nonaccrual loans
Loans held for investment reported at fair value:
Total loans
Nonaccrual loans
(Dollars in millions)
Residential real estate loans held for sale reported at fair
value:
December 31, 2020
Fair value
carrying
amount
Aggregate
unpaid
principal
Fair value carrying amount
less aggregate unpaid
principal
$
405 $
2
442 $
5
16
1
17
1
(37)
(3)
(1)
—
December 31, 2019
Fair value
carrying
amount
Aggregate
unpaid
principal
Fair value carrying amount
less aggregate unpaid
principal
Total loans
Nonaccrual loans
$
14 $
4
19 $
7
(5)
(3)
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:
(Dollars in millions)
Changes in fair value included in net income:
Mortgage banking and title noninterest income
Loans held for sale
For the years ended December 31, 2020, 2019 and
2018, the amount for residential real estate loans held
for sale included an insignificant amount of gains in
pretax 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
Year Ended December 31,
2019
2018
2020
$
4 $
2 $
1
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.
FHN has elected to account for retained interest-only
strips from guaranteed SBA loans recorded in
available-for-sale securities at fair value through
earnings. Since these securities are subject to the
risk that prepayments may result in FHN not
recovering all or a portion of its recorded investment,
FIRST HORIZON CORPORATION
221
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - Fair Value of Assets and Liabilities (Continued)
the fair value election results in a more timely
recognition of the effects of estimated prepayments
through earnings rather than being recognized
through other comprehensive income with periodic
review for other-than-temporary impairment. Gains or
losses are recognized through fixed income revenues
and are presented in the recurring measurements
table.
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.
Prior to December 31, 2020, trading securities also
included retained interests in prior mortgage
securitizations that qualify as financial assets, which
include primarily principal-only strips. FHN uses
inputs including yield curves, credit spreads, and
prepayment speeds to determine the fair value of
principal-only strips.
Securities available for sale. Valuations of
available-for-sale 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.
Interest only strips are valued at elected 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.
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.
Fair value of residential real estate loans held for sale
determined using a discounted cash flow model
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.
FIRST HORIZON CORPORATION
222
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - Fair Value of Assets and Liabilities (Continued)
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. Typically inputs
include benchmark yields, option volatility and option
skew. Starting in October 2020, 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. Tax credit
investments accounted for under the equity method
are written down to estimated fair value quarterly
based on the estimated value of the associated tax
credits which incorporates estimates of required yield
for hypothetical investors. The fair value of all other
tax credit investments is estimated using recent
transaction information with adjustments for
differences in individual investments. Deferred
FIRST HORIZON CORPORATION
223
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - Fair Value of Assets and Liabilities (Continued)
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
December 31, 2020 and December 31, 2019, 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
have not been included in the following table such as
the value of long-term relationships with deposit and
trust clients, premises and equipment, goodwill and
other intangibles, deferred taxes, and certain other
assets and other liabilities. Additionally, these
measurements 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.
FIRST HORIZON CORPORATION
224
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - Fair Value of Assets and Liabilities (Continued)
The following tables summarize the book value and estimated fair value of financial instruments recorded in the
Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019:
(Dollars in millions)
Assets:
Loans and leases, net of allowance for loan and lease
losses
Commercial:
Book
Value
December 31, 2020
Fair Value
Level 1
Level 2
Level 3
Total
Commercial, financial and industrial
Commercial real estate
$
32,651 $
12,033
— $
—
— $
—
32,582 $
12,079
Consumer:
Consumer real estate (a)
Credit card & other
Total loans and leases, net of allowance for loan and lease
losses
Short-term financial assets:
Interest-bearing deposits with banks
Federal funds sold
Securities purchased under agreements to resell
Total short-term financial assets
Trading securities (b)
Loans held for sale:
Mortgage loans (elected fair value) (b)
USDA & SBA loans - LOCOM
Other loans - LOCOM
Mortgage loans - LOCOM
Total loans held for sale
Securities available for sale (b)
Derivative assets (b)
Other assets:
Tax credit investments
Deferred compensation mutual funds
Equity, mutual funds, and other (c)
Total other assets
Total assets
Liabilities:
Defined maturity deposits
Trading liabilities (b)
Short-term financial liabilities:
Federal funds purchased
Securities sold under agreements to repurchase
Other short-term borrowings
Total short-term financial liabilities
Term borrowings:
Real estate investment trust-preferred
Term borrowings—new market tax credit investment
Secured borrowings
Junior subordinated debentures
Other long term borrowings
Total term borrowings
Derivative liabilities (b)
Total liabilities
11,483
1,102
57,269
8,351
65
380
8,796
1,176
405
509
31
77
1,022
8,047
770
400
118
288
806
77,886 $
5,070 $
353
$
$
845
1,187
166
2,198
46
45
15
238
1,326
1,670
149
$
9,440 $
—
—
—
8,351
—
—
8,351
—
—
—
—
—
—
—
63
—
118
25
143
8,557 $
—
—
—
—
65
380
445
1,176
393
511
31
—
935
8,015
706
11,903
1,131
57,695
—
—
—
—
—
12
1
—
77
90
32
—
—
—
—
—
11,277 $
371
—
263
634
58,451 $
— $
—
5,083 $
353
— $
—
—
—
—
—
—
—
—
—
—
—
71
71 $
845
1,187
166
2,198
—
—
—
—
1,455
1,455
64
9,153 $
—
—
—
—
47
45
15
223
—
330
14
344 $
32,582
12,079
11,903
1,131
57,695
8,351
65
380
8,796
1,176
405
512
31
77
1,025
8,047
769
371
118
288
777
78,285
5,083
353
845
1,187
166
2,198
47
45
15
223
1,455
1,785
149
9,568
(a)
In first quarter 2020, the Permanent Mortgage portfolio was combined into Consumer Real Estate portfolio, all prior periods
were revised for comparability.
(b) Classes are detailed in the recurring and nonrecurring measurement tables.
(c) Level 1 primarily consists of mutual funds with readily determinable fair values. Level 3 includes restricted investments in
FHLB-Cincinnati stock of $61 million and FRB stock of $202 million.
FIRST HORIZON CORPORATION
225
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - Fair Value of Assets and Liabilities (Continued)
(Dollars in millions)
Assets:
Loans and leases, net of allowance for loan and lease
losses
Commercial:
Book
Value
December 31, 2019
Fair Value
Level 1
Level 2
Level 3
Total
Commercial, financial and industrial
$
19,929 $
— $
— $
20,096 $
Commercial real estate
Consumer:
Consumer real estate
Credit card & other
Total loans and leases, net of allowance for loan and lease
losses
Short-term financial assets:
Interest-bearing deposits with banks
Federal funds sold
Securities purchased under agreements to resell
Total short-term financial assets
Trading securities (a)
Loans held for sale:
Mortgage loans (elected fair value) (a)
USDA & SBA loans - LOCOM
Other loans - LOCOM
Mortgage loans - LOCOM
Total loans held for sale
Securities available for sale (a)
Securities held to maturity
Derivative assets (a)
Other assets:
Tax credit investments
Deferred compensation assets
Equity, mutual funds, and other (b)
Total other assets
Total assets
Liabilities:
Defined maturity deposits
Trading liabilities (a)
Short-term financial liabilities:
Federal funds purchased
Securities sold under agreements to repurchase
Other short-term borrowings
Total short-term financial liabilities
Term borrowings:
Real estate investment trust-preferred
Secured borrowings
Junior subordinated debentures
Other long term borrowings
Total term borrowings
Derivative liabilities (a)
Total liabilities
4,301
6,149
482
30,861
482
46
587
1,115
1,346
14
494
5
81
594
4,445
10
183
247
47
229
523
—
—
—
—
482
—
—
482
—
—
—
—
—
—
—
—
20
—
47
23
70
—
—
—
—
—
46
587
633
1,345
—
496
5
—
501
4,426
—
163
—
—
—
—
4,301
6,334
487
20,096
4,301
6,334
487
31,218
31,218
—
—
—
—
1
14
1
—
81
96
19
10
—
245
—
207
452
482
46
587
1,115
1,346
14
497
5
81
597
4,445
10
183
245
47
230
522
$
$
39,077 $
572 $
7,068 $
31,796 $
39,436
3,618 $
506
548
717
2,253
3,518
46
22
145
578
791
67
— $
3,631 $
— $
—
—
—
—
—
—
—
—
—
—
20
506
548
717
2,253
3,518
—
—
—
574
574
24
—
—
—
—
—
47
22
142
—
211
23
3,631
506
548
717
2,253
3,518
47
22
142
574
785
67
$
8,500 $
20 $
8,253 $
234 $
8,507
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) Classes are detailed in the recurring and nonrecurring measurement tables.
(b) Level 1 primarily consists of mutual funds with readily determinable fair values. Level 3 includes restricted investments in
FHLB-Cincinnati stock of $76 million and FRB stock of $131 million.
FIRST HORIZON CORPORATION
226
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 24 - Fair Value of Assets and Liabilities (Continued)
The following table presents the contractual amount and fair value of unfunded loan commitments and standby and
other commitments as of December 31, 2020 and December 31, 2019:
(Dollars in millions)
Unfunded Commitments:
Loan commitments
Standby and other commitments
Contractual Amount
Fair Value
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
$
20,796 $
751
12,355 $
459
2 $
6
4
6
FIRST HORIZON CORPORATION
227
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 25 – Restructuring, Repositioning, and Efficiency
Beginning in 2019, FHN initiated a company-wide
review of business practices with the goal of
optimizing its expense base to improve profitability
and create capacity to reinvest savings into
technology and revenue production activities.
Restructuring, repositioning, and efficiency charges
related to these corporate-driven actions were not
significant in 2020 and were $40 million in 2019.
These expenses are included in the Corporate
segment. Significant expenses resulted from the
following actions:
corporate and bank services functions which
are classified as personnel expense within
noninterest expense.
Expense largely related to the identification of
efficiency opportunities within the
organization which is reflected in legal and
professional fees.
Expense related to costs associated with
asset impairments which is reflected in other
expense.
•
•
•
Severance and other employee costs
primarily related to efficiency initiatives within
Settlement of the obligations arising from current
initiatives will be funded from operating cash flows.
Total expense recognized for the year ended December 31, 2019 is presented in the table below:
(Dollars in millions)
Year Ended
December 31, 2019
Personnel expense
Legal and professional fees
Net occupancy expense
Other
Total restructuring, repositioning, and efficiency charges $
$
11
16
1
12
40
FIRST HORIZON CORPORATION
228
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 26 - Parent Company Financial Information
Following are statements of the parent company:
Balance Sheets
(Dollars in millions)
Assets:
Cash
Notes receivable
Investments in subsidiaries:
Bank
Non-bank
Other assets
Total assets
Liabilities and equity:
Accrued employee benefits and other liabilities
Term borrowings
Total liabilities
Total equity
Total liabilities and equity
Statements of Income
(Dollars in millions)
Dividend income:
Bank
Non-bank
Total dividend income
Other income
Total income
$
Provision (provision credit) for credit losses
Interest expense - term borrowings
Compensation, employee benefits and other expense
Total expense
Income before income taxes
Income tax benefit
Income before equity in undistributed net income of
subsidiaries
Equity in undistributed net income (loss) of subsidiaries:
Bank
Non-bank
Net income attributable to the controlling interest
$
December 31,
2020
2019
$
$
$
$
827 $
3
8,176
88
274
9,368 $
322 $
1,034
1,356
8,012
9,368 $
369
3
5,039
18
171
5,600
177
642
819
4,781
5,600
Year Ended December 31,
2019
2018
2020
180 $
—
180
—
180
—
39
54
93
87
(18)
105
736
4
845 $
345 $
1
346
1
347
(1)
31
53
83
264
(19)
283
160
(2)
441 $
420
1
421
—
421
—
31
54
85
336
(39)
375
171
(1)
545
FIRST HORIZON CORPORATION
229
2020 FORM 10-K ANNUAL REPORT
Table of Contents
Note 26 - Parent Company Financial Information (Continued)
Statements of Cash Flows
(Dollars in millions)
Operating activities:
Net income
Less undistributed net income of subsidiaries
Income before undistributed net income of subsidiaries
Adjustments to reconcile income to net cash provided by
operating activities:
Depreciation, amortization, and other
(Gain) loss on derivative transactions
Deferred income tax expense
Stock-based compensation expense
Other operating activities, net
Total adjustments
Net cash provided by operating activities
Investing activities:
Proceeds from sales and prepayments of securities
Purchases of securities
(Investment in) return on subsidiary
Cash received (paid for) business combination, net
Net cash provided by (used in) investing activities
Financing activities:
Proceeds from issuance of preferred stock
Cash dividends paid - preferred stock
Common stock:
Stock options exercised
Cash dividends paid
Repurchase of shares
Proceeds from issuance of term borrowings
Repayment of term borrowings
Other financing activities, net
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Total interest paid
Income taxes received from subsidiaries
2020
2019
2018
$
845 $
740
105
—
4
5
32
21
62
167
—
(5)
(2)
103
96
144
(17)
7
(222)
(4)
795
(500)
(8)
195
458
369
$
$
827 $
33 $
33
441 $
158
283
(1)
—
4
22
28
53
336
1
—
—
—
1
—
(6)
9
(171)
(134)
—
—
—
(302)
35
334
369 $
29 $
43
545
170
375
—
—
3
23
7
33
408
—
—
2
(40)
(38)
—
(6)
4
(139)
(105)
—
(45)
—
(291)
79
255
334
29
49
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH
ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
FIRST HORIZON CORPORATION
230
2020 FORM 10-K ANNUAL REPORT
ITEM 9A. CONTROLS AND
PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end
of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial
Officer have concluded that our disclosure controls and procedures were effective as of the end of the period
covered by this report.
Reports on Internal Control over Financial Reporting
The report of management required by Item 308(a) of Regulation S-K, and the attestation report required by Item
308(b) of Regulation S-K, appear at pages 106-108 of our 2020 Financial Statements (Item 8) and are incorporated
herein by this reference.
Changes in Internal Control over Financial Reporting
Other than as explained below, there have not been any changes in our internal control over financial reporting
during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
On July 1, 2020, FHN and IBERIABANK Corporation ("IBKC") closed their merger of equals transaction. As
permitted by Securities and Exchange Commission rules, we have elected to exclude IBKC from our assessment of
internal control over financial reporting as of December 31, 2020. Our integration of IBKC’s systems and processes
with our own could cause changes to our internal controls over financial reporting in future periods.
ITEM 9B. OTHER
INFORMATION
Not applicable.
FIRST HORIZON CORPORATION
231
2020 FORM 10-K ANNUAL REPORT
PART III
ITEM 10. DIRECTORS AND
EXECUTIVE OFFICERS OF
THE REGISTRANT
Required Item 10 Information
In 2020 there were no material amendments to the
procedures, described in our 2021 Proxy Statement
under the caption Shareholder Recommendations of
Director Nominees; Shareholder Nominations, by
which security holders may recommend nominees to
our Board of Directors.
Our bylaws contain a process, if certain conditions
are met, for a shareholder to nominate a person for
election to the Board in advance of an annual
meeting, and to require us to include that nomination
in our annual meeting proxy statement. Additional
information regarding this process is available in our
2021 Proxy Statement under the captions:
Shareholder Recommendations of Director
Nominees; Shareholder Nominations and
Shareholder Proposal & Nomination Deadlines, which
information is incorporated herein by reference.
Our Board of Directors has adopted a Code of Ethics
for Senior Financial Officers that applies to the Chief
Executive Officer, Chief Financial Officer, and Chief
Accounting Officer and also applies to all
Table 10.1
professionals serving in the financial, accounting, or
audit areas of FHN and its subsidiaries. A copy of the
Code has been filed or incorporated by reference as
Exhibit 14 to this report and is posted on our current
internet website (at www.firsthorizon.com: click on
“Investor Relations,” at the bottom of the web page,
then hover over the Investor Relations box at the top
of the page, then hover over “Corporate
Governance,” and lastly click on “Governance
Documents.”) A paper copy of the Code is available
without charge upon written request addressed to our
Corporate Secretary at our main office, 165 Madison
Avenue, Memphis, Tennessee 38103. We intend to
satisfy our disclosure obligations under Item 5.05 of
Form 8-K related to Code amendments or waivers by
posting such information on our internet website, the
address for which is listed in this paragraph above.
Other information required by this Item related to the
topics mentioned in Table 10.1 is incorporated herein
by reference to the disclosures indicated in the Table.
Item 10 Topics Incorporated Disclosures
Directors and nominees for director of FHN,
the Audit Committee of our Board of
Directors, members of the Audit Committee,
and audit committee financial experts
Executive officers
Independence & Categorical Standards, Committee Charters &
Committee Composition, The Audit Committee, and Vote Item 1—
Election of Directors in our 2021 Proxy Statement (excluding the Audit
Committee Report and the statements regarding the existence and
location of the Audit Committee’s charter)
Executive Officers of the Registrant in the Supplemental Part I
Information following Item 4 of this report
Compliance with Section 16(a) of the
Securities Exchange Act of 1934
not applicable
FIRST HORIZON CORPORATION
232
2020 FORM 10-K ANNUAL REPORT
First Horizon Board of Directors (at February 20, 2021)
Table 10.2
Harry V. Barton, Jr.
Age 66
CPA, registered investment advisor, and
Owner,
Barton Advisory Services, LLC,
an investment advisory firm
John N. Casbon
Age 72
Executive Vice President,
First American Title Insurance Company,
a title insurance company
William H. Fenstermaker
Age 72
Chairman and Chief Executive Officer,
C.H. Fenstermaker and Associates, LLC,
a surveying, mapping, engineering, and
environmental consulting company
Rick E. Maples
Age 62
Retired Co-Head of Investment Banking,
Stifel Financial Corp.,
a financial services company
E. Stewart Shea III
Age 69
Private Investor
Rosa Sugrañes
Age 63
Founder and former
Chief Executive Officer,
Iberia Tiles,
a ceramic tile manufacturer
Kenneth A. Burdick
Age 62
Retired Executive Vice President,
Products and Markets,
Centene Corporation,
a healthcare services company
John C. Compton
Age 59
Partner,
Clayton, Dubilier & Rice, LLC
a private equity firm
D. Bryan Jordan
Age 59
President and
Chief Executive Officer,
First Horizon Corporation,
a financial services company
Vicki R. Palmer
Age 67
President,
The Palmer Group, LLC
a general consulting firm
Cecelia D. Stewart
Age 62
Retired President, U.S. Consumer &
Commercial Banking,
Citigroup, Inc.
a financial services company
Daryl G. Byrd
Age 66
Executive Chairman of the Board,
First Horizon Corporation,
a financial services company
Wendy P. Davidson
Age 51
President-Americas,
Glanbia Performance Nutrition,
a global nutrition company
J. Michael Kemp, Sr.
Age 50
Founder and Chief Executive Officer,
Kemp Management Solutions,
a program management and
consulting firm
Colin V. Reed
Age 73
Chairman of the Board and
Chief Executive Officer,
Ryman Hospitality Properties, Inc.
a real estate investment trust
Rajesh Subramaniam
Age 55
President and
Chief Operating Officer,
FedEx Corp.
a provider of transportation, e-commerce,
and business services
R. Eugene Taylor
Age 73
Retired Chairman of the Board and
Chief Executive Officer,
Capital Bank Financial Corp.,
a financial services company
ITEM 11. EXECUTIVE
COMPENSATION
The information called for by this Item is incorporated
herein by reference to the following sections of our
2021 Proxy Statement: The Compensation
Committee, Compensation Committee Interlocks &
Insider Participation, Compensation Discussion &
Analysis, Recent Compensation, Post-Employment
Compensation, Director Compensation, Other Legal
Disclosures, and each Appendix to our Proxy
Statement referenced in those sections.
The sub-section of our 2021 Proxy Statement
captioned Compensation Risk, within The
Compensation Committee section, provides
information concerning our management of certain
risks associated with our compensation policies and
practices. We do not believe those risks are
reasonably likely to have a material adverse effect
upon us; accordingly, we do not believe that
information is required to be provided in this Item.
The information required by Item 407(e)(5) of
Regulation S-K is provided in our 2021 Proxy
Statement within The Compensation Committee
section under the sub-section captioned
Compensation Committee Report. As permitted by
the instructions for that Item, the information under
that sub-section is not “filed” with this report.
FIRST HORIZON CORPORATION
233
2020 FORM 10-K ANNUAL REPORT
ITEM 12. SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT AND
RELATED STOCKHOLDER
MATTERS
Securities Authorized for Issuance under Equity Compensation Plans
The information required for this Item pursuant to Item 201(d) of Regulation S-K is presented in our 2021 Proxy
Statement under the heading Equity Compensation Plan Information. That information is incorporated into this Item
by reference.
Beneficial Ownership of Corporation Stock
The information required for this Item pursuant to Item 403(a) and (b) of Regulation S-K is presented in our 2021
Proxy Statement under the heading Stock Ownership Information. That information is incorporated into this Item by
reference
Change in Control Arrangements
We are not aware of any arrangements which may result in a change in control of First Horizon Corporation.
ITEM 13. CERTAIN
RELATIONSHIPS AND
RELATED TRANSACTIONS
The information called for by this Item is presented in
the following sections of our 2021 Proxy Statement:
Independence & Categorical Standards, Approval,
Monitoring & Ratification Procedures for Related
Party Transactions, and Transactions with Related
Persons. That information is incorporated into this
Item by reference. Our independent directors and
nominees are identified in the first paragraph of the
Independence discussion within the Independence &
Categorical Standards section of our 2021 Proxy
Statement.
ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND
SERVICES
The Audit Committee of the Board of Directors has a
policy providing for pre-approval of all audit and non-
audit services to be performed by our registered
public accounting firm that performs the audit of our
consolidated financial statements (our “Auditor”).
Services either may be approved in advance by the
Audit Committee specifically on a case-by-case basis
(“specific pre-approval”) or may be approved in
advance (“advance pre-approval”). Advance pre-
approval requires the Committee to identify in
advance the specific types of service that may be
provided and the fee limits applicable to such types of
service, which limits may be expressed as a limit by
type of service or by category of services. All requests
to provide services that have been pre-approved in
advance must be submitted to the Chief Accounting
Officer prior to the provision of such services for a
determination that the service to be provided is of the
FIRST HORIZON CORPORATION
234
2020 FORM 10-K ANNUAL REPORT
type and within the fee limit that has been pre-
approved. Unless the type of service to be provided
by our Auditor has received advance pre-approval
under the policy and the fee for such service is within
the limit pre-approved, the service will require specific
pre-approval by the Committee.
The terms of and fee for the annual audit
engagement must receive the specific pre-approval of
the Committee. “Audit,” “Audit-related,” “Tax,” and “All
Other” services, as those terms are defined in the
policy, have the advance pre-approval of the
Committee, but only to the extent those services have
been specified by the Committee and only in amounts
that do not exceed the fee limits specified by the
Committee. Such advance pre-approval is to be for a
term of 12 months following the date of pre-approval
unless the Committee specifically provides for a
different term. Unless the Committee specifically
determines otherwise, the aggregate amount of the
fees pre-approved for All Other services for the fiscal
year must not exceed seventy-five percent (75%) of
the aggregate amount of the fees pre-approved for
the fiscal year for Audit services, Audit-related
services, and those types of Tax services that
represent tax compliance or tax return preparation.
The policy delegates the authority to pre-approve
services to be provided by our Auditor, other than the
annual audit engagement and any changes thereto,
to the chair of the Committee. The chair may not,
however, make a determination that causes the 75%
limit described above to be exceeded. Any service
pre-approved by the chair will be reported to the
Committee at its next regularly scheduled meeting.
Information regarding fees billed to FHN by our
Auditor, KPMG LLP, for the two most recent fiscal
years is incorporated herein by reference to the
section of our 2021 Proxy Statement captioned Vote
Item 4—Ratification of Appointment of Auditors. No
services were approved by the Audit Committee
pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.
FIRST HORIZON CORPORATION
235
2020 FORM 10-K ANNUAL REPORT
PART IV
ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT
SCHEDULES
The documents listed under the following headings are filed as part of this report:
Financial Statements and Related Reports
Our consolidated financial statements, the notes thereto, and the reports of management and independent public
accountants, as listed below, are incorporated herein by reference to the pages of 2020 Financial Statements (Item
8) indicated below.
Table 15.1
Item 8 Page Statement, Note, or Report Incorporated into Item 15
106 Report of Management on Internal Control over Financial Reporting
107-114 Reports of Independent Registered Public Accounting Firm
115 Consolidated Balance Sheets as of December 31, 2020 and 2019
116-117 Consolidated Statements of Income for the years ended December 31, 2020, 2019, and 2018
118 Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019, and 2018
119-120 Consolidated Statements of Changes in Equity for the years ended December 31, 2020, 2019, and 2018
121-122 Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018
123-230 Notes to the Consolidated Financial Statements
Financial Statement Schedules
Not applicable.
Exhibits
In the exhibit table that follows: the “Filed Here”
column denotes each exhibit which is filed or
furnished (as applicable) with this report; the “Mngt
Exh” column denotes each exhibit that represents a
management contract or compensatory plan or
arrangement required to be identified as such; the
“Furnished” column denotes each exhibit that is
“furnished” pursuant to 18 U.S.C. Section 1350 or
otherwise, and is not “filed” as part of this report or as
a separate disclosure document; and the phrase
“2020 named executive officers” refers to those
executive officers whose 2020 compensation is
described in our 2021 Proxy Statement. All
references to “First Horizon National Corporation” or
to "First Tennessee National Corporation" refer to us,
under previous corporate names.
In many agreements filed as exhibits, each party
makes representations and warranties to other
parties. Those representations and warranties are
made only to and for the benefit of those other parties
in the context of a business contract. Exceptions to
such representations and warranties may be partially
or fully waived by such parties, or not enforced by
such parties, in their discretion. No such
representation or warranty may be relied upon by any
other person for any purpose.
FIRST HORIZON CORPORATION
236
2020 FORM 10-K ANNUAL REPORT
Table 15.2
10-K EXHIBIT TABLE
Exh
No
2.1
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
10.1
(a)
10.1
(b)
10.1
(c)
10.1
(d)
10.1
(e)
10.1
(f)
Description of Exhibit to this 10-K Report
Corporate Exhibits
Agreement and Plan of Merger, dated as of Nov. 3, 2019, by and
between First Horizon National Corporation and IBERIABANK
Corporation
Restated Charter of First Horizon Corporation
Articles of Amendment to the Restated Charter of First Horizon
Corporation
Bylaws of First Horizon Corporation, as amended and restated
effective November 30, 2020
Deposit Agreement, dated as of January 31, 2013, by and
among First Horizon National Corporation, Wells Fargo Bank,
N.A., as depositary, and the holders from time to time of
depositary receipts described therein [Series A]
Form of certificate representing Series A Preferred Stock
Form of Depositary Receipt--Series A (included as part of
Exhibit 4.1 to this report)
Deposit Agreement, dated as of July 1, 2020, by and among
First Horizon National Corporation, Equiniti Trust Company, as
depositary, and the holders from time to time of the depositary
receipts described therein [Series B]
Form of Depositary Receipt--Series B (included as part of
Exhibit 4.4 to this report)
Deposit Agreement, dated as of July 1, 2020, by and among
First Horizon National Corporation, Equiniti Trust Company, as
depositary, and the holders from time to time of the depositary
receipts described therein [Series C]
Form of Depositary Receipt--Series C (included as part of
Exhibit 4.6 to this report)
Deposit Agreement, dated as of July 1, 2020, by and among
First Horizon National Corporation, Equiniti Trust Company, as
depositary, and the holders from time to time of the depositary
receipts described therein [Series D]
Form of Depositary Receipt--Series D (included as part of
Exhibit 4.8 to this report)
Deposit Agreement, dated as of May 28, 2020, by and among
First Horizon National Corporation, Equiniti Trust Company, as
depositary, and the holders from time to time of the depositary
receipts described therein [Series E]
Form of certificate representing Series E Preferred Stock
Form of Depositary Receipt--Series E (included as part of
Exhibit 4.10 to this report)
Description of Registrant’s Securities Registered Pursuant to
Section 12 of the Securities Exchange Act of 1934
FHN agrees to furnish to the Securities and Exchange
Commission upon request a copy of each instrument defining
the rights of the holders of the senior and subordinated long-
term debt of FHN and its consolidated subsidiaries
Equity-Based Award Plans
Equity Compensation Plan (as amended and restated April 26,
2016)
IBERIABANK Corporation 2019 Stock Incentive Plan
IBERIABANK Corporation 2016 Stock Incentive Plan
IBERIABANK Corporation 2010 Stock Incentive Plan
1997 Employee Stock Option Plan, as restated for amendments
through December 15, 2008
2000 Non-Employee Directors’ Deferred Compensation Stock
Option Plan, as restated for amendments through December 15,
2008
Performance-Based Equity Award Documents
Filed
Here
Mngt
Exh
Furn-
ished
Incorporated by Reference to
Form Exh No
Filing Date
8-K
8-K
8-K
8-K
8-K
8-K
8-K
2.1
3.1
3.1
3.2
4.1
4.1
4.1
11/7/2019
10/29/2020
12/1/2020
12/1/2020
1/31/2013
1/31/2013
1/31/2013
8-K
4.1
7/2/2020
8-K
4.4
7/2/2020
8-K
4.2
7/2/2020
8-K
4.5
7/2/2020
8-K
4.3
7/2/2020
8-K
4.6
7/2/2020
8-K
4.1
5/28/2020
8-K
8-K
10-Q
3Q20
4.2
4.3
5/28/2020
5/28/2020
4.13
11/5/2020
Proxy
2016
App. A
3/14/2016
10-Q
2Q09
10-Q
2Q09
10.2(d)
8/6/2009
10.1(e)
8/6/2009
X
X
X
X
X
X
X
X
X
FIRST HORIZON CORPORATION
237
2020 FORM 10-K ANNUAL REPORT
Filed
Here
Mngt
Exh
Furn-
ished
Incorporated by Reference to
Form Exh No
Filing Date
Exh
No
10.2
(a)
10.2
(b)
10.2
(c)
10.2
(d)
10.3
(a)
10.3
(b)
10.3
(c)
10.3
(d)
10.3
(e)
10.3
(f)
10.3
(g)
10.3
(h)
10.3
(i)
10.3
(j)
10.3
(k)
10.3
(l)
10.4
(a)
10.4
(b)
10.4
(c)
10.4
(d)
10.4
(e)
10.4
(f)
10.4
(g)
Description of Exhibit to this 10-K Report
Form of Grant Notice for Special Retention Stock Units [2016]
Form of Grant Notice for Executive Performance Stock Units
[2018]
Form of Grant Notice for Executive Performance Stock Units
[2019]
Form of Grant Notice for Executive Performance Stock Units
[2020]
Stock Option Award Documents
Form of Agreement to Defer Receipt of Shares Following Option
Exercise
Form of Stock Option Grant Notice
First Tennessee Stock Option Enhancement Program
Form of Grant Notice for Executive Stock Options [2014]
Form of Grant Notice for Executive Stock Options [2015]
Form of Grant Notice for Executive Stock Options [2016]
Form of Grant Notice for Special Retention Stock Options [2016]
Form of Grant Notice for Executive Stock Options [2017]
Form of Grant Notice for Executive Stock Options [2018]
Form of Grant Notice for Executive Stock Options [2019]
Form of Grant Notice for Executive Stock Options [2020]
Form of IBERIABANK Corporation Stock Option Agreement
X
Other Equity-Based Award Documents
Form of Grant Notice for Executive Restricted Stock Units [2018]
Form of Grant Notice for Executive Restricted Stock Units [2019]
Form of Grant Notice for Executive Restricted Stock Units [2020]
Form of Grant Notice for MIP-Driven Cash-Settled Restricted
Stock Units (FHN Financial) [2020]
Form of Grant Notice for Special Executive Restricted Stock:
IBKC Merger Closing Incentive Award [2019]
Form of IBERIABANK Corporation Restricted Stock Agreement
X
Sections of Director Policy pertaining to compensation, as
amended July 28, 2020
Management Cash Incentive Plan Documents
10.5
(a)
Management Incentive Plan (as amended and restated April 26,
2016)
Other Exhibits relating to Employment, Retirement,
Severance, or Separation
February 2007 form of change-in-control severance agreement
between FHN and its executive officers
Form of Amendment to February 2007 form of change-in-control
severance agreement between FHN and its executive officers
October 2007 form of change-in-control severance agreement
between FHN and its executive officers
Form of Change in Control Severance Agreement offered to
executive officers from November 2008 through January 2021
Executive Change in Control Severance Plan
Form of Pension Restoration Plan (amended and restated as of
January 1, 2008)
10.6
(a)
10.6
(b)
10.6
(c)
10.6
(d)
10.6
(e)
10.6
(f)
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
10-Q
1Q16
10-Q
1Q18
10-Q
1Q19
10-Q
1Q20
10-Q
2Q17
10-K
2004
10-K
2006
10-Q
1Q14
10-Q
1Q15
10-Q
1Q16
10-Q
1Q16
10-Q
1Q17
10-Q
1Q18
10-Q
1Q19
10-Q
1Q20
10-Q
1Q18
10-Q
1Q19
10-Q
1Q20
10-Q
1Q20
10-K
2019
10-Q
3Q20
Proxy
2016
10.6
5/6/2016
10.1
5/8/2018
10.1
5/8/2019
10.1
5/8/2020
10.1
8/8/2017
10.5(e)
3/14/2005
10.5(o)
2/28/2007
10.3
5/8/2014
10.2
5/7/2015
10.2
5/6/2016
10.5
5/6/2016
10.2
5/8/2017
10.2
5/8/2018
10.2
5/8/2019
10.2
5/8/2020
10.3
5/8/2018
10.3
5/8/2019
10.3
5/8/2020
10.3
5/8/2020
10.4(e)
2/28/2020
10.2
11/5/2020
App B
3/14/2016
8-K
10.7(a2)
2/26/2007
10-Q
3Q07
10-Q
3Q07
8-K
8-K
10-Q
3Q07
10.7(a4)
11/7/2007
10.7(a5)
11/7/2007
10.2
11/24/2008
10.1
1/29/2021
10.7(e)
11/7/2007
FIRST HORIZON CORPORATION
238
2020 FORM 10-K ANNUAL REPORT
Exh
No
10.6
(g)
10.6
(h)
10.6
(i)
10.6
(j)
10.6
(k)
Description of Exhibit to this 10-K Report
Form of Amendment to Pension Restoration Plan
Form of Amendment No. 3 to Pension Restoration Plan
Form of First Horizon Corporation Savings Restoration Plan
Letter agreement, dated as of November 3, 2019, by and
between First Horizon and D. Bryan Jordan
Form of Retention Agreement [entered into with certain
executives of First Horizon, November 2019]
10.6
(l)
Amended and Restated Agreement, dated August 20, 2001,
between IBERIABANK Corporation and Daryl G. Byrd
10.6
(m)
10.6
(n)
10.6
(o)
10.6
(p)
10.7
(a)
10.7
(b)
10.7
(c)
10.7
(d)
10.7
(e)
Letter agreement, dated as of November 3, 2019, between
IBERIABANK Corporation and Daryl G. Byrd
Letter agreement, dated as of November 3, 2019, between First
Horizon National Corporation and Daryl G. Byrd
Form of letter agreement [entered into with certain executives of
IBERIABANK Corporation, November 2019]
Retention Agreement of Anthony J. Restel, dated November
3,2019
Documents Related to Other Deferral Plans and Programs
Directors and Executives Deferred Compensation Plan
[originally adopted 1985], as amended and restated [2017], with
forms of deferral agreement and 2007 addendum to deferral
agreement
Form of Amendment to Directors and Executives Deferred
Compensation Plan
Rate Applicable to Participating Directors and Officers Under the
Directors and Executives Deferred Compensation Plan
Schedule of Deferral Agreements [Non-Employee Directors,
1995]
Form of First Horizon National Corporation Deferred
Compensation Plan as Amended and Restated [formerly known
as First Tennessee National Corporation Nonqualified Deferred
Compensation Plan]
10.7
(f)
Form of FHN Financial Deferred Compensation Plan Amended
and Restated Effective January 1, 2008
Form of Deferred Compensation Agreement used under FHN’s
Equity Compensation Plan and First Tennessee National
Corporation Non-Qualified Deferred Compensation Plan, along
with form of Salary, Commission, and Annual Bonus Deferral
Programs Overview, form of Deferred Stock Option (“DSO”)
Program Summary, and description of share receipt deferral
feature
Other Exhibits related to Management or Directors
Survivor Benefits Plan, as amended and restated July 18, 2006
Other Compensation and Benefit Arrangements for Non-
employee Directors
Description of Long-Term Disability Program
Form of Indemnity Agreement with directors and executive
officers [2004 form]
Form of amendment to 2004 form of Indemnity Agreement with
directors and executive officers
Form of Indemnity Agreement with directors and executive
officers (April 2008 revision)
List of Certain Benefits Available to Executive Officers
Description of 2021 Salary Rates for 2020 Named Executive
Officers
Other Exhibits
Code of Ethics for Senior Financial Officers
Subsidiaries of First Horizon Corporation
Accountant’s Consents
10.7
(g)
10.8
(a)
10.8
(b)
10.8
(c)
10.8
(d)
10.8
(e)
10.8
(f)
10.8
(g)
10.8
(h)
14
21
23
Filed
Here
Mngt
Exh
Furn-
ished
Incorporated by Reference to
Form Exh No
Filing Date
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
10-K
2009
10-Q
3Q11
8-K
8-K
8-K
10.7(d2)
2/26/2010
10.2
11/8/2011
10.1
7/17/2012
10.1
11/7/2019
10.2
11/7/2019
8-K
99.1
11/7/2019
8-K
10.1
7/2/2020
10-Q
2Q17
10-Q
3Q07
10-Q
3Q20
10-K
2018
10-Q
3Q07
10-Q
3Q07
10.4
8/8/2017
10.1(a3)
11/7/2007
10.3
11/5/2020
10.7(d)
2/28/2019
10.1(c)
11/7/2007
10.1(j)
11/7/2007
8-K
10(z)
1/3/2005
10-Q
3Q06
10-Q
2Q17
10-Q
2Q17
8-K
8-K
10.8
11/8/2006
10.2
8/8/2017
10.3
8/8/2017
10.4
4/28/2008
10.5
4/28/2008
10-K
2008
14
2/26/2009
FIRST HORIZON CORPORATION
239
2020 FORM 10-K ANNUAL REPORT
Exh
No
24
31(a)
31(b)
32(a)
32(b)
101
101.
INS
101.
SCH
101.
CAL
101.
DEF
101.
LAB
101.
PRE
104
Description of Exhibit to this 10-K Report
Power of Attorney
Rule 13a-14(a) Certifications of CEO (pursuant to Section 302 of
Sarbanes-Oxley Act of 2002)
Rule 13a-14(a) Certifications of CFO (pursuant to Section 302 of
Sarbanes-Oxley Act of 2002)
18 USC 1350 Certifications of CEO (pursuant to Section 906 of
Sarbanes-Oxley Act of 2002)
18 USC 1350 Certifications of CFO (pursuant to Section 906 of
Sarbanes-Oxley Act of 2002)
XBRL Exhibits
The following financial information from First Horizon
Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2020, formatted in Inline XBRL:
(i) Consolidated Balance Sheets at December 31, 2020 and
2019
(ii) Consolidated Statements of Income for the Years Ended
December 31, 2020, 2019, and 2018
(iii) Consolidated Statements of Comprehensive Income for
the Years Ended December 31, 2020, 2019, and 2018.
(iv) Consolidated Statements of Changes in Equity for the
Years Ended December 31, 2020, 2019, and 2018.
(v) Consolidated Statements of Cash Flows for the Years
Ended December 31, 2020, 2019, and 2018.
(vi) Notes to the Consolidated Financial Statements
XBRL Instance Document-the instance document does not
appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document
Inline XBRL Taxonomy Extension Schema
Inline XBRL Taxonomy Extension Calculation Linkbase
Inline XBRL Taxonomy Extension Definition Linkbase
Inline XBRL Taxonomy Extension Label Linkbase
Inline XBRL Taxonomy Extension Presentation Linkbase
Cover Page Interactive Data File, formatted in Inline XBRL
(included in Exhibit 101)
Mngt
Exh
Furn-
ished
Incorporated by Reference to
Form Exh No
Filing Date
Filed
Here
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
ITEM 16. FORM 10-K
SUMMARY
Not applicable.
FIRST HORIZON CORPORATION
240
2020 FORM 10-K ANNUAL REPORT
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 25, 2021
FIRST HORIZON CORPORATION
By:
/s/ William C. Losch III
Name:
William C. Losch III
Title:
Senior Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature*
D. Bryan Jordan
D. Bryan Jordan
Jeff L. Fleming
Jeff L. Fleming
Kenneth A. Burdick
Kenneth A. Burdick
John N. Casbon
John N. Casbon
Wendy P. Davidson
Wendy P. Davidson
J. Michael Kemp, Sr.
J. Michael Kemp, Sr.
Vicki R. Palmer
Vicki R. Palmer
E. Stewart Shea III
E. Stewart Shea III
Rajesh Subramaniam
Rajesh Subramaniam
R. Eugene Taylor
R. Eugene Taylor
Title
President, Chief Executive
Officer, and a Director
(principal executive
officer)
Executive Vice President
and Chief Accounting
Officer (principal
accounting officer)
Director
Director
Director
Director
Director
Director
Director
Director
Date*
Signature*
William C. Losch III
William C. Losch III
Harry V. Barton, Jr.
Harry V. Barton, Jr.
Daryl G. Byrd
Daryl G. Byrd
John C. Compton
John C. Compton
William H. Fenstermaker
William H. Fenstermaker
Rick E. Maples
Rick E. Maples
Colin V. Reed
Colin V. Reed
Cecelia D. Stewart
Cecelia D. Stewart
Rosa Sugrañes
Rosa Sugrañes
*
*
*
*
*
*
*
*
*
*
*By: /s/ Clyde A. Billings, Jr.
Clyde A. Billings, Jr.
As Attorney-in-Fact
February 25, 2021
Title
Senior Executive Vice
President and Chief
Financial Officer (principal
financial officer)
Director
Director
Director
Director
Director
Director
Director
Director
Date*
*
*
*
*
*
*
*
*
*
FIRST HORIZON CORPORATION
241
2020 FORM 10-K ANNUAL REPORT